Do more of your customers love you than hate you? You better hope so, because that is the number one equation that points to your profitability. So say the researchers at Bain & Co:

Research conducted by Bain & Co. established that one question reliably indicates customer loyalty (as evidenced both by repurchase behavior and by referral rates) in most industries. The ultimate question: “How likely is it that you would recommend this company to a friend or colleague?” Customers who rated a company high on the “likely” scale bought more goods and services, bought them more often, gave the company a greater share of their wallet, and were more likely to talk up the company to others.

USEFUL NUMBER. We also discovered that some simple arithmetic yielded one particularly useful number. Ask customers to score your company on the “would recommend” question, using a 0-to-10 scale. Label those who give you a 9 or 10 promoters—they are the assets that drive your growth. Label those who rate you from 0 to 6 detractors—they are the liabilities that eviscerate growth. Subtract the percentage of detractors (liabilities) from the percentage of promoters (assets) and you have your net promoter score.

Tracking NPS month in and month out—by branch, division, product line, or whatever else makes sense—helps focus organizations on the basic engine for profitable growth, getting more promoters and fewer detractors.In fact, NPS correlates well with growth among competitors. In airlines, for example, no airline has had superior growth without a superior ratio of promoters to detractors. In warehouse retailing, Costco (COST ) has the highest NPS and by far the best growth. A new study of retail banking shows the same pattern, with growth rates closely matching NPS scores. The leader here is New Jersey–based Commerce Bank.

– Fred Reichheld in NPS: The Next Six Sigma?, Business Week, September 22, 2006.

So how’s your NPS? If you’ve got no idea, it might be time to ask.

“It is not unusual for extraordinary sales professionals to communicate demarketing messages via the mass media. James C. Hansberger is an ESP and senior vice president for Shearson Lehman Hutton, Inc. A recent article bout investment counselors defined his target market as follows; “His client’s net worth ranges from around $2 million to $20 million, with a very few in excess of $100 million”… Demarketing messages of this type are very important for many ESPs Communicating to the general population one’s ability to provide services will generate many inquiries from persons who will never qualify as profitable clients.”

– Dr. Thomas J. Stanley, in Marketing to the Affluent (1988 edition)

Your numbers may be different from the 1980s financial advisor’s, but the idea is the same and twice over. You only want to attract business from people who are going to be good for your business.

Sophisticated marketers incorporate this principle into their decisions on where to invest attention — they choose the right trade shows to exhibit at, the right cities to open offices in, and the right prospects to mail to. But the extra-deft marketers also incorporate this principle into their “demarketing”* efforts to discourage unsolicited attention from people they don’t want to work with. By broadcasting messages like the financial advisor’s example, above, businesses can preempt wasted efforts without hurting anyone’s feelings or wasting anyone’s time.

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*”demarketing”. I love that word. It sounds almost Seinfeldian.

Tests and Measures

Some people are born knowing what they want to do, and even how to do it.  The rest of us aren’t so lucky.

…What do you want?  The majority of us go through life, often very successfully, without ever asking, much less answering, this most basic question.

The most basic answer, of course, is that you want to express yourself fully, for that is the most basic human drive.  As one friend put it, “We all want to learn how to use our own voices,” and it has led some of us to the peaks and some of us to the depths.

How can you best express you?

The first test is knowing what you want, knowing your abilities and capacities, and recognizing the difference between the two. 

…The second test is knowing what drives you, knowing what gives you satisfaction, and knowing the difference between the two.

…The third test is knowing what your values and priorities are, knowing what the values and priorities of your organization are, and measuring the difference between the two.

…The fourth test is… are you able and willing to overcome those differences?”

– Warren Bennis in On Becoming A Leader: The Leadership Classic–Updated And Expanded (2003).

It occurs to me that Bennis’s tests can take an exceptional amount of time to wrestle through.  What entrepreneur could find the time and energy (or even the wisdom?) to do these tests thoroughly and well?

I have to guess that the good entrepreneur ought expect to go through all four in repeated cycles, each time through working another layer of the “onion”, finding fresh answers with each new round of questioning.  And all the while taking care of the day-to-day — perhaps discovering over time that by refining the focus of what should be done in each day-to-day, that the fourth test becomes more readily passed.

Among your outside advisors, your account is likely to have the greatest impact on the success or failure of your business.

– Jacquelyn Lynn in Start Your Own Restaurant (and Five Other Food Businesses) (Entrepreneur Magazine’s Start Ups).

Once you have a picture of how you want your life to be, and you come to the realization that it’s more than just things to have and things to do, once you realize that what you and I really want is to have the room, the openness, to expand, to grow, to be more of ourselves, whatever that means, and to find out what that means is what’s most important to us, once you see that, you can then turn to the business that’s going to help you get there; you can then turn to the development of your Strategic Objective…In this context, your business is a means rather than an end, a vehicle to enrich your life rather than one that drains the life you have.

–Michael E. Gerber, in The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It, Chapter 13 “Your Strategic Objective”.

Principle 1
Your customer is your paycheck.

Don’t be fooled by the signature at the bottom of your payroll check — the guy who signed the check didn’t put the money there — your customers did.  No customers, no money.  You should change your customer greeting to “Hi, thanks for the food!”  your business is worthless, and your wallet is empty without funds provided by customers.

– Jeffrey Gitomer in Customer Satisfaction is Worthless, Customer Loyalty is Priceless

[what we first learned in the 80s is that…] Firms that earned superior levels of customer loyalty and retention also earned consistently higher profits–and they grew faster as well….[W]e learned that customer loyalty is inextricably linked to employee and investor loyalty and that major improvements in the one often require improvements in the other two.

– Frederick F. Reichheld of Bain & Company, Inc., in his preface to The Loyalty Effect: The Hidden Force Behind Growth, Profits, and Lasting Value.

…[T]he true mission of a business is to create value. Any business muddled enough to believe that its real purpose is producing profit is probably not long for this world. Profit is absolutely essential, to be sure, but it is a downstream outcome of creating value, and so it functions very poorly as an objective in itself.

– ibid, p. 186.

Reichheld published this book in 1996 — a few years before the “balanced scorecard” entered common parlance. Indeed, “balanced scorecard” appears nowhere in the index, but it seems likely from the above two quotes that Reichheld is on the same wavelength. If you don’t take care of all the stakeholders, you’re not going to be around long.

On advice-giving:

People don’t care what you know until they know that you care.

– source unknown

One of my favorite Far Side cartoons shows a man in his bedroom getting dressed for the day. A sign by his mirror reminds him, “First Pants, Then Shoes”.

This cartoon and the above quote remind me that there’s often a sequence to things. Knowing how to do the last step and knowing that the last step needs to be done are not enough if other things have to happen first.

Related blog: David Maister on Being Helpful

Early in my career, the management team of a large professional firm asked my opinion about how they were conducting their affairs. I responded with a very honest, direct and candid answer–”Here are the things you are messing up, and this is what you should have been doing!” To my surprise, I was fired for being a disruptive influence. This was hard to understand, since I knew (and I knew that they knew) that I was correct in my diagnosis and prescriptions.

Eventually, I learned the obvious lesson. It is not enough for a consultant to be right: An advisor’s job is to be helpful. I had to “earn” the right to be critical. Critiquing one’s clients is, by definition, a part of every consultant’s job, since suggestions on how to improve things always imply that all is not being done well at the moment. We must not only be smart, we must be diplomatic, sensitive and gentle–and behave in such a way that we are trusted!

– David Maister, in The Advice Business: Essential Tools and Models for Management Consulting. Excerpted at DavidMaister.com

I suspect that David Maister is the most highly regarded mainstream* consultant writing today. While most of his teaching is based on personal experience and observation (rather than academic research methods that rely on broad surveys), he does not present himself as a guru. His insights are strong enough and presented clearly enough that all you have to do is read. He doesn’t need a cult of personality to get people excited.

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*other consultants like Peter Block may be as highly regarded as Maister, but I classify them as “non-mainstream” because their teachings reflect and call for a spiritual approach to business leadership that Maister does not.

Old saying: When you owe the bank $10,000 and can’t pay up, you’re in trouble. When you owe the bank $10,000,000 and you can’t pay up, the bank is in trouble.