by Jacob Taylor
The horn sounded and the game was over. We meandered toward the exits. Once outside, Mr. X gave me a curt goodbye and hailed a taxi. So much for pleasantries.
I caught my own cab back to the airport, already excited for my next visit. Why wasn’t school this enlightening or fun?
CHAPTER 22
I tried to keep my trips to Wichita a secret. Yet it didn’t take long before word had spread both at Big Rock and school. Coworkers and classmates pumped me for information. Everyone wanted to know what Mr. X was like. What does a billionaire do with his time? What does he spend money on? Did he give me any investing tips that could make them filthy rich? I wasn’t sure how to tell them he was like their grandpa. He didn’t go for leisurely swims in a money bin. He didn’t have wads of hundreds in a suitcase guarded by Oddjob. People forgot that most of his wealth was tied up as ownership of his company, which no one could see.
I pretended to be annoyed by all of the questions, but I secretly delighted in the attention. I had spent a lot of my life going unnoticed. It felt good to have others want to talk about what I was doing. It fed my expanding ego. Impromptu huddles would break out at work and school. Me, ringed in the center, telling stories of my trips. There’s a fine line between good storytelling and embellishment.
There was another reason I liked the attention: it really bothered Vance. He was accustomed to being the center of the universe. Petty of me, I know. I wish I could say I was better than that. I couldn’t help myself from smiling inwardly at the look of disgust on Vance’s face when I was holding court. I figured it might be good for his self-development to get knocked down a peg or two.
Although it operated as an old boy’s club, Big Rock liked to think of itself as a meritocracy. In that spirit, the company would host regular internal competitions. They were looking for big ideas that might improve Big Rock. Read: make Big Rock more money. The contestants had to formally present their concepts to the higher-ups, and they would decide who won. Anyone was technically eligible to participate, although the winners always came from the group you’d expect--those with the right last names. The prize was usually some new piece of electronics or a fun weekend getaway.
I had a midterm project due for my Budgeting and Controls class, so I figured why not use the same materials to pitch Big Rock. Mr. X had turned me onto zero-based budgeting, “ZBB” for short. We had never covered it at school, and best I could tell, it wasn’t practiced at Big Rock. I didn’t have the right family name to win, but it might be worth a try?
The prize this time was a trip for two to Catalina Island. With my meager salary, my bank account was goose eggs after the crushing student loan payments and sending money to my parents. The chance to take Stephanie on a classy getaway was worth the effort, even if the odds were low and I was petrified of public speaking.
CHAPTER 23
Before my next trip out to Wichita, I received the customary cryptic note from Mr. X. This time it was from that old economics guy, Adam Smith. Not to be confused with the lead singer of any British cult bands.
“What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom.”
OK... your guess is as good as mine.
As instructed, I took a taxi from the airport to Cootie Burger headquarters. I recognized the parking lot and beige, nondescript building from my first visit. It was odd how nothing had changed, yet it felt like I had changed a lot since I was here last. It reminded me of a quote I’d read from an ancient philosopher: “No man ever steps in the same river twice, for it's not the same river and he's not the same man.” Deep thoughts, with Jack Handy.
Cathy greeted me with a Midwest bearhug outside of the elevator before escorting me in. “I have to apologize up front that he might seem distracted today,” Cathy said. “It could be a short session. He has an important, last-minute doctor’s appointment today. We’re waiting on test results that will give a better indication how much time he might have left.” Her hushed tones failed to hide the emotions welling to the surface.
“That’s OK. Sounds important,” I said, trying to make her not feel bad that I’d just spent hours on airplane. Compared to an ailing billionaire, my time wasn’t worth much.
Cathy lead me passed the conference room where Mr. X had wowed us on my first visit. We eventually reached a closed door at the end of the hall. Cathy knocked and pushed the door open slowly. “Mr. X? Nick is here.”
“Hi, Mr. X,” I said. He didn’t look up as I entered.
“I’ll leave you two alone,” Cathy said, closing the door behind me.
Mr. X’s office was nothing to write home about. It was a bright day outside, yet the room was dark with closed wooden slat blinds covering the large windows. The walls and carpet were ugly, Soviet-cast-off grays. A well-worn brown desk jutted out from the wall and faced the door. Opposite the desk were two chairs and a couch around a low-slung coffee table. Behind the desk on the back wall was a dull filing cabinet that provided more flat surface. On this were scattered picture frames and Cootie Burger memorabilia. There was probably a great story behind every piece, but they were just a little too far away for me to make out discernable details. On the desk sat a phone, a collection of binders, stacks of books, paper piles, and an empty inbox. Why does the inbox have TOO HARD stenciled on it? Conspicuously absent from his desk was any computer. The whole space looked more like the office of a struggling insurance salesman than a billionaire titan of industry. I felt a little better about my own sloppy desk at work.
Mr. X sat behind the desk, reading a report. Without looking up, he motioned for me to take a seat at one of the chairs in front of him. I waited for what seemed an uncomfortably long time while he finished reading. He looked more frail than at last visit’s basketball game, and alarmingly pale.
Eventually he looked up. “You made it,” he said. His smile surprised me with its warmth. It was like he really didn’t know how long I had been sitting there waiting.
“Yes, sir,” I said.
“Let’s make the most of our time before I have to kick you out,” he said. “Hopefully Cathy told you I have an appointment that might cut our time short?”
“She did,” I said. “I wish it were under better circumstance.”
“That makes two of us,” he said. “I’d like to pick up where we left off last time, only with a few more advanced ideas. Then at the end, we can cover some biography items to give you some color that you’re probably looking for.”
“Great, but what we did last time wasn’t advanced?” I asked.
“I’m as surprised as you are that you’ve kept up so far,” he said. I’d always hated being teased, but for some reason I didn’t mind it from the old man. He opened a nearby desk drawer and pulled out his now familiar straws and a sheet of paper.
“I guess you don’t go anywhere without those,” I said.
He only smiled while arranging his teaching aids. He wrote down cost, price, value, profit, and brand where I expected. “Here’s the next lesson,” he said, turning the diorama toward me. “You can use these straws to look at a business on a per unit basis at the individual transaction level. Say a customer buying one hamburger. You can look at it on the single store level in the case of one Cootie unit selling five hundred thousand hamburgers per year. Or you can also look at the entire Cootie enterprise selling hundreds of millions of hamburgers across the whole system.”
I thought for a moment before responding. “Is it kinda like looking at the same thing at different levels of magnification? Like say through a microscope or binoculars or a telescope?” I asked.
It was his turn to think for a moment. “That’s not bad a bad analogy,” he said.
“I think I can already see what your Adam Smith quote from earlier this week might be about. If every family handles their own business smartly, it’s likely to work out well for the whole kingdom,” I said.
“Good, we can imagine our business at the various levels: the individua
l, the family, or the kingdom,” he said. “Look at the diagram. Let’s imagine the binoculars version where we’re looking at the single store level. How could we lower the costs specifically at the store level?”
“Use low-quality meat, hire less staff, use scratchy napkins…”
Mr. X. cut me off, “... without impacting the perceived value for the customer.”
“Oh,” I said. “That would be tougher. There must be a clue that you started at the restaurant level and not the individual customer level.” He nodded with approval.
“Here’s a hint,” he said. “One of the most important metrics for a restaurant, or any retail store for that matter, is called same store sales.” As if that were much of a clue, Mr. X.
A few more beats of silence until he grumbled to my rescue, “You can lead a horse to water… OK, there are certain costs you pay every day whether you have one customer or one thousand. Think of the cost of the building, the electricity, the parking lot. They’re conventionally known as ‘fixed costs.’ If we spread these costs across more customers, we actually lower the cost on a per-individual basis. That’s why same store sales are so important. Do you follow?”
Mr. X slid the cost straw over in a ratcheting fashion to mime the effects. I nodded to him to keep going.
“You’re increasing your profitability with every burger you sell,” he said. “That gives you the option to collect more profit by leaving price where it is, or lower your prices to bank that value as brand in your customers’ minds. More stored fat in your analogy. By the way, this concept of spreading fixed costs is referred to as operational leverage or economies of scale.”
I smiled at his adoption of my fat analogy and the off-chance that I had made a contribution. “I can see a problem already,” I said. “What happens if it reverses and fewer people are coming to your restaurant?”
“Great observation,” he said. “Your fixed costs now have to be spread over a smaller pool of customers, so they go up on a per-customer basis. You not only lose the margin of the additional burger you might have sold. You accelerate toward declining profitability with each tick down in same store sales.”
“So it’s a double-edged sword then?” I asked.
“Yes, hence the name ‘leverage,’” he said. “It can mean huge success on the way up, or a death spiral on the way down. So the single restaurant is found looking through binoculars magnification. How about that same concept looking through the telescope?”
“That’s not too difficult to figure out,” I said. “I assume you don’t stay here rent free. I’d also guess that you and Cathy get salaries.”
“They’re modest, but we do,” he said. Sure, billionaire ‘modest’?
“The costs at headquarters are like the fixed cost of the four walls of a restaurant at the single store level. You can spread them out and dilute them across a larger number of burgers at the kingdom level.” Check out the big brain on Brad.
“I think you’re ready for the next lesson,” Mr. X said. No confetti dropping from the ceiling for my efforts? “Here’s your hint: look through your telescope at the Value straw and think about a fax machine.”
“What?!” I thought to myself. Or maybe I blurted out--who knows. I refocused and buckled down, willing the diagram to offer me an answer. I couldn’t get over how much of the business world he could explain with a few straws and a piece of paper. I felt a long way from the endless spreadsheets of Big Rock. And even farther from the complex formulas of academia that I would memorize just long enough to take the test before wiping the old hard drive. Someone could always break out the straws if they were having trouble solving a business problem.
“I’ve got it!” I said in a eureka moment. “One fax machine by itself provides no value. It’s a paper weight. But as more get connected, the value of yours goes up a little bit because you can now exchange with more people. Eventually if there are fax machines distributed all over the world, they become incredibly useful as a network.” I ratched the Value straw out to the right, mimicking each fax machine being added.
“That’s right,” he said. There’s that warm and fuzzy feeling I found myself craving. “The fancy term is called network effects. Each unit you add at the individual level increases the value for everyone at the global network level. So you bump up everyone’s Value straw at a faster rate than the costs grow. That’s a pretty neat way to widen the gap between Value and Price, huh?”
“Yeah, but it seems like that’s a rare instance for most businesses. Are there any network effects for Cootie Burger?” I asked.
“Perhaps, but it’s not as obvious as the fax machine,” he said. “It has to do with human psychology and how our brains work. We evolved in tribes and the default is to look at what the group is doing to see what’s right and safe. So if you came into a busy Cootie Burger, each customer and burger sold would be social proof that this is a good, safe place to eat.”
“At least no one was dying eating there,” I kidded.
“You joke,” he said. “But it’s hardwired into our brains for survival. If you saw other people congregating near a watering hole, it must be safe from predators. What’s interesting about humans is that expectations can affect your perceived experience. We’re talking literally how your brain interprets the electrical signals from the taste buds in your tongue.” How did he have time to learn about this kind of stuff and still count his billions?
He continued, “If you had been primed to expect a great meal: the cleanliness of the restaurant, smiling faces, it’s likely you’d report it tasting better than if you ate by yourself in a dim, dirty shack. So for Cootie, each hamburger sold might subtly bump up the Value for every customer. At least that’s my working theory,” he said.
“A lot more of the world is subjective than I realized,” I said.
“You have no idea,” Mr. X said.
“I have a question, if we have time,” I said.
“Better make it quick if we’re going to cover biography stuff,” Mr. X admonished.
“I can see how delivering a lot of value to your customers is important. But how do you measure that value? Are there any metrics? How would I know where my Value straw actually is?”
“That’s a great question,” he said. “Unfortunately, I don’t have a great answer for you. First, that value is subjective in each customer’s mind. This makes comparison and metrics very difficult. One way is to do customer feedback surveys, which come in many different flavors.”
“I hate it when a business asks me to fill out a survey,” I said.
“Most people do. That’s the problem with surveys. You only get really happy or really angry customers who will invest the time to fill one out. The sampling bias makes most surveys questionable,” Mr. X said.
“So you miss most of the people in the middle?” I asked.
“Right, it’s far from a perfect science. But that shouldn’t stop you from trying. The best one I’ve found so far to produce a single number is a method called Net Promoter Score. We use it at Cootie to ballpark the health of our Value straw. At least we can track changes over time. We ask the customer one simple question: ‘On a scale of one to ten, how likely would you be to recommend us to a friend?’ This question lets us group people into three buckets. The nines and tens are loyal, enthusiastic fans. They tell everyone they know and buy more as repeat customers. They’re the lifeblood of any business. We can’t get enough of them.”
“Superfans,” I said.
“Yes, into the next bucket go the sevens and eights. They’re mildly satisfied. They aren’t unhappy, but they aren’t spreading the word about us either. And if they are, they aren’t exactly glowing. They’re more likely to be wooed away by a competitor.”
“They’re lukewarm,” I said.
“The last bucket are the zero through six scores. They’re the detractors. They spread negative word of mouth and are quick to leave if they think another company can do a better job. We try to avoid creating these,
as they can be really damaging.”
“The haters,” I said.
“Is that what the kids would say these days?” he asked. “Anyway, after we get this simple number from the customer and put them into the three buckets, we then ask them an open-ended ‘Why?’ The whole system is designed to keep our own biases out of the measurement. We get feedback on what is working for customers and what is not. It’s a treasure trove.”
“Didn’t you say this produces a single score?”
“Yes, and here’s how we calculate it,” he said. “We take the percentage who voted either nine or ten, then subtract the percentage who voted zero through six. We throw out the lukewarm sevens and eights. That number is the Net Promoter Score as we measure it.”
“Let me see if I follow,” I said. “Say you surveyed ten people. Five of them ranked you a nine or ten--they love you. Two of them were lukewarm sevens. Three of them said you stink and gave you a zero. Fifty percent minus thirty percent, throw away the lukewarms. Your Net Promoter Score is twenty.”
“I thought you said you weren’t good at math,” he said.
“Very funny.”
“Keep in mind, it varies by industry and customer demographics, but the typical score is in the thirty to forty percent range. A business that’s doing a stellar job satisfying customers can be up in the seventies.”
“What does Cootie Burger typically score?” I asked.
“For our industry, I’m happy with anything over fifty,” he said. “A word of a caution: you have to be careful comparing yourself only within your industry. A customer doesn’t care if you’re the best in the industry you’re classified in. That means nothing to them. They care about how well you’re solving one of their problems. As the saying goes, ‘People don’t want a half-inch drill bit. They want a half-inch hole in something.’”