Think Basis It's Good For Business

One quick way to create a lively discussion with a group of business owners is to ask whether or not to pay money for referrals. Business owners are well aware of the importance of referrals to their businesses. In 2009, John Jantsch, author of The Referral Engine, conducted a survey of several thousand small business owners. He found that 63.4 percent felt that over half their business came by way of referrals.  Surprisingly, 79.9 percent of this group admitted that they had no system in place to generate referrals.

Informal word-of-mouth (WOM) communication about a product, a brand, an organization or a service often comes in the form of a referral. Referrals are motivated by intrinsic or extrinsic rewards.  According to research conducted in the Journal of Business and Psychology on Motivations and Outcomes for Employee Referrals (2004), intrinsic motivation is defined by behavior ‘‘that is performed for its own sake rather than for the purpose of acquiring material or social rewards’’, while extrinsic motivation involves monetary rewards. People make intrinsic referrals as a means to “channel self-involvement and to enhance self-confirmation that they made a good choice”.

In his book, Predictably Irrational, Dan Ariely, conducts many experiments around the idea of social vs. market norms and offers insights on the different ways people are motivated. Ariely discusses these two worlds below:

As Margaret Clark, Judson Mills, and Alan Fiske suggested a long time ago, the answer is that we live simultaneously in two different worlds: One, where social norms prevail, and the other where market norms make the rules. The social norms include the friendly requests that people make of one another. Could you help me move this couch? Could you help me change this tire? Social norms are wrapped up in our social nature and our need for community. They are usually warm and fuzzy. Instant paybacks are not required: you may help move your neighbor’s couch, but this doesn’t mean he has to come right over and move yours. It’s like opening a door for someone: it provides pleasure for both of you, and reciprocity is not immediately required.

The second world, the one governed by market norms, is very different. There’s nothing warm and fuzzy about it. The exchanges are sharp-edged: wages, prices, rents, interest, and costs-and-benefits. Such market relationships are not necessarily evil or mean — in fact, they also include self-reliance, inventiveness, and individualism — but they do imply comparable benefits and prompt payments. When you are in the domain of market norms, you get what you pay for—that’s just the way it is. When we keep social norms and market norms on their separate paths, life hums along pretty well. When social and market norms collide, trouble sets in.

Understanding a customer’s referral motivation is difficult because it is different for each person.  A great way to gain long-term dividends is to identify your most active referral sources and create referral messages and promotional campaigns that resonate with their motivations. Because motivation is often intrinsic, the only way to find out is to ask your customers.

For a business to be referral worthy, it must be trustworthy. Every time a customer makes a referral, they put their reputation on the line. They also believe that the same excellent experience you gave them will happen to their friends and family.

Jantsch describes two small business examples outlining the challenge when social norms overlap with market norms.  The first is about a woman who had a positive experience with a business and over time became an excellent referral source. The company without consulting her, created a monetary incentive program. They sent her a letter saying they would pay her $10 for every referral. All she would need to do was to send them her entire contact list. She immediately stopped sending referrals because she got completely turned off. Her motivation for referrals was  to share the positive experience with those in her network who may need the service.

In another example, Jantsch describes a remodeling contractor, who had a policy of paying $1,000 for each referral. When several customers were asked about their motivation, the contractor realized money was actually a deterrent to referring. Instead of money, customers wanted a carpenter for a day to fix small and nagging household projects that never seemed to get done. The customers felt they were too small to get anyone to fix them.

After they asked, it was easy for the contractor who created an inexpensive “Carpenter for a Day” referral program that struck a chord because it made customers look and feel great about referring. In fact, word-of-mouth about the perk spread just as fast as the remodeling service. Ultimately, talking to your customers often makes it easy to learn what motivates them.

The return on investment (ROI) for referrals is an important reason to get clear about what truly motivates your customers beyond monetary rewards. According the Tom Hopkins, author of Sales Prospecting for Dummies, your closing ratio for non-qualified leads is 10 percent versus a 60 percent close ratio with referred leads. Companies encourage employee referrals because they result in a lower cost per hire, a shorter recruitment cycle and a better fit with corporate culture. Finally, a study called  Referral Programs and Customer Value, published in the Journal of Marketing (January  2011), showed that customers generated through referrals are the most profitable over the long-term. The study followed 10,000 customers at a bank and found that the average value of a referred customer is 16% higher compared with a non-referred customer with similar demographics and time of acquisition.

While it is crucial to understand customer motivation, it is just as important to invest in a CRM software. The ability to track and measure a few things like where a referrals comes from, referral frequency, referral persona and potential and actual revenue generated enables a business to make smart decisions as to where to invest.

In my previous post, I described the importance of creating and putting proper systems in place for your business, allowing employees to become great at what they do. As your business begins running smoothly and every employee is empowered to know what to do and how to delight customers, with limited involvement from you, it’s time to move on to the second secret of liberating your time and life.

Know thy time and delegate tasks

As Michael Gerber reminds us in The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It, “Your business is not your life. Your business and your life are two separate things.” Most people start businesses because they want to create a job for themselves and stop working for a boss.  After the initial excitement of starting, they realize they are their own boss and soon feel exhausted and demoralized.  Knowing a specialty inside out does not mean someone is prepared to run a business. In fact, it is more often a liability, since the business owner becomes unwilling to hand over the work to anyone else.

Gerber describes a typical day in the life of Sarah, a new business owner, who launched “All About Pies”.

‘It was 7 a.m. and All About Pies was to open in thirty minutes. But Sarah’s mind was someplace else. It’s seven o’clock,” she said, wiping her eyes with her apron, as though reading my mind. “Do you realize I’ve been here since three o’clock this morning? And that I was up at two to get ready? And that by the time I get the pies ready, open for business, take care of my customers, clean up, close up, do the shopping, reconcile the cash register, go to the bank, have dinner, and get the pies ready for tomorrow’s bake, it’ll be nine-thirty or ten o’clock tonight, and by the time I do all that, by the time any normal person, for God’s sake, would say that the day was done, I will then also need to sit down and begin to figure out how I’m going to pay the rent next month?

“And all this because my very best friends told me I was crazy not to open a pie shop because I was so damn good at it? And, what’s worse, I believed them! I saw a way out of the horrible job I used to have. I saw a way to get free, doing work I loved to do, and doing it all for me. … Damn, Damn, Damn!”

As Gerber puts it, “Suddenly the job she knew how to do so well becomes one job she knows how to do plus a dozen others she doesn’t know how to do at all.”

Rarely, will you ever find a successful business owner doing it all. Sooner or later, other factors like stress, health, and financial headaches begin to emerge due to sheer exhaustion from overwork in the business rather than on the business. If you want to succeed, you need to become aware of how you spend your time and learn to delegate to a team.  There has never been a successful business owner that did not employ the service of others.  Furthermore, a business owner can produce only so much revenue and profit on their own with limited time.

General George S. Patton, best known for leading the US Army in World War II once famously said,

“An Army is a team.  It lives, sleeps, eats and fights as a team.  This individual heroic stuff is pure horse shit.”

Outspoken though he was, Patton was fully aware that the success of the troops lay not only in the fighting spirit of the men coupled with brilliant tactical warfare maneuvers. Instead, it relied on a fleet of over 6,000 trucks and trailers that delivered over 412,000 tons of ammunition, food, and fuel to the Allied armies between August 25 and November 16, 1944. Patton strongly believed that “no bastard ever won a war by himself”. Similarly, a business woman like Sarah could never build a pie empire by herself.

The late Steve Jobs is quoted, saying in Business Week in 1998 prior to Apple’s meteoric rise, where it became one of the world’s most valuable companies at the time of his death,

 

“This is not a one-man show. What’s reinvigorating this company is two things: One, there’s a lot of really talented people in this company who listened to the world tell them they were losers for a couple of years, and some of them were on the verge of starting to believe it themselves. But they’re not losers. What they didn’t have was a good set of coaches, a good plan. A good senior management team. But they have that now.”

In order for a business owner to successfully delegate to others, they must do three things, writes Peter Drucker in The Effective Executive. “They must record their time to find where their time actually goes. Secondly, they must manage their time and to cut back unproductive demands on their time. Finally, they must consolidate their “discretionary” time into the largest possible continuing units.”

A business leader or manager, who tracks their time, can better learn what to eliminate and what to delegate by asking certain questions. For instance:

What would happen if this were not done?

“Which of the activities on my time log could be done by somebody else just as well, if not better?”

While delegation of tasks has become popular, it is rarely followed and makes little sense. When it implies that someone else ought to do part of “my job” (a president’s or managers’ work).   This is wrong and an abjuration of one’s own responsibility because one is paid to do one’s own work.

Worse yet, tyrannical delegation is a situation, where the owner of a business has employees, only to make him or herself feel superior. Most small to medium sized business management falls into one of those two camps. They may ignore what is happening in the business and occasionally visit to employ “pigeon management” by “raining down droppings on everyone’s heads and then flying off”. Or they may follow a command and control approach, where employees feel helpless and immobilized.

Such environments are often characterized by high turnover and employee dissatisfaction with staff. People without a shared sense of goals and vision, coupled with strong management, leadership and recognition for their effort will contribute a little as possible until they depart.

The key benefit to becoming self-aware of one’s time is that it allows a business owner to free up wasted time, delegate appropriately to others and focus on working on the business goals and vision for the long-term.

So, now that you are aware of how to liberate your time and life by following the two secrets, what will you do? Please join me in my next post where I will offer specific strategies on how to create systems and effectively delegate tasks that will grow your business exponentially.

 

 

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Photo Sources here, here, here and here

Do you remember that feeling, just before your holiday when you could finally breathe a sigh of relief? It’s that moment when you tie up loose ends, clear your desk and set your email and phone reminders. All you have in front of you is a clear head with a crystal clear image of your destination getaway.

In North America, few people take time off and when they do, it often takes several days to decompress and really feel like they are on holiday.  According to a recent Reuters/Ipsos poll, only 57% of U.S. workers use up all of the days they’re entitled to, compared with 89% of workers in France. A running joke in many companies, among professionals is that a vacation just means you work from somewhere else. Most people take one or two days off at a time and lose part of their vacation every year. While many say this is necessary in a tough economy, it has been the norm for many years in good and bad times. The situation must be nearing an epidemic when an initiative like “Take Back Your Time” is started in North America to challenge overwork, overscheduling and a general lack of time. The event is scheduled for October 24, 2011.

Ask yourself, as a business owner, if you can relate to the following passage?

“Up until six months ago, I was rushing through life in high gear. I was always tense, never relaxed. I arrived home from work every night worried and exhausted from nervous fatigue. I would get up fast in the morning, eat fast, shave fast, dress fast, and drive to work as if I were afraid the steering wheel would fly out the window if I didn’t have a death grip on it. I worked fast, hurried home, and at night I even tried to sleep fast. I was in such a state that I went to see a famous nerve specialist. He told me to relax.”

Sadly, this time poverty mentality is nothing new, as evidence from Dale Carnegie’s 1948 classic, How to Stop Worrying and Start Living. Many business owners declare war on time and are quick to buy time management systems and attend self-help courses in an effort to reclaim their productivity and life. Unfortunately, they were never told about two secrets to freeing up time to work on their businesses and live more fulfilled lives.

Secret #1: Before you can apply time management, you first need to have time.

If your business is all consuming, you won’t have the time to do anything else, except run the business.  If you are always putting out fires, then as the saying goes, you can’t “see the forest for the trees” anymore. This vacuum of limited time cannot be managed because it is not only a temporal force, but in fact, similar to a black hole, sucking time away from other healthy activities like sleep, exercise, relaxation, leisure and other social activities. In order to be a more effective creative problem solver in our everyday life, the mind and body requires an equilibrium or balance of activity.

Two shortcomings that cause business owners and people in general to experience extreme time poverty are:

1) Failure to create and put proper systems in place

2) Failure to delegate tasks to others

In part 1 of this article, I will cover the first shortcoming.

W. Edwards Deming, known as the father of continuous improvement, stated:

“If you can’t describe what you are doing as a process, you don’t know what you’re doing”.

Taken further, you will never be in a position to train your employees to take over roles and scale your operation to become a world-class business

While Deming is regarded as having had more impact upon Japanese manufacturing and business processes than any other individual of non-Japanese heritage, his teachings and philosophy are highly applicable to all aspects of any small business. This includes trivial tasks that range from how your receptionist answers the phone to the precise sets of steps that occur when a client enters the office ensuring a positive memorable experience.

Business systems take on a linear form and can be defined as a process map, which can be visually described and improved. Business process mapping allows you to break down all processes in your business into identifiable systems, which can be refined, improved and scaled. According to Deming, “the first step in gaining control over an organization is to know and understand the basic processes”.  Gradually, they become the bedrock and engine that powers business growth by tweaking and adjusting accordingly, in order to achieve peak performance at every point.

Training Process Example in a Small Business

Using a typical example, in a small business, the training process might consist of a senior employee mentoring new employees by teaching them how things are done. The mentor puts his or her own stamp on the “way we do things here”. This often includes inherent limitations in competency, personal bias, misinterpretation and misperceptions. The business owner often mistakenly grants complete autonomy to the senior employee, resulting in a likely scenario, where the trainee is scolded for being wrong and not doing it the right way. Furthermore, every new recruit takes the time of two employees, increasing overall training costs.

Now, compare this to a business, with well-defined systems with a clearly written and easy to understand manual. A new employee can easily understand the system and learn at their own pace, reviewing the process repeatedly until they become highly competent in each task. The manager is then able to spend a small amount of time, offering specific advice and guidance, communicating in a manner that fills any performance gaps. Developing robust business systems reduces training time not to mention the valuable time of more senior employees. It also allows a business to scale without proportionally incrementing one’s investment in time and capital.

Creating systems allows for greater consistency and reliability, giving employees the confidence and time to render a similar level of service that can be measured through customer satisfaction. If something is broken or not working properly, it is easy to pinpoint the problem and troubleshoot when a blueprint exists about all business processes. In doing so, employees are well positioned to enchant customers in delightful and unexpected ways that leaves them feeling satisfied again and again. Guy Kawasaki, in his recent book, Enchantment: The Art of Changing Hearts, Minds, and Actions says:

“Enchantment is the process of delighting people with a product, service, organization, or idea. Enchantment leads to voluntary and long-lasting support that is mutually beneficial.”

Indeed, establishing business processes is the first secret to freeing up your time, growing your business and having more time for other joys in your life. The final word goes to Deming, who describes a fundamental benefit for having business systems in place that most recognize but few fail to implement properly as a key secret to any thriving business.

 ”Profit in business comes from repeat customers, customers that boast about your project or service, and that bring friends with them.” - W. Edwards Deming

In Part 2, I will describe the second secret a business owner can put into a place to liberate their time and life.

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Photo Sources here and here

By Nick Dumitru

We’ve all heard the old saying of “practice makes perfect” but what does perfectionism get you. Contrary to what society tells us, I believe perfectionism does more harm than good by getting us stuck in a state of analysis paralysis that reduces workplace performance.

The benefits to taking an action-oriented approach using Nike’s famous “Just Do It” slogan is a great way to open the floodgates to profits and growth for your cosmetic business.

Psychologist J. Clayton Lafferty, who studied the lifestyles and personalities of 9,211 managers and professionals, is quoted in Psychology Today. Lafferty says, “Striving for perfection is likely to harm employees and companies alike. Perfectionism has nothing to do with actually trying to perfect anything. Because they equate their self-worth with flawless performance, perfectionists often get hung up on meaningless details and spend more time on projects than is necessary. Ultimately, productivity suffers.”
Entrepreneurs are especially prone to the pitfalls of perfectionism. As Guy Kawasaki writes in his book, The Art of the Start, “the hardest thing about getting started is starting”.

For small and medium sized business owners, being a perfectionist is a surefire way to lower profits and market share. The worst-case scenario is that this mindset may put you out of business. To avoid this result and reap the rewards of a growth-oriented business, let’s examine why it hurts your bottom line.

The most successful entrepreneurs anywhere in the world have one thing in common. They have a strong bias towards action. As soon as they hear about a
great idea, they run rather than walk to make it happen, knowing they can refine later. Kawasaki, in The Art of Start, describes this attitude:

“You should always be selling—not strategizing about selling. Don’t test, test, test—that’s a game for big companies. Don’t worry about being embarrassed. Don’t wait to develop the perfect product or service. Good enough is good enough. There will be plenty of time for refinement later. It’s not how great you start—it’s how great you end up”.

Failure to implement is by far the single biggest culprit behind mediocrity in business. The truth is that you can be the best surgeon in the world. But if you don’t market yourself, you won’t experience the success and accolades you deserve.

To illustrate the point, let’s use a simple scenario involving two doctors.
Two plastic surgeons, Jim and John, both went to the same school and started a cosmetic surgery practice in the same year. Both interned at the same hospital and both studied under the same master surgeons. Consequently, their medical training is literally identical.

The fundamental difference is that Jim and John have different personalities in the way they get things done. While Jim is compelled to get things done quickly, John has a tendency to want to make sure each task is perfect in every way.

Wanting to build their practices, both John and Jim decide to run an ad.
While John immediately hires a graphic designer to create and finalize the ad, John works painstakingly slow with his designer to make it perfect, overseeing every small detail.

Jim quickly acts placing the ad in a healthcare magazine and receives a call the next day from a patient wanting a breast augmentation and some liposuction. Meanwhile, John is still fine tuning details for his ad hoping to get it just right and in fact perfect.

At the same time, Jim accepts a deposit from his client and completes the surgery. He uses the payment to run his successful ad in five additional magazines, which while less successful, still lead to 3 new patients. John on the other hand got sidetracked with another project and has still not completed the ad because it isn’t perfect.

After a month, Jim decides to invest in a laser machine and add additional services. John finally finishes his ad and places it in a magazine. Nothing happens. John forgets to take into account that what was perfect to him may not necessarily be perfect to his prospective clients. He takes the salary he earns from the hospital and pays the rent on his new clinic, which has limited traffic and is demoralizing. Jim, on the other hand, is busy and continues to take action earning great rewards.

This scenario clearly shows the pitfalls of perfection in that it is an illusion we fool ourselves into believing. There is only one right ad and that’s the one that gets you customers. The best way to know whether it is right or wrong is to test it publicly.

In conclusion, to avoid analysis paralysis, make an effort to take action every day.
Each evening write the most important things to do the next day to improve your business. Then get those two things done before noon.

If you get just one thing done every day for five days weekly, that’s 20 big and positive actions every month. In business, acting based on speed is king.

When an idea comes to you, implement it. As Kawasaki says, you only need to be good enough so your business grows. Let competitors take their sweet time arriving at perfection.