Saturday, April 18, 2009

Money, The Unwritten Contract.

When a customer pays a lot of money for an item there is an unwritten contract between you and that customer.

In short form it goes like this:

I am paying you a lot of money because I expect to get a product that:
  • works good (better than a cheaper version)
  • doesn't have problems (and if it does, you will move earth to fix it for me)
  • you will respect me as a customer

OK, let's take two live samples.

1) We bought a Whirlpool front loading washer about 10 months ago for over $1000. I've always paid under $100 for a used washer and my fiance wanted a top-of-the-line computerized model as our laundry needs have gone up exponentially. Within a few months the computer board inside had to be replaced. We were without laundry facilities for a few days. No biggy. Couple months go by and the seal on the front door fails. It literally took 10 phone calls and 3 weeks to repair one simple piece. Whirlpool promised to give us a cheque for $50 for laundry costs but never did. Our unwritten contract with them was that we give you lots of money and you give us a product that actually works. I have never had so many problems with a product that I paid $100 for let alone $1000.

2) Same time frame. We bought a queen size mattress for $600. Somewhat pr icy for us. After about 3 months the top cover began to rip and unravel. The pillow top is sliding and removing from the top. We called the store and they said to take pictures. We sent them and never heard back from them. We called again and they said they never got the photos and would not likely cover it anyway. Again they broke the unwritten, "I PAY LOTS, I EXPECT LOTS" contract.

Lesson? Well there is two lessons. If a customer pays you lots, he/she has a contract that they are getting a lot. Whirlpool should have 24 hour shipped the part and had a guy out here within a day. The mattress place should have called the manufacturer and had them deliver a new one.

The second lesson is sometimes if you can provide a good product and back it with a good service, don't be afraid to charge more for it. After all, you are not likely competing with someone that is providing the same thing.

The $2 Cup of Coffee Delivered to You. Not Going to Happen!

At some point in your business dealings you will hear a fantastic idea...that you will later have to throw away.


Because it is not possible to make money at it no matter what.

Recently my spouse said, "Wouldn't it be great to just have Tim Hortons deliver a coffee when you crave it?"

Yes it would. It is even possible to do (by possible I mean physically possible, that technology is here to do it). But it is not even remotely financially feasable. Can you imagine the vehicle expenses alone?

It may be possible once a certain technology exists or if somehow someone figures out, "Tim Hortons Coffee on demand" just like they figured out TV on Demand. But not likely anytime soon.

My recent business is a more realistic example. We thought it was possible to show renters a series of apartments and houses and let them make a decision on which to take. But because of economic, marketing, fuel, and a million other factors, it is not possible to do so. The average cost to send a rental agent out is $75/hr and the turn over rate is not yet high enough to support those costs let alone make a profit. A Landlord will not pay the amount required to offset this cost (at least not yet). Each agent could be spending that same hour making much more money at practically anything.

It is possible to pick one aspect of the business, be the best at it and be able to make a profit at it.

Property management is another very very good example. You would think that you could start a business managing people's rental houses no problem. Every Landlord I talk to wants this service. I can definitely tell you, people will not (cannot) pay you enough to make a living at it. The service level that is required is NOT possible for a small venture.

On a large scale, both of my personal business examples would work. However, they would need way more capital then I have access to.

What I am learning is the simpler the service, the more likely you will make money at it. I make more telling people how to advertise on Kijiji than actually doing the business they are in. In other words, I can show people how to rent their houses and even manage their homes and MAKE MONEY AT IT.

So when developing your business systems, keep in mind that at some point you have to turn a profit. If there is not enough of a market, the materials cost too much, people will not pay enough for your service, either give it up or find a way for it to be profitable. Maybe go even smaller, service a niche with the service.

Eventually you will find the money making business and know how to operate it. I have confidence in you.

Learning What 'Not' to Do So You Can Be Successful

There are two ways to learn in your pursuit of business success:

1) Do something so you can learn WHAT TO DO.

2) Do something so you can learn WHAT NOT TO DO.

Both are equally valuable, especially in the success of your business.

I don't know why most business people I meet do not want to go through point #2 (what not to do) and always pursue doing the perfect thing only. I would rather fail 5 times in a year and learn what not to do then taking 5 years to learn what actually does work and not know what doesn't work.

Let me give you a monetized example:

1) Say you are trying to sell a new service; pool openings/closings. You run ads in the local paper after researching that this is producing the highest return. After a year you are getting about 5 sales per week making $50/sale ($250/week). After 5 years you work this up to 20 sales per week but had to lower the price to $40 so now you are making ($800/wk). Consistent. There is no employee overhead. You are happy.

2) Say you tried to run ads in your local advertiser. Only received 2 calls per week. You ran ads in local newspaper and got 5 sales per week. But what you learned by doing this is that the numbers are not enough to offset the cost of advertising. So you learn your lesson (what not to do). You try free online advertising, search engine optimization, flyers, and finally after making the same money #1 is making you decided to try lawn signs. You put out 50 of them and the cost is $300. From that you find that there is so many calls coming in you cannot handle the work yourself. You farm out the work and turn full-time to marketing this business. Now you are making thousands sitting around all day all because you tried, failed, tried, paritally succeeded and finally tried and hit it out of the park. And what's better, you begin to refine the signs and produce ever more response.

I myself have failed and watched others fail so much that I should be an expert by now at what I do. And I am. But only because I failed along the way and learned from those failures what everyone else did not.

Don't be afraid to succeed through failure. Some of the greatest business people in history understood this and were never afraid to learn from "what not to do".

Wednesday, April 15, 2009

The Chasm Between Decision and Action

My whole life I have tried to develop the "make a decision NOW" skill.

It is what defines me. I am able to make a decision FAST while others are still thinking about it.

Some may call it insanity (and often silently and not-so-silently do) but I call it, "Let's get on with it!"

The reason I decide fast is because until you make that decision, no action can take place and the sooner the action takes place, the sooner things get done (which is the whole point of business!).

Until things get done, you will never make money. Action makes money! Let me give you an example. Who is going to make more money?

Person 1 sits and thinks about how best to design her new line of clothes. She is thinking about colors, current styles, researching, thinking, thinking, thinking. She has targeted 6 months to release.

Person 2 gets a pair of scissors out, cuts, sews and puts it on the rack. The style is already in her head, she may be testing things but at least things are getting made. She makes money within a week.

Of course it could be said that person 1's planning may result in more money, BUT WHAT IF IT DOESN'T! That's 6 months of income lost. Person 2 could have developed enough knowledge AS she was making money as person 1 who didn't make a dime (and actually lost costs).
But some people have a very hard time making these decisions. If you are not capable of doing this, you better hire someone that is!
"Whenever you see a successful business, someone once made a courageous decision" - Peter F. Drucker