To quote Will Rogers: "It takes a lifetime to build a good reputation, but you can lose it in a minute." Companies that care about their reputations--and what company doesn't?--must build trust and credibility among customers. What are the keys?
We found some answers in Columbus, Indiana, home to Kirr-Marbach, a registered investment adviser with about $700 million in assets. In a second-floor office on bustling Washington Street, Mickey Kim, the firm's chief operating officer, gave us an overview of the business. "We are a value investing shop. Historically, our only product has been 'all-cap' value, but we've recently added a complementary 'small/mid-cap' value product to our lineup," he explained. "Most of our business is high net worth individuals, probably 300 clients in 27 states. We're mostly Midwest-focused, but we do have clients scattered all around."
Kim said value investing is sometimes difficult to explain to people without a background in finance. "The way I explain it to my kids is that it's stuff that your friends wouldn't find cool," he told us. "We look for things that are out of favor or misunderstood. For example, we owned Apple when it was selling for less than the cash on its balance sheet. Back at that point, nobody liked Apple. We made a lot of money, but we probably missed the last 400 points. We do a lot of spinoffs, companies coming out of bankruptcy. We're trying to buy dollars' worth of value for 50 cents."
Kirr-Marbach isn't promising clients a quick killing in the market. Instead, it offers a research-intensive, go-slow approach that may take years to pan out. "One problem is that you don't know how long it's going to take for that gap--between the 50 cents you paid and the dollar you think it's worth--to close," said Kim. "You can look pretty stupid for an extended period of time. If the investment is still correct, we're willing to stick with it. We can be pretty stubborn."
But how is a new client supposed to distinguish between an investment firm that just "looks pretty stupid" in the short run but actually has great ideas, versus one that's just … well … stupid?
The key to establishing credibility is to think like a less-than-credible competitor. That hypothetical rival wants to mimic you in every way. Anything you say related to branding, messaging, and marketing can and will be copied. To be credible, you must commit yourself to actions--not words--that your less principled competitor would be unwilling to imitate. For example, are you willing to sell your product with a lifetime guarantee?
Kim boiled down Kirr-Marbach's approach to a culinary metaphor. "We are great believers in eating our own cooking," he said. "This may or may not be smart, but I've got virtually all my money in the mutual fund we manage."
Scott, the finance professor of our group, shook his head. "We usually teach that diversification is a good thing," he said.
Kim paused. "Well, this fund has my full attention," he said. "And when you've got your friends and your family involved in the fund, when things are not good, it can lead to uncomfortable Thanksgivings. Nobody's going to say anything. But you know what they're thinking."
Scott's point is valid: Diversification is a good thing. That means Kim's eggs-in-one-basket strategy is risky. If the Kirr-Marbach portfolio does poorly, it's not just Kim's job prospects that suffer. His life savings are on the line as well. The potential costs are large. Only someone with great confidence in his investing capabilities would be willing to bear them.
Think back to Kim's problem of how to distinguish Kirr-Marbach's expertise from that of a less-than-credible competitor. It may cost the rival nothing to copy Kirr-Marbach's marketing. But it would cost him or her a great deal to copy Kim's lack of diversification, assuming his or her own investments were less expert. And so, Kim and the Kirr-Marbach team are quick to highlight this practice whenever they talk with prospective clients.
The lesson: To establish their credibility, companies should identify actions whose riskiness depends on their own integrity, quality, and execution. Consider what you would do that a less-than-credible rival would not. Then do it.