Category Archives: Uncategorized

Lessons Learned from the Grumpy Barber

I found out yesterday that my local barber is leaving the island soon. I’ll miss him as much for his excellent haircuts as his grumpy, opinionated personality. Even though I could have easily labeled him as rude, out-of-place, and genuinely disagreeable (at times), I challenged myself to look at each haircut as a time to step outside of my routine and enjoy the banter.

I’ve seen him kick people out of his shop for using cell phones, asking (what he thought were) stupid questions and women: they would not do women’s hair. He has many 1-star reviews on Yelp detailing his unique personality. He also has a lot of five-star reviews.

You would think that this would have hurt his business; it didn’t. In fact, I believe it helped his business: a no-nonsense haircut with a side of strong opinions was what made him special, unique. I’ve never been there when there were no at least a few people waiting. He was busy, always busy.

In this time of political correctness and exaggerated outrage over the most trivial matters, I think his barbershop offered a chance to enjoy, at least for 20 minutes, banter and conversation that wasn’t overly filtered. I think that’s part of what drew the mostly older patrons to his shop: guys would get a chance to complain about the world and not be made to feel self-conscious or wrong.

This is a good lesson in branding. If the market is full of homogeneous, cookie-cutter providers, a person or business with a bit of personality can carve out a good niche. There is room for a place that breaks the mold and dares to be different, authentic. I think we are lacking a lot of authenticity in corporate run businesses that teach their employees to “follow the manual” and to avoid any sort of non-prescribed behavior or words in the workplace.

Would I like to work side-by-side with my barber? Heck no! Twenty minutes once a month is enough. Do I enjoy stepping into a world of authentic conversation for a brief time when I get my hair cut? Absolutely.

grumpy barber

How to Develop a Win-Win Relationships with Kona Impact

Here is something most business owners understand to some extent: a solid relationship with a supplier is invaluable, especially in times when many businesses are working near or at capacity. You need your supplier just as much as your suppliers need you.

A little non-secret in the business world is that suppliers turn down business all the time. It might be evident in not receiving return phone calls or emails. Some businesses have better tactics and try to refer the clients they don’t want to deal with to other suppliers. Others just claim “too busy” when new projects come in from disprefered customers. I know one local business that has stopped answering the business phone line altogether.

At Kona Impact we usually do not turn down business from new clients, even if we believe we will make very little from their account. We know businesses grow, and we find helping people at that stage of their company very gratifying.

We have over the years done our best to transition some of our customers to other suppliers, or, to be frank, anywhere but us.

win-win business relationship

How can you develop a win-win relationship with a supplier like Kona Impact?

A big part of the answer is in the question: “develop win-win relationship.” Start with the belief that a supplier must benefit from the relationship, which includes making a reasonable profit, working with clients with an reasonably agreeable personality, getting paid on time and all the other markers of a good client.

Here are some the things you should never do as a customer:

  • Order something for which you don’t have the money to pay
  • Order anything you do not plan to pick up when completed
  • Bad-mouth a previous supplier. If you do it to them, you’ll do it to us. Red flag.
  • Start a project you don’t need finished for a long time. If that’s your intent, be sure to pay a hefty deposit.
  • Use the old, “give me a good price on this, and we’ll give you more business in the future” ploy. Doesn’t work for us; if you won’t let us make money now, you never will.
  • Change the scope of the project without expecting a new, often higher, cost

Here are some thing you should do as a customer:

  • Communicate clearly what you have in mind. If you don’t know, or can’t explain, there is no way we can figure out what you want
  • Ask us for a price quote right away. We’ll have some questions, for sure, but don’t use our time to fish for ideas if we’re unlikely to do business. We’ve been doing this for over 12 years, so we have a good idea what projects will cost and will gladly share that with you.
  • Provide comprehensive feedback for each draft. Take some time and give us all your feedback at once. Trickle-in feedback is very detrimental to achieving a good result. If you have five sisters, six aunties, four uncles and business partner who are giving you feedback, good luck, but when it comes to communicating with us, speak with one voice and only after you gathered all the information you think you need.
  • If you’re going to “disappear” for any extended period of time, let us know and offer to call the project done and settle any remaining amounts for the project. We get it that life and business goals change; just have the curtesy to communicate

Evey business transaction can help to build a productive relationship or create a reasons for the supplier or buyer to start looking for a new partner. It’s a two-way street, and in the best of all possible worlds, results in a lasting, productive win-win relationship for all.

 

 

The Lifetime Value of a Customer as a Marketing Cost Guide

Marketing expenses are often looked at very narrowly: how much did I spend on a promotion, and how much did I make on the promotion? Minus out expenses and you’ll have a very crude measure of how much return you received on your marketing investment.

That narrow focus, however, is not going to give you a complete picture of your marketing costs.

I’ll give a few examples of how to use the lifetime value of a customer analysis to figure out the true value of marketing costs.

Let’s look at a new restaurant opening in town. They spent $5,000 on a combination of print and radio ads to promote their Grand Opening on a Saturday. Their revenue on Saturday is $6,000, of which 10% is profit, so they spent $5,000 to make $600. Ouch.

Now, let’s look at the same data and expand our analysis. Let’s stipulate that the average guest of a new restaurant spends $50 ($10 profit) and will return to the restaurant 5 times in the next year. Some will never return and some will visit more frequently, but let’s assume 5 as an average. That means the value of a new customer is now $250 ($50 profit). If the restaurant adds 100 new customers due to the $5,000 ad spend, the gross sales add to a year’s revenue is $25,000 ($5,000 in profit). If we add a second year of 3 average visits, you’ll add another $15,000 to the top line (revenue) and $3,000 (profit) to the bottom.

Now, add the people that came before and after the grand opening because of the advertising, as well as the word-of-mouth recommendations from the people who ate at your restaurant, and you can see that the $5,000 ad spend might have been a great investment—if you look at the long-term value of customers

lifetime value

One of our favorite analyses is to use pay-per-click data for advertising. Let’s look at tea subscription business. We’ll assume 50% margins on the tea.

We’ll go with $.50 per click for keywords related to your product. In my experience, you can expect about 1 in 25 or even 1 in 50 of the people who visit a good website to make a purchase. So, you’re looking at between $12.50 to $25.00 for a sale. If your average sale is $40, you’d be looking at marketing costs between 31.25% and 62.5%, which means you would make almost nothing or lose money on each sale. Ouch!

But, let’s expand our analysis to look at the lifetime value of customers. For our sake, we’ll limit it to one year. If you have a Tea Society Club and 25% of your new customers purchase a subscription for a package a month at $40, you now have a value of each customer somewhere between $40 and $480 ($40/month for a year). Realistically, you’ll have many people stop their subscription, so go with half the total potential and assume $240, which would translate into $125 profit. Would you trade $25 for $125? Of course.

The 75% of the purchases that did not join the Tea Society are also worth something. Let’s say, on average, they order twice more a year—an additional $80 each, in addition to their first $40: $120, $60 profit. Again, $25 for $60 profit? Yes, in my book.

Unfortunately, my entrepreneurs look at advertising costs very narrowly; what did I spend, and what did I make at that time? That would be the right way to look at things if you are promoting a concert or a limited-availability product. That said if you are trying to win new customers, especially if you have a product that is consumable, taking a broad approach to examining your marketing costs will help you make better decisions.

As a side note, any college student will tell you they are inundated with offers for credit cards. They might receive 5-10 solicitations a week. Why would a bank spend so much to win a customer that has little credit history, few assets, and a limited income? The answer is simple: people seldom change credit cards, so the lifetime value of a credit card customer is huge. It’s very worthwhile to spend a lot on these young, future high earning students.

We Serve Everyone….Except…

There have been a few stories in the media recently about businesses refusing services to people they don’t like. One news story was about a  cake baker in Colorado who won a favorable ruling in the Supreme Court, giving him the right not to make a cake for a wedding for two gay men. Another story in the news was about the spokesperson for President Trump being asked to leave an upscale restaurant because the staff/owner did not like some things about Trump.

My reaction as a business owner is, fine, ok, we have a right to serve who we want, though not serving someone because of race or other protected statuses will get you into a boatload of trouble (as it should).

Every business has customers or clients who are not welcome in the store or on the premises. But, this is almost always due to the behavior of the customer and usually (I would hope) not about one’s race, gender, sexuality or political affiliation.

Kona Impact has made things for the Tea Party (a far-right group) and Occupy Kona (a far left group). We have had atheist, Muslim, Jewish, Jehovah Witness, Mormon, Evangelical, Conservative Christian and Liberal Christian customers. We have several gay customers. We have done projects for an “adult” retailer in Kona, as well as projects for bars and CBD businesses.

We have turned down two businesses–an “escort” and pitbull breeder that breeds fighting dogs–in the past 12 years for the same reason: these businesses are illegal and, truth-be-told they, not the kind of business I could honestly put my full effort and energy into.

My thinking is simple: if a person comes to us for services, I do not care about the circumstances of that person’s life or business. I don’t care if he or she has beliefs or a lifestyle different from mine; I just want to give them the best possible product or service and get paid. If I refused a customer based on who he or she is, I am 100% certain I will not change that person and he or she will find another provider. I will have gained nothing.

I know that the baker in Colorado felt his moral, religious, opposition to gay marriage was a good reason to deny service to the gay couple. This is fine; he can serve who he likes (though he should not expect to be welcomed in his community with such bigoted views). I would not patronize an establishment I knew to have such policies. Likewise, I would avoid the restaurant that rejected the Trump staffer. That is my choice.

I do tend to look at business as business. I am not trying to change the world by selectively serving customers based on who they are. I will, and have, refused clients based on their behavior. Rude or disrespectful to my staff or me? Adios! Pay invoices late and only after great effort on my part? Find a new provider! Gay, Jewish, Occupy Kona member who sells CBDs? My door is open!

New Entrance at Kona Impact Headquarters

We recently installed a large display on the entrance to our office. Previously, we had a nice blue entrance; this time we decided to go for green. The material is see-through, so from the inside of our office, you can see out clearly. From the exterior, you can see the graphic, but not the inside of our office.

see through vinyl

Immigrant and Non-Native English Speaker Clients

Last week we started several new projects, and nearly a third were projects for people who speak English as a second language. All grew up outside of the United States and were now running businesses on Hawaii Island.

This is not unusual: a large number of our clients fit the profile of immigrant, non-native speakers of English. Many of these new clients come to us from referrals and almost all visit or call at least once before starting a project, so I feel we’re doing something right.

When I started Kona Impact 12 years ago, I looked at the skills and ways of doing business that would attract a wide variety of clients. I had lived abroad for most of my adult life, so I knew this could be an asset: I was a good listener, and I could communicate clearly to those who didn’t speak English fluently. I was for many years what my many of my clients are: living in a new culture and speaking a new language, at times not very fluently.

I greatly enjoy talking to clients from different countries. In the past week, I’ve worked with people from China, the Marshall Islands, Korea, France, French-speaking Canada, Mexico, and Germany. I enjoy the focus and hard work these people put into their businesses. It’s not easy, I know, and if you add the challenges of language and unfamiliar laws, it can be even more difficult.

Here a list of things I keep in mind when dealing with non-native English speakers:

1. Many are highly-educated and accomplished, often holding advanced degrees. I always assume they are intelligent, hard-working people, even if their English might be limited or imperfect.

2. They are highly motivated to provide for their families and achieve their version of the American Dream. I seldom see anyone who works harder than an immigrant.

3. Listening (on my part) is the most important skill I can have when speaking with someone who is speaking in their second language. Take time. Don’t interrupt. Allow for a slower conversation speed.

4. Provide what they may be lacking. Many immigrants may not know some of the laws that they will need to follow. Insights into the Hawaii business culture are often appreciated. Give them the best information you have, even if it might contradict their understanding. Be honest and forthright 100% of the time.

5. Connect them to resources. If I see a person is about to start a business and they don’t have it registered, and they don’t have a tax license, I show them where to do that. Over the years, I have developed a large network of friends and clients. If I know of someone a new client might benefit from meeting, I’ll often share contact information. I believe that businesses need a network to succeed.

6. Understand that they may have different approaches to payment and negotiation. Some of my clients come from countries where it is customary to negotiate most prices. I understand that and try to work with them, which usually results in a nominal discount in the project cost.

7. Above all, treat them with dignity and respect and show appreciation for their business. These are universals in business, but perhaps a bit more critical for someone who might be apprehensive and a bit wary of people taking advantage of them

I hope that in the future Kona Impact will continue to be a place that attracts a wide variety of clients from around the world. We look at these clients as an important part of our business and do enjoy helping them achieve their business goals.

Kona Businesses for Sale – Four Scenarios

Like any community, Kona, Hawaii has a range of businesses for sale at any given time. Some are gems in the rough and some are close to closing and no amount of effort can save them. I like to think about Kona businesses for sale as falling into four categories:
1. Turnkey Profitable
2. Distressed – Avoid!
3. Distressed -Fixable
4. Retirement

Profitable Turnkey
These are the dream businesses: they make money, and a new owner can take over and run successfully right away. An example might be a retail shop in a prime location with a history of strong cash flow. This type of business seldom stays on the market very long, as there are lots of people looking for this type of “dream-come-true” business.

Here are some things to look out for when you see a business listing for a Profitable Turnkey business:
1. Are the books clean? Have taxes been paid and do bank deposits match with the declared income? If the owner claims a lot of off-book revenue–cash–be wary of such claims as they are easily exaggerated. Look for professionally prepared books backed up by tax returns.

2. Is the owner claiming a salary? A business with $100,000 in free cash flow might not be so good if the owner, her husband, and children all have to work at no cost to keep the business going. Many small restaurants are only profitable because of “contributed labor”.

3. Check the lease of the property very carefully. It might not be transferable or might be expiring soon, which means the building owner will hold all the cards when negotiating a new lease.

4. Confirm suppliers and make sure they will provide like pricing and servicing going forward.

5. Be sure to check the business’ online reviews and overall online presence. I see a lot of restaurant and tourism businesses with only mediocre reviews online. This will affect the businesses’ ability to be profitable in the future.

Lastly, look a the price very carefully. Turnkey Profitable businesses are very rare, so they are often priced well above the actual value. A great company at a bad price is a bad deal!

Distressed – Avoid!
This describes a lot of businesses for sale in Kona, Hawaii. Tell-tale signs are a relatively low price, unfilled taxes (cash flow problems), a bad location and a significant amount of negative online reviews.

Here’s an old joke in Kona: How do you know a restaurant in Kona is about to close? It’s for sale!

There are three essential things to do when looking at any distressed business:
1. Look at the numbers. What are sales? What is the cost of goods sold? What is the monthly overhead? Is the owner working for free?
2. If sales are low, why? The reality might be that there is very little need for the products or services. If the market has already spoken; that is, the business has not been sufficiently profitable for some time, it will probably continue to do so into the future.
3. What can you possibly do that hasn’t already been done to change the game? Every entrepreneur I know if an optimist (and that’s why I love working with them). That said, if the business has been failing despite the efforts of the current owner, what can you do that will change the game? I have seen some restaurant locations change ownership and theme six times in the 17+ years I have been here. These areas, for lack of a better word, suck, and there is nothing that can be done to make them work.

Distressed – Fixable
Everyone who buys a “Distressed – Avoid!” business imagines that it is in the “Distressed – Fixable” category. If they just change the marketing, the business will succeed. The product selection was too wide/narrow, so they just fix that, the company will become profitable. A few new recipes and we’ll get people back to restaurant….The list can go on and on.

The truth is that a business in a terminal condition is unlikely to change–even with new ownership.

How do you know if a distressed business is fixable?
1. Look for a business that has had problems due to the owner’s personality or health issues. A new owner will solve those problems quickly. Likewise, if the problem is poor employee training or morale, this can change.
2. Look for good financial fundamentals. Are the products and services high margin? Is there room to put some of the profits into fixing outdated equipment, anemic marketing or automation? Can you implement efficiencies to expand the margins?
3. Talk to suppliers and customers and see what can be done to fix broken relationships and forge better service or product offerings in the future.
4. Most of all, be brutally honest with yourself: If others have failed, what can you do that hasn’t been done to change the underlying dynamics of the business?

Finally, if the business has a considerable number of negative reviews on websites like Yelp! and TripAdvisor, you will be buying the problems of the company, and worse yet, you will not be able to change this perception problem for a long time and without significant effort. Avoid!

Retirement
These are often the best businesses on the island, as the owner has likely run the business fairly well and is a motivated seller. He will also have some emotional stake in the company, so there will be some incentive to help out the new owner and help her be successful.

A few issues in buying a business from someone who is retiring:
1. If it is the personality and connections of the owner that has made the business work, consider how much of that will transfer to the new owner.
2. Be sure to value the business properly. The value is what a reasonable person would pay for the business (assets, cash flow, contracts, reputation, etc) and not how much the current owner needs for retirement or her emotional attachment to the company.
3. You might be able to get creative financing from the owner.
4. Look at the books carefully. Numbers will not lie.

Buying a business in Kona, Hawaii can, of course, change your life. Living in paradise has a certain appeal. That said, knowledge of the business, its financials, and understanding where and how companies thrive in Kona are essential. A Realtor or business broker will seldom provide unbiased advice, as they only get paid when they make a sale.

Kona Impact has worked with more companies in Kona, Hawaii than probably any other business. We know Kona business and have been helping businesses owners start and grow their businesses. We are very attuned to the local business climate and have years of experience seeing what succeeds and fails. If you’d like to talk shop, give us a call. We can help.

Kona Business Report 2018

The key concept to describe the business situation in Kona, Hawaii is “at capacity.” Almost every business that we deal with at Kona Impact is in what I call a “busy and profitable” mode; that is, they are running full speed and making money. This contrasts with the worst case scenarios we have had in the past: “busy and broke” and “not busy and broke.” These, of course, are exaggerations and over-generalizations. That said, times are good now in Kona, perhaps too good for some business sectors.

Getting Things Done

Getting projects done has become an increasing concern for local businesses. We heard of one development that is “shovel ready,” but the developer can’t even get a company to do the lot grading. The bids that were received were prohibitively high, and there were no completion dates attached to the proposals.

I received a call from my dentist last week about my next, next appointment. They were booking appointments for September, a full seven months away. She “wanted to make sure I could get in.”

We know of one niche builder who now has a three-year backlog. They have stopped accepting architectural drawings, as they could not guarantee any preliminary work on new projects until 2019.

This lack of capacity in the construction sector has been good for construction company owners, but bad for those who would benefit from a supply of new homes: consumers, realtors and those who profit from home sales.

Kona Impact, too, is working near or over-capacity right now. We have worked extra hours and many weekends to keep up. We now turn away some projects, especially low dollar projects and projects from clients who have been less-than-ideal clients in the past.

We had dinner at Foster’s Kitchen in the Coconut Grove Center last week. Every place was crowded–a good sign for the bars and eateries in that area. We had an early dinner at 5 pm; by the time we finished at around 6 pm, there was a line of people waiting for tables. That seemed to be the case at every restaurant in the area.

The take-home lesson is that those who need something “now” need to be patient. Or they will need to have a good relationship with their service providers. If you want a new home, be prepared to pay a premium. If you are a client of Kona Impact, make sure you plan ahead, as our lead times are longer than usual.

Employment

We are at a point in our economy where anyone who wants a job can have one. The statewide unemployment rate is 2.2%, which is effectively full employment. It’s about half the national rate.

As a result of our strong economy, good workers are hard to find in some sectors. Employers that have poor conditions and low wages are scrambling to cover shifts. Many good employers are also struggling, so they are raising pay and benefits. Some have moved away from using (less reliable and loyal) temp workers to hiring full-time workers. Others have turned to temp workers to fill positions.

In the long-term, businesses will have difficulty growing if there are few available workers.

Other Tidbits

Despite the strong local economy, there does seem to be a lot of open offices and industrial space Kona. A person looking to start a business should have no problem finding an office and industrial space; good retail and restaurant spaces are always hard to find, but there are several decent spaces around town.
Our great highway debacle continues. The highway between the harbor and airport was supposed to be done by now. Looks like later this year, but I would bet on 2019 at the earliest. Depending on the time of a day, it can take 30-60 minutes to get from Hualalai through Kailua-Kona (or the reverse). Late and way over budget seems to be a fact of life for construction projects in Hawaii.
Planet Fitness, a large national chain, is scheduled to open this year in the old Borders location Henry Street. In a town saturated with gyms, this new gym will only prosper by eating some of the lunch of its competitors. I have my suspicion we’ll see a contraction in the fitness center market in the next few years.

Ola Brew is a welcome addition to the micro-brew/bar market in Kona. They make a variety of beers and ciders on premises. I’ve had several, and they are delicious. They have a good thing going and will only get better.
I got lunch from Cool Running, the Jamaican food truck the other day. I’ll be back for sure; the lamb curry with cornbread was just incredible. If you see this food truck around town, check him out; you’ll be glad you did.

My Rotary club used to have our luncheons at one of the big hotels in town. It was an excellent venue, with many pluses, but when they raised their fees for the second time in one year, we switched to the upstairs of Island Lava Java. I have to say; I enjoy the ocean views and fresh air more than I did the inside of a hotel. The food is quite good, too. I think the hotel got greedy with their pricing and thought we had nowhere else to go. They were wrong.

A similar thing happened when I went new car shopping last month. The salesperson at the local dealership seemed less-than-enthused about showing us the models we were considering. I even told him were cash buyers and looking to purchase right away.I left my full contact info with him after describing the car we wanted. Truth be told, we were most interested in the color at that point, as we had already decided to buy a particular model, a very common car in Kona. Two weeks after stopping by, there was no follow up, so I decided to see what I could get on Oahu. Within ten minutes I had made an offer–through email–for the exact car we wanted. Within an hour the salesperson and I had agreed on the price. We never talked. In the end, we figured that we saved close to $3,000 (which included shipping to Hawaii Island) on the car compared to the local dealer, who insisted on the “local area markup” a $1,500 surcharge added just because they can. I wonder how many other car buyers have given up on buying locally because of this.

The Thirty Meter Telescope is still in limbo. If it is not built on Hawaii Island, a clear message will be sent to those who want to invest in innovative and game-changing ventures on the island: the island is not a good place to do so. That, in my opinion, would be most unfortunate for our working men and women, their children and their children’s children.

Mountain Thunder Coffee Plantation has put a lot of effort into building a good Kona coffee farm tour business. For those who don’t know, the farm was bought out of bankruptcy in April of last year. While the farm has always produced exceptional coffee, the new owner has focused on improving the farm tours and providing better customer service to Kona coffee customers.

Vehicle Graphics, Lettering and Wraps in Kona, Hawaiii

There are few marketing investments that will have a better return on investment than vehicle graphics. Done right, they can get your business’ name in front of hundreds of people a day, day after day, year after year. You will be marketing to people who live and work in your community.

Here are some of our Frequently Asked Questions for vehicle graphics in Hawaii:

  1. Do you do vehicle wraps?

If you mean full vehicle graphics on vertical (sides and back) AND horizontal surfaces (hood, roof, trunk), the answer is no. The UV rays and heat in Hawaii virtually guarantee and short lifespan for graphics mounted on hoods, roofs and trunks. The sun is just too brutal on even the best of materials, and we don’t want to sell anything that will not give the owner a good return on investment. There was a company called Kona Wraps that tried to make a business out of wraps. They went out of business in a year and left town suddenly.

  1. What vehicle graphics do you do then?

We make magnets, cut vinyl, printed and laminated vinyl and see-through materials. This covers about 90% of the vehicle graphics you see in Kona. If you have seen anything short of a full vehicle wrap, we can probably do it!

  1. How much is….?

There are three costs for vehicle graphics: 1.) design, 2) materials, and 3) install. All things being equal, a large, complex design will make all three of these costs higher. Most of the projects we have completed are less than $1,000 (though some have been higher); vehicle magnets are $100. We do not price our projects low, because we need to have the budget/time to do the job right, with quality materials.

  1. Do you have any recommendations for effective vehicle graphics in Hawaii?

We have three recommendations: 1) bigger is almost always more visible, 2) contrast (dark text on light background or light text on dark background), and 3) avoid clutter. Think about your essential message: what do you want someone who will see you for a few seconds to remember?

  1. Can we save money by self-installing?

Absolutely! We are happy to do the setup work and give you the install-ready materials. Things like PUC numbers, simple graphics and smaller stickers are relatively easy to install, by yourself. Larger graphics or strips of cut vinyl require more skills, but if you’re on a budget and want to give it a shot, we’re happy to sell you install-ready materials.

  1. How long will vehicle graphics last in Hawaii?

Cut vinyl will last many years; printed and laminated graphics less. It’s impossible to give an exact number, as a vehicle parked at the harbor all day will get a lot more UV and heat than a truck used up mauka on a farm. Most of our material is rated 4-7 years on vertical services by the manufacturer.