Megan McArdle pushes back

Have you spent much time working for small/growing businesses, operating one, or talking to those who fund them?

There are a lot of truly terrible small business CEOs. You look at someone running a successful small business and they don’t look that special because there are seventeen more just like him down the street. You don’t see the far larger group of folks who folded because they didn’t pay attention to their customers, their margins, or their supply chain.

I actually think it’s quite unlikely that the Lowes family just got lucky. Probably there were ten other businesses who wanted to do the same, and weren’t any more talented, but got unlucky. But there were hundreds more who wanted to do the same, and couldn’t hack it. Survivor bias works two ways.

I am not sure what counts as a lot of time. My stepfather, my father-in-law and my brother-in-law all operate small businesses. In different industries and with the intention of growing them.

Indeed, my step-father is a serial entrepreneur and I have worked with him on more than one venture.

Additionally, I founded an e-magazine in college. And, though time has rendered this no longer a legal matter, I want to say carefully that I ran a financial services firm for people who could not avail themselves of traditional providers.

My point, I want to be clear, is not that super successful businesses come from folks who were bumbling fools but won the economic lottery. People work hard and are driven to produce the product that they want.

However, let me give you a specific example. My step-father is obsessed – and I mean obsessed – with customer service. He is supremely exacting in how he wants his employees to respond to customers and furious when a customer does not get what he or she expected.

I have been at businesses that talked a big game but this is a whole ‘nother level.

However, by no means did he sit down and say: look the value that customers place on service is roughly X, the cost to my employees is Y, which means that I can expand my value add by increasing customer service levels by this much.

Nor – and being up close I can tell you this – did he do this subconsciously. This was not a pool player doing trigonometry in the back of his mind situation.

He does this because he has a belief about the way a business should be run. This focus on customer service has proven an enormous help in some of his businesses and a brutal failure in others. Yet, he does it in all cases because that’s who is.

This is what I mean by not having any real idea what you are doing. He does what he does because that’s his belief about what a business should do. If it happens to be the case that this behavior maximizes profits he will succeed. If it does not then he will – and has – failed.

It depends on the details of the industry, the price elasticity of the customers, the characteristic of the worker pool, the expanse of control he can manage, etc. However, none of this is going to affect is dedication to customer service.

Thus it is not conscious design. After the fact, you may look back and say “oh he really understood the market.”  Pardon me, but he understand nothing. He simply was, as a hurricane or a mountain simply is. And in certain industries, who he was, was extremely successful.

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