Keep expectations within realistic parameters

May 10, 2010
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Years ago, I heard about a concept that I now wrestle with on a daily basis. A speaker said if you're considering quality, timeliness and price, pick the two that are most important to you.

A Lexus costs more than a Yugo. We all know and understand that. The same applies to business services and products.

Businesses are in a constant struggle to maintain quality and deliver in a timely manner at a reasonable price. After 40 years in public accounting, I would've thought that, by now, I had all the answers. What has happened instead is that the question has become clearer: How do you accomplish that?

If you're buying a product, you know cheap materials will not perform as well as expensive ones. Sometimes in the hands of charlatans, inferior materials are sold at a premium price. In the short run, that may be profitable for them. In the long run, however, they may have to keep moving to different cities in order to perpetuate the process.

The same is true of labor costs. Quality work should cost more than poor quality work. If the work force is not trained or motivated or skilled, obviously the product will not turn out well. In order to pay quality workers properly, the price of the product or service must reflect that quality. An unprofitable business, even if well capitalized, will have a limited life. It took General Motors 50 years to cannibalize itself ignoring these concepts. It takes a long time to waste billions of dollars.

My point is that, as the consumer, you must keep your expectations within the parameters. As the business owner, you have to find the balance between the quality of what you do, the timeliness within which you can deliver it, and the amount for which you sell it. It should be a win-win situation.

What must be mastered is the ability to not only do the best at all three issues, but also to communicate to the customer how they are benefiting. Customers who say they want quality and timeliness at a cheap price will become upset if the product is not good quality or is not delivered on time, and will forget that they negotiated a cheap price.

To prevent being in constant turmoil, you must stand your ground on these issues. It is human nature to want to get everything at a cheap price. In reality, sometimes the grief that will come from trying to violate the concept is not worth it.

You also are a consumer of goods and services. The concept of picking two out of the three also applies to you. If you ask anyone to provide excellent service on time and then you tell them you want the same price as a poor quality organization, you're being foolish. Hopefully, the provider company will spurn your offer, because if they don't, you're bound to be disappointed.

Once, we prepared a partnership tax return for a person who had come to us because the previous preparer had made major mistakes. We could tell that the work had been done by someone having very little knowledge of accounting or tax law. The client actually requested that we reduce our fee to match the old accountant’s fee. Obviously, I did not acquiesce to the customer’s request.

When you are assessing your vendors, measure them fairly for what they do.

There was a speaker at the 1995 White House conference on small business who gave a very entertaining presentation on this issue. He was a Harvard professor turned motivational speaker. He wore a beautiful navy blue suit with a sparkling white shirt and a power tie. By the end of his speech, his jacket was off, his tie was gone and his collar was open. If I remember correctly, his closing rant was that if you make a quality product delivered on time at a reasonable price, you will be successful.

Spoken like a true college professor. Who doesn't know that? The trick is, how in the hell do you do it? In concept, it sounds so simple. If you do those three things, you will be successful. No kidding.

The problem is you have to hire the people, buy materials and meet deadlines. It is hard to find the right people. Finding the right deal on materials can be daunting. And God knows, the clock works against us.

Edith Gorter, a friend of mine from the Small Business Association of Michigan board, was asked to speak at an Ivy League school about how a woman becomes successful in the trucking industry. She explained to me that the attendees did not want to hear her message, which was that you borrow a lot of money, you get to work early and leave late, you make sure everybody does their job, and then you hope you make a profit. Sometimes being successful is just stinking hard work.

When I was about 10, I saw John Wayne in the movie, “She Wore a Yellow Ribbon.” I knew I was destined to be a cavalry officer. Fighting Indians looked romantic, exciting and fulfilling. In reality, fighting Indians was dirty, hot, dangerous and boring.

If you buy the fantasy that you're going to go out and be successful by taking long lunches, getting to work late, leaving early and making lots of money, you don't understand reality.

I enjoyed the speech by the Harvard professor in Washington. It was highly entertaining. I know how hard Edith worked to be a successful trucking company owner. It’s possible that her presentation wasn’t as entertaining, but it was informative if you were serious about running a business.

We will all continue to try to give our customers the best product on time and at a reasonable cost. If you find an easy way to accomplish that goal, please call me. I will get rich sharing the idea. Meanwhile we’ll all continue — along with the rest of our competitors, customers and vendors — to find that magic mix that gives the best of all three.

Paul A. Hense, CPA, is president of Hense & Associates, a local accounting firm. He also is past chairman of the National Business Association and the Small Business Association of Michigan.

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