Understand Bureaucracy

In recent dealings with several large financial institutions, I learned about bureaucracy – and how to work with one.

Forced to enter discussions with them, I was overwhelmed by the volume of paperwork and the miles of red tape that seemed to be targeted at making my inquiries impossible to be answered. With one employee at an institution assuring me that I would get an answer, and others presenting all the complications that stood in my way, I wasn’t sure if a simple solution existed.

A phone call to a colleague suggested an answer. He directed me to a particular branch of one of these institutions, where they were under significant internal pressure to work with clients such as myself. As such, they had streamlined their own processes to make dealing with the inquiries swift and painless for the customers.

While they had no assurance that even with a positive answer I would give them my business, they were aware that negative experiences could drive me away. As such, they solved my real problem for me – they explored the inane rules that they had to follow, and found ways to circumvent them.

This is similar to the experience of Mr. Incredible, who, working for a large insurance company, explains to one of the clients how to circumvent the bureaucracy to get a claim processed. This branch took it one step further, though, and instead of telling me how to get past their systems, they did the work for me.

If you have to work through a bureaucracy, it may be worthwhile to find people inside the system who have ulterior motives for helping you. This can be in order to meet other internal quotas, a relationship with you (e.g. a friend), or merely disdain for the complexity of the faceless entity they work for. These people, working within the system, know how to get things done, and how to do so expediently.

There’s no getting around the paperwork or the red tape, but there are certainly ways to make the experience less frustrating. Knowing which particular forms need to be filled out, and which ones do not, can save you large amounts of time, and can lead to faster answers to the questions you’ve been tasked with answering.

Strategic Partnerships with the Competition

Does having competition make you uncomfortable? Perhaps you should consider making a strategic alliance instead.

Competition can be a scary thing, but it can also be useful, if handled correctly. Few industries or markets are only large enough for a single player, which means that there is little reason for anyone to be afraid of their competitors. Instead, if companies welcome their competition, they will soon discover that they can benefit one another.

For example, two web development companies might initially think that they are in direct competition. However, the reality is that both companies get much of their business via referrals, for which there is no competition. Having a partnership with another company means that each company can quietly outsource their extra work when they’re busy, maintaining a positive outward appearance to their clients.

This can benefit both sides, since idle workers are expensive, so accepting the work, even at a reduced rate, benefits both businesses. Likewise, the ability to get additional workers when needed on an ad hoc basic minimizes the expense of keeping a large staff.

There are other ways as well in which companies can not compete, for example, targeting slightly different markets, or offering variations on the same service. In either case, there can even be the ability to share clients, allowing each company to focus on what makes them different from their competitors, instead of getting hung up on what makes them all the same.

Question: Who Does Your Business Taxes

I know a few business owners who do their own taxes, and many more who pay someone to fill out their corporate returns each year. Given that the cost of corporate accounting can be significant, some owners have shied away from that route for as long as they can, while others quickly push their books over the accountants without a second thought.

Which group do you fall into, and why?

Calculating Salary

As noted in last week’s questions, assessing salary can be a challenging endeavor, especially if there are limited statistics available for the industry and region. However, there are some basic rules of thumb that can assist in running the calculation.

The first is to determine how much the position is worth to you, the employer. If by hiring someone to perform a particular role, you can generate $100,000 in revenue, then that position is worth some fraction of that. Once you factor in your own overhead, be it rent, taxes, collections, legal, and other aspects of your business which do not directly bring in revenue, this number usually works out to about a factor of 3.

Second, you need to look at the options your candidates have, and what types of positions they might otherwise be interested in. If you’re hiring a computer programmer, for example, but want him to work as a business analyst in addition to programming, you need to consider the salary he might be able to get as just a computer programmer. That number would then be used to determine the minimum salary level – since you require additional skills over comparable jobs.

Last, you need to look at what you can afford. If you cannot afford to pay a fair salary, then either you need to reduce the list of qualifications, or reduce the seniority such that the position becomes affordable. It will not help your business to offer a position at $75,000 per year when in reality you can only afford to pay $60,000. While you may scrimp to make the position work, you will end up doing your business more harm than good when you discover that you hired over your needs.

Market on the Future, Sell on the Present

Too often entrepreneurs looking for an investment will fail on this basic concept, thereby undermining their own credibility and in the process, often losing an investment which could have been won.

A sale, of any sort, is often promoted based on its future value – that is, the satisfaction or value it will bring to the buyer over the course of its lifetime. At a restaurant, you discuss the presentation of the food, the ambiance, the taste. In a car, you look to comfort of the drive, efficiency, maintainence costs. In an investment, you look at risk and potential for returns.

An investor must be sold on the concept of returns – they will put their money into a business, and get paid returns as the company uses that money to turn a profit. The investor needs to know what kind of risk they might be exposed to, the odds that they will lose their money.

At the end of the day, though, the price paid will be based on the real value today. A business turning a certain amount in profit annually has a value. While each appraiser will come to their own conclusion as to the value, it is some form of all the assets available, plus a multiple of the profits. This number is the basis for any pricing.

Failing to recognize this, and to sell a product based on its future value, with the price being that of the future value, is foolish. For one thing – it’s not an investment. Even should the predictions prove to be correct, the investor must wait until the future is realized only to get back the exact amount they put into the deal. As soon as they invested, their ownership depreciated to the current value of the company.

For comparison, that like selling someone a stock which you say will be worth $100 per share, is currently worth $50 per share, and you’ll sell it for $75 per share. That’s a lousy investment, with 50% of the investment being lost immediately.

If you want to be taken seriously, market your deal on the promise of tomorrow. But when it comes to pricing, deal with the realities of today.

Response Time and PR

I’m fortunate in that I get little enough email that I can generally respond within a day to most queries. However, being in contact with many people who receive far more messages than I do, I’m familiar with the concept of dealing with vast quantities of mail.

This week, I had to contact a company which deals in large quantities of email to process a refund. The experience showed me what a good email policy is.

One evening, I realized that a purchase I had made had never been delivered, and so I emailed the vendor requesting a refund. Minutes later, I got an automated response telling me that my email had been recieved, and would be taken care of within 2 business days.

The following afternoon, I got a personal email asking for more details so that they could process the refund, to which I sent the requested information. I was notified that the refund would be processed within 5 days, and would get an email once the processing was done.

An hour later, that email came as well.

What this company did right is that they followed up at every step of the way:

  1. They acknowledged that my email arrived, and let me know when I could expect a personalized response;
  2. They met the timelines they set with a generous margin;
  3. They constantly assured me that they would deal with this issue promptly and that they were concerned with my ultimate satisfaction.

If you receive more email than you can deal with immediately, following the example above may help reassure those emailing you that you will respond, and will do so in a friendly and professional manner.

Keep the Learning Growing

Continuing with the theme of basic pieces of advice, today’s suggestion is in regard to your learning.

I left university having had enough of sitting in the classroom. My degree took 5 years to complete, having added and removed subjects several times. I was ready to move out into the real world, despite the messages constantly being sent during the school years that the workload was preparing me for life.

I have never worked as hard as I did in school.

Being in a real job, whether for someone else, or for myself, made me realize that I have a fair bit of spare time, times when I don’t have other responsibilities. I then did something I would not have considered prior to starting the job – I started learning again.

Some learning was formal, presented in a classroom, with assignments, tests, and marks. Most, however, was the informal learning that I know to be one of the keys to success. Every discussion I had, every event I participated in, every situation that arose, all were opportunities to learn.

Constantly absorbing what happens around you in a work environment can be tougher than my fourth year algorithms course (ranked one of the most difficult courses offered by the university). Reflecting on the situations and making their lessons part of your being increase your value, just as getting a few more letters after your name can do the same.

To succeed, you need to keep learning. Any opportunity you have to sharpen your mind, increase your knowledge and understanding of your business and its environment, can only help you succeed.

The One Tip for the New Business Owner

If there was only one piece of advice I could give a business owner, this is it:

Find a mentor who has been in a similar business situation before (though not necessarily in the same industry), with whom you have good personal chemistry, and with whom you can communicate effectively.

The reason for this is simple – no matter how much advice you read, no matter how many textbooks you study, you will encounter countless situations in which the generic advice doesn’t hold true. Your training won’t help you, nor can you go out and search for an answer. The only resource that can help you is another person.

A mentor for a business owner understands the realities of the business. They understand the issues you’ve faced in the past, and how you handled them. They understand the local culture, and the personalities of the people involved.

And they understand your business.

Mentors can be free, if you have a friend or family member who is willing to step up to the job. If not, there are many small business consultants, who are essentially mentors. While their fees may seem extravagant to the point where they make lawyers look cheap, the value they bring to your business far exceeds their cost.

A good mentor will help you avoid costly mistakes, learn from your own history, and push you to succeed. A good mentor wants you to eventually part ways with them – because that means that you’ve succeeded, which means they’ve done their job well.

Question: How do you calculate salary?

When you hire a new employee in an area for which you have no internal measure to use as a baseline, you must decide how much to offer a prospect in terms of salary. If you’re hiring in an area for which there are industry statistics relative to your location, then that clearly can be used to establish some guidelines.

What if such data is not available? How would you go about determining how much a position is worth to your business?

The Customer is Always Right

Last week, I asked about an issue which divides many people – is the customer always right?

One answer which I came across put the real issue on the table:

The customer is always right until they put down my staff on a personal level. After that, I’m not interested in having that person as a customer.

A good business owner would heed this advice. Your staff need to know that you will stick up for them, and defend them (politely, of course) in disputes with the customer. There may be give and take, and certainly mistakes can be made by anyone, but the general attitude should be that just because the person raising the issue is a customer, it doesn’t give them the right to put down the staff.

The other way to phrase this is as follows:

As long as someone is my customer, they’re always right. But not everyone who pays me for a product or service is my customer. If someone behaves in a way that is not called for, that is completely unprofessional and shows a lack of tolerance, I don’t want that person as as customer. Once that happens, I’m free to consider that person to be in the wrong.

What those actions are that push someone over the edge will vary from person to person, and even situation to situation. But the prudent business owner would realize that there are some people who you don’t need as customers, and don’t improve your business by having them around. If your staff know that you will defend them in front of the customers, they will often step up and do their best to keep the number of incidents in which such a decision needs to be made down to a minimum.