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How to Spot and Stop Brand Sabotage

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In April, when video of a manhandled United Airlines passenger surfaced, the ensuing dustup seemed familiar to Wayne Hoyer, chair of the Marketing Department at McCombs. The airline’s stonewalling response and the public blowback recalled another viral video from eight years before. It involved the same airline, a manhandled guitar — and a customer determined not just to get mad, but to get even.

Musician Dave Carroll first got upset (justifiably, most would agree) when baggage handlers broke his $3,500 guitar. After nine fruitless months of dealing with customer service, he turned his attention to YouTube. A music video titled “United Breaks Guitars” racked up 15 million views, and the airline’s stock price fell 10 percent the week of its release.

To Hoyer, the two incidents display not just a failure to learn a lesson but also a larger failure on the part of corporate America: to grasp the magnitude of the damage that can now be done by a single disgruntled customer. When a company wrongs that customer, the response can go far beyond nasty letters and bad Yelp reviews. It’s a qualitatively new kind of consumer behavior, he says, and he dubs it “consumer brand sabotage.”

“One negative review is not going to do major damage,” says Hoyer. “In this case, the customer has decided they really want to hurt the brand. The online world gives them the ability to do that.”

The vengeful consumer doesn’t even have to be a customer, he notes. In 2013, David Karber had a beef with upscale clothier Abercrombie & Fitch: Its CEO stated that he didn’t want overweight and other “not-so-cool” kids wearing his company’s fashions. Karber struck back by filming himself as he gave out A&F clothes to the homeless. Over the next 10 days, the company’s BrandIndex score — a measure of positive perceptions among 18-34 year olds — tumbled 20 percent.

The issue, says Hoyer, is not only how companies can keep from fumbling in the first place but also how they can avoid making an already-bad situation much worse.

In the past, he explains, a person could gripe only to small circles of friends. Today, social media can amplify one grievance a million-fold, if it provokes strong enough feelings in viewers. Both United videos generated sympathy and outrage. “For those who trust and like United Airlines, they likely felt betrayed by them, and this motivates them to spread the word,” Hoyer says.

Besides recognizing brand sabotage as a new phenomenon, corporations need to know what motivates lone consumers to launch it, he adds. When a firm makes a customer service mistake, it needs a strategy to control the reputational damage before it gets out of hand.

In new research with colleagues from the University of Bern, Switzerland, Hoyer takes a first step in that direction by trying to understand a saboteur’s motivation.

Dissatisfied Customer vs. Brand Saboteur

What kinds of thoughts drive an unhappy consumer to more extreme tactics? The researchers began by interviewing seven brand saboteurs. For comparison, they also talked with five who retaliated in less aggressive ways, like negative word-of-mouth or boycotts.

The saboteurs weren’t hard to track down. Many identified themselves online, and all were happy to talk about their work.

A key difference, Hoyer found, was in motives. For less-aggressive consumers, the goal was often venting anger: like a shopper who paid for a purchase with 32,052 coins. Others wanted a company to acknowledge their complaints and correct its behavior.

Brand saboteurs, on the other hand, had given up on trying to fix a bad corporate relationship. Confessed one, “There isn’t any benefit to contacting them, because they don’t really care about complaints unless they affect the bottom line.”

Instead, their overriding goal was to inflict public relations pain. Says Hoyer, “They’ve burned their bridges with the brand, and they just want to hurt it.”

The researchers found a similar split when they surveyed 683 consumers. The subjects read scenarios that ranged from negative comments up to brand sabotage. For each behavior, they were asked to imagine what the motivations might be.

For brand sabotage, they rated intent to harm as the strongest motive: 6.34 on a scale of 1 to 7. For less extreme scenarios, the top goal was restoring fairness, at 5.74, followed closely by venting negative emotions at 5.59.

Different Customers Have Different Triggers

Not everyone follows the same road, though. The researchers found two principal paths, depending on what the company originally did to wrong or upset their customers.

For some, the path begins with a performance failure. A customer feels burned by a defective product, inaccurate bills, or delivery snafus — or in musician Carroll’s case, a busted guitar.

A second kind of saboteur gets offended by something less concrete: a company’s values. “If a company does something to damage the rainforest in Brazil, someone might get upset,” Hoyer says.

Performance-based triggers, he found, take longer to escalate to the level of sabotage. Customers hope their initial complaints will get resolved, but they get angrier with each rebuff. Reported one, “I contacted them so many times. If they had reacted or written to me earlier, I would not have gone that far.”

By contrast, consumers distraught over values are more likely to jump straight to more extreme measures. Hoyer presented 263 subjects with scenarios and asked how they would react. While only 17 chose sabotage, 13 of those were reacting to a value-based trigger.

Customers Are Social Media Savvy; Companies Need to Be, Too

The good news is that many potential brand saboteurs show signs ahead of time. “These actions are generally not spontaneous,” says Hoyer. “They’re very thoughtful, and you need to detect problems before something occurs. You need to ask yourself, ‘How can we prevent this from happening?’”

One approach is to monitor mentions of the firm in social media. “Certain keywords are signs that someone intends to damage the brand,” Hoyer says. “They could be using words like ‘hurt’ and ‘harm.’ When these phrases come up, you need to identify individuals and try to restore a positive relationship, to take care of their problems.”

How does a company repair a relationship? If it takes a second look and decides the grievance is justified, a letter of apology might help, along with asking how to make the customer happy — and then acting on it.

If it finds that the anger is based on a false impression, the company can send a counterstatement. “You’re clarifying that this situation wasn’t something you did or was something beyond your control,” says Hoyer.

Value-based sabotage is harder to foresee than performance-based, but he suggests that firms periodically assess the positioning of their brands. It’s fine to focus on specific segments of customers, but if its marketing unintentionally offends other groups, like the “not-so-cool,” the company can make changes before one of them goes rogue.

In either case, firms need to take sabotage seriously and plan ahead for how to prevent simple grievances from growing into something worse. In the case of United, he says, “I think this incident really took them by surprise, and the current CEO didn’t know how to deal with it. Companies need to do a better job to avoid more serious longterm consequences.”

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About the Author

This article was written by Steve Brooks, a writer at Texas Enterprise an organisation created to share the business and public policy knowledge created at The University of Texas at Austin with Texas and with the world. see more.

Entrepreneurship

Building Yelp: A History Lesson

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In the fall of 2004, Jeremy Stoppelman caught the flu.

He had just arrived in San Francisco that summer, so he jumped online in hopes of finding a recommendation for a doctor. Instead, all Stoppelman found were bare bones directories and useless information.

But this gave him an idea. He and Russel Simmons were in San Francisco working for a business incubator called MRL Ventures, searching for “the next big thing” on the internet. He met with Simmons over lunch.

The two were in the office of their boss, Max Levchin, pitching their new concept before dinnertime. They didn’t have a PowerPoint presentation or a specific revenue plan; just a sense that they could make something that would appeal to lots of people.

Early photo of Simmons (left) and Stoppelman (right).

Levchin hesitated. “I wasn’t sure if it would work. But the guys were really enthusiastic about it. And in my experience, when you have smart people who work well together, it’s foolish not to invest.”

Maybe he was feeling lucky because it was his 29th birthday, or maybe it was those tens of millions laying around from his recent exit from PayPal, but Levchin agreed. He invested $1 million in the half-baked idea and Stoppelman and Simmons got to work.

Yelp 1.0

So what were they building? The two founders realized from Stoppelman’s doctor experience that the best way to find a business was through word of mouth. But word of mouth hadn’t moved to the web yet. The question they were asking was, “How do we bring those in-person recommendations online?”

They thought the answer was email and that’s exactly what the earliest version of Yelp was. On the website Simmons put together, users could email their friends asking for recommendations on specific locations or types of places. Responses were logged on a communal site for everyone to see.

Their first review came in on October 12, 2004. Katherine W. gave Truly Mediterranean four stars and a simple, but convincing:

“dirt cheap, good falafels.”

Despite that promising review, their idea was a flop. It attracted few users beyond the founders’ friends and family and failed to impress the venture capital investors whom Stoppelman pitched at the end of 2004.

“We got the doors slammed in our face over and over again,” Stoppelman said. Things were starting to fizzle right before their eyes.

The Epiphany

Undeterred, the founders searched for a way to improve their product. One day, they noticed something.

The site had a link, buried somewhere in the footer, that you could click if you wanted to submit a review without being asked. While poring over their analytics, they realized that people were not only finding that link, they were beginning to use it — often.

They watched as users submitted unsolicited reviews more and more. It got even bigger than the email-requested reviews. People would write 5, 10, or 15 reviews in one sitting.

They knew they had stumbled upon something big. So in February 2005, the duo launched a brand new site, this time focused entirely on unsolicited reviews. Yelp 2.0 saw an immediate rise in traffic. It was a hit.

The Foundation

A 2005 version of yelp.com

To kick-start the process of building a platform for this new review system, they purchased a database of over 20 million business locations. This database was old and inaccurate, but it created the framework for what Yelp called “claimed business locations”.

The empty business pages functioned as an open invitation for people to submit reviews. It motivated people to, at the very least, write a few words about the business. In fact, many of the early reviews were just that: “this place is great”, or “this place sucked.” But as time passed, reviewers started to take the platform more seriously and write longer, deeper reviews. The framework paid off in dividends later.

Also, they didn’t subordinate the user’s contributions to professional reviews, as on Citysearch, or to directory information, like yellow-pages sites. Instead, Yelp motivated people to share reviews through praise and attention , something no one else was doing. Those social networking features were what made them stand out.

Getting Social

Now that they had the right direction, they needed to grow their user base. Without the cash for a national rollout, Stoppelman decided to first focus on making Yelp famous locally.

With the help of a buzz-marketing guru he hired on a whim, Stoppelman decided to select a few dozen people — the most active reviewers on the site — and throw them an open-bar party. As a joke, he called the group the Yelp Elite Squad.

A Yelp Elite event

Levchin thought the idea was crazy: “I was like, ‘Holy crap, we’re nowhere near profitability; this is ridiculous,’ “. But 100 people showed up to the first party, and traffic to the site began to increase. Since the parties were reserved for prolific reviewers, they gave casual users a reason to use the site more and nonusers a reason to join.

By June 2005, Yelp had 12,000 reviewers, most of them in the Bay Area. In November, Stoppelman went back to the VCs and bagged $5 million from Bessemer Venture Partners. He used the money to throw more parties and hire party planners — Yelp called them “community managers” — in New York, Chicago, and Boston. Community managers and the Yelp Elite Squad still exist today.

Stickers

The number of reviewers on the site grew to 100,000 by 2006. Stoppelman also raised several million more in venture capital. By summer 2006, Yelp had one million monthly visitors and they were slowly adding more cities.

Now that user counts were growing, they focused on their next problem: they needed to get merchants to play a much deeper role. A growing user base of reviewers was wonderful, but the other side of the coin was the businesses themselves. Not to mention they were Yelp’s only source of revenue.

They decided to begin an aggressive drive to get merchants to claim business listings, populate them (e.g. menus, hours, website, etc), and motivate their own customers to review their experiences on Yelp.

The Yelp sticker

One of the ways they did this was by using a sticker. It was a genius move.

Most businesses were already familiar with Zagat and Mobile stickers and the impact they had on awareness. But Yelp was more aggressive with it and even handed out extra marketing materials. This had a remarkable effect on the review count. Organic review counts shot up and more businesses got on board.

Yelp stickers became almost ubiquitous at famous restaurants in the Bay Area and continue to serve the company today. They stand as a daily reminder of Yelp to the potential reviewer, the potential visitor, and the merchant.

Yelp’s Legacy

Stoppelman, Simmons, and the rest of the Yelp team were persistent, humble enough to pivot, and savvy enough to see the real problems they faced and to use creative methods to overcome them.

Yelp continued to grow. The service kept adding cities and eventually went international. They launched a successful mobile app. Stoppelman gathered tens of millions in venture capital and then took it IPO. As of this writing, the company has a market cap of almost $3.7 billion.

They’ve made a few mistakes along the way, and some say they’re in the middle of a process of disruption. But Yelp — the original king of place reviews — spawned a score of apps and startups and changed the way consumers view their relationship with businesses.

For that, they get…

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About the Author
This article was written by Jordan Bowman of  jrdnbwmn.com.
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Experience

5 Important Reasons Not to Raise Capital for Your Startup

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I recently had dinner with co-founders of a startup who’d just raised quite a bit of money for their company, a deal which incidentally I’d passed on. The meal was fantastic: fresh salmon from the bay, washed down with a particularly good New Zealand pinot noir, while watching the sun go down over the water. Really you’d expect my mood to have been chipper… but it wasn’t.

The evening was spent with the founders congratulating themselves for raising money. I’m not being a killjoy but it felt like the end of the line, not the beginning. It felt like all the preparation had been done, all the work completed, all the sweat, tears and marriage breakups had already been had, and now finally they’d succeeded. Except of course that wasn’t the case. This was the beginning not the end.

All they’d done was raise some money. Money which, though it may be needed to fulfill their goals, stands as a liability. Now, I’m all for celebrating success but this attitude really worries me and here’s why.

VC culture has come to equate raising capital with success, where each successive round of financing successfully completed is denoted as success,but you know what, VC culture is wrong.

Success is success and raising money is raising money. Let’s not confuse the two.

Raising money amounts to taking someone’s hard-earned capital. Capital which has been acquired by sweat, savings, maybe even theft but it’s someone else’s nevertheless. That, folks, is a liability no matter which way you spin it!

Realise that even if the capital never came with strings such as board seats, preferred equity, liquidation preferences or any host of other typical “strings”, realise that capital ALWAYS comes with strings which I’ll get to shortly.

So in the event that you’re an entrepreneur, emboldened by the fact that most anyone in Silicon Valley today sporting a hoodie, some pimples, and professing to work out of his grandmother’s garage, can get funded and at eye-watering valuations, let me give you 5 reasons why raising money may be a bad idea for your business:

1. Lack of Focus

Multi tasking is rarely a great strategy for any business. If you doubt me, try rubbing your belly and patting your head.

37signals built one of the most successful businesses in their niche by remaining extremely focused on just one product. My point is that it’s next to impossible to be running around raising capital, while remaining focused on building your fledgling business.

Unless you’re sitting in Silicon Valley which stands as a distinct anomaly to the rest of the world, let me assure that raising money will likely take you far longer than you ever thought, will come with more distractions than you’ve even thought, and the progress in your business will suffer.

2. ROI Can Be Poor

Time has a cost. The time spent raising money can often be time poorly spent.

I little while ago I was pitched by a company which had developed a minimum viable product, cheap to produce, easily shipped and which when sold, netted a $10,000 profit. The founders were, however, trying to raise $250,000 and had been on a road show for 3 months already!

Consider that by focusing on building, marketing and selling that very product they needed only 25 products sold to reach their $250,000 they had spent the last 3 months raising. The sheer insanity of what they were doing forever precluded any investment.

3. It Can Be Expensive

Further to the above, as an entrepreneur you might consider paying brokers to raise you capital. While this is an option realise that in any financing round up to Series A, it’s not uncommon to have to pay up to 15% of capital raised, and sometimes even include some warrants, preferred stock or options.

In short, it’s expensive money. Really expensive.

4. Capital Comes with Strings

You should expect that incoming investors may want board seats and input in your company. Do you want that? Does the capital you’re looking for come with the kind of strings you are comfortable with?

You can take money from all sorts of sources.

  • Family and friends will invest because they like you, or maybe they hate you and want you to go away. Or they feel guilty and can’t bare the thought of the next thanksgiving dinner where they’re the only family member who haven’t backed your idea and aunt Marge will make a stink about it. These are psychological strings. Are you OK with them?
  • Angels will invest if they believe you’ve got a good chance at success and often, if they feel they can, add some personal expertise. These guys are not stupid though, and will likely structure deal terms including ratchets, liquidation preferences and so forth. Strings may be that the input by the angel(s) is not something you want. These guys can be of immense value but make sure interests and personalities are aligned otherwise you risk a lot of strife.
  • And venture capital comes with a set of different strings. This particular avenue of financing deserves an article in itself and I’ll write about it next week.

5. Too Much Capital Can Actually Be a Bad Thing

I’ve seen good ideas go to the wind when founders raise too much money. Money can certainly make people do daft things and I’ve learned that as well.

The fancy office space suddenly becomes “necessary”. Scrappy goes out the window in favour of “professional”.

You want to know what is really professional? A company that manages its cash flows, is scrappy as hell, is intensely, manically focused on building awesome value, and realises that when markets turn, as they always do, it’s the strong that survive and thrive. And the strong are always scrappy.

Make sure the money is aligned with your outcomes. Understand who you’re dealing with and what the motivations are. Most of all, don’t just follow the herd because the herd is rarely right.

If, after reading this, you’re not scared away and believe that your company has world changing potential, is less than $10M pre-money valuation and “needs to exist” then feel free to contact me. I’ll be happy to look at your pitch. I’ll almost certainly say no and be kind about it but maybe, just maybe that doesn’t take place.

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About the Author

This article was written by Chris of of capitalistexploits.at.

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