A refreshing and honest conversation with Sahil Merchant the CEO of REDStrategy and founder of Mag Nation.   After reading this article you will understand why he has been awarded Most Innovative Victorian Retailer of the Year (2007), Best Young Business – Victoria (2008), and being nominated for the Ernst & Young Entrepreneur of the Year (2009).

Sahil talks about the challenges of running a business and his incredible journey from dealing with consumers to large company directors who he now services.   But most importantly he chats about the importance of focusing on your customers irrespective of their size and how most of us are in denial about real customer centricity.

The Conversation

I’ll start things off.  If you just want to tell me your name and your title and your role at REDStrategy.

Sahil Merchant.  I’m the founder and CEO of REDStrategy.

What’s REDStrategy all about?

My wife hates that question. She can never answer it!  REDStrategy is a consulting firm focused on customer strategy. Customer strategy changes depending on the client’s circumstances, but it can span everything from digital innovation through to sales effectiveness through to organisational structure.  We’re like the typical large consulting firms that you’ve heard of; but with a difference in that we combine both a strategic perspective with actual execution, having been there and done that as practitioners in the customer space ourselves.  But we also bring a digital perspective along with new ways of engaging with customers and tie this through to organisational culture and why it is that most organisations talk about these things but can’t really deliver them.  We bust through that inertia.

So how does your wife describe what you do then?

She just says he consults.  People think I’m part of the mafia because we constantly avoid the question.  Look, reality is, (and you’d think someone in my position would have a really nice elevator pitch), the reality is that clients see us as their trusted advisor and that changes based on what that particular client needs.  But the common theme is customer.

Do you want to give me a short summary of where you’ve worked to date?  Some of the career highlights?

Sure.  So the short CV. I have a legal background, didn’t want to be a lawyer, went and spent a number of years at McKinsey as a management consultant.  I had an awesome time at the World Economic Forum, which runs the big conference in Davos.  I spent a year there, which was illuminating.  Then I did something quite strange.  I left McKinsey and started a retail business called Mag Nation, which is a small magazine chain – a chain of magazine stores.  That really changed the way, for a lot of consumers, the way they viewed magazines and how the retailing world view magazines.  Looked like a small business, but punched way above its weight in terms of brand recognition amongst a certain community.  But more than that, it generated brand loyalty and brand love.  So then I left Mag Nation, to finish the story, started my own consulting firm and then after a number of years having run into a number of larger marketing organisations and butted heads with them, the Ogilvy Group came to me and said come and join us and they bought half my business.

Fantastic.  You did manage to do a lot of things at Mag Nation.  What do you think your biggest win was?

Mag Nation almost died.  A couple of years into the business we weren’t achieving our objectives in the slightest.  The biggest change (and this sounds really twee in today’s environment of 2014, but we’re talking about 2007 at this point) was that we changed our strategy from a product focus to a customer focus. That sounds really obvious now, but we were product experts.  We knew magazines inside and out.  We thought that would really drive our performance and our culture and the way we were viewed by customers.  It wasn’t working.  When we changed to a customer focus, what we suddenly realised was that there was an amazing amount of passion for the Mag Nation brand, we just hadn’t tapped into it.  The fact is that for a brand our size, we were able to play such an important part in so many people’s lives, and that sounds really quite bull shitty, but Mag Nation held a special place for a lot of people.  That was something I was really proud of.  I was really proud that I created this thing.  The concept didn’t exist.  My business partner and I, we created this from scratch.  There was no model to copy.  It didn’t exist elsewhere in the world.  We bumbled through and created a place that meant so much to so many people.  That was really special.  That was something I was really proud of.

What do you think the cue or the trigger was to change from product focus to customer? 

Seven days of cash.

Ok.

Really simple.  We were the typical entrepreneurial story.  We lived hand to mouth.  It got to the point where we just weren’t going to make ends meet and we had to change it up.  We went back to the drawing board and we questioned all our really key assumptions.  The big emphasis when we were raising capital was focus.  We said that as a retailer we’ve got to really focus, and focus on one thing, which is our product.  “We’re going to be product experts”.  We thought that was smart.  Then we threw all the cards up in the air, and started questioning – who comes to our store, and why do they buy from us, what is it about the brand that makes them want to come to us?  We realised that there was a whole bunch of commonality between the various best sellers, but that commonality was based around customer type, rather than the products themselves.  So that’s what triggered the questioning of the strategy.  The way we then built upon that was we started engaging with customers.  Again, were talking about 2007.  Customer engagement now is a term that everyone uses.  In 2007, people were still struggling to work out how they were going to get an ROI on social media.  In fact people are still struggling with it.  We got to that point very quickly.  Because we had private equity investors who had mortgages on my kids and were ready to sell them into slavery if I didn’t deliver, it created a real pressure on us to justify the financial impact of a tweet, or one blog post, or why we would create content in a certain way that may not look like it was going to drive sales in the short term, but had broader brand implications.  We had to be very clear on where the financial linkages would be. 

When I exited Mag Nation, that was what I built my consulting practice on.  Because what we realised, what I realised, was that a lot of practitioners were out there talking about the benefits of customer engagement, social media, e-commerce, but not a lot of people were making money out of e-commerce, and very few had boardroom talk or what I call boardroom-ese, to be able to deliver that back to really senior folk at very high levels of big organisations in a way that didn’t just sound like marketing fluff.  They understand financial returns. Really senior folk also have to think through the broader considerations around how do you execute this from an organisational structure point of view?  In large organisations, it’s very often not the what that’s the problem, it’s the how.  It’s really practical questions like how are we going to deliver this within our organisation structure where we have Bob over here and Jim over there who can’t stand each other, and fight over turf wars – “I own the customer, no you own the customer”.  A whole bunch of things which, mostly, marketers don’t think about, but which actually impact the success of what marketers try to support in terms of Bob’s innovation agenda, putting the customer at the centre, or changing the way we communicate with customers.  Often large organisations say they agree, but they can’t make it work within their practical reality.  I was able to, through the Mag Nation and the McKinsey experiences, combine the two to say, “I’ve actually done it real time, rolled the sleeves up and have that experience, but I can package it in a way that makes sense to large organisations”.  So from the Mag Nation experience, I think what I really got out of it was that I moved beyond the nice, theoretical, business school, financial, strategic, commercial points of view.  I wasn’t a marketer, but from necessity, when we were on the throes of our deathbed in terms of what do we do with the business, I had to then really embrace customer strategy and actually execute it.

Great.  Thank you.  So now sitting in the space of understanding consumers, a lot of your clients obviously are trying to understand their customers and consumers.  Do you think that businesses really do understand consumers?

No.  Really bluntly, a lot of our clients say they do, and they have beautiful research programs and they’ll talk to consumers, which they were not doing in the past, so things have evolved, but no.  They’re trying to get into the heads of their consumers and segment them and understand their needs…  Look, marketers have always wanted to do that, and now clients are actually trying to do the same thing.  There’s a fundamental difference though.  This is why I say bluntly no.  Most of the big organisations I talk to will tell you about their customers, with their lens; through their point of view.  They talk about customers in relation to the products they want to sell, customers in relation to how they engage with the industry, whatever that might be.  It’s very hard to get large organisations to throw away all their biases based on their industry, their product, their financial objectives, and say, let’s look at consumers from a consumer’s point of view.  It sounds really obvious, and so all the marketers out there that will potentially hear this, will go, that’s 101 stuff.  Put yourself in the shoes of your consumer, your customer.  Isn’t that what we espouse day in and day out?  Clients don’t do it.  They talk about it but they find it really hard to let go of “we’re talking to the customer, but we still have an agenda”. 

What’s the reaction to your clients when you come in and say things like that?

“Oh no, we know our customers.  No, no, we’ve invested in that.  We understand our customer.  Our marketing department did all these things”.  My question back to them, is “why are sales declining by 10 percent?  If you knew the customer and you understood what they wanted, is it that they don’t give a damn about your product?  If that’s the case, why the hell aren’t you adapting your product?”  There’s always excuses. If you understand your customer, really understand your customer, why are you in the shit that you are in?  I can be that brazen.  And at times I am. Sometimes I get kicked out.  Sometimes they go, that’s quite embarrassing. How many businesses say that they’re not customer centric?  “Oh yeah, we’re crap at customer stuff”.  “We don’t understand our customer”.  Every business you talk to says, “oh yes, we’re customer focused”.  But if that was the case, why are there so many poor customer experiences out there?  Very few businesses are willing to admit that.  I don’t want to work with clients that are deceiving themselves.  I’d rather them look me in the eye and say, “nuh, you’re right, we’re crap, we’re crap, help us”.  That’s the client that I want to work with.  Very often, the first reaction is “no, no, no, we get them”.  I get that from CMOs in particular.  The CMOs get really upset when I challenge them on their understanding of the customer.  But when you really delve into it, often an honest CMO will say, “,yeah actually, I’m not quite sure that we do understand our customers –  maybe Sahil has a point”.

Great.  Where does the industry need to look for inspiration?

While I now am firmly a part of the marketing industry, I’m new to the marketing industry as well.  It’s not been my background.  I’ve never really had much to do with agencies, so I’m seeing things for the first time from an insider’s perspective.  Although, I did bump into many of the big agencies with a number of my clients. 

It’s really hard for marketers to help their clients move beyond their inertia if they don’t understand the key commercial drivers of their client’s business.  Marketers, from what I’ve seen, through dealing with the agencies that my clients use; they don’t ask those fundamental questions of, how will this make us money, or what is the long-term strategy that this aligns to?  It’s very much around the creative process, good ideas, about short-term sales improvements, but they don’t ask the hard questions.  So, imagine you were working for a big retailer or a big global department store.  One of the fundamental questions that will underpin the strategy of a big department store for years is where the hell are we going to be into 10 year’s time?  What’s our role?  Will we even exist as we currently do?  Is there a future for us having lots of products from different categories in one big box and selling them at a premium price?  Is there a future in that model?  That’s a pretty big question?  Yet, here we are. If we’re a marketer doing catalogues, photography, advertising, CRM for the big department stores, well that makes a lot of sense because we’re getting paid to do that, and that’s what the brief says.  But how are we genuinely going to serve our customers if we keep on pumping out catalogues, we keep on pumping out that content for the website which is very push focused.  Are we really helping our clients achieve their long-term strategic goals, and how are we meeting our own strategic goals?  Because, you know what, when these big department stores tank, and die in five years time, where are we left? But it takes bravery to say, we’ll do that for you, sure, but you know what, we want to actually question whether what you’ve asked us to do is the right thing to do in the first place?  We’ll nail it for you, don’t worry, under control, but by questioning what we’ve been asked to do, we actually question our fundamental revenue stream.  That’s really hard to do.  So most marketers don’t do that.  Now you ask the question where marketers should get their inspiration from as an industry. 

Well we’re supposedly a service industry, and we talk about customer centricity and getting our clients to understand their customers and consumers, yet I ask ourselves, do we understand our customers and our clients?  Do we practice what we preach?  How would we know our consumers, being our customers, what they all want?  Do we walk the halls?  Most marketers work from their office.  Some lovely wooden floored or kind of polished concrete environment, with a pinball machine and all that stuff.  Our clients don’t do that.  They work in cubicles.  It’s very often dependent on the client – it could be a manufacturing client, it could be a financial services client.  Their environment’s very different to ours.  The pressures they face are very different to what we face.  I’m not saying more or less, just different.  Why aren’t we in their environment?  Why don’t we work out of their offices?  Why don’t we co-locate?  Why don’t we sit with them and understand where the pressure is coming from day in and day out?  If we were service orientated, wouldn’t we want to be there with them, partnering with them, as opposed to, in our environment, coming back and saying, look what we’ve done, ‘ta da’, here’s the nice glossy presentation.  Why don’t we roll our sleeves up and start getting on with it with them?  That would be service in my book.  If you look at the big consulting houses, it’s how they operate.  They don’t work from head office.  They’re in there with them.  Some people will say, what, are you equating great customer service with a big consulting company?  I’m not.  There are things that work in those environments and things that don’t work in those environments.  But they do have a different understanding of client service.  I think that we could look to the professional services, be it lawyers, I don’t want to say accountants, but consultants, investment bankers at times, and say, how do they service their clients?  Let’s pick the good things.  There are some bad things as well.  Let’s pick the good things and incorporate those good things into what we do and change the model.  Because the way that marketers have served their clients hasn’t really changed in however many years.

So it’s kind of like client centricity, rather than customer centricity?

Well it’s the same thing. Ultimately their customer is a business.  Our customers are the people who pay our bills, being our clients.  We tell our clients to be bold.  We tell our clients to be innovative.  How bold and innovative are we?  How much have we genuinely shaken up our industry?  Show me the agency that gets a brief for a multi-million dollar television campaign and says, no, you’re crazy.  They’ll take it.  They might think you’re crazy, but they are not going to look you in the eye and say, Mr or Mrs CEO, we’ll do it for you but we think you are wasting your money on this one.  That’s not what they do.  Yet, if you were the trusted advisor at the board level, the C-Suite le

vel, or even the senior executive level, wouldn’t you?  Think about this from a personal perspective – you’ve got a friend; when you’re going off course, do you want your true friend to tell you that?  That’s what friends do.  That’s what trust is about.  Being able to say, I don’t think what you’re doing is the right path.  But, we have our self-interests at heart, which is a commercial interest, but that’s very short term.  It would be better in my opinion to say, we think that long-term what you are doing is taking the wrong path.  As an agency, you’ve got to keep your long-term objectives in mind and this line of sight around where you want to get to ultimately.  Saying no to a client might have a negative impact on us commercially in the short term.  Long-term, you can be far better off.  You’re going to be trusted.  That’s why marketers generally aren’t the trusted advisors of the senior C suite.  They’re service providers, at best.  They’re suppliers.  I think that’s the mistake.  Given that we are the people that are meant to understand the customer and bring the customer to the fore. What is more important in a

business than the customer?  Ultimately you can’t make a business work unless you meet customer needs.  Given that we are supposed to be the guardian or the one who champions the customer’s needs, why aren’t we seen as this?  Why aren’t we the trusted advisor?  Why are we considered to be a mere supplier?  The bankers, the lawyers, the consultants, those are the guys that can walk into the C suite with more credibility than most marketers.  So as part of my business, I’m changing this.  But, I think that marketers in general could take inspiration from other service industries and how they really try to meet client needs.  If we were able to import to some of that, I think the industry would be far better off.

Fantastic.  Then just finally, what would your advice be for young marketers coming into the workforce?

So, this is a common refrain of mine.  Understand the commercial or organisational implications for your clients.  So that means you have to have worked at a client.  You have to have worked in sales.  You have to have understood the politics of companies.  Why is it that as a junior marketer you might deliver a fantastic marketing plan, there’s a clear return, all the commercials add up, and it doesn’t get done?  Well it may not get done, because person A and person B are having a fight, or they like the same person at work. All these silly organisational politics and realities of human life impact the best of strategies, impact how we respond to what appears logical, but actually gets affected by emotion.  So you’ve got to understand those organisational challenges, the implications of people issues, but it’s hard to do that when you’re sitting in an agency environment, which is often removed from that.  Likewise, you’ve got to understand the commercial drivers of your client’s business. I’ll give you an example.  How do automotive companies make money?  They don’t make money by selling cars.  They make money by all the after sales activities that come as a result of selling cars.  Now, it’s important to understand that if you have an automotive company as a client, because you might come up with great route to market strategies that are really focused around dealers, but not understand how the dealer is incentivised, how they take home their money to feed their kids. Not understanding their head space based on their commercial reality…well maybe you miss the boat completely.  So, the commercial drivers of your client’s business are crucial.  But, if marketers stay very centred around what are the big ideas and they don’t understand how their clients are actually going to commercialise those ideas, they’ll never get it right.  So, commercial focus, and organisational focus.  The market, the consumer, that’ll all come. That’s part of your core education as a marketer.  As you’re developing your skills as a marketer, those things will evolve.  But you don’t get training on commercial.  You don’t get training on organisational.  You have to roll your sleeves up and demand it, or alternatively, just jump in and learn it yourself.

That was great.  Thank you very much.

Pleasure.