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Pay Yourself a Salary

Twice a month I teach a class for expectant fathers at Henry Ford Allegiance Health W.A. Foote Hospital. Fifteen years ago there was a guy at the hospital who pitched the idea of a class for new dads to show them how to change a diaper among other parenting skills. The hospital scheduled the class and then that guy took a job out of town. They called me because I was teaching classes on baby products at the store and because I had two young boys, both whom had interesting paths into this world.

This two-hour class is now one of my favorite activities each month.

I always start each class with introductions and I remind the guys sitting around the table that I am NOT a medical professional, nor have I ever played one on television. I just happen to be the father of a couple wonderful boys who has an interesting perspective on becoming a dad.

So let me preface this blog post … I am NOT an accountant, tax attorney, or payroll specialist, nor have I ever played those characters on television. I’m just an entrepreneur who has owned several small businesses and tried several different practices to see what worked best.

Image result for salaryToday I want to talk to you about the emotional and practical sides of why you, as a small business owner, should pay yourself a salary.

PROFESSIONAL BUSINESS

When you put yourself on the payroll, it legitimizes your business in the sense that you are working for money. It is no longer just a hobby. Sometimes that move alone will spark a renewed enthusiasm for you to work on growing the business. Sometimes that move will be what the bank needs to see before they loan you money. They want to know whether this is a hobby or a business.

It doesn’t have to be a lot of money. Pay yourself what you would have to pay a manager, knowing that you can also take owner withdrawals from the profits. The top CEO’s at big corporations make a decent salary, but the bulk of those golden parachute deals is in stock options.

BETTER UNDERSTANDING OF YOUR FINANCIALS

When you put yourself on the payroll, you have a far better understanding of your costs. It helps you compare your business to industry benchmarks. It helps you understand just how much money you need to make to be successful.

At the end of the day it is an expense. If you’re on the payroll, it is easier to track that expense.

PEACE OF MIND

There is some peace of mind for getting a check every two weeks (or however often you pay). It helps your personal finances and takes some burden off the financial stresses at home.

MOTIVATION

At the same time there is also some new financial stress at work now because you have to make enough money each month to cover that new expense. This helps you dig down a little deeper to sell more, run a tighter ship or a tighter inventory, or just run a smarter business in general. When you know your expenses, you work a little harder to cover them. When you are only taking a withdrawal if there is profit, you might let a month or two slide.

SOCIAL SECURITY

The federal government does require you to pay into social security to receive social security when you retire. If you have only worked for yourself you might not have enough quarters of paying into the system to be eligible to receive from the system. Talk to your accountant or tax attorney for better advice on this.

PROFIT SHARING

If you are offering any profit-sharing with your employees, but your only source of income is the profit, you’ll be taking a much larger share of that profit than they get, which could cause some grumbling or misconceptions among the staff. If you take a salary, then your share of the profit, while still larger than theirs, won’t seem so astronomically large.

YOU GET PAID

At the end of the day, the main reason for paying yourself a salary is so that you get paid. You deserve to get paid. You’re working your tail off. If you don’t pay yourself a salary, it is easy to also not take a withdrawal because you’re worried about some bills coming up, or construction that just started, or some new equipment you want to purchase, or whether you are reinvesting enough profit back into the business, or, or, or …

There is always something that needs money. You are one of those somethings. You deserve to get paid. When you put yourself on the payroll, that happens. Plus, you find the ways to make all those other payments.

OWNER CONTRIBUTION

Sometimes you will need to give that money back because you don’t have the sales to cover the expense or you need to make that big inventory purchase, or you do have some new equipment you want to buy. Still pay yourself, then make an Owner Contribution back to the business. Talk to your accountant about the pros and cons of doing that.

DISCIPLINE

If you don’t have the discipline to make your quarterly tax payments, or keep solid records of your withdrawals, or keep money saved for taxes, putting yourself on payroll can also help with those issues. I know some people who gladly give more in taxes for the big refund check in April because, even though it isn’t the best use of that money, they know they are no good at saving it.

The bottom line is that you need to pay yourself one way or another. There are some distinct advantages for putting yourself on the payroll and paying yourself a salary each pay period. But like I said, I’m not an accountant or tax attorney. Talk to yours and figure out what will work best for you.

-Phil Wrzesinski
www.PhilsForum.com

PS I have had several doctors take my Daddy Class over the years. They have given me incredible feedback to make sure what I teach is medically accurate. I would love your feedback from your accountant if they believe anything I have said here is patently false or harmful. Thanks.

PPS Like I said yesterday, you should be making as much or more than your landlord. If rent is around 12%, shoot for at least a 6-7% salary and take the rest through owner withdrawal from profits. If you can get net profits around 10%, then you’ll have plenty to pay yourself and also reinvest in the business.

Roll With the Punches

I picked up my son from summer camp today. He was in the Counselor-in-Training (CIT) program out at YMCA Storer Camps. As I have always done with my boys after a session at camp, Ian and I sat down to talk about the experience right away while it was still fresh in his mind.

After regaling all the experiences, I asked my son what was the one thing he felt he really learned at camp these past two weeks?

“How to roll with the punches.”

Image result for roll with the punchesRolling with the punches is a boxing technique. As a punch is about to land on you, you turn or roll your body away from the blow to lessen the impact. At freedictionary.com they also define it as, “to adapt to setbacks, difficulties, or adversity so as to better manage or cope with their impact on one’s life.”

I’m pretty sure Ian meant the latter definition. His first cabin of kids had a few setbacks, difficulties, and adversity for him and his lead counselor to handle.

For business sake (this is a business blog after all) let’s break that definition down further …

We know what setbacks, difficulties, and adversities are. In business we all have them. Local economic woes, street construction, your favorite line of products suddenly discounted online, a bad review on Yelp, a 20% jump in insurance costs, the landlord wanting to raise rent, a new competitor in town.

You’re never without setbacks, difficulties, or adversity.

The successful boxer rolls with the punches. The successful business “adapts … so as to better manage …” Just like the boxer, you have to anticipate the blows that are coming so that you can adapt to them and lessen the impact.

Street closures? Are you following the news, attending city council and planning meetings, or subscribing to government emails? Are you going to public hearings to not only hear what is being done, but have your voice be heard to find ways to lessen the impact these closures might have on your business?

Insurance costs? Are you working with a good business insurance agent and agency that can shop your account around to find you a better deal or work with you when rates go up to help you be aware more quickly? Are staying on top of all your expenses before they blindside you with a punch to the gut?

Landlord raising rent? Do you see your landlord as an adversary or partner? How would that change the relationship? How much sooner and with better intent would a partner inform you of a rent increase than an adversary?

Local economic woes? Are you measuring your market potential for your community by tracking national sales for your industry combined with local household income and population growth (or decline)?

Got a bad review? Are you actively monitoring social media and sites like Yelp and Google for mentions of your business? Do you have a plan in place for how you respond? Do you know the right questions to ask before you respond?

The successful business owner is rarely blindsided with a gut punch. He sees most hits coming and can roll with those punches. The key is to know that there will always be blows. You know which punches hurt the worst, too. Put a system in place to help you see those punches coming before they land directly on your business, and you’ll know how, “to adapt … to better manage or cope with their impact.”

-Phil Wrzesinski
www.PhilsForum.com

PS Two of the most profitable years in the Toy House’s 68 years of business were in 2009 during the Great Recession, and 2014 as our local economy and market was dying out. Although we took a gut punch in the fourth quarter of 2008, we saw the punches coming in 2009 and 2014 and were prepared for them. I know you already wear a few dozen hats. Being involved in city politics and tracking other numbers that affect your business might not be in your wheelhouse, but they do make a difference in how well you roll with the punches. Only you can decide how many direct hits you can absorb before you’re knocked out.

PPS Every boxer also knows the better you learn to anticipate the blows, the better you can counter-punch, too. That’s how you get ahead in boxing, in business, as a CIT at YMCA Storer Camps, and in life—by anticipating the blows, rolling with the punches, and throwing counter moves.

What Not to Change

By now you’ve heard the buzz about the International House of Pancakes and their big announcement. They are changing their name from IHOP to IHOb. They made the announcement and asked us to guess what the “b” meant.

The first answer by virtually everyone was “breakfast.”

Image result for ihob logoI could wrap my head around that. I love their Colorado Omelette. They have waffles, French Toast, and crepes too. Pancakes are out of favor because of all the low carb diets. That would make sense.

Heck, I could even have seen it if this was just a marketing gimmick and the “b” was going to stand for bacon. Bacon is trendy and popular right now.

But then in a “Hey, New Coke, hold my beer,” moment they announced the “b” stands for “burgers.” 

Burgers? Really? That was your big marketing gimmick?

First, let me reassure you that they are not actually changing their name. They are doing some temporary signs and making a big stink about it through the media. In one way, it has worked. We’re all talking about them. In another way, they have definitely brought attention to the fact they have burgers on their menu (and have for some time).

But here’s something worth thinking about when it comes to branding. The vast majority of people were going with either breakfast or bacon because that is what the restaurant is known for. That is IHOP’s reputation, which by extension is the restaurant’s brand. No matter how many viral campaigns like this, they will neither change that perception nor ever be known as the burger joint. As much as this campaign has gone viral, it isn’t likely to get too many new customers going to IHOP that weren’t going already. In fact, it might drive some customers away who think they have stopped selling pancakes.

Not only was this campaign confusing to a lot of people, trying to be known as the burger joint is probably the worst arena to enter. It is already crowded with all the fast food joints, the Red Robins, the Inn & Outs, and a slew of other players. IHOP owns the pancake title. Hands down. They own it better than Coke owns Pepsi. Yet Coke tried the exact same tactic with New Coke and watched it become the poster child for failed marketing campaigns.

I know some of why they did it. It is tough being the frontrunner. It is tough getting people excited about your pancakes when you already own the category (and pancakes are not quite as popular as before). The people at IHOP saw this campaign as a brand-extension, a way to be known for more than pancakes. Unfortunately, there was a better way to do that.

Saying that you are known for burgers when you aren’t won’t work. Simply saying your burgers are great won’t change anyone’s mind, either. Having taste-tests won’t move the needle much (or Pepsi would have overtaken Coke during the Pepsi Challenge campaign). But asking your tribe, the people who already love IHOP for your breakfasts, to try a burger next time they are in, might get a few people to switch. Speaking to the people who love IHOPs for being open 24 hours (in certain locations) and reminding them you have more than breakfast might get a few people to try the burgers. Offering small sliders as a side with the pancakes (there’s a little surprise and delight for you), would be far more effective in getting burgers into everyone’s minds.

Then if your burgers really are good, people will talk. That’s the kind of talk that moves the needle. Right now people like me are talking in the wrong direction.

Right now the talk isn’t even about whether the burgers are any good or not. Most of the talk is about what the heck were they thinking? That doesn’t help the brand one bit.

The lesson in all this is simple. If you are known for something already, don’t confuse people by trying to be known for something else. Instead embrace it, amplify it, and become it so fully that no one will know anyone else but you in that category.

There is only one house of pancakes.

There is only one waffle house.

There are dozens of burger and pizza joints.

When you can be the only one, be the only one, and be happy with that.

-Phil Wrzesinski
www.PhilsForum.com

PS Yes, there are thousands of great breakfast restaurants including some regional chains and plenty of local joints, but in the national scheme of things, no matter where you go, if someone is asked to name a pancake joint, IHOP will be at or near the top of that list. That’s the power of their brand and the source around which the rest of the chain revolves. Move away from that and the brand will falter.

PPS Marketing and advertising cannot change your reputation for the better. Only actions will do that. Confusing people or trying to get them to believe something other than what they already believe hurts the brand more than it helps because it erodes more confidence away from what people already believe. Telling people their old Coke they’ve drunk for years doesn’t taste good (even though it was the best seller by a wide margin) wasn’t a smart move. This move by IHOP stands right beside that.

PPPS You’ve heard it said there is no such thing as bad PR. That statement is wrong. Don’t believe it.

Five, Ten, Fifteen Years Ago

Do you remember the start of the Great Recession back in 2008? Did you see it coming? Were you prepared in advance, ready for it?

Okay, you can stop laughing. No one saw it coming. Very few were prepared. Yet if you remember it and are reading this blog, it means you likely survived the Great Recession.

No matter how you got through those tough years, I’ll bet your business looks a lot different now than it did in 2007. I’ll bet for most of you, today’s version of your store only merely resembles the store you had fifteen, ten, or even five years ago.

Things change. We learn new stuff. We grow. We adapt.

The business model that worked in the 80’s (open your doors, stand back, and watch the traffic roll in) wouldn’t last a month in today’s retail climate.

Here is another truth …

Flag Raising circa early 1970’s

The store you’re running five years from now will only merely resemble the store you’re running today. 

The name will be the same. The Core Values will be the same. Some of the services will be the same (some will be unnecessary, some will be enhanced). Some of the fixtures will still be there (but hopefully not in the same place as today).

August 6, 2016 Flag Raising

Yesterday, at the annual business meeting of the American Specialty Toy Retailing Association (ASTRA), the past chairperson, Ann Kienzle, gave a speech. Apparently she had heard from some ASTRA members who were there twenty-six years ago at the first meeting, where less than fifty people got together to do something for the independent specialty toy retailing industry. This past weekend the attendance was measured in the thousands.

Those people noted how ASTRA looks a lot different than it did just ten or fifteen years ago. I wasn’t there to know if they said it with admiration or disdain. I only know what Ann said at the meeting.

“I’ve heard from some of the original members of ASTRA who noted that ASTRA doesn’t look anything like it did fifteen years ago. You should be proud of that. … If we looked the same today as we did fifteen years ago, you should be hugely disappointed.”

The reality for ASTRA and for you is if you look the exact same as you did fifteen years ago, you’re likely already out of business. In fact, it would be harder to stay the same than to change and grow because the atrophy (and apathy) would take you down more and more each year.

If you have been in business the last fifteen years, as Ann said, you should be proud of what you’ve done. Your business has changed and will continue to change.

I have said often that you should always be changing. Here are previous posts that tell you how or what to change …

JULY 6, 2017 – Some Things Change, Some Things Shouldn’t

AUGUST 9, 2017 – The Biggest Thing That Needs to Change

JUNE 15, 2012 – When and What to Change

SEPTEMBER 14, 2011 – A History Lesson About Change

APRIL 14, 2009 – What to Change, What to Keep the Same

I can’t tell you exactly what your store will look like in five years. Like you, I was blindsided by the housing crisis of 2008. But if your store more closely resembles your Core Values and has changed everything else that wasn’t productive or consistent with those values, it will look like my favorite store—an OPEN one!

-Phil Wrzesinski
www.PhilsForum.com

PS When you change what needs to be changed, do me a favor. Make it Over-the-Top! Go big or go home. Put the WOW Factor into it. Give people something to talk about. I’ll give you some ideas of what I’m talking about later this week.

Convenience Versus Experience (Revisited)

It was seven years ago today that I returned to work after recovering from major throat surgery. I was looking at some posts I wrote during that time and came across one I wrote while lying in bed titled Convenience Versus Experience.

The new buzzword in retail today is “experience.” Just Google “Customer Experience” and you’ll see what I mean. Heck, I’ve been saying it, too.

Here is what I said on May 26, 2011

 

Convenience Store is always located on the easiest side of the road to pull in or pull out, no-hassle driving.

An Experience Store has you drooling with anticipation as you wait at the light to pull in.

Convenience Store carries all the same merchandise you would expect to find anywhere, the most popular items, the most requested items.

An Experience Store is full of unique and wonderful treasures, amazing merchandise you haven’t seen.

Image result for convenience store signConvenience Store is open early and late, enough hours to be there exactly when you need it.

An Experience Store is open long enough for you to be able to take the time to explore all those treasures leisurely and when it fits in your schedule.

Convenience Store has a staff that knows where everything is, and can get you through checkout in a hurry.

An Experience Store has a staff that also knows what everything is and how each product fits or doesn’t fit in your lifestyle, and can also get you through checkout in a hurry (because when the shopping is done, there’s no time to waste).

Convenience Store wants your trips to be quick, painless, anonymous.

An Experience Store wants your trips to be comfortable, engaging, and relational.

Convenience Store treats the customers as transactions, maximizing speed in the process.

An Experience Store treats the customers as people, maximizing comfort in the process.

Convenience Store is measured by how little time you want to spend there.

An Experience Store is measured by how much time you want to spend there.

Convenience Store is on the way to or from a Destination Store.

An Experience Store is a Destination Store.

 

Let me clean that up for you.

An Experience Store

  • Has you drooling with anticipation as you wait at the light to pull in.
  • Is full of unique and wonderful treasures, amazing merchandise you haven’t seen.
  • Is open long enough for you to be able to take the time to explore all those treasures leisurely and when it fits in your schedule.
  • Has a staff that also knows what everything is and how each product fits or doesn’t fit in your lifestyle, and can also get you through checkout in a hurry (because when the shopping is done, there’s no time to waste).
  • Wants your trips to be comfortable, engaging, and relational.
  • Treats the customers as people, maximizing comfort in the process.
  • Is measured by how much time you want to spend there.
  • Is a Destination Store.

Notice how none of that says you have to offer some crazy, wild, event-based, theme-park-styled type of experience? Seven years ago, this was cutting edge stuff. Today it is pretty much what everyone is talking about. Now you have a list to which you can compare your store.

Are you full of unique and wonderful treasures people haven’t seen? Do you have a staff that knows what you carry, why it fits into someone’s lifestyle, and how they should best use it? Is your store comfortable? Do people want to spend time there?

Experience Stores aren’t accidental. Nor are they easy. You build them by design, staff them by design, and run them with purpose. Which store do you want to be?

-Phil Wrzesinski
www.PhilsForum.com

PS If I were to add anything to the May 26, 2011 post it would be …

A Convenience Store has everything you expect.

An Experience Store has pleasant surprises and unexpected wonders of delight.

You’re Going to Offend Someone

I heard someone argue that Memorial Day Weekend shouldn’t be about shopping and big sales at the mall. We need to be properly honoring our fallen soldiers. I also heard someone make the same argument about backyard BBQs and trips to the lake/ocean/river/woods. It isn’t about partying, it is about properly honoring our fallen soldiers. It begs the question … What is “properly honoring our fallen soldiers?” You better learn or you will likely offend someone.

Publix has suspended support for an NRA-favoring political candidate after “die-in” protests in their stores. Pretty soon you will see a backlash against Publix from NRA members for withdrawing that support. Either way, someone is going to hate them.

To some people, if you don’t automatically hate President Trump, then you’re a racist, homophobic, misogynistic, religious nut-job. If you even hint at defending any of the President’s actions (or decry any of the President’s actions), you’re going to have haters painting an unfavorable picture of you (whether true or not.)

Some people are offended by the football players who take a knee out of respect for the flag but to protest injustice in America. Others are offended by the NFL for creating a rule demanding they stand to “show respect for the flag.” The camps are divided and no posting of memes is going to change anyone’s mind. Both sides believe they are right and the other is wrong.

The tough part is that in many of these cases you are being forced to pick a side as if the world was black/white and either/or. No matter which side you choose, someone is going to hate you. Even if you don’t choose, your actions will cause someone to choose your side for you. People are looking for new ways to be offended. Tolerance is missing. Nuance is gone. Thoughtful discussion is rare.

Image result for pendulum book
Pendulum by Roy H. Williams and Michael R. Drew

How do you, as a business, navigate this world of hatred, intolerance, black/white, either/or?

Two months ago I wrote a post about when to take a political stand. The actions and attitudes since then have made it likely that whether you take a political stand or not, someone is going to assign a political stand to you for an action they perceive.

Since you’re going to offend someone anyway, you might as well do it consciously. 

No, I don’t mean pick a cause and go out there and piss a bunch of people off. What I mean is, become even more true to your Core Values. Amplify the Values and Beliefs you already have in everything you do.

If one of your Core Values is Helpfulness, add more ways to help your customers. If one of your Core Values is Nostalgia, add more nostalgic displays and tell more nostalgic stories. If one of your Core Values is Fun, make sure every single part of your business is fun down to the experience in the bathroom and the answer on your answering machine. If one of your Core Values is Education, add new educational signs and new instructional classes.

Evaluate everything in your business from the signs on the front door to the tagline on your receipt to make sure they accurately and boldly show your Values and Beliefs. The more consistent and observable your Values, the better.

  • First, it is easier to be consistent with your Values than try to be someone you are not. People will see right through you. The more consistent your actions are to your beliefs, the more you boost up the visibility of what you believe.
  • Second, the more obvious you are about what you believe and value, the less likely someone can paint you into a corner you don’t wish to be.
  • Third, yes, you will offend people, but primarily only people who don’t share your Values. That’s okay. Your business is at its best when you strongly attract the people who share your Values. Don’t worry about everyone else.
  • Fourth, the more obvious you are, the more likely you will find those people who share your Values. They are much more fun to work with anyway.

Not sure exactly what are your Core Values? Here is a worksheet to help you figure it out.

I’m working on a new resource, too, one that will help you write your Belief Statements. In the meantime, here is an example of I Believe … statements from Toy House. Here is one from LauraJoyWarrior. Here is one from PhilsForum to help you get some ideas flowing.

-Phil Wrzesinski
www.PhilsForum.com

PS The stronger a magnet attracts, the stronger that same magnet repels. The more strongly you try to attract people who share your Values and Beliefs, the more strongly you will offend those who don’t share your Values and Beliefs. That’s okay. There are more than enough people who believe what you believe for you to have a rock solid business. Many of them just don’t know about you yet.

PPS This whole black/white, either/or, I’m offended mentality is going to take a few years to disappear. It was perfectly predicted in the book Pendulum by Roy H. Williams and Michael R. Drew. They predict a lot of other stuff in that book, some that has already come true (including exactly how Donald Trump won the election), and some that won’t be true for another ten, twenty, or forty years. It is a fascinating read and an eye-opener to what is happening around you.

PPPS To show you how easy it is for people to be offended, I saw on social media one person upset because another person thanked a veteran for their service. “Memorial Day is to honor fallen veterans. Veterans Day is to honor the living ones. Get it right!” 

Be the First to Raise the Bar

It had to be my most favorite conversation with a customer ever. It was sometime in the fall of 1994, one year after Toys R Us had opened in our city.

“Phil, I have to tell you this. I went to Toys R Us last Christmas.”

Yeah, they were the new store in town. A lot of people went to check them out.

“But let me tell you what happened. I think you’ll get a kick out of this. I went in and looked around. They didn’t have quite as much stuff as you do. And I couldn’t find anyone to help me on the floor. So I took my cart up front and told the gal at the register I wanted to put it all on layaway. She said, ‘We don’t have layaway.’ So I said, that’s okay, I’ll just get it gift-wrapped. ‘We don’t do gift-wrapping.’ Well then what the hell am I in here for?

“If that’s your competition, you’re gonna be just fine.”

I was reminded of that story a few days ago. A new pizza place opened in town, a pizza and tap house. I only knew because I drove by it. I haven’t heard anything about it good or bad. No buzz. No excitement.

Image result for klavons pizza
The stuffed pizza at Klavon’s

Part of their problem is that another pizza joint opened up a full-service restaurant and bar serving pizza a few years ago. That restaurant is amazing, featuring indoor-but-can-become-outdoor-in-a-New-York-minute seating, classy stonework and decor, fireplaces, big screen TVs, and a killer menu (I had to go for lunch once just to order the cheeseburger that was getting all the raves because at dinner time I always get the pizza.)

This first restaurant raised the bar incredibly high. Anyone coming after them has to do something they didn’t do to get any buzz or excitement.

That’s the power of being first to raise the bar. If you raise it high enough, no one else is going to get any buzz just for copying you. Back in 1993 being “new” was enough. In 2018, being “new” only counts if you actually do something no one else is doing.

At the same time, here is your warning. If you haven’t raised the bar, you’ve left the door wide open for someone else to come in and clean your clock, eat your lunch, steal your chickens, or whatever metaphor you want to use for getting kicked to the curb.

Wanna play a fun game with your staff? Ask them this question …

If you were going to start a new store to compete with my current store, what would you do differently to have a competitive advantage?

Ask it of your staff. Ask it at the next networking event you attend. Ask it of your friends and family. Then listen to the answers. Any idea that isn’t simply cutting prices or offering more discounts and deals is a potential open door for a competitor to waltz right through.

Don’t wait for someone else to raise that bar. Be first. And raise it so damned high no one else would even think of trying to compete in your space.

-Phil Wrzesinski
www.PhilsForum.com

PS My second favorite conversation with a customer happened back in 1980. I was only 14 years old. I still get choked up thinking about it. I even turned it into a radio ad that propelled our 2005 Christmas season to record heights. I’ll tell you about it later if you’d like.

Protecting Yourself From Your Biggest Threat

I’m in a precarious position. My job is to help you succeed by teaching you the stuff you need to learn. My job is to know what you don’t know, be the expert you can trust, and help you see things from a perspective you haven’t seen before.

My other job is to protect myself from the Dunning-Kruger Effect. (DKE)

According to Wikipedia, “the Dunning–Kruger effect is a cognitive bias wherein people of low ability have illusory superiority, mistakenly assessing their cognitive ability as greater than it is.”

People who suffer from this cognitive bias don’t know what they don’t know. They believe they have all the answers. They come across as arrogant, pushy, know-it-alls that annoy the heck out of true experts in that field.

As an author, business coach, and public speaker, I’m supposed to have all the answers. I’m supposed to know it all. Yet, how do I prevent myself from getting caught in the trap of illusory superiority?

Image result for stacks of booksThe simple answer is Read. 

“The man who does not read good books has no advantage over the man who cannot read them.” -Mark Twain

“Write to be understood, speak to be heard, read to grow …” -Lawrence Clark Powell

I subscribe to blogs and read books regularly, looking for new answers. Sometimes what I read challenges what I believe. I worry about my cognitive bias, wondering if the author knows something I don’t. Reading keeps me on my toes by presenting new ideas and opening me up to new worlds of thought.

The next best thing to do is Question everything you believe.

  • Why do I believe what I believe?
  • Where is my evidence?
  • Do I have the most up-to-date information on this topic?
  • Have I tested it?
  • Is my information relevant to today?
  • Are my sources up-to-date and staying current?

If all I ever did was give you information based off my own experiences running Toy House, then I might suffer from DKE. If all I ever did at Toy House was try to learn from my own mistakes without looking outside myself for help, then I most definitely suffered.

Yet isn’t that what so many business owners do? Especially the veterans who have been running their stores for years? They use their own experiences as the basis for everything and never try to learn from others.

“It is hard to read the label from inside the bottle.” -Roy H. Williams

Your biggest threat isn’t Amazon or the economy or the weather. It is in thinking you know all the answers and cannot be taught something new.

I fear this in myself. I have the confidence (arrogance?) to believe I have answers to pretty much any question about running an independent retailer. I guard myself against DKE, however, by reading and questioning everything I think I know. I did the same running Toy House. Didn’t know how to market and advertise? I turned to Seth Godin and Roy H. Williams. Didn’t know how to merchandise? I turned to Paco Underhill. I learned from them, tested it against what I thought I knew, and grew from the experience.

I know I’m preaching to the choir here. You’re out there reading and learning from others (otherwise you wouldn’t be reading my posts). Sometimes, however, we need that reminder to keep vigilant and protect ourselves from our own DKE.

Sometimes we also need permission to go out there and remind our fellow retailers there is a world of information available, and the strength of your individual business will rely on how much of that information you acquire and use.

(Yes, that is a request that you share this blog and the other stuff you read with others.)

-Phil Wrzesinski
www.PhilsForum.com

PS One other way to keep DKE at bay is to be in a constant state of learning. Some people believe “training” only happens to new staff. Teach them what they need at first and let them go from there. Some people instead create a culture of learning not only for themselves but for their staff. One way I fostered that culture at Toy House was to give each of my staff a $150 budget each year for taking a class or attending a workshop. It didn’t have to be retail-related. It only had to keep them in a mindset of learning new things.

“Everything Cheaper Somewhere Else”

I used to hate anonymous commenting on news articles and blog posts. It is so easy to hide behind a pseudonym and take unsubstantiated potshots at people and businesses, spread rumors, and even spread downright lies.

As a retailer, I took every negative comment and review of my business personally. Some of them hurt, especially when they weren’t true. The misunderstandings were one thing but the outright lies were the worst. They cut to the bone.

I remember one day in the infancy of online news when a fellow downtown business owner alerted me to comments posted on an online news story that attacked both my store and me personally. He warned me not to read them. I didn’t heed his warnings.

One person had taken it upon him or herself to just rip the business up one side and down the other, calling us, among other things, price-gougers who were just out to destroy the little people in town. This person claimed that he or she could find everything we sold in our store cheaper online.

I took offense to the first part. The person posting the comment had no idea what I paid myself or my staff or our profit margin or what we gave to charity or what causes we supported. I am a forgiving person, though. I will forgive them their ignorance.

The second part, however, was pretty much true. Not only could that person show you the items cheaper, I probably could, too. After all, I had Internet access. I could also show you sites and stores where just about everything we sold was more expensive than our prices. That exists, too.

In fact, if prices weren’t fluid across different channels, Retail would look a whole lot different and be a lot less fun. Everyone would pretty much do the same thing and charge the same for it. Yawn.

Image result for valueRetail is a game, and the game can be boiled down to this … Find the Value you can give the customer that will make it worthwhile for them to pay the price you wish to charge.

At the ballpark they charge you more for a single beer than you would pay for a twelve-pack at the store. You buy it because you want to drink a beer during the game. There is enough Value in enjoying that beer while watching the game that makes you pay the price. (Don’t want to pay their outrageous prices? You can eat before you go to the ballpark. Most people can handle 3-4 hours between eating. You can also drink water for free. They have to provide it to you.)

People call them price-gougers all the time. It doesn’t stop them from raising their prices and making money. They offer you the Value of being at the game and watching the action in person.

The real question you need to ask yourself as a retailer is … What Value are you adding to the equation and will that Value be enough to get people to pay your prices?

You can add Value in several ways. You can:

  • Offer services other stores don’t have (i.e. layaway, free gift-wrapping, assembly, delivery)
  • Curate the selection to help customers get only the best solutions
  • Align your business with a social cause
  • Offer follow-up services (such as the free 30-day riding tuneup that we used to offer with every bike we sold)
  • Build relationships to the point that the customer feels as much ownership in your store as you do.

Any one of those is a way to “play” the Retail Game. Play more than a few of them and you’ll never worry about how someone can find “everything cheaper somewhere else.”

Were we the lowest priced game in town? Nope. Never tried to win that race to the bottom. But in a 2007 survey of Jackson County residents about stores that sell toys in Jackson, we were rated as having the highest “Value” ahead of Walmart, Target, Toys R Us, Kmart, and Meijer (all whom love to advertise their “lowest prices”.)

What Value are you adding to the equation?

-Phil Wrzesinski
www.PhilsForum.com

PS I have a good friend also named Phil who also ran a toy and baby store in the other Jackson (MS) who never liked MAP (Minimum Advertised Pricing) because it made everyone price their goods at the same price. He said true merchants have no problem with the undercutting of prices on the Internet because they know how to offer Value and make sales at higher margins. As much as you hate to admit it, he’s right. MAP only protects you at the margin the vendor thinks you should make, not the margin you deserve for all the value you offer.

PPS As for anonymous negative comments online, if they are an attack on your character or the character of your business, ignore them completely. Your actions speak louder than your words. Use your actions to prove that person wrong. If the comments are simply something misunderstood, you can respond for clarification, but only if you can substantiate your claims without putting down the person who made the comment. More often than not, however, it is best to ignore anonymous comments, period. I’ll talk about how to respond to Reviews in a future post.

PPPS A few of those ways to play involve the skills and training you give to your front line staff. As I pointed out before, that is probably the easiest way to add the kind of Value your competitors are not adding to their equations.

Here is What Winning Looks Like – Sweetlees Boutique

Sometimes it is easy to talk about the mistakes retailers make and simply caution you to not make those same mistakes. I’d like to share with you a story of an experience that went right. A long-time Toy House customer, my boys’ piano teacher, and dear friend Jen sent this to me. In her words …

“Well, the basic story was this…. you know where it’s going right?

Image result for sweetlees boutique mason miI went to a small locally owned (in Mason, MI) women’s boutique, Sweetlees Boutique. (Because I will tell everyone about how amazing it was, and where to find them—160 E. Ash St, Mason, MI 48854.) The workers were so attentive offering to find you sizing, suggesting things they thought would look good on your body. They were fitting both my mom and I who couldn’t be more different in that department, and they did a fabulous job, asking questions, and pulling pieces for us to look at or try. Amazing experience. Both my mom and I purchased something. It was our first time there and we will definitely go back again.”

Let’s unpack that to see what they did so right.

“The workers were so attentive …”

How many times have you been in a retail establishment where you couldn’t even find an employee, let alone one who seemed remotely interested in helping you? The Wall Street Journal just wrote Monday about the dearth of employees in retail stores. Macy’s has cut 52,000 workers since 2008. Think about that number when you’re looking for someone the next time you visit a department store.

Think even harder about that number when you’re making out the next schedule for your store. Are you making a schedule to minimize payroll or maximize sales? If you think of your staff as your greatest expense, you’ll do the former. If you think of your staff as your greatest asset, you’ll do the latter.

“… suggesting things they thought would look good on your body.”

At one time this was the norm in a women’s clothing store. It was the expectation. Anything less and you would be writing a different review. Today it seems new and different and special.

That’s the one good thing you need to understand. The overall bar for customer service has been lowered so far that just doing the things you’re supposed to do will make you stand out in the crowd.

A properly trained and properly motivated staff can do wonders for the way your store is viewed compared to the competition. While everyone is all worried about high-tech this and omnichannel that, going old-school will win the day more often than not.

“… they did a fabulous job, asking questions, and pulling pieces for us to look at or try.”

Once again, a properly trained staff makes a huge difference. This team knew that by asking questions they could get to know the customer better. Getting to know the customer better allowed them to pull better pieces that more closely matched the customers’ needs.

Every customer that walks through your door is there to solve a problem. The problem might be as simple as killing time. It might be as complex as buying the perfect series of gifts for the hardest person on your list. You don’t know the problem until you ask. (And you won’t get the answer you need if you haven’t first made a connection.) This doesn’t come naturally to everyone. You need to train your staff by showing them how, role-playing it, and practicing it. The stores that do that best are the stores that are winning.

“Both my mom and I purchased something.”

You have a lot of hurdles to overcome to get a sale from a first-time visitor. You have to make her feel comfortable. You have to figure out the problem she is solving. You have to present her with a valid solution. You have to overcome her hesitations and objections. You have to make her want the solution more than she wants her money. All of those are actual steps in a process. One misstep and it’s a no sale.

We call it browsing because many times customers want to go into a new store just to get a feel for the place. No pressure to buy, just a scouting trip to see if they like it. Sometimes you get lucky and they fall in love with a product by accident. That isn’t selling. That’s clerking. Anyone can do that.

If your sales team is waiting for the customer to come up to you, many of them won’t and you’ll have lost out. If your sales team hasn’t made a connection, unless she falls in love with a product by accident, she won’t be back, either. That’s on you.

“… we will definitely go back again.”

That, my friends, is what winning looks like. Bravo to Sweetlees Boutique. Bravo! Thank you, Jen, for sharing that story with us all.

-Phil Wrzesinski
www.PhilsForum.com

PS In the same message, Jen told me about another retail experience that didn’t end so well. I’d rather leave on a high note and save that tale for later. If you have story of someone doing it the right way, please share. Send me an email or find me on LinkedIn.