John Goodman, Co-Founder & Vice Chairman of TARP Worldwide and Author

The Rich Niche Group blog interviews and enables you to hear directly from successful entrepreneurs, product managers, venture capitalists and others about the steps they took to grow their businesses/products and how they were able to create, penetrate, and/or dominate their niche.  This week we interview John Goodman.

Interviewee:  John Goodman, Vice Chairman and co-founder of TARP World­wide. 

Why Selected: As a pioneer in the science of quantifying, managing, and optimizing the customer experience, John (and his company TARP Worldwide) gives us the opportunity to glean a little bit of his knowledge on how a start-up, small business or any business can perfect their customer’s experience.  It is not often we have the chance to hear from someone running a company referred to by renowned author and consultant Tom Peters as “(TARP is) perhaps America’s premier customer service research firm.”  John is also an author, and in his new book Strategic Customer Service: Managing the Customer Experience to Increase Positive Word of Mouth, Build Loyalty and Maximize Profits, he shows how successful companies use customer service as a “catalyst,…making the organization more proactive, accelerating responsiveness, and boosting its effectiveness.”  John also points out the financial impact good and/or bad/no customer service can have on an organization.

In the following interview, John takes us through how TARP got started and how the importance of moving customer service from a complaint department to one that can have a positive financial impact on your organization.  The key points you’ll take away include:

1.  The impact of great service on your financials is ten to twenty times the cost. 

2.  Many companies that hire a market research firm to conduct a study read their final reports then put them up on a shelf.  Find ways to make sure your clients use information and the advantages you bring to them.  This will lead to repeat business.

3.  When clients and prospects want to negotiate on price make sure you take out work/services/product accordingly.  Just reducing prices can lessen the perceived value of your offering. 

4.  In order to gain traction in a market dominated by one or few companies , look for ways you can out innovate them and find the one or two people at some of their clients who are the most unhappy and then deliver outstanding service to them.

What drove you to start TARP and how did you plan penetrating the market research niche clearly dominated by the big research houses? 

 TARP was started as a student group doing interesting client research – we were approached by someone in the government who wanted similar research done which then created positive word of mouth about our activities that got us a large contract from the White House Office of consumer Affairs (which no longer exists). We aimed to do government research on a sole source basis so we didn’t have to compete at the beginning. We had a unique enough product that we tended not to compete – we would only take contracts if we were the only company being considered.  Our advantage was that we were small enough that we could survive with low prices due to low overhead. We also had very motivated employees who could directly see the impact of their work on large companies.

 As a pioneer in the concept of tying customer’s dissatisfaction to company revenue, how was the concept initially received by clients and how did you overcome their hesitancy to try a new model?

 We didn’t stress the satisfaction aspects but rather the financial aspects – we said that the revenue implications of great service were ten to twenty times the cost implications. Further we quantified the word of mouth implications which were of great interest to CMOs. We aimed our pitch at the CFO and the CMO.

 What were the biggest obstacles you ran into at the different stages of TARP’s growth and how did you overcome them?

At the beginning it was awareness. We dealt with that by doing papers, publishing articles and giving workshops at conventions. The next challenge was scaling up and still retaining profitability. We made sure our clients actually used our findings rather than putting them on the shelf which often got us repeat engagements. Further, we carefully raised prices with happy clients and made sure we took work out if we had to lower the price to meet their available budget. Our third challenge was competition copying our methods, so we had to keep updating them and answering new questions. We got those enhancements and new questions by listening to our clients and understanding their current and emerging challenges. Obviously we made many mistakes along the way but executing each strategy even 50% gave us an advantage over most MR companies that are relatively static.

After a while TARP, became known as the Customer Experience Measurement niche leader. Once in that position, what did you set-up so that TARP stayed in that leadership position?  What were you doing different than others?

We set up a council of 8-10 clients who met twice a year to push us on the emerging issues. We also used what we learned in one industry and asked how it would apply in another. I have always said that what works for Motorola will often work for McDonalds.

In general, what piece of advice would you give to someone who is either starting a new company or getting ready to launch a new product which they are hoping to either create and/or penetrate a niche?

Get exposure and learn the market by giving speeches and writing articles – often with clients – don’t charge much but do small projects that allow you to learn from the customer and let the customer learn about you. Coauthoring articles with practitioners is great way to both learn and build relationships as well as getting exposure.

What are the key characteristics of companies that have been able to penetrate a niche, even niches dominated by another company?

Specialization with value added that takes the findings through to implementation. Most services have little impact – if you can push the client to use the results you go beyond the standard company that moves onto the next customer and seldom looks back.

When you think of companies that dominate a niche, who do you think of and what do you see them doing to keep that dominating spot?

They tend to be companies that created a new niche – Starbucks or even Chocolate Moose on L St downtown (Washington D.C.). The have wacky gifts and great service and have succeeded where most gift shops fold after a few years. Where else can you buy a Sigmund Freud action figure?

What are the biggest threats to losing that dominating position? I would assume these same threats would be the opportunities for those looking to penetrate a niche?

Getting comfortable and relatively successful. Stop getting critical feedback from customers. No news is not good news.

Finally, which companies come to mind who once held a niche dominating position and then lost them and why do you think they lost that position?

Companies that lost their position of dominance did so as a result of complacency, lack of consistent value and failure to continually innovate.

This week we are taking a break from the normal interview of an entrepreneur to answer a question we frequently get at The Rich Niche Group.  While there are several ways to answer this question, we have boiled it down to 5 skills which we have seen lead to a more effective leader and company.  The 5 skills are:

1. A passion for providing an extraordinary customer experience and an understanding of your client’s and prospect’s problems.
2. An unwavering focus on your core strengths and using those to solve your client’s and prospect’s problems.
3. Being a source of innovation for your clients and partners and a leading innovator in your market.
4. An understanding of finance and financial statements. 
5. Company culture plays a very important role in the success of your business.

Let’s examine each of these and look at some examples how possessing these skills have aided in a company’s growth.

Passion for Extraordinary Customer Service

We all have personal examples of working with and buying from companies that treat us well even if they are higher priced than their competitors.  Smart leaders not only know this, they make it a central part of their company’s philosophy.  Simple things such as calling each new client and listening to their feedback or sending each new client a “welcome to the family” gift, as well as, setting up customer service so that the company can get quick and needed feedback on what it needs to improve and move customer service from just being a “complaint department” to being a strategic part of the organization.  John Goodman, Vice Chairman and co-founder of TARP World­wide, in his new book Strategic Customer Service: Managing the Customer Experience to Increase Positive Word of Mouth, Build Loyalty and Maximize Profits, shows how successful companies use customer service as a “catalyst,…making the organization more proactive, accelerating responsiveness, and boosting its effectiveness.”  John also points out the financial impact good and/or bad/no customer service can have on an organization.  In the coming weeks, we will have John as one of our interviewees.  

Here’s an example of an executive providing great customer service: Recently my wife and I stayed in a hotel and during our stay we had a small problem with our room.  Since we were there just one night, we did not report it but I did complete the comment card to make them aware of the issue.  A few days later, I received a call from the hotel’s General Manager asking for more details and comments on our entire stay.  Next time we’re Ft. Lauderdale, his customer service will earn his hotel a return visit.  As John Goodman points out, strategic customer service is applicable in every market and impacts every department within an organization.  Successful business leaders understand this and ensure customer service plays a central role in every decision made.

Unwavering Focus on Your Core Strengths

David Packard, co-founder of Hewlett-Packard, once said “A great company is more likely to die of indigestion from too much opportunity than starvation from too little.”  Companies of all sizes tend to lose focus at different points of their evolution (Successful companies regain it quickly).  Some will say they are “re-inventing” themselves or “innovating” but if they are doing these things without regard to the company’s core strengths, they will most likely fail.

Many start-ups and small businesses continually chase “one-offs” and justify them by saying they provide revenue and while this may be true, it takes away precious resources that are needed to move the company forward and normally is not a service that can be easily duplicated for other clients or prospects.  As your company grows, the need to focus becomes more challenging as current clients ask you and/or your sales reps to do a “little more” or “can you provide us…”  It is hard to say no when clients are willing to pay you to do something, but in most instances that is exactly what you must do.  How do you know when to say no?  Ask yourself these questions:

1. Is the service/product being requested an enhancement to our core service/product or something totally new?
2. If it is an enhancement, will other clients be able to understand the enhancement, are they interested in it and willing to buy from you?
3. If others clients are interested in it, can we add the enhancement to our service/product with our current resources or do we need to bring in additional resources?
4. Will the enhancement add value to our current offering and/or enable us to differentiate our product from that of our competitors?
5. Can I support the enhancement?
6. Will our ROI (return on investment) meet our margin requirements?

Recently I asked Peter Wakeham, the founder and former CEO of World Investor Link (WIL) which he sold in 2006 and is now known as PrecisionIR Group, his thoughts on how a company can be successful and penetrate and dominate its niche.  Peter said, “I do not think one can describe “Niche” better than “differentiation through focus” but the basics of strategy continue to apply regardless. WIL achieved differentiation through focus on i.) retail investor segment and ii.) annual reports.”  Peter also talked about focusing on the company’s core strengths by developing mutually beneficial partnerships with leading financial service organizations which “provided significant competitive advantages and blocked other entrants into the market”, as well as, “operational efficiencies…which no other competitor could match without significantly reducing service standards.”  Not just a focus on the company’s core strengths but also a passion for extraordinary customer service, no wonder Peter and his team were successful.

Source of Innovation

Being a source of innovation for your clients and partners and a leading innovator in your market is a key trait of companies that have penetrated and/or dominate their niche.  Back in 1986 while in college at The Ohio State University (Go Bucks!), I had an international business professor who had us use a draft of his upcoming book as our text book and on the opening page he wrote “Companies that fail to innovate and adapt to changing markets will be out of business by the year 2000!”  In today’s global market, innovation is a key to survival!  But innovation has to be tied to the company’s strengths and to either the company’s short or long term goals.  Innovation for innovation sake is nice but frankly of no value to your clients, partners, employees or investors and the current CEO of HP, Mark Hurd, has mandated that all projects coming out of HP’s research labs must provide economic value to the company.  In 2008 he reorganized HP Labs to “…ensure that HP is focused on groundbreaking research that addresses customer needs and creates new growth opportunities for the company.”  An example of this on the small business side comes from our first blog, where we interviewed Bob Cowan and talked about his former company American Teleconferencing Services, Ltd. (ATS) and how ATS was known for “not stealing market share but for creating new markets.”  As the head of Business Development at ATS, I can tell you this was not easy.  Every partnership, alliance and/or new product we wanted to offer HAD to be part of one of the company’s annual goals and fit within our service delivery capabilities or we had to justify the exception to the executive staff and the board of directors and get their approval before moving forward.  This made us focus on innovation initiatives that would positively impact ATS. 

Do you have an innovative new product or service being developed?  Does it tie to your company’s goals and strengths and is it something clients and prospects have given you feedback on?  If not, take a hard look at it and get moving to answer why.

Understanding of Finance and Financial Statements

In all businesses “cash flow is king” but in a start-up and/or small business it means life or death.  Every decision you and your management team makes will have a financial impact on the organization and you need to be able to see that in your reports.  Understanding the basics of finance and financial statements will enable you to quickly recognize problems, negligence, maintain the confidence of your employees, bankers, investors and board, and better enable you to evaluate the use of your limited resources.

When discussing this topic with Jerry Clarke, Chairman of the Board and retired CEO of Energy Services Group, International (ESG) – a Specialized Staffing and Business Solutions company he co-founded 26 years ago, here is what he had to say:

“The Chief Executive should be his/her company’s number one salesperson.  The CEO must not only be able to sell the company’s product or service to the customer at the Executive level, they must sell the company’s integrity, ability to succeed, including profitability and financial accountability to the financial institutions that provide banking relationships, insurance, accounting and auditing.  Additionally, the CEO must sell the company and particularly the executive element to the employees. It is improbable if not impossible at this level to be a convincing salesperson without an in-depth knowledge of finance and accounting principles.

One does not truly learn finance and accounting from a classroom or a book.  Books give you the basics and can teach the language but to understand financial statements the executive must live with the numbers.  You need to know how and where they are generated and what they mean.  Most accountants only collect data and put the numbers in the accounts that apply without any understanding of the big picture.  They press a key and a financial statement comes out, usually without any idea if the results are reasonable for that business.  The executive must have the accounting and business knowledge to examine a level one statement for reasonable results and if they see anything that is unreasonable, they must be able to examine sections of level five statements for application accuracy.

In the lifespan of every business there will arise a need for funding from external sources.  Lenders do not like uncertainty and particularly want assurance that loans or investments can be repaid.  Even though a company has a chief financial officer or controller that are CPA licensed, lenders usually require assurance directly from the CEO.  The financial world communicates with a language all their own that is typically foreign to many executives.  The CEO that does not understand and communicate in this language may as well have a sign across their forward that reads ‘I am uninformed and do not have a clue how I am going to account for your money.’  Of course this impression is not accurate but it is perceived.  This perception raises doubt and uncertainty in financiers and greatly reduces the probability of obtaining funding.  Most lenders require audited financial statements prepared by a mutually acceptable accounting firm.  Lenders used to require a “big eight” but since the consolidation of the big eight most any reputable firm is acceptable.  Accounting firms are accounting firms and not traditional businesses.  They do not understand what generates revenue or the expenses necessary to generate that revenue.  They do however know how to account for these items and the rules by which the accounting world is governed.  It is incumbent for a CEO to challenge any statement items that adversely affect the reported company’s performance.  The governing standards for accounting are “General Accepted Practices” (GAP) and “Federal Accounting Standards Board” (FASB).  The CEO does not have to quote the standards but should be aware of the existence. Let me talk about a few examples in ESGI’s life when this was very important:

In the early years of ESG, our bank required an audited financial statement from a “big eight” accounting firm.  Our in house income statement indicated a profit of approximately $300,000 but the audited statement indicated a loss of $100,000.  The difference was an investment of $400,000 that in house amortized over five years and the big eight firm expensed.  The difference between profit and loss could adversely affect the company’s ability borrow.  In the exit meeting with the big eight partner I requested, to no avail, that the investment be amortized.  When I ask if they were citing GAP or FASB as the governing body the whole situation changed.  Instantly their perception of our management changed and they saw us as equals who clearly understood the world of accounting.  The audited statement was changed to match the in house statement, we were happy, our lender was happy and our line of credit was renewed.

In another situation when ESG was in the $25 – $30 million range, we were funding operations with $500,000 of paid in capital and retained earnings with a $3 million line of credit and an additional $2 million guidance line.  (Guidance lines are not automatic funding but require bank loan committee approval.) We were awarded a $6 million short execution time (10 weeks) contract in Fl. And in all likelihood we would spend $4.5 million before any of the receivables from this contract were collected which would push us beyond the funding availability of both lines.  We prepared three flow of cash (not cash flow) scenarios which depicted best case, worst case and most probable case.  I met with our loan officer and explained the scenarios who presented them to the loan committee who in turn not only granted the guidance line but extended the upper limit to $4 million.  After the contract was completed and all receivables collected our loan officer complemented us on the presentation especially the 3 different scenarios.  He said the presentation was evidence that we completely understood the financial aspects of the business relationships.  By securing the funding for this contract we were able to grow our revenue for the year by $6 million.”

Company Culture

The knowledge that company culture plays a very important role in the success of your business is one that successful business leaders have known and have gone to great lengths to ensure the culture remains intact as the company grows.  Every company has a culture and that culture is shown in everything the company does from how it designs and implements new products and services, to how it sells, supports and bills for those products and services.  A good company culture is empowering to its employees.  They feel as if they can and do positively impact the company on a daily basis and that their personal reputation is manifested within the company’s culture.  Employees within an organization with a good culture guard that culture tightly by hiring only those that fit the culture and can make a positive impact on the entire team.   Conversely, working at a company with a poor culture is draining to the employees and they feel as if their opinions and expertise are either taken for granted and/or not valued at all.  Typically these are companies where decisions are made by one person or a small select group of people (silo decision making) with little or no input from employees, clients, partners and prospects.

A positive corporate culture starts at the top with the CEO and every executive within the organization.  New hires are not only trained to do their job they get trained about the company history and its culture.  Dharmesh Shah, Chief Technology Officer & Founder of HubSpot, as well as, co-Author of Inbound Marketing: Get Found Using Google, Social Media, and Blogs recently spoke with me about the importance of company culture within HubSpot and the specific steps they took to make sure it did not get lost as the company grew.  Dharmesh said, “First, we make ‘cultural fit’ one of the key hiring criteria.  You’d be surprised at how many companies don’t have this in their list of priorities when recruiting.  We try to maintain an environment of ‘passionate and fun’ in the office.  It’s a good work environment and it’s not possible to spend 15 minutes in the office without hearing someone laughing.  We have regular work-but-not-work activities that help people come together.  This includes a live weekly web TV show on Friday afternoons where we invite anyone from the outside to be part of the studio audience.  The idea is not to be overly serious, but not be frivolous either.  It’s not just about free beer on Fridays.  It’s about recognizing that HubSpot occupies a large part of our people’s lives and we’d be silly not to recognize that and make the environment as pleasant as possible so great people can work with other great people and do spectacular things.”  You’ll hear more from Dharmesh about being a successful two-time entrepreneur and his book, Inbound Marketing, in an upcoming interview.

Do you know what the culture of your company is?  If not, blind survey your employees and ask them what they think it is and where improvements might need to be made.

We hope you found this information helpful and if you have other traits you think a successful business leader needs to have, let us know and we’ll assemble them and add to the list.  If you like our blog, please be sure to pass it on to others.  Thanks & Make it a Great Day!