Good Profits versus Bad Profits

What’s the True Cost of Only Focusing on the Bottom Line?

By Dr. Kevin Coughlin

Is there really such a thing as bad profits? With business getting larger and more powerful, and investors feeling and expecting ever-greater ROI, wouldn’t that imply that all profits are good?

It is an important question to ask.

Bad profits are those profits that are earned at the expense of customer relationships. Whenever customers feel misled, mistreated, ignored, or coerced, then the result is a bad profit. Bad profits arise when a company saves money by delivering a lousy customer experience. Essentially it means that leadership or the company extracts value from their customers instead of adding overall value.

Those of you in leadership positions, those of you that run companies and manage people, understand that the culture you present to your team may lay the foundation for success not just in the short term but hopefully in the long term. The leaders who have exceptional core values and focus on good profits—and eliminate bad profits—will not only create companies with long term success, but will provide products and services that your customers will crave, want and need.

When companies don’t understand the difference between good and bad profits, the result is that growth suffers in the long term, reputations are hurt, customers become alienated, and employees become demoralized. You and your business become vulnerable to competition. Your business may achieve short-term success—but will always fail in the long term.

Steps to Eliminate Bad Profits: Bad profits create detractors. These are people that hurt your company and team members. They hurt your company’s reputation; they strangle growth and demoralize an organization. These detractors can be leaders, managers, employees, and customers.

The first step in avoiding bad profits is to recognize they exist, and the second step is to recognize the detractors. The third step involves deciding if you can convert your company’s detractors into enthusiastic advocates for your company. This is accomplished with top-shelf internal communication, and sterling customer service.

Create Customers that Promote: Your goal is to focus on good profits from good products and/or services. Good profits are earned with customer’s enthusiastic cooperation. They occur when their customers come back time and time again for your products and services. They want to tell their friends family and acquaintances about their exceptional experience. When this occurs they become the best promotional arm for your business.

As promotors, these individuals provide positive marketing for your company; they are loyal and provide the most cost-effective growth for you and your company.

It has been estimated that most companies have about 42-82% of promotors receiving products and/or services. Your focus should be to improve that percentage as much as possible to boost your good profits, and this is done by training—and more training—that is backed up by outstanding leadership and communication. This is not only smart business, but good business.

Perform a Companywide Internal Evaluation: One of the main keys to eliminating bad profits is recognizing the business behaviors that create them in the first place. To effectively identify the areas of your company that bring harmful returns, you must perform an evaluation of your entire operation.

Before you start re-evaluating your company, consider evaluating yourself or the leadership of your business. That may be the board, partnership or an individual. Look at those who are influencers and find out about their core values. This may be easier than you think.

Spending time with people can tell you quite a bit about that person. If it is a dinner meeting, observe how they treat the wait staff; if it’s a golf match, see how they handle a bad shot; if it’s at a dinner party, see if they include other people in their conversation, or does the conversation just revolve around them? Do they provide solutions and the action steps to create them, or are they afraid to speak up and state what they feel and why? Are they good listeners?

In the end, would you believe, like, and trust this individual, and if the answer is “yes,” you have defined a good set of core values. You should be honest and straightforward. You shouldn’t put profits before people. You should do what’s right and not just easy. You should put your customer and employees first, and make sure your team members know you’re always trying to do what is right.

Once you have the correct core values, the next step is simply putting the correct processes and procedures in place to make your business succeed.

Making good profits simply means you constantly re-evaluate yourself, your team, your customer service processes, and your products and services and constantly try to make improvement. These improvements do not necessarily have to be major changes; they can be minor tweaks that provide major improvement

In order for business to succeed longer, a company’s leadership must have a laser focus on good profits, and create the correct processes and procedures that eliminate bad profits.

Kevin Coughlin, DMD, MBA, MAGD is an accomplished dentist, author and speaker. With his unique and powerful message, Kevin provides small businesses with actionable solutions when considering strategic change, as well as keys to compete in an expansive market. For more information on bringing Kevin Coughlin in for your next event, please visit www.ascent-dental-solutions.com.

Fraud: Every Business is at Risk

By Chuck GallagherChuck Gallagher

At first, when his wife said that Sargent Willis was on the phone and had some questions, Reverend Bobby thought he might have run a red light and was caught by a traffic cam. Sadly, the actual problem was much graver. The police officer began to question him about Sue Hardy, the church’s treasurer, and the role she played in the church’s business affairs. It seemed that there were some suspicions of financial impropriety, and that Sue was the likely perpetrator.

The Shock of a Collapsing Illusion: We hear a lot these days about identity theft, Internet fraud, email scams or Wall-Street defalcations, but the truth is most organizations are more vulnerable to fraud than they might think. Whether it is a church, a non-profit or a small business that you’ve put blood, sweat and tears into, the chance that you’re at risk for fraud is substantial.

The conversation between Reverend Bobby and Sargent Willis led to arrest and conviction of what Reverend Bobby once described as a pillar of sainthood in their small but growing church. Sue was a Christian’s Christian. The backbone of the church, Sue gave of her time, taught Sunday school and was the treasurer for years.

Sadly, regardless of the type of organization, most frauds take place from within the company’s own ranks, and more times than not, by trusted individuals that we would never suspect.

By their nature, small businesses, non-profits or associations are typically run on a shoestring budget, which makes staffing tight and internal controls limited. And while most people are trustworthy, external factors can create a need that, combined with opportunity and a dose of rationalization, create the potential for unethical and fraudulent activity.

When the perfect storm of fraud hits and the illusion fades into reality it becomes clear the devastation that fraudulent activity creates. Every choice has a consequence and the consequences of fraud are significant and far-reaching.

What to Look For: Let’s use the example of Sue above to frame the discussion about how good people make very bad choices, which leads to fraud.

According to the Association of Certified Fraud Examiners the following are red flags for fraudulent behavior:

1. Most frauds are committed by people who have worked in the organization for a number of years. People who have ten years or more of experience with the organization cause higher fraud losses. Why? The answer is simple: the longer a person is employed within a company, the greater the trust and responsibility. Likewise, trusted employees are not often considered likely candidates for fraud.

2. Individuals in one of six departments commit the vast majority of all frauds: accounting, operations, sales, executive/upper management, customer service and purchasing. If fraud occurs in your business, it is likely by someone who has opportunity; individuals in these six areas have the greatest opportunity to violate trust.

3. Fraudsters displayed one or more of these red flags before or during the commission of the fraud: living beyond means, financial difficulties unusually close association with vendors or customers, and excessive control issues. Any of these behaviors could be a sign of impending danger.

In looking back on the situation, Reverend Bobby could have seen disaster coming. Sue was a trusted member of the church holding her position for more years than Reverend Bobby had been there. Not that longevity is a bad thing, but church leadership could have required a change of roles from time to time disrupting the natural flow of funds. Typically when things change inappropriate behavior comes to light.

But, beyond Sue’s tenure, she was quite protective over the money and monetary processes for the church. Excessive control is a significant sign that something might be amiss. When people are unwilling to let go of their control, take a vacation or insist that only they can do the task, leadership should step back and examine the role and function more carefully.

Finally, in Sue’s case, there never seemed to be enough. Sue received calls often from creditors. Consistently she would either quickly hang up, showing her dissatisfaction with the call received, or take the call on her cell phone, out of ear shot, and return to work irritated at the interruption.

Final Outcome: In the end, Sue embezzled over $200,000 from the church where she was trusted. The discovery was both a shock and disappointment to Reverend Bobby and the entire congregation. Every choice has a consequence. Sue’s choices – made over time – created significant consequences. Today she is serving a prison sentence that will leave a permanent scar on her and those close to her.

Bobby shared that he now understands the importance of his role in this whole troubling problem. As management, Bobby has a responsibility to understand the three components of unethical behavior and often-illegal behavior: need, opportunity and rationalization. Most importantly, Bobby knows that with some minor changes Sue might have, although tempted, been prevented from making those dangerous choices, which led to an outcome that no one wanted.

As a manager of your organization, what steps are you taking to protect your most valuable assets – your employees – from making dangerous decision that impact them and your organization?

Chuck Gallagher is the President of the Ethics Resource Group and an international expert in business ethics. Chuck provides training, presentations and consultation with associations and companies on ethics and creating ethical cultures where people do the right thing, not because they have to, but because they want to! Information can be found at chuckgallagher.com or Chuck can be reached via email at chuck@chuckgallagher.com or by phone at 828.244.1400.

Don’t Loosen that Grip: Resist the Urge to Relax Financial Controls

By John TschohlJohn Tschohl

The economy is improving, bringing with it a sense of optimism. That optimism, however, can be dangerous. All too often, it brings with it a tendency to breathe a sigh of relief and loosen your grip on the financial reins.

While it might be human nature to relax when things get better, it is not good business practice. The measures you put into place to control costs and reduce waste during the past few years helped you to survive; it would be foolish to discontinue them now.

While you certainly deserve to celebrate your survival of the recent economic downturn, if you want to continue that celebration into the future, it’s imperative that you maintain control of your finances. Competition at every level—from price to product to service—continues to be stiff, bringing with it the necessity to keep a watchful eye on spending.

Customers are not willing to pay higher prices just to keep you in business. Cutting costs and controlling waste, combined with exceptional customer service, are the keys to your continued success. When you offer high-quality products at competitive prices, you can pass those savings on to your customers. When you do so, you will attract new customers and keep current customers. You will increase sales and profits. You will thrive.

Sure, there are a few companies in the world that can charge more without any major repercussions. Disney and Apple are two examples. Their products and services are so superior that consumers are willing to pay whatever it takes to purchase them. That is not the case for most businesses, however.

In order to remain competitive—and viable—it’s critical that you reduce costs and pass the savings on to your customers. You can do so by taking these steps:

Be aggressive. Look for ways to eliminate waste in every department, keeping in mind that no waste is too small to ignore. Those small savings add up to major savings. Let me give you an example: If you have 1,000 employees working an average of 250 days a year, and those employees identify ways to save the company $1 a day, that is an annual savings of $250,000. Taking that a step further, if the company has annual sales of $20 million, at a 5 percent profit margin, this is the equivalent of increasing sales by $5 million.

Turn to the experts—your employees. They know where the waste is and can identify ways to eliminate it. Making your employees your partners in this process does two things: It will result in impressive savings, and it will send a message that you value your employees and their suggestions. And, when employees feel valued, they are more productive and more committed to the company’s success.

Look at people. Leave no stone unturned. Are there people who can be eliminated? Terminate under-performing employees; they cost the company money and do little or nothing to add to the bottom line. They also can cost you money by driving customers away with bad attitudes, lack of knowledge, and poor customer service skills. In many cases, those employees do not need to be replaced, which adds to the savings.

Look at technology. Technology can save you money by speeding up processes and improving customer service. The only technology I suggest you eliminate completely are telephone systems that require callers to go through an endless list of options before they can talk with a real person. Use technology only when it benefits the customer.

Eliminate ridiculous policies and procedures. Not only do they get in the way of providing good customer service, they cost you money because you need people to enforce them. When you eliminate those policies and procedures, you can eliminate the people you have hired to enforce them.

You can’t count on the economy remaining strong. You must do everything in your power to control costs and ensure the success of your company now and into the future.

John Tschohl, internationally recognized service strategist, is founder and president of the Service Quality Institute in Minneapolis, Minnesota. Described by USA Today, Time, and Entrepreneur as a “customer service guru,” he has written several books on customer service and has developed more than 26 customer-service training programs that have been distributed throughout the world. John’s monthly strategic newsletter is available online.

Three Market Trends That Will Affect Your Bottom Line

By Steve RichersonSteve Richerson

Global trends are like a river. Sometimes they are powerful, sometimes they are weak and sometimes they’re so mellow your business can glide along them like a leisurely, summer afternoon pontoon boat ride. Right now there are three big and scary trends that are not going to be a leisurely pontoon business boat ride. Prepare your life vests; we’re headed into the rapids.

1) Resource Roulette: The stress that global supply chains are under continues to make resource availability and access precarious and unpredictable. This in turn, makes it incredibly difficult for businesses to set prices, determine shipment dates, establish baseline costs, or create “Just In Time” (JIT) delivery timelines if those conditions exist.  If energy costs fluctuate wildly, if product shipments are held up thanks to global unrest or catastrophic weather events, or if resources we need for production dry up, it creates chaos and this affects your bottom line. There are examples of this all around us.

Coca-Cola is a soft drink; its predominant ingredient is clean water. If the company that makes it (Coca-Cola) can’t get or doesn’t have access to clean water (thanks to a drought or pollution, or some other factor) they can’t make something as simple as single can of Coca-Cola.   No clean water results in no Coke. Many southern states have had severe drought conditions for the past several years and this condition is being echoed around the globe. Resource Roulette, however, extends well beyond clean water.

Many global fisheries (thanks to overfishing and pollution) are depleted. Fishery depletion may not affect your business directly. You may never even think about global fisheries, but if you’re a fisherman, restaurateur, boat manufacturer, or if you supply materials for boats, transportation to fish markets or any other global connection to that industry, it will affect your business. We have always lived in one globally connected biological eco-system; we are now living in a globally connected economic system as well. From water to energy to raw materials, the impact 7 billion people and a short-term vision for how we use resources increases scarcity and unpredictability.

2) Amped Expectations: Modern consumers want their products to be quality, affordable and readily available, but they have now extended product expectations to the actual company itself. Consumers want the companies they do business with to be responsible for how they treat the environment, how they treat their local community and how they treat their own employees.

It seems that consumers around the globe have a hunch that 7 billion people can’t survive and thrive doing business the way it’s been done in the past. As a result, they’re demanding changes in the products they buy and the companies they choose to do business with.

3) Global Connectivity: We know that 21st century communication is decentralized, personal, fast, cheap and capable of becoming exponentially viral. For businesses, this connectivity is a blessing and a curse. The blessing: we can connect directly to customers all over the world via digital technology quickly, easily and inexpensively. The curse:  those same customers can do the same thing if they’re not happy with our performance.  They can do this quickly at no cost and if we’re not careful, its negative impact can grow exponentially and harm our company’s reputation.

In the modern world, reputation harm can mean financial catastrophe for companies.  Technological advances have made computers, a Wi-Fi signal, portable computers, inexpensive video cameras and smart phones available to mass audiences at a very low cost all over the globe. This has pushed an enormous amount of centralized message control away from corporations and toward consumers.  There was a time when networks controlled the only mass message pipeline. This is no longer true. If a company is doing a poor job according to the customer, in a matter of minutes they can shoot a complaint video, start a Facebook page, share a Tweet and before you know it, the bad news is everywhere.

Navigating The Waters: The best hope to navigate these treacherous waters is to reorient your business focus from a “profits only” bottom line approach (which has served us well, but no longer meets the needs of shareholders and stakeholders) to a “triple bottom line: people, planet, and profits” approach. Why? Because it meets these three trends head-on. Is this approach easy? No way. Is it important? Yes. Will it succeed? Probably, although there are no guarantees, but there’s no guarantee that any business strategy you pursue will be successful. To do nothing almost guarantees failure; the trends are too huge.

You can get started by asking a simple question: “Is this business decision good for the (1) Profits (2) People (3) planet?”

Many companies around the globe have already begun moving in this direction (others have jumped right into the river) and it’s paying off for their “bottom line” profits.  These companies have seen the rough waters ahead for global business and have committed to taking the smart and courageous steps to preserve their triple bottom line: people, planet and profits.

If your business is going to ride the rough waters in the 21st century, you must integrate sustainability into the way you do business because it’s what consumers want and it’s the path for true long-term business success.

Steve Richerson is a nationally recognized speaker and consultant. Steve utilizes his distinct presentation style to speak on the importance of sustainability and actionable guidelines to enact eco-friendly practices in business. As a member of the U.S. Green Building Council, National Recycling Coalition and the North American Environmental Education Association, Steve is spearheading the campaign to reduce wasteful corporate procedures and promote environmentally sound business methods. To learn more about Steve’s speaking, call 256-710-7216.