Fred Reichheld: How to Build a Business Customers Can't Stop Recommending | Entrepreneurship | YAPClassic

The true engine of business growth is customer loyalty, and Fred Reichheld has spent decades proving it. While working at Bain & Company, he noticed that businesses with obsessive customer focus were crushing their competitors, yet no one was measuring the loyalty behind those results. So he created the Net Promoter Score (NPS), giving entrepreneurs a way to measure customer loyalty and retention. In this episode, Fred shares how companies like Costco, Apple, and Chick-fil-A create lasting loyalty and why enriching your customers’ lives is one of the most powerful drivers of business growth and endless referrals. In this episode, Hala and Fred will discuss: (00:00) Introduction (00:37) Building An Intrapreneurial Career Path (03:23) The Origin of Net Promoter Score (10:35) The Three Types of NPS Customers (13:47) How Love Drives Customer Loyalty (20:02) Turning Customers Into Promoters (23:20) Launching NPS as an Open-Source System (31:31) Why Referrals Beat Paid Marketing (39:35) The Philosophy of Winning on Purpose (44:08) Fred’s Top Business Lessons Fred Reichheld is a business strategist, author, and fellow at Bain & Company. He is the creator of the Net Promoter System, a widely used management system for measuring customer loyalty and improving retention. Named the “high priest of customer loyalty” by The Economist, Fred has shaped how the world’s most successful companies, including Apple, Costco, and Lego, build and measure customer relationships. Sponsored By: Indeed - Get a $75 sponsored job credit to boost your job's visibility at Indeed.com/profiting Shopify - Start your $1/month trial at Shopify.com/profiting. Quo - Run your business communications the smart way. Try Quo for free, plus get 20% off your first 6 months when you go to quo.com/profiting Remitly - Transfer money internationally across 100+ currencies with no hidden fees. Download the Remitly app or visit remitly.com to get started. Use code BUSINESS to get a $100 bonus after you send $300 or more. New customers only. Prolon - Reset your body with Prolon’s five-day plant-based program. Go to ProlonLife.com/PROFITING for 15% off sitewide plus a $40 bonus gift when you subscribe to their 5-Day Program. Northwest Registered Agent - Get a complete business identity with Northwest. Visit northwestregisteredagent.com/YAPFree and start using free resources to build something amazing. Cash App - If you’ve been curious about bitcoin but haven’t made the jump yet, Cash App makes it easy. Sign up at⁠ https://click.cash.app/ui6m/qmgmlraz⁠ For a limited time, new customers can get $10 added to their balance. Just use code CASHAPP10 when you sign up, and—don’t forget this part—send at least $5 to a friend in the first two weeks. Terms apply. Cash App is a financial services platform, not a bank. Banking services provided by Cash App’s bank partner(s). Bitcoin services provided by Block, Inc. brand. For additional information, see the Bitcoin disclosures at cash.app/legal/podcast Resources Mentioned: Fred’s Book, Winning on Purpose: bit.ly/FR-WonP Fred’s Book, The Ultimate Question 2.0: bit.ly/UltimateQstn Fred’s LinkedIn: linkedin.com/in/fredreichheld Fred’s Website: bain.com/our-team/fred-reichheld/ Active Deals - youngandprofiting.com/deals Key YAP Links Reviews - ratethispodcast.com/yap YouTube - youtube.com/c/YoungandProfiting Newsletter - youngandprofiting.co/newsletter LinkedIn - linkedin.com/in/htaha/ Instagram - instagram.com/yapwithhala/ Social + Podcast Services: yapmedia.com Transcripts - youngandprofiting.com/episodes-new Entrepreneurship, Entrepreneurship Podcast, Business, Business Podcast, Self Improvement, Self-Improvement, Personal Development, Starting a Business, Strategy, Investing, Sales, Selling, Psychology, Productivity, Entrepreneurs, AI, Artificial Intelligence, Technology, Marketing, Negotiation, Money, Finance, Side Hustle, Startup, Mental Health, Career, Leadership, Mindset, Health, Growth Mindset, Online Selling, Economics, E-commerce, Ecommerce, Negotiation, Prospecting, Persuasion, Inbound, Value Selling, Account Management, Sales Strategies, Scale, Scaling, Sales podcast

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Hala Taha?

  Today's episode is sponsored in part by HeyGen, Shopify, Life at the Speed of Play, and Indeed. HeyGen helps you create AI avatar videos without constantly being behind the camera. Get your first three videos free at heygen.com/profitting. Shopify is the global commerce platform that helps you grow your business. Start your $1 per month trial at Shopify.com/profitting. Life at the Speed of Play by Mark Pincus helps entrepreneurs quickly test ideas and find the ones worth pursuing. Get two books for the price of one at GetMark'sBook.com/Yap. Indeed helps you attract, interview, and hire all in one place. Get a $75 sponsored job credit to boost your job's visibility at Indeed.com/podcast.

• 0:45Hala Taha?

  As always, you can find all of our incredible deals in the show notes or at YoungAndProfiting.com/deals. What's up, Yap fam? Your customers can be your best sales team, but only if you give them something worth talking about. And I've seen this in my own business. So much of our growth has come from relationships, referrals, and people having a great experience with Yap Media and wanting to spread the word. That's what Will Gadara taught us on Monday. Hospitality makes people feel seen, valued, and remembered. And today's Yap classic is the perfect follow-up because great hospitality creates great customer loyalty. So today, we're bringing back my conversation with Fred Reichel, the creator of Net Promoter Score and one of the top voices on customer loyalty.

• 1:29Hala Taha?

  Fred reminds us why the best businesses do not just chase new customers. They create loyal fans who come back, bring their friends, and help the business grow. So with that, let's get into my conversation with Fred Reichel. Hey Fred, welcome to Young and Profiting Podcast.

• 1:43Speaker 01

  Thank you. Great to be here.

• 1:44Hala Taha?

  I am excited for this conversation. Thanks for joining me. So before we get into customer loyalty and what it means to love your customer, I would love to back up, and I feel like a good place to start is right after college. From my understanding, you've been working at your job Bain and Company since you graduated in 1977. It's not often that somebody stays at the same company throughout their whole career these days. So granted, you are half-time now, but you still rep that organization. And to me, it seems like you really took a different approach. You were an entrepreneur within the organization. You launched iconic products like NPS, you've been speaking, writing books, and I'm sure that kept things interesting for you. So my first question is, you know, why did you stay so long at Bain and Company?

• 2:27Hala Taha?

  How have you kept it spicy all this time? And why did you, you know, decide to stay there your entire career?

• 2:33Speaker 01

  Great question, and one I ask myself regularly. I think the primary reason I've stayed at Bain all these years is it's assembled a group of really special people with values that I admire. The whole firm was committed to this idea that our primary purpose is to help our clients succeed, to make our customers' lives better, solve their problems. And that turns out to be a profitable strategy. It's commercially successful, but it's more important. I think it's a life-enriching mission that when you serve others and get recognized and rewarded when you help other people succeed, that actually inspires energy.

• 3:15Speaker 01

  So it's been financially great for me, but at this point in my life, you know, we have more money than we'll ever be able to spend. It's a energy and focus and what inspires you to keep working hard. And it's that same idea that Bain is a platform that helps its partners do things that make them, their families, and their communities proud.

• 3:37Hala Taha?

  Yeah, and like I was telling you offline, a lot of people think the only way to be massively successful is to be an entrepreneur. But that's simply not the case, so I'd love for you to shed light on that a bit.

• 3:48Speaker 01

  Well, I think people who are most innovative are the ones who are going to be the most successful. And there are certainly lots of examples of building your own firm, but there's plenty of examples of working within firms or within communities, whether it's universities or think tanks. You have a broad range. However, you need the leverage of an organization to really have an impact in the world. And the key is to make sure that you choose wisely, an organization that fits your values and is full of people who aspire Similar life goals that are worthy of your loyalty. And then make sure you you help them succeed. It's not so much about you succeeding.

• 4:30Speaker 01

  You've got to play a big role in helping that organization succeed and fulfill its mission.

• 4:35Hala Taha?

  I couldn't agree more. So let's talk about the origin story behind that promoter score. You actually said a key word in in your previous response lives enriched. And from my research, I learned that that was the original name. Net lives enriched is what you originally wanted to call net promoter score. So talk to us about the genesis of this idea and where you got it from.

• 4:55Speaker 01

  Well, I was an economics major and the thing that caught my eye early in my career were organizations, both small and large, that were outperforming any understanding of business strategy or financial accounting that that I learned in business school. And and we saw the this common thread was that they were treating their they treated people right. They earned the loyalty of their customers and employees. And the right kind of loyalty, this loyalty that is it's self sacrifice, it it's committing yourself to the success of an organization because of the mission and the principles it lives by. And and but it wasn't measured. And so initially I looked at an incredible leverage of retention rates, people that kept their customers a little bit longer, double, triple, quadruple their profits.

• 5:40Speaker 01

  And no one knew that. But over the years, it's transitioned. I think the economics is the reward is one of the benefits, but the real root cause are are organizations that are committed to making their customers' lives better. Because it's more than a commercial mission. It's it's a, you know, everyone talks about making the world a better place. I'd say, let's get serious about making the world a better place and start with the customers, the people whose responsibility you have to serve and and solve problems for.

• 6:09Hala Taha?

  Yeah, and I'd love to stick on that a bit. Why do you think the greatest companies are the ones that enrich their customers' lives?

• 6:15Speaker 01

  Well, in my youth, I just saw their financial results were extraordinary. But that I think what makes them truly extraordinary and the reason their financials are extraordinary is they're committed to a purpose that's worthy of loyalty, that this purpose of enriching lives. You know, this net promoter score that you mentioned, I I invented 20 years ago. As I was toying with names for it. I was thinking, well, it's really net lives enriched because every time you touch a person's life, whether you're individual, a team or a company.

• 6:48Speaker 01

  You're either going to enrich that life or diminish it. And we need to keep track of that instead of just talk about it as an airy-fairy idea. And, and so this idea of how likely you'd recommend us to a friend as the best way to know if you enriched a life, I mean, the logic is pretty clear. When you have your life enriched as a customer and you want to share that with a friend or a loved one, that's, that referral is an act of love. It means you want to enrich the life that the person you know, you care about. And so it's a signal that an organization has indeed enriched a life. So, you know, Net Lives Enriched just seemed a little too soft and theoretical, I suppose, philosophical, and Net Promoter had a business ring.

• 7:31Speaker 01

  You know, promoters are customers who go out and, you know, they refer their friends, they buy more from you, they, they're your assets. And so Net Promoter Score became the name. I suppose in some settings, I wish I'd left it at Net Lives Enriched.

• 7:45Hala Taha?

  No, I think you made a good choice, honestly, because it's, it's, it's like you said, it has a little business ring to it. Net Lives Enriched sounds a little bit fluffy. So it turns out you actually hated surveys before you started MPS and you ended up launching a survey, but from my understanding, it just has two questions or at least started with two questions. You alluded to one of them. What were the two questions and why did you choose those?

• 8:08Speaker 01

  Well, I wanted, I'm so sick of surveys and these long market research things that, oh, we'll just take a minute of your time and 80 questions later. If I had to have a survey at all, because I do think surveys take people's time, it's, it's, uh, it's, it's friction. So I wanted one question and, and the question that was the best predictor of loyalty behaviors turned out to be likely to recommend, how likely would you recommend us to a friend? So zero through 10, we asked that question. That score lets you know if you've created a promoter or enriched a life or a detractor or diminished a life. Then we have an open text verbatim follow-up to tell us why. And, and in the customer's own words, they can explain why you enriched the life or how you diminished their life.

• 8:52Speaker 01

  And, and people have to take the time to read that. Don't get artificial intelligence and delegate it to the statistics department or some computer. Read it and, and the people who read it, uh, should feel the emotion of an enriched life or diminished life and they, and good people care about that. Then my daughter. Convinced me, my daughter Jenny said, Dad, we're using three questions, not two. And I've seen great, question inflation has been a real issue. They, 12 becomes 20, becomes 100. He said, oh Jenny, you can't do this to me. But she convinced me she had a question that deserves to be part of the canon. So she said, our promoters, they tell us why they love us in that verbatim text.

• 9:35Speaker 01

  But if we ask them, is there anything else we could have done to make your experience better? They tell you good ideas that can make you, can innovate and make you even stronger. And remember, your promoters, they're your biggest fans. They want you to succeed. You're a part of their personal brand because when you refer someone, you're sharing your personal identity, your reputation with the brand. It's a big deal and those people care about you and they want you to succeed. So give them an option to give you their best ideas. But, but don't go past three. There are just no way that customers should be answering five or 10 questions.

• 10:13Hala Taha?

  Yeah, I totally agree. I feel like you lose people at that point. So I know you were inspired by Andy Taylor, who was the founder of Enterprise Rent A Car. So I'd love to hear that story. What did you find so innovative and interesting when you were? I guess you spoke with Andy Taylor when you had a conversation with him.

• 10:30Speaker 01

  Yeah, Andy has been a, he's been a supporter over the years and taught me a lot. When I first met him, it was in, for my first book, I was trying to explain how his organization had grown from a tiny little leasing business in St. Louis, Missouri, into the largest car rental company on earth as a private company. Talk about entrepreneurial success. You never had to go to Wall Street and get funny money and, and play that game. And he said, well Fred, there's no magic. And he and I are both from the Midwest. So he's speaking in that plain language of you gotta treat your customers so they come back for more and bring their friends. And that simple idea.

• 11:11Speaker 01

  First of all, he inspired the net promoter score because he had a two-question survey he was using with his branches in the rental car business, and I saw how powerful it could be. But the even more powerful thing was these words, "back for more and bring their friends." Accounting does not measure that. Generally accepted accounting principles just gloss over it. They look at total revenue. And what Andy is saying, "you have to look customer to customer, are they expanding, are they repeat purchasing, expanding their purchases, and are they referring their friends?" And because we don't measure those with accounting, which is the yardstick we all use, and you know, without intending it, entrepreneurs sort of take the mindset of accountants because they're using that measurement system for their major

• 11:56Speaker 01

  decisions and paying people. And suddenly, you have a worldview of accountants, which is how much money I can extract from a customer's wallet, as opposed to, "how can I treat them so well they come back for more and bring their friends?"

• 12:09Hala Taha?

  I love that. Let's hold that thought for a second. I really want to dig into that a bit later. But first, I want to set some more context. So, I want to talk about the three main parts of NPS in terms of how you evaluate customers. So, there's promoters, there's passives, and detractors. Could you define that for us?

• 12:28Speaker 01

  Yeah, we found that, just in our early research, when you ask customers on a scale from 0 to 10, how likely to recommend us to a friend, the ones who score you a 9 or a 10, they tend to be the promoters who actually do refer you. They buy more stuff. They're your assets. Sevens and eights, they got what they paid for. They're passively satisfied. You didn't enrich their life. They got what they paid for. That's sort of a, you know, good pro quo. Nothing magic there. And then, 0 through 6, you've diminished their life. Something was wrong. They won't recommend you. They'll actually tend to say bad things about you, and feel like the instant there's an alternative, they'll jump on it, go to

• 13:10Speaker 01

  a competitor. So, promoters, passive detractors became this simple categorization of success, you know, foul tip, and failure. And when you keep track of that and get to the root cause of why, it lets organizations start to measure the right thing. Are we treating people in a way that enriches their life, and what do we need to do differently to improve our results?

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• 15:51Hala Taha?

  Hello, young and profiteers. If you're running a business, getting website traffic is only half the battle. The real key to profiting is turning those visitors into paying customers. And I know checkout friction can quietly kill your sales. That's why I always say, "Serious entrepreneurs build on Shopify." Shopify is a commerce platform that helps you launch and run an online store without needing to be super technical. You can build your storefront, manage your business, and make it easy for people to buy. And here's the major advantage. Shopify Checkout with Shop Pay converts up to 36% higher than the competition. With Black Friday coming up, now's the time to get your store ready and simplify your checkout experience. If you're ready to launch your business before Black Friday,

• 16:36Hala Taha?

  go to Shopify.com/profitting to start your free trial. That's Shopify.com/profitting. Go to Shopify.com/profitting today to hear your first... Yeah, and what would you say the telltale signs of a promoter are?

• 16:52Speaker 01

  They put a smile on your face. A very successful entrepreneur, Truett Cathy, now deceased, but built Chick-fil-A into a powerhouse of a business. And Truett and I didn't have completely congruent points of view on some social issues and religious issues, but we were respectful, I think, of each other. And what I respected was, he lived this notion of the golden rule, "Love thy neighbor as thyself." He, Southern Baptists, I'm told, have a... Their life's mission often is captured in a biblical verse. And his was Proverbs 22:11. "A good name is worth more than silver or gold," essentially. And so, your reputation is everything.

• 17:35Speaker 01

  And I think in his mind, he said, "Putting smiles on people's faces, making them happy, is how you build a reputation, how you live up to the golden rule." And that was the formula that has created this monster success that continues to... And it, you know, run against these... Great companies like McDonald's and Burger King, but Chick-fil-A just blasts through them, just the same way Enterprise Rent A Car blasted through Hertz and Avis and the others. There is a flywheel of once you get customers coming back for more and bringing their friends, that's the economic engine that drives prosperity, even though it's pretty much invisible to accountants, except in the rearview mirror.

• 18:14Hala Taha?

  I totally agree. I have a social media agency, Yap Media, and we haven't gotten any funding, it's been bootstrapped, and it's all because of this flywheel effect of referrals. It's like, my clients have a good experience, they tell their other, like, you know, very successful friends, and it just, you know, helps us become the preeminent social media and podcast agency. Have you ever heard of Jay Abraham?

• 18:35Speaker 01

  No, I don't think so.

• 18:38Hala Taha?

  He is a very famous marketer, he's a former Yap guest, and he talks about this strategy of preeminence. And basically what it means is, if you treat your customers well, if you've got the best reputation in the industry, you are like the preeminent business, you're the number one, hands down, best choice, and you'll never have a problem getting customers. And he learned from one of his mentees, Tony Robbins, that you have to fall in love with your customers, not your products and your services. So I'd love for you to talk to us about loving your customers. You talk about loving your customers, it's a pretty rare word to use in business. So what are the ways that companies can love their customers and drive more promoters, more customer loyalty?

• 19:15Speaker 01

  You want to treat people the way you'd want a loved one treated. That's what makes the world a better place. That love is at the core, love breeds loyalty. When customers feel loved, they come back for more and bring their friends, and that's what starts this economic flywheel. Love is hard to measure, but loyalty is pretty easy to measure if you're serious about it. Because in this digital age, you can watch how many of customers are repeating, how many are referring their friends. I mean, one of my recent investments is in a company that has a technology platform to help give and receive referrals. And I think that's what the world needs to do, is referrals are everything. You know, instead of doing a survey, how likely are you to recommend?

• 19:59Speaker 01

  Let's keep track of real referrals, because that's where the economic value is, and that's where the reputation is. So to your point, great businesses, and I agree with Robbins and Abraham, it's just... That's where the the the most that's the fusion right there that energizes success. And I think rather than kidding around with surveys, let's keep track of referrals.

• 20:23Hala Taha?

  And to your point, love is so important. When you love someone, you're going to recommend the company that gave you that great service, that gave you that great experience. So it's not necessarily that they love your company. They love their friends and family so much that they're going to recommend your company.

• 20:40Speaker 01

  Absolutely. Yeah. You know, because people say they love their Apple computer. I think this is, but they also say they love their Docson. They love their favorite ice cream. The the love that actually energizes inspires is this notion of enriching the lives you touch and your happiness deriving from that success. And people who live that life, live a pretty good life, even if they don't make a ton of money, that they have made a difference in the world and and will die proud. This, the notion that love is also behind business success, I think, is the radical proposition that I make in winning on purpose. And the evidence is, is it's really overwhelming. People don't read books anymore much, but

• 21:25Speaker 01

  this one has the evidence that the company who has earned love, the loyalty of their customers, using NPS as a good proxy for that of measuring it, the highest NPS company in every industry we've looked at, has the highest total shareholder return over the decade. And, you know, that's been a huge moneymaker for me as an investor. But I think it's even more of companies and boards of directors, investors, they've got to see the facts here. This flywheel we talked about, it's the only flywheel that keeps spinning through time.

• 21:54Hala Taha?

  100%. And to that point, you know, COVID hit, right? A black swan event. We had no idea what, you know, what the economic impact would be. Nobody saw it coming. And these things can happen. They happen every several years. So talk to us about how customer loyalty and having a high NPS score can kind of mitigate these black swan events.

• 22:16Speaker 01

  Well, black swans have been going on for a long time. It feels like we have a flock of them landing in the last few years. But that's how the world works. And the companies who have the financial mindset that's very common today, running themselves in the financing, the accounting. And remember, accounting solves for profits. So very quickly, if you use general accepted accounting principles to run your business, which big, big companies almost have to, then you are teaching your people the purpose of your business is profits. And that's not a, that's not a good purpose. That goes back to how much can we extract from our customers' wallets? As long as it's legal. That destroys energy. Good people don't commit themselves to that.

• 23:00Speaker 01

  Then if you can make loving your customers, this idea of making their lives better and keep track of progress there and, and recognize and reward people for earning tens, uh, real tens, not begging for tens, then I think you can manage your way to success. But I suppose the biggest challenge, almost every entrepreneur gets this intuitively. They can't succeed. They can't afford expensive advertising and crazy marketing promotions and big sales forces. They have to turn their customers into their sales force. But as they get bigger, most companies flip over to the dark side where accounting rules the day and the purpose becomes profits.

• 23:42Hala Taha?

  Hmm, yeah. You know, I think we should do a rebranding of NPS and call it Net Loves SCAR. What do you think about that?

• 23:49Speaker 01

  I even toyed with that in its early days. And that was, that was a step too far for me. In fact, even using the word love in business, I thought was a stretch. Until, you mean, think about as a customer. If you had an organization or a team who was always watching out for your best interests and innovating and striving to put a smile on your face and make your life better, of course you would. Go there all the, you give them all of the business you had and you refer your friends. So it's feeling the love as a customer that inspires loyalty and starts the flywheel spinning.

• 24:25Hala Taha?

  Okay, so my next question is how we can turn passives and detractors into promoters? What are the ways that you've seen work in the past?

• 24:33Speaker 01

  Probably the earliest successes in the net promoter movement were built around fixing detractors. And the early adopters, NPS is an open source system. I felt like had a bigger, bigger chance of changing the world, a better chance if we made it free. Everyone can use it, experiment with it. And, and because of that, companies like Apple grabbed it. Lego, IBM, just thousands of companies experimented and helped it make, get better. And the mindset that clicked first was, gosh, when I see a detractor, I've, I've got a quality problem. I have a defect. So zero defections, total quality management.

• 25:18Speaker 01

  Let's close the loop with that customer, get to the root cause, fix it. Do it at the right level of the organization, you know, don't do it at the headquarters. Do it at the branch or the product where this issue occurred. So the learning is, is in the right place in the organization. That was phase one.

• 25:34Speaker 01

  Where we are now i- is what innovations not only keep customers delighted, but, but raise the game? So they are nines or tens and they're referring 10 friends, not just two. So it's innovation. And, and yes, passives, when you talk to a passive and you say, what could we do better? They go, I don't know, you know, I'm happy, I got what I paid for. You have to be the innovator and, and get your promoters to give you interesting ideas. And think about the companies that you buy from, for whom you're a promoter and what they did that was so remarkable? That turned you into a, a referring engine. Um, and experiment.

• 26:16Speaker 01

  And the cool thing about NPS as a survey is you can run these experiments without putting it out for the whole population. You can see what works. Amazon's very good at this. They run experiments, if it doesn't work, kill it. If it creates a lot of tens and repeat purchases, roll it out around the world. That, that innovation, I think, needs to be energized. Step one. Go find out when people are referring you, what is it they're saying about you? Get a real clear sense of what is remarkable. And then teach your organization that you can't rest on your laurels. Yeah, do more of that, but you have to come up with additional stuff. Amazon, great example.

• 26:57Speaker 01

  They did so many things right with the easy purchase and shopping cart in one click. But a few years ago, they said, oh, and when you want to return something, you don't have to put it back in its box and get the label. Just take the thing and bring it to the UPS store and we'll take care of all that stuff and credit your money right away. It's like, you know, that kind of innovation is why they still have a crazy net promoter score high and why they continue to grow and prosper and why, you know, people have legitimate issues, how they treat their people, all this waste and packaging. But at the core, Amazon's purpose is to make customers' lives better. And if their customers started saying, stop packing, you know, stop the cardboard wastage,

• 27:42Speaker 01

  they'd respond very quickly to it.

• 27:46Hala Taha?

  Hello, young and profiteers. If you're running a business, getting website traffic is only half the battle. The real key to profiting is turning those visitors into paying customers. And I know checkout friction can quietly kill your sales. That's why I always say, serious entrepreneurs build on Shopify. Shopify is a commerce platform that helps you launch and run an online store without needing to be super technical. You can build your storefront, manage your business, and make it easy for people to buy. And here's the major advantage. Shopify Checkout with Shop Pay converts up to 36% higher than the competition. With Black Friday coming up, now's the time to get your store ready and simplify your checkout experience.

• 28:28Hala Taha?

  If you're ready to launch your business before Black Friday, go to Shopify.com/profitting to start your free trial. That's Shopify.com/profitting. Go to Shopify.com/profitting today to hear your first

• 28:46Hala Taha?

  What's up, Yap fam? You guys know we love reading on this show, so I'm always excited when I find a book I genuinely think is worth sharing. "Life at the Speed of Play: Launch Products People Love" by Mark Pincus is one of those books. Mark is a legendary Silicon Valley entrepreneur and investor, and this fast-paced, 170-page book is his playbook for testing ideas quickly, navigating uncertainty, and figuring out what's actually worth pursuing. One of my favorite concepts is what he calls "the abyss," those moments when you feel stuck or unsure of what's next. Instead of fearing uncertainty, he shows you how to use it as a tool for discovery. Right now, Mark is doing a buy-one-get-one offer for Yap listeners.

• 29:30Hala Taha?

  Go to GetMark'sBook.com/Yap, buy one copy for $32, and get a second copy free, so you can keep one for yourself and give the second to a friend, future co-founder, or someone who needs a little push. What's up, Yap fam? If you're building a personal brand, you already know how hard it is to stay consistent with content when you're also trying to actually run your business. I love creating content, but realistically, I'm not trying to sit in front of the camera every single day. I need time to work on my business. But the problem is, consistency matters. The more people see your face and hear your voice, the more familiar you become. That's why HeyGen has been such a great tool for me. You can record just 15 seconds of footage, create an AI avatar of yourself,

• 30:14Hala Taha?

  and use it to make videos on demand. So instead of constantly filming from scratch, you can create more content, stay visible, and keep showing up without making your entire life be about generating content. And you guys know I'm always looking for tools that give entrepreneurs more leverage. HeyGen is definitely one of those tools. 30 million people already use it, from solo founders to 85% of the Fortune 100. Your first three videos are free at HeyGen.com/Profiting. That's H-E-Y-G-E-N.com/PROFITING. HeyGen.com/Profiting. I want to take a side track, really. Really quick because you brought something up that I meant to bring up in the beginning of the conversation,

• 30:57Hala Taha?

  but we didn't talk about it. And that's the fact that you launched MPS as an open source software, which to me was just so interesting and I think pretty innovative back then when you did it. So talk to us about why you decided to launch it as open source. For those who may not know, some of my listeners are on the younger side. What is an open source software? What are the pros and cons of launching something like that?

• 31:17Speaker 01

  Well, the classic open source software would be a, you know, Google's Android. And I think Wikipedia is a lovely example. These companies build themselves and let others innovate and build on top of them. And while there is a commercial model, there are people who package that software and make it easy to use and easy to understand. Red Hat is a classic example of a firm that has found out how to have a profitable commercial overlay. The core software itself, the core ideas, the IP are there for everyone to share. And in the case of Net Promoter, you have to have a license if you're using Net Promoter

• 32:03Speaker 01

  in your business. So if you're a survey firm and you're calculating Net Promoter scores and using that, you have to pay a small license fee. But the license fee is so modest, it's not a moneymaker. It just makes it clear that when you say Net Promoter, when you ask it, zero through 10, these things are constant and the brand gets protected. But for users who are just businesses that want to get feedback from their customer, it's free. You might want to hire somebody who has software to do that really in an elegant way. You might want to call people or send them a survey yourself. And I did it because at that point in my life, you know, do you want to be a jillionaire or a quadruple jillionaire?

• 32:48Speaker 01

  That's sort of stupid. Do you want to have a major impact on the world? That's what seemed Energizing to me and I thought we would have a bigger impact if we let everyone try it for free.

• 32:59Hala Taha?

  And from my understanding, you've done a lot of investments based on NPS score and the companies that are doing it right, and we'll get into that later on in terms of the right and the wrong way. Right. But the customers that are doing right, you tend to invest in those companies. Is there a way for other people to find out what companies have a true, high, accurate NPS score?

• 33:20Speaker 01

  If you're the target customer, you're the right age group and the right socioeconomic segment. And if you and your friends are just going crazy and referring it, chances are it's a very high net promoter score. So that's just a common sense way. I've had a little bit of an advantage because at Bain, as more and more of the organization at Bain has seen the power of net promoter and how, how difficult it is for individual companies to get net promoter scores that are comparable apples to apples. Cause the instant you are the one asking for feedback, it biases which of your customers bother responding and what they say.

• 33:59Speaker 01

  So we've created Bain Prism and NPS Prism is a classic monstrously large panel for, I guess, probably a dozen different industries now that gets really accurate, really comparable NPS scores for every brand in the industry. And with that advantage, I invest in the leader. And if you take the companies that had the highest NPS in my previous book, The Ultimate Question 2.0, I wrote with Rob Markey. I invested in those companies. My share, total shareholder returns over the decade after the book was published were higher than any mutual fund or ETF tracked by Morningstar, tracked, higher than

• 34:44Speaker 01

  the lion's share of private equity firms. And I had the liquidity and the low risk of just investing in public companies. The insight being I could shine a light on the flywheel of each competitor in an industry and see which one had the best flywheel spinning, customers coming back for more and bringing their friends. And that has been, you know, it's tens of millions of dollars for me personally. And it's available to everyone. But shockingly, there is not yet a big movement to get on accurate NPS scores. The world is still in such an accounting mindset that there's still just a tiny minority of investors who see the power here.

• 35:23Hala Taha?

  That's why I was shocked because I was like, well, why isn't there some sort of like tracker that everybody knows about like top NPS scores? And since there isn't, we've got like the godfather here. What are the top ones? What should we be investing in? What are you investing in?

• 35:37Speaker 01

  Who's a recent one?

• 35:40Speaker 01

  You know, NPS Prism, the most recent industry that they added was the grocery business. And the top scorer was a regional grocer called HEB down in Texas. But it's private. On the other hand, even though if you can't invest, you know where you want to have your kids go to work. Chick-fil-A has the highest NPS. They're a private company. But I'd say then relatives who feel like entrepreneurs and want to be a store manager, then that's a wonderful career path.

• 36:12Speaker 01

  The Trader Joe's is one of the top handful, but that too is owned by the next one in NPS is Aldi. Private still. Then you get Costco. All of these are at superstar levels.

• 36:24Hala Taha?

  It's so interesting that so many are private. It just goes to show that if you've got the flywheel effect, you don't need to take on investors. But keep going. Sorry for interrupting you.

• 36:31Speaker 01

  Yeah, so Costco is a public firm. I invested in Costco the instant I saw that they were top in NPS because my personal experience has been so positive. And there, I use them heavily as an example in Winning on Purpose, this last book. Their philosophy is customers come first. And they act in a way that makes it clear that they live their philosophy. There's a lot of stories about Costco that I really advise entrepreneurs to read. They've gone and, you know, they're one of the larger companies in the world today. And their formula works in China. It works everywhere, every kind of town. They're just crushing it. And they make people's lives better. I'd, I'll give a comparison.

• 37:15Speaker 01

  I bought a expensive Mercedes Benz. Great, just lovely car. Except on my first trip to the airport, I was a little late, I was rushing, it threw its windshield wiper. And so I'm driving, trying to look through the passenger window to get to the airport without having an accident. I was very frustrated. And then when I went to get it fixed, they said it's my fault. I must have gone to one of those car washes that dislodges the rubber blade. And I'm thinking, what? And I had to, not just one, I had to buy two because these windshield wipers come in packs of two. Two hundred bucks. It just, and Mercedes uses NPS. They think they do. They're just so, but they're the, you know, they're begging for scores and pleading.

• 38:00Speaker 01

  And, you know, if you can't give us a 10, call us not. Then I go Costco and I had a shaver, electric shaver, but forget the brand. But it stopped working after nine months. I said, that's not right. This was expensive shaver. So I took it back to the Costco store, not even the one I bought it at. And I said, listen, it's not working. Can you do anything for me? And they looked, you know, they scanned it. They scanned my membership card and they said, your account's been credited. I said, wow, no questions about what went wrong? They said, no, customer like you, if you're not happy with it, it's, you know, it's not right. And I thought, oh, my gosh. One of the guys I know, there are quite a few billionaires that I know personally.

• 38:42Speaker 01

  And one of the early ones was Scott Cook, the founder of Intuit, TurboTax and QuickBooks and so forth. And his philosophy, he started at Bain about when I did, and then he left to found Intuit. He was the first adopter outside of Bain of Net Promoter. And he says, my philosophy is we don't deserve a dollar of profit until our customer's happy. Think about what a high minded philosophy that is. But it worked in software. That's why he's still got a successful software firm. Most, 98% of the others, success stories back in his day, they're gone. Costco has the same philosophy. You're a good customer. And they have my track record as a customer. They know we buy a lot. You are unhappy with that product that we don't deserve it.

• 39:27Speaker 01

  And the manufacturer doesn't deserve any profit. What an amazing, common sense way to run a business.

• 39:34Hala Taha?

  Yeah, for sure. I mean, it's so important to have customer loyalty. So I have a story to share. I have the biggest blip that I ever made with Yap Media, my social agency. So I have a business partner. He owns 10% and he's totally the numbers guy. He's all financial, super smart guy, very successful. I'm very much like the relationship person. Most of my clients are actually former guests that become my clients. And then they become my mentors and my friends and everything like that. And so. My business partner is very much about the numbers and we've been growing really fast and you know, our rates keep getting higher and higher and we have legacy clients that pay a lot less than our clients now. And so, the biggest blip that I ever made

• 40:15Hala Taha?

  in my company was when my executive team convinced me to reach out to all my legacy customers and try to raise the rates. And it messed up some of my relationships. We're fine now, but like, it took a while to get it back on track. And it just goes to show that when you have legacy customers, these were clients that were with me for a couple of years. They referred all their friends. They were like my number one advocates. And for a period of time, they were mad at me for trying to raise the rates on them, right? Because they felt like they were loyal. And so, there is a problem with the way that people think in terms of the accounting practices and just only looking at the numbers and the profits and not actually evaluating customer relationships. Because I sit in

• 40:56Hala Taha?

  these finance meetings and I get so frustrated. They're like, oh, like, you know, like, if it's like some sort of like a negative forecast. And I'm like, but you guys don't know about all the conversations I'm having. And like, there's so much bubbling up that's just not calculated, you know? So I'd love for you to talk about, you know, what needs to change in terms of accounting practices and how entrepreneurs can avoid making this mistake of not measuring their customer loyalty.

• 41:22Speaker 01

  It's an excellent question. And I've wrestled with that for a long time. I see people misusing Net Promoter, the way car dealers do, begging for scores. But with surveys, unless you have a big panel with double-blind research, you can't get honest, accurate, comparable scores. What do we measure that really gets to the heart of customer love? In Winning on Purpose, I introduce a new metric that I think it deserves to be the equal of Net Promoter. Maybe someday it's slight superior. It's called earned growth. And it just, it takes the point of view that with every customer, you have to keep

• 42:03Speaker 01

  track of, are they buying more or less, or defecting? And are they referring friends? And so, your earned growth is your Total growth the business generates in revenue. That comes from existing customers being happy and buying more and the friends they refer. Great companies will have earned growth rates hundred and thirty, hundred and forty, hundred and fifty percent. So you think about their resting growth rate with no sales and marketing. They're just growing like crazy. I think for entrepreneurs and for our and for the serious numbers people. Force them to start measuring your earned growth rate. And your earned growth component for every customer. And you'll start focusing on the right things. Instead of aggregates like total revenue.

• 42:48Speaker 01

  Which can lead you down the wrong path. If your customer is not buying more, you know, coming back for more and bringing their friends. There's something wrong that needs attention. But if they are growing, you know, a hundred and fifty percent a year. Uh, don't screw up the decision making by by kowtowing to the to the accounting mindset. Now, of course, you have to have cash flow to keep the business healthy and so finance finance is vital. But it's not the purpose. And too many businesses finance because we can measure it more rigorously. Um, and report it and and the regulatory system sort of gives it an edge. We give it way too much uh power in our thought.

• 43:29Hala Taha?

  One hundred percent, and I would argue like that little blip, that story that I was telling you about when I went to go raise the rates with my customer. You know, we were trying to raise the rates so minimally twenty percent and I I always tell my partners now like, look, we did that. And we lost so many referrals, we could have grown, you know what, we're doing amazing, so don't get the wrong picture, but like, we could have grown even faster. Had we not lost all those referrals for that point in time while my customers were upset with me, so it's just such a cool tool. What's what's the actual formula behind earned growth rate?

• 43:59Speaker 01

  There's two components to earn growth, the the first one is the the back for more uh. Which encapsulates both retention, you know, because if somebody diminishes their business or defects. That nets out against it and customers that expand their purchases and netting those things. There is a uh an existing accounting metric called net revenue retention. That's the biggest component for most companies. And then you add the revenue from customers who came primarily as a result of referrals from existing customers. That set of revenue, that's earned growth. And if you are. You know, if you're well above a hundred percent, that means you're you've got the flywheel spinning in the right direction.

• 44:44Hala Taha?

  So if I've never done any paid ads, no marketing and everything is referrals, then that means I have a high earned growth rate?

• 44:50Speaker 01

  The very best customer companies I've found have seventy, eighty, even ninety percent of their new customers are coming on referral primarily. That doesn't mean they don't advertise at all. You know, there's a lot of reinforcing publicity and advertising, but the you ask your customer, what's the primary reason you came aboard? If they say referral from a friend, or if you have a tech platform that actually it's clear our friend referred them and keeps track of it. Those are those are the best kind of business you can possibly have. Those are the assets the accountants don't measure today. And they they send you down the wrong path because of that.

• 45:26Hala Taha?

  I feel like this is so educational and interesting and helpful for all the entrepreneurs that are out there. So question for you, something like a podcast, right? Nowadays, podcasts can be a lead generation tool for for people, similarly like having like a webinar where you invite potential clients. Would you consider that being referral based business? Or would you consider that being more of like paid promotion?

• 45:49Speaker 01

  It's on the edge. You know, if you're educating people about what you stand for and what your philosophy is, it's a way of communicating the truth to them. It's not quite as good as an existing customer who really knows you and isn't. It's not what you say about you. It's what their experience has been and what they say about you. That's the highest form of positive marketing. But I think this what you're describing with podcasts and building community, it's the next best thing.

• 46:20Hala Taha?

  Yeah, I agree. I feel like it's like slightly right under is like having like a social media platform where you're known as a thought leader and you're giving away free advice or a podcast where you're building trust with someone. It's not quite paid promotion. It's it's sort of like the gray area, right?

• 46:35Speaker 01

  Well, and you know, I think reviews are even a step further down. If you could get really honest reviews on these sites and curated a little bit. So it's the customers that you care about. But it's even Amazon, who is so strong, they're it's sloppy. When you go in there, you the star ratings, they don't make much difference because you you know that what half of those are paid in some way or cheating. So yeah, you you can read the verbatims and sort of figure out who thinks like me and and you can get benefit. But if people really cared about review sites, they could be so much better than they are today. And a a really smart, uh, somebody who runs one of the biggest retailers, uh, in the world

• 47:20Speaker 01

  said, Fred, when we we don't get the best insights from our our NPS surveys, they're good, but it's it's they're they know they're talking to us. So there's social barriers about telling the truth and not hurting our feelings, or maybe they're negotiating with us, you know, but it's a lot of biases there. The way we get to the truth is to listen to our customers talking to other customers or people they're referring, uh, on Facebook groups or in some third-party platform. So the real truth is he listening in on what people are saying about you in in a way that's not creepy and and inappropriate. But if you can have an honest way of listening to that, boy, you can learn a lot.

• 48:00Hala Taha?

  So are you alluding to like social listening and kind of doing research about what people are saying on social media sites or something different?

• 48:07Speaker 01

  I would say it's, yeah, when when there are message boards of customers talking to customers and it is public space, so you're, you know, you're allowed in there, that's really powerful. But I also think there are the the emerging tech platforms, and and the one that I'm most excited about is called Mention Me, uh, they're they are asking people, if if you're going to refer, if you'll do it this way, uh, we'll make it worth your while with a small donation to charity or something that you'll you'll care about, it's not a bribe, and and we're going to give a warm welcome to the person you're referring. Once again, it's not a bribe, but it's an appropriate recognition.

• 48:46Speaker 01

  They're finding who is really making referrals there and what they're saying. So if you take that verbatim comment of, you know, why I'm referring to a friend, why? And you read that comment, that's the, that's the goal. That's, that is what in the customer's eyes and their words, it makes you remarkable and makes you something they think would enrich the life of their friend.

• 49:11Hala Taha?

  Well, you're definitely making me feel encouraged to send out some sort of an NPS survey to my clients. So I'm excited about that. Let's move on to your latest book, Winning on Purpose. You ended up writing it after you got diagnosed with cancer. So I'd love to understand why you were inspired to write this book. And we've covered a few topics that are in it, but tell us about what people can find in this book.

• 49:33Speaker 01

  Yeah, well, you don't know how many months you've got to live. And when that, when I got the diagnosis, it was one of those, you know, you'll probably make it Fred, but you know, there's a 20 or 30% chance you won't be around in another year or two. And so you think, what do I need to get accomplished while I'm?

• 49:52Speaker 01

  And for me, there were so many people misusing Net Promoter. Two thirds more, at least two thirds of the world's large companies use Net Promoter or say they do. But they're using it the wrong way. They don't understand this philosophy. It's just, it's a KPI like a handful of others. And I had to get across this idea that, no, no, it's much, it's a whole philosophy. It's, you know, go back to the, the days of the world thought of, it was an earth centered solar system. And he had all these crazy theories about the sun rotating around the earth. And then Copernicus and a handful of others said, no, it's, it's the sun is the center and, and proved it.

• 50:33Speaker 01

  I believe the customer is the center of the, of the, of the solar system. And we don't, most people don't agree with that yet. And so Winning on Purpose said, no, the, the winning purpose, the only winning purpose is to commit your organization to making your customers' lives better and loving customers. So. Only 10% of businesses, big businesses, believe that today. So it's a radical proposition. But Copernicus was a radical proposition. He was right. I think I'm right. But, you know, time will tell. Will the, will most business people come over to this point of view that customers, you know, it's not just all stakeholders. It's not maximize shareholder value. The, the purpose of the business is to make my customers' lives better.

• 51:18Speaker 01

  And if I do that, then I can make my employees happy because they have a life of meaning and purpose. And, and, and they're part of the flywheel that generates superior economics. And of course, our investors are better off because of that. But, man, customers have to come first. And whether it's Apple, or Costco, or Lego, or Bain and Company, every great business I know has customer front and center and systems to reinforce that. Cause you know, you're fighting against the current of financial accounting, which, which points you in a different.

• 51:49Hala Taha?

  I want to go deep on one aspect of this because I feel like a lot of people are under the mindset that employees is where it starts, right? Employees are the priority. Happy employees equals happy customers. We hear this all the time. Why do you feel like it starts, like the purpose of business is to enrich the lives of the customer? And not necessarily that it starts first with employees?

• 52:10Speaker 01

  There's a lot of things that make employees happy that make customers very unhappy. You know, I don't want to work long hours. I don't want to take on the tough camp. If I see a grumpy customer coming in the store, I'll go to the bathroom and let somebody else take care of it. And if you don't have your employees inspired to find ways to delight customers and make their life better, not only will it be financially unsuccessful, but you're putting them in a position of being selfish. And, and great leaders help show the power of love. So the leader's primary responsibility isn't to make the customers happy. It's to inspire their teams to take on that mission, embrace that mission of loving customers and help them succeed. And when they do, make sure they get the appropriate recognition and rewards.

• 52:55Speaker 01

  Um, don't create a compensation list, them, the system that makes salesmen rich for over promising and selling a lot of new business that never turns into customer promoters who come back for more and bring their friends and therefore never become a true asset to the business. See, you gotta really rethink compensation, hiring.

• 53:13Speaker 01

  Promotion at Bain, you can't, it's very hard to get promoted at Bain unless your team thinks you live the, the values of the company and, and make our clients succeed. Um, we have built systems that reinforce that. And if you just look at Bain is always on the top, you know, whether you pick Glassdoor, Fortune, you know, pick your list, Bain has been at the top. It, why? Cause all of the reinforcing systems of who we hire, how we train, how we run huddles on a weekly basis, how, how you get promoted. It has customer value first. And I think no leader is doing their, their employees a favor if they don't help them

• 53:53Speaker 01

  understand that their happiness, their employees' happiness is based on making a meaningful contribution that the team values in, in making customers.

• 54:03Hala Taha?

  Well Fred, this was such an awesome conversation to kind of round this out. And I have a couple of last questions that I ask at the end that I ask all my guests. But to round out this portion of the conversation, you know, you've been doing NPS for 20 years. You've had the privilege of studying so many really well-known businesses. What are the top business lessons that you've learned in your career?

• 54:22Speaker 01

  At the end of the book, I sort of pull back the curtain and make it clear that this is actually a life advice that I'm trying to give to my grandchildren who are, who are too young to read the book at this point. But you know, if you believe this mindset a, and you want to make the world a better place, it's really hard to do that on your own. You have to team up with others who have similar values, principles. Um, and, and team up and find a way to help them succeed in living that mission and making it the truth and making it the common practice. So choose the people you hang with really carefully. Don't just hire them because they'll make you money.

• 55:04Speaker 01

  Um, make sure these are people who are going to be meaning, contributing to teams who are committed to, to enriching customer lives and who feel like this golden rule idea of love thy neighbor is the center of a well-lived life and, and, and, and purpose. Um, cause you know, the, in the end. Your loyalties, the people and the principles that they live. And I think, you know, yes, loyalties are to individual people, but loyalty has to be based on how they embody the principles that you believe are central to a well-lived life and your purpose.

• 55:43Speaker 01

  Those loyalties, they just define your legacy and they certainly shape your life. Be thoughtful and then, and be loyal. When, when people are, when you're, when you found that, you know, I'm in Bain 50, well, not quite 50 years, but it's a group that I feel is, is helping make the world better. And there's nothing better you can do with your life than being connected to those kinds of teams and those organizations. And don't take crappy profit-based purpose as a customer, as an investor. You know, there's so much talk about environmental investing and, you know, pollution has to stop.

• 56:26Speaker 01

  But seriously, the worst kind of pollution are people mistreating each other and abusing each other in the name of profit.

• 56:32Hala Taha?

  I completely agree. So I ask some questions at the end of each episode that, and we do some fun stuff at the end of the year with them. So the first question is, what is one actionable thing that our young improffeters can do today to be more profiting tomorrow?

• 56:46Speaker 01

  Get a sample of your new customers and ask them why they came on board. And for those that said it's a referral, find out who referred them, what it was about what they said that make that referral so impactful. And then go talk to the person who referred and understand what made them so confident in you that they would co-brand their reputation. Get a, get a root cause set of conversations there. I think that's the most important thing to do. And then make sure your teams feel the responsibility to be remarkable, that they, their job isn't just to get somebody off the phone on time or to make them sort of happy enough to not be a problem.

• 57:30Speaker 01

  The job is to do something remarkable that they're going to talk about with their friends. And, and that's a high standard. But then your people have to help put pressure back on you to let you know what, what they need in terms of systems and resources and support, training, tools. That, once you get your employees feeling like our job is when we're civilized, we touch and we measure our success that way.

• 57:54Hala Taha?

  I am going to make this mandatory listening for all of my 60 employees and my executive team. So that they know what our priorities here are at. Yeah. So our final question here is what is your secret to profiting in life?

• 58:09Speaker 01

  Have grandchildren and have them visit a lot.

• 58:12Hala Taha?

  And where can our listeners go to learn more about you and everything that you do?

• 58:15Speaker 01

  Net Promoter System is a website that has a lot of tools and resources. And just search on winning on purpose and you'll start seeing the things that we're developing. Cause I still do have this open source philosophy that I want more people to understand this purpose and to put it in practice. And, and today it's still a radical philosophy. So go to those two sites or and LinkedIn. There's a newsletter I do on LinkedIn called Customer Obsession that I think is a pretty good dose. I'd like to see teams talking about that one each month to see what, what lessons there are for them.

• 58:51Hala Taha?

  Awesome. Well, I'm a big fan of LinkedIn. I'll make sure I follow you on there. We're going to stick all your links in the show notes, your book, all your social sites, your websites. Thank you so much, Fred. This was an awesome conversation.

• 59:02Speaker 01

  It was my pleasure. Thank you.