Creating Value for Customers: A Key to Business Success

In the journey of building and growing successful businesses, one principle stands out as a cornerstone: creating value for customers. My mentor, Karl Gerstenberger, has deeply influenced my understanding of this principle. Karl, a distinguished leader in service businesses and co-founder of Service Direction Inc., a national hospital food service management business, has imparted invaluable lessons that continue to shape my approach to business.

Today, I'd like to share one of Karl's key business lessons: profitability through value creation.

The Formula for Value

Karl and I defined value in our ServiceMaster Integrated Service business for hospitals using a straightforward formula:

Value = (Quality × Service) / Cost

This formula guided our decisions, always through the lens of the customers we served. It emphasizes that value is not just about lowering costs but enhancing quality and service.

Lessons on Profitability and Value

Karl's writings on profitability and value are rich with insights. Here are some of the key lessons:

1. Disciplined Thinking for Profitability: Achieving profitability requires a disciplined mindset. It's easy to rationalize delaying profit or to believe that profit is always just around the corner. Mental toughness is essential to overcome flawed thinking and take necessary actions toward profitability. Convincing everyone in the organization of the importance of achieving profitability ethically and as soon as possible is the only way to assure a sustainable future.

1. Balancing Quality and Profit: Initially, the desire to do a high-quality job seemed to conflict with our ability to make a profit. However, a reorganization of people and acceptance of potentially slower growth resolved this. This strategic alignment allowed us to maintain high standards while moving towards profitability.

1. Leadership in the Field: Having the best people lead actual work in the field proved to be a most important benefit. It provided an opportunity to demonstrate value and advocate for our service more effectively. This approach not only maintained our growth rate but potentially accelerated it.

1. Profit and Decision-Making: Profit enhances decision-making by eliminating the need for borrowing or equity dilution. It also boosts morale, whereby profit creates a source of esprit de corps and affirmation within the business. Experiencing profit fosters a culture of excellence and positive energy.

1. Creating Sustainable Profit: Profit results from creating value for customers and providing growth opportunities for employees. Excessive profits, however, can negatively impact customer perceptions and employee satisfaction. Striking a balance and defining what constitutes reasonable profit is essential and means everything to the viability and future of the business.

In conclusion, creating value for customers is not just a business strategy but a pathway to sustainable success. By focusing on quality, service, and disciplined profitability, businesses can achieve lasting success and growth.

Karl Gerstenberger