WTF- "What the Freework" for a Startup.

Most of us by now have had that one bad experience with new startups where they failed to deliver the customer experience they promised. Be it getting a soap in place of a new mobile phone or getting food delivered by dinner which you actually expected 30 minutes before lunch (super-exaggeration). It totally makes sense to write back or ask the company to fulfill their promise or ask for money back. And it is fair to write bad reviews/give poor ratings over social media so that people know what type of promise fulfillment can be expected. This is agreed and accepted. I will not be talking about these examples.

The example I would like to talk about is when a customer buys a mobile phone, drops it on floor (very first day), breaks the screen and then asks/shouts for a refund citing they (startup acting as aggregator) dispatched a broken piece. Either the company accepts it & refunds or get ready as the customer with 9 twitter followers & 3 tweets till date (2 for refund against other 2 startups and 1 asking Cabinet minister to repair his oven) will rage a twitter war and tell the entire world! 

It’s the same dilemma like in a court of law- “Letting ten guilty go or punishing the one innocent”? As with court, a customer centric start-up with focus on growth will let that guy be happy by getting rid of it & simply giving back him a new mobile phone worth Rs. 20,000. Yes, you solved it now. Awesome. That guy is happy, no bad tweets and you are back to focusing on acquiring new customers, showing it as a transaction and preparing yourself for next round of funding. 

For me it is a WTF moment. And here “F” means freework as well. With a Cost of booking of Rs. 1100 (truth for an early stage startup) & a net profit margin (assume net profit) of Rs. 100 (we already assumed net positive which is not the case so let it be 100 for easier calculations), Rs. 1000 is the Customer Acquisition Cost. So you already invested Rs. 1000 in a customer, the freework costing Rs. 20, 000 that means after selling 200 such mobiles (20,000/100) you will be at net break even (for freework). And after that as you will upsell/cross-sell with wafer thin margins of Rs 50/100 & you will eventually break even at customer level after some 10 transactions over the next 2-3 years and then it is just minting money from that customer. I hope everything goes like this, as it is just a matter of retaining for 3 years, ensuring no more reworks and then increasing margins. Easy. Cakewalk. Definitely it’s going to work in India, I hope.

I know it's not convincing. Let’s revisit assumptions: 

• Aggregator takes freework cost and not seller on platform.
• Example is not high GMV one like mobile worth Rs 20,000 rather it’s an earphone worth Rs 500.
• This act of giving freework did not change Indian consumers buying/complaining habit. 

Point-wise thoughts: 

• If you pass such losses to your sellers, they will leave your platform sooner than you thought and just forget the 2-3 years of cross sell upsell for profits at customer level.
• High GMV will have low frequency of complaints/ freeworks as compared to low GMV ones where small freeworks in high frequency will pile up to huge amount. Also, valuation hungry aggregator wants to have high GMV products being sold more than the low GMV ones.
• Definitely it will change. That dude who just got away with a new mobile phone, is going to brag about his success to each and every friend. And these friends plus the dude will now keep gaming on your platform.

For me, last point is the scariest where Word of Mouth publicity for the start-up is for the wrong reason. It’s like starting a bubble where many new customers will just come with intent of getting this freework and the “Dude” becomes a role model for them (Buy->Complaint/Tweet->Freebie). You as a start-up basically did not solve the problem. You created a bigger one for yourself. Now, you are not dealing with one “guilty” rather with hundreds of “guilty” with a few hundred “innocent” customers and you have no idea who is innocent and who is not. You never bothered to look at the root cause of the problem. You overlooked the hazards of social media connectivity. You never took the firm stand and took this complaint casually as you were chasing higher valuation.  

Now, prepare for the answer that your growth hungry investor is going to ask at later stage of funding-“Is it scalable & sustainable way of handling returns/damage cost?” No. “Do you know, how to manage it?” No, I took a shortcut then by giving a free mobile phone as you were asking for growth. “Ah, I think Indian consumer is not ready yet for your start up idea. Why don’t you pivot to a B2B model?” WTF. Why did we even try acquiring these many customers then! I know it’s too compressed as a discussion but it’s possible. 

This entire note is based on a “Product”-where it is standardized- you know how a mobile is going to look like & there is not much of an expectation mismatch. Just think what can be the case for a “Service” based start-up where there is no standardization only. It’s open to customer’s expectation. Customer will never write in his FB post how he (customer) pushed to use a low quality engine oil to keep cost low  while bike servicing even against Mechanic’s advice but will definitely complaint if there is wear & tear because of that and ask for full refund. It happens. Believe me. That moment I just say WTF where by “F”- I mean freework (Kidding).

I hope both the start-up take up the challenging task of framing “Fair” customer centric policies where they reward the loyal ones & do not succumb to an unreasonable customers tweet threat. And we as customer grow up & become reasonable in our actions as well. Let's not be an unreasonable King just because a customer centric startup has put "Customer is King" in front of every customer support agents desk.  

P.S : This is based on my personal opinion influenced by incidents that I have heard/happened with me or my friends as a customer or as an employee while interacting with startups in food tech, renting, home services, e-commerce etc.