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A 12-Step Recovery Program to Break from the Pack—Step 4: Believe That Customers Are More Important Than Investors and Employees

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No matter how much resistance you receive, you must lead with the premise that all else follows from your success with the people for whom your company exists.

This article is excerpted from Break From the Pack: How to Compete in a Copycat Economy and is the fourth in a twelve-part series.

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As a leader, you'd be foolish to ignore the needs of your employees and the concerns of your shareholders, but as you seek the break-from-the-pack competitive advantage, you must be able to convey to people that the prime purpose of their jobs and investments is to help make today's customers, and tomorrow's customers, very, very happy. A March 13, 2006 BusinessWeek story on new Boeing CEO Jim McNerny describes how he asked a technology executive to explain the benefits of the composite technology used in the new 787 aircraft. When the executive began to describe the numerous technical advantages of the material, McNerny stopped him. What he wanted to know was the benefit of the technology to the customers—the airlines and their customers, the passengers. That is an excellent example of a leader who has the priorities right.

Peter Drucker always said that the only reason for a company's existence is to create and serve customers. Many businesspeople, including employees and investors, seem startled by this notion. However, no matter how much resistance you receive, you must lead with the premise that all else follows from your success with the people for whom your company exists.

Customers More Than Investors

Investors are quite properly very attentive to metrics such as a company's market capitalization and stock value. Sensibly, the company's leaders should be, too. But smart investors—and good leaders—increasingly recognize that financial and stock metrics are scorecard consequences strongly influenced by the perceptions and reactions of customers. When customers react to a company and its offerings with enthusiasm and excitement, investors follow. When customers leave in droves, investors are also sure to follow. Businesspeople who pander to distant investors and nearby owners, while putting customers second, lower their probability of truly mobilizing their companies to break from the pack.

When corporate leaders view escalating shareholder value not as the consequence of a customer-alluring strategy, but as the raison d'être of the business itself, double trouble begins. Managers become obsessed with short-term financials and "meeting their numbers" any way they can—customers be damned. Most of the innovation and entrepreneurship goes into "creative accounting," earnings gaming, and financial sleight-of-hand, not toward products, services, and experiences that delight customers. And, of course, the heroes inside the company become those people who count things rather than those who make and sell things. Unless you're shorting or spinning stocks, is this the kind of company you'd want to invest in?

Ron Baron, whose Baron Partners Fund was the best-performing diversified stock fund of 2004, says, "You can cut all kinds of corners to make your company look good in the near term. But your people are going to leave, and customers are going to find alternatives." That, in turn, will lead to lower returns, which means that, paradoxically, the more that leaders focus on investors as opposed to customers, the more likely the returns to investors will suffer.

Customers More Than Employees

Organizations are not built for employees and managers. They're built for customers who are willing to pay for goods and services. As I noted earlier, one of the best predictors of organizational decline is a bloated payroll of "happy" employees and managers who are content with the status quo and mediocre performance.

Should a company prize its employees? Absolutely. Hal Rosenbluth built the great Rosenbluth International (a $3-billion global travel agency that was bought by American Express in late 2003), and Howard Schultz created the great Starbucks empire, both using the catchy credo that "the customer comes second," and employees first. What they meant, quite correctly, is that companies need to concentrate on making sure that their employees have the best possible skills, technologies, power, compensation, and morale. Why? Because that's the best way to serve customers! As it turns out, some of the most innovative customer-pleasing interventions at Starbucks—like the CD-mixing and the Frappuccinos—were developed by store personnel in the field, not by staffers at corporate headquarters. Furthermore, the front-line people are essential to making the Starbucks' "refuge" vision a genuine experience and a coherent, reliable brand for customers. In other words, the corporate value of the people is ultimately about the value they provide for customers.

Very simply, what this all means is: Run your business with the premise that the most important people are paying customers. Period.

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