I reread the book Broken Windows, Broken Business by Michael Levine, Warner Business Books, 2005. The theory behind the book is if the Broken Windows Theory works for crime and it does, could it work for business? The theory is if a window is broken and is quickly fixed, there will be less crime. If a window is broken and no one fixes it, there will be more crime. The reason is simple if the window is fixed as soon as possible, it shows someone cares and is looking after the property. If the window is not fixed, then the crime of opportunity will happen. If no one is fixing the property, what else are they not fixing or not worried about? What else can someone get away with? The theory works with property crime; it works in the classroom where students test teachers boundaries; and Mr. Levine’s book says it works in business.

To replace an existing customer, the cost will be 9 times as much as keeping an existing customer. The first rule to save money is to focus on your existing customers. The problem is you may not know why they leave, but one thing you do know is middle income people vote with their feet. If the customer has a bad experience or not a good service, they will go somewhere else and given the Internet, there is great opportunity to try something else. The Broken Windows Theory says do not give a bad service but ensure you do it right the first time. The rules are:

you have to pay attention to every detail of your business.  Mr. Levine is writing to the business owners as they have to live and breath the business. Paying attention to the details, means all the little things a customer sees that allows for the customer to have a continuing good experience. When the business opened, it made a promise to its customers, if you do not deliver your promise, the business will not last long. If something is wrong, people will notice and customers make the correct choices.

you will correct any broken windows – both physical and broken opportunities. Broken windows is not just the physical layout, although that is what people will see first. It is important if the building needs slight repairs, the repairs are done. People will wonder why are the repairs they see are not done. Sometimes it is the opportunity that is lost – is there a logical and good add on to your business that makes common sense and shows you understand your customer. A classical example is IKEA and the ballroom for children – it shows they understand their customers have kids, to help the parents shop the ballroom was added on.

you will screen, hire and train employees to notice broken windows and to correct them. In an ideal world, your employees bring the same values to the business as the owner, however we often do not live in an ideal world. Your business gives expectations to customers, is the reality meeting the expectations? Do you hire the people and ensure they have the ability to match reality to expectations? If you hire people and give them 30 seconds to solve problems after a customer has been on hold for 15 minutes, reality and expectations will not meet. Each partner has to find the balance to ensure employees can shine and training/support is taken advantage of.

you will treat customers as they are the only customer you have. If everyone is treated well, then they are less likely to leave. Within the context of profitability of the customer, everyday you should do as much as you can to ensure they have a good experience with your company. The writer once went to a local barber to cut his hair, the barber would always say if you came half a hour earlier or yesterday, no wait. You come now and you wait. Since he offered no reservations, it was irritating. I went to someone else that appreciated the business. You likely have a similar story.

Linking to dividend producing companies, even if a company has a dominant market share it has to follow the broken windows theory in one way or another. My sister-in-law has one of those signs in the hallway which in theory is connected to my brother, and the sign says If is dirty, clean it; If it needs to be fixed, fix it; etc. I think the sign is there so she does not have to remind my brother to do the chores that need to be done without her continuing to say to do them. Similarly the broken windows theory says if you are in a business everyone needs to do all the things, not a piece of them. If people only do a piece, customers have choices, when there is choice people will exercise a choice. If a company does not live and breathe customer service, expectation and reality do not meet so profits and dividends will suffer.It is worth asking the companies you invest in how much does a new customer cost them? How do they ensure the expectations meet reality? How does your company live customer service?

More in part two.

There are more questions than answers, till the next time – to raising questions.