It's Worse Than That

Some time ago I wrote a post about two former consulting clients of mine who were considering opening their own coffee house despite having no experience whatsoever in Food Service, which I called (and still consider to be) The Hardest Business there is. I just ran across another blog that confirms some of those comments, and I thought I would call it to your attention. It's called Waiter Rant, and as you might expect, it's a series of rants offered by an actual veteran waiter.

Based on the fact that the Waiter (that's all he ever calls himself) is getting literally hundreds of comments on some of his posts, and actually has a book of his collected rants in print (it's called "Waiter Rant: Thanks for the Tip!" and you can get it on Amazon), it seems likely that he's been around for a while now, and I'm just happening onto him late, since I don't spend as much time online as I used to. It's amazing how actually having a girlfriend (and then marrying her) will change your priorities...

Be that as it may, it surprised me to learn that many of his posts confirm not only my thoughts about food service, but also about customer service in general, and specifics like the need to look out for all of your customers (not just the ones with misbehaving kids or other "personal" requirements), the need to take care of your employees and not allow them to be bullied by either the customers or their supervisors, and so on. It would seem that when I referred to food service as being the hardest business to succeed in as an owner and/or manager, I had completely underestimated how hard it is to survive in that industry as one of workers...

I can relate to the Waiter in a lot of ways - we agree on why customer service personnel should not be armed, for example. I've had many of the same problems with incompetent, abusive, arrogant and clueless supervisors that he describes, and I'll admit that I have the same difficulties suffering fools gladly - or indeed, at all. I suspect that the Waiter may be a former (or frustrated) professional writer, possibly a scriptwriter, based on the clarity of his descriptions and how well he handles the dialog. Even if it's all just verbatim reporting (which would be remarkable in itself), his set-up of the scenes is amazingly easy to follow; you could film each of his posts as parts of a movie (or a television show) and all you would need is a central plot to tack them all onto...

Whether or not this would make for a successful production I will leave to those who know more about such things. I'm just hoping that the Waiter is still around (or that his book is still in print, at least) when and if I ever get the chance to teach a class on the complexities of running a service business...

Because I'm going to assign the text as required reading for my students, if I ever get any...

Back to School - At My Age?

Ever since I broke the word to my friends and family that I was going back to school, I've been getting the same round of questions - to the point where I eventually put together an FAQ list to send around. I'll spare the reader the obvious personal questions (such as "Is your wife okay with this?" and "Are you going to sell your house? In THIS housing market?" and of course "You're from California; how will you deal with winter in a Northern state?"), because it's the questions that people aren't asking that may actually have some value in a business context.

The first ones would be, why do you need a Ph.D. when you've already got an MBA? Shouldn't you just be able to get a high-paying job in some large corporation? Or failing that, a low-paying but very steady job teaching community college or high school? The answer here is that the MBA has been devalued every year since shortly after I got one, and matters are just going to get worse. Part of it is the proliferation of degrees (like the EMBA, or "Executive" MBA) that sound like a Master's Degree in Business Administration, but require a third (or less) of the coursework and teach the student remarkably little. Part of it are diploma mills, online "MBA" programs, for-profit schools and the like, which have lowered the admission standards to "Having the Money" and the graduation requirements to "The Check Cleared." Some of these are legitimate teaching institutions; some of them are even fully accredited. All of this has combined to flood the job market with fake MBAs, low-quality MBAs, and people who claim to be MBAs but actually aren't really.

Even worse, people who have never been to business school for the most part have no idea what the MBA degree program is actually about, or what it might qualify one to do. Some of them resent the MBA holders, and some resort to the idiotic belief that "Anything I don't understand must not be important," but neither type wants to hire any. Then there are the "rugged individualist" types, who love to point out all of the people who have made it big without benefit of an MBA or even a college degree. If Carnegie, Mellon and Gates (either of the two Gates, actually) didn't need an MBA, why should we? It's the 21st Century remainder of a nasty anti-intellectual streak that has been part of American culture from the beginning, and it's a big part of why our commercial operations do not fare well in an knowledge-driven global economy. It also makes finding a job a royal pain for a management professional. And the glut of people who have an MBA or just look like they do makes the teaching route completely impossible...

Then there's the question of why I would want to go back to school in the first place. Those of you who have been reading this blog over the past year have probably got that one figured out already, but just for the record, I'm also a teacher, a strategist, a scholar, and an acute observer of human behavior -- and I'm too young to just stay a mid-level bureaucrat for the rest of my life. There are still things I want to learn, things I want to discover, places to go and things to do, and while I'm at it I think I'd like to teach a few new management professionals why things you don't understand are important (they can destroy your company) and why when somebody comes to you and says "Hi, I would like to give you a lot of money now," you say, "YES!"

And besides, it should be fun...

If I Ran the Circus...

A long time ago, in an industry that no longer exists, I had the unusual problem of having been promoted far beyond anything I was prepared to do, and discovering that while the Peter Principle should have been in effect, it wasn't. I had a degree in English and a year plus on the job when I was promoted to be the manager of the work group of which I had been a part, responsible for 14 service locations in Metro Los Angeles and the rather eccentric men (there were no women at the time) who operated them. I had become the Regional Director of the Professional Resume and Writing Service...

I should have been terrified. In the cold light of a business degree and twenty additional years of experience, I can see that I was clearly being set up to take the blame for the failure (and ultimate dismantling) of the Los Angeles Region, which would in turn deflect the blame for this fiasco from the Executive whose marketing incompetence (I can not in good conscience call it anything else) had doomed the Region, the Division, and ultimately the company. The Executive in question being the President's son, of course...

Not realizing any of this, I set about running the Los Angeles Region the way I thought it SHOULD be run, based on nothing but a young man's romantic ideas about leadership. My predecessor in the role had been an alcoholic sexist bigot, whose parting advice to me was to never hire women or African Americans to be resume writers, because "They can't handle the job." Naturally my first two hires were D.L. Mackey, a woman, and Deborah Givins, an African American woman. Deborah did a fine job running one of my offices that had struggled previously, and D.L. broke all of the Region's performance records for sales, revenue and productivity that summer (the ones I had set the year before, it should be noted). I have always believed that racism and sexism are asinine (I could use stronger language, but I won't), and I have seldom seen a more resounding confirmation of that belief.

Buoyed by this success, my next move was to make sure that all of my people started getting paid on time. Each week in the resume business you sent your receipts to corporate headquarters at close of business on Thursday, and were supposed to get paid based on your performance (salary plus commission or straight commission, depending on your contract) the following Friday. Unfortunately, this rarely happened; all too often the receipts did not reach corporate until several working days later, and the payroll department tended to sit on the checks anyway. I put a stop to this problem by getting the payroll people to FedEx the previous week's paychecks to me on Thursday, and then driving around the Region picking up the receipts and dropping off the paychecks in person each Friday. I would also drop off any supplies the service offices had requested on the same visit.

As a result, all of my people got paid on time, every time, and none of them ever had to wait for their supplies. This made me extremely popular with my people, as you might imagine. When I instituted vacations and sick days (which had never existed in the Company before) my popularity shot up so high I had people from other regions (including some in other parts of the country!) trying to transfer into my unit, and all of the other Regional Directors began having to institute similar policies just to keep from losing all of their best people to me. Within three months, my Region, which had been 26th of the 36 Regions in the company, was rated 2nd overall and 1st in productivity, making me one of the top Regional Directors in the company.

They weren't sophisticated moves. I had no formal training in business, and very little in leadership; other than a few years in student government during college, I had never led or managed anything. But I had learned from an early age that most people will respond to loyalty and fairness, and everyone appreciates being treated well. That's how I thought a business should be run, and when they gave me the chance, that's how I ran this one -- never guessing that doing so would be the start of a 20-year odyssey that would lead me through Corporate America, an MBA, management consulting, higher education and (starting this summer) a doctoral program in Management. And yet, somehow it all worked. The truism I coined that first year as a manager is still true today: "Take care of your people, and they will take care of you..."

The Trouble With Gift Cards

The trouble with those gift cards you can purchase at most large retail chains these days is not that they're impersonal; it's not that they might be redeemable only for merchandise that the recipient wouldn't actually want; it's not that they encourage people to spend more money out of their own funds to purchase larger and more extravagant items for themselves; it's not even that if you feed them too much they will start multiplying out of control and completely take over their environment. No, the trouble with gift cards is that if the company that sold them to you goes out of business before you can cash in the card, you're probably not getting your money back...

Let's leave the accounting rules out of it for a moment; from consumer's standpoint it doesn't really matter if the issuing company treats the money from the card purchases as unexpended inventory or interest-free capital or simply as somebody else's money. All that matters is that to the bankruptcy court, unredeemed gift cards are considered to be unsecured loans made to the company, and thus receive a much lower priority than other creditors, such as payroll, taxes, and secured loans. If the company has a lot of cash or liquid assets on the books when it goes under, then there might be enough left to honor your gift card after the other creditors are paid off. But this isn't likely to happen, unless the company made a lot of money on its "Final Sale and Clearance" and wasn't then able to restart operations.

Back in the days before electronic "smart cards" this wasn't as much of a problem; paper gift certificates were never as popular as the gift cards, and thus there were never as many of them in circulation at any given time. With the rise of these electronic gift cards, however, many retailers will now have enough unexpended gift cards on the books to represent a significant amount of money, which in turn has an impact on the company's cash position and liquidity. Good for them, but not really good for the consumer...

So what can we do about it, down here on the front lines of consumer spending? Well, first of all, don't just plunk down large sums of money on gift cards for companies about which you know nothing. You're effectively loaning money to these people, just on their word that they're not going to declare bankruptcy; shouldn't you at least check on them before you do it? Second, don't be sure that just because a company looks like it is doing well it really is; the Sharper Image just filed for Chapter 11 protections. Third, don't purchase cards long in advance of their use; the sooner you use them, the likelier you are to get your money back. This is particularly true around the Holidays, when every retailer looks prosperous, but not all of them will survive until spring...

An interesting alternative to a company's in-house gift cards are the American Express and Visa Gift Cards. From the end user's point of view, these function like electronic gift cards that are good anywhere (anywhere that takes credit cards, at least), so you aren't limited to spending it at the same place they got it. Instead of $100 at Golf World or Some Department Store You Never Shop At, you can take your Amex or Visa gift card to wherever you're shopping today and get $100 worth of something you really want. This is especially useful if the thing you need the most this week happens to be food, since most department stores do not sell groceries...

Even better, though, many of the credit card style gift cards are considered to be bank accounts -- the card is similar to a "check card" in that it just subtracts money from your "account" to pay for your purchases. This means that even if the bank goes under (or American Express does -- which is even more unlikely) there is no issue with getting your money back; it was never considered part of the issuing company's money, simply being "on account" for you in the bank's vault. In some cases these funds may even be protected by FDIC or subject to being redeemed by a "bailout" of the bank by Federal authorities -- ask the issuing institution how they've got things set up.

Or, alternately, I suppose you could always just send fruitcake…

Everything Must Go!

Ever wonder why it is that when you go into a store with "Going Out Of Business!" signs in the window, everything you find for sale is really expensive? Despite the "Up To 50% Off!" signs? Actually, the signs probably have the "50% OFF!" part in really huge letters, so that people in passing cars can see them, and the "up to" part in 6-point type. Unless 4-point or 2-point was available, but that's really not the point. Even if we allow for the "up to" part, shouldn't the prices still be lower than when the store was part of a going concern?

An article in MSN Money News points out that in many cases, when a company has entered the "Final Clearance" stage of its life cycle, the owners will bring in truckloads of merchandise, either from their own warehouse or from some deep discounted source, put prices on it, and then mark it as 50% off. Since it's merchandise that was never sold in this store in the first place, there is no way for the consumer to tell if it's really 50% off, or full price, or even marked up from what it might have been before. The sad fact is, people are gullible, and greedy, and will rarely even ask. And if they do, so what? What does bad will mean to a business that will not be there next week? If they can trick the foolish and unwary into spending a lot of money on cheap, defective crap it just lowers the amount they will owe to their creditors -- or raises the amount of meat that will be left on the bones when they carve up the company.

In fact, if the company can acquire some marginal merchandise at pennies on the dollar, they can even use this tactic without resort to fraud. If the product originally retailed for $10 and the company was able to purchase it on close-out for $2, they can put it into their own "Going Out Of Business Sale" at $5, sell it to the customer at a genuine 50% off of the original retail price, and still make $3 (or 250% profits) on each sale. Of course, if the item was never worth even $2 (let alone $10), it's still a rip-off; and if the company goes out of business the following week and the item breaks two days after that, there is no way for the customer to get his or her money back. But at least the company isn't actually committing fraud.

This is not to suggest that all Final Clearance sales are fraudulent, or that it isn't possible for a knowledgeable consumer to make some good purchases during one. When the old Federated Electronics Group went under (almost 20 years ago now) I was able to find an really nice set of bookcase speakers on the $10 table that not only worked beautifully and sounded great, but were still working just fine a few weeks ago when I gave them to charity because we're moving across country and we don't really need them anymore. If you know what a good price for a given product is, and can find an example that isn't damaged or used (or really a cheap knock-off copy of what you wanted to buy) then you can come away from some of these sales with a bargain. And if you don't know what you want and what you should expect to pay for it, why are you making any major purchase in the first place?

Of course you still have the problem of not being able to return things to a retailer that does not exist anymore, which means you should probably look for manufacturer's warranties and/or third-party service contracts when making these purchases. If no such warranty is available, then you probably shouldn't purchase anything you can't afford to lose. And remember that if you have or purchase a gift card from a company that goes out of business, there is no way to get your money back...

But that's a post for another day...

23-Cent Breakdown

There are days when the business pages are all full of old, boring crap that no one would ever been interested in, and I have to search far and wide to find something to rant about. And then there are days like today, when it seems like this blog practically writes itself…

A story in today’s Los Angeles Times illustrates the concept of a public relations gesture gone wrong so well that I’m not sure I could make up a better one out of whole cloth. It seems that Papa John’s Pizza had run afoul of the NBA fans in Cleveland by giving away t-shirts that were critical of the local team’s leading player, calling him a “crybaby” for complaining about unusually hard fouls during some of the playoff games. This might have endeared the company to fans of the opposing team (from Washington D.C.), but it was definitely having a negative impact on the company’s sales in Cleveland.

To try to get back in the good graces of the Cleveland fans, Papa John’s decided to run a special promotion in the Cleveland area this weekend: pizzas for only 23 cents, or effectively free. They probably figured the stunt would cost them a few thousand dollars worth of pizza, but would win back a lot of their marginal customers and might even get people who had not previously tried their product to do so. I mean, for 23 cents, why not?

Anyone who has ever worked in customer service can probably see at least one hole in this plan, and anybody who has ever worked in a low-end pizza operation would be able to tell you just by looking at it that this was a bad idea, but apparently whoever is actually running the Papa John’s operation these days knows even less about consumer behavior than they do about sports fans. What happened next was what almost always happens when you offer any consumer product for free: mobs of people showed up to get their 23-cent pizzas. Some Papa John’s locations in Cleveland were reporting waits of up to 90 minutes to get a pizza, which may not sound that bad, but consider that the normal time to cook one of these marginal pies is usually between 8 and 12 minutes…

Needless to say, the crowds got restless. People began cutting in line, shoving people out of their way, and generally misbehaving. Tempers frayed, fights broke out, and several locations had to call the police to restore order. But as bad as that was, things didn’t really go into the crapper until some of the Papa John’s locations began running out of pizzas, and had to start turning people away and closing. Within a single day’s badly conceived stunt, the company had managed to anger even more customers and potential customers than they had with the original offensive t-shirts, and make themselves look like complete idiots into the bargain.

Now I’m not going to suggest that all product give-away offers are foolish. Many companies use “loss-leader” sales every day, and most of these are completely uneventful; some of them even result in increased sales for the company. But in this case, offering what was effectively free food without adequate crowd control or supply was worse than futile; it was actually counterproductive…

In the future, I imagine Papa John’s will be a little more selective about such stunts, requiring people to call ahead for a pick-up time, or putting firm limits on the number of pizzas to be given away, or limiting the offer to specific locations that have enough room to park a large truck full of extra pizza ingredients, or perhaps just not giving away promotional items that alienate customers from another part of their operating area…

In the meanwhile, I hope everyone out there will take this episode to heart, and try to avoid being the next company to have a loss-leader or product give away blow up in your face. I can always find other things to write about, but not every company is going to survive a screw-up on this scale…

The Ethics of Enlightened Self-Interest

Quite often in business discussions you will hear people talking about what they call “enlightened self-interest” – that is, behavior that is both ethically and morally correct and also in the best interest of the person taking it. The implication is that while it would be possible for the person in question to act in an unethical manner, it would not serve their own interests to do so, and so they won’t. This structure will sometimes be advanced as a reason for trusting another party when you are unable to arrange for a formal or contractual obligation; if the “smart” thing to do and the “right” thing to do are the same thing, it is unlikely that any sane person will choose the unethical course merely for the sake of doing so.

By contrast, you will often hear people asking why they should bother making the ethical choice, particularly when the alternative is more profitable, and especially when the alternative will make no real difference. Why should we go to the trouble of acting in good faith, for example, when the entire world is filled with people who will not act in good faith even if you do put a gun to their heads? Why should we clean up after ourselves when the next people will just leave a huge mess, and the janitor will have to pick up after them anyway? Why should we stop to help someone in distress when they’ll probably sue us for something, just because they can?

You might think that there wouldn’t be a business answer to this dilemma; that it would have to stay in the realm of the philosophers. I would like to suggest, however, that it is only in a business perspective, in profit and loss, that a clear answer to this ancient question can be found, and that in order to see that business solution, we need to increase the scope of the answer, not decrease it…

When you consider the world as a whole, it’s hard to say that any one ethical decision will make any difference. But as large as it is, our world is a finite place, and there are only so many decisions (ethical or otherwise) that can be made at any one moment. If you choose the ethical course, do the “right” thing, the number of ethical, fair and decent actions being taken in our world increases. Maybe only by one, but in business terms the distinction is meaningless; the total balance of our world has shifted closer to the black. The reason for doing so is simply because the world that you live in has gotten that much better – and it serves your interest to have a better world.

I don’t mean to suggest that the business people of the world are the saints of some new ethical reformation – I don’t want to see any of you laughing that hard; you might hurt yourselves. I am suggesting that the single best reason for behaving in an ethical fashion (and running a company in an ethical fashion) is because who wants to live in a world where people don’t? If any of you care I can furnish hundreds of examples where public perception of a firm as being an ethically run organization was also insanely profitable, earning the company many times more money than they could ever have made doing the “wrong” thing, but this merely emphasizes my point. It is incumbent upon us, the management professionals of the world, to always attempt to do the right thing; because it will save us a fortune in legal fees and fines and bad reputations, and because it will make us a fortune in customer retention, public relations and increased sales.

And because if we do not, then who will? It’s worth thinking about…