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Sometimes, small business owners can hurt their own businesses without being aware of it. They do so by creating complexity and taking the focus away from conducting the business, to reporting about it.
It’s a known fact that a directive issued by the boss which trickles down the levels of employees can create more harm than good. Every level down, the directive gets more and more demanding. If the boss says “I’d like to see the numbers,” the first level will say “The boss needs to see…” then, “The boss demands to see…” and so on and so forth. By the end of the day what was asked as a friendly, non-committal request, ends up sounding like a strict demand.
Ron Ashkenas tells a story that illustrates the process in his article in Harvard Business Review. He asked hundreds of managers a few questions: Does the complexity of the business make it difficult to meet client’s needs? Does the complexity cause dissatisfaction from employees? The answer to both questions was yes.
If so, he asked, who causes that complexity? After a short silence, most managers admitted that occasionally they are the ones responsible.
To illustrate this process Ron Ashkenas tells a story; a president of a large company asked his CFO to produce a weekly, nonfinancial, activity report. The CFO asked each of the directors of this multi-branch company to give him a few highlights of the week’s activity. Most of the directors asked their subordinates to do the reporting, and it trickled down to many levels.
Before long, people in the organization were busy producing those reports, and thinking of creative ways to say that nothing is really new. As the report went up again, each of the directors, wanting to look good, embellished it or reproached his subordinates for not making the report look good enough. Soon many people in the organization were busy producing that report instead of producing income for the company.
The president, of course, was oblivious to what was going on. After all he asked for a simple, nonfinancial, report.
The problem was that none of the levels of employees asked what the president was really after. Each wanted to look good to his boss, to appear productive and none of the heads of departments thought they might do the report themselves without input from their employees. The process took a life of its own.
What to do? The solution is not simple – we all need reports, especially if the business is growing and we do not have daily contact with all the departments. The challenge is to make all those invisible source of complexity more visible.
You can read more about it in Ron Ashkenas’ book “Simply Effective” and learn how to reduce complexity in your business.
Image thanks to http://www.flickr.com/photos/13053707@N00/102413554/
New bank overdraft regulations that went into effect August 15, 2010 may cost banks billions in lost revenue according to guess who: major banks. Research firm Moebs Services estimates overdraft brought banks $37.1 billion last year, as reported in The Washington Post.
The new rules may help small businesses that are dealing with tight cash flow and were slapped with huge fines. Here are how the rules were before the new regulation:
Let’s assume your bank account shows you have a few hundred dollars in your account. You buy a cup of coffee, you buy stamps, you maybe have lunch. You paid for all of those with your debit card.
A few days later you discover you are overdrawn by hundreds of dollars. How could that possibly happen when you had a few hundred dollars in your account? Quite simply, banks decide which withdrawals they post first. Let’s assume a check you gave a month ago was just now posted into your account, or a recurring automatic payment you forgot about went through.
Regardless of the dates, the bank posted your big check first. That brought your balance to zero. All the other withdrawals, small as they may be, now appear after it. Instead of paying overdraft on one big withdrawal, you now pay for all the small ones – with a fine. The cup of latte for which you paid $3, has now a fine of $37. A few of those and now you owe the bank hundreds of dollars.
This was one of the ways the banks made a lot of money with an unfair but legal practice, and that is one of the problems the Dodd-Frank Wall Street Reform and Consumer Protection Act addresses.
According to the new rules, the banks have to give their customer the option to enroll in overdraft protection or opt out. But many economists fear the new rules are not spelled clear enough, so here they are:
The customer can decide if he enrolls in the program and has the bank honor all of his debit card withdrawals regardless of whether there’s money in the account. Overdraft charges will be accompanied with a fine. If the customer opts out, banks will not honor debit card payments when there’s not enough money in the account to cover them.
The FDIC admits the complaints about overdraft abuse doubled from 2008 to 2009, prompting the agency to write guidelines that include small banks as well. They say the banks have to limit the number of times an overdraft accrues by limiting the dollar amount or the number of times the fee can be slapped, a provision that is not included in the bill, and they call to review the order in which bank post the withdrawals.
What worried bank critics is the idea that the bank will now look for other inventive ways to make up for their lost revenues. Legislation takes years and until the public catches up with the bank shenanigans, the customers lose.
Image thanks to http://www.flickr.com/photos/7578081@N07/2585039824/
Unfortunately most credit card processing rate quotes cannot be trusted, which is why we created TransFS, where all the offers are full-disclosure and fully accurate.
Here is an example of how a merchant account provider has advertised false rates.
Discount Collected
One of the ways processors confuse business owners is by having misleading statements. For example, look below at the final line of this business’s credit card processing statement. The logical assumption is that the amount being charged is $130.83
Not so. There is a sneaky line item called “discount collected” which is hidden in the “Settlement/Discount” section. This, plus the 130.83 is what the account is actually being charged.
While the business owner is led to believe that his processing fees are $130.83, in reality they are $469.82.
This leads to the phenomenon where business owners believe they are paying a low rate, but actually are paying many times that amount. When looking at your (often complicated) credit card processing statement, don’t take for granted the amount the processor wants you to think you are being charged. Instead, make sure to check your bank account and calculate your fees based on the true charge.
Learn more about how to reach merchant processing statements here.
To compare bids from top-tier credit card processors, check out the TransFS marketplace. A few minutes can help you save (average) 40% on your processing bills.
Buyerzone Scam
Lead generation is dead as a business model.
Recently we posted an account of trying to shop for a credit card processor on buyerzone and a video of the buyerzone process. It wasn’t a very good experience and its easy to understand why customers are upset, since BZ promises comparison shopping and really just sells your information as a “lead”.
It turns out that it’s not a particularly good experience for service providers either. There are quite a few negative reviews on sites such as the Ripoff Report.
We know a lot of current and former Buyerzone employees. They are not bad people, or trying to rip anyone off. But their business model of lead generation is one that is fundamentally dissatisfying.
Shoppers don’t want their information sold, they want straightforward options with all the benefits and disadvantages fully disclosed.
Service providers don’t want phone calls. They want customers.
For the past couple of weeks, I have devoted a chunk of time to finding the best individual health insurance plan. Having worked in a doctor’s office for most of my life, I thought it would be an easy process. Especially since health insurance is something most people have, and therefore theoretically have chosen. I thought there would be a bunch of useful tools. I thought the internet was the only thing i needed.
I thought wrong.
Here’s what happened, and what I imagine is a fairly typical process.
1) First stop: Google.
What better place to find a comprehensive comparison shopping site for health insurance? Here’s what you get when you google “compare health insurance plans.”
So out of the top Google results, there was only one website that was even halfway informative. The problem with Ehealthinsurance was that there were too many plans to choose from! Many of them had slight price differences from the same provider with seemingly identical benefits.
However, the site did let me compare plans side by side which was helpful. Although there was technically the ability to print out the comparison, this feature was not functional and really frustrated me, since I could not return to my results the next day without filling out all the same information.
Regardless, the site left my head spinning with all of the options. Soon after, my phone started ringing from the information I had given to other lead gen sites in order to get “instant quotes.”
This was starting to remind me very much of searching for a credit card processor….
2) What to do next? Ask my friends.
After livechatting with a rep and speaking to some other reps on the phone, I was still unsure as to what the best plan was for me. Each person seemed to be recommending different companies, different deductibles, different coverage, etc. How to choose?
I started complaining about this hassle to anyone who would listen, and it so happened that a friend of mine had a friend of a friend (you get the idea) who worked with health insurance. I called her and she counseled me through my frustration.
Now with a better idea of what I should be looking for, I decided to apply to a bunch of plans and see which I qualified for.
3) Giant fail. Back to square one.
It turns out you’re eligible for almost any plan as a healthy young adult. Fail.
4) Local love.
I really wanted to figure out this thing on my own without asking my father (a doctor) for help. With a heaving sigh, I dialed his number and asked for help. The internet had failed me.
He connected me with his small town insurance agent, who was able to counsel me, provide me with excellent service, and explain which plan to choose.
Conclusion: This experience was disempowering and frustrating. The websites were bad. I did not want to get called randomly by sales reps. And at the end of the day, I did what people did 20 years ago…go to a local business for better service.
A customer recently asked me this question:
“I’ve worked with processors who quote a certain rate, then raise it after I sign a contract with them. Will the bids I receive from processors on TransFS remain the same after I sign up with them?
Here is our answer:
“Your rate will absolutely remain the quoted rate…in fact, the only way your rate might change is if we negotiate lower pricing terms with the processor. In that case, your rate may go down! TransFS will act as your advocate to make sure you get the deal you signed up for, and if for whatever reason you are unhappy, you can cancel at any time without a cancellation fee. One thing to note, however, is that rates are calculated based on information you provide. Therefore, if that information does not reflect the true nature of your processing needs and business, the rate may change in the beginning to reflect reality.”
BuyerZone Sucks! (Video)
Earlier, I blogged about my “experience” trying out BuyerZone to get quotes for a merchant account. The process was so…insightful that I decided to make it visual. Here is the result, and please forward on to friends, business owners, etc. so they don’t make the mistake of wasting their time using BuyerZone.
More generally this is a good example of how “lead generation” websites that promise comparison shopping but actually just collect your information and sell it, are not very useful. At TransFS, in contrast, we do useful tasks for you, like negotiate competitive bids, do complicated analytical comparisons of pricing structures and gather ratings and reviews, all for free. And we will NEVER sell your information.
Many people have been talking and asking about Square, the new gadget coming from Tom Dorsey, the prolific founder of Twitter. The basic idea is to make the acceptance of credit cards universally available for everyone individuals, businesses, etc.–provided they have an iPhone and Square’s little swiper piece (you plug it in the iPhone to facilitate the swiping of credit cards). Cool idea, huh? Here are some questions to ponder:
1) Is Square accomplishing something new?
2) Is Square a good idea for my small business?
3) What’s the catch?
4) What are the pros and cons?
I welcome discussion and addition to these questions. Having read a ton about Square, this is purely speculative. Since it does not come out until the summer, only test users have actually put it into use.
1) Is Square accomplishing something new?
Yes and no, but mostly no. Accepting credit cards via iPhone has been around for a while. In fact, TransFS has a free iPhone app that does virtually the same thing as Square. The difference: with TransFS (and many similar apps) there is a different credit card processor involved on the back end, but with Square, they act as both gateway and processor. Another difference is the swiping feature–most other apps require keying in the number.
Square also includes some nifty toys like photo verification (for identity theft purposes), the ability to swipe cards, and email receipts with lots of information like geographic location of transaction.
2) Is Square a good idea for my small business?
It depends on your size, but mostly no. If you are a bicycle messenger, or some other occupation with very low volume of credit card revenue and also need mobility–then Square may be worth it. Rates for credit card processing fees vary by revenue from credit card transactions. The higher the volume, the lower the fees (generally). Square charges 3-3.5% per transaction which is absolutely not worth it if your business has high volume.
3) What’s the catch?
Square is still deciding what to charge for its services. Some say both the hardware and software will be free, while others point to a $1 download fee for the app. This isn’t where Square will potentially make its money: the bulk will be that 3-3.5% processing fee. Like I mentioned before, for small businesses will little revenue, then it’s not bad. For example, Paypal’s processing fees for monthly credit card revenues under $3,000 are 2.9%+0.30 (per transaction). So in reality, you could download the TransFS iPhone app (free) and use Paypal as your processor for less. However, if your monthly revenue is really high, then processing rates can be as low as Interchange+0.10+0.05 (that’s just an estimate). Translation: 2%+$0.20 per transaction. That’s a huge difference from 3.5% flat fee. Learn more about average fees here.
4) What are the pros and cons?
| Pros | Cons | Conclusion: | |
| Mobility | Able to be used anywhere. | Not if you lose that swiper chip. | Keying in apps already exist. Swiping is cool, but not losing the add on piece. |
| Price | Flat fee. | It’s really high! | If you’re low volume and an infrequent user, you’re paying for convenience. Otherwise go another route. |
| Features | Ability to swipe, email receipts, photo ID, signing on the screen, geographic markers | You’re paying a lot for these! | If you really like the features and are willing to pay a premium, all power to you. |
Retailers’ aversion to fraud seems to be heightening, with over 57% of online merchants seeing fraud as the greatest threat to their business. This number skyrocketed from 2007, when only 6% of merchants saw fraud as a threat.
The good news is that just 1.6% of online orders tend to be fraudulent, an improvement over previous years’ statistics. This may be because retailers are becoming more wary and are taking steps to protect themselves.
A great way for merchants to protect themselves is to make sure they are PCI (Payment Card Industry) Compliant. These are standards set by the government to make sure merchants protect themselves from security threats. For a guide to learn more about PCI Compliance, click here.
Some people see fraud as a threat to the internet’s existence in itself. Several internet crimefighters have found ties between mafias and security breaches, especially in places like Russia and Italy. The internet seems to be the new frontier for organized crime to steal and distribute booty. NPR has a great interview with several cybercrime fighters who work behind the scenes to make sure the internet stays safe.
Image thanks to http://www.flickr.com/photos/59463761@N00/616649762/
