Call this a “basics” blog post.

So, a short while back, I posted about the “costs” of paying for good customer service:  Maybe “Business Sense” does not always equal “Human Decency Sense.”  Underlying the post was this premise, this concern, which one of our readers caught…

If a company is losing money, it really can’t pay for good customer service (enough personnel to provide the service; enough training to improve the service…)

In other words, the question – the only question – for a company is, “do we have money in our bag of money after paying all of our expenses?”  I like to visualize this “process/outcome.”  Other people use spreadsheets, and profit-and-loss statements.  Those are really useful.  But let’s visualize it, simply.  Look at the “bag of money” image.

You bring money in, and at the end of the week/quarter/year, you want more money in your bag.  Preferably, more money than you had at the beginning of the year the last time you took a look.

If you spend less than you bring in, then good…
If you spend the same as you bring in, then…not terribly awful, but not good…
If you spend more than you bring in, then…really bad, and your days are numbered if you don’t fix it…pretty quickly…

But… there is one alternative to this simple formula.  In today’s world, the bag of money can grow from “investors” who see the possibility of a bigger bag of money later.  (And, it is true that “you have to spend money to make money” in many instances).

I thought of all of this as I read this fascinating short piece by Matthew Yglesias on Jeff Bezos and Amazon. Amazon spends lots of money on great customer service (I agree — I love the customer service I get from Amazon).  But, their “profit picture” is not always that healthy…  Here’s the article:  Jeff Bezos Explains Amazon’s Strategy for World Domination.  In it, he quotes from the latest Bezos letter to Amazon shareholders, with some commentary:

Bezos:
More fundamentally, I think long-term thinking squares the circle. Proactively delighting customers earns trust, which earns more business from those customers, even in new business arenas. Take a long-term view, and the interests of customers and shareholders align.

Yglesias:
Don’t get me wrong. I don’t mean this as a criticism of Amazon. I think Amazon is one of the greatest companies in the world if not the greatest company, precisely for this reason. It’s also the most terrifying competitor in the world. My main point is simply that the key here is Bezos’ relationship with shareholders. Lots of companies would, I’m sure, love to delight their customers by slashing prices to a zero-margin level. The problem is most companies would worry that plummeting profit margins would lead to fired executives and mass layoffs of rank-and-file employees. But Bezos has the confidence of the investment community and earns a staggering P/E ratio for his company. Wall Street has so much confidence in Bezos that he can say things like this in the very next paragraph:

Bezos:
As I write this, our recent stock performance has been positive, but we constantly remind ourselves of an important point – as I frequently quote famed investor Benjamin Graham in our employee all-hands meetings – “In the short run, the market is a voting machine but in the long run, it is a weighing machine.” We don’t celebrate a 10% increase in the stock price like we celebrate excellent customer experience. We aren’t 10% smarter when that happens and conversely aren’t 10% dumber when the stock goes the other way. We want to be weighed, and we’re always working to build a heavier company.

Yglesias:
And good for him. But this really is an idea that cuts against the basic logic of modern shareholder capitalism.

So, if I understand this discussion, it is basically this (my imagined phrasing):

Yglesias:
You’ve got to have some money in your bag of money after paying all the expenses.

Bezos:
True…  but you may have to look at a much longer time frame to get money in that bag of money.  (In other words, I think “treating the customer really well” will ultimately, some day, bring enough money in to make it all really profitable – even if that is not happening right now).

But,
Yglesias:
I’m not sure this will work.

Yglesias called his article, on the linking page, “Amazon as Corporate Charity”.

So, the dilemma:  If you are in business, you have to turn a profit.  You have to!  You have to have a bigger bag of money at the end of the week, month, quarter, year… or, period of years.

And, if you can’t get there as you now function/operate, you have to cut:  you have to cut your salaries, reduce your workforce, cut your level of customer service, cut the quality of your products…

Jeff Bezos says that if you cut too much, ultimately, you will not turn a profit.  But, others say if you don’t cut, you will go out of business.

I think I’ve described the dilemma.  So, what do you do if you are not growing that bag of money?  You fix it!  And fairly soon.  Options?  Since you can’t print money, you either persuade more investors to give you more money in hopes of that long term return (Amazon?), or you cut expenses and increase the income quickly enough to grow that bag of money.

(You might want to hire a really good consultant to plan your steps to achieve this outcome – I know a really good consultant to recommend, a man I have seen work, and worked with, and I know he knows his stuff.  Contact me, and I can get you in touch with him).

And, now, Randy’s lament…  I think a company or organization should treat its people – its employees, and its customers – like human beings.  You know, with concern, attention, basic human dignity… dare I say, “love.”  ”We lead by being human” as Paul Hawken put it, quoted in Encouraging the Heart by Kouzes and Posner.

If the money does not and cannot come in, one “price tag” for this reality is the “less-than-human” treatment of workers.  (You want one example of this dilemma?  Read, or listen to, Wade Goodwins’s report on the money paid to construction workers in Texas.  Click here for his story, Texas Contractors Say Playing By The Rules Doesn’t Pay, which ran on NPR).

Even Amazon, with its genuinely superior customer service, may not treat its workers all that well.  And, what it has done is found a way to treat its customers really well with a technological breakthrough – “One Click,” with great e-mail follow through.  In other words, great customer service — but, as technology continues to improve, probably at increasingly lower cost…

I think we are facing a “dilemma of modern capitalism.”  How do we pay enough money to enable people to function at a fair level in this economy (a “living wage”), while competing with companies which cut and cut and cut to the bone?  (Read that NPR story!).

I think this is one of the tough/great issues of our time.