Business Strategy Fail: Save $300, Lose $20,000

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Two years ago, I walked into a coffee shop in a suburb of NYC and grabbed a table in the sun to write for a few hours.

Then, I noticed something odd happening.

Every 30 minutes or so, one of the counter people had to leave the counter to go unlock the door on the men’s restroom. So I asked her “what gives?”

“The handle has a twist lock on the inside,” she said, “and it needs to be untwisted before the door is closed again or else it stays locked and then nobody else can get in until we come and unlock it with a key.”

Hmmm. That was a really bad call on the part of whoever bought the door handle, I thought.

Fast forward about a year. I amble into the same coffee shop and settle in to write. Twenty minutes later, I notice the same counter-person-pissed-off-customer-dual-frustration-two-people-hands-in-the-air restroom dance. Every time someone comes to the counter to complain about the door being eternally locked, the counter person throws up his hands and says he knows he knows, it’s been a problem for years and huffs again as he walks over to unlock the door.

I do a bit of quick math in my head.

If the shop is open about 16 hours a day, 365 days a year and every hour a customer is forced to come ask the counter person to unlock the door, that’s 5,840 disruptions to both employees and customers a year. Let’s take it a step further. At 5,840 minutes (or 97.33 hours) of productivity lost by an employee at $10/hour, that’s about $973 in lost productivity a year. And that doesn’t even include the value of the drop in overall productivity, mood and loyalty caused by the constant interruption and frustration over never having the problem solved.

It’s also 5,840 moments of frustration and annoyance for both employees and customers a year. So if 1 in every 100 customers never came back because of this, that’s a loss of 58 customers in a year. If each of those 58 lost people would have bought three lattes a week at $3 a latte, that’s $1,248 a year in lost revenue.

Add $973 to $1,248 and you end up with an annual loss over $2,000. And if the real attrition number was closer to 1 in 10, rather than 1 in 100, the loss would be closer to $20,000 a year. So the refusal to change the door lock was losing this business between $2,000 and $20,000 a year in productivity declines and customer attrition.

So, I asked the employee why the manager never just swapped the door handle out for one that automatically unlocked as soon as the door handle was opened and his answer was that, despite the fact that he told the owner many times to do just that, he was told it  would cost about $300, so it was too expensive.

Oy.

I’ve seen this problem unfold in so many variations in small business.

It’s not actually a cheap-ass owner problem. It’s an apples and oranges problem.

For a small business owner, every time you spend a dollar, you need to be able to do at least a down and dirty calculation of how that dollar is either going to come back to you as two dollars or save you two dollars. If it’s easy to quantify both how much you’ll need to spend and how much that spend will either generate in revenue or save in costs, you can make an apples for apples comparison and the decision is easy.

But owners and managers have a tough time taking action and spending money when the comparison isn’t a straight up apples for apples, dollar for dollar equation.  In this case, the owner would’ve had to estimate not only the cost of the lock, but the cost of loss in productivity, frustration and customer satisfaction.

Even the small amount of work I did in my head to come up some very rough numbers is enough to derail the process. Rather than doing the work to estimate the information they need to make an intelligent decision to either fix a problem or invest in an opportunity, a lot of people just punt.

They walk away and decide not to decide.

Don’t do that.

If you own or manage a business or lead in any way, don’t punt. Ever.

Do the work.

Act.

Even if it’s hard.

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40 responses

40 responses to “Business Strategy Fail: Save $300, Lose $20,000”

  1. Laura Juarez says:

    Thank you Jonathan. I own a 100 employee mfg business, and it is amazing how frequently leaders punt regardless of how well intentioned, budget minded, and success oriented they are.

    I see it most in leaders who don’t listen to their people (because this is the “stupid stuff” that drives intelligent people who care crazy) and leaders who fight fires versus solve problems. As they are always trying to catch up, they slap bandaids on everything simply to get the gold star accomplishment of crossing it off the list.

    EIther way – it’s a punt. In my mind, the highest cost of the punt isn’t the money drain over a long period of time, it is the mental engagement drain of your team. They know every time the leader punts & they know it’s the wrong play,

    • Jonathan Fields says:

      Yup, on your bandaid comment, the shop actually put a little handwritten sign above the lock telling people to unlock it before leaving, but apparently, that wasn’t working all that well.

  2. Anna says:

    Hi Jonathan,

    Here’s an interesting story about the hidden cost of poor customer service.

    Apple may be great but….

    When we bought the ipad over the web, we gave them two phones numbers.

    When their courier arrived to deliver, they left a note saying undeliverable.

    We were both at home! The front door bell is busted, so they left…

    You’d think they’d call either number… instead of coming back a second time, which must cost money.

    And… the call centre is 9-6 only and closed on weekends, and bank holidays.

    I’m stunned at how badly they managed this.

    Anna

    • Erin says:

      Anna, I’m compelled to ask: just wondering if you see the irony in your situation in the context of Jonathan’s post? Your doorbell is broken. You knew your doorbell was broken. You knew you were getting a delivery.

      As a side note, Apple does not have their own delivery service. They use 3rd party courier/shipping services such as FedEx and UPS, who have their own policies.

  3. Enrico says:

    Thanks Jonathan for your post.
    I’ve discovered this kind of approach when I first read a book about systemic thinking (I really have to recommend it: “The Art of Systems Thinking” by J. O’Connor), in 2003.
    After a few weeks after finishing the book I had to evaluate if buying a new car, since the old one was dying, and I used the approach you talked about to discover the cost (price + yearly maintenance) of a cheap used car compared to a new good one and I was shocked since they were more or less the same!
    After that I never bought another car, since I’ve still to find a good reason to spend so much money on that (I’ve instead a carsharing card and a bike).
    And more that that, I never felt again in the illusion that a cheap car is really cheap at all!

    People love to take options based on their gut, but if they’d really take the time to discover all the hidden costs involved in any simple decision, to do or not to do something, they would live a very different life, I think!

  4. eyuzwa says:

    Great stuff Jonathan!

  5. I can’t believe a business owner could be that short-sighted, but yet I see it all the time. $300 does seem a bit steep, so what about doing this?

    Step 1) Remove/Break/Disable current doorknob
    Step 2) Add one-side deadbolt: Amazon.com, $14.99 http://ow.ly/4LdxH

  6. Amy Oscar says:

    Sending this one to my husband. Love the way you see – and size up – the world.

  7. Jonathan! We think the same way! Of course, I don’t do the math. But unbelievable impact one minor decision does make. I hope you emailed the owner your post!

  8. I’m glad that you identified the apples-to-oranges problem, Jonathan. I run into these situations all the time, but the cashflow in my business is so tight that it’s not always possible to find the extra $300 to fix a problem. I’m wondering, if you can offer some advice to small business owners that can help them to act on the problem once they’ve identified it. Are there any strategies you can suggest, other than simply putting money aside in a contingency fund?

    • Jonathan Fields says:

      Hey James,

      Great question, though it’s a bit of a chicken and egg thing. Is the part of the reason cash flow is so tight because holes haven’t been plugged? Put another way, can you really afford not invest in plugging and ramping?

      The first step though is to try to convert cost and benefit to dollars and estimate payback periods to the best of your ability in an effort to really understand when the investment is or isn’t worth it. Then, sequentially pick of the items with the greatest expected return on investment in the shortest period of time.

      There’ve been plenty of times in business where I’ve decided to go without for a brief window in the name of creating an opportunity that will allow me to go with much more once the opportunity begins to return on the investment.

      And, please know, I don’t mean to make light of or trivialize the decision. It’s always tough and I completely honor and respect the position you are in and your willingness to figure out ways not to punt.

  9. Anne Wayman says:

    Jonathan, unless someone doubts they can lose business that way, let me assure you and them that as a consumer I’ve chosen not to go back when simple solutions are not used… I usually try to tell someone there nicely why I’m not returning, and I will go back if they say they will fix it, but only once if it’s not fixed.

    Anne

  10. It’s amazing how spending new money tends to either be a serious roadblock or no big deal.

    Change the bathroom door to a company car. What would they do if every day the car wouldn’t start without getting a jump? Probably take it to a mechanic to fix the car. The battery, the alternator, and the electrical wiring might have problems and will continue to do so until something is fixed. Money is suddenly no big deal.

    But for some reason replacing a door handle that is clearly the culprit behind disgruntled employees and customers who never come back (Can you think of a greater evil than having no easy access to a bathroom in a coffee shop?) is almost a crime. Front door? Fixed in 2 seconds. Bathroom door? Luxury (a decision made by those who don’t ever set foot in that location long enough to need to take a tinkle).

    I once remember a city worker telling me he wanted to get software to help them budget better, except he needed to prove it would help the city budget better, and the software would have made it far easier to do. I bet you can guess how that turned out.

  11. dave r. says:

    “penny wise, a pound foolish”

  12. Sarah says:

    Jonathan, exactly what I’m wrestling with now. I know I need to invest in some outsourcing – VA, designers, etc. to help me jump forward, but the time to do this (not only the money) is getting in the way.

    It’s certainly a question I’m in the throes of dealing with. Thank you for putting it in such plain speech. This will help me move forward.

    However, on another front, I realize how often as solopreneurs it’s easy to not take care of things that make you a better business i.e. your health. And b/c of those simple moves we could have done earlier, we end up less productive and our business suffers. Much of this in the ebook I’m grappling with the above challenge for.

    BTW, Do you have info/strateies on outsourcing?

  13. Great analogy.

    I think another obvious way people tend to ‘punt’ in their business or career is by not taking the time to exercise and eat clean. It takes time and attention.

    If they understood how dramatic the effect would be on their bottom line in the form of increased energy and motivation, they’d have no problem viewing it as a part of their creative strategy.

    Good read.

  14. cara says:

    I agree with Dave above — I like to think of that kind of decision making as a variation of being penny-wise, pound-foolish. Opportunity cost should always be considered.

    I recently was talking to a small business owner who didn’t want to spend $2,000 to have a savvy consultant quickly do the work to process her liquor license for a theater company. She thought her exisiting staff (none of whom were at all at familiar with the process) ought to do it instead. A year later, they still don’t have the license and theater-goers can still not purchase alcohol at intermision or at any of her numerous special events.

    At 20 shows a month, with an average of 100 attendees each, that’s 2,000 potential drink buyers per month. If half of these people had one drink each, that’s 1,000 drinks sold per month. If the profit on each drink is $3 (it is likely more), that’s $3,000 additional net revenue per month (or $36,000 per year)!

    That $2,000 investment mentioned at the beginning is not looking too expensive now…

  15. Maureen says:

    Jonathan,

    Some business solutions really don’t need a cost analysis but rather a simple common sense decision — such as fix the lock on a public bathroom door. This type of decision-making is often one of the most under utilized business tools, probably because it’s often too simple and not usually data driven. I realize, too, that common sense is a relative opinion.

    Maureen

  16. Helen says:

    I agree that the owner should have done the calculations, sucked it up and replaced the lock. However, I also think the workers might’ve been a bit passive-aggressive by not doing the calculations and presenting the boss with some specific data. Sounds like they weren’t on the side of the customer either… was it good coffee? Was it a good atmosphere? Was this the only aberration? I think not!

  17. Hi Jonathan

    Great post.

    I could relate to it as “going and sitting in the sunlight” whilst doing some mind mapping and getting my thoughts onto paper is something I love doing too.

    I find it gives us a unique opportunity to be undisturbed, focused …..and drink LOTS of coffee (which funnily enough, adds to the thought process!!!).

    Not only that but you also get a GREAT opportunity to “people watch” which is fast becoming a past-time of mine.

    What you point out is a classic example of what I would refer to a degree of context. You, as the customer comes in an notices the problem – as you are being pretty observant.

    A quick scan through your blogs shows that you have looked at many different situations in different lights…

    The owner, the guy who is in there regularly doesn’t see this in your light. They only see it as a base cost (particularly if they think in terms of “balance sheet” instead of marketing, sales and cash flow)….

    You should go in there and say to them “If I could show you how to make up to $20K more a year, would you give me $10k…?” could be a nice little earner for you 😉

    You see Jonathan, the power and degree of context!!

    Keep up the great work!

    Cheers

    PH

  18. Phil says:

    Jonathan – I like your points about thinking and acting. I won’t re-hash that as it’s well covered by you and the comments. I generally agree with the “common-sense” and apples/oranges discussion.

    A separate theme (about acting)I’d emphasize is how often the problem can also come down to “it’s not my problem”. Someone may know the answer, but it doesn’t directly affect them. Or they feel it’s someone else’s responsibility to get the fix done. They’d rather throw their hands up than dig in. Maybe a little tough in this case, but I doubt a barista ever had a long chat with the owner and had figured out it would only take $XX dollars and 2 hrs to fix.

    So don’t forget to take ownership of the little things you can do to make stuff better.

    • Jonathan Fields says:

      Great point, Phil. It’s one of the reasons one of the key things I look for when hiring anyone is an ownership mentality.

  19. Most business start small and most stay small, and its things like these that are the reason. Small business owners and their accountants focus on the bottom line, the big line items.

    Restaurants are one of those businesses where there is no barriers to entry. And if you look at the total number of restuarants and the total number of restaurants goers, most likely you’d draw the conclusion that no one in their right mind should ever open a restaurant. It would seem like a saturated market. But they do open new ones and some of the new ones are wildly successful…crowded market space, no barriers, how should an owner differentiate themselves with the patrons … details, non-tangible and small ones, like ambiance or making it easy to use the restroom!

  20. I can’t agree with you more Jonathan – so you wonder why they haven’t fixed the issue??? Has it not been communicated properly or does the owner really not care??? You were smart enough to calculate the loss to the company but not every business owner has a savvy mind to calculate this…..or they just don’t care….they are making money and don’t see the other side of the story….

    In gratitude to you,
    Nancy

    • Jonathan Fields says:

      Really interesting point, Nancy. Sometimes part of the problem is that the owner is already making a decent bottom line off of the biz, so they figure “why bother, I’m getting what I need?” Challenge is that over time, one problem becomes two, then 3, 4…10. And then it does enough money out of the owner’s pocket that they cannot ignore it anymore and costs a boatload to fix all 10.

  21. Excellent, absorbing chronicling of this small business train wreck waiting to happen, Jonathan.

    How is their coffee by the way? 😉 ~O)

    Haha! This, to me, still seems like the most important thing. Maybe the frustrated two hands in the air dance between barista and customer could become a kind of charm point for the coffee shop? I mean, as long as they serve kick-butt food and bevies!

    Then again, it does seem that this kind of spectacle could become very distracting for budding poets and writers who are looking to make that coffee shop a regular creative haunt. 😉 The fact that you produced a hugely entertaining article from the whole observation of this farce makes it all worth it though, doesn’t it?:-)

    Well done, especially the math, J!

    Peter

  22. To not decide to do something is still a decision and probably the weakest one that you could make.

    Buy a new door handle already.

  23. I think there’s a big difference between feeling a real cost now, actually having to hand over the cash, and the imagined or calculated lack of costs in the future. That’s what stops a lot of people from just doing what’s necessary.

    Whenever we have to make a decision like that, we agree that it’s really only money, and that we’ll forget about it in the long run. But we may feel the benefits for years to come.

  24. Rita Vail says:

    I have bought the parts and fixed things at my favorite coffee shop. Twice it was the toilet guts and once it was the outdoor umbrella mechanism. I knew they were super busy and I was glad to help. Mostly it annoyed me. I can’t imagine it really being $300 to replace a door handle. More like $30. I would have done this, if I were there, or tried to. If you ask them, it is likely they say no. I did not ask, or tell.

  25. Jonathan, I subscribe to your posts and this is one of my favourites so far. The fine line between “proactive” and “reactive” as a business owner is often blurred. The struggle you highlight is so true, but I agree, don’t punt, always act, make decisions, rather than not act at all. I’m going to put that into practice today 🙂

  26. John Sherry says:

    The smallest elements of service have the widest and hugest of implications whether it’s a chocolate dusting on a cappuccino or a faulty door handle on a restroom. The little things are the big things – just ask British Airways who saved over $100,000 a year by not serving free complimentary nuts anymore. Sometimes though complimentary compliments your product or service so be careful that you don’t drive your buying public nuts with the small things you miss or don’t realise are worth their weight in gold!

  27. Amy Putkonen says:

    Ah, this is great, Jonathan. I might even fix a door or two in my own house! lol… So true!

  28. Erin says:

    Wow. I’m trying to now figure out how to use this method of financial calculation to help convince a client his projected loss in revenue if he doesn’t do the project we’ve been talking about — for months. Has anyone ever done this to good effect? He’s definitely a numbers guy and this might speak to him more than anything I’ve said so far. The interesting (frustrating?) part is that he definitely wants to do the project and sees value in it, but is having a hard time justifying the cost because it’s difficult to quantify ROI. He wants definitive numbers where none really exist. I need to noodle this some more…thanks Jonathan, for triggering the new thought process!

  29. Nicki, Dismayed Healthcare Worker says:

    OMG! This is my boss! Thanks, Jonathan, I’m crafting my exit strategy now!

  30. Steve in W MA says:

    it’s a cheap-ass problem AND it’s a problem of not having correct priorities.

    Making your business operations flow smoothly and avoiding having people have a repeated negative experience when doing business with you should be at the top of your priority list when you are managing a business OR running your own business.

    Not seeing that having annoyed employees and annoyed customers was negative for his/her business was painfully obtuse of the business manager/owner in this story.

  31. Steve in W MA says:

    @ anne, “let me assure you and them that as a consumer I’ve chosen not to go back when simple solutions are not used… I usually try to tell someone there nicely why I’m not returning, and I will go back if they say they will fix it, but only once if it’s not fixed.”

    I, too, do not suffer fools gladly. Call me judgemental if you will, but when people do not fix things that even they know are problems, and it affects ME, I take it as an insult…it’s as if the business is saying: “Your needs as a customer arent’ important to us and your concerns and observations aren’t important enough for us to pay attention to or fix.”

    Great. There are businesses around who care enough about my business to pay attention to my feedback, so I patronize THEM.

  32. Martin Tague says:

    This gets me every time, we see the same thing as a company that trains small businesses, when you end up cutting costs you end up usually paying more out in the end, and unfortunately in some cases more serious consequences arise.

    Business owners can be so short sighted sometimes!