The only thing hotter than the summer weather, it seems, is our Street Smarts column, by veteran entrepreneur Norm Brodsky. Readers from across the country wrote in to comment on Brodsky's take on raising prices regularly and on brokering a real estate deal.
Paying the price
Even though Alan Greenspan has fought off inflation, many of our readers have apparently felt the need to raise the price of their goods and services. We were swamped with letters in response to Norm Brodsky's May Street Smarts column, " The Case for Higher Prices," in which he suggested raising prices to stave off profit-margin erosion. Here's a sampling:
I recently went through the same kind of dilemma with the 88-year-old manufacturing company I work for that the hair-salon proprietor in Norm Brodsky's column was facing. Our company's previous management did little to keep its finger on the pulse of pricing during the past 15 years. Its standard policy was to institute a 3% price increase every two years without regard to changes in supplier pricing or manufacturing concerns. Why the neglect? The company had a $400,000 cash reserve (which has eroded during its tenure).
We recently completed an extensive yearlong cost analysis, and the results were, to say the least, shocking. Based on those figures, we have had to increase our prices anywhere from 5% to 350%. Many of our products were being sold below our manufacturing costs. No wonder the cash reserves dwindled away.
The phone calls to my distributors and customers about the price increases were difficult at best. Fortunately, many of them understood the predicament that we were in and supported our efforts.
I sincerely hope that other readers will take your advice and remain vigilant in this important area.
Michael G. Vennekotter
I found "The Case for Higher Prices" very informative. I own a small furniture store in Bristol, Va. We opened in August and were bringing in around $30,000 monthly in revenues -- a tiny amount next to the megadealers in my area. I thought that lowering my prices would enable me to compete better. What I found was that my price cutting provoked a "must be something wrong with it" attitude among my customers.
I ditched the lower prices and cheaper products and started to display higher-end merchandise. The prices shot up, too. My customers changed from the "Can I get financing here?" type to the "Which account do you want to write the check from, dear?" type. To them the higher prices and better merchandise reflect the quality of the company. I'm now doing about $10,000 a month more in sales than I was before I raised my prices, and I'm selling fewer pieces to get it.
Chris J. Ketron
Gallery House Furniture
Learn to deal
In his April column, " The Art of the Deal," Brodsky wrote about how his father's seemingly simple advice enabled him to purchase a hot property in Brooklyn, N.Y., even though he wasn't the highest bidder. The article generated a number of responses, including a personal one to Brodsky from the Iowa banker who brokered the deal.
I read your article with great interest, since I was the Iowa banker Brodsky referred to. You should be aware that the bonus system for workout professionals at our institution is not tied in any way to the amount of money collected in the course of the year. Instead the entire loan group -- including production, support, and servicing -- is measured based on the total portfolio performance, which includes both performing and nonperforming loans. The system is designed to ensure that the commercial-mortgage-loan group operates as a team with common goals.
The timing of the sale of the property was not driven by year-end bonus targets. The urgency of the sale was a matter of marketing strategy and the evaluation of risks. As a marketing strategy, we were concerned about the length of time that the property had been marketed and about the property's becoming "shopworn" due to excessive market exposure. The risks were both financial: they were associated with holding expenses and liabilities associated with trying to control events at a high-profile vacant site. We were unable to maintain what we considered an appropriate level of security on the site.
Brodsky was correct in concluding that his ability to accept the environmental work that had already been performed was the key issue in our selecting him as the successful bidder. He should also be aware that the reason that [the other bidder] was not successful is that we gave it a deadline, and upon reaching the deadline, it attempted to renegotiate the price. At that point I verbally committed to [Brodsky's representative]. [The other bidder] came back and said that it would pay much more and characterized its attempt to reduce the price as a misunderstanding. We stood by our commitment to Brodsky because we believe in honoring our commitments, verbal or otherwise. Not every financial institution is driven by individual or corporate greed.
Vice-president of asset management
Aegon USA Realty Advisors Inc.
Cedar Rapids, Iowa
Norm Brodsky responds: It sounds as though David Feltman is confirming my analysis of the situation as reported in the column. I never suggested, by the way, that greed was a factor. Employees aren't being greedy when they respond to a company's bonus program. They're just doing what the company wants.
Girlz in the hood
In May, Inc. presented the second annual Inner City 100 winners, a ranking of the fastest-growing privately held companies in America's inner cities. The list honors entrepreneurs who have chosen to grow their companies within some of America's most economically depressed areas. This reader was inspired by our stories.
The Inner City 100 issue did a great job of showcasing businesses that are creating value at the economic core of our cities. The stories were inspirational and offered some good advice for entrepreneurs who want to participate in the development of urban infrastructure, urban service, and urban commerce.
I've been researching women's entrepreneurship for more than 20 years. Although women own about 40% of all companies in the United States, current research shows that women are receiving only about 5% of institutional venture capital, which is funding predominantly high-tech and E-commerce businesses today. It appears that the majority of this year's Inner City 100 companies are service businesses -- the sector preferred by women business owners, according to the Small Business Administration. Would you let me know what percentage of the companies on this year's list are headed by women?
Candida G. Brush
Entrepreneurial Management Institute
Boston University School of Management
Editor's note: Some 17% of this year's Inner City 100 CEOs are women, whereas women ran 8% of the companies on the 1999 Inc. 500 list.
Dr. Steven Berglas addressed the advantages of invoking start-up myths in his April Entrepreneurial Ego column, " Those Were the Days." Berglas suggested that such myths can be great motivators, but they can backfire within an organization if they're not handled carefully. This reader found motivation in Berglas's advice.
Your article on founding myths helped to crystallize my thinking about a new business I've been working with since August. Today I'm going to begin to record (as opposed to "invent") the company's myth and use it to motivate myself and others. Of course, the company has a sales story, but thanks to your article, I now truly understand the role of the myth. This may have been the most important article I've ever read -- anywhere.
Cabarete, Dominican Republic
Chew on this
In her March article " Stretching Your Benefits Dollars," finance editor Jill Andresky Fraser took a look at the tax advantages that flexible spending accounts can offer growing companies and their employees. This reader got help from an unexpected place in setting up his company's FSA.
In almost every issue of Inc. I find practical information that I can use in my business. It happened again with your March issue. I am now putting a flexible spending account in place in my company, similar to the one that was described in "Stretching Your Benefits Dollars." Since we have only 12 full-time employees, the plan is simple enough for our bookkeeper to administer. The employees love the idea of spending pretax dollars for eyeglasses and for dental and other health expenses not covered by our medical plan. I love not having to pay the employer's Social Security and Medicare "contribution" on that compensation.
I received help from an unlikely source -- my state's dental society. A consultant at the society's subsidiary, North Carolina Services for Dentistry (NCSD), took me step-by-step through the process of developing the account -- and even printed up the plan document, along with information sheets and some very simple claim forms to hand out to my employees. The cost for that service? Zero. NCSD is pushing direct reimbursement for dental expenses, but it is willing to enlarge the FSA document to include other health services. I found out about NCSD's service in an online resource guide called Health Care Buyer, an excellent reference tool for companies on managed-care and other health plans. The American Dental Association can also help with direct-reimbursement dental plans.
John Neal, Bookseller
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