4 Most Dangerous Assumptions CEOs Make About Business
Having been in the CEO role a half-dozen times, I have made a wide variety of foibles, blunders, misguided assumptions, and bonehead choices. Most of the great CEOs I have the privilege to know and work with are self-effacing people who can recognize mistakes along the way.
Employees understand what customers' value. Often in the transactional activity of day-to-day work, the waters become murky as to why one customer has chosen to work with your company. Ask your employees why your customer's choose your company over a competitor. This will provide you the data that is at best incomplete and at worst completely wrong. Transaction data is about accuracy, speed and reliability, which are pure service values. The next level up is about quality, product, and availability. The real value for your biggest customers comes from what problem in their business revenue, supply, and cost chains that you solve.
Customers understand what your company does for them. When a customer chooses your company for a service, it is typically to solve a particular problem or supply a service or product. Over time, you become a vendor/supplier who is favored as much out of habit. Time and again, companies tell me that they meet with long-time customers and are asked to refer another company to help their customer with a problem that the company provides now. It drives owners crazy, obviously. Make sure your customer recognizes all the solutions you have to offer.
Employees understand the numbers. Ask these questions to your employees:
How do we make money?
What is our biggest cost that we control in our service or product?
How do you help make us profitable?
Most employees are taught how to do their job and what the mission, vision, and values are of the company. Rarely are they taught how they impact the sustainability of the business through profit-generation.
Customers understand the numbers. Less: All discussions about price with customers seem to start with an assumption that you can do what you are doing now for less. Customers do not understand your numbers. Heck, they don't often truly understand their own numbers. This lack of understanding shows up in an unreasonable desire to push hard for discounts. I now have an employee speaking with customer's employee about numbers and the only number that each of them understands is the price. How is that conversation going to end?
Here's how to fix these assumptions
Keep it simple. When it comes to value, you need to keep the core understanding simple, three points that encapsulate why customers value what you bring. For restaurants it is simple--"Great food, clean place, fast service." For manufacturers it may be "100 percent up time, no waste, just in time inventory." The point is that value starts with the core understanding from the customer's perspective and moves through all of the elements of execution through your company.
Pick the most important number or two and do the math to get there. Dollars per square foot. That became the key number a client who supplies retailers learned to focus their math on. Everything that they did was to either increase the dollars per square foot the retailer could earn in a store location. Most businesses can be boiled down to a few key measures by which their value, costs, revenues and profits can be leveraged. Help your people to know what it is and then how they impact those few numbers with all of the activities they execute.
Communicate with your employees and customers in context of the value chain. By focusing your reports, regular performance reviews, and account conversations on these first two ideas, you expand the knowledge of your customer and create a shared understanding of the integral value you bring. Without this base of understanding, you will become more commoditized over time.
The company's you read about--Zappo's, Amazon, Apple, Samsung and many others-- focus on these building blocks of understanding and do not take them for granted. Smarter employees and customers make for better business.