The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It
Blue Ocean Strategy: How To Create Uncontested Market Space And Make The Competition Irrelevant
The Know-It-All: One Man’s Humble Quest to Become the Smartest Person in the World
Last week, I was so bold as to call out the entire airline industry. Not enough innovation, too much nickle and diming, poor customer service. You have heard it all before, but my mistake was to assume (you know how that ends) that the airline industry was acting as a unified block. In most cases, they are. If American raises prices, Continental and United follow along the next day. If United adds a new “cost option”, the rest act like sheep or more likely, lemmings to offer the new selection.
But then I read this story about three guys who came up with a new way to skip a lot of the nonsense that is associated with flying. This is an entrepreneurial story that makes my heart sing, because these three non-aviation experts were able to think outside the box and come up with an entirely new aviation model in SeaPort Airlines.
The idea of getting around the FAA’s rules about security screenings by using planes that are under the legally mandated size is genius. They have started small, flying between two heavily trafficked cities, Portland and Seattle in business turboprops outfitted for commuter use. They fly into in-city airports, saving commute times on both ends. There are 10 scheduled round trip flights each weekday, so customers have plenty of options. Recently they have added some additional destinations both in the Northwest and in MidSouth as part of the FAA’s Essential Air Service Program.
From this we can learn a couple of key lessons. The first is that the entrepreneurial spirit does not limit itself to technology companies. Second, even the most moribund industry with the tightest controls can be attacked by a nimble competitor who is focused on serving a niche. Don’t lo0k at the Facebooks and YouTubes of the world as the only example of exemplary entrepreneurship — that is the lottery, a one in several million chance. Rather, find a place where people are unhappy with their options and give them something better. Be the best in your niche and you will reap the rewards.
Before you go any further in reading this, watch this video.
Have you watched it? OK, then let’s proceed.
I have been reading Every Patient Tells a Story by Lisa Sanders, a technical advisor to the television show House. Lisa is an internist at Yale and an expert in the diagnosis process. The book provides an excellent description of how our medical system is predisposed to have difficulties in finding the causes to the unusual diseases. She talks about doctors focusing on the common solutions to a complicated combination of symptoms, not understanding the problem in depth before providing a diagnosis and relying too much on technology to make decisions that should have a human component.
This led me to thinking about how in business we also make these same kinds of errors. Normally, these errors don’t have a human life or death hanging in the balance, but the viability of the business sure might. The video that I pointed to at the beginning of this post shows that sometimes we don’t have the right attention to detail.
Extrapolate that finding into your business life and you will find all kinds of ways to increase your vigilance and gather more information to make informed decisions. Now, I am not advocating analysis paralysis here. Just as in the medical field, if you wait until you have every piece of evidence, the patient could likely be dead. But you should be thinking about how to gather the right information and how to be aware of changes from your expectations. In general, if everything is at status quo, you are missing something. Perhaps it is the marketplace asking for something new. Perhaps it is your competition who is planning a different strategy. Perhaps it is the legal or regulatory environment. Perhaps it is just your own employees who are tired of the same old thing and are letting up on quality. Any of these can have a huge impact on your business. Your job is to watch out for the color changes, while the cards are being dealt.
When I think of all of the businesses that I might want to be involved with, the airline industry is down near the bottom of my list. Massive government intervention, public ownership, reliance on a wildly fluctuating fuel cost, overcrowded marketplace, customer service nightmares, unionized unhappy employees throughout the organization. Wow! But it still amazes me that the executives in charge of the majors take their eye off the ball so often.
Doug Parker, president of US Airways, crowed that the carrier was making $400 million per year on ancillary fees. Never mind that the industry continues to lose money. Never mind that US Airways lost $100 million in a recent quarter and saw its revenue drop over 13%. United Airlines makes $14 per passenger in ancillary charges, but lost $382 million in Q1 2009.
Never mind that the average consumer is tired of being nickled and dimed – window seat, head set, cut in front of the line, extra 5 inches of legroom, snack, soda, more miles, checked bag, overweight bag, travel on a busy day, talk to a ticket agent, redeem a frequent flyer award – all of these cost extra on at least one major airline (excepting Southwest). The whole travel experience is now so convoluted that some people have decided that the hassle of air travel is just not worth it. I have had 4 opportunities this year to travel that in years past I would have chosen to fly. Not this year… my rule has become only fly if necessary.
From a customer service perspective it is a disaster. Every time you need to talk to the company, they want your credit card. Their eagle eyed bean counters (and remember that I usually love bean counters) are crowing about the new revenue, but aren’t looking at how many people have stopped flying. That seems to be to be a bigger issue.
I mentioned earlier that Southwest has not moved to a la carte pricing. They haven’t had a losing quarter this year. Maybe that should tell the bean counters something.
Even in areas outside of the airlines, we see the same “logic”. I tried to buy college football tickets online last week. The website gave me two options for delivery. Print them out at home for $6 or pick them up at Will Call for $3. In neither case, did the college incur any significant additional cost, but there was that ancillary charge. Guess what, I didn’t purchase the tickets over the internet. Oh well.
For those of you out there looking to break down your pricing to provide a more a la carte menu solution, I would recommend really investigating whether you will achieve the goals that you hoped by doing so. You may be much better off by playing the Southwest to the majors.
Recently, as part of some non-profit work I have been doing, I have been to two banks. The purpose was to redeem CD’s that have matured. These are not small accounts. One was for low 5 digits and the other low 6 digits. Small community bank and mega-bank. From the outside, not a whole lot of similarity here.
What was amazing to me was that no one at either bank asked if they could do anything to keep our account? Can I tell you about our new CD rates? I would be happy to match the rate for any local bank. Nothing. Just typed up the cashier’s check and handed it to us. I know that the banking business is in such a difficult place these days that I was floored that no one tried to keep an existing customer from leaving.
But hey, what do I know, I am not making the huge bucks running a bank. I am sure that they know way better than me.
So, if you don’t run a bank, take my advice. Ask people who are leaving “Is there anything that I can do to keep you as a customer?”. Fix the problem or make a better offer. It has to be cheaper than signing up a new customer and you have the possibility of someone like me writing a very different blog post about you.
The biggest issue in the health care debate is the effect of the insurance companies on delivering health care to the American public. The challenge is that the insurance companies are not interested in facilitating the delivery of quality health care. They are interested in delivering profits to their stockholders and high compensation to their leaders.
I am a capitalist. I believe that companies should make profits and distribute the earnings to their shareholders. However, most companies have the requirement of competing in the marketplace. If customers don’t like their product, sales will decline and so will profits. There will always be a small upstart to provide the nudge to make products better, cost efficient or more universal. Even in the supposedly “too difficult to break into” automobile manufacturing industry, we see upstarts like Hyundai and Tesla pushing the big guys to do better. Currently the insurance companies average around 30% of their sales in administrative, marketing and lobbying, commissions and profit. With a clear competitor in this space we would see that 30% decrease pretty quickly.
Now, when is the last time you heard of a new insurance company? The insurance business is all about aggregating the risks of many people to lower the overall risk to an individual. It is impossible to start a new insurance company, because you need a sufficient base to spread the risk. So, we have a situation where there is no real competition in the insurance marketplace. This has led to insurance companies taking advantage of their customers. In fact, in some ways, it would be irresponsible for them to do otherwise. By not allowing customers with pre-existing conditions, they are increasing profitability for their shareholders.
So what is high-risk? I’m sure that you would consider cancer, insulin dependent diabetes and severe heart disease high-risk and subject to increased premiums or denial under our current system. But what about bunions or being an expectant father or a firefighter? These are all reasons taken from underwriting standards to deny coverage. Doesn’t make a whole lot of sense to me.
How about this situation? Person signs up for health insurance. Insurance company accepts insured. Insurance company takes premiums. Person gets diagnosed with aggressive breast cancer in June. Insurance company is called and authorizes double mastectomy and hospital stay. Then the insurance company starts to review her original application. Oops. She has a notation on an old medical record that talks about an acne issue that wasn’t mentioned on her insurance application. Three days before surgery insurance company calls back and rescinds authorization. Hospital needs $30,000 deposit to do surgery. Person doesn’t have $30,000. She requests review by insurance company. Denied. She then went to her congressman who intervened with the president of the insurance company (talk about government intervention into health care) and in October, finally the company relented and approved the surgery. The tumor had grown from 2-3 centimeters to 7 centimeters and moved into the lymph nodes. Yikes.
It doesn’t matter if you are penniless or a venture capitalist or a doctor. You can still get slammed by the insurance companies.
The real question is “Is this the type of policy that we want our country to support?” There are those on the right who believe that what we have right now is the best that we can do. (Sarcastic Videos) There are those on the left who are looking for a solution that will help cover the uninsurable. I am with those that believe that health care (not health insurance) is a basic human right. But I also believe that we as a nation have to stand up and take control of our health care needs. Health insurance needs to be used as as insurance against large claims, just as we look at car insurance. It should not be used for small things like checkups or doctor visits. I favor a high deductible plan that is incorporated with a health care savings program that is tax advantaged. These products are out there today. I favor the abolishment of pre-existing conditions clauses and recission (the cancelling of policies after a serious illness). I favor the moving of health insurance from the employer to the citizen to make it entirely portable. I favor the creation of a list of conditions, drugs and procedures that will be covered as a mandatory part of the contract, so that the consumer is clear as to their coverage. And I favor the creation of an entity that will provide competition to the existing health insurance industry to lower costs and to provide accountability. It would have to be non-profit as to not be caught under the same standards as the for-profit companies, but it doesn’t have to be government run.
Look, we don’t have to reinvent the wheel here. Most other industrialized nations have faced this problem and developed systems that work. They provide universal coverage and have better medical outcomes than we in the US do. It is time to solve this mess.