Expensive Water

One of the phrases you hear in the service industry is “the customer is always right.” I disagree. Without a doubt, there are some customers who are wrong. However, retail businesses need to remember they are in the image business and try to build goodwill with both current and future customers whenever they can. Sometimes they succeed, and other times they fail. Here are a couple examples:

Today, I was sitting in a café that I regularly frequent when a woman walked in the front door and asked the barista, “How much is a cup of water?”

Without hesitating, the barista answered, “It’s seventy-five cents for the cup.”

The woman appeared to be hoping the water would be free, so unsurprisingly, she did not buy it. With a curt “thank you,” she turned and walked out the door. As a frugal consumer myself, I don’t blame her. I would balk at paying that much for a cup of water.

Trying to figure out how annoyed the woman was, I watched her as she returned to the parking lot, where her husband was waiting for her with a stroller (and, I assume, a small child).

From my perspective, the barista should have given the woman a cup of water. A woman walking around the neighborhood with her husband and a stroller likely lives nearby and could turn into a repeat customer. The barista’s response was an example of being “penny wise, pound foolish.” The cost of a cup is insignificant compared to what a loyal customer would spend in the future. However, I doubt the woman comes back anytime soon.

Somewhat ironically, a man came in a few minutes later, pleading for help.

“I know that restrooms are only for customers, but could I please use the bathroom?” he politely begged.

The barista nodded in assent and pointed him to the back of the store. This time, she didn’t figure it was necessary to hold the line on the rules.

The stories illustrate what Seth Godin would call  the “scarcity mindset” versus the “abundance mindset.” In the first case, the barista acted as if the cups were scarce and that by giving one away she would hurt the business. She missed an opportunity to help the woman (and maybe create a loyal customer). The second time around, the barista bent the rules to be generous with the customer, even if he did not buy anything. He was careful to thank the barista on the way out, and it appeared he was leaving with a good impression of the café.

Each of the two customers came in asking for essentially the same thing (something for nothing). The barista had the opportunity to build goodwill with both people who came into the cafe, but only did with one. She might think that being successful 50% of the time is good enough, but there are a lot of cafés out there competing for business, and whether or not “customers are always right,” they certainly think they are.  Treat them well—your business will prosper.

Pursuing success with the Harada Method

Over the last year, I have occasionally talked about creating a new path for yourself, following dreams and doing something that gives you a sense of satisfaction and success. Along those lines, today I am sharing a video that I put together from a talk that Norman Bodek recently gave at George Fox University.

Bodek is the founder of Productivity, Inc. and Productivity Press. Around 1980, he started the two companies to bring the best of Japanese management to America. Through them, he brought what we call Lean Manufacturing to this country. I have been working with Norman for the last couple years, helping manage his newsletter and website and doing some writing/editing for him. In the video below, Norman discusses the Harada Method, a personal/professional development system that he is now bringing to America for the first time.

The method is named after Takashi Harada, who developed the system. Harada is a former teacher/coach in Japan who teaches companies and individuals how to be successful. By starting with a goal in mind, the Harada Method helps you become self-reliant and create a clear path toward reaching your goals. The video gives you a better idea of how the method works.

(If the video doesn't show up in your browser, click here.)

This coming October, we are holding a workshop at the Marriott on the Waterfront and I wanted to share the video with you, in case you might like to attend, or in case you just happen to be interested in reaching your fullest potential in life. Whether you work for a Fortune 500 company or are thinking about starting your own corner coffee shop, the method can help you be successful. If you have any questions about it, you can send an email to bodek@pcspress.com or hutchens@pcspress.com and we will send you some more information.

Buckle up, we care about you (really!)

Language matters.

Walking down the street near Belmont Ave. today, I noticed the following sign at the exit of an apartment complex’s parking lot. The sign caught my eye for its choice of words and for its callous connotation. Can you guess why?

 

Thanks for caring

Hint:

Tenant=person who lives at the place

Tenancy=agreement to pay rent in exchange for the right to live there

There is a subtle, but very important, difference between saying “we value your tenancy” and “we value our tenants.” By valuing tenancy, the sign implies that they want you to buckle up so that you can pay your rent. I am sure (well, I hope) that whoever wrote the sign for American Property Management intended to say they value their tenants but made a mistake in the writing/editing process. Surely, they care about the people that live in the apartments, right?

It could be an innocent mistake, or perhaps it was a Freudian slip.

Then again, maybe they were just being honest.

Flying high and keeping your costs down

When you go to Coffeehouse Northwest (on West Burnside) and look at the menu board, you might choke a little bit when you see that an espresso costs $3. I know I did the first time I saw it. Even with the run up in coffee prices over the last year, most cafés still charge between $2.00-$2.50 for an espresso, so $3 seemed spendy. However, there is a way to get around the lofty price, by ordering a “flight,” something you won’t find on the menu. A flight is a pair of espressos, one of each of the two types of coffee on grind (my guess is that calling it a “flight” has something to do with how you feel if you drink them too fast). CHNW keeps two different espressos available, usually from Sterling and often both single-origin coffees. Today’s offerings were from Ethiopia and El Salvador, respectively.

If you order the flight, they only charge you $4.00 total for both of them. If you plan to spend more than an hour there, this is a good deal. Coffeehouse’s baristas know what they are doing, and they pull good shots. They will also let you spread out your espressos so that you don’t get buzzed too quickly.

That’s your bargain-hunting tip for the day.

On a side note, while I was sitting in the café today, I overheard an interesting conversation about stripping (I just report what I hear, okay?). Three women at the next table were having a very open conversation about how to make good money working at a strip club. It sounded like the most important rule is that you sell the customers without letting them know they are being sold. According to the most experienced of the three, between “acts” you get down off the stage and work the crowd—talk to the customers, shake their hands, ask how they are doing, etc. The more social you are, the better, because creating a connection with the customers pays dividends.

I’m sure there’s a business lesson in there somewhere…

Coffeenomics, Dunkin’ Donuts and Private Equity

Today, in case you  missed it, Dunkin’ Donuts (DD) held its initial public offering (IPO) on Nasdaq. By all accounts, it was a successful IPO. The stock was originally supposed to be priced at $16-$18 per share, but the day before the sale, the owners raised the target price to $19 because they sensed there would be more demand for the stock than originally believed.

The sellers were right. On the first day of trading, Dunkin’s price jumped nearly 50%, closing at $27.85 per share. It was a good day for the owners.

I don’t want to dwell too much on the stock’s price or where it might be going, though that would be an interesting discussion (Forbes has a somewhat pessimistic take here). What I do want to talk about is a small part of the Forbes article that caught my eye:

The members of the consortium recently paid themselves $500 million in a special dividend, which ended up as debt on the company's books, so the IPO proceeds will essentially go to pay for that little kicker.

The ‘consortium’ consists of three private equity firms: Bain Capital (Mitt Romney’s former company), the Carlyle Group and Thomas H. Lee Partners. They had previously purchased Dunkin’ in a leveraged buyout (LBO), meaning they borrowed a lot of money (~$2.4 billion) to buy the company.

Leveraged buyouts are nothing new—they are what private equity firms do.  The firms borrow huge sums of money to buy a company that has a lot of cash or saleable assets, with the idea that they can dispose of the non-performing assets and make the company more profitable. The buyout firm is supposed to improve the operations of the company to make it more profitable and attractive to future buyers. They come in, turn the company around, and sell it after a few years for a big profit.

At least that’s how it is supposed to work.

Often, however, when the private equity firms buy a company, they saddle the company with huge amounts of debt, making it harder for the company to be profitable. Dunkin’ Donuts’ LBO is a typical example—the debt used to purchase the company ended up on the company’s balance sheet, and payments on the debt have been dragging down DD’s earnings. The money raised in today’s IPO was being used to pay down the debt.

This might lead you to ask, if Dunkin’ already had a lot of debt, why would the owners pay themselves a “special dividend” that only increases that debt? The short answer: because they can. As owners of a company, they have the right to do just about whatever they want to with the company’s assets, so paying themselves this kind of dividend is common. The investors get paid, regardless of whether or not the buyout actually improves the long-term health of  the company.

In order to make the LBO successful, the new owners ratchet up pressure on managers and employees, pushing for higher productivity and profitability. The push to make higher profits often leads to cuts in salaries and benefits, store closures and layoffs.  

The private equity firms  argue that they are just squeezing inefficiencies out of the system. They fail to advertise that these “inefficiencies” are often peoples’ jobs, pensions and by extension, their lives. Just ask the people who worked for the Chicago Tribune. The beneficiaries of the LBOs are the investors, not the system.

Here’s the bottom line: Billionaires can play games with other people’s money and lives in a way that the rest of us can only dream about.

Whether we like it or not, that’s how it is, and I don’t see it changing anytime soon. To tell you the truth, I can’t decide whether to rail against the system or try to start my own private equity fund. Maybe I’ll just start the prep work for a successful Caffeinated PDX IPO. . . How does the year 2020 sound?

Thoughts?