Invisible Discounts

In the words of the late, great Father Guido Sarducci of Saturday Night Live fame; “I canna teach you everything you need to know about business inna fiva minutes. You buya something, and thena you sell it for more.”

A business owner was relating to his peers how difficult it was to increase his margins. He rebuffed suggestion after suggestion.

Raise prices? He was already the most expensive provider available in his market. Increase efficiencies? He would get up before dawn to move equipment from one job site to another so it was never idle. Schedule better? He was already solidly booked for the next 16 weeks.

Finally they asked him to walk through his quoting process. He showed them how he calculated the difficulty of the job, the number of labor hours required, materials and overhead. He said “Then, when it is all totaled, I take off between five hundred and a thousand dollars, and give the customer the final number.”

The group asked about the last minute reduction. “I’m already the highest priced operator in town,” he said, “I just want people to feel that they are getting a good deal.”

Hidden discountWhen queried further, he admitted that he didn’t show the discount on the quote, nor did he tell the customer that he was reducing his profits. The group made him promise that for the next 30 days he would quote each job exactly as estimated. In that month, 100% of his prospects accepted the pricing without question. In the next year, he almost tripled what he took home from his company.

This is a blatant (but true) story about invisible discounts. It’s easy to read it and say “How foolish!” about the business owner’s quoting process, but I see similar invisible discounts occurring every day in many businesses.

Some companies price based on the hours expected to do a project, but job after job gets additional hours without examination of either the estimating process or the execution. Increases in material costs are absorbed because the price sheet was just distributed last month. Features are added to a product without announcement or price adjustment,

The only reason to grant a discount is because the customer asked for it, and justified the request. We all want to treat our customers well, but if they are getting a better deal than they bargained for, they at least have to know about it.

Posted in Customer Relations, Entrepreneurship, Marketing, Marketing and Sales, Sales | Tagged , , , , , , , , , | 2 Comments

2 Responses to Invisible Discounts

  1. Good article, and I agree completely.

    A discount is an incredibly expensive give away as it comes straight out of your bottom line. Every penny is additional profit you could be making, and to give away anything you don’t need simply amounts to charity. This is even more damaging when it is what I call a Post-Sale Discount – one you voluntarily offer after the customer has already agreed to buy.

    I saw this in all its destructive glory with a client of mine who owned an upscale optical store. He was always complaining about the pressure on his margins and never made the kind of profits he should. We analyzed his problem up and down, but it wasn’t until I bought a pair of glasses from him that I saw the root cause of the problem.

    I picked out what I wanted from his inventory and knew the price for both the frames and the lenses before I was measured up. I was happy with the price, but when the time came to pay, he suddenly took 10% off . This took place without any prompting on my part, and I probed into his sales process in a way that I hadn’t thought about before.

    It wasn’t just because of our relationship, and it turned out that he did this on virtually every sale. He couldn’t really explain why he did it and while he root causes might lie in a general lack of business confidence, it had simply become a habit that had been integrated into his sales process. His other salespeople followed his lead and the practice was costing him substantial lost profits.

    In my case, the sale was $1,000. His gross margin of about 50%, which after overhead probably would have generated a net profit of about 10%. After the discount, his gross margin fell to 40% but his net profit on the transaction after fixed overhead actually disappears, making the transaction a break-even!

  2. cathy locke says:

    I find this interesting. I am finally at a point where I can honestly give a quote, but I always need time to figure all areas for the final proposal and then I make sure I record all parts of the quote so I don’t end up giving added materials for free. I am a small business, so with experience and time, I will probably have to learn the hard way at times.
    Thanks for the blogs!

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Effective vs. Efficient: A Tale of Two Cities

Some organizations are effective. Some are efficient. From the customer’s perspective the two may look very much the same, but the difference to your bottom line can be substantial.

A few years ago my wife and I toured Vienna, and then hopped a train over the Dolomite mountains to Venice. Both cities were wonderful. For two places that are not much farther apart than San Antonio and Dallas, however, the cultural differences were extreme.

Upon landing in Austria, I set my watch by one of the many large clocks hanging in the Vienna airport. For the next five days, my watch agreed exactly with every clock we saw. The alarm clock on the bed stand, the clocks in the subway and the big clock on the city hall all showed the same time to the minute. In Austria, when it is 8:00 o’clock, it is 8:00 o’clock everywhere.

venice bell towersThen there was Venice. That city has 115 Catholic churches, not counting those on the lagoon islands. It seems that about half of those have carillons (bell towers) that chime the hour. You can hear them start at about ten minutes before the hour, and the last ones finish about ten after. According to the Venetian churches, when it is 8:00 o’clock it is somewhere between 7:50 (or so) and 8:10 (or thereabouts.)

Vienna is efficient. Venice is effective. In Vienna, the time is a precise measurement. You can set your watch by any clock in town. In Venice, the churches are certainly effective in letting you know the hour is arriving (or has recently arrived.) They just aren’t so good at pinning it down exactly.

We could attribute this to the differences between Germanic and Latin cultures and leave it at that, but I think it is also a metaphor for company cultures.

Some companies are effective. They get the job done. They revel in their ability to accomplish the mission despite hiccups and near-misses. They have mottos like “Whatever it takes,” or “Git ‘er done.” They talk about how their terrific employees regularly go above and beyond the call of duty to meet a deadline or make a delivery.

Other companies are efficient. They don’t talk much about employees going the extra mile, because they rarely have to. They know when an order comes in or a customer arrives it will be handled the right way, and the same way every time.

Efficient companies depend on their people to execute proven and tested systems. Effective companies depend on their people to figure it out as they go. Efficient companies prize teamwork and process. Effective companies value individual heroics.

Is your organization efficient or effective? Building an efficient organization takes more work up front, but pays off bigger in the long run. Running an effective organization also gets the job done, but being efficient delivers predictable results and consistent profits. Merely being effective means that you have to regularly “go the extra mile;” and extra miles cost money.

Posted in Business Perspectives, Entrepreneurship, Strategy and Planning | Tagged , , , , , , , , , , | 4 Comments

4 Responses to Effective vs. Efficient: A Tale of Two Cities

  1. David Cunningham says:

    This essay is a nice illustration of a key business dynamic. (Perhaps I can write off my next vacation by studying the Effective/Efficient syndrome from Paris, Athens, and Reykjavik, to Singapore.) It is important to be able to recognize this characteristic when advising companies. Owners of either type are likely to be proud of their organization and its culture. This essay may be a gentle way of introducing the issue. But anytime you focus on a problem you have to be prepared with a solution. In this case it may be the introduction of business intelligence in the form of work flow analysis and dashboard performance illustration. Thanks John.

  2. David Basri says:

    I do not think that “effective” and “efficient” are mutually exclusive. Being efficient is largely a product of good processes, procedures and training. It is possible to develop those kind of procedures that also have a healthy dose of effective individuality baked in. Efficient processes should take care of most day-to-day requirements. When customer or company circumstances are outside the procedural box, employees can and should be encouraged to take initiative to be creative and effective.

    For example, PEI is a software development company. Employees (including myself) are first expected to be creative. However, strict naming conventions, coding standards, long term maintainability and testing are enforced. While we are more on the “effective” side of the gradient with a healthy dose of “efficient”, there just needs to be some kind of balance.

  3. John Hyman says:

    Great perspective and a lot to think about. Having spent a lot of time in Europe, I cannot get off the story. I wonder if the tale of two cities might involve a technology gap? Keeping centuries old clock towers and those mechanical time keeping movements in sync seems daunting at best. Transforming from effectiveness to efficiency seems more attainable…

  4. Frank Arnold says:

    David’s comment on not mutually exclusive is reality. An organization with a solid base of efficiency certainly relies less on effective individuality, but I believe both are essential.
    But this thought provoking discussion also leads me to want to get on a plane and head for Europe to continue my education. Thanks.

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Marketing for Trust

Why are car dealer commercials so crappy? I’m not talking about the manufacturers’ ads. Those cost millions and have big-name professional spokespeople. The regional marketing association ads aren’t quite as flashy, but Ford Truck Month or End of Year sales for the Area Chevy Dealers are at least competent depictions of the product.

Cal WorthingtonI’m talking about local dealer ads. They all come from the same mold. Element 1:The owner or manager squinting into the sun in front of a lot full of cars. Element 2: A claim of “We are the biggest” or “We have the lowest prices.” or both. Element 3: Lousy production values — lock-down static shots and whatever the on-camera guy wore that day.

This week I had the chance to watch a couple videos of pitches by tech startups to investors. These weren’t rank amateurs. At the very least they had beaten out a few thousand applicants just to be in the room. They had worked for months with mentors to hone in their business models and refine their presentations. Some had several successful tech startups to their credit already.

Tech presenterYet they still looked like amateurs. They were uniformly in T-shirts or unpressed sport shirts worn untucked. Their presentations were often too technical for even their experienced audience, and they frequently mumbled long strings of acronyms. Yet they were hoping to, and many did, walk away with commitments for millions or dollars.

Clearly, both groups are doing it intentionally. I searched the literature on car dealer commercials, and the industry publications claim it is a cost savings measure. That’s a crock. Maybe a small town dealer is knocking out cheap commercials, but the billionaire owners (yes, billionaires) with scores of stores and multi-million dollar ad budgets do the exact same thing.

The objective is to gain the trust of the customer by saying “I’m just like you. I am a normal guy trying to make a living. This is the real me. You can trust me because I clearly don’t even make enough profit on my cars to even produce a decent commercial.”

The tech hopefuls are doing the same thing. I jokingly asked one of the mentors what would happen if a start-up CEO came on stage with his shirt tucked in. He said “Oh, they would throw him out immediately.” Tech industry investment is driven by stereotypes and legends. The next tech billionaire is working in a garage, dorm room or loft somewhere, just like the founders of Hewlett Packard, Dell or Facebook. He (or rarely, she) is too busy being a genius to bother with suits.

Both the auto dealers and the tech start-ups are practicing the same marketing technique. They establish trust with their buyers by doing what is expected. By starting out with the accepted stereotype, they don’t waste precious minutes either on the air or on the stage explaining why they look different.

What do your customers expect from you? Many small businesses try to differentiate by saying “We aren’t what you expect. We don’t look or behave like our competitors.” In most cases, they then have to waste time explaining why.

Take an objective look at your marketing. You might be better off, and establish trust more quickly with your prospects, by simply doing what everyone else does.


Posted in Customer Relations, Marketing, Marketing and Sales, Sales | Tagged , , , , , , , , , | 3 Comments

3 Responses to Marketing for Trust

  1. jim marshall says:

    There may be merit to what you claim as to earning trust by doing what everyone else does. But I believe you might also be passed over….similar to a billboard that is there everyday but becomes so much a part of the landscape it isn’t noticed. Being different can at least get you noticed…then it is up to you and your message to earn trust.

  2. All true, but this is mediocrity. Maybe there is another way as video has become so much more accessible.

  3. John Hyman says:

    The goal of marketing is to establishing top of mind awareness- the kind of awareness where the target audience thinks of your brand before they open their browser. So if the target audience cannot tell the chaff from the wheat because everything looks and feels the same, the marketer is placing the fate of his/her marketing budget on search engine results. Or playing a huge timing game.

    The real reason automotive dealerships (as only one of many examples) fall into the same tired marketing rut is because it’s human nature to stick with what you’ve always done. They continually rely on marketing agencies with a specialty in their space, instead of seeking out an agency with a fresh point of view; it’s comfortable, and seemingly low risk because, well, they are rich and it’s gotten them to this point, hasn’t it?

    Besides pioneering something new is risky… and change is scary. (Insert Einstein’s most famous quite here).

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Are You Proudly Out of Control?

I have a favorite New Yorker cartoon. A fellow in a suit is standing behind a desk, one hand holding a phone to his ear, and the other with a finger on his calendar. The caption is “How about never? Is never good for you?”

A professional arrives at a business for an appointment. He is informed that the owner, whom he is meeting, just left to take care of an important issue and would probably return in less than an hour. Unable to wait, the professional reschedules.

On arriving for his second appointment, he is informed that the owner is on the telephone, but is aware that he is waiting. Forty minutes later the owner comes out and informs the visitor that he has a lot to do, and the scheduled hour-long meeting will have to be compressed to 15 minutes. When the visitor offers to again reschedule, the owner becomes agitated. “You obviously don’t understand,” he exclaims. “I am a business owner. I can’t just schedule things like other people. I’m far too busy.”

human tornadoWe are all busy. Most of us are too busy. People send emails and then call fifteen minutes later to ask why you haven’t answered their email. Some think that having your mobile number absolves them from speaking to the employees whom you pay to handle day to day operations. Others text you with expectations of instant response.

Employees need to talk to you “right away.” They lie in wait outside your office to pounce between phone calls with “Do you have a minute?” If there is anything you can be sure of, the conversation isn’t just going to take a minute.

Personal time management is the burden of every business owner. Effective time management is the skill of an executive. I typically see the proudly out of control syndrome in less experienced owners. They are still enjoying the ego rush of “I own this place. These people all work for me.” They like the fact that employees have to adjust on the fly to accommodate their schedules. They expect salespeople and suppliers to do the same. In some cases, it grows into a full-time habit, and they expect everyone else, including family, colleagues and customers, to work around whatever occupies them at the moment.

Truly successful owners have grown beyond that. They’ve learned that personal organization and self-discipline are critical components to running a successful organization. They return phone calls, or cause them to be returned. They meet deadlines, or make certain that someone in their organization does. They behave as if everyone else’s time is just as valuable as their own.

Owner-centricity is a trap. No one grows really wealthy in a one-person organization, and no large organization can be effective if it is tied to the activities of one person.

I’ve worked with hundreds of owners. Some are in control from the outset. Some learn it along the way. Those who build successful companies have all figured it out. If you want to own a business that really gives you the flexibility to do what you choose, a good first step is to stop being proud of the fact that you can do whatever you choose.

Posted in Entrepreneurship, John's Opinions, Leadership, Managing Employees | Tagged , , , , , , , , | 4 Comments

4 Responses to Are You Proudly Out of Control?

  1. Frank Benzoni P.E. Retired says:


    “On the mark”- being considerate of others –


  2. Rodney fischer says:

    Guilty! Needed to hear this. Although, for me it is not so much that I believe my time is more important than others. Rather, I just get so busy that if the call or visit is not a high priority, it gets pushed down in the stack, even though I intend to follow through…………eventually!

  3. John Hyman says:

    Are you in control of your business, or is your business in control of you? Recognizing that “stuff” happens that can wreck your schedule, we should strive to make those times the exception. That is where a good team and a sound process-based approach makes all the difference, Great post.

    • cathy locke says:

      To Rodney,
      I am also very guilty! I am getting a little better in checking my calendar,my business mentor on certain futuristic situations, doing like my Dad use to do”sleep on it” important decisions. Learning to delegate slowly with assistants.
      Thanks, great blog.

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Where are All Those Jobseekers?

Workers: There are currently 5.1 million job openings in the US; an all time high. While the official unemployment stands at 5.5%, the U-6 unemployment rate, which includes people working as little as one hour a week for “economic reasons” (e.g. money) who state that they would rather find a full time job, stubbornly remains over 11%.

Employers: Employers increasing talk about the “talent wars;” the fierce competition for good employees, or even people who might become good employees. Corporate salaries are escalating at a rate that shocks many small business owners. It isn’t unusual to interview a young middle manager with a few years’ experience who makes a six figure income.

Workers: According to the Economic Policy Institute, the unemployment rate for college graduates hovers around 8.5%, again almost doubling to 16.8% when underemployment in included. For high school graduates it is 22.9% and 41.5% respectively. A recent (2012) study showed more than a third of those under 30 still living with their parents.

Employers: Those who are seeking staff laugh at the arguments over “minimum wage.” McDonalds and Wal-Mart are just the largest and most visible employers to admit that $10 an hour is the going rate for employees who will show up and work. (Although, realistically, $1,700 a month is still unlikely to get you out of your parents’ house.)

blindfoldedWhat is the problem? Employers are saying that they have jobs, but can’t find the people to fill them. Prospective employees are saying that they want to work, but can’t find a job.Is everyone blindfolded in a dark room, wandering around unaware of others in the same room unless they bump into them?

Not exactly. The problem is systemic, and has been building for the last 30 years. Its roots lie in an educational system that was developed during the longest sustained economic expansion in our history.

The Consumer Boomers drove long-term economic growth from the mid 1970’s to the late 2000’s. During that time, the expectation of constantly increasing opportunity skewed the educational system.

Boomers led a six fold increase in the number of college educated workers. Although  college graduates still only represented 25% of the Boomer population (a percentage that remains steady today) they helped create an expectation that the”normal” course of education led through a university. The 80’s and 90’s saw a major shift in our educational system.

  • High school counselors began to be rated, at least in part, by the number of kids who went on to college, so they naturally directed everyone towards college.
  • Ridiculed as the refuge for dumb kids and criminals, manual arts, auto shop, home economics and other non-college preparatory classes were virtually extinguished from high school curricula.
  • The Federal Government began guaranteeing low interest money for higher education (Sallie Mae — 1973). With privatization (1997) and Congressional urging, loan eligibility expanded to cover virtually any expense that could be related to education.
  • Fueled by student debt, colleges increased their pricing at almost triple the rate of inflation. The parents of a Boomer child paid about 18% of median annual wage for tuition. Today it costs almost 80%.

Every business needs a value proposition. In the case of higher education, it is an implied promise that they are giving their customers the skills needed to earn a return on their investment.

Colleges understand economies of scale. What creates more incremental margin, auditoriums with hundreds of liberal arts majors, or high-tech labs with a half-dozen budding scientists? Shifting their national standard to a 6-year graduation rate (fewer than 50 of the 580 four-year colleges have 4 year graduation rates over 50%) merely acknowledges that they are in no hurry to move those lucrative young borrowers along.

Despite the more relaxed time frame, over the last 20 years 31,000,000 Americans (10% of the entire nation) started college but received no degree. Freshman lecture halls filled with people who will never graduate have become a massive cash cow.

We spent twenty years building an educational system that has no accountability for delivering employable skills that justify the cost of training. Too many people with the wrong education and a load of debt are sitting in their parents’ living room saying they can’t find a “suitable” job. Too many employers can’t find suitable employees.

Hopefully, it won’t take us another twenty years to fix this.

A personal note: After 55 days, 6 CT scans, 4 MRIs and (literally) over 5 gallons of antibiotics, I was released from care on Friday. Thank you to everyone who called, wrote emailed, or even thought their best wishes.

Posted in Business Perspectives, Economic Trends, Entrepreneurship, John's Opinions, Managing Employees, Strategy and Planning | Tagged , , , , , , , | 10 Comments

10 Responses to Where are All Those Jobseekers?

  1. Al Bellenchis says:

    Glad to see you’ve made the last turn, John. Best wishes!

  2. Chuck Smith says:


    So so glad to hear that you are feeling better!

    While agree with everything you said in the your this post, I’d like to extend your metaphor of the blindfolded people bumping the room. You and they found the elephant in the room and describe it from one limited perspective.

    Yes, education systems are a mess, but that is but one cause. There are many. Here’s another which helps to, but does not wholly explain, our current employment situation. Business has a tremendous responsibility for the state of affairs – the lack of skilled employees. How did the boomers get trained for manufacturing jobs, construction jobs, and other “manual” labor jobs?

    Businesses (and often unions) took responsibility for training workers. Starting in the 80s and continuing to today, the emphasis on corporate profit, just-in-time and lean labor forces, caused otherwise repsonsible businesses (and unions) to stop investing in training and cross training.

    Today we hear from 10s of business owners hoping to find skilled labor to replace their retiring workforces. Guess what… no one trained them. And to me the chief responsibility for that falls on the people who profit from having trained labor. Stockholders.

    Just another reason, I believe, we find ourselves in a pickle. There is a good solution though. Hire for aptitude and invest in your employees.

    Keep getting well. Chuck

    • John F. Dini says:

      I agree, but I think it goes farther, Chuck. As the cost of an individual employee has risen, not least because of government attempts to make all employment generate a “living wage,” small employers have largely ceased to be the training ground for basic job skills. Part time and summer jobs for kids who acted as go-fers and floor sweepers taught things like showing up and following a procedure.

  3. David Cunningham says:

    Hello John,
    I did not know that you had a health problem. Congratulations on your recovery.

    The college mess is getting worse. Cheap money has enabled colleges to embark on an expansion war, turning campuses into resorts. In Colorado, CU and CSU both have debt approaching $1 Billion. CSU is committed to a $250 million football stadium that the President thinks will elevate the mediocre RAMs from the Mountain West to Big 10/Big 12 status – and consequently boost foreign student enrollment to pay off the bond! (I have to check to see if CSU has an Economics department.) We have let on-line “colleges” entice veterans to spend their GI loans on courses that do not equip them to get employment.

    The colleges will not change a lucrative business model. Change will only come when parents stop believing that their sons and daughters deserve the college “experience” they enjoyed or dreamed of. That experience degraded from education to the high life in the 90s when colleges began to be rated for their partying credentials. Parents need to take a hard nosed approach to college selection, and counsel their children against taking on debt without a high probability of quick repayment.

    Another solution would be for student loans to be limited to only fund attendance at colleges that have a 50% or greater 4 year graduation rate, and an adequate record of graduate employment three years after graduation. Similarly, GI loans could only be spent on productive on-line courses. Money rules, and we would quickly see colleges actually focus on graduation and employment success.

    David Cunningham.

    • John F. Dini says:

      I would be afraid that setting a minimum 4 year grad level would just lead to further manipulation, but it is a good idea. Perhaps index the amount of a government-backed loan to the employability of the major?

  4. John Hyman says:

    Pleased to read that you are on the mend.

    “Ridiculed as the refuge for dumb kids and criminals, manual arts, auto shop, home economics and other non-college preparatory classes were virtually extinguished from high school curriculums”[sic] is not universally factual. While the emphasis on college attendance is enormous, the emphasis on STEM oriented programs and the undervaluation of liberal arts is also to blame. Combined with the nonsensical new testing, the result leaves a diminished effectiveness in the new workforce.

    Now layer on HR & owner bias against anyone out of work over one year and you have the genesis for the statistics you report in your article.

    This emphasis toward STEM and standardized testing has another painful consequence: critical thinking capability is nonexistent in high school graduates. Do you agree this may be a contributing factor in the reduction in 4-year college graduations?

    Our regional high school has a thriving poly-tech program. This is a school with an excess of three thousand students. And yes, counselors get bonuses for the number of students who take AP and honors courses, and likely something similar for the number of grads who attend college. But the vocational training program is excellent and very much in demand.

    Lastly I believe this bullet was an oversight: “Fueled by student debt, colleges increased their costs at almost triple the rate of inflation.”… isn’t the equation the other way around? The debt is a by-product of the rising costs to attend college.

    And what will happen when the college bubble bursts… the current rate of tuition increases and incurred debt levels in many colleges and universities cannot be sustained. When will be start seeing colleges folding? It may not be very far into the future.

    • John F. Dini says:

      I’m surprised to hear you say that there is too much emphasis on STEM, John. I still think it is weak. When my youngest was reviewing colleges, he was offered a alternating tracks for his major. A BS required one science course, the BA required none. Thanks for the corrections as well.

  5. Walter Belt says:

    John — good to hear that you are doing better.


  6. Jim W says:

    As many states, such as my state of FL, are seeking to do away with traditional student testing, more and more students will qualify for college entrance without a clue. High School
    counselors need to do more to assess students and work with them and their parents to develop a plan for their continued education. Goal setting and planning need to be a major part of their education.

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