Operational Perfection – the 3rd Differentiator

Investors want to know what makes your business different. “What’s your ‘secret sauce’?” The reason is simple. Companies that can differentiate their offerings can create sustainable competitive advantage, and that gives them a larger share of any market and more profits than companies with “me too” services or products. There are three dimensions of differentiation: 1) technology/innovation; 2) customer intimacy; and 3) operational excellence. Today I’d like to focus on number 3.

I recently had a consumer experience with Untuckit.com, a startup founded in 2011 to make button-down shirts designed to be worn untucked. Since I’ve been rockin’ the venture-capital-chic untucked oxford shirt for a few years, this seemed like genius to me. http://rack.3.mshcdn.com/media/ZgkyMDEyLzEyLzA0Lzk3LzEwcGVvcGxlZGlzLmJrVS5qcGcKcAl0aHVtYgk5NTB4NTM0IwplCWpwZw/d810e145/3da/10-people-distracted-by-untucked-shirts-at-apple-event-76bf07617b.jpg

Here’s what went right (and wrong) with my customer experience:

  • Their ad found me online ++
  • Their page is well organized and I found what I wanted easily +++
  • The ordering process was painless +++
  • The product I ordered arrived on time +++
  • But…it didn’t fit —
  • They had a time limit on returns and initially only offered me store credit —
  • When I complained, I didn’t hear back or get my return label ——
  • When I complained again after a week, I promptly got a return label and a refund +++
  • They followed up and told me that they’d have my size in the future+++

That’s a lot of things they got right! This is pretty good performance and in any other century, would have been good enough. But today, as consumers, we’ve been trained by the likes of Amazon.com to expect not just Operational Excellence, but rather Operational Perfection. As entrepreneurs, why is operational perfection necessary? Let’s use the Untuckit example as an illustration.

Why is this important? First, when you’ve gone to the trouble and expense of delivering a product to a customer, only to have it returned and refunded, your company loses twice as much as if you’d never made the sale in the first place. Second, in today’s climate, consumer backlash (negative comments, posts and tweets) is rampant. It’s no longer true that “any publicity is good publicity”. A bad subreddit or tweet can really hurt your businesses conversion rates. But most importantly, to build your brand and momentum, you need as many rabidly loyal fans as you can get. Operational perfection is a reason for people recommend you to their friends and colleagues.

How can we achieve operational perfection? Each company is different, but in the case of my experience with Untuckit, we can break it down. I hope you can apply these lessons to your business.

  1. the product didn’t meet the customer’s expectation (in this case, the shirt didn’t fit). Untuckit already knew they had a problem in this area. Their website says, “Please note that our shirts do run on the smaller side so if you are right on the border please buy one size up. Please note these are standard sleeve lengths. Dress shirts sleeve lengths do not translate to casual shirt sleeve lengths. As an example if you wear a 32/33 dress shirt sleeve length then a medium will fit you. If any questions or confusion please email us.” Confused, yes. If you’ve got a paragraph like this anywhere in your ordering process, what do you think it will do to your conversion rates? I shouldn’t have to email you to get unconfused! This text gives me three options, none of them pretty for the business: 1) order the product (as I did) and return it at your cost; or 2) go shop somewhere I’m not confused (what the majority of people will do because the confused mind says, “No”; or 3) don’t order the product and either email you or don’t. None of these has a great outcome, except for the statistically random sample of people for whom the product happens to fit. I don’t know what percentage that is, but I know for certain that a few of hours making this part of order process less confusing will make the company’s metrics improve. There are lots of ways to make sure a shirt is going to fit if you give me enough information/images/examples (e.g. here or here).
  2. a time limit on returns and initially offering only store credit. Well, of course there has to be a returns policy, but if you immediately offer my choice of store credit or a refund (or just refund me immediately), you run the risk of surprising me in a good way. Delight the customer! Every startup needs a core of rabid fans.  If you delight customers, you’ll gather rabid fans much more quickly than if you don’t. On the other hand, if you get a return request, that means that you’ve got the customer’s money and from their point of view, you didn’t satisfy the purchase contract. So from their point of view, every second you try to hold on to their money, you’re a thief! I know that’s extreme, but I use it to illustrate the point.
  3. Neither the return label nor the answer to my second request for a refund arrived promptly. When I complained about it a week later, I got an immediate response, with a lame, “maybe it went in your Spam folder” added on. Well who’s fault is it? Must be mine, I guess. Nope. It’s always the vendor’s fault, as long as other online merchants are going to assume that the customer’s always right. How about a little follow-up? Check out Amazon’s return process. Oh…my…god…it’s perfection.

All in all, Untuckit did more things right than wrong. They’ve lost (for now anyway) the opportunity to make me a rabid fan, but they still have an opportunity to win my business in the future. Any they avoided a flaming tweet-storm! Think about how customers feel when dealing with your brand online. There are probably a lot of things you can do to improve. Take the time to do user studies and ask your customers for feedback. At the very least, find out what your Net Promoter Score is and figure out how to improve it. As you fumble towards operational perfection, you’ll earn the love of customers and your numbers will begin to take off.  That’s what investors will notice.