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February 27, 1997

DRILLING DOWN

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No matter what our mission statement says, a for-profit company has “make a profit” high on its list of priorities. Otherwise, what would the motivation behind that company be? To lose money?

We all understand that making money is a part of business. That’s an acceptable business standard. But is it above everything else? It shouldn’t be. Just ask the company outlined below how well making money priority number one worked for them:

As a social membership with high-dollar rates, the company mandated ironclad membership contracts. However, state law provided a three-day think-it-over period in which customers could cancel anything without a penalty.

This club, however, wanted to inflate their sales figures to meet sales numbers, look good for an upcoming buyout by a multinational corporation, and earn the sales manager a company car bonus. So they regularly took the full 30 days they had by law—the practice was entirely legal—to refund a customer’s money. The amount of a refund ran between $500 and $3,700. The company had about a 10 percent cancellation rate. And on a medium-sized company, that adds up to a nice chunk of change. Until refunded, that amount showed up in the company’s monthly sales report.

Customers may not have liked waiting for their refunds, but the company was doing nothing wrong legally. But problems arose when an angry customer contacted a local television station to complain, resulting in an expose. A local newspaper, the national newswire service, and eventually the NBC-TV program “Dateline” picked up the story about membership scams—never once mentioning that what the company was doing was entirely legal, though certainly frustrating to customers.

As a result of the media exposure, monthly sales slowed by 40 percent, and cancellations doubled. And, though the company was purchased, as expected, the new management team could not salvage the business and was forced to sell it back to franchisees for a greatly reduced rate.

The lesson here is that, while what they were doing was clearly legal, it was obviously not in the company’s best interests. Sure, the sales managers wanted to boost numbers—a short-term hurrah—but they lost sight of the fact that without customers, they’d have no sales at all. None. Companies and individuals must learn to keep the main things…the main things. They put money—not people—as their top priority. And they paid dearly for that mistake.

Sorting and ranking the priorities of life is not always easy whether you are one person or a whole company. Knowing that one opportunity or assignment really ranks ahead of another is sometimes challenging. Among the things that a good leader has to provide his company today is the guidance on priorities. Sorting and sifting, then measuring and ranking is very critical and very beneficial. Everything can’t be number one on the list and everything can’t carry the same strategic return.

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