Keep the Wrong Customers – Become a Good Customer

To determine who your bad customers are, you must first determine the characteristics of your good customers. One of the best ways to determine the characteristics you want in a customer is to practice becoming a good customer yourself. One of the first characteristics of a good customer is realistic expectations.

My wife, Laura, orders the same drink from Starbucks almost every time. She orders a vente bleedy blah soy green tea latte with sugar free blippsy do instead of blippity wa. You can tell I don't speak Starbucks. It is a language all its own. She freely admits that the only part of the drink she doesn't change is the green tea. When I order from Burger King, I order, “A number five with cheese, please.” Which one of us is more likely to receive the correct order? Laura admits that her success rate is only about seventy percent. That is pretty good considering that most Starbucks baristas aren't working there to supplement their income from neurosurgery.

I am an easy customer for Burger King, since my order easily fits into their system. Laura is a more difficult customer for Starbucks, because her order takes the baristas outside their normal system. A good customer fits easily into your service delivery system. They want what you do well.

Here is how we apply that principle to our CPA firm. We humbly consider ourselves experts in preparing individual income tax returns. However, we are not experts in international taxation. If someone asks us to prepare a tax return for Pakistan, we aren't the right people. Yes, I know the basics. Payments to Al Qaeda are deductible charitable contributions. Everybody gets to claim Osama Bin Laden as a dependent, and you don't have to send 1099 forms to suicide bombers. But after that, I am pretty clueless about what appears on a Pakistan tax return.

That doesn't mean we can't help clients with international tax returns. We refer them to a good firm that does a lot of international tax returns. These clients don't fit well into our normal tax return preparation system. We know we can't make a decent profit on international tax returns. So we don't prepare them. That policy benefits us, and it benefits our clients. You should determine what you do well, and tailor your service offerings around your specialties. You can only meet your customers' expectations if they want what you do well.

While I have your attention, I would like to make another point about Starbucks. Real men don't drink coffee from Starbucks. They drink the swill from 7-11 and like it. Starbucks is Spanish for “No testosterone here.” In fact, the manliest of men don't drink coffee at all. I don't drink coffee. That is why my shirts split when I flex.

Thanks for reading. If you want real non-snarky advice, please visit the Stitely & Karstetter official tax blog at www.skcpas.com.

Synergy

This past week, a lovely young lady, named Lisa, who is a big fan of the blog, asked, “Frank, have you ever had a big steaming turd of a business idea that cost you thousands of dollars, hours of agony, weeks of lost sleep, and made you kick the family dog like Mark Mosely kicked footballs?” Lisa will be able to read my answer when she gets out of the hospital in sixty days or so. I hear she'll be coming off life support by the end of the week. Thanks to all of you, who sent bail money. The Loudoun County jail doesn't serve Yuengling. Let's all wish Lisa a fast recovery – in time for my trial. My lawyer thinks I'll get off if I use the following alibi, “The bitch set me up.”

Yes, dear Lisa, I have had a few steaming turd ideas. One involved my pursuit of synergy. Here is my definition of synergy. Synergy is when you buy or create a business in a field similar enough to your existing business that you deceive yourself into believing you know what you are doing. That may not be the definition you learned in business school. It certainly isn't the one I learned up at the C.U. (Clarion University).

One genius idea I had back in the early 1990's was to open a bookkeeping company to complement our CPA firm. As I have written before, you should be able to summarize the financial model of any new business on the back of an envelope. I followed my rule. My financial summary went as follows. We could charge $40 to $50 per hour for bookkeeping services. We would have to pay about $25 per hour in labor costs. If we had thirty hours of bookkeeping services per week that would yield $1,200 to $1,500 per week with a labor cost of $750. That would give us a gross profit of $450 to $750 per week before any overhead expenses. There shouldn't be that much in incremental overhead costs for a CPA firm, since we already had an office in place.

The gross profit alone wasn't enough to get me as hot as I get around my beloved Jennifer Aniston. The key was the synergy between the bookkeeping business and the CPA firm that would develop. Synergy would let us convert bookkeeping clients to more profitable CPA firm clients. In other words, bookkeeping clients would ask us to prepare their tax returns and financial statements. That is how the false god known as synergy tempts you. You do something that makes marginal, if any, financial sense in the hope of a much larger payoff down the road. This is how Las Vegas works. If I had turned over my financial model envelope, it probably read, ”Frank is a moron.”

There were two big problems with my idea. First, my back of the envelope financial model was missing one very big cost. Since we are a CPA firm, professional standards and the laws of the great state of Virginia, required that Paul and I spend time reviewing and supervising the bookkeeping. This killed almost 100% of the gross profit. Now, all I had to rely on was synergy. If bookkeeping clients became CPA firm clients, the idea still made financial sense.

Unfortunately almost none of the bookkeeping clients became CPA firm clients. Why? I learned something very important about the bookkeeping business the hard way. Most people like their CPA's. Few people like their bookkeepers. I have written in the past that 80% of bookkeepers stink. So you might justifiably believe that makes business owners hate their bookkeepers. However, in my experience, business owners don't even like the good ones. When a potential new client first comes in to meet with me, I frequently hear,”My bookkeeping is all messed up. I need your help to fix it.” They say that even when I don't find much to fix.

We ended up with a bunch of lousy, unprofitable bookkeeping clients, who took up time better spent on our CPA business. After a little more than a year, we buried our rotting corpse of a bookkeeping business. Chasing synergy is like chasing strippers. The chase gets more expensive by the minute, and you go eventually home alone with an empty wallet and an unfulfilled fantasy.

Entrpreneurs are not driven by a love of winning but by a hatred of losing

I have long held a view that great sportsmen and great entrepreneurs share a common motivation. They are not driven by a love of winning but by a hatred of losing. An extension of that theory is that entrepreneurs are also driven by the thrill of the battle and not by the reward. There is a big difference.

As an example of this consider some of the great sportsmen of the modern era -  Ian Botham for example. I don’t doubt that “Beefy” loved to win – especially if the opposition was Australia. But he seemed to produce his most dogged performances when the chips were down. There was none more memorable than his batting heroics in the Ashes test at Headingly in 1981 when England faced certain defeat having followed on.  Botham’s incredibly determined 149 not out dragged England back to a position from where they won the match.

Another iconic sporting success born of a fear of losing was Seb Coe in the 1980 Olympic 1500m final. Defeat would have consigned him to the history books as a failure having botched the 800m final days before. His arch rival Steve Ovett, still basking in the glory of his 800m gold medal couldn’t match Coe’s fierce determination, driven on by the pain of his earlier failure.

Others who were able to find something extra to pull victory from the jaws of defeat are Seve Ballesteros, Jimmy Connors and Chris Ewbank,

There is a direct parallel between this “refuse to lose” attribute and being an entrepreneur. I don’t believe that the great entrepreneurs are those that like to succeed. Entrepreneurs are not driven by making money. They are driven by something more instinctive and fundamental and it comes to the fore when the chips are down.  The great businessmen that I know have a glint in their eye when times get challenging - they love the fight.

I am not saying that entrepreneurs don’t enjoy the rewards that come from their efforts. But I know from speaking to a number of them that they simply regard the big pay day that comes from selling a business as an indication that they have done a good job. I speak from first-hand experience when I say that the real excitement comes not from the rewards of an exit. The real thrills come months or years earlier when you were fighting to win that deal that was slipping away or scrapping to establish your dominance over a competitor or fighting to get to break-even with the cash reserves running low. In sporting parlance it is those occasions that are like the pivotal moment in a boxing match or middle distance race when victory or failure is determined. The exit is more akin to the medal ceremony. Very gratifying but not the bit we revel in.