Sunday, 26 April 2015

Billy’s Forty-Sixth Law: Sometimes you can do almost everything wrong and still make money

This law is the inspiration of my friend George, of the Fifteenth Law.  He has a customer who does almost everything wrong, and still makes piles of money.  George is a technical specialist, and looks at the world through the eyes of technology.  Here are his observations on this e-commerce company:
  1. The search snippet (The brief snippet Google displays below the company name, describing the Website) is useless at driving business. Nine out of ten users ignore the search results and select a competitor’s website. The company spends time and money for search optimisation, yet fails to convert due to this one small, but critical error.  
  2. The home page leaves new users confused.  Testing shows the entire forty-nine page Website is so confusing that most users simply give up.  The calls to action do not stand out and it is unclear what action the customer should take.
  3. The Website does not take advantage of any management tools such as page based SEO or split testing. There is no conversion optimization testing, but rather the owner bases the design on guessing what customers really want. To make matters worse, there is no performance testing to confirm if the guess was correct.
  4. The president institutes changes without any strategy or change management process. The result is unreliable and inconsistent performance.
  5. It takes over twenty seconds to return a list of products selected to the shopping cart.  This is due to high levels of unnecessary customization.  Twenty seconds is an eternity in the internet world.

This company breaks every e-commerce rule in the book except one…that they make money!  They are doing one very important thing right that is customer service.  Company policy is is always do right by the customer.  Examples include:

  1. Anyone who complains receives a free company T Shirt; talk about turning enemies into friends.
  2. If a customer perceives any financial loss, the company reimburses them without question. 
  3. The customer support staff are empowered to do whatever it takes to make a sad customer happy.
  4. The company president follows up every complaint with an email asking the complainant, "Did we solve your problem, are you happy, and is there anything else we should do? “

Every customer who has an issue is made whole and happy.  The result is Yelp and other review sites are full of meaningful complements.  This fanatical dedication to over the top customer service results in thousands of positive reviews all over the Internet.  Due to this massive volume of positive reviews, the Website enjoys an unprecedented number one ranking for any related Google search.
When a company is successful in spite of themselves, it is difficult to suggest changes.  “If it ain’t broke, don’t fix it” is an oft-heard cliché in such situations.    The challenge for those of us who provide advice to business owners is to encourage change when things are going well.  This is far more difficult than forced change when things are going badly.

In my experience, most business owners are lousy business people.  They are, typically, very good at what they do or very good at sales and marketing.  To sustain a business, owners and their teams must develop a more complete skill set, incorporating all aspects of business and not merely in the areas they prefer or the areas in which they are comfortable.

Wednesday, 1 April 2015

Billy's Forty-fifth Law: The greatest founders value Enterprise over Entrepreneur

Joseph collected all the food produced in those seven years of abundance in Egypt and stored it in the cities. In each city he put the food grown in the fields surrounding it.          
The seven years of abundance in Egypt came to an end, and the seven years of famine began, just as Joseph had said. There was famine in all the other lands, but in the whole land of Egypt there was food.
Genesis 41
This law, comes back to repeatedly smack me in the head. In my years of being in the ‘business of business’ I have seen many businesses come and go.  Some were not viable to begin with.  Some ran their ‘natural course’ and faded into the sunset.  Some were perfectly good businesses which failed due the greed of the owners.
Many business owners, especially of mature businesses, treat their businesses as ‘cash cows’ …using the business as a personal ATM.  When times are good, they take money out of the business without any problem what so ever.  The problem is that once you start taking money out of a business at a certain rate, you get used to it and it is difficult to go back. 
I have some tough love for all of you entrepreneurs so pay attention, it just might save your business.
Business is cyclic:  This is probably the single most important concept in business and in economics.  Things go up, and they go down.  Sometimes they go up and down due to our own efforts.  Sometimes they go up and down and we are not in control.  We are in a business-to-business type of business.  When a client decides to retire, as several seemed to do in the same year, our business was off substantially.  We had no indication this would happen, but none the less, it did.  Although you could argue that we should have been looking for new customers (and in hindsight we should have) the reality was that we were at capacity and had no room for additional clientele. 
Some businesses are resource / commodity based.  It amazes me that these businesses do not know that commodity prices, such as oil, copper, pork etc., go up and down.  The Oil & Gas business is notorious for making huge money, and paying huge salaries when times are good; then cutting like mad when prices drop.  To be fair, when the industry is booming, there is upward pressure on wages, creating wage inflation in the industry.  Recognise the business cycle and plan accordingly.
Sometimes, we are masters of our own demise.  I had a client who had not re-calculated some of the costs for his clients.  His business was profitable, for a time, but when things turned down, and we did some investigation, we determined that he was actually subsidising some of his clients. Turning this around has taken more time than we had hoped but the legacy clientele is still less profitable than the new clients he is bringing into the business.  When times were good, he ‘took his eyes off of the ball.’  This created problems when we later discovered that his largest client was carrying the business and when that customer reduced his orders, the company began to lose money.
I recommend that entrepreneurs do three things:
·       Take a modest wage out of your business.  Take the opportunity to build your retained earnings and your cash reserves to allow you to ride through the inevitable tough times.
·       When you have a good year, pay yourself a bonus.  This is your present to yourself for a job well done.  You should never assume that this is part of your regular earnings, nor should you adjust your lifestyle.  Live off your wage and use bonuses to treat yourself, and build your personal wealth.
·       As an entrepreneur, you are self-reliant…especially when it comes to retirement. You must build wealth either inside or outside of the enterprise.  Do not assume that you can sell your business as a business.  You may need to use the wealth built in the business (at a lower tax rate if you are incorporated) and draw it down later.
Always remember that businesses, industries and economies are cyclic.  The companies with strong balance sheets, created with solid retained earnings, have the foundation that enable them to withstand the slow times.