AlastairThomson.com

If you can keep customers coming back, again and again, there’s no cheaper way to grow revenue, profit, and cash flow.

Although you wouldn’t know it in most businesses, customers really are the most important asset in every business (second only to their staff).

Yet, all-too-often, customers can’t get their calls answered, or when they do they end up speaking with someone who is rude and unhelpful.

Their emails are ignored.

Their social media messages are responded to in the sort of formulaic way you can tell a lawyer wrote, rather than with any sense of empathy or concern about the customer as an individual.

Finding new customers is often prioritised while looking after existing customers is side-lined, at best, resulting in a fair number of your current customers taking their business elsewhere each year.

Why this matters

And this is despite the fact that it’s a lot more profitable to keep an existing customer than find a new one.

According to Forbes, finding a new customer can cost 5-7 times more than keeping an existing one.

And according to Hubspot, a brand has a 60-70% chance of making a sale to an existing customer compared to just a 20% chance of selling to a “cold” customer.

So keeping existing customers is not only 5-7 times cheaper, you’re also 3 or 4 times more likely to make a sale with an existing customer vs a completely new one.

So, how can you keep more of your existing customers for longer?

Top copywriter Glenn Fisher tells the story of his visit to a Drake concert in his excellent book “The Art of the Click” (well worth a read, by the way, even if you’re not a copywriter).

If you’re not familiar with his name, Drake is one of the most popular music acts on the planet at the moment – he has won 5 Grammys and has sold around 200m records.

Glenn noticed three things Drake did in his concert to engage his audience and, indirectly, make it more likely they would buy more of his records and his merchandise.

And your business can take these principles and do some or all of them too.

3 winning strategies

Firstly, for most of the show, the giant screens on stage behind Drake were covered with images of the fans in the audience. Imagine seeing yourself “standing with” one of your musical heroes – would that make it more likely you would buy more of their records, or the concert DVD, or even just tell all your friends about how cool this was? I suspect it is.

Second, he brought an audience member up on stage to sing to at one point, but selected (to quote Glenn) “a rather sturdy woman” – a normal human being, not someone unrealistically aspirational. A real person, not a catwalk model

Finally, he spent the last ¾ hour of the show walking along a hydraulic stage above the audience, pointing out individual audience members and performing an on-the-spot rap about them – how nice their hair was, what a great T-shirt they were wearing, and so on.

He gave them individual attention and their own moment in the spotlight.

How does this relate to your business?

Well, when you talk about your business are your customers the heroes, or is it all about you? Are they on giant screens behind you on stage or is it just a static shot of your logo or drone footage of your head office building?

Do you give customers individual attention, even if they’re not famous brands or people who spend millions with you, and engage with them 1:1? Or do you tell them to ask the chatbot on your website, visit the FAQ page and try to work everything out by themselves from there?

Do you show your customers how much you appreciate them? Do you recommend them to your friends? Do you tell everyone how great they are? Do you share their exciting news, even if it has nothing to do with you or your business?

That’s the business version of what Drake does, and he’s sold 200m records, so maybe…just maybe…there’s something in his approach.

Looking after your customers makes it 3x more likely that you’ll make another sale to them vs a cold lead.

If you believe Forbes that it costs 5-7 times more to find a new customer than to keep an existing one, that means for every $100 you spend finding new customers, you’d spend only $15-20 to keep the ones you already have.

In my experience, that’s an overestimate…you don’t need to spend anything like that much…but the principle is sound. However, even if you do spend $15-$20 vs $100, that should still be a no-brainer.

Many businesses carry more cost than they need to because they’re so focused on (expensive) customer acquisition they forget about (much cheaper) customer retention.

If I could give you a piece of equipment for $20 instead of the $100, you’d probably bite my hand off.

But if I can bring you a customer for $20 instead of $100, and you can’t be bothered to answer the phone, then you’ve locked in a high-cost business model. That means you need to work harder and harder to cover costs 5-7 times higher than you needed to spend to attract a new customer vs servicing a customer you already have.

You don’t need to be much of an accountant to realise that’s unlikely to be a good economic decision.

What you can do today

Why not check out the service your company offers for yourself?

·        Call your main customer service number – how long does it take for the call to be answered? Do you have to navigate robot-voiced messages and confusing menu systems? How easy is it to speak to a human?

·        Send an email to your customer service team. How long to you wait for a response and does it sound like a lawyer wrote it or a human?

·        Call 10 customers at random and ask them what one thing you could do to help make their experience with your company better.

None of that will cost you a penny.

The insights you get into what it’s like to be a customer are invaluable.

Most of what you find, you’ll be able to fix for free.

Great customer service, done right, is one of the highest RoI activities you can do within your business.

It always surprises me that more businesses don’t see it that way. The costs are generally zero-to-small. The potential benefits are huge.

So today, think about how you can make your customers your hero – project them on stage behind you, give them individual attention, share their good news even though it’s got nothing to do with you.

We can all do more of that and build a better business in the process.

And, best of all, none of that costs you a penny more than you would have been spending anyway. But delivers a much bigger result.

This post originally appeared on LinkedIn.

By and large, your success in life is determined by your skills at mastering the “inner game” – both for you and your team.

The inner game is the stuff that goes on inside your head. That ultimately determines your chances of success or failure.

It’s a phenomenon all top sportspeople are familiar with, and it applies in business too.

Timothy Gallwey, who wrote books like The Inner Game of Tennis and The Inner Game of Golf, talks about the equation P = p – i

What this formula means

This formula stands for Performance (P) equals potential (p) less interference (i)

Performance (P) just means the outcomes you get, whether that’s shaving a half-second off your time in a 100 metre race or building the business of your dreams.

Clarity about the results you want is key, as you need to have a clear focus for your efforts.

Interference in this context includes talking yourself out of doing things that would result in a more profitable, more successful business through self-doubt or worries about what others might say.

The “i” is the inner game – that’s what gets in the way when you find it hard to motivate yourself, when you doubt your abilities, or when you don’t think you’re good enough, for example.

Yet it’s probably the most important part of the game. A self-doubting champion would probably never have been a champion in the first place.

But where sport differs from business is that top sportspeople recognise a positive mindset only matters when they get results.

If they are kidding themselves about the reality of their results, they’re not winning an Olympic Gold medal, no matter how positive a mindset they have.

In many organisations, people who are perceived as strong and single-minded often get promoted. But it’s possible to be incredibly single-minded and, at the same time, completely wrong.

Single-mindedness isn’t the objective here – tangible results are the objective.

That’s where the “p” (for potential) comes in – the fundamental skills, talents, and attributes required to do well.

One component of potential is the ability to link potentially positive character traits like determination and people holding themselves to high standards, with achieving results.

You need both the mindset and the results, not just the mindset, to succeed.

What to do instead

For longevity, you need more than willpower to bludgeon your way to success.

Top sportspeople have willpower in spades, but willpower alone doesn’t win medals. To be a champion, you need more than willpower.

But you also need a different approach to coaching to get the best results – whether that’s in business or sport.

As Gallwey puts it in his book The Inner Game of Work, “…this feels like you are losing control, but you are actually gaining control by letting go of an inferior means of control”. (Let that play with your mind, corporate performance management system operators.)

Tim Gallwey developed three key strategies when he coached tennis players, all of which are applicable in a business setting:

1. The first strategy was removing judgement from the process – he found that coming across like a critical teacher or overbearing boss made results worse, not better. It messed up his students’ inner game too much. But when students reviewed their own results, non-judgementally, they were much more likely to do something about them.
2. The second strategy was for him to not try to control the outcome, but to trust the natural learning process inside the student. When he was patient enough to let the inner learning take place, students would come up with more elegant and effective ways of getting a result than a traditional command-and-control approach would have done.
3. Gallwey’s final strategy was to leave the choice about whether to improve, and by how much, in the hands of his students. Because it was now “their idea”, students felt more in control and it connected them with their own underlying motivation for wanting to improve their game. As a result, students took more responsibility, showed greater willingness to succeed, and discovered more creative ways of getting to their end-result.

What about your business?

With those three strategies in mind, have a think about how you manage people in your organisation.

How many of the judgements made about your team members are the line-manager’s judgements versus the staff-members themselves?

How often is a traditional command-and-control model deployed as your line-mangers go-to strategy, vs supporting your people to reach a better outcome than the managers would have found themselves?

And how many of your team’s goals are “theirs” versus “their line manager’s”.

When the goals are not their own, a fair number – perhaps the majority of – your people will do the minimum necessary to keep their jobs in an environment they think doesn’t value them.

When the goals come from your people, their results will surprise you on the upside time and time again.

It’s not the way performance management systems work in most businesses, but if you’re serious about improving performance, I’ve found that’s usually the fastest, most cost-effective way to get where you want to go.

More importantly, the end-results tend to be better too, once you give people the permission and support to be as good as they can be at what they do, not just 5% better than last year.

And prepared to be surprised.

Some of the biggest improvements will come from some of the unlikeliest people, once you get them engaged in “their” process of improvement rather than just being expected to implement somebody else’s.

This post originally appeared on LinkedIn.

Actually, that’s a trick question.

You can’t see the whole of the moon from Earth, not least because half of the moon is around the other side, only visible from somewhere deep in outer space.

And if you fly off to outer space to have a look at the other side of the moon, now you won’t be able to see the side we can see from Earth, because now that’s around the other side.

Maybe if you’re Elon Musk you can build a giant array of mirrors in space so you can see both sides of the moon at the same time from your back garden, but I wouldn’t bet on that happening any time soon.

You might wonder why this matters, but bear with me. This isn’t just a tortured metaphor…although by the end of this newsletter it will almost certainly feel like one. There’s a solid business point in here too.

Credit where credit’s due

Firstly, let me give credit to the Waterboys, whose mega-hit “The Whole of the Moon” popped up on my Spotify feed the other day. It’s their metaphor I’m about to torture here.

If you’re not familiar with the song, a 1991 UK number three record, the lyrics contrast the singer’s perspective on a situation with someone else’s perspective on the same situation. At least that’s what it’s about on the surface – I’m sure there are deeper meanings in there as well.

But because I’m an accountant, not a songwriter, it made me think about monthly reporting systems. (And yes, I know I ought to get out more…)

Sellers of financial software regularly tell me that their magic box of tricks provides complete traceability of everything a business could possibly need to know.

Of course, that’s nonsense. No software can do that.

Can some software do a better job than others of tracking and reporting data? Well, yes, of course.

But any reporting system has three big blind spots…at least:

1. When you’re reporting data, by definition you’re reporting exclusively on the past because, until an event takes place, there is no data.
2. Any system, however brilliant, can only track things someone tells it to track. If you don’t think it’s important, you won’t build a system to track it. Even if it really is important.
3. It can only report on data which is inside your organisation or accessible via publicly-available data feeds. By definition a fair chunk of the data you’d ideally like to know is in neither of those categories.

Flying blind – at least some of the time

Where data exists you should absolutely use it. Be careful about how you interpret the data, though – that’s a subject for another day – but use it, for goodness’ sake. Don’t just take wild guesses.

But there comes a point where you have to get comfortable making decisions where no data exists, and where there is no reasonable likelihood of that data ever becoming available.

Some of the information you would ideally like may well be “on the far side of the moon”. Invisible. Inaccessible. Imperceptible.

In some organisations, without data, they refuse to change anything.

But if that data is never going to be available, they’re on the fast track to irrelevance, because someone else will take the risk.

And if the idea works, it’s probably curtains for any business still waiting for more data to turn up before they make a decision.

As good a rule as any

I’ve always rather liked Colin Powell’s 40/70 rule for making tough decisions.

In his view, if you have less than 40% of the information you need then you shouldn’t make a decision as you’re just shooting from the hip.

But if you wait until you have more than 70% of the information you need, then odds are you’ve left it too late and someone else has beaten you to the draw.

Somewhere between those two points, in Powell’s view, is the sweet spot for decision-making.

Making a decision at 70% is not a guaranteed success. But it’s very likely to take you a big step in the right direction, even if you need to tweak a few things after go-live.

At any rate, making a decision before others do gets you out in front of the pack, and means you’re setting the agenda for others to follow. Not the other way round.

So what about the numbers?

This isn’t an article about decision-making, but about reporting. So I don’t want to labour the point.

But the relevance to reporting is this.

It costs time, money, and effort to develop effective reporting systems – despite what “magic beans” software providers say.

And it becomes significantly more expensive the closer you get to 100%. In all likelihood, it costs as much to get from 98% to 100% as it did to get from 0% to 98%.

More often than not, it’s impossible anyway, because the data you’d ideally like to have isn’t publicly available. In reality, the best you can hope for is probably 90% or less.

So, whatever personal threshold you set, collecting more data beyond that point becomes exponentially more expensive.

Why not try this?

As a sweeping generalisation, just a small handful of mission-critical factors account for almost all of that 40% – 70% zone.

It’s rarely more than 3-5 absolutely key metrics, whether that’s at company level, department level, or project level.

So why not structure reporting around those factors, and only those. Nothing else is likely to move the needle enough to make a difference anyway (or if it does, then you’ve misdiagnosed what the key metrics were in the first place).

By doing that, you can focus everyone’s attention on those 3-5 mission-critical factors, instead of diverting their attention with dozens of only tangentially relevant pieces of information.

And guess what? With only a small number of things to obsess over, people spend more time on them, so they are likely to be more robust and more reliable than if people spread their attention across 40 or 50 different KPIs.

(I’m not joking – in one organisation I was responsible for 43 different KPIs.)

What…just 3-5…?

Some people freak out a little at this idea, but that’s only because it seems to have seeped into our collective consciousness that all data is equal.

It most certainly isn’t.

The information about the Waterboys’ most famous song at the start of this piece is pretty much the only hard data in it. And yet if all you got from this article is the data that their most famous song reached number three in the UK charts in 1991, you’ve probably missed the point.

The learning is in the sections without hard data, things you couldn’t make into KPIs even if you wanted to. That’s where the value is.

And that’s the problem in organisations which only move in response to data.

They’ll still be completing balanced scorecards full of irrelevancies while you’re getting out in front of them and setting the agenda in your industry.

Sure, you need to manage the risk and protect the downside when implementing change of any sort. But all you’re really doing is getting very expensive people in departments like Finance, HR, and Marketing to do lots of analysis into issues which – win, lose or draw – won’t make much of a difference anyway.

Beyond a sensible threshold, “more data” has a very low – and often negative – RoI.

You don’t need the giant space mirrors…

The route to success, I’d argue, is for more decision-makers to get comfortable that they will never be able to see “the whole of the moon”, and to stop trying.

Even if you can afford a giant array of space mirrors, you’ll never see everything anyway.

Instead, how about businesses spending as much time, money, and effort delivering the 3-5 mission-critical metrics as they would spend chasing an improvement in data reporting from 98% to 100%. Odds are the business would run much better.

Reporting at great length on metrics which aren’t significant enough to move the needle materially isn’t “making data-driven decisions”. It’s “wasting company funds by tracking data that doesn’t matter”.

Knowing the difference between those two concepts is key.

As the Waterboys put it: “I spoke about wings. You just flew.”

This post originally appeared on LinkedIn.

Any idiot can cut costs. And plenty of idiots up and down the country, up and down the country, do exactly that.

There’s no great mystery to the process.

Someone fires up an Excel spreadsheet. Often an accountant. (Sorry…! Although by far the worst instance of this I’ve ever seen was done by an engineer.)

They slot in a much-reduced revenue number on the top line to reflect the downturn in business. Then they scale down all the costs by a fixed percentage until they get the profit number they want in the bottom right-hand corner of the spreadsheet.

Department managers are told to “work smarter, not harder” and “cut out the nice-to-haves and only leave the need-to-haves”, alongside a range of other patronising homilies. After all, it’s not like most managers haven’t been doing exactly that for a decade or more already.

Still, if you add in some draconian penalties for failing to meet a cost reduction target, you’ll probably get the costs down to something like the number you asked for.

Hurrah…time to break out the own-label cola to celebrate! (The champagne budget was cancelled back in 2005. And brand-name soft drinks in 2013.)

All is not what is seems

Scratch the surface a little, though, and you’ll almost certainly find that the financial target has only been met by taking some very short-term decisions.

·        Anything that didn’t absolutely need to happen to keep the factory producing gets cancelled.

·        All the experienced, long-serving, knowledgeable, relatively well-paid staff are eased out and replaced with trainees and juniors who mean well, but don’t really know what they’re doing.

·        Marketing budgets are slashed, along with training. And, naturally, the coffee and biscuit budget for your management meetings.

But, more likely than not, you’ll hit your target bottom line profit number the first year you try this.

However, you’re not out of the woods yet.

It’s just as likely revenues won’t bounce back as quickly as you thought (see above under “marketing budgets slashed”). So, as the months go by, it becomes increasingly clear you’ll have a similar problem next year to the one you thought you solved this year.

Out comes the spreadsheet to repeat last year’s winning strategy. Costs are reduced through the magic of Microsoft Excel again. Targets are set. The accountants (or engineers, sometimes) wait eagerly for last year’s success to be repeated.

But by month two of the new financial year, panic is flowing through the executive corridor. The “magic spreadsheet” isn’t working as well this year as it did last year.

It shouldn’t be a surprise…but often is…that once you fire your expensive staff and replace them with trainees on half the salary, you can’t fire the trainees the following year and replace them with someone on half the salary again.

That’s a one-time financial sleight-of-hand, not a sustainable solution.

An Excel spreadsheet makes contact with the real world

If, by some miracle, you nurse your machines through 12 months without any big repair costs, I can almost guarantee some big repair costs are just around the corner.

And if you haven’t been training your staff, your customers have probably noticed by now and are starting to try out some new suppliers to see if their quality is any better than yours.

As an extra bonus, it’s usually about now the organisation discovers that not all costs can be scaled down by 10% year after year.

The rent and property taxes on the factory stay the same irrespective of how much revenue you make. Microsoft are not going to give you a 10% reduction on their Microsoft Office licence fees. And, if you buy commodity products (steel, oil, aluminium, etc), good luck trying to get those at 10% off the current market price.

So what can you do instead?

The only sustainable answer is something I call Smarter Cost Cutting.

The 7 different types of cost in your business

Smarter Cost Cutting is a way of looking at your cost base as being made up of seven different types of cost, each of which needs handling differently to deliver the biggest bottom line impact.

Those seven different types of cost are:

·        Things you buy to sell on (cost of sales items)

·        Overheads to run your business (rent, utilities, etc)

·        Process costs

·        Framework costs

·        Outcome costs

·        Finance costs

·        Opportunity costs

In future articles, I’ll break this approach down a little bit further.

For now, though, the main takeaway is that dumb cost cutting – the sort of cost cutting people do with a spreadsheet and a “reduce by x%” formula – doesn’t work. Or at least not in anything other than the very short-term.

For long-term success, you need to look at your cost base through very different eyes.

And guess what? You probably save more money in the short-term with smarter cost cutting than with dumb cost cutting too.

What’s more, your “savings” won’t come back to haunt you next year when you need to fund a big repair bill in the factory or reactivate your long-neglected marketing campaigns.

We may live in uncertain economic times but, despite what the numbers might say in Microsoft Excel, short-term cost cutting strategies are unlikely to be your saviour.

This post originally appeared on LinkedIn