Do you have a relationship with your customer?

As I continue to work on building an infrastructure for investment crowdfunding in Colorado, I have talked with hundreds of business people about raising capital. One of the most common questions asked is ‘Who will make an investment in my business?”

This question often is followed by a discussion of who cares about the success of that particular business. Who is a stakeholder? Why would anyone care? In the parlance of crowdfunding, who makes up the crowd?

In these discussions, once it becomes clear that investors in crowdfunding do not have to write big checks and that the new laws enable everyone, including nonaccredited investors (people who are not wealthy) to invest, the discussion usually shifts to customers. Why not make customers the focus of a crowdfunding campaign? I agree, but there is just one problem – a major one. Most businesses don’t have any relationship with their customers. This is a scary realization – sort of like a funeral where no one shows up.

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We have developed a quick test to see if a business has a crowd. We ask the business to provide a list of all of its customers with the current email address for each customer. Almost every business we have talked to has failed this simple test. Many businesses not only do not have any relationship with their customers, they don’t even know who they are!

Customers are someone who walks into the store and writes a check or swipes a credit card.  Customers are treated like ATMs that spit out cash whenever a product or service is delivered.

I was sitting in a quite nice coffee shop a couple of weeks ago, discussing this point with a business owner considering crowdfunding. A person walked in the door and ordered their favorite coffee drink. I pointed out that the owner of the store probably did not know the name of the customer, did not know their coffee preferences (unless they come in every day at the same time), did not know if they were happy with the service and offerings and, most importantly, did not know if they would come back. No relationship.

With no relationship, how can a business expect a customer to invest? There is a maxim in investing: Investors do not invest in people they don’t know. Does your customer know you?

We have implemented a requirement that every business planning to crowdfund go through a crowd “building” process. This means creating a relationship with the customer. The relationship has to be more than just selling them something. The customer has to care about the business.  They need to want the business to succeed. They must want to help.

We have found that investors in a business want that business to succeed if for no other reason than to get their money back. But that is getting the cart before the horse. First, we have to get a customer to care enough to invest. We have to have a relationship that is important enough that the customer will part with their money and elevate their status to that of an investor.

Think friends and family. Although often disparaged as dumb investors, they do invest because they have a relationship. Whether a relationship by shared experiences or by blood, they will invest.

Think of charitable donors. With no expectation of anything back, donors will make money available to address a social issue or cause. They share a relationship in a common goal. They invest.

Think of contributors to a political campaign. They believe in a candidate and the policies for which they stand. Contributors will contribute cash and time and will share their opinions when asked. They invest.

How can a business create a relationship where personnel of the business are buddies with their customers, where the leadership of the business is admired, and where the business is viewed as a means to achieving the objectives of the customer?

It starts with knowing your customer – who they are, what they want and how good a job you are doing in delivering that product or service.  It continues with engagement – doing something with your customer other than selling them something. This may take the form of asking their opinion on how to make your products or services better. It may take the form of supporting their favorite charity. It may take the form of creating jobs in the community.

With this relationship foothold, a business may ask their customers, now no longer strangers, to invest. As investors, customers may support the business in its sales by telling their friends, family, associates and the public about the business.

Ask yourself, what would it be like operating in a new paradigm where your business has a relationship with all of its customers? In a sense, they are all friends and family. Consider what you can do together.

Contact Karl Dakin of Dakin Capital Services LLC at 720-296-0372 or kdakin@dakincapital.com.