LevelUp is trying to solve the “interchange” problem – that is the cost borne by merchants interested in offering their customers the ability to pay for goods with a credit card. What makes this company – and their product – different from the masses (and I mean masses) is their approach to customer retention and loyalty.
Michael Hagan, COO and co-founder of both LevelUp and mobile game layer company SCVNGR, brings us inside the brainstorming and decision making process he and his co-founder Seth Priebatsch and their investors went through in order to highly differentiate their offering. By asking the right questions – the one’s they were exposed to with the customers and data they collected (and continue to collect) with SCVNGR – they were able to realize the right path to take with LevelUp. The result is a company that attacks the merchant’s two main problems: High interchange fees and customer loyalty. With customer loyalty comes increased basket size while customers are in the store and increased share of wallet when consumers are deciding where to shop.
With over 3000 locations in the United States already using the LevelUp platform, their customers have seen some staggering success and this is the story of how they decided upon, built, deployed and continuously refine their product. This is also the story of entrepreneurs being entrepreneurs and understanding the difference between a hobby company and a real business.
Here is a quick reference of what we covered in the show. Click on the link and the video will take you to that clip
What is LevelUp 2:00
What is the “interchange” problem and how does LevelUp solve it 2:30
How did they drop interchange to zero 3:15
What is the typical process / experience for a LevelUp merchant 4:30
What is the most popular campaign merchants run with LevelUp 5:45
What was attractive about the payment business that took you away from SCVNGR 8:20
Did SCVNGR lead to increased sales in a merchant location 11:20
What is the key to success in the mobile payments space 14:53
Square versus LevelUp 16:53
What is the impact of LevelUp inside of merchants – revenue impact 17:33
Capturing share of wallet thanks to LevelUp 20:31
What was the transition like from a game company to a payments company 21:53
What was the ideation process to come up with the idea of LevelUp 24:23
Was it hard to transition from one company to the next 26:53
How LevelUp rode the wave of change and moved into the new business 29:28
Advice: Hone your product until it is as close to perfect 31:53
Is the value in the data? 32:38
How different is the original vision for LevelUp compared to today’s product 35:28
What wasn’t right about the first version of LevelUp 36:19
What was your trigger to go with LevelUp 37:53
What about the competition 39:43
LevelUp’s competitive focus 42:13
Square’s challenges 42:53
How does LevelUp sell to customers – convincing merchants 45:38
What does success look like for LevelUp and do you change business plans if you don’t hit that quickly enough 49:23
Is SCVNGR going to integrate with LevelUp 51:38
Advice for mobile entrepreneurs 52:38
My key takeaways
Cute vs. critical
If you are in business you’ve probably heard the adage “be the aspirin” – Michael offers a more compelling statement to this when he describes the process by which LevelUp was born. He and his partner realized their first endeavour, SCVNGR, was cute, not critical in their customers lives. They used this statement, Cute vs. Critical, to govern their decisions about LevelUp from that point forward. They mined their customers, asking what their primary pain was (they did not assume what it was, they asked), and honed in on the things that could change their business while at the same time becoming an essential service that their customers couldn’t live without.
Are you producing a cute or critical service or product? Do you know? Start asking your customers (or potential customers) what their real pain is, don’t assume you know. Once you’ve collected that pain, solve it. Michael realized that by solving the high interchange costs for his customers (pain #1) he could also increase loyalty for them (pain #2). When LevelUp becomes a part of a business and results are had, they are hard to dislodge by competitors.
Transition is hard but necessary
If you look at the act of transitioning in your business as a number of decisions you need to make it paints a clearer picture. You have a finite number of decisions that you can make that will alter the direction of your business. The key is to make them. Every day you wait, every decision you don’t make gets made for your by the very fact you haven’t made it. Ultimately, having decisions made for you means you are not in control, you are not running the ship and your time is likely up sooner rather than later.
Michael and Seth started making decisions about the future direction while they were riding high with a successful and “loud” product in SCVNGR. They were constantly surveying the landscape, talking to their customers, understanding the trends and consistently questioning what they were doing – even when things were flying! This is where entrepreneurial ADD becomes effective. Michael and Seth set their sites on their new business but without the constant decision making and guiding – with them completely at the helm and in control – the transition into LevelUp would not have garnered the support of their staff, customers and investors.
What decisions are you giving up? What writing are you not reading? What questions are you not asking or ignoring? Decisions are finite and by not making them you are essentially making them.
Your mom needs to “get it”
This has always been my litmus test for any business. Can I distill my message to one sentence that my 70 year old mother or 72 year old father would understand and be able to explain to their friends. This forces you to make it very clear what your business is. For Michael, the difference between explaining that SCVNGR is a business that adds a game layer to the world and LevelUp enables credit card transactions while making customers more loyal thus spend more was incredible.
It seems simple in hindsight and the way you describe your business might be something you understand but is it simple enough for you to play the telephone game with a room full of retirees.
Listen to customers – but ask the right questions
Questions are easy to screw up – especially asked in context to a service or product currently in use. Think about the questions you ask your customers every single day. Are they asked with your current offering in mind? Are they evolutionary or revolutionary? Are they questions about improvements to the current offering or are they questions about what you should be offering?
Michael asked the right questions.
When they approached their existing customers and new ones, they asked the questions that led them to the real pain they were feeling. Assumptions can be company killers. Find your customer’s pain(s) by asking the right question.
Michael listened to the right answers.
The reason questions are so difficult is that the answers are often clouded by the current situation. A business owner answers questions differently based on factors within the context of their business and the service you are providing. It is your job to ask and ask and ask until you break them out of the current process and get them thinking about what they should be doing. One caveat though: Once you get to the answer, re-read the above summary on transition and cute vs. critical.
Once you think you’ve got it – go and don’t stop
The beauty of the Basset Hound is their perseverance. Once they stumble on to a scent, they won’t deviate from the trail until they find where it is coming from. No distractions. No detours. Just a single straight line from the scent to the end of the trail. They have been bred for certainty – their decision made the moment they caught that scent. If only we were like that!
We tend to over think, over analyse and, ultimately, convince ourselves to not take that first step once we catch the scent. This uncertainty comes down to clarity. If you have talked to customers about their pain, are critical (not cute) to the success of their business and can distil the value you provide down to a sentence a room full of your parents peers could understand you are wasting time. Go.
What do you think? Also, what do you think of the new format for the episodes? Do you like the chapters for quick reference? The takeaways? What else would you like to see. Leave a comment or two below or email me.
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About Michael Hagan
My interests lie in technology, innovation, creatvitiy and entrepreneurship.
I am a student of business and value my education in all forms. I am a competitor and I love the great game of business and enjoy meeting and learning from other successful entrepreneurs.