Aaron Hoos

VentureHype is a blog for angel investors that I write for regularly. In my June 17th article, “What the @#$ is SOX?” I talk to angel investors about how they can prepare their start-up today for SOX compliance in the future.

I normally resist these “MBA-in-a-short-time-period” book because they are pretty watered down and less helpful. But this book is written by Steven Silbiger, whose work I admire. It is high quality and a very demanding read — not a light read by any means! It’s one of those books that I find myself referring to again and again.

First, let me give credit where it is due: http://twitter.com/Brioneja put me onto this article.

Read this short but sweet article at BusinessWeek .com: “How to Repurpose Failed Innovation” about  what businesses can do to generate new revenue from failed first-tries.

Every business has these failed items sitting around. They’ve sunk money into them but they’re doing nothing. This article gives 4 good ideas to get you thinking about using these dormant investments.

And, I’ll broaden the subject matter a little for you: Don’t just read the article with that one failed start-up idea in mind. You might have half-completed ebooks, a blog that has collected dust, a bunch of employee manuals in the closet that haven’t been read in years, a website that you’ve been renewing for years even though it doesn’t actually go anywhere, and a file called “Miscellaneous Ideas for a Rainy Day” that you add to from time to time.

Here’s what I would advise: List the names and/or nuggets of ideas in one big list. Then, right beside each one, start thinking about how you can pull out the difibrillators and revive them to turn them into something that will either earn more revenue or strengthen your current position with customers.

This is a valuable activity you can perform during the Innovation stage of the Business Diamond Framework™.

In January 2008 my wife and I bought a furnace and air conditioning system from a local franchise of this company. Along with the standard expectations of hot air and cold air, it also came with various good-for-the-environment and good-for-our-health features that we liked. We paid the equivalent of a small car (with undercoating) and for that price we were hoping that our purchase also came with convenience and service.

Sadly it did not.

We certainly did get some value from our system. But it is not really remarkable in any way and thus doesn’t give us the sense that we got the value we paid for.

• The system works fine and delivers the heat or cold as we need it. So, as a baseline, it does what we need.
• There is supposed to be some kind of financial savings; theoretically this furnace is so efficient that we’ll earn our money back within 5 years. However, a 5 year spread on money savings is an okay value, but nothing stellar, and the claim smacks of outlandishness.
• The value of hypo-allergenic features is difficult to measure because how do you measure when you experience less allergic symptoms?
• Oddly enough, one value I have come to enjoy is the whitenoise of the fan that runs in this furnace which we didn’t run in our old furnace.

And that’s pretty much a summary of the value we have received from our purchase.

Working against that sense of value is the following:

• We have received dismal service from the company. There was a small issue that took one service guy about 20 minutes to fix. But in order to get that service guy out to our house, I had to make about 15 or 20 telephone calls over 2 months, they missed 2 appointments, and I had to write a letter to the consumer’s bureau before they took action. Yes, 15 to 20 calls is not an exaggeration.
• When it came time for our annual inspection (required in order to maintain our warranty), the company forgot to call. I had to call them. They charged me for the inspection. Oh, and then they told me that they have to perform 2 separate inspections — one on the furnace and one on the air conditioner — and each one cost.
• I also had to buy new filters which cost about $120 for a year’s worth of filters and yet look alarmingly similar to ones that cost less than 10% of that price at a nearby store.

For the amount of money I spent on the system, I would expect better service and a higher sense of value.

Let’s apply the Business Diamond Framework™ to the company…

• The Leadership Diamond is flawed in its ability to direct the company effectively. I can’t tell if management is absent or unconcerned (although they stepped up when I contacted the consumer’s bureau but it shouldn’t have reached that point).
• The Support Diamond is where I’m seeing a lot of challenges. Namely, messages aren’t getting through and critical customer-service issues (like repeated cancellations and numerous telephone calls where a response is promised but never delivered) should trigger an internal warning sign. But it didn’t and I don’t have the confidence that things will change. I recommend a better customer management system that will help them to track calls and log issues.
• The Value-Add Diamond is delivering sufficient value. In fact, if the service from this company was better, I’d be extremely happy with them. Aside from some of the extra recommendations I listed above, I wouldn’t change much about the delivery of their product.
• The To-Market Diamond, like the Support Diamond, is where things are breaking down. Their sales and marketing is very strong (great tagline, consistent branding) but the service has been abysmal.

Without breaking a sweat, the company could implement some of the following improvements to their business. Not only will it increase my sense of value and make me feel like recommending their service to others, it will also improve the company’s revenues:

• Call me periodically to see how the furnace and air conditioner are working. Call them “customer service” calls or something. It’s likely that most people will say nothing’s wrong but they will appreciate that you care.
• Show up on time to appointments.
• When someone complains, do something about it the first time.
• Explain to me why my filters are priced much higher than the ones in the store. If they are magical, that’s fine. $120 is not a big deal and I don’t mind paying it if there is a reason. So tell me the reason.
• Sell me your other services. I get calls all the time from companies to try and sell me on why they should clean out my ductwork. But I have never heard from this company and yet they already have my name in their computer and they already know that I’ll drop thousands of dollars on their products.
• Reward me for telling others. Earlier this year, my neighbor asked if we were happy with our service. I would have seemed much happier if I had an incentive to “cover up” the bad service I had put up with.
• The people across the street got the same system from the same company. When the company shows up at an appointment for my furnace and air conditioner, the service guy should run across the street and check in on the across-the-street neighbor’s furnace. Sort of an “I was in the neighborhood” kind of thing. If the filters really only cost $5, this might be a meaningful way to add unexpected and spontaneous value by dropping off a spare filter.
• Give me information. I bought a furnace and air conditioner with all these crazy health-saving and environment-saving and money-saving bells and whistles. That should tell you that I am interested in those things. I’m sure that you can afford a $5/book bulk purchase on Amazon of “save money around your home” tips (or something like that) and leave one for me when I bought my furnace (and maybe something similar at my one-year warranty check-up). Case in point: Before I bought my house, I hired a home inspection guy to look it over. He poked around with his flashlight, I paid him some money, and he gave me binder that included my inspection certificate and a pack of useful home ownership information… and that information has potentially saved me as much money as I paid him to do the work.I will never call this furnace company again when I need a new furnace but I will call the home inspection guy when I buy another home.

Years ago, when studying to become a stockbroker, my classmates and I were discussing the relationship between risk and reward among investors. Our instructor gave us a useful rule-of-thumb:

“Between two investments of equal return, the rational investor will choose the one with a lower risk. And, between two investments of equal risk, the rational investor will choose the one with a higher return.”

That’s sound advice from the early lessons (although it is shocking how often investors prove themselves to be irrational… but that’s besides the point).

I was thinking today about the concept of the “equality of the offering” and the rational consumer. Here are two of my experiences as a consumer:

Equality of hotels: Recently I was traveling to meet with a client. They had booked me into the Best Western; a decent hotel from my various traveling experiences. After my stay ended, I was asked to fill out a survey online comparing this experience with previous hotel experiences. After much thought, I told them frankly that this experience was incredibly unremarkable: There was nothing during my stay at their hotel that made me say “wow” or might induce me to return. In fact, just last year, I stayed at their competitor’s hotel across the street and the stay there was almost exactly the same. The service was mediocre. The complimentary breakfast was passable. The high speed internet connection was there when I needed it. The only difference was the room itself: last year’s hotel room was slightly larger and had a couch.

Will I go back to the Best Western? It’s doubtful. Because the experience was so unremarkable, I’m willing to stay at another hotel, and another, and another until I find one that I like.

Between two (or more) hotels that offer an equal stay, the rational guest will choose the nicer room (particularly if they’re not paying for the room, as was case).

Equality of home renovation box stores: Recently I’ve been renovating a couple rooms in my home. I outsource the projects I can’t do but I’ve been enjoying the work I can do. The part I enjoy the least, however, is the trip to the home renovation store. There are two near my house: Home Depot and Rona. And the experience is nearly equal: terrible service from typically absent staff, overwhelming selection with little guidance to make appropriate choices, and long line-ups to reach minimum-wage cashiers. And let’s not forget about product return procedures that are unwieldy at the best of times. So how do I choose? Well: Rona is closer but Home Depot has a self-serve checkout (which never has a line-up). So if I go during the day when the store is quiet, I’ll go to Rona because it’s a faster trip to and from my house. But if I go after 5pm (when more people are walking through the store), I’ll go to Home Depot because I can get in and out o the store faster.But that’s it. That’s how I decide where to go. That’s not customer loyalty!

Between two home renovation box stores, the rational consumer will choose the store that offers the least amount of pain.

If Best Western, Home Depot, and Rona asked for my advice, it would be this: Find ways to be different. Separate yourself from the pack by taking a chance on something that your competitors won’t do. It might mean alienating some customers but it may mean winning even more customers who desire that additional difference. And I believe the added cost will be swallowed up by increased customer loyalty.