Starting a Disloyalty Program

I received my dividend check in the mail today from REI -- just as I was retiring my rock climbing harness. Talk about fortuitous circumstances. Right place, right time, right amount of free money to make the trip downtown worthwhile. It's like they knew exactly what I needed.

Then I walked into the store. There must have been hundreds upon hundreds of people just like me. The place was packed full of outdoorsy and not-so-granola types with their arms full of all those little things they'd been waiting until now to purchase. I almost balked at the very long line to check out, but it moved quickly. The woman at the checkout, Raven, thanked me for coming in and for being patient.

This scene was today. March 7, 2009. And it was only made possible because they'd sent me a check and held a sale.

When I got home, I read through the REI year-end report. Their earnings dropped from over $40 million dollars in 2007 to a bit over $14 million in 2008. That kind of shortfall is insane.

There are a large number of publicly-traded and private companies that are boldly suffering in the midst of structuring their businesses on extremely volatile business assumptions and premises. We're being told day after day and shown just how bad things really are. Perhaps your company or design firm has needed to lay off employees to gird themselves for potential failure.

As a result, we need to be honest with ourselves and our clients. We should be telling our clients what we can do to help them beyond fulfilling stopgap, immediate needs. It's time to stop being reactive and start being proactive through the downturn.

How can you start being proactive?

You're going to need to be a little disloyal when it comes to "business as usual" thinking around design business. You're going to have to spend less time worrying about business as usual and more time being present with your clients as people.

A lot of what I'll be talking about in this post is fairly self-evident. But in the midst of so much sturm und drang, it's worthwhile to remind ourselves of some of the fundamental ideas about working relationships that undergird our profession from a business perspective.

 

Are you a shareholder, a member, or a patron?

When I think about the financial mess that we're in, I immediately think about how we've structured our system of investment based on levels of day-to-day engagement.

Being a shareholder is a passive activity. Being a co-op member or local shareholder in a venture is more of a two-way street. But patronage, which functions at the local and interpersonal level, is the most powerful way to do business when larger corporations begin to fail.

I'm not talking about patronage like someone giving you big money to go off and create your magnum opus. I'm describing patronage as a reward for support. This level of aid goes beyond plain old money. If your only return that you seek in life is money, then owning shares in a public corporation or privately-owned business is (read: was) the way to go. Press a button on your Web site or call your weeping broker.

Yes, the companies that you invest in, and the volume of money and trust you place in the market, confers a certain illusion of control over your investments. But you will always be one step removed from how these companies you own 0.00001% of will do business.

When Howard Schultz talked about Starbucks getting back to their roots, he was talking about fostering patronage on a local level. And that's just not possible when pursuing ever-consistent return. You learn the first name of your favorite barista, Janet, and come to expect her oh-so-perfect latte that they make for you. If Janet isn't there, you pout a little inside. Janet can't be "scaled up."

When design clients are beholden to shareholders and say things along the lines of, "it's just business," then expect no loyalty whatsoever. That is not a recipe for stability.

 

Being a co-op member fosters patronage, but not stability

There are many ways to be a member of a business, whether by owning shares via investment and input, or by purchasing goods and services that provide a rate of return, such as credit unions and co-ops. This can create a community, but not stability.

Credit unions are a weird business right now, because they're failing all over the place. They're also simultaneously flaunting their non-profit status as a differentiator from the big floppy giganta-banks.

Co-ops foster patronage and reward -- and they don't have to be Berkeley-style hippie socialist ventures. They can be well-run businesses that support everything from high-tech ventures to local dining. But these businesses have suffered as well. Co-ops can't carry debt. They cast off employees and services in times of dire need.

Designers have a hard time playing co-op with their clients. This requires a partial assumption of their clients' business risks.

There's a reason why venture capitalists bat such a low percentage to try and hit the home run. They have the money to fail 90% of the time.

 

Being a patron is a social and fiscal investment

If being a shareholder or a co-op member isn't a sound model of investment for business, what about patronage? It's likely that you're already a patron of many local and national businesses, whether you realize it or not.

Patronage extends beyond the bare essentials of food and shelter. It reaches into the wider ranges of products and services that give shape to our day, but could be seen as frivolous.

As an example: my wife and I support a local shop that only sells and serves sake from Japan. Whenever we want sake, we go there. The owners know us by name. We follow them on Facebook and show up for special events with other like-minded "nomidachi."

There are many other places in Seattle to get sake, but that does not deter us from returning to Sake Nomi over and over again. As patrons, we are peers in a sake-drinking experience, and we create the experience together.

This is an ongoing conversation. We talk with the owners about how business is going, and based on their need, we adjust our lives accordingly to help them along.

Being a patron requires you to make a conscious choice to continue to support a business. At the same time, the business supports you. A network forms around the patrons and the business. Community forms. Like-minded individuals support each other.

Duh. This sounds like a self-evident, everyday truth of life.

Yet we have to be reminded, every now and again, that if we spend all of our time as mere shareholders and focusing on the fluctuations of that virtual market, we aren't being patrons more often in the real world where our actions have an immediate, physical impact.

This patron-centric mentality shifts how you perceive opportunities for your business. Right now, small actions and interactions matter most. Meeting potential clients as people in the real world -- and being boldly honest with about your travails in the market -- is going to be the real cost of doing business for the next few years. We can't tart up our cold reality.

This disloyalty to previous modes of "we can do it!" business thinking isn't really a shift compared to the heady days of, say, 2006. A better analogy might be that we're scraping away the cruft to get to a reality that we can confront with our designerly skills. In doing so, we're going to have to sacrifice a metric ton of sacred cows.

Moving beyond loyalty into "disloyalty" -- as consumers and clients

Speaking of big, ineffectual actions: Marketers for big brands are always seeking to create personal, emotional bonds between customers and their product.

This isn't patronage, however. Brands generally have little to no "personhood" compared to a living being. A big brand is a construct. A company can't really profess to be part of your daily life or even know you, so it is always a tad condescending to imply patronage. So in many ways, the sale of mass-produced and branded products requires you to be patronizing. In the most negative sense of the word.

Traditional loyalty programs result from that disconnect. The reason big brands most often fail with their "loyalty programs" is that they want to create a consistent set of rewards that aligns with the cost structure of their products and services.

Or, in plain English: If you fly 50,000 miles, you get to sit in a more comfy room. But to fly 50,000 miles, you need to spend $20,000 in airfare. So along the way, I need to keep reminding you that we appreciate you spending money. And in the end, you will appreciate us providing you this special room.

Compare this to patronage, which is contingent on the element of surprise and organic reward beyond rigid cost structures. Being a patron allows you much greater latitude into influencing a client's experience. It has a measure of flexibility and person-to-person interaction that leads to invention. Your opinions must be measured, acknowledged, absorbed, retained, and reflected.

Being a patron is an investment activity. Not just for you in your local marketplace. It's a reciprocal exchange for you and your clients. In a down economy, loyal patrons form the core of stable business practices. But gaining these strong relationships are the result of making some hard decisions about how you do business.

It requires a sense of ownership from both parties.

It's exceedingly rare.

And patronage is the most desired trait of a long-term client for a designer.

 

Being a "disloyal" designer to create a loyal client

How do you act in order to foster patronage?

Look beyond what the client says they want. Or, as a prospect recently told me, "Don't tell me what I want to hear. Tell me what I need to hear." This is a form of "disloyalty" that skirts the salesperson's common bleat of, "I can do whatever you want... cheaper!" Providing your clients with the strategic advice that they need to survive means you may have to create friction.

Be transparent about what you can and can't provide to a client. They will appreciate you being "disloyal" about wanting to help them through problems in disciplines you haven't mastered yet. Build a strong network of peers that support your practice outside your practice -- not competitors.

Find ways to make success reciprocal. Retaining great clients doesn't require continual sacrifice. You need to be a patron of your client, and vice versa. If you're giving blood continually to keep a client satisfied, it may not be a good long-term fit. You may need to be "disloyal" in making sure there are clear boundaries around the level of investment you can provide. Yes, we all need to be making money in order to put bread on the table. But money isn't the only factor in maintaining a strong business practice.

What makes your next client a patron?

If you are talking with a potential or current client, here are sure indicators that they are interested in patronage:

They will seek out reciprocal exchange. This constant give and take is more valuable than a passive investment in design.

They will want you to know them better than they know themselves. If you aren't an expert in their line of business, or can learn quickly, then you aren't likely to be kept around.

They will encourage curiosity. Come to your client with left-field strategic thinking, and you will be rewarded.

They will respect the monetary value of your services. You can't get out of a client conversation nowadays without being honest and up-front about money. If you are truthful about the value of your services, then your client will be truthful about what they have to provide you.

They will not be all business, all the time. They will know how to let go. There is more to life than work work work.

Do these clients seem rare?

They really aren't. They're currently being serviced by successful designers with whom they've cultivated long-term relationships. Doh.

But even these clients reach a point where they need fresh perspective. And that's where you come in...

 

How do I cultivate clients as patrons?

How can you find a client that wants to be a patron? Here's a laundry list.

Plant seeds in your local network. Share with your friends and colleagues what you are seeking: stable, long-term relationships firmly grounded in well-considered business strategy and great design. Signal your intent.

Be transparent about the result you're trying to foster. Follow your North Star in any situation that could dilute your focus.

Participate in nonprofit organizations and professional associations that serve as hubs for like-minded individuals. Get to know other people as yourself, not as a working designer. Let work opportunities grow from mutual respect grounded in a shared cause or association.

Be honest about not wanting to rush into an agreement. Be mindful of fit. You don't want to waste a client's time promising things you can't deliver 100%.

Always be open about potential conflicts of interest. If you've got good friends at other agencies in your market -- "frienemies," as the slang goes -- be mindful of how you act. No matter what, you may not poach business due to information shared by friends or colleagues in the industry. That is, unless you want to completely destroy your reputation. (My co-worker Shannon Hofmeister gets props for introducing me to the term.)

 

Is the design industry really recession-proof?

The answer lies in what kinds of clients you seek, and whether you are being consultative instead of reactive.

If you are looking to churn out a work product in return for money, then it is unlikely that you will find stability.

However, if you are seeking to foster a conversation with your clients, then new opportunities will continue to bubble to the surface. Companies may be laying off people, but they aren't laying off the gas pedal in pursuit of making money.

Just be sure of the following: it isn't only money that you're earning. It's patronage.