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Can Trust Replace Contracts?

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SafeToo often trust is thought of as a nice-to-have but vaguely soft, squishy, liberal sort of relationship thingy. Not often enough do we realize it also holds the key to reducing costs and time, and to fostering innovation and new value creation.  It also mitigates risk.

It’s true: trust is highly profitable. Consider how Warren Buffett acquired McLean Distribution from Walmart. By deciding to trust the management team at Walmart, Buffett reached an agreement in a matter of days and at minimal cost, saving months and many millions in cost.

You may be saying, ‘Fine—but who’s going to double-cross Warren Buffett? It’s different for him.”

I don’t think so. Let me add my own small lesson.

To Sign a Contract? Or to Trust?

In addition to speaking and writing, I run a seminar business. I’ve spent this week training a half dozen worldwide potential trainers, sharing with them all the training manuals, approaches, ideas and concepts that I have developed over the years.

Normal procedure would be for me to have them all sign a non-disclosure agreement to protect my intellectual property, which is, after all, the source of my livelihood. Such agreements can be more or less complex. If violated, they give me the legal right to pursue redress in courts in various countries should one of my licensees/coaches/contractors abscond with my materials or be found to be using them for their own purposes without properly getting my approval or compensating me appropriately.

I could have done that.

Instead, I explained to them that I would prefer to trust them to do the right thing. We went through a 60-second ceremony. All of us raised our hands and, looking at each other, pledged two things: to respect my intellectual property in the commonsense way they felt was right; and if there was any question about what that meant, to talk to me and the rest of our team about it.

No papers. No contracts. Nothing written. Not enforceable in any court of law.

Where’s the Enforceability in Trust?

I feel more protected by this oath than I do by any legal agreement I might have signed. Why? Certainly not because it’s enforceable in a court of law.

Rather, because it’s enforceable in a higher court; the one of their conscience. Conscience is triggered by conscious, collaborative relationships between human beings.

I have no doubt that this group of people, with whom I have worked closely over several days and for months preceding this gathering, will honor the pledge. I trust them. This is partly because of who I know them to be, and also partly because I trust them.

Trust is not something you work on directly; trust is a result. It is the result of two parties interacting: one who trusts, and the other who is trusted. You can practice both trusting and being trustworthy. Probably the fastest way to make people more trustworthy is to trust them first.

Is it risky? Of course.  But I think it is less risky than relying on the rather impersonal and tenuous threads of trademark law. My recourse to legal violations is courts, which are costly, time-consuming, and generally manufacture ill-will in the pursuit of their justice.

By contrast, trusting my business relationships itself increases their trustworthiness, which also lowers my risk–and at near-zero cost. My means of enforcement is pre-installed within them in the form of their consciences.

It’s a win-win. Except maybe for the lawyers.

And frankly I think there’s room for lawyers to gain from this too. But that’s another blog.

What Introductions Can Teach Us About Trust

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parachute jumpersI’m in Washington, D.C. this week, giving a Being Trusted Advisors training session along with the rest of our staff. There is an exercise I like around introductions.

Rather than the usual ‘let’s go around the table and introduce ourselves,’ we ask people to quickly state their company (or title/role if it’s an internal training), followed by two questions:

1. Tell the group how many months you’ve been with (company name), and
2. Tell the group an interesting tidbit or factoid about yourself—something a little bit unusual, quirky, interesting, not an every-day business fact about yourself.

I ask everyone in the room in random order to quickly answer the two questions. The debrief is then: why do you think I asked us to take X minutes doing this?

The usual answers are to establish a group identity, to begin creating trust, to get people focused in on the room. True, true, and true.

Then I’ll stand behind one person and ask the group: “how many months was Joe here with his company?” A few people remember; often they remember different numbers.

I’ll then ask, “What was Joe’s interesting tidbit or factoid?”

The whole group responds immediately: “Arrived late to his own wedding,” or “chickened out parachuting last weekend,” or whatever.

We have a good time with that one, talking about why we remember personal tidbits more than we remember data. But what’s really interesting is: so what?

What should we do with the observation that people remember personal quirks and stories and anecdotes more than they do objective data?

What should a client relationship manager do with that observation? A salesperson? An accountant?

What should you do with that observation? 
 

Why Mistakes Build Trust

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My mechanic taught me something the other day about being a Trusted Advisor. He screwed up in a big way. And I ended up trusting him more as a result.

An Old Car and an Intimate Relationship with AAA

I love old cars and I drive a 19-year-old Mazda Miata as my primary vehicle to prove it. This necessitates an intimate relationship with AAA, as well as Gray’s Auto in Arlington, VA, where I’ve taken my cars for years with good results. A few weeks ago my car overheated on the way to an appointment. AAA came to the rescue, depositing me at Gray’s where Kevin and crew graciously inserted their unexpected visitor near the top of the list of waiting customers. it took days (and a lot of money) to diagnose and fix the problem. When I arrived at the scheduled time to pick up the car, it wasn’t ready–still being test-driven. It didn’t pass the test. I sat in the grimy waiting room for nearly three hours until it was (ostensibly) ready to go. Then half a mile into my drive home it overheated again–dead as a doornail in the right-hand lane of a busy DC thoroughfare. It was Saturday; growing dark; raining. I wasn’t the happiest of campers.

I called Kevin. He was embarrassed and frustrated, and tried valiantly to find a wrecker (on their dime) to retrieve me faster than AAA could. No luck. "We’ll stay open for you," he assured me.

Ninety minutes later my haul and I were back at Gray’s, where Kevin and crew waited to take care of me. They handled the situation beautifully. They were responsible and apologetic, not defensive and guilt-ridden. They didn’t explain or justify or blame; they simply said, "We’ll take care of it." Then Kevin’s boss insisted on driving me home, stopping along the way for take-out (on his dime) so I wouldn’t have to worry about dinner. And in the end, there was no additional charge for the final repair, even though they’d spent considerable money on parts and labor replacing another failed temperature sensor. We joked when I picked up the car the second time about a mutual desire not to see each other again for at least a couple of months.

Trust Doesn’t Just Trump Screw-ups: Screw-ups Can Create Trust

So why do I trust Kevin–and Gray’s Auto–more as a result of this experience? Because I’ve seen their true colors. I know what they stand for. And I am confident that, given another challenging situation, they will rise to the occasion. Could they have fixed the problem the first time? Maybe; I don’t really know and I don’t actually care. What I’m left with is an experience of being looked after by people who chose to do right by me, which far outweighs the costs (tangible and intangible) of a one-time goof.

Mistakes are an opportunity for us to show the world what we’re made of–to make known how we handle ourselves and who we choose to be in a moment of truth. Don’t be afraid to screw-up. When you do (and you will because we all do), don’t cover it up with excuses or defensiveness or blame or avoidance tactics. Show your clients who you are for them. Do the right thing and they’ll learn they can count on you for far more than parts and labor.

How Presenters Can Deal With A.D.D. Audiences

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Two things happened to me at the end of last week that gave me pause.

On day one, I gave a corporate seminar for about 40 people. On the following day, I was an attendee in a 200-person conference. (It feels great to occasionally be in the stadium seats, instead of down there with the lions).

In the first case, there was a very mild form of the seminar-business occupational hazard known as multi-tasking: desktops open, blackberries, Twitter, Facebook, email. It’s been getting worse for several years. I made my usual clever plea for paying attention, and got reasonably good compliance; though it did deteriorate during the day.

I find that doing workshops lately is a little tougher in some respects; it’s harder to get the audience to interact. They’re not leaving, they’re just slightly checked-out. It’s not just ADD—it’s ADOSO, as in “Attention Deficit—Oh! Shiny Object!” (Thanks @scobleizer)

In an attempt to control that behavior, I’m acutely aware that I’m stumbling these days in the no-man’s land between requesting, ordering, and pleading. When I’m doing keynotes, it’s fine; it’s the workshop scene that feels different.

On day two, I came in deliciously a minute late and sat down where I felt like—not my gig, time to relax and enjoy. It was a social media conference; they had a very large screen for slides, and next to it, a smaller one displaying ongoing real-time twitter notes (check it out at #bdi). Each presenter had about 20-25 minutes, including Q&A.

Pretty much everyone in the audience had their heads down looking at their newest super-lightweight portables, iPhones and Droids. When they looked up, it was often as not to look at the public tweet-screen. (Yes,I tweezed out a few tweets myself).

At first I cringed instinctively out of sympathy for the speakers. Until I noticed that they did not seem noticeably bothered by it at all. In fact, lots of speakers today are using Twitter as part of the real-time interaction. The line for open mics for Q&A was not empty, the questions were great, and the real-time twitter dialogue was on point.

The conference subject matter itself—like a Greek chorus—gave the meta-text of what I was seeing. Social CRM goes beyond seller-to-buyer dialogue to include buyer-to-buyer. The old line about one satisfied customer tells four but one dissatisfied customer tells 12—that’s history. They now tell 500,000, and do so instantly. The web is your new website. Inbound not outbound marketing.

In other words—the heads-down twittering was definitely multi-tasking, but that doesn’t mean there was no dialogue going on. In fact, there was a ton of dialogue.

More content per minute flowed through that room than if everyone had hung on every word a speaker said. One speaker is limited by the human ability to enunciate sounds rapidly, and—it’s only one speaker. We can all read much faster than someone can talk. Asynchronous one-off communication is bound to be less rich than everyone talking at once; it’s just that it’s harder to focus in the latter case.

There are 2 things you can say about all this. First, it’s not wrong, just different. There are deep intensive interactions with other human beings, and there are shallow, broad interactions with other human beings. We’re seeing a shift from the former to the latter–in terms of gross numbers at least.

There’s no right or wrong about this. What is important is the ability to go in either direction as the situation demands. And, there is a huge benefit. The involvement of others is exactly how you get collaboration. We are, at a large level, sacrificing some intimacy for the sake of collaboration.

It’s also true that, in a world where intimacy holds a smaller “share of relationship,” the ability to gain that intimacy will command a premium. It’s not gone, just more rare, and more valuable for its rarity.

The second point is simply, this is the future. Disapproval of the downside of social-babble has very little impact on whether it’s going to keep on happening. Our failure to approve of the downside simply keeps us from gaining the benefits of the inevitable upside.

Presenters, get used to it. The only relevant question is: how will you respond?

For starters, don’t stand there in front of the tsunami. But don’t just get out of the way, either. Grab your surfboard.

An Easy Way to Increase Your Trust Quotient

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ChainiStock_000002955050Small.jpgI was on the plane yesterday from New York to Seattle.  It’s a breakfast flight.  The menu has three options: French toast, omelette, or cereal with banana.

The woman next to me—healthy, casually but not inexpensively dressed, a bag full of intellectual reading material—I peg as a clear cereal-banana candidate. She does not disappoint.

When they bring her plate, it’s sugar-covered cereal—with two sample-sized boxes of raisins. No banana. Her disappointment is palpable, though not enough to make her rude.

“What happened to the banana?” she plaintively asked. The flight attendant shrugged her shoulders with that tilted-head fake smile, and said, “Sorry, that’s all they send, so that’s all we can give.”

I told her I felt her pain. “It’s not the banana per se,” she mused. “Though I do think they’re far better than raisins on cereal.  It’s just that they promised—it said so right on the menu, that I’d get a banana. And I didn’t.  If they’d said raisins, I’d still have chosen the cereal. But they promised bananas. And then didn’t deliver.”

The Trust Equation

Trust doesn’t just happen. It is the result of one party trusting, and the other being trustworthy. You can get better at trusting, and you can get better at being trustworthy. The second is less risky, and generally easier (though in the end you need to do both to increase trust).

So let’s talk trustworthiness: and let’s talk The Trust Equation.

You can break down trustworthiness into four components: Credibility, Reliability, Intimacy, and Self-orientation. I’ve talked elsewhere about the components—how they work, which is the most powerful, frequent, etc.

For this post, let’s just stick with which is easiest.

The Easiest Ways to Improve Your Trust Quotient

Improving credibility can take a long time; gaining credentials, earning degrees, publishing, getting references, learning presentations and speaking.

Lowering your self-orientation is a life’s work—it’s hugely powerful to be able to focus on others in times of stress, but easy? Not that one.

Intimacy can actually be gained quickly: for example, learning to comment on another’s evident feelings at a moment in time. But most people find that feels risky. So, easy? Well, maybe not.

Arguably the easiest trust equation component to improve is reliability. Say what you’re going to do—and then do it. Just do it.

If you print that you’ll serve bananas—then have them to serve. If you might ever have to say yes we have no bananas, then never say it in the first place. Nobody, but nobody, wants to hear your excuses for no bananas. We just want the bananas. You promised.

Low reliability is a form of lying; lying made worse because it’s a lie of action, not just of words.

The great news is, it’s not all that hard to fix. It doesn’t take years to develop a track record. No shrinks required. And it doesn’t require all that much in the way of emotional risk.

Just say what you’ll do, and do what you say. How hard can that be, eh?

 

Note: You can take your own Trust Quotient, or TQ, by going to the TrustQuotient page.  And, starting Friday, having hit 10,000 takers of the test, we’re adding a new feature.  The core trust quotient part of the assessment test will remain free, but we’re introducing a new Trust Styles option: there are 6 distinct trust styles, each with differing characteristics, strengths and weaknesses.  We’ll charge extra for that option.  Check back with us in a day or two to explore this exciting new option.
 

Do You Trust Anonymous?

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Anonymity iStock_000010799839Small.jpgIt may sound like one of the most obvious platitudes of all: trust increases as you get to know people.

After all, you wouldn’t hire a financial planner without talking to their references, would you? You wouldn’t hire a new employee without finding out their work history, would you?  You wouldn’t let your kid stay overnight with unknown neighbors, would you?  Don’t we always equate trust with transparency, openness, getting to know more about others? 

Well, not necessarily. In fact, sometimes—no. Like all trust-related things: it depends. Trust is a bit like Justice Potter Stewart’s definition of obscenity: you may know it when you see it, but it sure is hard to define.

Anonymous Blogger Meets Anonymous Blogger

Take the case of two anonymous law bloggers meeting in Las Vegas—“Ed” of Blawg Review  and “Kael” of Legally UnBound (Not their real names–I mean, what’d you expect?)  Both are distinguished in their fields.

Read “Kael’s” account of their meeting,  and you discover some serious, powerful ways in which anonymity does not decrease trust—it actually increases it. Anonymity can free you to speak truths. Anonymity forces people to confront you as you ‘really’ are, not as your accumulated biography. (Remember, part of Bernie Madoff’s charm was his resume–decidedly public, entirely non-anonymous).

More interesting is the question it raises about just “who” it is that you’re trusting when you trust someone anonymous. Here’s “Kael”:

What do I mean by persona? You see, all I know of Ed is what Ed allows me to see. While I’ve seen ‘him’ (the opinions and thought of Blawg Review), I have not seen ‘him’ (the man that may have been married and raised children). But the only Ed that I want to see is the Ed that he allows me to see. The same is true, from my end.  Thus, our trust and our relationship is based upon the information that each allows the other to see.

Much too often, I believe that our collective, societal opinion of a ‘trusting relationship’ is FULL DISCLOSURE. I disagree. I think that our curiosities about others and our desires to place judgments upon others is the basis (in part) of the relationships in which we engage. Our trust is therefore contingent upon the amount of disclosure we make to the other entity, instead of simply taking whatever disclosure is given and either finding a basis for commonality, or not.

The terms ‘keeping it real’ and ‘puttin’ my heart out there’ are all too commonly the basis for our understanding of what it means to ‘trust’. We don’t have to ‘keep it real’ to establish trust. We only have to identify the boundaries and the common goals, then allow for the personal disclosures to build the trust. Yes, personal disclosure is the key to trust, not TOTAL disclosure.

Principles Before Personalities

Ed and Kael (I’ll drop the quotes now, we know them well enough at this point) are not cranks. Some of the more successful organizations in the world are the 12-Step programs, originating in Alcoholics Anonymous.

The common view of “anonymous” is that meetings assure anonymity to those who don’t want outsiders to know of their condition. But the 12th Tradition (the organizational correlate of the 12 Steps for individuals) is “Anonymity is the spiritual foundation of all our traditions, ever reminding us to place principles before personality.”

In other words, the (main) purpose of anonymity is not to keep outsiders from knowing members’ names—it is to prevent members from forcing their particular biographies on others, both within and without the organization. You are trusted, in other words, if you remain anonymous, so that others can see that you speak only from your own inner truth, unclouded by your, and their, inevitable prejudices.  That way we minimize the judging that Kael speaks of.

Both Kael and AA speak the same truth: the ‘you’ that matters is not the ‘you’ of your lineage, your family name, your profession, your accent, or your resume. There is another authentic ‘you’ within, and—in a sense—that is the only ‘you’ that can be trusted.

Trust increases as you get to know people. Yes? Or no?

As with all things trust-related, and human-related–it depends.
 

How to Write a Great Client Newsletter: Object Example

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In this day and age of hype, fluff, one-word book titles and Twitter-induced ADD, it is a delight to see what can still be done by focusing on clients’ interests, serving up good helpings of content, taking the risk of having a clear point of view, and writing intelligently.

Consider this example from Will Silverman, an MD in Studley’s Capital Transactions Group (Studley is in the commercial real estate business).  You don’t have to be a corporate real estate client to sense the value of the information and perspective that Will provides.

I have excerpted only about half of what Will writes; you’ll have to contact him if you want the rest. You can reach him at [email protected]

I have just returned from this year’s ExpoReal conference in Munich. As I’m wont to do, I’ve written a letter detailing what I learned and experienced at the conference. If you’re not familiar with ExpoReal, it is one of the largest real estate conferences in Europe with representatives of 1600 firms from 34 countries in attendance. The dominant categories are German open and closed end funds, as well as German banks. This year I visited with my colleague Tony Smaniotto of Studley’s Chicago office and we met with over 20 investors and lenders whose aggregated US investments and allocations number in the tens of billions. The themes which emerged in those meetings are detailed below.

Tenor of the conference
As has typically been the case at industry conferences in 2009, attendance was down by 15%. There seemed to be substantially less English spoken in the halls and fewer Americans in attendance than in prior years. American attendance suffered from a famous Keynesian conundrum as the average firm seemed to believe that the average firm was not sending Americans, therefore it did not send its own.

Disjointed message
Last year I wrote that in the wake of the financial crisis the European firms were taking a longer view and were less spooked than Americans were last October. This year I would say the tables were turned, American investors now feel more confident that they understand the era they’re entering. For example, in prior years I returned from the conference and reviewed my notes only to realize that I only needed to take notes during one meeting, because every investor and bank had virtually identical criteria and concerns. Not so this year. This year some investors were eager to enter the New York market, others preferred Washington D.C. Some funds wanted to pursue JV/preferred equity structures, others only want absolute ownership. Some banks were reluctant to sell their notes on troubled deals, others suggested that sales are likely. Some funds are flooded with investment capital, others are fighting off redemptions that could take them under. In short, there was no consistent message, and hence, the themes below were discernable amid the noise, but not universally expressed.

The Der Spiegel effect:
Der Speigel is one of the most influential and widely read publications in Germany with weekly circulation of over one million. For a sense of its influence and tone, imagine that Time, Newsweek and US News & World Report were all one magazine, but they were as well written as the Atlantic Monthly. Therefore, when Der Spiegel published an article (both the article and a photo featured in it are attached to this email) about the impact of the financial crisis on the quality of life in New York, it sent shockwaves through upper-middle class Germany (which is the class that generally invests in the large open and closed end funds that have invested billions in the US). The author of the article is about as bullish on New York as Michael Moore is on capitalism. One of main profiles in the article begins “Cathy used to be a banker. Today she is homeless and living in Tomkins Square. She thinks about the heroin and the stench.” You get the idea. Several investors told us that thanks largely to this article, there is significant headline risk for German funds to invest in New York as people fear the return of the Taxi Driver era. This article has even broader significance though.

If you’re among the hundreds who have seen the market update that Woody and I have been presenting, then you may already know where I’m headed. One of the arguments we’ve been making is that a key difference between today’s recession and those of the 1970s and 1990s is that during both of those recessions the economic contraction was compounded by New York’s deteriorating quality of life. A distinction, so far, in this recession is that quality of life and therefore New York’s relative position vis-à-vis other cities, has not slipped the way it did in the 70s and 90s. In the prior recessions companies actually contemplated leaving New York, this time they are merely occupying less space.
This distinction accounts for the “higher bottom” that we’ve experienced thus far in terms of employment and residential pricing. The underpinning of quality of life is safety; crime went down 80% from 1990 to 2008. Such a dramatic decrease has created a peculiar headline risk as a 30% jump in crime would bring New York back to very safe 2003 levels, but would likely be reported as the return of the 1970s. If the rest of the world perceives New York as unsafe, then we’ll have trouble attracting young human capital, keeping jobs here, and attracting investor capital. This Der Spiegel article is the first tangible evidence we’ve seen of this risk. We’re alerting REBNY and the Mayor’s office and we strongly encourage everyone in the industry with press influence to exert it against articles that perpetuate this false and dangerous concern.

New entrant preferences
Thankfully, not everyone was dissuaded….

Fundamentals matter more than capital market
When you strip away everything else in real estate valuation you are basically left with two components, the income and the number by which it’s multiplied…

Lessons from London
London has been a more active sales market than New York in 2009…

The “after you” market
We’ve long described investor preference as the “race for silver” as investors all say they are interested in buying today, but would prefer to watch someone else go first. Therefore the response to Deka’s purchase ….

Still early for many institutions
Several mentioned that they don’t believe their moment will come for some time… They have, astutely in my view, realized that…

Conclusion
Last year it was Americans who seemed disjointed and Europeans who appeared to have a better handle on matters..last October I wrote “Europeans have a tendency…

Will Silverman
Corporate Managing Director
Capital Transactions Group, Studley 

Thanks Will for a great object example.  It’s easy to see why people trust you.
 

A Tale of Two Transactors

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Shakedown Street Grateful Dead (Gilbert Shelton)Scenario 1.  After six years of work, Mike finally established his own retail business on Gotham Street in the Big City. His first week was a heady mix of first sales, getting to know neighbors, and realizing he’d accomplished his dream.

On Monday of Week 2, Mr. X came to visit. “Nice store you’ve got here,” he said to Mike. “Be a shame if something happened to it.”

“Why would anything happen to it?” enquired Mike, part disbelieving and part enraged.

“You just never know,” said Mr. X, slapping his walking stick repeatedly into his palm. “Things can happen. You got no control over ‘em. But we can help.”

“How?” asked Mike, dreading the answer.

“Think of it as insurance. A little extra off the top line, nothing happens to the bottom line. Safest neighborhood around, if you know how to get along.”

“Why me?” asked Mike. “I haven’t got the money, I can’t afford it.”

“Cost of doing business,” shrugged Mr. X. “You raise your prices, you cut your costs—you figure it out.”

“But it’s not fair!” shouted Mike. “Why can’t you cut me a break?”

“Not fair–that’s a good one!  Listen, if I cut you a break, everyone wants one. If it was up to me, I’d do it, I like you. But Mr. Big—he wouldn’t like that.”

“Maybe I could talk to Mr. Big,” said Mike.

“Oh I don’t think that’d be a good idea,”  Mr. X said drily.   “All right, I think we’re done here, Mikey. I’ll come by on Monday for your first payment.”

Scenario 2.  After six years of work, Mitchell finally formed his own subcontracting business, taking the plunge with a big deal from his former employer, BigCo.

As he read through the fine print of the contract, Mitchell noticed several clauses that surprised him. He called BigCo’s in-house counsel, Mr. Z.

“Mr. Z, this is Mitchell. I’m going through this contract, and it says I have to buy millions of dollars of insurance coverage, with BigCo as beneficiary, to cover things like lawsuits filed by anyone anywhere in the world for things like bodily injury, automobile crashes, etc. Look, I’m just an actuary—I’m hardly ever going to set foot there, much less cause all kinds of harm. These things will never happen.”

“Well, the most unlikely things have a funny way of happening, Mitch,” said Mr. Z.  "It’s a big world, you can’t be too careful.  We’re just managing risk.  Think of it as insurance.  Which of course it is.  It’s really for your benefit, you wouldn’t want to be liable for these catastrophes, now would you?”

“But why me,” asked Mitchell. “I can’t afford this kind of extra insurance. And you want me to buy insurance on people I sub to as well? Does this ever end?”

“Oh don’t worry about that, Mitch—you just pass it on to your subs in your agreement. That’s what we did, when our customer demanded we do it. It’s how it works.”

“Is that where it starts, with your customer? Couldn’t we talk to them?”

“Oh I don’t think that’s going to happen, Mitch. Just work out the cost and pay it.”

“But it’s not fair, Mr. Z.”

“Mitchell, Mitchell, you know better than that,” said Mr. Z.

So here’s my question about the two scenarios:

What’s the difference between them?

My lawyer friends (I hope I still have a few) will say, “That’s insulting! Come on, one of them’s legal, and one’s criminal—how can you confuse them?”

But my economist friends (some of them anyway) will say, “Ha!  It’s a trick question. There is no difference, they’re exactly the same.”

“Both of them involve non-value-adding transaction costs. There is some amount of risk transfer between parties—swapping around, really–but to the system, there is no gain.

“In fact, at the system level, there is a net cost; and the distribution of that cost is disproportionately downstream, to Mike and to Mitch.

To put this in context: our economy used to grow by achieving scale through transaction costs—legal agreements, accounting, contracts, commission plans.

Today, we are so inter-linked and fragmented, and so paranoid about trusting, that the transaction costs have begun to overtake the value accruing from scale.

We have become a culture not of shopkeepers, but of tiny outsourcing transactors, fearfully insuring ourselves against our fellows-in-commerce at every step. 

As my friend Bill says, "What is a credit default swap except a statement that you don’t trust your customer?"

This is not the way to build a healthy economy.
 

When Empathy’s Not Enough

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I remember a dialogue once about empowerment with several people. The general consensus was that empowerment was, generally speaking, a good thing.

One person, however, made a simple point. “It’s only as good as the people you empower,” she said. “If you empower stupid people, you deserve what you get.”

Fair enough. A similar cold-water dash in the face comes from Sam Bloomfield. The issue this time is the equally ‘soft’ and ‘good’ value of empathy.

What could be wrong with empathy, you ask? Well, not that there’s anything wrong with it, but there’s a danger of forgetting the ‘and also’ aspects. The correlate to the ‘stupid people’ problem with respect to empathy, Sam suggests, is the presence or absence of action taken:

A recent Harvard Business Review piece [Why Small Companies Are Better at Customer Service] addressed how large companies can learn about productive customer service from small companies. The article’s author related his personal experiences about ‘good’ and ‘bad’ customer service. The author concluded from those experiences that smaller companies have a lot to teach larger ones because the people in smaller companies can “empathize” with the customer and therefore deliver better service. And large companies need to learn to empathize more.

In fact, while empathy helps, it simply is not enough. The cited examples also showed, although not observed explicitly by the author, that smaller companies were able to resolve the problem – produce a satisfactory result for the customer. In the small company examples, the employee did not just empathize, s/he also satisfied our author. Those results I would suggest are the key to effective customer service and experience.

So empathy is fine – up to a point. When a customer service representative does not help you resolve your problem empathy alone loses its currency.

Also, large organizations trying to appear more empathetic often devolve into a ’script’ or canned responses like “I am so sorry” or “I apologize”. We simply don’t trust that they mean it, until we see what they can do for us. You can’t institutionalize caring, trust or empathy because those traits, if they are genuine, are not just words but sincere feelings. I would suggest that this customer in the article was ultimately really satisfied because of the actions taken.

Empathy, Sam’s suggesting, may or may not be a necessary condition, but it is surely not a sufficient condition.

He’s certainly right about one thing. On some level it’s obvious, and not surprising; there aren’t that many pro-empathy people who really think empathy alone is sufficient.

But that’s not the bigger problem Sam’s pointing out. That problem, I think, is businesspeople who don’t understand empathy, and who think that a little slathering of empathetic trappings can keep the customer complaints down.

As Sam puts it:

Large companies are usually effective at creating processes that standardize activities for large numbers of interactions with repeating patterns. But they often fail at creating a standard process for establishing a trusting and sincere relationship with their customers, the very foundation upon which rests all successful call center interactions. In short, one cannot create a process to elicit a sincere human emotion.

I don’t know about you, but it bugs me when a customer service rep leads with “Oh I do apologize for that, Mr. Green.” 99 times out of 100, the rep of course had nothing to do with the problem. It’s fine to say, “ouch, that’s certainly not right, and we’re sorry you had this problem—what can I do to help?” But don’t apologize!

Good apologies require some standing of responsibility. I don’t want an innocent bystander to apologize for hitting my car, I want the apology from the texting-cellphone-jabbering idiot that hit me!

There’s empathy, and there’s empathy.  The harm done is not using too much empathy—it’s using it badly, sloppily, and without clean intent.
 

A Client for 50 Years

/3 Comments/in /by

Brown bagThis from Trust Matters friend Sarah:

I recently attended my step-grandfather, George’s, funeral in Connecticut. His business partner, Phil, spoke at the memorial service and what he said really sort of blew me away and I wanted to share with you…

Of course Phil shared many lovely memories of George.  One thing struck me in a profound way; Phil talked about the trust that George developed with his clients.

George had founded a CPA firm in 1962. The firm grew to be quite successful. As I sat and listened to Phil share stories about the firm’s success, he matter of factly boasted about the firm’s technical proficiency.

But then, to my surprise, Phil talked with incredible heartfelt-ness (sp?) about what the firm really does: listens to their customers. He talked about the fact that they prepare tax returns and financial statements, etc… but that what they really do is listen to their clients. I cannot recreate what he said – though it struck me as so humane as to counter the pervasive “accountant” stereotypes.

Anyway, here is what I really wanted to share:

• George died at 84 years old

• He founded the firm when he was 37 years old

• At his wake on Monday night an elderly woman introduced herself to my family and indicated she was George’s FIRST client! She is still a client of the firm to this day and whenever she goes into the firm she takes lunch for the partner with whom she meets!

• At George’s funeral there were literally generations of customers…there were people there to honor George who had been his client(s) for 47 years – nearly a half century!!! In one instance there was a family with 3 generation’s of clients. That is cool.

• His clients were acknowledged during the service along with friends and family (and many, many clients were there).

Thanks Sara. 

There are thousands of tips and tricks out there to gain repeat business, increase ‘loyalty,’ tweak your customer acquisition rates.  But they are all aimed at improvement in the aggregate, and usually over a short time frame.

They forget a few simple facts. 

The greatest client loyalty is personal–not institutional.  It happens one person at a time–not one segment or geography or business unit at a time.  It lasts: not quarters, but decades. 

Real loyalty isn’t bought, tricked, or tweaked.  It doesn’t trend up or down monthly. 

Yes, it shows up on your income statement. But where it really shows up is at your funeral.

Congratulations, George.