The Advantages of Running an Ethical Business

April 20, 2013 in Essays

A year or two ago I got a letter from a small-business owner and “avid” reader of Early To Rise who was struggling with an ethical question.

This woman, whom I’ll call “Renee” to protect her identity, was successfully selling investment software to customers, but she had discovered that 85 percent of them were trading accounts of $10,000 or less. She said that she knew from previous experience as a broker that it was very difficult to make money with such a small capital base. She wanted to know how she could continue to sell the software, knowing that most of her customers “were not going to have a profitable experience because they are starting off too small.”

The answer is easy. Selling bad products to your customers (or good products to customers that can’t take advantage of them) is a very bad idea.

It may seem like a smart thing to do – if, that is, you have no scruples. But if you have a conscience, the shame of what you are doing will take its toll on you. And the expense of that toll will be far greater than whatever monetary compensation the business is likely to bring you.

And even if you don’t have a conscience, it is still not a good idea to sell products and services that can’t help your customers. In the long run, you will end up working harder and harder to make the same amount of money (whatever it is), because your customer base will be constantly slipping away – like sand running through a sieve.

There is, indeed, a sucker born every minute – but most suckers get wise after being cheated. And they will pay you back by badmouthing you to everyone they can, including regulators that have the power to put you out of business.

I understand Renee’s temptation to come up with a rationale to keep selling her software programs. They are well designed. The advertising isn’t false. And she isn’t holding a gun to her customers’ heads … they are choosing to buy from her.

The only problem is that the wrong kind of customer is buying the programs. In fact, most of the buyers are the wrong kind.

I have several clients in the investment advisory business, and I know that it is impossible (as well as impractical) to screen every customer and weed out those who, for whatever reason, are not suited for a particular service that you sell. Nevertheless, you have to make an effort.

Renee has to tell her buyers, before she accepts their money, that her program will not work for them unless they are prepared to have a minimum of X number of dollars in their accounts. She has to disclose the risks, all the risks, in plain English and standard-size type. And she has to offer, and honor, a 100 percent satisfaction guarantee.

If she does all that and then, upon auditing her customer base, discovers that a significant portion of them are still under-funding their accounts, she will have to start screening them on the phone. If her program is expensive – as I imagine it is – she will be able to afford to do that.

No matter what you’re selling, if you determine that you’re attracting the wrong kind of customers for your product, change your product into something that would be suitable for the customers you are attracting. If you don’t think you know how to do that, you don’t know enough about your business to be successful on a long-term basis.

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