Message #140
Monday, July
31, 2000
HOW TO MAKE YOUR BUSINESS
IMMEASURABLY BETTER . . . AND YOUR LIFE TOO!
One
of the ideas I’m going to come back to over and over again is what I call the
theory of incremental degradation – that you can eventually ruin your business
by making many very small downgrades in the quality of the product or service
you offer.
These
downgrades are usually implemented to cut costs. You might, for example, switch
to a cheaper grade of paper stock for your business letters. Or reduce the
number of screws you use per stud from six to five..
These
small reductions may go unnoticed by your customers and have no measurable
impact on sales. And since they result in savings, they will produce short-term
benefits to your bottom line.
But
in the long run, the theory goes, the accumulation of these incremental degradations
results in something that is noticed. Suddenly (and inexplicably), sales slump
and profits tumble.
I
believe this theory, but I have always had a difficult time making a case for
it. If a cost-cutting measure is
proposed and I can’t link it to a measurably negative effect, it seems foolish
not to support it. After all, savings result in a healthier bottom line. And
the bottom line is the bottom line, right?
No.
And no.
No,
because eventually the habit of focusing on what’s in it for you (saving
money/higher profits) has a noticeable impact on your customer. One day he is
using your product and says to himself, “It just doesn’t work like it used to.”
Or he tries another product and says, “Wow, this is better.”
Focusing
on short-term profits usually results in long-term problems. And the irony is
that when the problems arise, you won’t be able to understand them because all
of your bad decisions will seem, in retrospect, to have been good ones.
Put
differently, you can make money by cheating your customers, but you won’t hold
onto them. Instead, you’ll spend all your time and energy finding new customers
. . . and thus you’ll spend the last day of your working life hustling just as
hard as you did on your first day. That’s no way to live.
And
I haven’t even mentioned the negative feelings you’ll have about yourself.
Downgrading
your business is like putting on weight. If you do it slowly enough, you will
not even notice how unattractive you have become.
But
this is a tough argument to make in a conference room when your partner or your
colleague has just presented an idea that will “save a fortune” and “won’t even
be noticed by the customer.”
An
idea I talked about on Friday in Message #139 – Malcolm Gladwell’s “tipping
point” – may be helpful here. To
refresh your memory, Malcolm Gladwell is the columnist (New Yorker magazine) who
just published a book that explains how and why little things can have big
consequences. The tipping point theory is named after an experiment in which a
glass of water is filled to the brim and then – one by one – drops of water are
placed on the water’s surface, raising the level above the rim until one single
drop tips the balance and all the excess water spills over.
Gladwell’s
theory was inspired by an article he read in The American Journal of Sociology
in which it was shown that the quality of life in a neighborhood can
deteriorate gradually without effect until a certain point is reached. Then, suddenly,
there’s a big reaction. Crime statistics and teen pregnancy, for example,
skyrocket.
If
this doesn’t explain incremental degradation, it corroborates it. And that may
help me make the case next time I need to.
But
the incremental degradation theory begs another question: If small degradations can damage a business,
can incremental improvements result in an eventual boost upwards?
I
think so. In fact I’m almost positive. But again, I can’t prove it.
Let’s
look at a major historical example. In the 1950s, Japan entered the U.S.
consumer market by offering inexpensive toys and household goods. (Back then
“made in Japan” meant poor quality.) But the Japanese were smart. As their
share of the U.S. market grew, they gradually upgraded their product quality.
Meanwhile, their customer base (the baby boomers), grew up, entered the
workforce and became more affluent. Eventually (I can’t tell you exactly when
it was – sometime in the 1980s, I think), Japanese products had become state-of-the-art.
And dominant in the marketplace. Because of their many little improvements, the
Japanese had bypassed their behemoth American competitors. The tipping scale
had tipped.
As
a compulsive builder of new businesses, I have spent too much time devising ways
to knock off trends with cheaper variations. (This is, as I have observed, the
way to go only when you are starting out.) I have also had some experience in making incremental improvements
– which has been, for the most part, very rewarding.
One
case in particular – an investment service I started twenty years ago – is
doing better than ever today, with a great staff and a great line of products,
attentive customer service, and a very happy customer base. This was a start-up
company that should have lasted seven years at best. It’s still here. And it’s
still making millions, because (I firmly believe) its management is completely
committed to making it better in every possible way.
Incremental
upgrading is smart business. You won’t be able to prove its value. However, if you
have faith in the process and make the changes gradually, your business will
gradually improve as your customers grow older and richer (and develop more
trust in you).
Plus,
as time goes on, sales will come
easier, you’ll enjoy word-of-mouth referrals, you’ll spend less money on legal
and regulatory issues, you’ll have happier, more committed employees, and you’ll feel better about yourself.
Maybe,
when all is said and done, it’s just a matter of the kind of person you want to
be. Remember Message #102? I walked you through the process of determining what
you wanted in life. I told you to limit your goals to four, and I suggested you
think about what you’d like people to say about you after you’re gone.
Well,
now ask yourself that same question as it relates to your effect as a
businessperson. Would you prefer to be known as someone who knew how to squeeze
an extra dollar out of every deal? Or as someone who made the world better,
even if in the smallest increments?
* *
* * *
Lynn
Coady, a 30-year-old Canadian writer, was resigned to living on the meager income
of a fiction writer when she wrote her first novel, Strange Heaven. But she
didn’t realize how bad things would get until her publisher, New Brunswick
Press, withheld her royalties and asked her to pay for her own expenses while promoting
her book.
Even
after she was nominated for Canada’s prestigious Governor-General’s Award for Fiction,
things didn’t get better. In fact, they got worse. In the middle of a flurry of
phone calls that would have given her some much-needed publicity for the book,
her phone was cut off.
But
she persisted.
Her second book, Play the Monster Blind, was published by
a major publisher (Doubleday Canada) that could afford to pay her cash up front.
And now, there’s talk of a movie deal.
MMF
*
Tuesday’s Action Brief: Make that first, small incremental change - today