In one review on his site, John T. Reed talks about negotiation and describes it as:

I think negotiation is an important skill in real estate, but I think it’s overrated. If you negotiate too hard, you lose deals to other buyers and you get a reputation that scares people. I would characterize negotiation as important, but only marginally, in the grand scheme of real estate investing—more of an urban myth than a viable strategy. I tried it. I was a real estate agent and I took multiple negotiation seminars and read every negotiating book I could find. More bargains stem from low asking price.

He could be right.  I’ve always been interested in becoming a better negotiator, but still feel it’s an area I’m quite bad at.  Whenever I learn something, it often just gets me really annoyed when someone else tries it, rather than being something useful that I’m comfortable doing myself.  Perhaps it’s useful to know about them and not be affected.  We’ve written in the past about: threats, low-balling, another kick at the can, evading inappropriate questions, motivation to do the deal, being stubborn, being nice (and another excellent post on the topic by Thicken My Wallet), incentive, meaningless promises, and negotiations within ongoing relationships.

I’ve read “Getting to YES“, thought the ideas were great, but never really found an opportunity to put them into practice.  If any PF bloggers are struggling with ideas for posts in the near future, I’d love to read some ideas on ethical, effective negotiation techniques (or a convincing case that negotiation strategies / skills aren’t necessary).

There are some negotiation strategies that are *SO* overused that I can’t believe anyone has the gall to ever try them (but they must work occasionally!).

Someone Else is Interested

An eternal favourite of the used car salesman.  When you’re sitting on the fence about whether or not to buy, you’ll likely get a phone call that someone else is interested in the vehicle you’re looking at.  My father wanted to buy a truck and had said he was willing to pay red or black book price for it, but not the much higher asking price (red book and black book provides value for different year models of cars in Canada, like the Kelley blue book in the US – you can find copies at your local library).  The dealer REALLY didn’t like this, and offered lame justifications on why his higher price was warranted.  My father wouldn’t budge and left.  The next night, at dinner, a phone call came in.  Apparently the dealer was saying that a couple were looking at “my father’s” truck, and if dad could rush right down and buy it, the dealer would still sell it to my father instead.  My father just said “go ahead and sell it to them”, at which point the dealer started protesting and saying that he wanted to sell it to my dad and they could talk about it later.

In my father’s shoes, at that point I’d be livid that someone thought I was stupid enough to be manipulated that easily, but it must work sometimes for the dealer to try it.

In a hot market, real estate agents like this trick too.  The selling agent will say “there’s another offer, tell your buyer to ‘put their best foot forward’”.  The buyer’s agent is equally motivated to maintain the charade, and often you can get a buyer to bid against themselves and increase an offer before the seller has even considered their first one.  One of the most intelligent people I know bought a house recently and she fell for this, which had me scratching my head.

Take It or Leave It

The concept of BATNA, or Best Alternative To a Negotiated Agreement is very powerful.  Basically the idea is:  what’s your second option if you can’t reach an agreement in the negotiation?  If the person won’t beat that, you might as well just go with the other option.  Say you have a used car you feel is worth $2,000.  You want to give a gift to your niece, who is starting university soon, but really the most you’d want to give her is $1,000 (so you decide to sell the car and give her cash from the sale).  Say dealers keep low balling you and offering you $700 or less for the car.  If you can’t convince them to give you more than $1,000 than you might as well just make the car a gift to your niece and not bother with haggling.

Deciding what you’d do if you can’t reach agreement, assigning a value to it, then making sure you don’t go below that value is a good way to prepare for any negotiation.

One the other hand, some people will say “take it or leave it” at every step of the way, yet then yield and soften their position (claim they have a BATNA they don’t).  They threaten the negotiation (“give me what I want or we’re done”), when they don’t mean it.  If the person won’t offer a reasonable deal, I say let them leave the negotiation.  If they repeatedly threaten this, and don’t follow through, they can’t be taken seriously.

It has Sentimental Value

It’s a cliché to have someone in a pawn broker’s store sobbing about the sentimental value of a watch he’s trying to hawk.  Similarly, sometimes real estate agents will say things like “the seller raised 6 children in this house, she needs to get an offer which takes into account the sentimental value”.  I can’t for the life of me understand why someone else should be expected to pay for “sentimental attachment”.  If I’m that attached to something, I don’t sell it!  Why on Earth would I expect a buyer to compensate me for it???

What are the annoying (and obvious) negotiatation tricks you’re sick of encountering?  Alternatively, what have you found to be an effective and ethical approach to negotiation?

I’m often struck at the stark difference between salespeople and advisors, how oblivious some people seem to be to the difference and the lengths some salespeople will go to present themselves as advisors.

It’s a spectrum, and the differences can be a little fuzzy, but if we think of a benevolent family doctor / general practitioner on the advisor end, and a stereotypically sleazy used car salesmen on the other I think there’s some worthwhile thoughts that can be had. The doctor has an ethical code, a standard of behaviour, and a legal duty to her patients. The car salesmen learns techniques from his manager for overcoming objections and convincing customers to buy something they didn’t plan to.

Obviously (although maybe not SO obvious since this seems to be what every comment we get from real estate agents boils down to), I’m not saying ALL car salesmen are bad or ALL doctors are good. I don’t think I’m even saying one is “good” and the other is “bad”. They’re just different, and it’s important to keep the difference in mind when dealing with salespeople or advisors.

Some salespeople will claim that they’re the “good guys” because they follow a “problem solving” sales approach: they sell customers solutions to their problem. This is fine for what it is, but I went to the doctor a while back to get a wart burned off, and the first thing she did was offer me other solutions (leave it alone and it will eventually go away or use over-the-counter wart patches). Finally, she said, she could burn it off but would have to charge me $30 (and didn’t push this option at all, if anything she seemed to be encouraging me to go with the patches). How many “problem solving” salesmen would suggest a free solution or a competitor’s product?

Again, there’s nothing wrong with salespeople. When I go into a clothing store, I understand the salesperson is there to sell clothes: I’m not expecting an honest style consultation. When I eat at a burger joint or a hot dog stand, I don’t expect the vendor to warn me the food is bad for me. I don’t expect a mortgage broker to talk me out of home ownership.

Fiduciary Duty

For some relationships (such as parents, teachers, doctors or lawyers) there is an explicit legal requirement that extreme loyalty is required. This is enshrined in law, and when this loyalty is lacking, the fiduciary risks getting in big trouble. This is probably the best indication of someone who will act in your best interest: have you heard well publicized cases of fiduciaries who didn’t live up to their obligations being severely punished? I’ve heard of parents, doctors, lawyers, priests and teachers all getting into serious trouble when they haven’t lived up to their obligations. I’ve heard stories from many unhappy customers of real estate agents, bank employees, and financial planners, but have rarely heard about these salespeople getting into any trouble until it gets to the scale of Bernie Madoff.

Why the Confusion?

One question might be, if they aren’t proper fiduciaries (with real consequences if they fail in their duty), WHY do some salespeople try to present themselves as such? Clearly, it’s a lot easier to sell to people who trust you. A large number of real estate agents have suggested that if you don’t trust your agent, go find one you do trust. I don’t understand why I need to “trust” an agent I work with. Can’t I just hear their recommendations and decide whether or not to follow them? There’s a range of services they provide, MUST I turn off my brain and blindly follow their every recommendation in order to work with them? Even medical doctors don’t expect that…

As an aside, often real estate agents come up as an example in our posts just because we have a history of posts on the topic. I’m not claiming that real estate agents are worse (or better) then any of the other quasi-professionals who are desperate to call themselves professionals.

To further muddy the waters, some positions have flexibility about whether to operating as a salesperson OR advisor. Financial planners are probably the best example of this. When they work on commission they’re usually salespeople. When they’re fee only they’re usually advisors. Some enterprising individuals call themselves “fee based” hoping to ride the goodwill generated by fee-only advisors, but instead collect a commission ON TOP OF the fees they charge.

Limits of Advisors

Even when there is a legally protected relationship, there are limits. For example, although legal guidelines dictate how they go about it, a psychologist, lawyer or other professional can usually terminate a client relationship for non-payment of fees.

As well, obviously they can only advise on their area of expertise (my dentist gives lousy asset allocation tips and my optometrist is shockingly ignorant on the history of programming languages). John T. Reed has an excellent article where he discuss the “team of advisors” recommended by many get-rich-quick-gurus. One of the more interesting comments he makes is that there will be times when advisors recommend different paths forward, based on their areas of expertise. What makes sense from a legal perspective, might not from a tax perspective.

People need to know enough about the areas they’re being advised on both to resolve these conflicts and to identify whether someone actually IS an advisor (or if they’re just a salesperson).

Mr Cheap is out of town and may (or may not) be responding to comments.  Rest assured, he’ll read each carefully once he’s back.

This post, obviously, isn’t meant to be a comprehensive overview of networking. Entire courses, books and seminars have been devoted to that.  This is simply intended as a primer for people who know they should be networking, but have no idea how to start.  This is intended to be the sort of light networking where you send feelers out for something concrete, such as:  a job lead, a specific piece of information, advice or a small favour.  I don’t have any special training, or even particular aptitude, for this sort of thing, but I’ve usually been successful asking people for small things and this post is how I go about it.

I’ve run into people who clearly have the appetite to do some serious networking, and will happily put the work in, but seem to have no idea how to go about it.  Obviously I’m talking about career networking here (not computer networking, social networking or business networking).

People Want to Help You

In “The Alchemist“, Paulo Coelho claims that “when you want something, all the universe conspires in helping you to achieve it.” I’m not sure if I buy that literally, but in spite of popular wisdom, I believe most people want to help other people.  We all consider ourselves “good people”, and when someone asks for help (particularly if it’s something easy to do), people are usually happy to oblige.

Recently I needed the answers to some real estate questions and I e-mailed Alexandra (a frequent commenter here) and Rachelle (who has done some fabulous posts at Million Dollar Journey).  I wrote a reasonably short e-mail, was specific in what I needed to know, and within 24 hours both had responded to me and provided excellent advice (and, happily, also answered follow-up questions).  This was the first time I had e-mailed either woman (I haven’t met either of them), and neither had any particular reason to help me, but both did.

Example

I’ve commented on his blog, he’s commented here and we’ve exchanged a couple of e-mails but I’ve never met Larry MacDonald in person.  Say I was interested in working at Nortel (which would be difficult since they’ve declared bankruptcy).  I might think of Larry immediately, since he wrote a book about Nortel.  I might write an e-mail to him that would be something like:

Hi Larry!

Hope everything is going well.  I enjoyed your recent post on your BCE shares (I think you should hang on to them) and searching for yield (I haven’t gotten my head around investing in preferred shares yet – Tom Connolly is firmly opposed to them).  I’m currently job hunting and am thinking about applying at Nortel, ideally in a developer or testing role.  If you know anyone who might be a good contact within the company (I’m trying my best to avoid HR ), or if you hear about anything in the next few months, I’d appreciate it if you kept me in mind!

All the best,

Mr Cheap

Now a few things to point out.  I don’t write an angst filled diatribe against the modern economy and why it’s unfair that I’m job hunting (why should Larry care?), I keep it brief (he’s a busy man) and easy to help me (I’m just asking him to put me in touch with someone – 5 minutes of his time).

One tip an uncle gave me once is not to ask people for immediate help, but to ask them to keep you in mind.  That way, even if something isn’t immediately available, they might think of you when something comes up.

Don’t Harass People!

If the person doesn’t respond for a few days, it’s ok to send 1 more follow up, but after that leave them alone!  It’s great if someone is willing to help you out, but usually they don’t owe you anything, so don’t bug them.  Similarly, once they’ve helped you out, don’t immediately ask for more help.  Some people seem to find someone helpful, then proceed to be a nuisance and suck that person dry.  I think this is quite short-sighted.  If they decline to help you, or offer something that isn’t helpful, don’t get angry at them!  (I feel weird even writing this, but I’ve known people who do this so maybe it isn’t as obvious to everyone as it is to me).  Thank them for their time and keep looking for someone who might be more helpful.

It should go without saying, but obviously if you’re asking people you only know casually for help, you should be open to helping other people who ask YOU for help (and should DEFINITELY jump to it to help someone who has helped you in the past).  Rachelle seems to be thinking about getting into blogging, so I hope she contacts me if I can help her with any blogging or technical issues.

What are you best networking tips?  Have you found that people you know casually have been willing or unwilling to help you in the past?  What sorts of things have you asked for help with?

I’m often struck by how rude people in customer service positions are.  I understand when people say “they have a tough job and they get fed up with it just like anyone else”, but ultimately if it’s the ENTIRE point of someone’s job to interact with the public, shouldn’t they stay nice (or at the very least neutral)?

Bell is AWFUL as a company, and the worst experience I had was when no one showed up for a scheduled installation, I called their customer support and a mouthy representative kept obnoxiously telling me that it wasn’t in his computer system, so the best he could do was treat me like a brand new customer and schedule an installation 2 weeks later.  I finally had had enough of him, asked for a supervisor, and he refused!  Smoke was coming out of my ears at that point.  There are *SO* many reasons to hate Bell, but this one incident always comes to mind when I think of the company.  I suspect that the true cost of lost business is not realized by companies when a customer is treated rudely and never returns.

I ate at a local buffet restaurant this week, and was left standing at the door while one waitress told me to wait and then went to fill up water glasses (she continued to be abrupt with me throughout the meal) and the owner shoveled food down her throat and stared at me like I was some kind of science experiment.  Most of the food items in the buffet line were left empty while I was eating and I was left standing at the till waiting to pay.  At the end when I didn’t tip, the waitress looked at my credit card receipt, huffed and stormed off.  I’m never eating at this restaurant again.

I’ve gotten the MBNA Mastercard that Henry recommended and I LOVE it!  There was a problem with my first payment and I called up to ask them to reverse the fees and interest that was charged.  Ultimately I was at fault, so I would have been fine if they didn’t reverse them (but they did, thanks MBNA!).  The woman who reversed them was quite rude to me however, which seems to defeat the whole purpose of doing something nice for a customer (“We’ll give you a refund to ensure your loyalty, but I want you to know that I hate you SO MUCH.”)  All the work that was put into offering an outstanding card to the Canadian public was undermined by one rep having a bad day.

I get that no business WANTS their employees to be rude.  I think they turn a blind eye to it to a self-destructive degree.

I was out for coffee with some friends, all of whom had worked in customer service.  They related, with great mirth, stories of pretending to be one another’s supervisor for angry customers and how they would provide (or deny) services based on how nice the customer was to them.  Apparently it has gotten to the point that instead of reps behaving professionally to us, we have to suck up to them to get them to do their jobs.

For better or worse, customer service reps are the face of a company that the public interacts with.  It’s difficult for us to distinguish between one employee mistreating us and the company mistreating us.  I think the only way businesses get away with this is that it’s so pervasive that customers don’t have any alternative.  When it’s possible and an employee has been particularly unpleasant to me, I try my best to shop elsewhere.  Often I run out of companies to do business with.  If one company could keep their reps providing a consistent experience, eventually they would get all the customers like me.

One way I think a business should deal with this is to invest time, as part of the training, in the proper way to interact with customers.  Go through, in detail, what is an appropriate reaction and what isn’t.  After the training when the employee is working, monitor this interaction and correct them as soon as possible after they’ve been rude to a customer.  If a restaurant takes the attitude “Oh-well, she may be rude to customers but at least she shows up on time for work…” I think there’s a long term trend, as more customers get turned off, that will accumulate and become VERY harmful.  It’s kind of like reverse marketing, instead of getting new customers, you lose existing ones.

I watched a documentary Up The Yangtze (it’s great if you get the chance to see it) and there was one scene that showed how the cruise ship trained its staff to interact with Canadians.  I had a good laugh when they were told not to tell Canadians they’re fat or talk about Quebec.  Many workers in Canada would be offended if part of their training was interpersonal instruction that is this specific, but from my  shopping experiences it’s necessary!

I realize complaining about poor manners is more a sign that I’m getting old than anything.  So if nothing can be done about customer service reps, at least get those damn teenagers off of my lawn!!!

What sort of rude experiences have you had dealing with businesses?  Do you think putting up with it is just a part of modern living or can something be done?  What are your thoughts on “kids these days”?

Eliminating the middleman is never as simple as it sounds. ‘Bout 50% of the human race is middlemen, and they don’t take kindly to being eliminated.

-Malcolm Reynolds (Firefly)

The Internet removes middlemen.  In many ways, this is the core of the wealth it has created, by putting buyers and sellers directly in touch with one another (and removing intermediaries each wanting their cut), sellers can dramatically increase their volume and buyers can dramatically decrease their price.  Industries such as publishing, entertainment, the news media and real estate are undergoing a dramatic and fundamental change as they risk being sidelined.

As I see it there are two main types of middlemen, one of which will survive, and the other which will be (thankfully) made to work a little harder for a living.

1.  Middlemen Who Add Value

In a comment a while back, after I’d mentioned hiring a painter through Sears, commenter Adam responded:  “All Sears does is outsource the painting job to a private contractor, that you can hire privately, and charge you a premium for it. They are like Rona\Home Depot etc. They take a cut by being the middle man. Save yourself some money and find out who they hire locally to do the work, hire them privately and negotiate a better deal.”

On the face of it, Adam makes an excellent point.  Sears is subcontracting, so instead of letting them earn 20% for putting me in touch with a local painter, go to him directly and get a better deal (which I could have done).  The assumption here is that the paint job will be equivalent in both situations.  With respect, I disagree.

First off, I had talked to other painters, and found the prices they were quoting were comparable to Sears (so the 20% seemed to be coming out of the painter’s profit margin rather than my cost).  Secondly, they weren’t equivalent jobs.  Sears guarantees their paint jobs for a set period afterwards (I forget how many years it was for, but at least for 1).  Even if “Billy Bob’s Discount Paint Emporium” offers a guarantee, it’s not as reputable as Sears’.  Thirdly, a painter working with me directly has a small vested interest in keeping me happy (for referrals and repeat business).  A painter who is getting 60% of his weekly business from Sears is less likely to want dissatisfied customers running to his primary referral source and complaining about him.

2.  Middlemen Who Don’t Add Value

In economics rent-seeking refers to individuals who manage to control something important to other people’s ability to do business or live their lives and charge them to do so (deriving income without contributing anything).  Examples include Ticketmaster (which controls many performance venues and earns money by being the only one who can issue tickets), real estate agents and the MLS system (they have a monopoly on, what has been, the primary method for advertising residential real estate), corrupt government officials and record labels.

It is perhaps human nature when you have something in your control to profit from it (and fight tooth-and-nail to keep control of it).  There’s a massive cost associated with having parasites attached to the chain of commerce.  Simply, it makes the transaction more expensive, so less activity occurs.  If I have a $500 budget for widgets, and a middleman doubles the price, I make do with the number I can get.  If I could actually buy them at the proper price, either I could free up that money to do something more valuable (good for me), buy more (good for the seller) or some combination (good for us both).

Transitions

The Internet (and the information economy) relentlessly makes things more efficient, which has been good at identify middlemen who aren’t adding value and squeezing them out of the deal.  Those being squeezed out can a) use their resources to futilely fight these forces and try to keep their position, b) go do something more useful with their time and energy, or c) become middlemen who add value.

To take real estate agents as an example, Mike and I have pointed out many valuable things we think they bring to the table, and I think there are a number of additional services they could offer which would keep them relevant.  The industry’s desperate attempt to hold on to 5, 6 or 7% commissions will be obvious and ridiculous to everyone in the next few years and it will disappear (I’ll go on the record as saying if anyone is still paying these kinds of commission in 2015 I’ll drink one of Mike’s beers!).

What experiences have you had with middlement who add value and those that don’t?  Have you seen, in your lifetime, middlemen that have been driven out of the marketplace?  Any new types you’ve seen appear?

Recently I was discussing with my wife an idea she had for an online business.  One of her hobbies is genealogy, which is basically researching your family tree so she had the idea of offering a genealogy research service for money.  I don’t know if this business idea will ever get going or not, but I thought I would share some of my thoughts for researching and testing this idea.  Hopefully, some of you will have ideas or even experience at this sort of endeavor.

The basic business idea

Offer genealogy services over the internet for a fee.  For example someone who wants to learn more about their family tree but doesn’t have the knowledge or time to do the research might be interested in purchasing this service.

Reasons why she might be good at this business

• She is interested in the topic.
• Has quite a bit of experience and expertise.
• Has access to paid tools and databases. Most of the “free” genealogy databases are fairly limited and you have to pay to see the good stuff.

Potential downsides

• Can’t get clients.
• The profit might not be large enough to make it worthwhile.
• Might lose interest in her own family research.
• She finds that she hates researching other people’s family trees.

These are the action items I suggested to research the idea

Competitive research: Look around and see what services other people are offering.  If nobody else is offering that kind of service then it might be an underserved niche or more likely – there is no demand.    If you can find some similar services then try to figure out what exactly they offer and for how much.  You can see their rates on their website or you can email to get quotes from them. This might give you an idea of what kind of hourly rate you can expect.

Determine your services/products

Try to think of specific things you can offer/advertise.  Ie for $N you can do a listing of someone’s grandparents and their siblings.  Or do a family tree up to a certain level.  Or if requests end up being too variable then just advertise an hourly rate or quote for a project.  The competitive research from #1 might help with this.
The problem with genealogy is that it is never “finished” so you have to set boundaries.  It’s also hard to know what people want – will they ask for as much info as possible?  Do they want to know about 1 specific person?  Do they just want to know what countries their predecessors were from?
Pre-packaged “gift” ideas might be a good seller.

Determine rates

This one is easy – look at what others are offering and go from there.  Rates can be changed very easily so just start at a reasonable rate and increase with demand.

Website

In our case I can easily set up a website for her using my existing hosting.  I can also leverage off of 4P traffic to help advertise her services.

I find it interesting to note that this is the type of business which modern technology has enabled.  At one time it would take a huge amount of time to research one line of a family tree going back 200 years so nobody but the richest people could afford it.  Now, access to that info is much more accessible so it is a lot cheaper for someone to offer/buy a service of this type.

I know a lot of our readers have started businesses?  Do you have anything to add?  Have you ever started a business and then quickly stopped when you realized it wasn’t going to work?

Don’t forget to enter the SmartyPig $25 giveaway contest which ends on Thursday, January 28.

Years ago I read the book “Raving Fans” by Ken Blanchard and Sheldon Bowles. The idea behind it is techniques to go from satisfying customers to creating a consumer-cult of the style enjoyed by Apple, Tim Hortons or In-N-Out Burger.  It’s certainly a tall order for a book to give you a  blueprint of how to create this reaction to your business (and as a whole, I think the book failed by shooting too high).  It does have some interesting ideas, one in particular that I think is useful for possibly turning around a failing business or improving many businesses.

In the student plaza next to the University of Waterloo there’s one location that people joke is cursed after the last 4 restaurants that have opened there have each gone out of business after a couple of months.  The most recent restaurant to go out of business was a Tex-Mex place called “Casa Salsa“.  When it first opened, it was crazy busy, but right from the start I figured they were in trouble.

For starters, they advertised themselves as a Mexican restaurant.  One of the faculty members in the CS department said “They’re actually a Tex-Mex restaurant, which is good, because I like Tex-Mex better than Mexican”.  It’s not the end of the world, but incorrectly identifying your style of restaurant is going to be off-putting to customers who are knowledgeable about the style of food you’re offering.  I don’t think this is a huge deal in and off itself, but it became part of a pattern.

They had an incredibly complex ordering system where you had to take a form, and select various items off of it for your order.  I intended to get a burrito, but was served tostadas instead.  They were tasty, and when I looked at the ordering form again I saw where I’d went wrong, but it’s strange when they make it that difficult to order food (maybe once I’ve gotten my third degree I’ll be educated enough to navigate their menu – clearly a B.Sc. and M.Math aren’t enough).

Their prices were higher than the competitors, which in a student eatery is an important consideration.  After their business had declined, they eventually implemented a “student special” (with a student card) which made it more competitive.  By the point they’d done this, their early customers had already fixed the idea of “that place is more expensive” in their minds and they weren’t able to win students back.  Additionally, the sign they put out advertising the student special was small and quite hard to read.

Lastly, the staff were fairly rude.  Early on I guess this can be faulted (they felt they had so many customers when they first opened they could be brusque and get away with it).  I ate there 1 week before it closed (I finally had broken down and decided to give the student special a chance).  I was the only one eating there and two young women came in who were OBVIOUSLY students, only one of them had a student card, and the person working the register forced the second one to pay full price.  Nice.

Gary Vaynerchuck has an interesting video on Profit.ca where he talks about customer expectations.   He talks specifically about engaging customers with social media, but the broader message is clear that as competitors offer something, it becomes increasingly vital to match them or you’ll start losing customers.

The technique mentioned in the title is to ask customers what’s wrong with your business.  In “Raving Fans” they give the example of diners who have had a bad experience at a restaurant, when asked “how was everything?” by a staff member on their way out mumbled “fine”.  Things WEREN’T fine, but the diners have had the experience where they mention a problem and the staff member got argumentative with them.  Instead of complaining, they just don’t go back and the company loses future dealings with them.  When the first Swiss Chalet came to my home town, my family went to it and it was VERY greasy.  None of us ate there again for over a decade (it turns out we just had a bad meal there, usually it’s better than it was that night).  It’s in everyone’s best interest to catch the problem and make it right with diners who have had a bad experience.

One way to get around people saying “fine” is to keep digging and make it clear you want to hear the feedback.  Instead of saying “I hope everything was ok tonight”, ask them “what was the worst part of your dining experience tonight?” or “if you were forced to complain about 1 thing in your purchasing experience today, what would it be?”.  If you get someone (like me), who is happy to detail a number of problems, be encouraging and thankful and listen to them all.  At the end of it, give them a coupon or a free sample or something to thank them for the valuable information they’ve given you (which they have).  If the owner can’t handle having people criticize his baby, have someone who can smile while listening to negative feedback do this.

I’m not at all saying the business has to do what every crank tells them to (and there will get some crazy feedback, the punchline to one Dilbert cartoon is that customers want a better product for free).  Ask enough people and a pattern should emerge with what customers view as the biggest problems.  They should do what they can to fix these.

As soon as the Casa Salsa’s business started dieing out they should have done this immediately.  Have a staff member stand by the door, and when someone is leaving ask them if they could answer a few questions.  Find out what the problems are (don’t accept “fine” as an answer) and thank them with a half-price coupon or something.  Then get people out front (or a big sign) and let people know you’ve made a change (and hopefully get back some of the people who weren’t planning to return).  If you’ve cut your prices, tell people that, if the staff are friendlier, tell people that, if you’ve streamlined and simplified your ordering process, tell people about it.

There are all sorts of good reasons to want to start a business. Often it’s also possible to start a business doing something that the owner personally enjoys: people who like creating artistic works might become graphic designers, those who enjoy writing might become ProBloggers, authors or copywriters, while those who like talking to people might start some business involving sales or consulting.

While it’s great to start a business doing something the owner loves, this in and of itself doesn’t make a business viable! There has to be a demand for what a business is producing or the endeavor will be for naught. As Thoreau writes (perhaps with racist overtones) in Walden:

Not long since, a strolling Indian went to sell baskets at the house of a well-known lawyer in my neighborhood. “Do you wish to buy any baskets?” he asked. “No, we do not want any,” was the reply. “What!” exclaimed the Indian as he went out the gate, “do you mean to starve us?” Having seen his industrious white neighbors so well off–that the lawyer had only to weave arguments, and, by some magic, wealth and standing followed–he had said to himself: I will go into business; I will weave baskets; it is a thing which I can do. Thinking that when he had made the baskets he would have done his part, and then it would be the white man’s to buy them. He had not discovered that it was necessary for him to make it worth the other’s while to buy them, or at least make him think that it was so, or to make something else which it would be worth his while to buy.

Unfortunately 150 years later people are still making this mistake: “I’ve done my part producing a good or service, now you should do your part and buy it”.

A friend told me about recently going to a craft show and feeling badly when she overheard one of the older women complaining that she’d only made 2 sales that day. My mother really enjoys crafts: she knits, weaves, sews and does all that stuff. Whenever she’s considered selling what she makes, once she factors in her time she knows she couldn’t sell it for anything close to what it cost her to make it. Instead she gives what she makes as gifts and hopes the recipients appreciate all the effort that went into them. The women at this craft fair probably enjoy crafting like my mother does, but they aren’t factoring in their time. After they’ve spent hours making the products, they then spend hours manning their booth to sell it (sometimes paying rent on the booth), and of course they lose money.

Two of my friends recently got married, and she’s planning an on-line crafty business which I predict will suffer the same fate. She may make some things, people may say they’re nice and buy them from her, but she’s never going to be able to make profitable use of her time. I’m *TOTALLY* ok with couples where one makes the money and the other pursues some endeavor that isn’t for monetary reasons (like an artist or writer), but it’s nice if the couple is at least honest with themselves that it’s a personal fulfillment activity, not an income generating activity.

One friend talked about starting a kitten farm, and I teased her that the first step will be developing a market for kitten meat (“The Kinder Alternative to Lamb!™ ” – yes, Mr. Cheap is evil). She wisely ignored my nonsense, but admitted that no one was going to pay her to raise kittens: she’d just be a crazy cat lady – not a business. This did prompt her to refine the idea as a cat rescue (as a non-profit) or a cat kennel. She even had the idea that MIGHT work of a cat spa where there would be cat-specific activities like hunting.

The solution to avoiding this mistake when brainstorming business ideas is fairly simple. Once an owner has thought of something he’d enjoy doing, he needs to honestly put himself in a customer’s shoes and ask “would I want to buy this at a price based on what it costs to produce?”  Friends and family will be blindly encouraging (a point made quite well by the Onion article: Ridiculous Small-Business Plan Encouraged By Friends), so he HAS to be honest with himself.  If he can’t do this (and keeps falling in love with an idea such that he INSISTS people will pay for it because he loves it so much) he’ll have a lot of wasted time, money and effort in his future.

If he is honest with himself and admits no one would buy what he wants to produce, he should keep it a hobby and do something else to earn money.

When I start writing up a wacky business idea, one of the things I do is a quick search to see if someone has already done something similar.  I don’t spend hours on it, but I’ll look for 5 or 10 minutes.  In many ways it’s surprisingly rare to find someone is already doing what I’d thought of (I gues word spreads fast these days).

Presented, for your consideration, are three ideas that I had which turned out had already been thought up by other people when I went looking for them.

Electric Hookahs

Hookahs are pipes for smoking tobacco (a special variety called “shisha”) which involves filtering the smoke through water:  remember the caterpillar in Alice in Wonderland?  It’s really bad for you (smoking a hookah for 1 hour is about the equivalent of smoking a pack of cigarettes), but it’s also quite nice .  When you set up a hookah, you typically use charchol to heat the tobacco.  There’s a whole ritual to it, where you load a special bowl with the shisha, cover it with foil (with as small as possible holes placed it in), and put the burning coals on top of the foil.  By inhaling on the pipe, you pull air in, past the tabocco being burned by the coal, and into the pipe (through the water and into your lungs).

The idea for this is to remove the charcoal by adding a fine element that rests above the shisha and burns it in the same way the coal does (but without getting ash everywhere and having to deal with hot coals).  Some may argue that this isn’t proper, while others may say this is taking the hookah into the 20th century.

Either way, it’s been done.  I even found a student at my university who has designed one.

An Academic Proofreading Marketplace

English is the language of academic discourse.  In the past, French and Latin have been used, but now it’s English.  If you want to have your ideas noticed, the top venues (conferences and journals) operate in English.  Increasingly, strong universities will teach in English, even if it isn’t the native language of the country the school is located in.

This obviously puts non-native English speakers at a disadvantage.  I’ve read a number of papers (published and unpublished) where the ideas were hidden by the awkward choices of spelling and grammar.

There are student “proof reading” services, which either help students who aren’t native English speakers or do the homework for lazy students everywhere, but this idea is to focus on academics, and provide a writing service catering to professors.  They’d be connected with native speakers working in the same area as them (so they can accurately express the ideas).  I did this (face-to-face) when I was abroad for computer science professors and found there was a lot of interest in it.

It’s already being done in the way I envisioned (at places like this) .  I still think extensions on this idea are possible (like a site that places a premium on reliability and the pedigree of it’s proofreaders or a service that would send an in-person proof-reader to a foreign department on an on-going basis).

Zero Calorie Foods

It always seemed weird to me that there’s SO many choices for diet beverages, but no options for “diet food” (e.g. 0 calorie food).  I get that food has to be made out of SOMETHING, and typically this something has calories.  I’m not talking about so-called “negative calorie foods” (which are incorrectly believed to require more calories to digest than they possess) but instead something like diet soda, with ZERO calories.  It may not be the most appetizing idea, but imagine taking some diet drink, then thickening it with an inorganic agent like melamine (the ingredient that Chinese company added to the baby milk that killed a bunch of infants).  Except, you know, make sure whatever you use doesn’t kill people…

Even if the first version was basically zero-calorie Jello people would eat it.  Over time more appetizing versions could be developed.  There are people who would worry about the long term health consequences (just like some people worry about with diet drinks) and there are people who would refuse to eat something so unnatural (just as there are people who refuse to drink diet drinks), but I think there’d be a massive market that would be willing to give it a try.

A friend told me they saw “zero calorie jam” at the grocery store which intrigued me.  I went looking, but didn’t find it (in any grocery stores or on-line).  I’m assuming they saw “no sugar added” jam and misremembered.  Unfortunately (for me), even if there isn’t zero-calorie jam on our shelves  it already exists in Japan and some Kansas state researchers were working on it 7 years ago (so I’m sure if there’s any way to do it they’ve figured it out by now).

I was talking to a friend recently and used the term “ramen profitable”, which she found incredibly amusing.  I realized that I had never used the term on the blog or posted about it, even though it’s a very useful perspective on starting a business.

The term was coined by Paul Graham, and he discusses it in the context of technology startups and fundraising (venture capital, not professional begging).  It basically refers to a business that makes enough to cover all its costs, plus provide a meager lifestyle for its founders / operators.

When a company is spending more than it makes, the monthly deficit is sometimes known as the burn rate.  By dividing the company’s working capital by its monthly burn rate, it can be determined how long until the company will go out of business (unless it can raise more money or something changes).  This is clearly a very stressful situation to be in, and investors will be delighted to take unconscionable terms from the founders if they realize the company desperately needs the cash to stay alive.

It’s standard for companies to have their highest burn rate at the beginning.  Imagine a professional opening an office (perhaps a lawyer, accountant, dentist or therapist).  She has to pay: rent on the office space, liability insurance, salaries (for receptionists or assistants), advertising, furniture, decorations, office supplies and all the other necessary expenses before she earns a dime from a customer.  In such a situation, it would be hard to imagine that there WOULDN’T be a high burn rate for the first few months as the company grows towards profitability.  The reason why people start businesses that are losing money on the first day is they expect it to grow to the point where it becomes profitable (then hopefully earn them more per hour of labour than they would have made working for someone else).

Some companies intentionally accept a large burn rate in order to dominate their industry.  Webvan tried to do this and went out of business when they ran out of money before they became profitable (apparently they were too ambitious and analysts have speculated they might have survived if they’d expanded a little slower).  Amazon.com lost money every year from 1995 to 2001.  These years of losses were part of their original business plan, a strategy that they have effective executed.

There are a number of benefits, for people starting a company, from focusing on becoming ramen profitable as soon as possible:

• Most founders aren’t pursuing a “billion dollar company or bust” strategy.  They’re happy to earn a comfortable living running a successful business and don’t need to take the extra risk necessary for explosive growth.
• It gives a clear and attainable first milestone for the company to reach.  By constantly tracking the company burn rate (and working to get it to zero), it keep a young enterprise’s priorities straight:  increase revenue while keeping expenses low to become profitable.
• There are all sorts of risks that can kill a business, but becoming ramen profitable decreases the chance of one big one (running out of money, which technically is probably always the official cause of death).

Thicken My Wallet has written a number of excellent posts on entrepreneurship.  One of the running themes in his posts is the importance of keeping costs down when starting a company.  This is clearly 1/2 the equation of getting to ramen profitability (the other half is getting people to pay you for your product or service).

Ramen profitability isn’t an ends to itself.  If someone is working hard for a student lifestyle, they’d be better off going to get a job instead of taking all the risks of running a company.  However, reaching this stage gives you breathing room to figure out how to grow your business to a level where it is more lucrative than working a 9-5 job.