Each Monday I post the next section of my 2001 book, which was originally called (by the publisher) Hoover’s Vision but which I have now retitled The Art of Enterprise. I have posted over half of it already; click on the “Monday” column to see all the prior sections. The entire book can be downloaded as a PDF for $10 at http://www.scribd.com/doc/25085990/The-Art-of-Enterprise-by-Gary-Hoover-January-2010
Keeping your eye on the customer
As I have worked in and with many companies, I often see them over-focusing on the competition or on outside factors. Being a lifelong learner and observer, I have always kept up with the competition. When I was in the bookstore business, I was in the competitors’ stores at least weekly. At minimum, I wanted to know what they were doing wrong, and maybe spot a potential new employee. I wanted to make sure BOOKSTOP was differentiated. But, even with all that scanning, most great enterprises are ultimately introverted.
The idea is simple: If you just take care of the customers you have today, if you focus on the people walking in your door, ringing your phone, or buying on your website, you will be on the route to success. If you figure out how to keep these customers happy, how to convert the unhappy customers into happy ones, if you can turn all of them into advocates rather than mere customers, if you can get them to tell their friends, if you can get them to stay longer and buy more, you will have it made. We spend so much time and energy on attracting new customers, but often the most direct route to prosperity is by asking our existing customers, “What else could I do for you? What else do you need?”
Continuous improvement is another key idea. I have consulted for some companies that spend enormous energy looking at the competition and trying to figure how to outsmart them. But if these same companies instead said, “What do we do right and how can we do it even better?” they would be way ahead. How can we reduce the wait time on our phones? How can we reduce the delivery time? How we can we lose fewer pieces of luggage? Looking at your strengths, at your own personality, and making the most of it is critical to building a great enterprise.
One of my favorite stories is that of Continental Airlines. In the 1970s and 80s, they were the talk of Wall Street. Empire builder Frank Lorenzo, a brilliant man, bought Eastern, People Express, and Frontier and consolidated them with his Continental and Texas International (formerly Trans-Texas, or “Tree Tops”) Airlines. In this era, Continental expanded aggressively to Europe, and developed big hubs in Cleveland and Newark. The company made the front pages of the Wall Street Journal frequently. But the company also made two complete roundtrips through bankruptcy court. Eventually, Lorenzo, embroiled in bitter battles with employees, was driven out of the industry. Maybe he wasn’t quite smart enough.
Some investors bought Continental when it was down on its back, its stock cheap. At the time, they appeared the greatest of fools. But they hired a fellow named Gordon Bethune to run the company. Bethune now tells how he did not realize what a mess things were until he arrived at Houston headquarters, and how he gave serious thought to immediately packing up his bags and heading home. But instead he gave it a shot.
He found that flight delays were costing the line millions of dollars a year (to pay for hotels and alternate flights). So he told his people, “I will pay each of you a bonus every time that we are one of the top airlines in on-time departures.” These bonuses were small – between $50 and $100. But soon his airline was consistently among the top three, sometimes first.
Bethune saw that employee absences were costing the line dearly. So he took every employee who did not miss a day of work for six straight months and put their name in a hat. Every six months, he drew one out and gave away them a Jeep. Gordon Bethune ignored Wall Street. He put all his energy into making the planes fly on time, into not losing baggage, and into treating customers right. Today Continental consistently wins awards for being the best long-haul airline (Southwest usually wins the honors for shorter flights). In the first quarter of 2001, Continental and Southwest were the only major US airlines to make a profit. Bethune has written the company’s remarkable story in his book, From Worst to First.
If most companies merely took their present customer base and focused on them, looked at how to serve them better, how to offer them more, how to get them to tell their friends and attract more customers, most companies would not have to look elsewhere for business. As Amazon and other New Economy companies have found, the great expense is attracting new customers. Customer acquisition cost has become one of the most closely watched statistics at any company. These new customers are the expensive ones. Once you have a customer, it is worth your while to do everything you can to keep them, to make them even happier. And yet many enterprises, certainly most of the retailers I am familiar with, do not know how many times you have been in their store, how much you have spent over months or years of shopping with them, or how much you might spend during the rest of your life if they keep you happy.
Flying high versus staying close to the ground
“Whenever you get confused, go to the store. The customer has all the answers.” Sam Walton, as quoted on a corridor wall at GSD&M (Wal-Mart’s ad agency)
Knowing and serving your customers starts with being close to them – at the lowest level.
In October 1990 we published the first edition of Hoover’s Handbook, our guide to the world’s most important companies. While we were pleased with sales exceeding 30,000 copies, we had printed far more than that. So we had a few extras on our hands. By spring 1991 we were already working on the second edition, and we tried to figure how to use the old copies to help the business over the long term. We started giving them away where they would do the most good. In this pursuit, I set up a meeting with one of the top marketing executives at one of the largest Wall Street brokerage houses. I went in and said, “we’d like to get this $20 book on the desk of every one of your ten-thousand-plus stockbrokers. We’d consider doing it for $1 a copy plus shipping.” Of course, I had some room to negotiate on that price. All I really wanted to do was to get them into the hands of all those brokers, who had millions of customers, most of whom were interested in learning about companies.
She gave me the polite reaction that, “oh, you mean our financial consultants. We don’t really do much for them. I am busy right now, I am meeting with some folks about our pending sponsorship of the Olympics.” Being a lifelong salesman, I took the turndown in stride and went looking for other places to give away my books. But I could not help but notice how desperately far removed from the “little customers” this great investment organization, originally built on individual investors, had become.
It is so easy to get caught up in the clouds. It can be exhilarating to sponsor the Olympics, to get a good seat at a NASCAR race, to throw a party for customers where Bill Cosby gives a speech, or to ride in a private jet. And it can be hard work to sit down and talk to real customers, to visit them on their turf, to listen to their agonies, to help them solve their problems. And yet virtually every great leader spends disproportionate amounts of their time with customers. Small customers, big customers, any customers.
When I was first learning the retail business as a buyer at the old Sanger-Harris (Dallas) division of Federated Department Stores, all buyers were required to be on the selling floor helping customers during the noon hour. This was not a put-it-in-a-memo-and-hope-someone-does-it kind of thing. The chief merchant (a title second only to God in a retail company) came storming through the buyers’ offices – all of them – every day at 11:50 barking like a drill sergeant, “Almost noon! Time to hit the floor! Double time! Double time! All hands on deck!”
In those days, Federated was the envy of its peers (the Bloomingdale’s division even made the cover of Time magazine). The company was run as a group of independent store divisions, each led by a chairman who was all-powerful in that division. If they made their goals, they kept their jobs. If they didn’t make their goals, they were replaced. In the interim, corporate stayed out of their way. Corporate CEO Ralph Lazarus only visited each division once a year, in a formal, pre-announced visit. He kept out of your store, and out of your hair, the other 364 days.
I had just arrived at Sanger-Harris (now called Foley’s) when our “Lazarus day” came around. Keep in mind that not only was Lazarus CEO, he was the leader of the founding family, a retail industry icon. As the parade of execs came through the store to my department (books, of course) I stood like a rank private at attention. Our local Chairman, Don Stone, introduced me to Mr. Lazarus and I said hello, trying not to show my sweating. I hung on every word that Lazarus uttered, and expected Stone to do the same. But, halfway through one of Lazarus’ profound sentences, Stone started moving away, saying to Lazarus and me, “Excuse me a second.” He moved through the stacks of books toward a lady customer no one had noticed. No one except Don Stone. After helping her find the book she was looking for, he came back and turned to Lazarus and politely said, “As you were saying … ?”
I was now really sweating bullets. I was thinking, Stone has insulted the most powerful man in the department store industry. I was sure to have a new boss by Monday. Maybe I had witnessed the beginning of Armageddon. But did Lazarus fire Stone? No, he promoted Stone, who went on to bigger and bigger things with Federated, peaking at Corporate Vice-Chairman.
What I learned that day, which I have never forgotten, was what is most important. It was something that both Ralph Lazarus and Don Stone instinctively knew – and wanted to teach the new guy – that the person with all the power is that lady looking for that book. Without her, we are all for naught.
It is a continual struggle to stay in touch with real customers, to make sure we operate in the real environment rather than from some ivory tower or lofty peak. The airlines devote great energy to “airside” (seating in the airplane, inflight services) but tend to ignore “landside” (baggage handling, airport parking, check-in process). Banks run elaborate national ad campaigns but their ATM’s don’t work. Coca-Cola, on the other hand, keeps running great TV ads, but they also know that their trucks and their vending machines are communications opportunities closer to where the buying decision is made.