So, I tell personal stories to show that we all should look for lessons learned by others. Here’s one that is “on me.”
As my enterprise computer software company which produced innovative lodging systems
for hotels and resorts grew quickly, we found ourselves straining to keep up with the hiring and training of good customer support representatives, a critical part of the equation then and still so today in the 24-hour environment of hotel front desk operations.
The need for instant support.
If a front desk clerk called support at 11.00 PM in the evening, it usually meant that there were guests lined up waiting to check in, anxious to pass beyond this necessary but inconvenient bottleneck between a tiring plane ride and a comfortable bed. The result would be very frustrated clerks facing angry guests if the wait was too long. It was simply not acceptable to be backed up in customer service, forcing either a ten-minute wait or a call back from support.
Rapid growth=hiring inexperienced customer service reps.
It took several months to hire and train enough new service reps to keep up with the rapid growth of our company. But the problem was solved, and response times returned to “immediate” for at least this class of customer call. There was no wait, and the quality of response was rated as “excellent” by callers later surveyed.
But “There’s the rub” (the snag) wrote Shakespeare in Hamlet.
[Email readers, continue here…] It took two long years for the company to fully recover its lost reputation after the actual problem was fixed to the satisfaction of all. Aided by salespeople from competitors and long memories from unhappy customers, the myth of continued quality problems in customer support bounced around the industry for those years, until finally good press, great experiences and an effective marketing campaign together overwhelmed bad memories to put this issue to bed.
What if the problems had been more complex?
If the problems had been in product stability and customer service together at the same moment, there might not have been enough time and resources to recover. There are plenty of young companies that died trying to recover from such a combination.
Your reputation hinges upon delivering a quality product at the moment of release and maintaining product quality throughout its life. The smaller the company, the more is at stake. There are fewer resources and much less of a reserve of goodwill among the customer base to absorb a problem release – or in the example above, inability to fill the void in customer service created by rapid growth.
cause simple problems, you are right.
It becomes obvious then that there must be a balance somewhere between rushed release and too much rigor in pre-release planning and testing. Perhaps that balance can be measured in estimating what a company could endure in lost overhead and hits to reputation before becoming crippled and unable to recover. With that measure based upon pure estimates, the balance point changes between companies, with the largest, most profitable companies able to suffer the most risk as to resources, and the smallest suffering by far the most when measuring reputation.
and money that is more complex than most managers think. Fixed overhead for salaries, rent, equipment leases and more make up the majority of the “burn rate” (monthly expenses) for most companies. Since this number is budgeted and pre-authorized, managers tend to focus upon other things such as sales, marketing and product development issues.
The financial pain of unplanned delays.
add new money to the company for the project. Not long after, the company was sold in a “fire sale” amounting to slightly less than the debt on the books. All investors, including the VC firm, lost everything. Do you remember a previous insight, that “the last money in has the first say”? That is what happened within the dynamic of the board, and the result is that the board was completely at the mercy of the “last money” VC to save the company in the end. Yes, there were other issues such as a protracted patent rights fight that drained cash, but the largest problem, inefficient use of R&D time burning fixed overhead, led to the demise of the company. Lots of good jobs were lost and many investors including me were left with the question. “Why did the company abandon a profitable market, even if it could not generate $100 million a year in revenues?”
If you must provide a free backup unit, personal on-site service for a month, your personal cell phone number for the customer CEO, or any number of unexpected offers of superior service and accountability to those first customers, do just that. Make your customer a partner in the process. Send flowers to the staff in the department using the product for the first time if appropriate. Call the customer CEO and thank him for helping launch a product so very important to your success.
the notion of the “teacher-customer” years ago. I internalized this phrase, recalling the many times I had partnered with customers to design new feature-functionality into my hotel computer system back when such systems were brand new to the industry. It was an ideal partnership for my growing company, as it approached one hundred employees on the way to almost two hundred fifty and selected special customers anxious and willing to spend time telling us of their pain points.
stated by German Field Marshall von Moltke in the 19th century.
My excitement in having developed so many new and “somewhat tested” features over a sleepless weekend was exceeded only by the enthusiasm of the entire hotel staff for the new and wonderful capabilities left behind after the magic weekend of non-stop programming. These trips were so common and their aftermath so predictable (a late-night emergency repair call waiting for me at home upon return Sunday evening) that the hotel owner created a mantra that stuck with me and caused quite a laugh at my expense for years. He would be sure to remind his staff, shaking my hand goodbye as I left in a hurry to catch that Sunday evening flight: “Wheels up, system down.” And that’s the result of “cowboy coding.” Ouch!
you developed a prototype, alternate pricing schemes, even a PowerPoint mockup to show to potential buyers? I would be very, very nervous without testing the product in the market as early as possible, ready to make changes and enhancements before committing to production and release.
Four- and five-star hotels loved the concept, which included redirecting outgoing calls from the cell phone by the guest to be sent through the hotel’s land line switch, making the hotel a miniature phone company with its attendant profits.
partners in firms that made subsequent investments in companies where I either made early investments or led a group of fellow investors in early rounds of finance. Each of these companies needed more cash than professional angel investors were willing or able to provide, and we turned to the venture community for larger investments.
In one such case, the angels were tapped out at $6 million invested, an amount far above their usual taste, but for a company we thought had a billion-dollar potential. The VCs subsequently invested $18 million, well beyond what angel investors usually can project from their own resources. Without the VC guidance there would have been little opportunity to even dream of a billion-dollar valuation goal. There is no question that the company took smart money and leveraged it for maximum growth, using the money, guidance, contacts and more from these large VC investors.
professional investors negotiate tough terms, from provisions of control over asset acquisition, eventual sale of the company, future investments, forced co-sale when others attempt to sell their shares and more. And yet, in an earlier post, we spoke of the problems that come when taking unstructured investments from friends and family.
Remember the admonition that investment from such close sources carries an additional burden for you – to protect your investors and their investment as if they were your alter egos, offering money as if from your own pocket. Such money should never be taken without clear understanding of the terms, whether a loan with a reasonable interest rate and strict repayment terms, or an investment valuing the company at an amount considered reasonable by a third-party professional, even if as a sanity check as opposed to an appraisal. This money is personal, an investment in you as much or more than in your company. The degree of care you take increases with the reduced distance between you and your investor.
