Bad for business

I have a popular theory (popular with me ;) that shareholders, and Wall Street in general, are bad for business, because they take the focus of your company away from satisfying your customers and turn it towards satisfying your shareholders, which is not necessarily a bad thing. You're in business to make money, these people have given you their money to fund your business and so they expect to see a reasonable return on their investment, because it's your business but it's their money.

The problem with this, as I said, is that you focus too much on making your shareholders happy, and in doing so drive customers away. This same principle applies to all businesses, regardless of size or source of funding. The little corner store still needs to make money. Mom & Pop can't survive on the love of their customers alone, they need their customers' money, too. But if they charge their customers too much, they drive their customers away, and the increased profits they were hoping to see from raising their prices are outweighed by the reduced volume of sales. It's a fine line they tread.

The automotive industry suffers from this shortsightedness, as does its investors. Sales slump, revenues are down, shareholders are unhappy because they're not seeing the same ROI they've becomed used to, so what do the auto companies do? They need to increase profit so they cut costs by eliminating positions, by closing down plants, greatly reducing expenses and overheads. It's a Lose-Lose situation. By shutting down factories and eliminating workers they've decreased future production so next year, sales will be down and revenues will be down, so profits will be down, shareholders will be screaming (again), and they'll be forced to cut costs, again. Vicious cycle.

The cafeteria in my building used to be pretty good up until recently. About a month ago Casey, the Pasta Bar Chef, told me he was going on vacation for the next week, so his Pasta Bar would be shut down. We had several 'bars' in the cafeteria. There was a mexican bar where you could get anything from a burrito to a taco to a quesadilla. The Pasta bar, and next to it the pizza bar which made calzones to order. Then there was the Entree bar where you could get, on any given day, a quarter chicken and 2 sides, or roast turkey & 2 sides, or roast beef & 2 sides, you get the picture. There was the grill for burgers, and the sandwich section, which also did wraps, made-to-order, and the custom salad section, which did made-to-order salads.

A month ago Casey told me he'd be gone for a week, so that next week I ate Wraps from the sandwich section and ignored the empty pasta bar behind me. Two weeks ago I popped in to welcome Casey back and get my usual fettuccini dish, but when I walked in the place was empty, even for 11:30am. I walked over to the Pasta Bar and it was empty of fixings with no sign of Casey. The pizza and mexican sections were also shut down. I got a turkey wrap (again), took it to the cashier and asked her what was going on. Apparently the Manager decided they didn't have enough money to buy pizza, pasta & mexican food supplies, so they shut down half their operation.

This is akin to Ford or GM experiencing a shortfall in revenue, firing people and closing down plants.

With no money to buy the ingredients to stock the cafeteria, management cut costs by closing operations, thus limiting their customer's choices.

Now what do you think is going to happen?

People like me are going to go down there, as I did today, and when they see the place is empty and devoid of choices, instead of just making do, and getting a burger or a sandwich, they'll do as I did and vote with their feet. They'll take their money and go somewhere else.

The decision to cut costs by cutting production seriously impacts future revenue. And when you're not the only game in town people are going to take their business elsewhere.

When we first moved into this building the cafeteria was packed with people at lunchtime. The four registers were fully staffed and there were still lines of people waiting to pay. You had trouble finding empty seats in the dining area so people would bring their lunches back up to the breakroom. They must have made a lot of money during the first few months we moved into the building, then demand slowly petered off, people got sick of the same old food every day and went outside to see what else was there. Even if it was just the burger shack across the road, or the taco stand up the street, it was a different burger and a different taco. Despite this, if you went to the cafeteria at noon it was still very busy.

Then demand dropped right off, the cafeteria ran short of money, and instead of trying to work out how to make their customers happy and bring them back, they cut costs, they cut operations, they drove even more customers away. This cannot end well.

The lesson of the day is that even though you're in business to make money, if you only focus on making money you might blind yourself to the big picture; and that is that you cannot make money if you have no business.

About the same time as Casey told me he was going on vacation, people were outside handing out fliers trying to get one of the cafeteria's Chefs reinstated, after she was fired for allegedly being rude to customers. The flier claimed she was really fired for trying to organize her coworkers. As a government employee I can tell you that government employees are usually very pro-union, so if someone working in a cafeteria that services a government building is fired for being pro-union, many of the government employees who would normally eat at that cafeteria will stop eating there, out of support and solidarity (even if they're in different unions).

A decision to fire a worker for trying to organize your staff may seem like a good idea. If your staff are not organized and don't belong to a union, you can continue to pay them lower than industry standard wages. You can keep costs down and pass those savings on to your customers in lower prices, right? Yeah, like you're really going to do that. The money you save in not paying higher wages is going to go straight into your pocket.

So what happened here?

If the chef was fired for allegedly trying to organize her coworkers, the cafeteria was focused on one thing, the bottom line, keeping costs down and maximizing profits. When customers began protesting about her being fired, as I'm sure happened, management would have insisted that she was fired for being rude to customers, and they would have ignored those customers who said she was never rude to them. Then the money began to run out so management made the decision to cut costs and reduce the options available to their customers.

The bottom line is that management was focused on the bottom line instead of keeping their customers happy.

Perhaps the Chef did get fired for being rude to a couple of customers who felt compelled to complain to management. When hundreds of customers then complained about her being fired, who should management have listened to? One or two offended customers? Or hundreds of customers demanding she be rehired? Perhaps she was rude to one or two customers, but by listening to just a couple of customers and ignoring hundreds of others, the restaurant has signed its own death warrant.

I hope the new owners do a better job of taking care of their customers than the current owners.