Ed Kless

July 30, 2017

Episode #153: Accountants and Bookkeepers of the Future - Part 2

Ed Kless

July 30, 2017

Ron and Ed were at Sage Summit 2017 in Toronto and recorded an episode featuring a great panel discussion on the bookkeepers and accountants of the future. While the job description for accounting professionals has largely stayed the same, technologies and laws have come into play to change the way business is done. It is time that accountants alter the way they do business to keep up with the shifting tide. Join our discussion with Dianne Mueller, Rachel Fisch, and Tamar Satov.

Listen to Part One here - http://thesoulofenterprise.com/toronto1

Tamar Satov is the managing editor at CPA Magazine, and is an award-winning journalist specializing in business, parenting and personal finance. Her work has appeared in Canadian Living, Today’s Parent, Report on Business Magazine, Canadian Business and Vancouver magazine. She also contributes to CPA Canada’s financial literacy blog, sharing advice and anecdotes on her efforts to raise a money-smart kid.

Rachel Fisch is the National Bookkeeping Lead for Deloitte Canada and has over 20 years of experience in roles from Bookkeeper to Controller for growing businesses. She is in demand as a dynamic speaker and thought leader from local to International conferences and events. Rachel is passionate about supporting the bookkeeping and accounting community through her own experience and expertise, including the 1,500 member (and growing) Facebook Group QB-HQ. She continues to be an advocate of the highest level for cloud-based accounting and the app ecosystem, creating seamless workflow solutions for clients of all sizes across Canada. Rachel lives with her very patient husband and two amazing daughters near Toronto.

Dianne Mueller is the founder and president of the Institute of Professional Bookkeepers in Canada and Soma Small Business Solutions. For over 12 years she and her team have been helping small business entrepreneurs keep their financial position up front and central in their business. Established in 1997 and located on the Sunshine Coast of British Columbia, Soma provides professional outsourced bookkeeping, with full cycle accounting and payroll services. Soma has earned a reputation as a reliable and very knowledgeable source of bookkeeping help.

Ed Kless

July 23, 2017

Episode #152: The Psychology of How and Why People Buy

Ed Kless

July 23, 2017

VeraSage Symposium and Art of Value Conference

http://artofvalue.com/conference/

This Idea Is Not New

There is never a good sale for Neiman-Marcus unless it’s a good buy for the customer. —Herbert Marcus, advice to his son Stanley, 1926

It is a deceptively simple question: What are we getting paid for? Yet many businesses arrogantly assume they know what their customers want and believe they have been giving them exactly that for years.

This is a myopic vision, and potentially harmful, because there now exists a plethora of information available on why people buy, how they buy, and the decision process they go through, which businesses ignore at their peril.

In fact, there are least six theories of what people buy that we regularly discuss on this show:

Simon Sinek—People buy “why” you do, not “what” and “how” you do
Theodore Levitt: People buy expectations
Joseph Pine and James Gilmore: people buy experiences and transformations
Michael LeBoeuf: people buy good feelings and solutions to problems
Clayton Christensen: People hire a product to do a job
Kevin Kelly: Generative Value will be more important in our increasinbly technological future.

Economist Thorstein Veblen [1857–1929] posited many theories in his book The Theory of the Leisure Class (first published in 1899), which Maital has drawn upon for some of the above motivations of why people buy.

Veblen referred to a “barbarian culture,” citing that trophies such as property or slaves were signs of successful aggression.

In today’s culture, luxuries are the major signal of status and class, which Veblen reasoned were purchased for two reasons: to show others you are a member of the class above and to distinguish yourself from those below.

A better theory is posited by Michael LeBoeuf, Ph.D., in his book How to Win Customers and Keep Them for Life: Revised and Updated for the Digital Age. He suggests that customers have the following motivations for these various purchases:

Don’t sell me clothes. Sell me a sharp appearance style, and attractiveness.
Don’t sell me insurance. Sell me peace of mind and a great future for my family and me.
Don’t sell me a house. Sell me comfort, contentment, a good investment, and pride of ownership [and a piece of the American Dream]

Successful salespeople do not necessarily ignore features in the products they are selling, but they almost always add “which means” to the end of every explanation of their product or service offering.

For example, “This car has a V-8 engine, which means it will last longer because it doesn’t have to work as hard as a smaller engine.”

Advertising giant Leo Burnett used to say, “Don’t tell me how good you make it; tell me how good it makes me when I use it.”

Again, Michael LeBoeuf distilled his summation of customer statements and posited the following overall theory to explain what people really buy:

Despite all of the untold millions of products and services for sale in today’s marketplace, customers will exchange their hard-earned money for only two things:

Good feelings
Solutions to problems

This is a good theory; it has a certain utilitarian streak to it––that is, the idea that individuals spend their time (and money) pursuing pleasure and avoiding pain.

It is the old marketing axiom that says you really do not buy drill bits, you buy the hole it makes. Understanding that simple fact could help a company (such as Black & Decker) get into the laser beam business, since they, too, put holes in things.

It also explains why so many people purchase lottery tickets; they are really buying a low-cost dream.

Rogaine does not sell hair (it cannot legally make that claim, since it does not work 100 percent of the time); but it does sell hope, and its advertising reflects this motivation.

Callaway Golf founder Ely Callaway, who introduced the Big Bertha in 1991, priced at $240 to $300, while its competitor Taylor Made was selling for $150, said “We sell the physical and emotional experience of hitting a satisfying golf shot, not increasing your distance by eight yards or that your handicap will fall.”

Focusing on the total customer experience––solving the problem and creating the good feelings––demonstrates not just competency, but distinction.

But the utilitarian view posited by LeBoeuf does not help a firm custom tailor its service offering to its various customers.

Theodore Levitt’s theory of what customers really buy: expectations. Levitt was a marketing professor at Harvard Business School, and once the editor of Harvard Business Review. His expectations theory is useful because it forces the company to focus on the utility the customer is trying to maximize.

By ascertaining customer expectations, the company has the ability to manage––to a certain degree––those expectations. Southwest Airlines is a master at managing customer expectations. Customers understand very well that it is a no-frills airline, with no assigned seats (although this is expected to change), no food, no first class, and so on.

Because expectations are dynamic, not static, it is also imperative to continuously ask customers what they expect. A company should never rest on its laurels and assume it knows exactly what the customer is up to.

When General Electric asked this question for its jet engines, it came to the same conclusion Caterpillar did, and it innovated the “Power by the Hour” program for its aircraft engines, whereby it would be responsible for maintaining the engines and price for the serviceable usage the airline received.

Charles Revson, who launched the Revlon cosmetics empire, introduced color-coordinated nail polish and lipstick during the Great Depression.

His competitors acted as if the product was a commodity, but Revson knew better. He believed nail enamel was not just a concoction of chemicals, or a beauty aid, but a fashion accessory, and he believed women should use different shades to suit different outfits, moods, and occasions. This, of course, greatly expanded the market, as women now purchased multiple nail colors, and matching lipstick expanded the market again.

Indeed, he understood better than his competitors what he was really selling. His famous saying, “When it leaves the factory, it’s lipstick. But when it crosses the counter in the department store, it’s hope,” reflects the wisdom of a company in touch with its customers’ expectations.

Disney is another company that has mastered surveying and listening to their customers. In the Disney tradition, they have their own term for the art and science of knowing and understanding customers: guestology.

At the Disney University course on customer loyalty, they teach that the most significant factor that determines whether a family will return to a particular resort hotel comes down to one item (and this Disney executives were shocked to learn, according to the instructors): the swimming pool.

Focusing on the customer’s individual expectations forces the firm to individualize its service delivery to that particular customer’s wants and needs. No two customers should be treated equally. Customers want to be treated individually, or better yet, specially.

There’s No Such Thing as a “Market”

Stanley Marcus led the store through the difficult Great Depression. After he sold his interest in the business, he became an author and consultant and his teachings hold many excellent lessons for the willing student. One point he was especially fond of making was there was no such thing as a market, only customers:

I am unaware of any store, or any business school, for that matter, that conducts a course or a series of lectures on “The Care and Treatment of Customers.” I am referring to “customers” and not “consumers,” for never in my retail experience have I ever seen a “consumer” enter a store. I’ve seen lots of “customers,” for that’s what they call themselves.

This was a particular sore subject for Stanley Marcus, who had this to say with respect to lost sales opportunities due to not paying attention to customers:

Americans used to be known as the world’s best salesman. Recently, it has become difficult in most stores to encounter that quality of salesmanship, if indeed you can even find a salesperson. A few years back, I made up my mind I would not buy anything I did not urgently need unless a salesperson was convincingly persuasive. As a result of this self-imposed discipline, I have saved $46,734.

The store used to have a standing offer of $20,000 for any salesperson who was able to read the mind of the customer. No one ever claimed the prize.

Another concept is that people buy emotionally and justify intellectually.

I live in California, and I understand the best time for earthquake insurance sales is right after one. This is curious, especially from an actuarial point of view. If people were willing to assume the risk prior to a quake, why would they not be willing to assume the risk after one strikes?

People also do not like to admit being sold, but they brag about what they buy. Think of the last time you made a major purchase––a boat, car, or appliance––and talked to a friend, colleague, or spouse and said, “Guess what I was sold today.”

People do not like to feel they are being sold because it makes them feel like they are out of control. The best salesmen in the world actually empower customers to buy and help them envision their future with their product or service. Forget selling, focus on what the customer buys.

The Job to Be Done

Competing Against Luck: The Story of Innovation and Customer Choice

$19.12

By Clayton M. Christensen, Karen Dillon, Taddy Hall, David S. Duncan

Buy on Amazon

In Competing Against Luck: The Story of Innovation and Customer Choice, Clayton Christensen, 2016, posits The Theory of Jobs to Be Done.

Innovation is about progress, not products You’re selling progress, not products.

What are the experiences that customers seek, not just in purchasing, but in using?

Question: What job did you hire that product to do?

A job is defined as: the progress that a person is trying to make in a particular circumstance (we don’t create jobs, we discover them).

Customer satisfaction metrics: don’t reveal clues as to how to do the job better.

Negative jobs often are the best innovation opportunities, such as CVS prescribing medication with nurse practitioners.

P&G marketed in China that babies who wore Pampers disposable diapers fell asleep 30% faster and slept 30 minutes longer. More sleep led to better cognitive development.

By 2013, China was buying $1.6 billion of Pampers, giving P&G a 30% market share, in a country that hadn’t used disposables just a decade before.

IKEA doesn’t focus on demographics/psychographics, it is structured around jobs to be done.

Purpose Brands—synonymous with the job to be done

FedEx
Starbucks
Google
Craigslist.org
Uber
TurboTax
Disney
Mayo Clinic
OnStar
Harvard
Match.com
OpenTable
LinkedIn

In 1952, surgical pioneer Dwight Harken observed that patients were surviving increasingly complex surgical procedures, but an alarming number of them were dying in post-op care, even though all hospital processes were being followed. An excellent example of being efficient and completely ineffective.

This observation—which is not quantitative, but qualitative, led to the ICU.

Humans are unpredictable

From 2012-16, according to Breakthrough Innovation Reports, by Nielsen, 20,000 new products were launched.

Only 92 sold more than $50 million in year one and sustained sales in year two.

Not everything that motivates us is a Job to Be Done.

Bottom line: we humans are unpredictable, dreamy, wayward creatures that can’t be neatly fitted into a unifying theory.

Ed Kless

July 20, 2017

Episode #151: Memorable Mentors - Leonard Read

Ed Kless

July 20, 2017

Art of Value and VeraSage Symposium

We are excited to announce the details of these two events. Check out the Agenda and register at: http://artofvalue.com/conference/

Biography

Leonard Edward Read (September 26, 1898 – May 14, 1983) was the founder of the Foundation for Economic Education (FEE), which was one of the first modern libertarian institutions of its kind in the United States. He wrote 29 books and numerous essays, including the well-known "I, Pencil" (1958).

Read and Henry Hazlitt founded the Foundation for Economic Education in 1946. In 1950, Read joined the board of directors for the newly founded periodical The Freeman, a free market magazine that was a forerunner of the conservative National Review, to which Read was also a contributor.

Read received an Honorary Doctoral Degree at Universidad Francisco Marroquín in 1976. He continued to work with FEE until his death in 1983. Join Ed and Ron as they discuss FEE’s free book, The Essential Leonard Read.

Our discussion is on the free ebook, The Essential Leonard Read, available from the Foundation for Economic Education. It contains 12 chapters, which we discussed as follows.

1. I, Pencil

G.K. Chesterton: “We are perishing for want of wonder, not for want of wonders.”

In our Episode #4: The Economy in Mind, we discussed Leonard Reed’s essay, I, Pencil, and the book The Toaster Project, by Thomas Thwaits.

2. Neither Left nor Right (January 1956)

Libertarians are neither left or right since liberty has no horizontal relationship to authoritarianism.

“Left” and “right” is a semantic graveyard for libertarians.

3. A Break with Prevailing Faith

The Freeman was “too conservative” for a high school library.

There’s no such thing as a broken commitment. A man has a commitment to his own conscience.

What is man’s earthly purpose: expand one’s own consciousness.

4. Socialism Is Noncreative

Socialism is operative only in wealth situations brought about by modes of production other than its own.

Socializing means and results of productions are two sides of the same coin.

Soviets are alive because they don’t practice 100% socialism (3-5% of land consists of private plots, yet they produce 47% meat, and most of other consumable food).

Ludwig von Mises said, "Production is spiritual…What distinguishes our conditions from those of our ancestors who lived 20 thousand years ago is not something material, but something spiritual. The material changes are the outcome of the spiritual changes.

5. How Socialism Harms the Individual

Does anyone ever benefit by the removal of self-responsibility?

6. How Socialism Harms the Economy

The more interdependent we are on each other, the more trust that is required. “Are we over specialized, and dangerously interdependent? I believe we are.” Much specialization is government forced and artificial (unnatural specialization, whose origin is not in consent). The Moon Project was his example.

7. The Most Important Discovery in Economics

Socrates: “This man thinks he knows something when he does not, whereas I, as I do not know anything, do not think I do either.”

Egotist: Hitler, Stalin

H.G. Wells: “A high-brow is a low-brow plus pretentiousness.”

Man is not really knowledgeable, only teachable. Subjective theory of value, greatest discovery in economic science. Labor theory, sentimental, poor, hard-working farmers, set political stage for AG subsidies.

8. The Greatest Computer on Earth

Market enormously complex computer. Computer can’t exercise judgment: GIGO (Guy-go).

9. The Service Motive

Founder of Panasonic. Focused on service, rather than profitability.

10. Why Freedom Works Its Wonders

Because of what we don’t know. If no one can make a pencil, try a Boeing 747, with 4,500,000 parts. And the private sector isn’t capable of delivering the mail?

12. In Pursuit of Excellence

Economic education is not enough! Teaching virtue and morals more important. Kakistocracy—a government by the worst men—or a natural aristocracy founded on virtue and talents? If no one person can make a pencil, can anyone design or draft a good society? US Constitution?

Reason magazine conducted an interview with Leonard Read in April 1975, which you can read here.

Listener Emails

Listener Vair Ellison sent us this hysterical article from The Washington Post, “Forget robots—the goats are coming for our jobs,” in response to our Memorable Mentor show on Frederic Bastiat.

Hector Garcia asks Ron is he still believe that Total Quality Service is still the “final frontier” of business? And thanks, Hector, for the Fortis Cab, from Pine Ridge!