Every business has stakeholders. Each entity in “the supply chain” is a stakeholder. There are supplier stakeholders: credit card companies deciding who or not to service. There are customer stakeholders: voting with their feet. There are government stakeholders: adjusting the dials of the economic system as if it were an aquarium.
There are also employees as stakeholders.
“I think of Masterclass, I think of Coda. I think of a company that we just invested in. They’re very clear and upfront about their culture and the process. And I think that A, attracts people who are excited about that type of culture and B, by the time that somebody has actually gone through the process, it’s very clear to them what working in the company is like.” – Roseanne Wincek, Invest Like the Best, August 2021
The LTV/CAC idea applies to all stakeholders. There are many ways to lower the CAC, and it’s one of the more interesting business questions because the lower the CAC the better the business model.
But even a CAC of one doesn’t work if the LTV is zero. The most important part then is getting the right stakeholders, and the best way to do this is clarity. We are the kind of people who do this sort of work.
This isn’t easy. It’s not like a business can say: this is our business model, because alpha erodes. And, it’s not just competitor stakeholders that affect how an organization runs. Any stakeholder can change the rules. Landlords raise rents. Suppliers vertically integrate. Life changes!
Zappos once ran a campaign with a CAC of $18,500. That was inefficient. But a company who does more convincing that clarifying will have the same results: a lot invested and little to show. For instance, Ottawa Canada is a phenomenally good place to built a software company?
“If I hire someone through this very intricate hiring process that we have, there’s an understanding the chance of us still working together in ten years is really high. It’s a commitment from both sides. The company needs to be worth working for in ten years, but because of that, we can have a very different relationship than in a place where the expected tenure is eighteen months.” Tobi Lütke, The Tim Ferriss podcast, June 2020
Shopify filters employees through an “intricate hiring process.” Investment managers filter limited partners through ominous letters. Brands filter customers through advertising.
Maybe flexibility is the best way to think about stakeholders. How much do your stakeholder restrict your range of motion, and is there a way to increase ones flexibility?
Erik Jorgenson calls analogies our mental ‘sporks’. Brilliant!. The credit card companies were top of mind because the OnlyFan payment situation was news around the same time as the episode. Visa and MasterCard have stakeholders too. Sometimes it’s situations like this that provide opportunity for a business. If someone won’t “do X”, that’s a smaller market and more of a chance to avoid alpha erosion. Lastly; CAC, alpha erosion, and stakeholders are all on the list of my favorite ideas.