Fred Reichheld | On the Homefront with Jeff Dudan #65

Welcome everybody to on the Home Front with Jeff Duden. We have a special guest today for a variety of reasons and I'm very excited to welcome Fred Reicheld to the podcast today. Welcome, Fred.

Good to be here, Jeff. Thank you.

Fred is a longtime Bain fellow and is the godfather and inventor of the Net Promoter Score, which is one of the most widely used customer relationship, customer satisfaction tools in existence today. And something that we use here. Not only franchisee facing, but we're also, you know, aspiring to implement it into everything we do with our consumers. So we, we appreciate being the beneficiaries of your work and are excited to unpack it and, and hear some of your thoughts around it today. I'd like to start, Fred, with just anything you'd care to share a little bit of color on your background. I know you went to Harvard, anything that would be interesting about your early career or how you grew up.

Wow, let's see. That's a long time ago. I grew up in a town suburb of Cleveland, Ohio called Parma and had sort of a normal, you know, a nice suburban existence. Applied to Harvard and incredibly got accepted. I think I was the first kid from Parma. Parma's not the right side of the tracks, generally speaking. It's not the fancy part of town. So I was amazed and really not prepared for what I ran into at Harvard. But it worked out well and I ended up going to the business school there and joining a company called Bain, which was then a newish consulting firm and has now grown to the point where, gosh, I don't know how many, 15,000. There's so many people, I can't keep track. I think there are 2,000 partners now around the world and I've seen that business grow from a small entrepreneurial startup to a world class organization. And by the way, it was the highest rated Glassdoor company this past year. Something that's been the high and it's been the highest a handful of times in the last since Glassdoor started. I think it's the highest rated firm over that entire period. So this notion of treating your employees right is at the core of entrepreneurial success. But treating them right, of course, doesn't mean spoiling them and, and trying to make it an unrealistically easy world. You know, you help them succeed, but the truth is they can only be happy and inspired if they are enriching the lives of their customers, helping them succeed. So the job of leadership in my mind is helping your teams both understand happiness is based on happiness, their customers and then trying to help them find valuable roles in team structures that, that let them do that and let them hear that standing ovation as, as often as possible.

When you joined Bain, what, what department or what was your specialty from a consulting perspective?

Yeah, we were generalists. It, it was called strategy consulting back then. It looked across the whole business and tried to think about gee, how can we be the low cost player in what customer set the ideal structure and ownership structure, all those things coming together and eventually led to this thought that gosh, if we're so good at advising people, you know, why aren't we principals and own our own businesses? And that led to the formation of Bain Capital, which is now one of the largest private equity organizations and certainly one of the most successful in the world. The, you know, the two firms, although they're totally separate now, they learn from each other and I continue to learn and I, I think private equity is actually a far better structure for many firms than public. But even private equity has many shortcomings that if you structure the ownership the right way and maximize the chance that you're, that you're trying to build greatness, not just financial prosperity in the short term. There's so much upside for privately owned companies done right.

How much of Bain's leadership style informed your thinking as you started to get the concept of net promoter score?

Well, a lot. I mean that was my whole career. I was between years in business school. I joined as a summer intern and I've been there ever since. And this is back in 1977 I think, you know, certainly from my colleagues at Bain. I learned a ton about the practical realities of getting organizations to embrace the facts, the truth, and to take rational action on them in an effective way. There's just so much silos and infighting and I didn't realize back then how people see the facts that they want to see and will just completely ignore the ones that don't support their self image or the worldview they want to have. So just the idea of let's get the facts on the table and agree on what implications they have for our priorities and our next steps. That's a huge step forward. The challenge was there was very little factual evidence around customer happiness. And I came to believe that great organizations, their first goal is to make their customers lives better and that happy employees and great financial returns for owners are benefits you get downstream from, from that core idea. And I came to express it the way Andy Taylor built Enterprise Rent a Car into the leviathan it is today. And it's sort of a miracle when you think about it. A private company, family owned little car leasing business in St. Louis, Missouri grows to become the largest car rental company on earth. As a private firm, never had to tap the funny money of Wall street or just none of those gimmicks. And I said, how'd you do this? It's in a commodity business pretty much. Low, low growth, low profits. Look at all the bankruptcy. You know, Hertz and Avis and all the big names, they've struggled. So how did you shoot through this challenge to build this, this wonderful success which I think the family is worth tens of billions of dollars today. So it's a success from every dimension. He says, Fred, there's only one way to grow a business. You inspire your frontline teams to treat customers in a way that makes them want to come back for more and bring their friends. And it's that simple. And over the years I came to recognize that GAAP accounting does not measure that process at all. It is completely opaque. So this notion of how much of my business is coming from customers who were with me last year and how many customers are they referring to? Those are the center. That's the fundamental driver of business prosperity. And what makes capitalism right, it's an act of service. You know, we exist to make our customers lives better and we benefit when we do that. That's pretty high minded. So from a philosophical point of view, it's good, but it also works. It makes people wealthy. And accounting does its best to not just obfuscate but actually lead you down a false path. One that says no, the purpose of my business is profits as opposed to the purpose is to help my teams make customers lives better.

And that's a distinction that I've heard you make on multiple interviews as I prepared for this interview and also in your great book Winning on Purpose which I've been through. And so you know, private equity has a way of reducing, you know, leadership focus to the spreadsheet and, but in not every case, but and I think as a leadership team of one of the fast, we're one of the fastest growing franchise platforms in North America right now. You know, we were making decisions based on what franchisees needs to serve customers well. But we're also being mindful to hit some set of numbers inside of accounting and all of that. But you bring examples in the book of Caliber Collision, who was a private equity backed, who put a leader in place, who committed to customer service and basically customer centric thinking and they grew that business exponentially. 20x over that period of time you bring up First Service Corporation, which was a franchise organization, one that I had mentioned to you earlier that we think a lot of, we're personally personal friends with the leadership there. We look to them for leadership in the franchise space in, you know, how they do their business. And so it's interesting though because so much of business has to do with the financial results and the reporting and the reporting to the shareholders. And I can see how that can get ops, you know, how can that be a distraction from the really the true purpose of the customer? And so when do you see, is there a certain type of company that has the courage and that has the leadership that to commit to the net promoter score to the customer loyalty where in other companies it's impossible for them to do based on their structure?

Well, I think if the owners are really trying to optimize for this quarter or this year, you get the worst possible results because accounting targets become, they overwhelm human targets of treating people right and making wise choices. And it's even worse in a large company, a global company, where it's siloed and everyone's, you know, the overall profit and shareholder value has been parsed into lots of little slices. Then you're going toward partial objectives intensely that are very short term in nature. And that's the situation in most public companies today. And it, you know, it's not a happy life and the performance isn't that good. Now private equity is a little better. Private equity, instead of having a bunch of fancy business school professors and celebrities on their, their board of directors who don't understand the business partners in private equity, they, they usually know the business pretty well or if they don't, they get to know it because that's, that's their life. They can't succeed unless their, their companies succeed. But they tend to have a capitalization structure that focuses them on three years, one, let's say one to three years. Whereas public companies are more like three months to a year. And three, three years is not bad. But great companies need a longer time frame. It takes longer to develop people, to build markets, to innovate. And so I think there's this, you know, not many companies were born out of private equity that became truly great. Caliber has, and I think part of that is leadership and part of it is the private equity company. There's good and there's better and worse private equity companies. And the leaders who are smart are going to bring investors in who are the right kind of people and have this longer time Frame who will stay invested in that company long after it goes back into public markets. So they're thinking long term. But you know, all that said, the guys that think the longest term for me are either pure privates like Chick Fil A where it's family or enterprise rent a car where you have a good family who is cares about their reputation more than anything. They're already plenty wealthy. I don't think getting a few more billion dollars is highly relevant. But treating people in a way that makes you proud and making wise choices that make the world better, that is a high priority and that's what greatness requires. And as my earlier point, this notion of treating customers so they come back for more and bring their friends. Being invisible to accounting, we set all of our and private equity is equally guilty here at mostly they use financial targets as everything and they don't capture the most essential idea of are we making our customers lives better? So much better that they come back for more and refer their friends.

Well, if I'm two years into a five year fund and I make an acquisition and I know that the fundamentals, the demands that the company's going to have to hit certain markers over a shorter period of time versus I am a generational steward of this asset. It's connected to my family, to my family name, to my children, to my grandchildren, to the community that have built it, to our employees who we've been with us the entire time. The decision making is, has to be completely different.

Yeah. Unless you get a truly outstanding human being in a leadership role, who's gonna figure out how to get the priorities right no matter what the short term pressures are. But you know that, that's, that's why we have so many, so few great businesses today. It's really hard.

Yeah, yeah. Sometimes ex military people make incredible leaders. Hugh McCall ex Marine bank of America these types of people that, you know, understand that's where what resonated with me when I read a little bit about that in your book was taking care of the frontline leader. Really. And this is. I, I just got, I'll be honest, I just got slapped in the face with this in our organization because we are growing so fast and we're opening so many new businesses. I spoke to it in making sure that the people that were engaging with our franchisees were meticulously trained, you know, Chick Fil a type consistency. They had the information at their hand to get it to the franchisees. They didn't have to ask and say I'll get back with you and you know, in this small period of time inside of one of our brands, we failed. Now we do Net Promoter score every month with our franchise network. So as soon as we began to fail, we heard about it and we were able to then retool. We've reorganized where these people sit in the organization. I'm personally doing a training and I'm bringing all this like it doesn't. Just because I've been in business for 30, 35 years, I'm not going to tell you which because I've been in business for a minute and I have all of this training. If I, if we don't get it into the people's hands that need it, then you know, that's no good. So you know, but the Net Promoter score, at least you know, to the extent that we're doing it as well as we understand how to it, it fired that early warning shot and said we're starting to have some problems here. And then we were able to react to it and do whatever it took to get that situation right. So, you know, and I think the score gets a little skewed if you do it every month because. And it's the same group of people because if they're happy, they're probably not going to weigh in, but if they have something to say, they're definitely going to, you know, score you appropriately and give you the comments. But like that's what we want. We want to make sure that people have the opportunity to let us know where we're not meeting expectations.

Yeah. One of the most important points I make in this last book, winning on purpose, is that the score has been so overemphasized and abused and big franchise chains and hotels and car dealers have linked frontline bonuses to short term bonuses to the scores they get. It's pretty much destroyed it. Everybody from an Uber driver to your hotel is saying, listen, if you can't give me a top box score, it's a 10 or five star or whatever you're using, come talk to me or, or what do I have to do to make sure it's a. Only a 10 is a passing grade in our car dealership, that kind of stuff. And that of course means that the data is close to useless. If you treat someone who they hate, they just hate it. You'll hear that. So you're wise getting feedback. But I don't think we can link the Net Promoter philosophy to survey scores much longer. And what I note in winning on purpose is with all the digital enhancements and artificial intelligence There is no excuse for not actually measuring the real behaviors that we're after that are signals that you've enriched a life. And those are, that's repeat purchase, expanded purchase that back for more. And then referrals, people throw up their hands and say, oh, referrals are hard to measure. Yeah, it's a black box. It, it happens to be the most important black box in business. For example, you know certapro Painters, you mentioned Charlie Chase, the friend of both of ours. I joined the board of directors at Charlie's company at first service. And I think they were interested because they saw how important Net Promoter could be and the number of their franchise businesses and others. But certapro is a classic where people don't paint their house more than what, one every seven years maybe. So why should I go crazy delighting a customer? Because I'm not going to get a bunch more business from that household. I should just do an adequate job, right, and do it productively. But the philosophy is no. Every time you go out and paint a house, you want to do such an amazing job that they refer you to at least one of their neighbors or friends. And that's how you get business. Sure, we have to advertise a little and have marketing, but to be honest, for our best teams, we need no marketing. They do the marketing through the customer referrals they generate. And first service, if you've paid attention as a public company, it's had total shareholder returns in excess of 20% per year for 20 or 25 years. It's better than any private equity fund I've ever heard of. And yet they're just, they're built on Certapro Painters doing commodity businesses in tough slogging markets, you know, fragmented. And how can you turn that into wildly successful returns to the owners? I think because they understand that idea, that just like Andy Taylor, we have to build processes and systems in our business that help our teams delight customers and earn referrals. And even there, we don't measure it as well as I hope we will in five years. But as I say, with digital tools, with innovation, I expect survey volume to drop precipitously. Instead, we will be identifying promoters, passives and detractors based on their repeat purchase.

And referrals without even asking, without even asking them.

You just watch their signals. You know, if you're a tiny business, you can tell by the look on the person's face if you really made their life better. But if you're the owner and you've got a few teams out there, you lose track of that. However, you can watch referral patterns and understand the same truth. And that's where I think smart businesses are headed.

Just for clarification around misuse or abuse of the net promoter score, I bought a car one time and I think the salesperson told me five times, it's, you know, we want you to fill out the survey, but whatever you do, fill out number 13. Yeah, you have to answer number 13 or whatever.

Yeah. How likely you'd recommend it to a friend. That's the net promoter question. And every car brand is fixating on that whatever question number they have it.

So are you saying that when presented with that survey, it needs to be uninfluenced?

Of course. And I'm not even sure we can get truth on surveys anymore, given how badly they've been abused. I mean, if you've got the right culture, you can certainly survey your employees. As long as you're not penalizing and artificially bonusing on it or shooting the witness or the messenger. And your frontline teams know they're dealing with customers every day. Don't waste your customers time. Ask your employees what needs to change for us to earn more referrals. But this, this tracking of referrals, that's what, that's what franchises, that's what owners have to figure out. Tiny business, you know, when they call the owner, right. And, and you ask where, how did, how'd you hear of us? And oh, it was that job. You understand referral flows perfectly as a tiny business, but as you grow, you tend to lose track of that core truth that is at the, is the foundation of profitable growth.

So I've got a chicken or egg question here. And it has to do with the implementation of a customer centric tool, loyalty tool, and then culture. Have you seen it where you go into an organization? I'm sure that over your career you've gone into things that would be considered either turnarounds or fixes or know. Let's, let's try to figure out what's going wrong here. And ultimately you're probably going to look at some cultural things that are going to be symptoms of probably focusing on the wrong things, putting people. I mean, as soon as you align people to the wrong incentives, because everybody works to their comp plan. I mean, everybody works to their comp plan. So if you create a comp plan that says just sell the job for the biggest possible dollar, then what happens is people don't pay attention to margin. If you say, you know, I need your call handle to be under a minute and 30 seconds. Then people are going to be getting horrible customer service on the phone, incomplete answers, unresolved tickets, all of that kind of stuff. So now when you turn an organization to be more and put the customer at the center of everything and their loyalty and their and their behaviors, can that have the impact of improving the culture and turning a business around in that way?

I think the leader has to set the culture and how they structure incentive plans just screams out as one of the most important ways to communicate what I truly value. And I think culture is what you value and it's just different words for the same thing. And I think most comp plans today are ridiculously stupid. They are bringing out the worst in their people because they don't touch back for more and bring your friends, which is the center now. The reason I saw the opportunity for a net promoter. I saw Andy Taylor at Enterprise Rent a Car with a two question survey about how happy their customers and how likely they were to return. He did it for every one of his branches in a statistically reasonable way and rank ordered all those branches and all the regions and districts and regions and then he linked it to their career success in a way that's much more intelligent and clever than what car dealers do. Car dealers just rank order the employees or the branches and say you're in trouble if you're in the bottom decile. He said, you know, these are surveys. People in rural areas tend to score higher or urban areas lower. People, German backgrounds, they, they're tougher scores. People with Hispanic backgrounds, they, they're easier with great inflation. I can't link some bonus. That's ridiculous. People will obsess on these subtle unfairnesses. So it's top half. You have to be in the top half of my branches to be eligible for promotion or eligible for the premier awards that they give at the annual conferences. Now the truth is you should be in the top 10% if you're really good. But he doesn't, you know, at the top half and the way they measure it, statistical, it's really the top two thirds. You have to be in the top two thirds and that's the right amount of linkage. It has to count but not count in some algorithm that's so precise, falsely precise that all it does is bring dishonor to the employee because they have to beg for tens because they work in New York and New York is a tougher scoring market. And I think the way you break out of that is you watch and Track referrals. We have a long way to go but we have to have ways to make someone want to give a referral. Not just word of mouth but here, here's a token I got and it's linked to the Internet so I can. People are going to be able to track everything. Who I am, who you are, but it gives you a warm welcome and it makes me feel good. It's not a bribe that makes me refer you inappropriately but if I'm going to refer you, I'll at least take this extra step. We have to start tracking those processes.

Yeah. In a way do you do feel like social media companies are ahead of the game? Because they never ask me what you know, what I'm thinking of Facebook or what I think of this but they just serve me back information offers content based upon my behaviors. So they've basically short circuited attention and attention management and using the tools like you describe. Interesting that they've been able to do it so fast and then maybe some of the biggest companies in the world are still asking people with the old fashioned survey.

The social media has made progress for sure. Amazon ratings now there's just today there is so much abuse and cheating and gaming of the system. Some expert I read recently said at least half of the reviews on Amazon are bogus. So you know, and I think, I think I personally find Yelp and some of the more local companies even less reliable because you got some screaming unhappy person that overweights it and probably stays there until the end of time even though the franchise is sold four times in the interim. So it's just, it's, it's a step in the right direction. You find them useful as a shopper, somewhat useful and increasingly less useful. But I think what will replace them are the one to one referrers and you know, influencers are supposed to be so impressive today. I think that's a fad because it's bribing people to, you know, it's just their touts, they're not real refers. Who you trust the most is somebody you know, they've got the right, you know, they've got same kind of purchase criteria you do that, you trust their judgment. So one to one, I, I know that person, that person, that's where the power is of the future. But yeah, you're absolutely right. Social media was one step in the right direction.

I, I was listening to an AI expert and I also think he was a more of a general people behavioral expert and he was talking about AI and how AI Is now it, you know, there was a trend where so, so if you, you know, I, my brother always said if you love your kid, teach them to bat right, bat left and throw right. But you know, and then I, and then I added right and teach them to do finance or code. So you know, there's, there's these coding and there's finance and these are, these are highly sought after skills. They're very technical and they're manufacturing economic incentive in ways that is outsized to a normal job or things like that. And he said those are the skills through AI that are going to be commoditized and the human skills are going to be back as a high priority because people that can sell and talk and do those types of things are because, I mean you can have AI now to write you a computer program. So what used to take somebody a week in a dark room, you know, and energy drinks. Now you can, if you can speak it into existence, it can be built for you. So it's going to be an interesting shift in terms of how consumers really change their behaviors inside of that. And for us, again, we sell at the front door, we sell at the kitchen table. We have to interact with people. Yes, we can make the consumer journey more efficient. They can schedule, they can book, they can get their statements, they can do lots of things, they can have a conversation with a non human if we want them to. But like we still run an old fashioned call center and I know that, I think, I think great companies touch people the first time exceptionally well on that first handle and it's human to human. I mean Zappos is obviously people that, you know, made that first touch memorable and we use a lot of their delivering happiness and how we think about customer service. So it's an interesting time and it's, it's moving quickly. And I'm fascinated with the concept because we're implementing the surveys all the time and you know, maybe we'll think differently about that now.

I have mixed feelings on AI. I know it is just incredibly in the news and driving the economy and there's something very important there. But I really prefer GI to AI. I like genuine intelligence more than artificial intelligence. And the best applications of AI, algorithmic machine learning have been augmenting humans who have genuine intelligence to do their job better and faster. But delegating wisdom and trade offs and judgments and moral choices to machines is just downright dumb. And I think there's way too much of that going on right now. You'll ask, ask a Bain client where are all the exciting applications of AI? And you cut through the baloney and you find 95% of it is cost reduction and 5% is creatively making our customers life better. You know, creating a wow. And that's where the action is. Why is American business amazing compared to any other country? There is this innovation that is focused on wowing customers and that does not much these days come out of AI. So that's why I'm watching carefully at how much it really helps us live better lives.

I did get a lift out of it just from administrative communication, organizing some things. I mean, writing a, you know, writing the year end shareholders report and just having a cleanup clean up some of my, you know, some of my.

So you're using it to augment. Yes, that, that's where I think the great power is. But the instant you take the human with genuine wisdom out of the equation, watch out.

Yeah, yeah, we're a Microsoft shop, so we went deep with them and we're actually a 2024 SMB partner for their copilot rollout, which is their AI tool. And yeah, you can have a conversation, move it over to something else, create, you know, create a PowerPoint and you can do all this in a couple of minutes now. But it's not exactly right.

It's like it has awesome potential to make humans work better. It does not have awesome potential to replace human. Humans do it with judgment jobs. And I, you know, simple coding. Yeah, that's, that's sort of like the guys at the toll booth. Was that a good job? Collecting a quarter or whatever it was? No, those jobs should go to machines.

Yeah, good pension, you know, bad little, little bad air. So you mentioned the golden rule a little bit. And, and I know you've, you know, enter first service enterprise usaa. You know, these are just great examples in this book. Winning on purpose, which, you know, high, highly recommend. We'll, we'll have, we're going to have our management team read it.

And.

How, you know, does the golden rule always come from the ultimate leader in the organization? One of. So my, my brother was the CFO of the Carolina Panthers. They were in a tragic car accident one night in the middle of the night in West Virginia, head on, 70 miles an hour. It was just a tough situation. They all survived it. Not everybody in the other car did, but he was working for Jerry Richardson, who at the time was the owner of the Carolina Panthers football team. And you know, when I was able to get in touch with their overnight security guard and let them know what happened? You couldn't have had a more material response from leadership for one of their people, sending the plane to pick people up, getting him to the best surgeons, you know, saving his foot, like all this kind of stuff. And, you know, and. And he was somebody that spoke. I mean, he never. He never had a. I don't think he ever had a computer. So when I would write him a thank you card, I wrote him a thank you card. And it came back to me, the same card. And it was like the number one, you know, we love Mike, number two, and just little things back. So he would get a stack on his desk, and then he would process it with a pen, give it to his assistant, and they would process it back. And, you know, I just hear story after story about how he led that organization. He led 400 hardys, he led some stuff at Walford University. And, you know, the golden rule was constantly spoken about. And you could see it in evidence of, of the way that was a huge family, it was a big business. I don't know, 350, $400 million, whatever an NFL team is at that, you know, whatever. But he led it, and it felt like a family.

So, yeah, the Golden Rules center of all great communities and organizations. It's a tricky concept, and it is almost impossible to know whether you're living up to that unless you actually have a signal. And the purest signal, at least in business settings, is referral. Because when people experience that, they want to share that with a loved one, which means refer it to a friend or a family member. And so focusing on that signal is what net promoter score. When the survey is done well and appropriately, it gives you a very clear sense of have we lived up to the golden rule, made that customer want to come back for more and bring their friends? But I'm repeating myself. But we just can't rely on surveys as heavily as we have in the past, especially given that it is possible to measure back for more and referring friends if you put your mind to it. I think for a painting company, just what I've experienced. Most of the guys on the team, our first generation, they have kids that they would love to have go to college someday. And so the referral, the motive, the bonus to get people into a referral system should probably be based on, you know, for referrals, we recognize Jose or whoever's scheduled scholarship fund. And it. It just, it's something meaningful. But it. It never steps over the. The idea to a bribe like the, you know, I'll give you free Car mats if you give me a 10, that, that kind of thing. But we just have to shine a light on the referral flows.

Oh I mean one situation when it went bad and, and there was a lot of challenges to this. But one of those aggregators, maybe you mentioned them already on the call where they would aggregate reviews and recommendations maybe for restaurants and other businesses and being a customer there was a very punitive nature to the amount of dollars that you spent with them. And then also the over focus on the reviews and you had it. So you had to get, you had to pay them dollars and then you had to get reviews and, and if you paid them less and you got a negative review like it was punitive.

And it's pay to play, it's ugly. I just have not seen one that I would invest in and as you can imagine those kinds of companies would like to co brand with me with the positive edge of Net Promoter and I haven't found one that I actually would touch with a ten foot pole.

Yeah. Because it's an outsized reaction to a manufactured response from. Because now what happens is you're jumping up and down on your head offering $50 to buy the review that you need. It completely takes the authenticity out of the interaction.

And this is happening in all different parts of the economy. The one I am sensitive to, I sit on the board of a couple public companies now and there are these proxy advisor firms that decide what's important for shareholders and, and it's, it's. And, and they'll come up with scores on how, how good this company is and whether they're there. You ought to vote with the, with the company on shareholder resolutions and all that. There's no, there's no substance to what they're holding people accountable to. It's just, but they, how do they make their money? They sell consulting services advising you how to manage your PR and processes to get the highest score. And it's like, come on. I think most of the satisfaction shops have fallen into that trap. Here's how we measure it. It's a complicated black box but we can help you improve your score.

Yeah. So Net Promoter score is a great tool for companies that, that want to be, want to pursue greatness instead of just bigness. Do you, Are there other tools that you've used in concert with the Net promoter score tool that you like that you've used over the years or you could recommend to others?

Well, I, I think link it back to financials is the key. You can't just think about your score. If you're using surveys effectively and identifying promoters, passives and detractors, have your finance guys look at how much growth are you getting directly from your promoters versus passive. There's a linkage to true cash generation. And if you can add in referrals, you'll get the real math. So I think the tool is just understand the linkage between the true economics of your business and the generation of customer promoters which opens up how much could I afford to invest in delighting a customer? It actually turns out in most businesses you can invest a lot. If you get that customer coming back for more and referring a bunch of friends, that's a big net present value. And you know, take half of that excess and reinvest it in something that delights. Let's use artificial intelligence or digital tools to delight customers as opposed to just slam crashing costs down.

Have you ever worked with food? Any food companies, restaurants?

Yeah, well, Chick Fil A was one of the early companies that influenced me. So. Yes.

Okay. Okay. So, you know, a couple observations. How many times do you see a great restaurant build a great following and then for some reason they, they change the size. There's a place here, they change the size of the chicken tenders. So you used to get these big fat chicken tenders and it was great. And, and then all of a sudden something happened and they were just about half the size and the same price. And all of a sudden the place just, I mean, slowly just deteriorated. The other example is, which I, which I love, which, well, I probably love a little too much, is five guys and just the, just them putting two and a half times as many fries in the bag as you purchased. It makes. Okay, I spent a lot. Like, it's expensive to go there. It really is. I mean, that's a, that's a high dollar, you know, fast food. But you leave there and you're just like, this is more fries than I can eat. So you're satiated, number one. But number two, you feel like you got over on somebody because did they really realize they poured all these fries in this bag? And I just, I think it's just, I think it's brilliant because it probably cost them 25 cents.

Yeah. The creative, the creativity that pays off in business is how can I give them more than they expected?

Yes.

And then make sure I get the full benefit of that standing ovation in inspiring my team and in generating referrals to new customers. And that is not where most of the energy goes. As a company gets bigger, they think about how can I do this cheaper? How can I meet my profit budget this quarter? And that innovate that brain that you focus on, how can I delight customers by giving them more than they expect? It's a different process.

Yeah, yeah. One option.

Rich. Truly rich. You know, you didn't mention in, in Winning on purpose there's chapter five talks about my personal investment strategy because I measure net promoter or Bain does, I have access to who really has the highest net promoter score in an industry. And when it's a public, when there's a public company at the top of the charts, I invest in them. And over the decade before writing that book, I, you know, I more than tripled the stock market returns and I've made many millions of dollars from investing in this philosophy of when you can spot a firm that really is generating repeat purchase and referral, have very high net promoter scores, scientifically measured, they're going to generate cash flow far in excess of the mental model that financial analysts and accountants have today. And so this is a big investment opportunity for, for people at all the scales from the tiniest franchise right up to large public companies.

Oh, that's, that's, hey, you know what? That's probably the only metric that people need to consider when they're making investments.

If you're trying to figure out which company to invest in, please read chapter five of Winning on purpose. You'll not only get rich, but you'll make the world a better place because more resources will flow to the right places.

Anything about Chick Fil A that might not be just connecting any dots. So you have Truett Cathy, incredible leader. We're not open on Sundays. So right off the bat you're making a values based decision about this company based on the fact that they want to take care of their employees.

And let me stop you there. And that is true, and yet true. It told me, you know, I go out to other restaurants and eat on Sunday. I don't have a personal problem with eating out on Sundays. That would be really ridiculous of me to think that by being open on Sunday I'm less Christian or what he said. I just knew we can't have owner operators running their shop and work seven days a week. They'll kill themselves. So if I have them open seven days a week, they're going to hire somebody else who's not as good to do that work. And I don't want to start that process. So I want, I'm going to close a day. I think Sunday is a pretty good day to Close because it does signal personal beliefs and I think it will accomplish other things. But you got to think through. Did he, you know, did he eat on, on Sunday? He absolutely did.

Of course. Of course.

If he were a good Christian, would he put himself make others to do stuff that he thought was morally wrong? No.

And they're one of the most consistent organizations that exists out there. Twice around the building and you look next door and there's nobody in the drive thru and yet you'll still, you'll still get in that line because it's going to come out, it's going to come out hot. It's going to come out right, it's going to be, it's going to be good.

Yeah. And if you, I think they would still agree that certainly this was true in the old days. They just hire better people and then help, and then help those better people be even better. It really is. That's why the owner operator, hiring the right people and building a community of workers that help them even elevate their game beyond what their parents did. That's the game. But it was the parents that created that. You know, 90% of it is they're just very thoughtful about who they hire as operators and who those. And then help the operators hire the right kind of team members.

Yeah, yeah, 100%. Never a bad experience at a chick.

Fil a. I don't think I've, let's see, have I. To be honest, I'm so overweight. I never go to anything that looks like fast food. But I still admire it. Yeah, I've never, I mean the thing that's, it's not the bad experience. The few times I've gone it's been quite delightful and surprising.

Yeah.

So that's where they differentiate themselves. I think there are a lot of factories that have learned how to have very few errors but not many of them have figured out how to do that and do these custom delighting experiences.

Well, they're the gold standard in selection and we talk about it a lot. I have a personal friend who owns one of the larger ones. They're measured largely by their catering business. So if they're in a great spot and they have a lot of traffic, they, that's great. But where they can really blow their business up is through the catering aspect of it, which is a sales. But I mean he was in process for three to five years, then he finally got approved and then you have to go work every job for six months in a chick fil A and then after that you know, you go home and you wait on the call. I don't know, I probably, you could probably correct me on this. But then he, what he told me, waited on the call and then they're going to say, here's three locations. These are the ones that are available to you. And you got to pick and you got to, you got to take one of them or you know, everything's for not. So I mean that's like there's, as opposed to a lot of franchise systems where you might get, you know, you meet the people for 66 days. That's our sales process. And then, you know, you do two weeks of training and then they're out there executing the business. There's just not the same, you know, there's not the same journey of alignment that you're going through. There's, you know, it's just, it's just not that way in a, in a service business.

So I, I was the speaker at one of their conferences years ago and was riding to the, I guess they had a van would pick up the various people. These are most, it was the operators, the store managers that were coming to this conference. And so I was in a van with a dozen different store operators and I was just listening to conversations. And one guy had been a captain, the air force had gone to the air force academy. Another guy had been a manager on his way to partner at one of the big accounting firms. It's like these guys are actually working in chick fil a restaurants. It's mind boggling the talent pool that they were drawn from. And that continues to be the case. These are really sharp. Not just good, you know, friendly, nice little league coaches go to church on. These are capable business people.

Yeah. My friend was a high end consultant. He was, he consulted with me for, I paid him a lot of money, you know, as a consultant. And this is what he was called to do and, and that's, that's what he did.

So.

Yeah. Fascinating. Any trends that you're paying attention to right now in terms of consumer behavior or customer journey that smart companies are going to be taking advantage of?

Boy, I think more stays the same than not. I'm a huge fan of Costco, which is an old school. We have physical stores. Yeah. We have online, but it's not nearly as good as Amazon. If you, if you want to just buy online, go, go buy an Amazon. But, but they run the stores so effectively and they only sell stuff where they know they can actually deliver great value. They don't sell things that, where they're me too. And they do delight. They, they know that at least every third visit they've got to wow you or you're going to stop bothering going to that store and parking in that inconvenient parking lot and putting up with the hours that aren't quite as convenient as 99% of the other retailers out there. So I think always every business, how am I going to make sure every inch. I don't know if it's 3rd or 5th or 10th, but every time you visit, there's got to be a likelihood of something that is a wow. And that's the trend that I think everybody has to have. I asked the fellow Steve Grimshaw, who is the CEO of Caliber Collision, the firm you mentioned, that has just been an astonishing success story in the collision repair business. He said, you know, we even thought about, we have popcorn in most of our stores because people like the smell when they come in. Now, who would think of having a collision repair center thinking about aromatherapy and all this sophisticated stuff? Well, if you're always asking your teams, what can we do to make this a really positive surprise, not just for our customers, but for our employees. Employees. And because you're always searching for that, that, that's, that's what, that's the winning strategy.

Well, if, you know, I'm a YPO guy and, you know, when we put events on, we pay attention to touching all five senses. So if we go to a, you know, we'll go to a hotel and it'll have a special, they have a special scent and, and then, you know, what is the visual aspect of it? What are people hearing, touching, tasting? Those are probably missed opportunities. One of my businesses is an infrared sauna. I don't know if you've partaken in any of that, but we have an infrared sauna studio called Beam Light Sauna in a couple hundred locations right now. And man, it is. There are others in the space that use words like sweat or perspire or, you know, and it just, it kind of gives you this, this and you, you know, in the locations I've been, it, you know, it's, it's not a misnomer. It's. It is. It kind of smells a little sweaty in there. Well, when you walk into a beam, like our word is light. So we're Beam Light Sauna, and we chose to own the word light. So everything is bright, everything smells good, everything looks clean. I mean, it's. It almost like you're walking into heaven. And it's just, it's you know, everything's like that, and it's an experience. Now, basically the same sauna across whatever, but it. You know, but the. The people at the front desk are remarkably better trained and more engaging. They're going to make sure we have a cold peppermint towel, and we've tried different flavors. And, you know, you could get eucalyptus. But, like, what it came back down to is, like, it doesn't matter that they have choice in it, you know, and most people seem to really pick the pepper. Peppermint anyway. But, like, it feels good. And it's. So you smell good when you. It smells good when you walk in. It smells and feels good. You get that touch when you're walking out. And I tell you, people, you. I can't. I own the place, and I can't get an appointment.

Yeah. And good employees want to work in places where they're always searching for ways to make customers smile. So just that process of searching is one of the ways to attract and retain good employees. Employees.

Yeah. Awesome. Fred, this has been amazing. I can't thank you enough for coming on. Been a fan for a long time, and using the nps, I believe has. Even though I know we haven't been perfect, it's made a big difference in my business life. So thank you for creating it and building it. Last question for you. If you had one sentence, I think I know where you're going to go with this. If you had one sentence to make a difference in somebody's life, what might that be?

I'd have them sit down with winning on purpose. Book and take a chapter at a time, maybe each week, and have your team talk about what the message is and how it squares or doesn't square with what we're doing today, that it's a thoughtful process of living, how to live. You know, the golden rule is a complicated, simple question, complicated idea. It's. It. It just parses that into pieces that are worthy of conversation, and I think that's how you get a culture focused in the right direction.

Thank you for that. And Fred Reichelt, thank you for being on the homefront with Jeff Duden and everybody out there. Thank you for listening.

My pleasure.