In this edited excerpt, the authors explain how gaining customers through trust builds long-term equity, earnings potential and, ultimately, wealth.
I’ve long believed that, rather than getting customers to make sales, it is smarter to make sales to get customers. The first provides only income. The second provides income and equity. The majority of businesspeople think only about income every day.
The exceptionally smart few who get rich from business think about both, every day.
I’ve deliberately worked at creating what I call “lifers” – customers who stay engaged with me for decades, continuing to buy whatever I next bring forward, so that the getting of one in the first place is not just consummation of a transaction, but the start of a permanent relationship.
In order to do this in my particular business – essentially the dispensing-of-advice business – I knew I had to earn and keep trust. I figured out that the three key factors in trust-based equity are, being known as a candid, blunt teller of truth; establishing constant, evident principles in all my works; and never abusing my customers for short-term profit.
My customers can trust that I won’t endorse anyone or anything or sell them anything that I don’t genuinely believe is honest, beneficial and the best in its category. For me, this has worked out very nicely. Many clients have been with me for 10, 20, 30, even approaching 40 years.
And this translated to equity, as the company has been twice sold, providing a good share of my wealth. This asset can be built upon and leveraged into ever-growing wealth, or it can be destroyed, depending on the thinking and actions of the people who have stewardship of it.
My favourite company of all is Disney. In industries that were entirely transactional – amusement parks, films, toys – Walt Disney built trust-based brand equity and relationship equity. Relationship equity is still a major part of Disney’s business today, driving premium-priced attractions, time-share real estate and very frequent repeat purchasing.
A series of CEOs that have held stewardship of Walt’s legacy have, amazingly, resisted almost all temptations to undermine the trust that the company’s fans, customers, the public and even investors have for Disney.
Donald Trump has done something no other real estate developer and magnate has ever done: built a publicly recognised brand that adds price elasticity to every building and real estate project that bears his name, and, most recently, to product licensing and a successful TV franchise. Real estate buyers trust Trump to provide “the best.”
Consumers who aren’t about to buy a $3 million penthouse apartment buy a Trump necktie or splurge for a stay at a Trump hotel or resort.
Income tends to be spent. Equity accumulates and converts to wealth.
So everybody needs to be thinking about equity, early, and it is my contention that the only real equity is a quality relationship with committed, continuing customers. So I would suggest that anybody in any business ask themselves: What are the key factors that will make me such a trusted and relied on presence in my customers’ lives that they stay and spend with me for life?
Don’t reject the question because you think your business doesn’t automatically lend itself to such a relationship.
If you own hardware stores or other retail stores or restaurants, why can’t you become a trusted and significant part of your customers’ lives? To many, Martha Stewart has made herself just that, and she dispenses much the same sort of ideas, information, and inspiration it would be appropriate for a hardware store owner to dispense.
If you are a physician, chiropractor, a dentist, look at Dr. Oz. Whatever your business, there is a way to be found and figured out, to elevate your status and cement your importance to your clientele.
There are profound links between trust and relationship, relationship and equity, equity and wealth. Brand-name, over-the-counter remedies – the brands we grew up with – continue to substantially outsell generic versions of the same formulations and products displayed right next to them, and selling for up to 50 percent less.
Why? Because Bayer is a trusted name. The 50 percent price and profit differential, from which much wealth can be derived, has nothing to do with product ingredients, product superiority, distribution or service, and everything to do with trust.
For most, trust is more complex than just a recognised brand name, and few of us have the resources or patience to wait to harvest future fortunes from such slowly accumulated trust. We need a more complex approach that can accelerate the achievement of high trust.
A seismic shift begins with a change in the fundamental question of advertising, marketing and selling – from how can I make a sale and money today, to how can I make sales and money today but also create trust today?
You Are Your Own Client
Before you can build a start-up that takes over your industry, you need to treat yourself as your own best client.
In business, when you have a client, the relationship is formalised into a structured one where there are defined expectations and regular meetings. For example, if you are a consultancy and have a one-year contract to deliver services to a client, the relationship will be formalised, structured and possibly include monthly status meetings. Some may be report-back meetings while others may be briefing meetings.
Your client will receive a monthly invoice and there may be quarterly reviews of the work you have done. Your general mindset is one of service to the client because they are important and worthy of the effort. Crudely speaking, most service-provider arrangements work in a similar way because the structured model works.
In contrast, as entrepreneurs, our relationship with our own business is often far more chaotic or ‘organic’ than formal. My contention is that it is also much less effective. When I work with SMEs, one of the first things I do is encourage the entrepreneur to treat his or her own business as a client by formalising meetings, ensuring that there is a feedback loop and having a service-provider mindset. By making these philosophical and structural changes, you will create a far more efficient and well-run business.
There are four aspects to any business which, in my view, should be formalised.
It still astounds me how informal the meetings are between partners in SMEs, especially when they operate from the same office. There are no set times, no agendas and no outputs required. The fact that you might sit in the same office or chat regularly is the problem because it’s interpreted as proper communication while it’s actually a very undisciplined and unstructured process. Casual chats do not ensure that all the requisite items or issues are being properly discussed and dealt with.
The often-given excuse for not holding weekly, biweekly or monthly meetings with team members at the same date and time is that the business is fluid and the entrepreneur needs to be responsive to their clients’ urgent needs whenever these might occur. And so non-rhythmic meetings are occasionally inserted into the gaps in between the chaos.
The discipline that I try to imbed in the SMEs I work with is to hold rhythmic meetings at a certain time and day every week, month or quarter. Should there be a need to cancel this meeting for whatever reason, it should be rescheduled. The simple discipline of rescheduling and not cancelling allows for a compromise between the practical reality of an entrepreneur’s life and the discipline required to build a sustainable business.
Agendas are often seen by entrepreneurs as an icon of the structure of the corporate world. They smack of rigidity, stuffiness and boredom so they are often discarded and replaced with warm and fuzzy chats. In reality, in order for it to be an effective use of time, every meeting requires a structure, outline or agenda.
This can be a comprehensive agenda similar to that used by corporates or as simple as each person in the meeting talking about their three top-of-mind issues. What is important is that there is structure and outputs, otherwise the meeting’s output is merely that it’s nice to know. The output from a meeting with a formalised agenda is that it’s nice to do.
4. Product review
When last did you, as an entrepreneur, formally ask yourself if your products are still relevant and effective in the market? One of the greatest oversights made by SMEs is not regularly reviewing the appropriateness of their existing products or services. In a high-growth, chaotic environment that is attuned to constantly producing new products, existing products soon become the ugly stepchild, only getting attention when the client cancels the contract because your competitor has a faster, shinier and cheaper iteration of your product. An incredibly important discipline in any business is the regular and formalised review of products and services.
We resist structure as entrepreneurs and the price of that resistance is ineffective and inefficient businesses. By simply treating ourselves as we would our clients, we are able to imbed a level of structure to our businesses that will create a far more effective and enduring business.
What’s The Worst That Can Happen With A Disgruntled Silent Shareholder?
Whether a shareholder brings capital to the business, experience or connections, you need to ensure everyone has the same vision and values.
While we often hear that it can be bad to have a silent shareholder that does not want to play ball, it is not often that we make enquiries about how the governance of a company can be hindered by a disgruntled shareholder.
Most of us assume that as long as they own more than 50% of their own company, they are entirely in control of all aspects of the company and how it is governed. This is not true: Even if you are a majority shareholder, holding less than 75% of all the shares in your company can still result in headaches if a minority shareholder, holding at least 25% of the company, becomes disgruntled and neither participates in the decisions of the company, nor consents to the decisions being made.
What is set out below highlights, among others, why it is so important to give shares in a company to prospective shareholders over a period of time, rather than from the outset. This allows for shareholders to prove their worth without you potentially placing your company in a position where it could be held at ransom for many years.
The illusion of holding more than 50% of the shareholding in a company
- Many people assume that by holding more than 50% of the shares in a company they are free to do with the business as they please. This generally only holds true for basic decisions of the shareholders, such as the removal and appointment of directors. The most important decisions of a company are based on special resolutions. A special resolution requires that shareholders, either individually or collectively, holding at least 75% of all the shares in a company, vote in favour of a specific decision.
- Examples of decisions that require a special resolution include:
- Amending a company’s Memorandum of Incorporation
- Approving the issuing of shares or granting of other similar rights
- Authorising the basis for determining directors’ salaries
- Disposing of company assets
- Mergers and acquisitions.
So, what does this mean for you and your company?
- If you are a start-up looking to raise funds, apart from some exceptions, you will not be able to issue further shares to new shareholders or anyone other than existing shareholders if there is a shareholder that is effectively dead weight.
- Should you manage to vote a new director to the board, you will not be able to determine the basis on which they are compensated (their salary) without a special resolution.
- If you intend to merge with another company, you will not be able to pursue this without a special resolution.
- If you plan to raise money by disposing of or selling most of the assets of your company you will, once again, be prevented from doing so.
Accordingly, it is always best when starting a venture to vest your shares over a period of time. This means that, for example, shareholders are only entitled to have their shares allocated to them after a certain period of time to avoid a situation where you have a dead-weight equity shareholder hindering the governing of your company, and requiring possible litigation to remove them.
There’s More To Team Management Than Leadership
When you’re running a business you need to ensure that your employees are on your side, helping you to make profits. Giving them job security, taking them seriously and treating them with respect, will go a long way in enhancing loyalty and productivity.
The staff that work for you determine:
- How happy your customers are with your business
- The quality of the things that you sell
- The costs that you incur to sell your products and services
- Your risks – the things that can go wrong and how much it costs you
All of these things determine your profitability and how competitive your business becomes. How do you ensure that everyone is on the same side and helping you to make profits?
At work everyone believes that they are getting something (such as money) and are giving something in return (such as time and effort). They are weighing up in their mind “how much am I giving, how much am I getting in return and is this fair?” If they believe that they are:
- Giving too much or
- Getting too little
- Then this is unfair, and they won’t work well (poor productivity – how much they produce).
The manager needs to:
- Know what people are thinking about what they are giving and getting and
- Manage the giving or getting side
- So that people become more productive
In a smaller business you sometimes cannot afford to pay more or provide the sort of benefits (pensions, medical aid, bursaries etc.) that larger firms can and so the staff may be unhappy, not be productive and be on the look-out for something better.
How do you increase happiness without money?
- Job security – knowing that you will still have a job next year – and that you will get paid on time.
- Contributing to the success of the business. If you train staff to have the knowledge and skills to do a better job and you then encourage and support them to do this then they are happier, and you increase profits. If you then share some of these profits with the staff that helped you to make them then everyone wins!
- To be taken seriously and treated with respect. If you do this then staff are happier, and they will also treat your customers with respect.
- To be part of the team. You can often do this by having a regular briefing on what your plans are and discussing ideas. Because staff are doing the actual work they will often have good ideas and then will be motivated to implement them – it was their idea after all!
Staff leaving you all the time is a can destroy significant value. If you implement the strategy above, you will have happier staff that are more productive and a more profitable business.
Company Posts2 weeks ago
Changing The Shape Of What’s Possible
Entrepreneur Today6 days ago
3 Stealthy Tax Hikes Payroll Managers And Employees Need To Take Note Of
Snapshots2 weeks ago
Alan Knott-Craig On Learning To Overcome Your Fears And Building Successful Businesses
Entrepreneur Today2 weeks ago
How SMEs Can Stand Out From The Crowd
Entrepreneur Today1 week ago
SMEs: Staying On The Right Side Of The Taxman
Entrepreneur Today1 week ago
4 Dangers Of Business Under-insurance
Entrepreneur Today2 weeks ago
Inspiring A New Generation Of Learning – Education As A Basic Human Right
Company Posts1 day ago
Executive Education Geared For Industry 4.0