How Other People’s Mistakes Can Hose Your Business

Other people’s small business mistakes can cause you big problems. It’s not just a cliche that we live in a connected world. Statistics show that our opinions reach between 150 and 250 people. If you work for 12 clients a year, you have the potential of being connected to anywhere from 1800 to 3000 people by way of word-of-mouth, just in the first level of contact.

The cumulative effect of those relationships, particularly in a well-defined local area, can be dramatic. The thing to keep in mind is that negative word-of-mouth is actually more powerful than positive. When people have a bad experience, they tend to tell more people about it than when they have a good experience.

The bottom line is that you need to stay in touch with your customers, especially those you aren’t thrilled with. At least make sure that they are satisfied with the work you did and have no legitimate reason to complain. Yes, there will always be whiners in the crowd. You just have to deal with that. But making sure you overdeliver for all of your customers is the best way to insure that you’ll get the maximum positive word-of-mouth. And it’s critical that you manage those indirect suppliers who you have recommended.

A Prius Example

Here’s a personal example. In 2000, I bought the 1st-generation Toyota Prius. I waited months for the car, but because I am an early adopter type, I was willing to wait. I took possession of the car in early 2001 and have loved it ever since. I have personally convinced 4 different people to purchase a Prius. There were approximately 34,000 Prius Classic buyers in 2001. The positive word-of-mouth clearly had an impact on the explosion of sales of the 2nd-generation Prius in the U.S.

That’s the good news. Now for the bad. Lately, the two tire manufacturers, Bridgestone and Dunlop, who produce the extra load (XL) tires for the Prius Classic have cut way back on their production. That means that those 34,000 Prius owners are having trouble getting tires for their cars. In fact, we’re having lots of trouble getting them. Tire dealers don’t want to put other types of tires on the cars, because they don’t want to be liable for excessive wear from the unusually heavy front ends of the Prius Classic.

The Wrong Answer

I contacted Toyota and explained the problem. I also mentioned that I realized they were not in the tire business, but they created the conditions for requiring tires that are now difficult to find. As a consequence, Prius owners are now starting to think a little less kindly toward Toyota, who is doing nothing to solve this problem. The response I got from Toyota was sympathetic, but included nothing more helpful than a link to an online tire store. That’s great. The tires are backordered on that site as well.

So, let’s do the math: 34,000 Prius Classic owners are going to tell 150 of their friends and acquaintances what a pain it is to get tires for the Prius. They’re going to talk about how it’s unsafe, how tire dealers refuse to put alternate tires on the cars, and how Toyota is essentially blowing us off.

On the low end of the scale, 5.1 million people are going to hear about how we’re getting shafted by Toyota, even though it’s not directly Toyota’s fault.

What could Toyota do? Well, they could:

• use their massive clout to encourage Dunlop and Bridgestone to produce more tires, more quickly for the Prius Classic
• contact Prius Classic owners, preemptively to tell them about the problem and how they are working to solve it
• incent tire dealers to install alternative makes of tires and remove some of the potential tire wear liability by offering rebates or discounts

Would this cost them money? Yes. It could cost them $3.5 million to offer 20% discounts to all 34,000 Prius owners on a set of new tires. Sounds like a lot, doesn’t it? Consider that if those 34,000 owners each buy a new model Prius at an average price of $28,000, Toyota’s gross revenues are in the neighborhood of $952 million. To make it even more clear, if only 125 people decide to buy cars from another manufacturer because of this tire problem, Toyota will lose $3.5 million in gross revenue.

So the question is, why is it worth it to Toyota to blow off loyal customers, evangelists for their cars, in fact, for such a small amount of money?

How This Applies to You

Yes, those numbers are bigger than you and I will ever need to deal with, most likely. On a smaller scale, though, think about what kind of impact not following up on problems, or even perceived problems can have on your bottom line.

Let’s say your web design business handles about 50 clients a year for an average of $750 a client. Not a huge amount of money, but it’s enough to pay your rent and keep you supplied with your daily double frappuccino. If one customer is dissatisfied by the web host you set them up with, you could easily lose a shot at thousands of dollars of work next year. If two customers are dissatisfied, you’re really going to feel it. If 5 customers—that’s 10%—badmouth you, you’re on the verge of going out of business.

“But wait,” you exclaim, “What can I do about a lousy web host?”

Recommend a new one. Keep a list of good hosts handy. Call the web host you recommended and find out why they have so much downtime, why they don’t have a support team, why they don’t answer their phone calls. Yes, it’s not directly your problem, but the indirect hit to your credibility can be devastating.

Make sure your customers are happy and that anybody you recommend or partner with is keeping up their end by providing high-quality customer service.