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Category Archives: Small Business

Right Policy, Wrong Decision–How Great Customer Service Will Payoff

Have you ever had an interaction with a company that merited special consideration?  What happens to a company when they have the right policy in place but make the wrong decision?  Here is a recent example:  http://overheadbin.msnbc.msn.com/_news/2012/04/25/11392324-dying-veteran-protests-spirit-airlines-no-refund-policy?chromedomain=usnews&lite

As detailed by this story, a terminally ill veteran was denied a refund by Spirit Air Lines.  Why?  In an effort to keep costs low, Spirit does not offer refunds.  Why is this the right policy but wrong decision in this case?

The analysis of this airline ticket example is essential to understanding when and where to make exceptions to your refund policies.  The paper “Refundability and Price:  Empirical Analysis on the Airline Industry” by Seong man Moon & Makoto Watanabe of Sogang University is the seminal work in this field.  The conclusion of the research is that the premium is paid for a refundable ticket is directly correlates with the distance of travel.  This tells us that a long flight such as the one between Florida and New York (1010 miles) can turns out to be the most significant determinant of the relative price between refundable and non-refundable tickets.  However if you look at a flight between Los Angeles and Las Vegas (236 miles) the difference in ticket price between refundable and non-refundable is negligible as the customer has the option of making the five hour drive.

So how can you as an entrepreneur use the sophisticated pricing model of the airline industry to deliver better customer service?

1.  Understand the nature of the product or service you deliver.  If you provide a time sensitive or essential service such as critical health care or something that is difficult for the customer to substitute, this calls for strong scenario analysis planning.  Be prepared to make exceptions and deal with customers on a case by case basis even though you may have a sound structure of customer policies.   The potential cost of bad publicity is significant especially when a remedy only takes a little compassion and extra effort.

2.  If you are selling easily substitutable products like apple pie and lemonade be prepared to offer customer service that rivals Zappos.  Make sure your customers walk away with a positive memorable experience even if you have to give out an extra cup of lemonade.

3.  Empower employees to use creativity to solve problems.  Great Customer service pays off.  Reflecting on the Spirit Airlines example, how much money was saved by not refunding the ticket  $500-1000?  Now if just one or two people choose another airline over Spirit due to the bad publicity, this business decision will result in a potential loss.

Making exceptions to rules or policies makes for remarkable customer service.  Happy customers lead to profitability.  Just ask Steve Jobs or Tony Hseih of Zappos why exceeding customer expectations is important.  Both of these men created considerable wealth and loyal customers–something I know you are also capable of.

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Code Talking, Apps and the new “Lingua franca”

If I told you that you could communicate with anyone in the world while sleeping and make money would you believe me?  Or would you dismiss me as a “Billy Mays as seen on TV” sleazy pitchman?  If you write computer code, create an app and place it in the Itunes store, Steve Jobs becomes the modern equivalent of the pitchman.  How is this possible?

The concept of a Lingua franca as described by Encyclopedia Britannica began as a “Frankish Language” developed by the crusaders in the middle ages as a way to communicate with middle eastern traders as they plundered their way to the holy land.  Functionally this created an ability to communicate between people who otherwise spoke unintelligible languages to one another. Fast forward to 2012 and the world’s Lingua Franca is found in computer coding.  Recent examples in the business world support my assertion.

In a recent interview Groupon co-founder and chairman Eric Lefkofsky stated that the ability to  take your ideas, produce something and articulate a solution people can interact with is a key success.  One of the greatest tools you can have is the ability to code.  (Chicago Tribune 4/15/2012).  With the resources and technological advances your dream or wish can be translated into a functional application that benefits the public.  Dream, articulate, code it,  and prototype.  When it works put your app in the Itunes store.  This is how commerce is done in 2012.  (As a side note the app market is growing at a 77% rate–year over year).  Instagram founder and CEO Kevin Systrom received his formal educational training in marketing and is a self-taught computer programmer at night.  His investment in teaching himself coding paid off as Facebook bought his company last week for $1 billion.  

Finally in a telling post written by Lifehacker (Lifehacker has been recognized as an outstanding blog by Time, Wired, Mensa, PC Magazine and others)  founder Gina Trapini she describes the process of learning coding as a long battle that consists of small incremental victories.  As Trapini states “Getting really good at programming, like anything else, is a matter of sticking with it, trying things out, and getting experience as you go”. (Lifehacker Gina Trapini 11/09).

As I write this piece I fully intend to take my own advice.  Check out this you tube video courtesy of MIT and you have the opportunity to learn a valuable skill.  http://www.youtube.com/watch?v=k6U-i4gXkLM 

See you the coding journey it may be bumpy but we’ll get there.

Until next time, be good and cultivate your community of friends.

How Best Buy Became Amazon’s Showroom and why your Big Box will Shrink

I woke up this morning thinking about James Earl Jones saying “If you build it they will come”.  Of course 23 years ago when these words were uttered in Field of Dreams Kevin Kostner built a baseball stadium in the middle of an Iowa cornfield.  If we change the context of the quote to today’s retail market, how would this be understood?  I would suggest that the “voice” speaking to us in contemporary terms would be creating an app or an e-commerce website that both engages and successfully generates revenue without the overhead of commercial retail property.  The former CEO of Best Buy Brian Dunn was quoted in a March telephone interview with Bloomberg Business Week as saying  “The one critical thing we offer the world is choice.  We provide the latest and greatest choice of all technology gear, from Apple (AAPL) products to Google (GOOG)products, and that brings more opportunity to help people put technology to use. That is a great place for us to be.”  A week later Best Buy posted a $1.7 billion quarterly loss, announced the closing 50 stores and now Brian Dunn is looking for a new job.  The failure to recognize the significant cultural shift in retail consumer behavior ultimately may bankrupt Best Buy and several other Big Box retailers unless they embrace the new customer dynamic.

 

Lets pinpoint this paradigm shift of consumer behavior so that we can benefit and become both thought leaders and adapt our business to meet the needs of the modern marketplace.

Before shoppers had access to apps and extensive exposure to e-commerce websites, the only way you could comparison shop was to go from store to store.  Now we can walk into a retail establishment, look at the wares, scan a QR code and instantly find the same item online for less money.  As we depart the commercial property we are able to use smart phone apps to comparison shop and purchase the item.

So what is the answer to the ideal retail operation?

Lets summarize, learn and be proactive to the new demands of today’s consumer:

1.  Bigger isn’t always better.  Again as I have reminded you before, focusing on a niche market and perfecting your operation and processes will create memorable customer engagement.  This will allow you to compete in qualitative areas that the customer cares about rather than focusing on price comparison.  Remember if you have to compete on price someone will always sell for less.

2.  All new and current operations need to be built in a scalable manner that will allow the seamless execution of mobile technologies and platforms.  It won’t be long until a majority of e-commerce will be done on smart phones.  Again “if you build it they will come” but make sure it is “app friendly”.

3.  Educating customer’s remains critically important, however the methods in which you do this have changed.  Many customers are not interested in walking into your retail venture and receiving a sales pitch.  Using social media to educate and engage whether is it a blog, YouTube video or an app, teach customers what they need to know by using their smart phones.

 

The last question in my mind regarding  this subject is what will become of the strip malls and the shopping centers that once housed these mega stores?  Will your local Best Buy turn into an Urban Farm?  Probably not, If I were to guess probably a “Cash for Gold” store.

 

May all your efforts lead to productive apps and all your limbs be mobile.

Until next time, be good and cultivate your community of friends.

When Friends count, How the Instagram Value Proposition is Worth a Billion Dollars to Facebook

The paradigm shift in what we sociologically consider a “friend” was on display today in its finest form.  As Facebook consummated the acquisition of  Instragram for one billion dollars, it re-inforced the value of community building.  It would be untruthful had I told you my parting tag line “Until next time, be good and cultivate your community of friends” really was responsible for creating the immense wealth for the 13 employees of Instagram.  Lets take a closer look at the value proposition Instagram offers and why a community of 30 million users is worth a billion dollars to the world’s largest social network.

In 18 months with 13 employees, Instagram created a superior mobile photo sharing experience.  If we look at the positioning of Facebook in the social media sphere, you see the world’s largest network with many good features and a constant effort to improve intuitive components.  Even with 850 million members there is always a way to find a better experience.  The sheer size of Facebook’s operation does not allow for dynamic changes that avant-garde early adopters demand.  This vacuum creates opportunities for small tech companies like Instagram that are able to create and deliver a unique application.  In the case of Instagram the value proposition of a mobile interface that allows users to “filter”, enhance and share pictures over multiple social media platforms proved quite valuable.  Who knew that adding a 1970’s flare to a photo that I share with my “friends” would generate this amount of attention.  However if you look at the deal from Facebook’s point of view, it is possible to see the value albeit possibly overpriced and a reactive move.  Since photo sharing is such a large component of the social network and as this content increasingly shifts to the mobile platform, Facebook wants to make sure they are strategically positioned to deliver the best possible engagement.  With the purchase of this asset Facebook not only buys a community of 30 million users but it further monopolizes the photo sharing category as it prepares to compete for market share with upstart Pintrest.

The case of Instagram shows how Entrepreneurs need to build their community of users/customers as this becomes your biggest asset.  How do you put this into practice for your business?  Here are a few steps Instagram mastered:

1.  Define your expertise and create skills that positively affect user experience.  For example if you specialize in selling European motorcycles, become an expert on the subject and help create the ultimate individualized two-wheel fantasy experience for a customer.  The motorcycle shop creates an intense positive feeling for its first client.  In turn this person tells friends and family, thereby sowing the seeds of an organic vibrant community.

2.  Continually prototype and accept constructive criticism on your venture.  Instagram’s CEO Kevin Systrom not only narrowed the capabilities of his application but he continually beta tested it on friends and socially influential users until he found the right mix of features and benefits.

3.   Finally, stay engaged with your community.  Kevin Systrom is one of the most active CEOs on Quora .  Over the last two years he shared how the company was built and the methodology behind the exponential growth. http://www.quora.com/Kevin-Systrom/answers.  Systrom managed and increased his engagement by continually reaching out and sharing his experience building his venture.

So there it is, friendship, community building and massive wealth in three easy steps.  As you move forward seizing opportunity and creating value just remember your old friend blogging from a basement in suburbia.  I always knew you could do it, please let me know when you get to the promised land.

Until next time, be good and cultivate your community of friends.

Human Capital, Competitive Advantage and Why We Are Willing to Happily Overpay at Whole Foods

With a global economy gyrating with sweeping political changes, technological breakthroughs and new emerging global markets, an entrepreneur must think and act strategically.  One of the most overlooked assets small businesses fail to capitalize on is intellectual Capital.  In his prophetic article “Shocking Truths About the Future” (Business Strategy July/August 1996) Futurist Alvin Toffler talks about the shift in the world economy from a base of financial to intellectual capital.  Toffler states “Knowledge is no longer just a factor of production.  It is the critical factor of production”.  Lets take this relatively esoteric concept of Intellectual Capital and break down the components:

Thomas Stewart in an article entitled “So you Think You’re Company is so Smart” (Fortune April 30, 2001) delineated three crucial elements:

1.  Human Capital is the talent, creativity, skill and ability of a company’s workforce.  This shows up in innovative strategies, plans and processes that the people in an organization develop and then passionately pursue.

2.  Structural capital is the accumulated knowledge and experience that a company possesses.  It can take many forms including processes, software, patents but most importantly, the knowledge and experience of employee strengths, abilities and challenges.  Essentially the entrepreneur will have a strong understanding of the feasibility of opportunities based on the capability of her staff.

3.  Customer Capital includes the established customer base, positive reputation, ongoing relationships and goodwill the company has built up overtime with its customers.

Given these three components how has Whole Foods used Intellectual Capital as a competitive advantage to carve out a strong customer base in the grocery business where mega chains such as Wal-mart and Kroger previously dominated?

Whole Foods invests heavily in Human Capital.  They spend time and money selecting Team Members (note they are not called employees implying a much more important role in the company’s success) by carefully screening job applicants to find those that love and have a passion for both customer service and natural food.  Each Team Member is carefully trained so they can demonstrate and explain the benefits of the company’s organic and natural food.  (Remember if you want to sell more, help educate customers and they will choose to buy more).  As a result, Whole Foods routinely lands on Fortune’s “100 Best Places to Work”

The Structural Capital component for Whole Foods comes from its increased knowledge of “local sourcing”.  As we become more connected globally, there is increasing concern by many consumers on how and where their food is produced.  Whole Foods has transferred this into a competitive advantage strategy of acquiring locally grown products.

Finally, with an immense amount of Customer Capital, Whole foods knows that its customers do not shop at the store searching for the lowest prices.  Rather store managers and team members have the autonomy to recognize and stock their store with regional food preferences that local customers demand.  The ability to quickly react and mix locally demanded products has created in the words of Matthew Mell “Disney for foodies”.

As we enter the Spring here in North America lets re-energize the Bank of Social Capital because no matter what the Federal Reserve may dictate, Ben Bernanke can’t diminish the value the relationships and goodwill you create.

Until next time, be good and cultivate your community of friends

The Curious Case of the Etch a Sketch–An Exercise in History, Context and Truthful Assumptions

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My Etch a Sketch broke this morning.  I got so excited when I saw that a Mitt Romney aide was using it to frame his political views, now I am despondent and wondering where to turn.  Thankfully the good folks and the readers of “Good, Evil and the Things I do” are here to assist me.  When my Etch a Sketch was working, I was able to come up with numerous business ideas everyday.  As a passionate entrepreneur I know these ideas would work and I invested heavily in every idea I drew.  As each idea failed to pay off my cash reserves dwindled and now I must take up a carreer as a strategic marketing consultant.  My new employer will benefit from my unique skill set especially the lessons I learned from Etch a Sketch.  Here is what I learned:

History and Context are critical to making truthful assumptions toward sound business decisions.  Since I was starting fresh every time with my Etch a Sketch I didn’t realize the importance of the aforementioned elements.  Lets look at why this is important and build out a business model.

A.  History–what motivates you?  What is your world view and passion?  What experiences can you draw on to become an expert in your field

B.  Context–Evaluate the current state of affairs and find the opportunity for your innovation.

C.  Inputs–What materials, labor, equipment and other resources do I need to start my venture.

D.  Activities–How do I uniquely add value.  I have an idea, take my materials and through a “proprietary” process create value for customers and stakeholders.

E.  Outputs–What is the finished product I deliver?  When I was using my Etch a Sketch, I kept erasing my ideas and never produced anything meaningful.

F.  Outcomes–How do I want the world to change?  This is a core value of Social Entrepreneurship.  If I create a unique program to educate children, what values do I want to instill?  Through my

intervention, how will I impact and change people’s lives?

G.  Impact–Does my outcome have a measurable metric that shows how I qualitatively and quantitatively made a difference.

Finally the biggest danger with erasing my Etch a Sketch and always changing my views is that it ignored the assumptions I need to make to ensure that my Output, Outcomes and Impact are viable.  By using a prototype and testing my idea to reach a proof of concept, I can show that my assumption is true and therefore my innovation will be successful and make a difference.  However what do you do in a case where you “build it and they don’t come”?   First of all don’t build it.  Before you allocate your resources to a project that may or may not be viable, ask people if they will come to the ballpark.  If your survey and information gathering indicates they will come, go buy some land and build it.

I would be re-miss without giving a link to the Etch a Sketch clip:

http://www.youtube.com/watch?v=5DmtPA02SNk

Thank-you to http://townhall.com/tipsheet/ and Greg Hengler for the YouTube clip.

Go out my dear friends and build a sound infrastructure for your venture, but please make sure your assumptions are sound, you seek the truth and material evidence supports your cause.

Until next time, be good and cultivate your community of friends

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Amateurs Built the Ark, Professionals Built the Titanic. Why the Ability to Adapt and Learn Trumps Credentials.

The title reflecting how the Ark and Titanic were built is a famous quote with an anonymous origin.  In an economy where if you want a job you have to create it and the market will dictate the value of your product or service, it is time that we build the “Ark”.  An entrepreneur’s ability to prototype, assess and accept failure will go a long way in determining who will rise and who will fall.

 

A prototype is one of the most effective ways to gauge the viability of your venture.  By creating an original, functional, small scale model of your product or service, you are able to let potential customers see it, test it, taste it, use it and smell it.  This process will point out potential problems in the product’s design, giving entrepreneurs an opportunity to fix the problem before a large-scale launch.  The feedback you receive from your prototype often leads to design improvements, and new features you may have never realized on your own.

Here are some prototype assessment questions suggested by “Corporate Venturing: Creating New Businesses Within the Firm” by Block and MacMillan, 1985.

1. Completion of product testing:  Is there are real market opportunity? Will customers buy the product? How should the product or service be marketed or distributed?  Are your early assumptions about the opportunity still correct?  What level of sales can be achieved?

2.  Completion and financing of the prototype and venture:  How long does it take to produce the prototype?  What is the cost?  What is the time frame in which the prototype can be produced?

3.  Production start-up:  Are operations working as expected and if not how can you improve them?

To complete your assessment don’t forget about continuing to scan the marketplace for competition and potential collaborators.

 

Finally lets put failure in perspective.  Personally I have experienced at least 15 different business failures.  Yet I still get up in the morning ready to try again.  The failure of a venture does not have to reflect on you as a person.  Successful entrepreneurs use failure as stepping stones to success.  As detailed in the November 1995 issue of Entrepreneur Magazine, NBA great Michael Jordan frames his athletic failures to breed success.  Jordan states ” I’ve missed more than 9,000 shots in career.  I lost almost 300 games.  Twenty-six times, I’ve been trusted to take the game-winning shot and missed.  I’ve failed over and over and over again in my life and that is why I succeed”.  I think we can all agree that after 6 NBA Championships and a hall of fame career, most people would classify Michael Jordan’s basketball efforts as a success.

In echoing a great quote from Eleanor Roosevelt who said:

“You gain strength, courage, and confidence by every experience in which you really stop to look fear in the face. You must do the thing which you think you cannot do”

So dear friends I implore you to protoype, get your feet wet, dump cold water on your head and take an honest look in the mirror.  This will lead us to best practices and the promised land.

 

Until next time, be good and cultivate your community of friends.

 

 

Giordano’s and the Moral Hazard of Bankruptcy

As I talked about in an earlier post on the Moral Hazards of Bankruptcy,  here are two relevant links to articles about how the ownership of the Chicago based pizza chain of Giordano’s has been accused of looting the company of cash and assets before its impending bankruptcy.

http://articles.chicagotribune.com/2012-01-17/business/ct-biz-0118-giordano–20120117_1_eva-apostolou-philip-martino-giordano

http://articles.chicagotribune.com/2012-03-06/business/ct-biz-0307-giordanos–20120306_1_eva-apostolou-philip-martino-giordano-s-enterprises

Shareholder Value and Making the World a Better Place–an Argument for the Social Business Model

Is their room for global corporations to make the world a better place and actually have a double bottom line?  I would like to suggest an answer but ultimately this is an idea that marketplace will have to validate.  Lets back up for a minute and dive deeper into the question.

If we operate under the assumption that the singular outcome for a global corporation such as Amazon is to deliver value to the shareholders, is their room for a double bottom line?  That is, can Amazon deliver value to its share holders while at the same time contributing to a social cause or alleviate an injustice.  I strongly believe that this is possible, however the message has to start at the top.  If we look at a company like Amazon, its CEO Jeff Bezos would have to go on record and state that his intended outcome in addition to shareholder value is a designated social cause.  Moving forward Amazon’s shareholders would be able to decide if the monetarily immeasurable value of the intended social cause is important and  brings with it an intangible benefit.  Amazon shareholders would have to be willing to hold the stock knowing that the goal of a double bottom line may have measurable costs.

With all this said I think that Global Corporations have to at least consider what they can gain by supporting socially appropriate causes.  More importantly as consumers we must demand that corporations we interact with not only produce profits but they improve people’s lives.  So for all of the aspiring entrepreneurs out there  your job is to create change for society while maintaining your fiduciary responsibility to achieve profitability. 

Please let me know your thoughts about this.  Can we expect corporations to act for the common good when it comes to social causes?  Only the market will tell us.  In the meantime please take one small step toward making the world a better place before we meet again. 

Until next time, be good and cultivate your community of friends.

Bad Business Decisions, Moral Hazards and the Legal Way to Defraud the Public

As a business owner with numerous customers that have gone bankrupt in the last few years, there is one particular striking element that keeps me questioning the structure of our bankruptcy laws.  Recently I received a “Summary of Trustee’s Final Report and Applications for Compensation” from a former customer.  At one time this customer operated six retail stores before some bad business decisions and failure to pivot and adapt to customer demand ultimately caused his business to fail.  What is striking about the Trustees Summary is the amount of money owed to creditors $ 1,754,000.    The receipts from the debtor are $20,587.87.  Of course the bankruptcy attorney and trustee are receiving their fees paid in full.  After these fees totaling 11,217.64 are paid, this leaves $9,370.23 to be split among the creditors that are owed over $1.7 million.  Just as an example, the mall owner where these stores were located is owed $350,000 and will be paid $1,800.  I am owed $1,400 and will receive $1.36.

This begs the question many of have asked regarding the financial meltdown and this situation I describe.  At what point did the principal know he was going to fail and he made a conscious decision to extract as much cash from the entity knowing that there would never be re-payment.  In the case of AIG, Fanny Mae and Freddy Mac there is an inherent moral hazard with the full faith and backing of the federal government.  If profits are declining, increasing risk is a possibility to gain higher returns since a government bailout can be counted on.  I would pose a similar question to my former customer–at what point did he know bankruptcy was imminent yet he continued to spend other people’s money?

As my father taught me many years ago, life is not fair and the sooner you get over this notion is when you can be proactive and address some of life’s inequalities.  So if I walk into Walgreen’s tomorrow and I leave without paying for a roll of toilet paper, I can be arrested and charged with a crime.  However a bad or poor business decision that affects and hurts many more people will not be prosecuted.  I have many more similar stories to share at a later date.

When you wake up tomorrow morning, start your day by being honest with yourself and your product or service and make sure you are providing what the market values and demands.

Until next time, be good and cultivate your community of friends.