It had been over a year since I spent time at my second home in New Hampshire. So it felt good to return just as Hurricane Irene decided to welcome us to the east coast with a vengeance. As it threatened to wash away the stairway that connects our deck to the Ellis River, we were fortunate to have come through unscathed. Unfortunately, other areas in our town and particularly the neighboring state of Vermont did not fare nearly as well.
Being away for a year, one expects some changes. New restaurants opened. Sadly, some closed their doors, victims of our sluggish economy. This area of New Hampshire relies heavily on tourism – hikers in the summer, leaf peepers in the fall, skiers in the winter - for its livelihood. I was pleased to see that my favorite coffee shop (a place I have been writing about about since 2006, featured in my new book “Staying in the Game”, a collection of my blogs) made it through the tough economy.
Despite that, all was not well. The change was dramatic. It appears that the coffee shop’s owner and his wife, nice people who I consider my friends, decided that the daily gatherings of Michael (the local philosopher/intellectual and world thinker) and his entourage were interfering with their business. So about a year ago, without saying anything to their loyal clientele, they changed the seating arrangement, making it difficult to sit and chat as before. Michael, a man comfortable with consistency, took one look and walked out, never to return again. Friends and acquaintances who enjoyed his intense discussions were dismayed that what had been a favorite destination was now merely a place of transactions.
This turn of events brought to mind one of my favorite courses on non-verbal behavior at the University of Wisconsin-Madison. I wrote a long college paper on the impact of changing the seating arrangement in the library on unsuspecting students. As a library regular, I learned that you could greatly impact how someone studies simply by taking their seat. The owners of this coffee shop accomplished the same thing with little effort and, unfortunately, little thought as to the ripple effect.
Those of us who relished our early morning discussions now make our coffee transactions based on convenience (vs. destination), immediately exiting the coffee shop after completing our transaction. Previously bustling with people, it now feels empty and cold. If you compare it to Starbucks, then you understand how Howard Schultz built his entire company on making it a welcome destination. Starbucks knows that as long as they have a crowd, people want to be part of the excitement and energy. It is a brilliant strategy, especially when the baristas are friendly to customers, reinforcing a positive experience every time they return.
It’s certainly easy to criticize the owner of the coffee shop but, while I may not like his tactics, doesn’t an entrepreneur have right to run his or her business as he or she sees fit? Entrepreneurs have to be able to decide the direction of their business that is most enjoyable for them. And, if they lose some customers by changing their model, perhaps they will gain (hopefully) more along the way. And, even if the new strategy doesn’t work, they cannot be faulted for taking a risk. Having too many people at the shop may indeed have interfered with conducting their business. Making a change may have been the only way they could survive, even if it meant losing revenue. Wouldn’t closing down the shop be worse?
The owner is adamant that he roasts and brews coffee superior to anyone else’s, even on a national scale. He works extremely hard to perfect his craft, deciding a few years ago to change from using commercial beans to roasting his own. And he has won national awards for his efforts. In his mind, it’s all about the product and nothing else. I would also be bold enough to say that in his mind, changing the seating was instrumental to achieving his goal of having people come in for a superior brew and then leave for some other destination rather than “hang out” at his coffee shop.
This illustration reminds me that there are many types of businesses that can choose from any number of business models. When you look at the fee advisor marketplace, there are many practices that might fall into one of a few common of categories. I usually point to four quadrants: wealth manager, investment advisor, fee for service, and transitioning brokers to advisors. The wealth manager has all-encompassing relationships with clients that include financial planning, investments, estate planning, etc. When you decide to be a wealth manager, you really get involved in the lives of your clients. You have to be emotionally tied with them, which isn’t always comfortable. While you still do the investment side of the business, your client looks at you as a total package and not just your past year’s returns.
As an investment advisor only, you probably don’t own your clients. You are as good as your recent performance measurement. If your client looks at performance beyond last year, you have some time. If they look at it on a monthly basis, my guess is that sometimes it is quite uncomfortable and you likely recognize that you are at risk. Clearly my bias is for the wealth manager who develops a strong relationship with their client, but there are some great investment managers who have some consistent good returns and have engaged their clients long term.
By changing his business model, the owner of this coffee shop moved from being relationship driven like the wealth manager to being performance driven like the investment manager. His view is that his coffee will always be better than anyone else’s in the area. He thinks as long as he has the best coffee, people will come to his shop. Maybe he is right and, since I like him, I hope he is right. But I’m worried he has made himself vulnerable. My view is that his many local competitors can find ways to steal away his customers. If one coffee shop would simply open its doors as early as he does, he likely will lose some customers. It may not be those of us who are particular about our coffee and won’t tolerate what I affectionately call “sewer water”, but there are plenty of people who drink mediocre coffee which they might find acceptable if it is complemented by a lively, exciting environment.
I’m guessing that in the next few years, the coffee shop owner will decide to mass market his coffee and get out of the retail business or he will lease his location to someone who is extremely customer-oriented. With that small change, this place will go back to being the dominant coffee shop in the Mount Washington Valley. The question is, at some point in the near term, will he recognize that something as simple as changing his floor plan puts his business at risk? If he doesn’t become proactive and woo back his ex-customers, my guess is that he might not be able to afford the choice he made.
I think all entrepreneurs face the same dilemma. We need to understand the business model we are most comfortable with. Sometimes that takes years to recognize. And if we decide to make changes, even something as minor as moving the chairs around in our reception area, it may be unsettling to our clients. I guess no matter where you are, running a business means understanding your customers’ needs, even out here in the woods.
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