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PHIL HARDWICK: Who matters most to the small business owner?

PHIL HARDWICK

PHIL HARDWICK

The small business owner must serve four masters. They are the customer, the employee, the product or service and the owner himself or herself? Each is important, but is there one more important than the others?  The four perspectives about each are presented for discussion before revealing that there is evidence that suggests one provides the best return on investment.

The conventional school of thought says that the owner should pay himself or herself last. After all, isn’t the profit the primary reason that someone goes into business in the first place? Besides, the owner must be paid last because if the owner does not pay employees, suppliers and a variety of other expenses the business will not be in business very long. Then there are those who say that the small business owner is really more like a management employee and that the manager’s salary should be included in the operating expenses of the company. That would certainly be a good idea if there is plenty of money coming in to pay all of the expenses. Besides, if the owner desires to become a passive owner, i.e. more of an investor, then the manager’s salary will be an expense. All of this makes good sense when the income of the business exceeds the expenses.

There is the school of thought that states that putting customers first is the first rule of business. If a business has no customers then it has no business. The importance of putting customers first seems to be more relevant every day with the introduction of some new technology product or technology-based service. Today’s customers are more sophisticated and have more tools at their disposal to air grievances and compliments. And the customer has more power than ever before. One recent report said that 90% of consumers trust peer reviews and 70 percent trust online reviews. According to Market Metrics, the probability of selling to an existing customer is 60-70 percent, while the probability of selling to a new prospect is 5-20 percent. Many would argue that if customer service is not now the most important focus of running a small business that it will be in the very near future.

The chicken-and-egg argument comes into play when discussing whether the customer or the product or service is more important. Each depends on the other. Understanding what the customers wants leads to offering that product or service. In most cases, the best product or service is rewarded with the most customers. Therefore, the product or service should be the biggest focus.

Then there is another perspective. Although customer service is becoming more important, customers sometimes do not know that they want a product or service until it comes along. As Henry Ford pointed out, “If I had asked them what they wanted they would have said faster horses.”

Management guru Peter Drucker had this to say about product and service. “Quality in a product or service is not what the supplier puts in. It is what the customer gets out and is willing to pay for. A product is not quality because it is hard to make and costs a lot of money, as manufacturers typically believe. This is incompetence. Customers pay only for what is of use to them and gives them value. Nothing else constitutes quality.”

This Drucker comment is very interesting in light of the ongoing GM recalls. As of Oct. 3, 2014 its total recalls for the year climbed to 71, affecting almost 30 million vehicles in North America. And yet, sales of GM motor vehicles have not significantly fallen. According to an Aug. 1 press release, “General Motors dealers delivered 256,160 vehicles in the United States in July, for the company’s highest July sales since 2007. Total sales were up 9 percent compared with a year ago. Retail sales — those to individual customers — were up 4 percent. Commercial deliveries were up 69 percent and all other fleet deliveries were up 21 percent.”

What about the idea that the focus should be on employees? Isn’t that where the customer service experience really comes from? Even when the product is only average, if employees treat customers with care then the company will be rewarded with good sales. After all, research shows that employers who have the happiest employees have the greatest sales. Just look at Google, with its employee benefits. On the other hand, one may cite Amazon’s sales numbers and financial performance as compared to its not-so-happy employees. Amazon’s stock price in October 2010 was around $150, while this month it is over $300. It now sells over half the book sales. Its employees do not enjoy the highest wages or the biggest perks. Consider this headline from the Dec. 19, 2013 International Business Times website, “Amazon.com’s Workers Are Low-Paid, Overworked and Unhappy; Is This The New Employee Model For The Internet Age?”

Clearly, every small business must focus on all four things mentioned above to be successful. Also, each business is different. One business may need to be obsessive about customer service while another should focus on delivering quality products. Nevertheless, all businesses would benefit from knowing that there a connection between workers feeling well-treated by their employers, and the bottom line. “CBS News Sunday Morning” reported on this subject in its Aug. 31, 2014 edition. One example it used was 15 years of stock tracking in Fortune magazine’s “100 Best Companies to Work For,” which outperformed both the S&P 500 and the Russell 3000 indices. The result was an 11.8 percent increase in the stock value of the “100 Best” companies, 6.4 percent in the Russell 3000 and 6.04 percent in the S&P 500.

» Phil Hardwick is a regular Mississippi Business Journal columnist and CEO of The Hardwick Company, LLC, which provides strategic planning facilitation and leadership training services. His email is phil@philhardwick.com and he’s on the web at www.philhardwick.com.

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