Small businesses can collaborate to grow

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If you win, we all win this is what a dear friend and colleague recently said to me, he said that I was one of them and there was no way that they’d let me go under without trying to help me.

These words made a remarkable impression on me, and I started thinking about how that spirit of collaboration could really be what is needed for small businesses to grow.

I thought how many business owners have outstanding ideas, all they want to do is honour that idea and nobly go about growing that one idea to its fullest potential. Very few get there because they need cash flows to ensure that the business lives. How many times do you hear that cash flow is the life blood of the business?
I began understanding that in order to do this, there needs to be cooperation with other businesses, this keeps the cash trickling in at the most basic level.

A supply chain is a group of businesses which are all involved in the moving of a product from one state to the other, either from raw material state to finished product state etc.
What makes businesses efficient is the efficiency of their supply chains. From the producer of its raw materials right up to the person who delivers their goods to the end-user, efficiency in ensuring costs are contained, quality is upheld and time is minimised are the 3 main things they all are equally responsible for.
Very often this level of efficiency is what’s missing from small businesses and likely not to be realised until they reach their maturity. However I believe start-ups are where this kind of social arbitrage is most needed and likely to help each business in the chain succeed.

Let’s look at a bakery for example.

The baker’s processes are geared toward ensuring that customer orders are satisfied at 100% quality and zero defects. The bakery owner would wake early each morning to knead the dough for each delicacy, set the oven temperatures and ensure that the truck is loaded on time so it arrives on time at the client site.
The bakery owner is pleased with himself and finds that defects are 40% and quality is between 60% and 80%. He’s had his customers for years and is very happy with his existing processes and supply chain.

However, let’s imagine we reduced the waste by using baking mix instead, the accuracy of the mix ensures each delicacy is made to specification, with next to zero room for errors (with translate to waste).

If he procured the mix from the manufacturer, he can get it at a better rate and because he now has historic data of his order quantities, he further able to order just what he will use.

Then we look at the number of staff, this can also be reduced with the use of baking kits as let’s assume before he had specialists who headed each type of delicacy, which would make his overheads go down further.

Once wastage is reduced, the process becomes more efficient, let’s say efficiency increases to 80%. To further make his business efficient, we can look at how he could piggy-back his deliveries with those of nearby bakeries so he doesn’t have to bear all the costs of transportation. Remember that hiring a truck would cost you the forward and return legs even though your return leg was with an empty truck.

Ideally, he could negotiate with other bakeries on pooling resources and ensuring that they target bigger baking contracts and get lower prices from their suppliers. Jointly they can increase their revenue as well as work at higher efficiency rates.

This is just one aspect of increasing efficiencies for small businesses, for more information on how and what to do, contact RareRabbit at rarerabbit@mvemve.com.

About RareRabbit:
RareRabbit is a consulting company that remodels small businesses to function optimally and productively.

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The cost of bad service

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Like many others, I’ve had my fair share of bad service. What makes it frustrating is when a contract locks in so you’re attached to the bad service. On the other side of my frustration, I realised that its not so bad for me since I only pay once for the bad service, and keep making them redo it till they get it right.

On the other hand, my really terrible service provider has to bear the costs of the extra work. I wondered whether they had noticed the spike in their operating costs and if they cared to enquire what the cause was. If they had, I think they’d see that the cost of doing business hadn’t gone up more than the cost of living, what had driven their costs was the extra materials needed to work on one area.

Let’s take the installation of a door hinge; if they damage the door in the process, they need to buy the door and additional hinges and anything else they may require to get all this fixed.

Now can you imagine budgeting for this? Clearly they wouldn’t but what they might do is just take that as an indication to increase their costs to clients, which makes them uncompetitive. Ultimately the unhappy clients and the price sensitive ones all walk away and tell anybody who’s willing to listen.

As a business owner, you’ve worked really hard to get this client and invested a lot to secure their business, yet in an instant they can walk away from your business due to bad service.

To quote Subir Chowdhury author of The Power of Six Sigma, “…preventing mistakes can make you profitable.” The corollary is simple, mistakes cost you money.

How much bad service really costs, appears to be something that organisations aren’t always cognisant of particularly once they become big in size. The bigger they are, the more constant the wastage tends to be.

In 2011 American Express did a survey to determine the value of bad service in nominal terms. Their findings were that $338.5bn is the cost of bad service per year in the world!

CMTA, a customer experience and service quality improvement firm conducted research on what the effect and cost of bad service on the bottom line of a business is. Their findings were;

As satisfaction levels drop, loyalty drops fasterThere is a significant drop in loyalty between “very satisfied” and “somewhat satisfied” customers – sometimes as much as 50%. A dangerous policy in many organisations is to ignore this fact and simply add together the percentage of “very satisfied” and “somewhat satisfied” customers to get a “better satisfaction score”.

Problems drive customers away
Customer loyalty varies from one industry to another but there is typically a 25% drop in loyalty among customers who experience a problem. In revenue terms this can be the equivalent of losing some, or all, of the revenue from one in every four customers who have experienced a problem.

More customers have problems than you think
For many organisations, the only measurement of problem-experience comes from their complaints department. Research shows that as many as 50% of your customers may actually be experiencing problems, even though only 5% of those may complain to your complaints department. As many as 95% of customers who experience a problem may say nothing to you at all.

Unhappy customers spread the word!
CTMA’s research confirms that customers typically to tell twice as many people about a bad experience with customer service than they do about a good one. Depending on the industry, between 5 and 10 people are told about a bad experience. Today, the dangers of negative word-of-mouth have been greatly amplified by the Internet and the power of social networks.

Effective customer service and response pays
CTMA’s research also confirms the importance of effectively responding to customers when they do complain. Customers can be very demanding but, with an effective response, it is still possible to obtain a more loyal customer afterwards – than you had before they experienced the problem!
(Counting the cost of customer experiences working paper by By Paul Linnell)

When it comes to bad service, I keep in mind what a friend recently told me. She said that people are only as loyal as their options.

Love and customer care

It’s the day before Christmas and although many may not celebrate for religious and other reasons, one thing that connects us all (in business and in our private lives) is the joy and love in this season.

I enjoy this period specifically because it’s probably the single time of the year that we take off our human suits worn so tightly throughout the year and become our real selves.

In business we probably need to take this spirit of holiday cheer along with us everyday in providing customer service. Here are my points to consider on this.

1. Seek more to understand than to be understood. Probing for the need behind the need, would be a key function of solving a customer’s problem. Telling them of your processes and policies makes them go away but doesn’t resolve their burning issues.

2. Follow up with people, expeditiously. In the world of instant information customers seek quick turnarounds to their problems. Taking 3 weeks to give them a one sentence response which doesn’t even solve the problem is just criminal.

3. Be of service, most companies take the service part of customer service lightly. It doesn’t serve them or their customer doing this. All it achieves is brand compromise, where an unhappy customer preaches just how bad your business is. Remember the caveat 6 degrees of separation? All it takes is for that one disgruntled person to tell their network and before you know it, less feet come through your door.

This is not new, yet very few businesses invest in ensuring that their customer service departments are well equipped with meaningful ways to handle and deal with their clients.

Have a wonderful holiday, make time for your loved ones and for yourself. If you’re traveling, be safe on the roads. May the coming year be all that you dream.

Happy Holidays!

A long – term view of things

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Entrepreneurs mostly always begin with just an idea. It’s normally a concept of something that largely has not been done before. Entrepreneurs spend an ample amount of time refining the conception of their businesses. This is all good and well however it is important that when they come up for air, they are able link the intellectual, conceptual aspects to what will happen after they penetrate the market and have been operating for say, 2 years.

It is for this reason that Steven Covey, author of The seven habits of highly effective people, says begin with the end in mind. Long term sustainability includes considering how you will deal with an economic recession, understanding trends in your industry so you can proactively respond to them thus keeping you ahead.

A day ago I had the privilege of meeting with a senior strategic planner at an enterprise funding agency. He relayed to me the need to understand the sector in which one is involved. An example he made was that of the general dealer, a key player especially in the Township economy. The industry was regulated till about the late eighties, meaning that you previously were required to have a trading license to be general dealer and these stores were our version of Pick ‘n Pay in that time. Deregulation brought about lower barriers to entry which is what birthed the Spaza Shop. A smaller convenient store, these sprung up on every street and suddenly one could bypass the general dealer and opt for the Spaza Shop.

Another thing that Spaza’s got right at that time was service, they opened very early in the morning so if you were going to catch a tax at 5am and had no change (small denominations of the note you have) they helped change that for you. And what was a universal problem in all households was that it took Monday morning for them to realise they had no bread for breakfast and kid’s lunch.

The Spaza was always open; in fact in our home in Pimville, it was the bread truck that woke me up at 5 am each morning. The Spaza also closed much later than the stores. This saved a lot of us that always remembered in the late evening that we needed certain things before we got home.

The Spaza is the only place that sold 1 single egg instead of a box of 6 or a dozen. It remains the only place that sells one cube of beef stock where we buy it in a box of 12 in the store.

I think I have made my point of how useful it was during its time. Now fast forward to post 1994 South Africa where Spaza Shops in the Townships are under threat. The entrance of competition in the form of Somali-run Spaza Shops. These guys run an efficient supply chain providing real savings for their customers added to that they have a real sense of the old maxim the customer is king.

Further to this competition, is the development of Townships with malls and shopping centres being erected. The Spaza Shop’s clients want to become part of the progress that is Pick ‘n Pay and Woolworth’s, organic food, loyalty points, use of speed point at pay points and of course feeling they are a part of the modern world.
The long-term view of things requires that you are aware of the changes and trends. Imagine what the vigilant Spaza owner would have done seeing the changes? Perhaps begin with being part of the Somali buying syndicates to also tap into the lower prices which can be passed onto his customers.

Or even more than this, they could have looked at changing the form of the Spaza Shop, perhaps no longer being a mini general dealer. But looking at specific items such as cold drinks, personal care items and yes, selling one egg instead of a box, which I believe could be cheaper than the convenience stores.

In the 21st century we are finding that competition is coming from areas that weren’t your traditional competitors to begin with. Innovation and technology are enabling this not forgetting legislation.
If you are an entrepreneur reading this, consider this as a challenge to innovate and come up with a new you, show up differently to your clients and be surprised at the positive response.

The trick is to continue to solve a problem through your services; if you’re not solving a problem then you’re creating waste.

A parting thought is that night clubs particularly in the upmarket areas understand that in order to stay in business they need to rebrand and even change venues. What can you do?