Thursday, July 25, 2013

When I Saw a Business Destroy Itself...

The following anecdote relates to an article on titled "How Modern Economics Is Built On 'The World's Dumbest Idea'":

In the summer of 1989, I started working at a new McDonald’s being built.  We trained at a few other stores so that we would be ready for opening day.  It was a great summer and a very exciting time for all who were involved.  We did everything by the book and had plenty of staff on hand to handle the customers.

The owner knew that it was common for a new store to lose $100,000 the first year.  His goal was to be the first to break even or even profit the first year.

So you can possibly guess what happened.  With the focus being on profits, having too many employees in the store during a slow time impacts those profits.

So while we had a great summer, when school started, he immediately reduced staffing by half to meet the new lower demand.  However, he failed to anticipate that this drop was temporary.  After all, it’s during the first week of school when everyone is trying to get back into their old routines.

A couple of weeks into the school year, business was picking up again.  The owner did not increase staffing to match this as he assumed this sudden increase was an anomaly.  Naturally, you have a breakfast, lunch or dinner rush and not enough staff on hand to get the food out fast enough, the customers get disgruntled.  Eventually they stop coming.  This drop is worse than the school year… so staffing is cut again.

Eventually, by Christmas, we were nowhere near the high-performing store we were those first three months.  He had destroyed his own business by seeking short term profit rather than focusing on long-term customer satisfaction.

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