Seamless Problem Solving

I recently drove all the way to San Francisco to buy a bicycle, a major purchase that I had been planning for many months.  The arrangements for the bike and the schedule for the fitting were made via phone with an employee who assured me that the bike I wanted was available and that I could complete the transaction in the time I had.  After driving 4 hours to reach the store, I found that the bike they promised was in fact not my size and the key employee required to do the fitting was not going to be available as promised.

As these problems unfolded, the owner of the store got involved and took over the transaction.  His process not only got me more and better product than I was expecting but delivered it ahead of the original commitment.  He made it seem like there was no problem he couldn’t solve, and in what was a fairly complex transaction, he upgraded components, extended warranties, offered to swap parts that did not fit correctly, even after future weeks of use.  This situation could have turned into a real disappointment with lasting hard feelings and certainly loss of my future business.  Instead, the effect was that problems were solved seamlessly, almost before I was aware that there was anything wrong. I was left feeling like I was their most important customer.

A key business fact to notice is that this situation did not involve giving away anything, it did not require any apologies, it did not involve any disagreements, complaints or confrontations. The exceptional part of this transaction was that the owner realized what the problems were almost before I did and so was able to take care of me before anything became a problem.  In fact, I  felt so well served, I bought several additional products that I had not planned to buy and would recommend this store to anyone.

I have said before that the true test of an organization is not that they never make mistakes, but how they handle the mistakes when they do happen.  I will add to that basic principle that in the continuum of ways to effectively solve a customer’s problem, having such a keen awareness of the customer and their needs that the problems are solved without drawing attention, before the customer needs to voice dissatisfaction, is the ultimate level of this great customer service.

By the way, the shop is The Bike Nut at 2221 Filbert Street, San Francisco.  I would recommend them to anyone considering a bicycle.  Their slogan, ”Yes Can Do,” is printed right on their business card and they truly live up to it.

www.bikenut.us

 

Suggestions for a Business Dealing with a Slow Economy

To listen to an interview with Michael Carroll on this topic, click this link. This interview was broadcast July 2, 2008 on KZYX, Mendocino County Public Broadcasting.

A slow economy to a business is like winter to a farmer. It is part of a normal cycle. Things may be dormant, but there is still lots to do. And winter is always followed by spring. Unfortunately, economic cycles are far less predictable, and the slow periods may be years long. But here are a few things to think about.

1. Lower interest rates Interest rates are at historic lows. It may be possible to refinance your debt and lower your monthly expense. It is not necessarily a good idea to borrow against losses just to maintain lifestyle. Rather it is more appropriate to tighten belts and spend less.

2. Slow economy weeds out your weaker competition If the slower economy is hard on a strong, well-run business, it will be much harder on businesses that were just barely making it in the good times.

3. Sometimes easier to find new employees Recruiting good employees is always a challenge, but when the economy slows down, more people are out of work, and it is often easier to find new employees.

4. May be cheaper to have new construction done When the construction industry is down, there are more out-of-work construction trades people, and it might be possible to get construction work done sooner or more inexpensively.

5. Be frugal This is not a time to spend extravagantly and even to continue to spend as you have been. This is a time to be extremely careful with your expenses. If you need to cut, cut owner’s salary first. For a while, live on less.

6. Watch the business expenses even more closely Use your P&L and cash flow. If you do not have these essential tools, get them and learn how to use them. Costs are going up in spite of what they government is announcing about low inflation. Your suppliers may not notify you when they increase prices. Stay on top of it.

7. Revise your cash flow forecast regularly This tool is important anytime, but in questionable economic times, it is essential. If you have a sales forecast and cash flow forecast, review and revise it more often. If you don’t, get urgent about getting one.

8. Increase, not decrease marketing A common mistake is to cut marketing. It is often the only way to reduce expenses without reducing owner draw or payroll. Other expenses like rent are usually fixed. But if you are doing effective marketing, reducing the effort will guarantee your sales decrease. Rather, find other ways to cut, and spend more effort on marketing.

9. Avoid fear-it’s corrosive Watching Fox News or CNN on TV will convince you we are in trouble even if we are not. Fear is good for keeping you from going over a cliff, but staying in the state of fear over a long period is unhealthy and unproductive. The antidote to fear is action. Ask yourself what can you do differently – then do it.

10. Might be a good time to start a new venture This doesn’t seem to make any sense. However, if you use the time during a slow economy to do the groundwork for the new business–make a good plan, perhaps raise money, hire key employees–you might struggle some in the beginning, but you’ll have a year’s head start on a competitor who’s just thinking about getting started in the same business. The enterprise can follow the growth of the economy when it does turnaround. Think about the difference between starting an internet company in 1993 verses 2000.

Don’t misunderstand me. Things are tough and may get tougher. It may not be as much fun as boom times. But usually a well-run business can survive, even thrive, during an economic downturn.

 

Smile!

We recently stayed at a small hotel that featured, among other amenities, a full breakfast. On Saturday morning, a hoard of hungry guests descended on the dining room. The only wait-person was a friendly woman who was moving very fast. In spite of her energy and efficiency, trying to get 25 hungry guests their food was a challenge.

As you might expect, some of the guests were less than happy. No matter how rude or unhappy the diners were, the wait person always seemed to be smiling and happy. This “service with a smile” did wonders at calming the clients.

From a management perspective, one server for 25 guests was a little unrealistic and unfair to the employee. But I was impressed at how well she handled the situation and how much of a difference the smile made in the response of the guests.

I have said before that great customer service is more than just being friendly, but friendliness and a genuine smile are still essential tools for anyone dealing with the public. How often do we forget to smile when dealing with our customers?

 

“They Test Us Every Month…”

Last Saturday night, Margaret took me out to her favorite San Francisco restaurant for a belated birthday dinner. Since her own restaurant was famous for both great food and wonderful service, I am always intrigued by a restaurant that impresses her.

When ordering wine, the waitress was very knowledgeable about some esoteric Italian regional wines. And all three wines we ordered were everything she promised. As we expected, everything about the food and the service was exceptional.

At the end of the meal, I asked the waitress how she knew so much about the wines. What she answered is as close to a secret of success as one will ever get in any restaurant. She enthusiastically answered, “I drink the wines, they are always teaching us about the wines and they test us every month.” She said this with a confident pride and enthusiasm.

In a restaurant, your servers are your sales force. They need to be trained. Not just once, but regularly. They need try all of your offerings so that they know and believe enthusiastically in your product. I guess you small business owners both restaurant and others are saying to yourself, “I cannot afford to regualrly train and test my employees.” I say that you cannot afford not to.

 

Making Sense of the Numbers

Like most of my clients, I am not an accountant and have had to learn a simple method of looking at all those numbers. As I mentioned last post, many small business owners do not use their financial statements because they do not know how. In this post, I will suggest a simple method of looking at financial statements for non-accountants.

Step one. Get a monthly profit and loss statement, also called an income statement, and don’t panic.

Step two. Look at the left hand column of accounts and pick the three or four that you have any control over. They will be unique to your business, but there are usually only three or four. These are typically Total Income, Cost of Goods Sold, Payroll Expense, and Profit. For now, ignore the rest.

Step three. Compare each of these four numbers to what you expect them to be. For example, with the income in a seasonal business, compare the number to last year’s sales for the same month. If the sales are up and that is what you expected, great. If they are off, why and what can you do about it. For the rest of the numbers, it sometimes helps to look at the number as a percentage of the total sales. So for example, if your Cost of Goods Sold usually runs 32% of total sales, and this month it was 40%, there is something wrong. Find out what. Do the same for the other two numbers.

You are done. Well, not really. Now the real work begins. If the labor costs are up significantly, what can you do about it? If sales are flat, do you reconsider that next order?

The key to using the financial statement as a management tool is focusing on the numbers that you can do something about. For most businesses, most months, that means that you can ignore most of the numbers on the financial statement. That does not mean that you do not care about the cost of insurance or the cost of your rent, but as a practical matter, you can’t do anything about it. But you can and should stay on top of those three or four things that you can do something about.

 

Driving Blindfolded

Running your business without financial feedback is like driving on the freeway wearing a blindfold. This comparison may be a little extreme, but one of the most common problems I encounter in small businesses is not using financial tools. By this I mean that the business owner either does not have current accurate financial statements or, if they do, they are not using the information to run their business.

In fact, most of clients who come to me with a business that is losing money are also not keeping or using their financial feedback. Considering most small businesses are not started or run by financial managers, but by roofers, physical therapists, chefs and artists, this problem is understandable. That does not make it OK. I can not tell you how many times I ask a new client for their profit and loss statement and get a rather sheepish look. It is the same look I give my dental hygienist when she brings up flossing.

So here is the upside of learning to use financial statements: Many of the clients I see who learn to read and use current accurate financial statements become profitable very quickly. Why? It is just like the last time you took your eyes of the road and wound up driving on the shoulder. Then looking back to the road, you correct without even thinking about it. If you are a builder or a restaurant owner, I can understand why you pay more attention to blueprints or menus, but if you want to have enough to pay yourself at the end of the month, learn to use your financial statements.

I’ll give you my easy method in next week’s blog.

 

Free

We are all motivated by “free.” But free is more than just a low price. In a new book Predictably Irrational , behavioral economist Dan Ariely of MIT tests how humans respond to free. In discussing free, he uses the example of how Amazon’s sales really took off when they began offering free shipping for orders over a certain level. Everywhere but France. On investigation, Amazon management found that in France, the country manager decided to do the promotion a little differently by offering shipping for one franc (in the US, it might be the same as offering shipping for 50 cents. ) But one franc did not elicit the same irrational response as free. When they changed the offer to free, they had the same response as everywhere else – spectacular sales growth. The bulk of the book is actual experiments that he performs with different age groups to understand how we all behave.

Responding to free is only one of several irrational behaviors he investigates. He looks at how honest we all are, how we react to irrelevant environmental clues, even how adolescent boys change their behavior when they are excited and many others.

This is my new favorite book. It defies categorization. The bookstore where I found it had it categorized in Self Help. For me, it belongs in the Business, except that many books in this section are (forgive me) boring. This book is anything but boring. It is an easy read. The author has a dry sense of humor and playfulness that makes the science of his investigations seem like fun. I think it is really a science book … the science of Behavioral Economics. I suspect most bookstores do not have a section for behavioral economics, so you might have to ask.

I believe any small business owner who reads this book will find plenty of ides for their business. This is a must read.

 

Dog Training as a Leadership Style

A dog trainer once told me that the perfectly trained dog is one that is always looking to you for permission to do the next thing, whatever that is. You want the dog’s eyes on you, waiting for your next command. The way you get a dog to act this way is to always discourage initiative on the part of the dog. If they are going to run out the door as soon as you open it, slam the door in their face. They will quickly learn to look to you for permission to go out the door.

Some managers do a similar thing when working with employees. Whenever the employee takes any initiative, the manager responds with a criticism or correction or a question, “Why did you do that…” The employee quickly learns that they need to check with the manager before they do anything. The manager may feel more in control but can’t figure out why they are so stressed and working so hard. This management style is one that is focused on control instead of employee empowerment. The manager needs to feel involved in every decision. While this may be gratifying to the manager, it makes for weak organizations. The manager’s efforts are divided by the number of employees and the growth of the organization is limited by that fact.

If the manager, instead, supports the employee by complementing the initiative and embracing ideas that are not the manager’s own, the employee will develop the confidence to act independently and think for themselves. Obviously, this only works in an environment where the employee has clear boundaries to their authority and responsibility. But the goal here is an organization made up of employees who know and do their job without needing to check in to the manager for every decision. The employee knows when they need their manager’s input. In this kind of organization, the manager’s efforts are multiplied by the number of employees instead of being divided by it.

Best of all, employees in this kind of environment enjoy their work more and have much better job satisfaction. No one likes to be treated like a dog.

 

Professional Tax Help

Over 30 years ago, we had our first small business. Some friends recommended that we see a professional tax person, and they recommended the guy they used. I had always believed that with my engineering degree and an ability to do calculus, differential equations and analytic geometry, I did not need any help with my taxes. After all, I had the pamphlet from the IRS and tax preparation is just simple addition and subtraction. To prove them all wrong, I did my taxes myself, then we had our first appointment with Peter.

It’s an understatement to say that I learned a lot that night. Not only did Peter do our taxes competently and conservatively, but he saved us considerably more money than his fee. He educated me about how much more a tax accountant learns each year to be able to prepare taxes and understand the finer points of tax law. Let me state clearly, Peter never did anything shady or marginal; but he knew how to do his job well. And he was current with the latest regulations and tax court decisions.

After that night, I looked forward to my annual visit to Peter. He was not merely filling out forms, he was documenting my life in a way that not only fulfilled my obligations but saved me money every time. At times, it seemed more like he was painting a picture than filling out forms. He was truly an artist.

Peter’s daughter, who grew up working for him in the office, is now a CPA and took over his practice about 10 years ago when her father retired. She still does my taxes with the same artistry of her father. I still look forward to my tax appointment every year, and every year I learn more about our obscure tax code.

The lesson for any small business is that unless you are a tax accountant, get professional help with your taxes. This is a very specialized profession and a good tax accountant will save you more than their fee.

 

Manager Tools

I have found that most managers from small businesses need coaching on how to become more effective, and that often the basics of the “craft” of management seem to be lacking. Many small business persons get into business not to be a professional manager, but they become managers by default because they build houses, or have a professional practice, or want to make money from their cooking skills. Nothing in any of those professions prepares small business owners to be effective managers. Many believe that effective leadership and management means “I am the boss and I tell you what to do.” End of discussion.

I always start with the basics of employee feedback, clear job descriptions, reviews, etc. These are foundations of the relationship with any employee and not just something that big companies do. How can an employee do their job if you have not told them what their job is and suggested to them on how to do their job better?

A couple of years ago, I discovered a fabulous resource for any manager in any size company. It is called Manager Tools and is a comprehensive body of recorded discussions on everything from how to give employee feedback to how to shake hands. It is distributed in the form of a weekly podcast and can be found for free either through their web site at Manager-Tools.com or through the Business section of the podcast directory of iTunes. (For those who have not yet discovered “podcasts”, or are technically phobic, do not be intimidated. A podcast is just like a radio broadcast that you can access through your computer. Just load iTunes for free over the internet, go to the Podcast Directory, search for Manager Tools and subscribe.) The basic subscription is free and like much of the internet today, there are enhanced services for a nominal fee, but the free weekly podcast is fantastic by itself.

The two business consultants who produce this information work mostly with large corporations and so for small businesses, some of the podcasts are not relevant. But for the most part, the information is useful to anyone in business. I am a giant supporter of this resource, have suggested it to most of my clients and would recommend it to any small business person.