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Open Book Management

Getting on to Good Profits

If bad profits are akin to strip mining, then good profits are like sustainable agriculture; they’re solid, rooted in shared values and win-win outcomes that have long-term gains for all involved. The customer has a great experience, the staff member enjoys serving them and feels good about what they’re selling, and the organization is building solid and special skills that make it more likely to win customers back for future sales.

One concrete early example of good profits and the Zingerman’s Experience Indicator (ZXI, see sidebar, p. 25) is that we get very high scores to the Ultimate Question (“On a scale of 0 to 10 would you recommend Zingerman’s to a friend?”) from people who attend our educational programs. These are classes we teach (and charge for) about our products that take place at the Deli, BAKE (our teaching facility at the Bakehouse), and Creamery, special dinners at the Roadhouse, Bakehouse and Creamery tours, ZingTrain seminars, etc.

We score nearly all 9s and 10s on the evaluations. The data makes perfect sense; we’re good at teaching, have a lot of good information and techniques to share—both on food and on doing business—that are distinctive in the marketplace. Because we plan for these interactions well in advance, the guests’ experiences are much more effectively “managed” than the more random nature of retail, restaurant or call-in orders. The programs showcase one of our strong advantages—we’ve gained a lot of expertise in what we do and we actively share it with others in ways that are rewarding for us as teachers and for customers as students.

Better Care of Happy Customers

It’s what we do with the ZXI scores and the other information we gather that will shape our future. While we knew people were enjoying these events, we’d never aggressively worked to expand and solidify their experience. These people are promoters—they share our values, like our vision, and actively promote us to friends. To build good profits, we now take even better care of these already happy customers—we give them coupons for future purchases, put unexpected gifts in takeaway materials, send them thank-you notes, and so on.

For example, we proactively bought dinner the other night for a couple who are regular customers. They didn’t ask us to buy dinner; they didn’t request a frequent buyer discount, nor were they expecting anything other than to pay for what they had ordered.

So why did we do it? Because the business they give us is about as quintessentially good profit as it gets. They come in to eat four or five times a week. They buy our most special products. They send Zingerman’s baskets as personal and corporate gifts. They bring friends and business colleagues in regularly and promote us in the community. On top of which, as so many promoters do, they give us good feedback, sharing praise lavishly but also offering helpful constructive criticism. They run their own business, and from what they’ve said, they share many of our values and teach many of the same approaches—albeit in their own style—about positive leadership. Every minute we spend with them is a positive—if never guaranteed—investment in our future. (By the way, they loved the free dinner.)

The Bagel Turnaround

From a product standpoint, our bagels are a good example of a proactive move from not-so-good to good profit. For 20 years, we sold bagels made by a series of local bakeries. Although we’d tried to work with each supplier to buy a better, more traditional, much chewier bagel, we’d never been able to find it. Take note that we had almost no customer complaints on the issue. A few East Coast customers who live in Ann Arbor had long been dissatisfied but they had given up on getting anything better. Most people felt fine about what we were offering; it was us, not the customers, who knew the bagels could be better.

Six years ago, we started to craft traditional, hand-shaped, boiled, chewy bagels at the Bakehouse. As expected, when we first made the switch, the majority of our customers were unhappy with our new offerings; if you are accustomed to soft Midwestern bagels, a real New York-style bagel with a crust is not appealing. We slowly but surely worked through the change, and eventually ended up with good profits all around. Customers now love the bagels and even take them out of town for their bagel-deprived friends and family. We have something unique in the market and we charge more for the bagels than when we were buying lesser versions from others. The staff feels good about what they’re selling because it’s aligned with our values around quality (full-flavored and traditionally made food). We’re more profitable on every level.

Good, Bad and Gray

This is not easy—you do not just find “good profit” products and reach utopia. It’s often hard to know what to do when we’re confronted with difficult, almost paradoxical problems, such as the customer who wants what we have but at a lower price or when you come across a product that doesn’t quite fit our values but could sell in large quantities. It is usually far less black and white than I desire. The key is  about identifying when we’ve unintentionally headed down the path to bad profits and then coming up with the strength of character to get off that path in constructive and considerate ways that make a big organizational difference.

For example, we made a difficult decision at the Bakehouse to stop selling to a large national chain of coffee shops that had come to town. They were throwing around big numbers, planning to open a dozen units in Ann Arbor in the next few years. It sounded great. But in practice, they wanted every product in a size that was different from what we were making for other customers. From the beginning, they were pushing us to drop prices below what other long-term (promoter) wholesale customers were paying, even though the other customers often bought in higher volume. And when we looked at their pattern in other cities, it looked likely that they would drop us once they could find a bakery more suited to their mid-level quality and price needs.

If we had stayed on a lot longer, we would have been in the spot so many suppliers get stuck in—the work is increasingly unproductive, unrewarding and unprofitable but the sales are too high to stop. Thanks to the leadership of Bakehouse co-managing partner Frank Carollo, we stopped the selling relationship early on. We did it constructively, with due notice. And we were willing to sell them the same items we made for others with our regular pricing and volume discounts. We also would have made the small batches of custom-sized products they wanted, but with a reasonable surcharge to cover the costs of the extra work. It was clearly the right decision.

Final Good Thoughts on Good Profits

Bad profits are a downward spiral that’s hard to break. It’s not black and white and it’s not easy to resist the pressure to go down the bad profit route. Yet the more we accept bad profits, the more dependent we become on customers who don’t share our values—the more we’re at risk of losing them and thus we compromise our values to keep them. The more we compromise, the less good we feel about our work, the less passion we have for what we do every day, the less fun we have.

All of which steadily diminishes the customer experience, which leads to lower sales, customer loyalty, staff morale and profit performance. To compound the problem, the more time and energy we put into those people, the less time and energy we’re putting into taking great care of our promoters, the people who support our vision, share our values, and are out in the community spreading the good word for us.

In the language of the ZXI, the customers from whom we earn good profits already are—or at the least have strong potential to become—promoters. Serving promoters brings good profits to our organization. They’re aligned with our values, they like us, and like doing business with us. They also buy more. In general, they’re easier to work with for our staff—promoters are in a better mood, they’re much more patient when we fall short or make a mistake. The results generated by selling to them are more enjoyable to get. Which means that the staff’s work experience is better, which in turn helps reduce turnover, increase sales, and makes active promoters out of our staff. Again, everyone involved is winning.