I had a whole bunch of posts on the topic of churn. Did you read my long series on disconnects? The difficult macro-economic environment makes a refresher on this topic an unpleasant necessity.
Given all the calories I expended on this topic, you could imagine my chagrin when we discovered Zayo Bandwidth’s other bust was a time lag in identifying an uptick in churn. How could this be?
A well functioning churn process has its headlights pointed several months forward. Churn, more than anything else, can help (if low) or hurt (if high) the near term financials. This is particularly true in the Zayo Bandwidth business, due to the lumpiness of disconnects.
Many telecom companies have a lax churn process. Perhaps when things are going well, this matters not a lot. However, when events go south, a lax process masks this early indicator of what is happening. Critical months are lost. Actions that could be taken are not, because the problem is buried in the organization.
Does the company have a service issue? Does the account management process need to be strengthened? If related to upselling service, are the overall upselling dynamics well understood or is money being left on the table? Are competitors stealing business? Is the economy weakening? Is it simply the ebbs and flows of lumpy disconnect orders?
The point is this. If the process is tight, these questions will be asked months prior to the churn actually taking place. If there is corrective action that can be taken, this is done at the early signs of the problem. If there is not corrective action, at least the financial forecasts are accurate.
In early August, ZB had sufficient insights to detect that churn between September and December would be higher than in the prior months. Instead of reflecting this intelligence in the forecasts, it let the forecasts continue to reflect the historical churn rates. As a result, the senior team had a false sense of security around its 4Q08 revenue. Moreover, the team did not have the opportunity to diagnose the problem and determine what, if any, corrective action was necessary.
The phase “we learn from mistakes”, though overused, is critically important. What is Zayo Bandwidth doing to learn from these mistakes? Stay tuned.
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