How to Improve Startup Success with a Customer Experience Mindset
To help people, you have to understand the context. — Akos Tolnai
Summary: In this podcast interview, Anna Noakes Schulze talks about customer experience in the startup scene with Akos Tolnai, CEO of innovation consultancy AbilityMatrix. We cover a range of startup topics including product-market fit, learning by doing (and failing), courage, surviving to the next round, what founders can’t see, what VC’s don’t know, and what’s so great about mentoring startups anyway.
Interview Transcript:
Anna Noakes Schulze: Thank you for making time to talk with me today. I first became aware of you as a judge for the European Customer Centricity Awards coming up in Budapest, which I’m very excited about and I’ll get to meet you there in person. [NB: ECCA 2020 will now take place online] But one of the things that jumped out at me about your judge’s bio, your short bio, is that you do a lot of mentoring for startups, which is something I think is incredibly important and incredibly interesting, too. And I would love to hear some of your experiences with that.
Akos Tolnai: You know, when I first started, I believed the metrics, so it was all about new products, new services in our nation [Hungary]. And the natural fit seemed to be venture capitals and startups. Basically, what we do is a kind of hero analysis of potential customers. So basically, we are using a customer experience-based segmentation model. So, whenever you can identify a problem that either your new service or company is solving, then we can create a map of potential customer experience expectations and quantify the need for each expectation. So, let’s say that you are buying a car and the use case, or the most important use case is family usage.
And for that, a potential customer experience expectation can be safety, comfort, reliability, and stuff like that. And we have experienced that whenever people make buying decisions these parallel or previously or already considered customer experience expectations are ordered in a hierarchy. So basically, when you are buying something, it’s not that I would like a safe or reliable and a comfortable car, but I have a preference that probably I am preferring comfortable to safety.
Anna Noakes Schulze: I just want to make sure I understand what you’re saying. You’re helping startups to see the big picture of customer experience, the whole context of their customer journey, and not just what’s happening on an interaction basis.
Akos Tolnai: Basically, this can be used to identify the best markets for you. When you’re quite early in your innovation what you’re trying to crack is the product-market fit. So, what is the best market for you? What is the value proposition? And if you can move beyond the objective level and work with the irrational, because that’s what customer experience is all about, you know, working with the irrational, customers can become an open book for you. It’s way easier and faster to figure out the target markets. What kind of value proposition you should be using, to figure out the marketing channels and also to move up the pricing a little bit. But you are focusing on the irrational customer experience and not only the problem on the objective level, and this helps to raise the prices.
Anna Noakes Schulze: And when you say irrational, do you mean like the emotional experience and connecting with the customer emotionally?
Akos Tolnai: Yeah. I mean, I believe in a two-level, buying model or decision-making model. So, whenever you have a problem, you create, a mental shortlist, either on paper or in your mind. And usually make you make this shortlist out of the solutions that are, that are objectively fulfilling. But when you have the shortlist, it’s very hard to make a decision. Usually, you don’t have enough information about the problem, about the potential solutions. So, you don’t know, for example, the difference between the different car engine types or, you do not have enough information to make a sustained objective decision. This is why we believe in the irrational decision.
Anna Noakes Schulze: Okay, but when you’re working with a shortlist, there’s an important shortcut that customers can take, which is basically finding deal-breakers. They can take the shortlist and simply say, if this car has a navigation system that I don’t like and I don’t want to work with, I can just simply eliminate that one from my shortlist.
Akos Tolnai: Absolutely.
Anna Noakes Schulze: That’s one way to do it.
Akos Tolnai: Absolutely. So basically, there is a threshold for each and every, you know, experience expectation. If a solution doesn’t meet the minimal threshold, it will be off the list. Yeah, I totally agree with you. Yeah. And we are using this approach to help startups. I mean, potentially we believe that we will be making money out of startups, but, neither the VCs nor the startups want to really put money in solving a product-market fit They are more focused on building the solution.
Anna Noakes Schulze: Right. But, you know, they must be aware. There are so many pitfalls and losses in terms of time, money, and effort that they can avoid if they focus on the customer experience from the beginning. And surely there must be a certain amount of risk-averse thinking.
Akos Tolnai: That’s what everybody who’s working with customer experience believes in. But unfortunately, startups go a different way. I mean, they first start building something. Trying to sell something, and when they fail in selling, then they realize that maybe I really didn’t find the product-market fit yet. That’s when they start looking around and we, the mentors start. So, we decided to do the mentoring free of charge every week. Monday from 3:00–5:00 PM, we have two free slots, two 60 minutes slots. And basically, you can sign up through our website [AbilityMatrix] and you receive free one hour mentoring in which we help you with whatever problem you have, usually, product-market fit, product marketing, product strategy, and I’m opening up our network. So, if you want to do additional interviews or, you need contacts to venture capitals. We are happy to open our network and, you know, just push you forward.
Anna Noakes Schulze: It’s only when they fail that they really start to think more closely about their customers. A bit of a painful lesson, I think! [laughter]
Akos Tolnai: I mean, you would believe that you know, startups are more agile than large enterprises. My experience is that they usually fail first and then just like any, any larger enterprise, I mean, you believe that you know the answers. You tried yourself, you fail, and then you look for external help.
Anna Noakes Schulze: Yeah. You know, I was speaking to, Lorenz Graef here in Cologne, who’s the founder of Startplatz in Cologne and Dusseldorf, startup incubators, and he told me the first time I met him, that in every business he’s been involved in, he’s always won on customer experience, but he struggles to get the startups to understand that this is a real advantage for them. And, and I guess it’s not really his job to go banging that drum. It’s sort of our job as the CX people to do that.
But one of the things he told me that he thought was very interesting is that often entrepreneurs, you know, completely in contrast with wanting to contact customers are actually a little bit afraid to talk to them because they have an idea that they feel strongly about. And if they talk to their potential customers, they might have to change it or adjust it. Are you seeing things like that as well?
Akos Tolnai: I guess it’s changing. I mean, the first thing we ask the mentored startups is, did you read The Lean Startup book from Eric Ries? Yes or no? If no, just, you know, we can continue the conversation but probably…
Anna Noakes Schulze: After you’ve read the book! [ laughter]
Akos Tolnai: But we will be telling you a lot about the book and the methods of the book. And they, we are mixing lean startup methods with customer experience and it helps. Back to your experience with the Startplatz founder, I believe that the drive really comes from the venture capital. So basically, whenever they provide money to startups, they’re looking for tangible milestones. And it’s not a tangible milestone to have, let’s say, 50 customer conversations or, that we have made three or five experiments. We do our customer experience or, and we have this customer journey or emotional map of the customer journey. So, this is not something that, the VCs understand.
Anna Noakes Schulze: Are you thinking it’s almost too sophisticated for the early stages of startups? And maybe when they go to say, second stage funding, maybe they’re more open to a more systematized approach to customer experience.
Akos Tolnai: Yeah. Basically, when they have seed funding in the range of 1–2 million euros, that’s when they are really looking to do the customer development interviews. This is our playing a statistical game. So, they are not interested in doing anything better using this customer experience approach. There was a time when I was, making, you know, public sayings on how one or the other innovation will do using the same public information that anybody else could use, but whether I feel it will perform well or not, and if it will fail, or it might fail. And out of 19 such forecasts, 18 were spot on. So, it’s, more than 90%, actually 94% success rate. And using this success rate, I try to convince VCs to focus on customer experience.
Anna Noakes Schulze: And it’s still difficult. But don’t they want the best possible return for their investment?
Akos Tolnai: Hmm. If you asked me it’s a lie, [laughter] I mean, it’s a 40-, 50-, 100-year-old industry with all the processes, all the numbers set and carved into stone. They really don’t know why one startup is successful and why the other fails. I mean, there can be so many reasons that startups fail. And why invest in one, if you know there are a ton of others, which can still make the startup fail.
Anna Noakes Schulze: And it’s interesting that even a really old, well-established company like Thomas Cook, which had in recent years been in the news for the success of their customer experience program, still managed to fail because the financials weren’t good. So, it didn’t actually rescue them from…
Akos Tolnai: …the math.
Anna Noakes Schulze: They went bankrupt after over a hundred years in the travel business.
Akos Tolnai: I know they are out of business, but I really don’t know the details, but you know, you have to make the numbers work and customer experience can only add to the equation. It’s not, it’s not the business model itself. So, you cannot build a business just based on customer experience.
I mean, you can have a wonderful service, whatever you want. But, if customer experience is not part of the product, just something like colouring a layer on the cake then it’s just hiding the core problem. So, if you have a life insurance product and the product isn’t that good, you can add as many things of customer experience as you want. It won’t change the bad product.
Anna Noakes Schulze: Okay. So, can we say then that some knowledge of customer experience can be helpful at the startup phase in terms of the product-market fit, or proof of concept for the product or service?
Akos Tolnai: I absolutely believe so, yeah. The customer experience mindset is probably much more open to having customer conversations. Some kind of customer development interviews. Yeah.
Anna Noakes Schulze: But as you say, it’s not necessarily something they can take to the VCs and say, this is what we call progress.
Akos Tolnai: Well, the results will be way better than any other startup not using the CX approach. But the VC won’t be interested in how you got there.
Anna Noakes Schulze: Do you think that those of us who are in customer experience maybe don’t emphasize the business case for investing in customer experience or we don’t emphasize enough the ROI of investing in it?
Akos Tolnai: I believe we made a huge step forward with the CXPA, so the Customer Experience Professionals Association just using the same vocabulary, you know. I’ve been talking to Bruce Temkin. What was the reason for doing the CXPA? And he mentioned that, if you want to gain momentum and you want to be accepted, everybody has to be using pretty much the same vocabulary, the same mindset. You have to create a common goal within the industry. What do we mean with customer experience, what is it good for? What it’s not good for is where is the position of that and so on and so on.
So, I guess we are moving, forward, but, but right now, this is quite a big umbrella and I believe a lot of people under this umbrella want out of the umbrella. Just talk to the service designers, talk to UX people. You know, there is still this mix up whether UX is part of CX or CX is part of UX. Who cares? I mean, if you go to a business decision-maker, he doesn’t care whichever abbreviation is part of whatever abbreviation.
Anna Noakes Schulze: And customer success is another area also closely associated with customer experience, but is it separate or is it part of this umbrella?
Akos Tolnai: Yeah. But you know, from the CEO perspective, I don’t care about the abbreviations just give me something I can understand and something that makes sense. I haven’t released the post yet, but I was talking to traditional industries quite recently. And, you know, there are two big companies that have made the case for customer experience or customer experience-driven product and innovation and organization: Tesla and Apple from the Steve Jobs era. So, I believe, Apple has totally transformed out of the customer experience mindset into just being a huge cash cow of the customer experience, but the products are not representing the CX commitment they had 10 or 15 years ago.
Anna Noakes Schulze: Okay. I guess there’s a case to be made that Amazon is one of the greatest examples in the world of customer…
Akos Tolnai: Absolutely.
Anna Noakes Schulze: … customer obsession and that was there from the start.
Akos Tolnai: What I find very, very strange is that when you go outside these industries, these examples don’t work. So, people believe that what Tesla did, what Amazon did what Apple [did], cannot be done in their industry. Therefore, it doesn’t apply to their industry.
Anna Noakes Schulze: Oh, that’s very interesting because when you, when you think about big consulting firms like PWC and McKinsey, and actually even Forrester Research, all of them are basically saying, this applies to any business that you’re in not just certain special cases.
Akos Tolnai: Talk to the CEO, talk to C-level decision-makers and they don’t see it. They don’t see how it applies. They don’t see how they can do that. And honestly, I don’t know if you can transform any organization into a CX organization. It is definitely possible to build one from the ground up. So that’s, that’s something we have seen. You can really transform something that was originally built on CX, transform it to something but I’m not sure it can transition a traditional company into a really, really CX focused and by CX focused I don’t mean service-oriented. I mean that the product at its core is built around customer experience and customers.
Anna Noakes Schulze: Certainly, if you’re talking about a global firm that’s existed for a long time and has an entrenched way of doing things, it’s like trying to turn around a barge in the middle of the Rhine.
Akos Tolnai: With 50 years of background, 50,000 people, the only company I have seen do this is Microsoft. And then just take a look at Satya Nadella, how he transformed the company in five years or six years.
Anna Noakes Schulze: Right. And then we don’t really know what that cost to do that, right?
Akos Tolnai: Yeah. Or how he did that. And was there an internal small team that you know, just travelled all around the word or, or what, what was the key? Probably a lot of programs running parallel, but it would be great to see, you know, in the next five, 10 years, some kind of a case study or a book on the transformation itself.
Anna Noakes Schulze: And from what you’re saying, despite the issues that startups have with customer experience, maybe not being the top of their priority list when there are so many other things that are really urgent for them. It’s these smaller companies that have the best chance of being customer-oriented from the beginning. It’s much, much harder and much, much more expensive to take a legacy, possibly multinational firm with siloed data and turn that into something truly customer-centric.
Akos Tolnai: Absolutely.
Anna Noakes Schulze: So is there a point where you cannot anymore justify the investment in CX because it’s going to be so expensive and the returns may not come for years if they do at all.
Akos Tolnai: Yeah. My business partner has a very, very interesting point of view and he tells me that if you have a monopoly on a market, why worry about CX? I mean, it’s good for the advertising, good for the news, but if you’re the most dominant player, then you just keep doing what you’ve been doing. And this is very similar to the recently passed away Clayton Christensen’s Innovator’s Dilemma. So that because you’re good at what you’re doing, you keep doing what you’ve been doing. And therefore, you were less open to innovation. And I believe customer experience is this type of, life-changing innovation. It really cannot bind it to any project or any product, but, but it’s an earth-shattering, kind of innovation or change in any organization.
Anna Noakes Schulze: And everybody has to be on board…
Akos Tolnai: Absolutely.
Anna Noakes Schulze: Or it really won’t work.
Akos Tolnai: You know, you as a C-level executive, you need the courage to give people the mandate to work for customers. It’s huge courage to give somebody, you know, at the seventeenth level, any authority to make decisions that might be favourable for the customer.
Anna Noakes Schulze: It does take very special people to commit to that and see it through. And I have seen, you know, some global corporations here in Germany, CX projects initiated by mid-level CX managers not get the support they need at the C-level, even for a pilot project, which is really a shame, but it shows how difficult it is to turn things around unless that commitment is there from the top, and unless the C-level executives see clear benefits to doing that.
Akos Tolnai: I agree. I mean, this is why startups have a great time. It’s way easier to get C-level commitment, even if you start working on CX at the managerial level. I mean, startups can be a few hundred people after several rounds of financing, but if you start early, it’s done by 20–30 people. So, it’s easy even at that time to make a change.
Anna Noakes Schulze: And so, and maybe there’s a bit of the value for us in, in mentoring or coaching or consulting with startups, it’s [that]we’re influencing the businesses of the future. While they’re still young, while they’re still growing. And they’re open to new things.
Akos Tolnai: Going back to the beginning of the conversation, whenever they have a problem, they have open ears.
Anna Noakes Schulze: And they have open ears. That’s lovely!
Akos Tolnai: Yeah. But you need the problem to have open ears.
Anna Noakes Schulze: Yeah. So, what else can you tell me from your experiences? You told me you’ve mentored about 150 startups, which is more than anybody else I know in CX to tell you the truth. And, many of the people that I spoke to said they didn’t really consider startups to be good clients and that they invariably go back to corporates. Even if their intention is to support startups, that maybe there’s some frustration associated with that like you’re saying…
Akos Tolnai: This is love. I mean, if you look at startups, and try to make money, you’re probably not going to feel good. But if you think of it as being connected to the heart of innovation, and to young wide-roaming minds, it’s definitely compelling and fulfilling to work with startups and support their growth,
Anna Noakes Schulze: So where do you think the rubber meets the road for us as CX professionals who want to be involved in startups? What can we best do with our skillset to help them succeed? Where do you think there’s real value for us being involved in startups?
Akos Tolnai: I believe customer development interviews could be done way better. And that’s where a customer experience mindset, the knowledge, can add a lot. How to make business sense of something that the customer is saying. And especially what they are not saying.
Anna Noakes Schulze: Ah. So really start to understand customer needs and what you might be able to do.
Akos Tolnai: Yeah. Because what you can bring to the table from working with CX projects is part of the research, part of the journey, because that’s something that is easy to understand and easy to put to use. But the best part is when you are doing customer development interviews together with startups. Let’s say you’re mentoring an acceleration program or something like that and you have them understand, what was not said during the interviews might matter. You know, sometimes you don’t talk about your, real needs, real problems because of social pressure, social norms or you just don’t feel comfortable and customer experience professionals have a way to understand the subtle signs, the subtle words. Yeah, that part is…
Anna Noakes Schulze: …really interesting, actually, and it sounds too like when a startup founder is doing these customer development interviews, I wonder if they’re a little bit subject to confirmation bias, where they’re hearing what they want to hear to reinforce their idea of what their startup product or service is going to be, whereas another person like yourself is a little bit more removed from the startup, is maybe hearing other things that the founder doesn’t notice.
Akos Tolnai: It definitely helps that you are not involved with the startup or you’re not as obsessed with the idea. But what I see is that you know, these young founders don’t have experience in doing interviews, doing qualitative research. So basically, you know, everybody starts with a bias. I mean, when I started, doing interviews, doing this CX thing, I made the same mistakes as everyone else. But, when you record your conversations, when you listen to them, you improve. You get better. I have done probably something in the range of a thousand interviews.
So basically, right after the second sentence I probably know what they are hiding already, because of the experience. So, it’s not some magical skill, but, if you do it a hundred times, 500 times, 1,000 times, you became aware of something that, that you cannot recommend. And if they [the founders] do it regularly, then within two years they might be able to do, let’s say 50 or 60 interviews. But that’s nothing compared to a CX professional having been on a focus group research, having been part of tens, hundreds of research [projects] doing interviews themselves.
Anna Noakes Schulze: So, you’re quite aware of what kinds of things potential customers are likely to tell you and what kinds of things they’re less comfortable talking about.
Akos Tolnai: Yes, and as you grow older, you know, some trigger questions.
Anna Noakes Schulze: Oh, tell me one, please! Tell me a trigger question. [ laughter]
Akos Tolnai: If you’re in B2B settings, I would definitely ask a question about the hierarchy. Because apparently, it doesn’t have to do anything with your problem. But if you, if I ask you anything about the organization, just some open-ended questions, I will probably learn more about the decision-making process than you are ever willing to tell me. And the decision-making process will highlight the problems that you are entitled to cope with, where you have the budget, where you have the decision-making power. How much is part of your day, you know, fighting the organization, whether you have to fight the organization or it’s supporting you. And, on the surface, it really doesn’t connect to anything product or customer experience related.
Anna Noakes Schulze: And yet, if you don’t have a good understanding of that hierarchy and who the decision-makers really are, then you’re designing your product and service for the wrong people.
Akos Tolnai: Yup. Yup. And you know, you have to help people. And that’s what every sales, marketing and customer experience professional is trying to do. And to help people, you have to understand the context.
Anna Noakes Schulze: Oh, that’s a great quote! [ laughter]
Akos Tolnai: Thank you.
Anna Noakes Schulze: That’s really fantastic. Okay, so it sounds to me like when you’re working with startups the nitty-gritty of the kinds of tools that we use are maybe not so interesting to them. They might not feel like they need to know everything about customer journey mapping, for example, and they might not need to know everything about the whole suite of metrics that we use. Is that what you’re finding?
Akos Tolnai: Yeah.
Anna Noakes Schulze: It’s almost a little bit boring to them because it’s not relevant to the problems that are right in front of their face that day. We’ve got to be very contextual then, it sounds like.
Akos Tolnai: Absolutely. Just like, you know, when, in the previous example, so what is the context of the startup founder? The next funding round. If they are not bootstrapped or not using the cockroach approach, then they are looking for the next funding round. How can I help the startup founder get the next funding round? Because that’s the core of the problem.
Anna Noakes Schulze: Yeah. Surviving to the next round, absolutely.
Akos Tolnai: Yeah. I mean, the early stage, later on, it’s more growth and more customer-oriented, but in the early stage, it’s definitely the next round of funding.
Anna Noakes Schulze: So, the second round is more about becoming more professional, more systematic.
Akos Tolnai: The first two or three rounds are usually about survival.
Anna Noakes Schulze: That’s the core mission then, more than anything else. Okay. So, for us to help them, we need to be focused on what they need to survive, basically.
Akos Tolnai: Just like any other client or customer.
Anna Noakes Schulze: How do you find your way of working with startups contrasts with the way you work with corporate clients, more established clients?
Akos Tolnai: I’m working with large enterprises. We definitely work more on people. I mean, we usually work on innovation-related problems and that’s quite a jump for them, that we are kind of a cross-silo approach. So basically what we can do in five weeks, what usually the product development, product marketing, the marketing and the research team can do in nine months, just because we are integrating all four sets of, of the innovation and the customer experience together.
And usually, if you are making such drastic changes, you cannot change the process overnight. But, but if you put an extra 14 people and provide them with knowledge, provide them with practical examples that they can show how by changing the process for very, very small steps, they have better outcomes than step-by-step. They can change the organization because in the end, if you change the process and don’t change the people…
Anna Noakes Schulze: It won’t work.
Akos Tolnai: The people will change the process back to the original one. But if you change the people, no matter how well-documented the process is, the people will change the process and, you know, not care about the internal inspection and all the stuff, you know, if it works better, they will change it. We have, we have this kind of secret agreement that, yeah, that’s on the paper, but we’ll do it this way or the other.
Anna Noakes Schulze: And part of the reason that you can make things happen faster than they can internally is because of your cross-silo access.
Akos Tolnai: Yeah. Because we are using customer experience to assess innovation. So, we don’t need a product just write down your idea and on paper, and we can figure out how it will impact the customer experience and see whether that customer experience is beneficial to the customer or not.
Anna Noakes Schulze: And the last thing I wanted to ask you about was, have you also worked with corporates that are spinning off, startups of their own. Innovation centres or other sorts of…
Akos Tolnai: I have tried but I have only seen failed examples of this.
Anna Noakes Schulze: Because it seems like the best of both worlds doesn’t it? Because it would have the agility, innovation of a startup, but still have the backing of the corporate.
Akos Tolnai: Yes, and I totally believe in it. But I only have seen people fail to start such initiatives. And even, even if they could successfully start one eventually the rights got revoked, so they didn’t get the financial freedom. They didn’t get the process of freedom and, and all of a sudden, the spinoff just started functioning as a department.
Anna Noakes Schulze: Ah, okay. So, it almost got absorbed back into the big enterprise.
Akos Tolnai: Yeah, because if there is no head of innovation or C-level person with an understanding of how a startup works then they just don’t understand how you can make a financial decision without the right approvals, the right research. You know, the startup doesn’t survive three months. I will send you a link to an article that is comparing three months of an enterprise and three months of startup. I call it probably speed of innovation. You have to be able to make quick decisions. So, if you have a startup accelerator or something, that makes startups be a startup behaviour, then you have to make decisions quite different. That’s quite a behavioural change for corporate people.
Anna Noakes Schulze: Right. And you know, it’s fascinating to hear this from you because here in Germany that seems to be quite a popular model right now. For big enterprise to launch a baby startup and actually leave it alone and let it evolve as a startup. And it seems to be working.
Akos Tolnai: Well, you know, if you find the right people and you get the support from the company, I mean, in terms of support, that they are not doing anything. Just giving you the money…
Anna Noakes Schulze: And leaving you alone. [laughter]
Akos Tolnai: …and the freedom. I mean, sometimes support is not doing anything.
Anna Noakes Schulze: Exactly! [ laughter] I can’t see how it would work if the parent corporation is still interfering. Because then it just can’t innovate, and they can’t be as agile as they need to be. And they don’t have the freedom to fail and learn.
Akos Tolnai: Yeah, yeah. Exactly.
Anna Noakes Schulze: Well, it has been fantastic talking with you. Your insights are amazing. Despite the fact that there are limitations for customer experience in the startup environment, you’ve told me a lot. that tells me there are still ways for us to contribute and to help shape the future by staying involved with them and providing a helping hand where we can. And I think that’s a great place to be.
Akos Tolnai: Thank you very much for the time, and I hope I can do this interview the way around and you can tell me more about these spinoff examples and your experience with customer experience in the German market.
Anna Noakes Schulze: That would be great, and I will look forward to seeing you in Budapest in September. [NB: Sadly, not this year!]
Akos Tolnai: Thanks for the opportunity. Bye. Bye. ___________________________________________________________________
About Akos Tolnai, CCXP Akos Tolnai is CEO of AbilityMatrix, an innovation consultancy that helps startups and enterprises with product-market fit, business development and product strategy. AbilityMatrix measures customer experience and creates strategies to help clients create something new, valuable and long-lasting. Find out more about how AbilityMatrix helps startups innovate and win with customer experience know-how: https://abilitymatrix.com/
* Interview recorded on Monday, February 3rd, 2020 and edited for clarity.