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.
  

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.

Billy's Forty-Fourth Law: In business, everything takes longer than you think it will.

Hofstadter's Law: It always takes longer than you expect, even when you take into account Hofstadter's Law

Douglas Hofstadter

 

              OK, so I found the very law when searching for pithy quotes on line.  This is another example of a concept from another field, computing science, finding its way into the business realm.  This law is closely related to the Twenty-Third Law…Up is slow and hard, but down is fast and easy.  The difference is the direction and the reasoning. 

I am working with a client whose business needed a bit of a shake-up.  Unfortunately, part of the problem was masked by a very strong division that was effectively propping up the remainder of the company.  When the sales of that division faltered, the truth was revealed. As Warren Buffet once said, ”Only when the tide goes out can you see who’s swimming naked.”

The company’s problems were revealed dramatically, and the owner and I went about developing new strategies and the accompanying tactics for fixing the problem. The owner went about rationalising his staffing levels…fancy talk for downsizing, and reviewing prices, products and even customers.  The work was exhausting, stretching the owner in ways he didn’t think were possible until he was forced to develop new skills and engage in strategies fundamentally different from those previously employed by his firm. 

The firm's owner told me that this was not just a new chapter in his business, but a whole new volume! I was eagerly anticipating the results of these efforts.  When his year ended, I was disappointed.  I had anticipated greater profits, and instead the company broke even.  Now this was a substantial improvement from the previous year’s losses, but still, I believe we deserved a better fate.  The effects of the changes we made clearly took longer than I had anticipated.

The Optimism Bias

When I was doing some research on this subject, I ran across the term, the Optimism Bias. This is the notion that the rational rules of life don’t apply to optimists.  They believe that they are at less risk than others in areas as diverse as driving to smoking.  They believe in themselves and are thus less likely to be realistic than they really ought to be. 

I fell into this trap.  Although I know that the effects of change take time to show themselves in terms of results, I was so convinced that the plan was sound and the execution so well implemented that the results would be nearly immediate. I was kidding myself, another victim of the Optimism Bias. How could a rational, self aware guy like me fall into such a trap?

Illusory Superiority

Part of the explanation is illusory superiority.  This is the phenomenon by which most people believe that they are of above average in fields such as intelligence, problem solving and driving.  (I heard of a study that one exception is looks…more people rate themselves as average of below average looking than above average looking.)  I thought that since I helped come up with the strategies, the normal laws of economics, business and even physics would not apply.  Talk about self-deluded Billy!

Sometimes, the trick is to be patient.  A friend of mine started a business called Travelers Mobile. Fed-up with high roaming charges, he found a source for local SIM cards for prepaid mobile phone plans in the US, UK, and several European countries.  You order the SIM before your vacation, activate it in an unlocked mobile phone when you arrive, and you have a local phone and phone number.  (I am a customer, and had a UK phone number on our last trip to England.)  He was frustrated in all the efforts he put in to the development of the website, logistics and marketing.  He quit working on the business, and his sales slowly went up.  It seems that his efforts were effective, however; it took more time than he anticipated for sales to climb. 

We entrepreneurs are, for the most part, a very optimistic lot.  The combination of the Optimism Bias and Illusory Superiority create this time surprise.  Sometimes, it is best to be a little bit patient before scrapping one idea for the next.  By the way, if you want to get a SIM card for Canada, the USA, UK, Mexico, Europe or Australia, go to http://travelersmobile.com/ and George will get you set up. 

 

Billy's Forty-Third Law: It is important to be a bit ruthless and a touch paranoid

Chances are good there is a psychopath on your management team.

Gardiner Morse, Harvard Business Review

Most of the entrepreneurs I have met throughout the years are great people.  Working with entrepreneurs is the one of the highlights of a career working with business owners. Whether they are pre-start ups, or successful, long term businesses successful entrepreneurs are generally enthusiastic, positive and forward looking people.  There are also two 'negative' characteristics possessed by many successful owners.  In the right measure, these characteristics form an integral part of the entrepreneurial success persona.

As you know I am a geek.  I like useless information, spreadsheets and science fiction.  I recently watched an old episode of Star Trek  called "The Enemy Within." A transporter malfunction splits Captain Kirk into two halves: one meek and indecisive, the other violent and ill tempered. The ‘good’ captain, was indecisive and unsure of himself while the ‘bad’ captain was violent and selfish.    The social premise (and there were several in Star Trek) is that we need both halves of ourselves to survive.  We need both the caring, thinking human being and the cunning violent beast. 

Ruthlessness

This is a ruthless world, and one must be ruthless to cope with it.

Charlie Chaplin

Most of the successful people I know have a trace of ruthlessness.  At the heart of ruthlessness is the ability to make hard, fast decisions and execute them quickly.  Sometimes, people get hurt when these decisions are made.  Decisions to fire people is a prime example.  We have talked about the importance of firing the wrong people in the ninth law The Dangers of Settling.  On paper (or even on a computer screen) this is easy.  In reality firing people is difficult for most people.  A fellow with whom I worked once joked, “The first time you fire somebody is hard…after that you can start to enjoy it.”

I remember my first fire.  My boss was so concerned that he called me to make sure that I was OK.  (I am not very ruthless.)  Ruthlessness is not confined to human resources.  One of my clients went through a ‘demarketing’ program. He systematically went through his customer list and dropped small and unprofitable customers.  The reactions were amazing.  Some of the customers were really upset, even though he found alternative suppliers for the former clients. He had to be ruthless.  Some of these customers were costing the company money and others were tying up valuable productive capacity with low margin, low volume jobs. 
Sometimes we have to act way outside of our own characters. We have to act in a manner not consistent with our nature.  But that little bit of ruthlessness helps the timely execution of those unpleasant decisions all entrepreneurs make from time to time.

Paranoia

Only the paranoid survive.

Andy Grove, Former Intel CEO

 

I may not be ruthless, but I am paranoid.  I have always had a knack for picking apart arguments.  (I have often thought that my ideal job would be leader of the opposition, although the frightening part would be the prospect of becoming premier.) That being said, as someone who has trained and coached thousands of people through the business planning process, I am a great believer that the business plan in a start-up business must prove, beyond a reasonable doubt, which the proposed business concept will work.  Some call me paranoid, and others the voice or reason.
Now some may think that this is not paranoia, but rather extreme cautiousness.  OK…it really borders on extreme pessimism.  There is something about paranoia, assuming that your competition is ‘out to get you’ that resonates with many entrepreneurs.

Just as too much ruthlessness can make you too mean for business, too much paranoia can paralyze you.  You want to have just enough paranoia to keep you on your toes, and prevent you from getting too complacent.  In business, it a safe bet that there is someone out there who wants to steal your customers.  There is another company looking to gain on you through better products, better service or more cost effective processes.  A am sure that Blockbuster never even gave Netflix a second thought.  After all, they sent DVDs by mail!  Now, Blockbuster is broke, and Netflix is huge.  So much for a lack of paranoia. (As a friend of mine once said, “Even paranoids have real enemies.”)

The Entrepreneurial Nature

We entrepreneurs are a strange breed to begin with.  I am a third generation self-employed.   My great-grandfather was a blacksmith and farmer.  My grandfather was a wheat farmer in Alberta.  My dad was a self-employed Electrical Engineer and I am a business trainer and consultant and my brother is a self-employed contractor.  My son, is in the film and television business, where everyone is considered self-employed.   This demonstrates beyond any reasonable doubt that insanity is truly genetic.

Billy’s Forty-Second Law: Learn to tell your story

To influence people, you must learn to tell your story.  Telling your story, warts and all, makes you human and more likeable.  Structuring your story makes you more understandable.

Telling stories is important, and at the same time, it is difficult.  I am working with a client who was asked to put together the story of an investment in a subsidiary company which, unfortunately, went badly.  The reason was for a financier to understand what happened, and how this decision affected the company.  Therefore, my client began to write out his story.  He spent hours trying to unravel exactly what happened, the mistakes he made, where he made them and what the implications of each step in the process.  The result remained an incomplete story filled with missing parts.

Writing is difficult.  Putting your story together is very difficult, and yet is an important communications skill.  I was working with a different client and we were trying to put together a ‘good news’ story based on a recent success the company had with a new client.  We worked together for about an hour to develop a very simple narrative.

Stories are important.  Stories are the things we are made of, both corporately and individually.  There are stories which resonate.  The Horatio Alger…rags to riches story is one of the archetypical good news stories, especially in America. The Steve Jobs narrative is part of what makes the Apple Story.  The Bill Gates rich to richer is not nearly as dramatic. 

Storytelling is ancient…more ancient than writing itself. Stories and myths connect us.  Learning to control the narrative, to make it interesting and to captivate the audience is truly important.  This is the presentation part of the narrative. 

I used to teach presentation skills.  A good presentation has three components…the story, the structure and the delivery. The story is creative, delivery is technique, but anyone can use make their point.  I envision stories to be a bit like a flower.  You start in the middle, and introduce the theme of the story.  Lay out what you plan to tell people and the context in which you plan to tell it.  Then go into your first point…ensuring that you leave the theme, and then return to it. Once you pass through the theme, you can make your second point and so on.  The three part presentation is easy for an audience to remember.  

This structured, whether in a spoken or written form allows the audience to track and understand your story.  This makes is easier to influence, inform and call a client to action.

Billy's Forty-First Law: Sometimes it’s smart not to follow the crowd

If everybody else jumped off the Lions Gate Bridge, would you jump off the Lions Gate Bridge?  (It all depends on the tide and wind conditions)

Sunday February 1, 2015 was Super Bowl Sunday. They anticipate that over 115 million people watched the game.  This does not include the millions watching in pubs and restaurants all across the US, Canada and throughout the world.  None of these people was at the Dubh Linn Gate pub in Whistler BC.  The manager of the Dubh Linn decided that the Pub would remain Super Bowl Free for the entire afternoon.  This despite the huge numbers of Seahawks fans who routinely visit Whistler. How can it be, that a pub could make such a decision?  Are these people crazy or is there something that we are missing. 

Firstly, the pub is not a sports bar.  There are televisions and they will have sports playing without the sound on but this is an Irish Pub.  The Pub’s house band has it in their contract that the televisions be turned off when they are playing. 

Secondly, there were plenty of places in the resort showing the game.  These places were packed with football fans, and those wondering what this spectacle was all about.

So what possessed the manager of a pub to keep the game off during the biggest annual sporting event in the world?  The answer is simple…money. The general manager analysed the difference between Super Bowl Sunday and other Sunday’s during ski season.  She noted that although the pub was full, revenue was actually lower than a typical Sunday.

The problem with the Superbowl, from the pub’s point of view, is that people park.  Some fans were in the pubs at 11:00 AM for a 3:00 PM kickoff and a 6:00 PM end.  This may mean lots of drinking, however; it is less than turning over the seats in the restaurant with skiers on a normal Sunday.  Although the pubs were filled, even the most hard core football fan slows down his, or her, rate of consumption during that long a period.  People also eat less.  They may order snacks, however; they do not order meals. 

At the same time, staffing levels ramp up.  There are more people, and more people who have consumed a bit too much.  This, in turn, increases the staffing costs to the pub.  One local establishment, a bar serving a younger crowd, actually had a cover charge for both the NFC final and the Super Bowl.  The reason, the Seattle factor. (Not only are people from Seattle fans, but the Seahawks are Vancouver’s adopted team.)

So on the Monday after the game, I asked one of the managers what happened with the Great Super Bowl Experiment.  He told me that the patio was full.  This was the usual après ski crowd coming in after a day on the slopes.  He also told me that inside the pub was very slow.  When they compared revenue this year to revenue on Super Bowl Sunday last year, and remember that Seattle was in both games, the revenue was higher without the Super Bowl. Smaller crowds, with faster turnover, provided higher revenue that large crowds with lower revenue.

There are times when good business tactics are counter intuitive.  The decision not to play the Super Bowl at the pub was bold, yet in this case it seems to have worked.  It is great to see an environment analysis, experimentation and results are an important part of the culture. 

This experiment was a success.  It is still important to experiment, and celebrate experiments that are not successful...even down right failures.  To quote business writer Louis E. Boone:

Don't fear failure so much that you refuse to try new things.  The saddest summary of a life contains three descriptions...could have...might have and should have.

 

 

Billy's Fortieth Law: Belief is stronger than logic.

One person with a belief is equal to ninety-nine who have only interests.

John Stuart Mill

I consider myself to be a rational and open minded individual.  I love to investigate and to make rational decisions based on the current facts available.  I see many people who have no rationale for their beliefs, and often use false logic to come to the wildest of conclusions.  Some of these are harmless, and others are potentially dangerous. 

According to VOX,” Americans ages 18 to 29 are more likely to oppose mandatory childhood vaccination and say vaccines can cause autism, according to a new survey.”  This runs against the majority of scientific belief.  But here is my point.  Another study demonstrated that when logical arguments are applied to these beliefs, those holding the belief hold it even more strongly.

So, what has this got to do with business…you may ask?  Understanding your customers’ beliefs is an essential part of consumer psychology and behaviour. Understanding your employees’ beliefs forms an important part of your corporate culture and customer experience. Unfortunately, belief is not rational.  People often feel that the truth shouldn’t get in the way of promoting their own beliefs. 

Suppose you lead an enterprise, and the employees believes “the company does not care about them, they just care about profits.”  The belief affects behaviour.  Your employees might take the following stand:  The Company doesn’t care about me, therefore I needn’t care about the company, the customers or my performance.  If you point out the employees, just how good they have it.  (Or as one boss of mine told me “You’re lucky to have a job!”) You will not change the belief, you may increase the strength of the belief and worsen behaviour.

In marketing, belief has a huge impact on consumer decision and the image your enterprise reflects to the world.  Changing beliefs is tough.  Rational arguments are rarely effective, and as I pointed out earlier, can make positions recalcitrant. 

When internally held beliefs are hurting your company, determine why people believe them.  Acknowledge the problem, and clarify any misunderstandings or down right lies.  Don’t over sell.  If people don’t feel valued, ask them why, and ask them to provide examples.  There may be some veracity in their point of view. 

The public is trickier.  Some people won’t change their minds.  All you can do is attempt to engage fairly and rationally, without being argumentative.  In the example of vaccinations, if I were a pharmaceutical company I would point out the ongoing nature of review and evaluation of my products.  This does not contradict the possibility of danger, but ensures the company is vigilant to such possibilities.  The worst thing to do is to make statements about the testing.  It only looks like justification and not explanation. 

It amazes me how often McDonalds is the target for everything from obesity to labour conditions.  In Vancouver a McDonalds was targeted to protest a "training wage".  This was a rate lower than the minimum wage to encourage employers to hire and provide experience to those without work experience. The McDonalds in question didn't even use the training wage. When this was pointed out to the activists in question, they were unapologetic saying that it didn't matter whether they were using it or not...they had the right to protest. 

To quote Taylor Swift. “Haters gonna hate, hate, hate, hate.”  Unfortunately, it is difficult in the public arena to shake it off.

Belief is strong…faith is strong.  Whether belief in God, an economic system, a company or your local hockey team, peoples strongly held beliefs invoke strong reactions.  These are a reality every business owner and manager must understand and accept.