The Learning Leader Show With Ryan Hawk - 446: Fred Reichheld - Asking The Right Questions, Loving Your Customers, & Living A Meaningful Life

Episode Date: November 15, 2021

Text LEARNERS to 44222 to read my new book, The Pursuit of Excellence, early. Full show notes at www.LearningLeader.com Twitter/IG: @RyanHawk12    https://twitter.com/RyanHawk12 red Reichheld is the creator of the Net Promoter Score system of management. Also known as "NPS." NPS is used in two-thirds of Fortune 500 companies. Fred has worked at Bain and Company since 1977. He is also the best-selling author of five books, including his most recent, "Winning On Purpose." Fred graduated with Honors both from Harvard College (B.A., 1974) and Harvard Business School (M.B.A., 1978). Notes: The ultimate question: "How likely are you to recommend this brand to a friend or colleague?" Fred views "Net Promoter Score" as "Net Lives Enriched." "At Bain, we came to realize through our own experience that the frontline team leader sets the tone, models the values, sets the priorities, and balances individual needs with team needs. Given this critical importance, we select leaders with great care and invest heavily in their training and coaching." The difference between good profits and bad profits. Play the long game. It's not helpful to earn a profit from someone who had a bad experience. Negotiation - Try to give the other person as much as possible. The story of the Costco CEO sharing the extra profits with others... Think about how you can do this in your negotiations with family, friends, and work colleagues. The Costco leaders always think of how they can put they can love on their customers How can you turn someone from a detractor to a promoter? Pleasantly surprise your customer The Certa Pro Painters example - They train their teams to seek out opportunities for acts of kindness. For example, when they are on a ladder up high painting a wall and notice a light bulb is out, they will put in a new light bulb (for free). They go out of their way to surprise and delight their customers. Richard is a big believer in the golden rule: Treat others as a loved one should be treated. When customers feel loved, they come back, and they tell all of their friends. "You want a workforce that is inspired to treat others as loved ones." "The leader's job is to love their team." Front line leaders -- Make sure you're constantly getting feedback. Dr. Martin Luther King Jr. - "Everyone can be great because everyone can serve." Earned growth rate - Warby Parker - 90% of their business through referrals Joe Girard - The top-selling car sales professional of all time - "I hope you get a lemon." "What! Why would you want me to get a bad car?" "Because then I get a chance to show off. I will give you the best customer service experience of your life. And after I do that, you'll buy cars from me for the rest of your life. And you'll tell all of your friends and family to do the same." Good profits - Earn from promoters Bad profits - Profits from detractors "You don't deserve profits unless the customer is happy." "Where there is individual accountability, things get done. Measure is another magic word: what gets measured creates accountability. With no standard, reliable metric for customer relationships, employees can't be held accountable for them and so overlook their importance." "These companies manage to balance the need for profits with the overarching vision of providing great results for customers and an inspiring mission for employees." How to sustain excellence? Think of NPS as your moral compass Great leaders create a community by living the golden rule Enrich the lives you're responsible for Life advice: Your WHO - The people you spend your life with are everything Only invest in places where you can bring something of value

Before we get to this conversation, I have an ask of you, and that is, I ask that you pre-order my next book, The Pursuit of Excellence. It comes out in January of 2022. And it would mean a lot to me if you would go to Amazon or learningleader.com and pre-order the pursuit of excellence. Now, I've received the question, man, why does it matter if you pre-order it? Can I just wait till it comes out, and maybe a month or two later, or I'll download it on Kindle, listen on Audible. I completely get it, and I've said the same things. The reason that pre-orders are so important is because it sends a very clear message to my publisher McGraw-Hill, yes, you've placed a bet on this guy. Now you should double and triple down on that bet. I want their eyes to get wide at the number of pre-orders that we have coming in, that the learning

leader army of people have said, yes, we support this mission, this pursuit of excellence. I'm on that pursuit of excellence, and part of that is going to be pre-ordering and then reading and then instilling what I've learned from this book into my life. If you've gotten value out of the Learning Leader Show over the past six or seven years, I am certain you will get value out of this book, The Pursuit of Excellence. I've greatly enjoyed distilling down the best of the best from all of my interviews, both the ones that have been published on this podcast and conversations I've had outside of it, to make it the most useful and impactful, as well as the most practical for you.

to apply it to your life. So, please, I love it. If you would go to Amazon and pre-order the pursuit of excellence, go to learningleader.com, pre-order the pursuit of excellence. It would mean the world to me. Thank you so, so much. Welcome to The Learning Leader Show, presented by Insight Global. I am your host, Ryan Hawk.

Thank you so much for being here. Text learners to 4-4-2-2 to become part of Mindful Monday. You, along with tens of thousands of other learning leaders from all over the world, will receive a carefully curated email from me each Monday morning to help you start your week off right. You'll also receive details about my upcoming book, The Pursuit of Excellence, which comes out soon. and you'll have the opportunity to be part of the book launch team if you text learners to 4422. Now, on to tonight's feature leader, a great one. It's Fred Reichel, the creator of the Net Promoter Score System of Management, also known as NPS.

NPS is used in two-thirds of Fortune 500 companies. Fred has worked at Bain & Company since 1977. He is also the best-selling author of five books, including his most recent Winning on Purpose. A few of the topics we discuss. The most useful question to ask all of your customers. And then Fred's definition of the golden rule and why it could be helpful for you to think as he does. And then how to be a better negotiator and why it could be better for you to not get the best possible deal every time.

Ladies and gentlemen, this is a great one. It's Fred Reichel. Fred, great to have you here on the Learning Leader Show. Welcome. Thank you, Ryan. Good to be here. So you invented the net promoter score, I believe almost 20 years ago. And I know this personally because I've used.

at more than one company where I've worked and really appreciate what it provides. First, could you explain what it is as well as why it's so important to be revisited now? Yeah, I invented Net Promoter as a way to help companies measure what I consider their core purpose enriching the lives of customers. And we used to look at statistics like retention rates and customer satisfaction. scores that they really didn't get the job done. And so I was originally going to call this Net Lives Enriched. You know, of all the lives you touch, how many enriched, how many are diminished, and that balance sheet becomes relevant, not just the company, not just to the team,

but to an individual who cares about leading a life of meaning and purpose. And that's where it came from. So what, why do you think it's a good time to revisit it now? Part of it is you have a new book winning on purpose, which we're going to talk about. But this is, I think it's being brought back up and seems to be timely. I think the reason to revisit it now is that while it has had extraordinary adoption, Fortune magazine just reported that over two-thirds of the Fortune 1000 use net promoter, which is a wonderful victory in some ways. But I think the vast majority of people who use it misuse it, misuse it, abuse it, and unintentionally, of course, but so many people have changed this away from lives enriched to, this is a score I'm going to hold people accountable

to, and if they slip below some level, I'm going to fire them or dock their bonus. And as a result, a survey-based score is just totally inappropriate for this purpose. and frontline employees feel like, well, I guess I need to care about the score, not about whether I'm loving customers and learning from their feedback. I'm just going to make sure they give me a 10. So after I'm done with my transaction, I say things like, you know, only a 10 is a passing grade at our company. Or, you know, please be sure to give me the top.

Even if there's something we want to talk about later, I really need this score to keep my job. And that debases the score. It's uninspiring to employees, and it basically screws up the system. Can you explain the question that goes with the system in the whole scoring component and what it means to be a promoter versus not? Sure. Yeah, we value customers time. So one question with one verbatim follow-up is the classic score or net promoter process.

how likely you'd recommend us to a friend is the core question. It gets at this idea of recommending, which is an act of love. It means that you had such a life-enriching experience that you want to share that with someone you care about, a friend or a colleague. And it's a high standard. And if you've achieved it, you know, the next question is why? Can you tell us a little bit about why you feel that way and how we might improve our work for you? And that open text verbatim lets people understand why they have either enriched a life or diminished it.

And they can call that customer and start to understand how to fix that. Or in the case of a great success, how to make sure they repeat it, do it more often. And then you come out with a score. Yeah, zero through 10. You know, everyone argues about, oh, we should have a one through seven score. And market researchers are going crazy over one. up and zero through 10 in my experience is the universal scale. Everyone around the world knows when I say that is a 10. They know it's a standing ovation. And if I say it's a zero, they know that's

horrible. I don't need to put flags or define those ends of the spectrum. One through 10 is not so good because sometimes number one is you're excellent. And ACEs can be high, ACEs can be low. zero through 10 is the most frictionless, universally understood scale. It also makes it possible to differentiate great from okay. And when you squeeze down to the five-star system or a thumbs-up, thumbs-down, you know how to catch the problems, but you really can't tell the, no problem from the awesome, remarkable experience, I have to share this with all my best friends.

You mentioned earlier that two-thirds of the Fortune 500 use NPS, that promoter promoter score. Who are some that are at the, with the zero through 10 ranking, who are some that are either at or closest to the 10, the companies that maybe we've heard of it, as well as why you think those companies arrive at that point? Yeah, the interesting thing is no company is getting 100% tens. So everyone has room to improve. And one of the nice things about net promoter is it keeps people humble and can keep focusing on there is room for us to get better.

We do not want to diminish lives. So when we take net promoter score, how likely you'd recommend us zero through 10, we take the nines and the tens, which we call promoters. Those are the customers that are coming back from more bringing their friends, building your reputation, making your employees proud to work there. those are promoters, the assets, subtract the liabilities, the detractors, zero through six. And the net score is simply taking of all the people you touch, how many promoters minus detractors as a percentage. Walla, the very best companies in the world are operating at 60, 70, 80, even 90 percent net promoter scores, where 100 is theoretical perfection.

The companies that come to mind, you know, Apple is still a super. superstar in net promoter and was one of the earliest adopters. I've learned much of what I've put into Net Promoter 3.0 are watching companies like Apple meld and shape mold Net Promoter into something that works in their culture. I had my son and daughter-in-law worked at Apple for 10 years, so I've had an insider perspective on, wow, when you do it for the right purposes with humility and care about loving your customers, it's amazing. You know, Amazon is a company that uses it quite effectively. And as you know, Amazon turns things into science.

But Amazon isn't the highest net promoter in each of their categories. Chewy, the pet food retailer, the online retailer, gets, I think, 10 or 20 points higher net promoter than Amazon in the pet food category. So you can, one of the cool things about when you measure net promoter carefully, apples to apples, you find out who the superstar is in each category and can learn from what it is they're doing, from customer segmentation to marketing tactics to ways that they delight customers, all the way to leadership techniques within their company. I mean, how do those guys inspire the teams at Chui to keep doing wonderful things for customers, even when there's no face-to-face interaction?

I'm fascinated by this because I don't know about you, Fred, but as a former athlete, I crave feedback and coaching. And I think NPS is a great tool for this, for leaders, for teams, for businesses, obviously to say, basically, would you recommend this? Like, that's what I tell listeners of this show, the greatest compliment I could ever get is just you telling a friend. That's it. You should listen to this episode because it will help you become a more effective leader.

That alone is the best. It's the best, right? That's a 10. That's a 10. And that's all I ask of people. It's worth everything for growth. I'm curious, how would one, and this, you know, take as much as you need, how would one turn a customer into a promoter? depends on the customer and the situation. But in general, what I see working the most is you do something remarkable for them that they feel as appropriate and sustainable. And it does, you know, it's not inappropriate that they feel specially treated. And now you're, you're really shortchanging the other people in line. It has to feel right and appropriate and surprising. And little examples, little acts of kindness and thoughtfulness.

You know, an example from Chewy in the digital world is they just make it really easy when you're getting dog food on a monthly basis and you're going to be on vacation for a week. It's just so easy to adjust your order. And if you don't like having boxes showing up and wasting the planet's resources, they make it so easy to adjust it. So it can be done in a digital way. But in a human way, it's so obvious. One example I use in the book is Serta Pro Painters, the largest franchise of home painters. They have a list of things they train their teams to watch for that are really delightful, and they cost very little. The team, it's just an act of kindness. For instance, when they're climbing up into the atrium

where you've got a two-story chandelier in your staircase, they always ask the customer, would you like me to change the light bulbs in your chandelier while they're up on the ladder? And customers go, oh my lord, that's so cool. That's something that's been on the back of my mind for months or change the battery in your smoke detector that's up in a very difficult place to reach. These are, you know, they're up there already. It takes nothing. And interestingly, it not only makes the customer delighted, it makes the employee feel proud because good people, I think they're put on this earth to enrich the lives they touch. And when they see that happening, it makes their lives worthwhile.

I mean, that's one of the cool things in a net promoter system that's done honestly and accurately is you're letting your employees know when they have, when their work is meaningful and really has made a difference in the life of their customer. I think as a, yeah, as an employer, creating an opportunity for your people to do that would also make your company. stickier. You know what I mean? It make you make you want to stay working there. That's the fringe benefit. Yeah, like you train, I just, I didn't know that. I just learned that. But when you train a painter to

be the hero for the client, and it's such a little thing. If you really think, it's like, that's nothing just to change a light bulb or to change a battery. But it is kind of annoying, you know, when your smoke alarm goes off because, oh, God, I got to get the battery and where is it? I don't have one. And then, you know, or the light goes out and it's hard to get.

there. But those little things make a huge difference. And the company, by training their people to do it, kind of put them into position to be the hero. That would feel really fulfilling. And I think that would make it a cool place to work. You write a lot about the golden rule, Fred. Can you share more about the importance of the golden rule and really making sure we understand it properly as well as in how to implement this into our lives, both at work and at home? Yeah, the golden rule for me is this idea. It's been embraced by religious leaders, you know, for thousands and thousands of years, but I think it's more than a religious principle. It's probably the most important idea that the world has ever come up with. It defines the highest standard in human affairs, and it's to treat other people as a loved one should be treated. Someone, love thy neighbor as thyself in the more religious terms. The reason I say it's such a good business, principle is that when customers feel that love, they come back for more and bring their friends. And they start this economic flywheel that drives the success of all wonderful sustainable

companies, whether it's enterprise rent a car or Apple or Amazon. I know the accounting doesn't make this obvious, but the reason those companies grow sustainably and profitably is that underlying customers coming back for more and bringing in their friends. And the thing that powers it is a workforce who's inspired to treat customers the way they would treat a loved one and strive for not just an okay or a satisfied, but that act of love of kindness of enriching a life that, you know, it's great for the customer, obviously. It's great for the business, but it's great for the employee because that's what inspires and energizes people to work hard and to go through the tough times in life. There's so much talk of purpose these days.

I call the book winning on purpose. I think there's only one purpose that's the winner. I mean, yes, the pollution is an issue and diversity in issue. These are all important ideas. But don't get lost in the weeds. You can only serve all those other stakeholders if you, unless you put customers first and make them feel love. And I think even before that, too, from a leadership perspective, Fred, we think about this. If you follow that rule with your teammates, with your colleagues, with the people you are charged with serving, that then flows to the customer.

It starts, I feel like, inside, and then that flows out. So I am treating the people that I am leading with love and respect and a deep, true, real care that then I feel like gives us the opportunity for it to flow out to our customer. Yeah, this is a leadership thing. And a lot of people think net promoter, oh, that's the marketing department or that's customer satisfaction. No, it is a philosophy of leadership. The guy who, one of the guys who taught me the most about this was the CEO of USAA, the big insurance firm that serves the military and families. Bob Harries, he was a fan of my work early on, and he just stayed in touch and he kept coaching me, and he said, it was clear to me when he led USAA, he cared about his people. He obviously,

the purpose of the business was to enrich customers' lives, but his duty as a leader was to inspire his teams to embrace that purpose and then to care most about their safety, their health, their well-being. And so the leader's top job is to their team. They have to love their teams. And that kicks off this opportunity for them to live lives of meaning and purpose by loving their customers. Absolutely. I love it. And I'm curious, what made you call it winning on purpose? Because so many businesses have confused what the true purpose of a great business is. I think because we measure ourselves with accounting financials, it's easy to get into the mindset. And it's not just measure.

Our governance is set up this way, boards of directors, we set our budgets on financials, we track our progress on financials. We compensate bonuses. You know, every, the only reliable information in the business are financials. So people come away thinking, gee, the purpose of the business is to maximize shareholder value or to maximize profits or something financial. And I think that's really off base. We did a survey. Bang surveyed a couple hundred senior executives around the world and asked,

what's the primary purpose of your organization? You want to know what percent said customers? It's only 10%. The vast majority thought it was either maximizing shareholder value, being a great place to work, or the biggest one was this hazily defined black hole of balanced stakeholder duties to everybody on the planet. And it's like, really? And only 10% of people put customers first. And I think there's only one way to win. It is living up to this purpose of enriching customer lives. And so many people in the world are now, in my mind, confused about

what their primary duty should be, what a great company focuses on. I remember, I remember, so I was rereading your book this morning, page 77, and I, maybe this is because it's just spoke to me. I remember this is one of my first jobs, but you write about focusing on frontline team leaders. Like, and I think of this as the first promotion, right? You go from individual contributor to first time manager, and I vividly remember this. I wrote a book about this jump in your career because it's so hard and it's so important. And what you write is that we came to realize through our own experience that the frontline team leader sets the tone, models the values, sets the priorities, and balances individual needs with team needs.

Given this critical importance, we select leaders with great care and invest heavily in their training and coaching. Fred, can you share more about why leaders and senior leaders should focus and care so much about these frontline leaders? Yeah, I evaluate companies based on their frontline supervisors and the effect they have on their on their teams. You know, probably the most important lesson that we learned at Bain is leaders don't make their teams happy. Customers make them happy.

So the leader's job is to help make sure that each team member is in a role that is valued by their teammates and where the team. can consistently win with customers. That's the engine room of every business. Too many companies just promote people who are good at the front line. And often those are selfish guys. Those are people who elbow their way to the top and me, me, me. But the team just resents it.

So Bain is full of very talented, very ambitious people. So we have a process of getting feedback that is carefully anonymous, but every six months, teams evaluate their leader. And unless those leaders are living the core values and they're proud to be with and they want to work with them again, they'd recommend this team to a friend, that leader isn't eligible to get promoted up the chain of command. And if this whole company is thinking, hmm, we're picking our leaders or we're determining who's eligible for leadership roles, it has turned the place around into, we want people, who not just deliver the financials, that's a necessity, but we promote people who live the values

and our role models for the people they work shoulder to shoulder with every day. And it's led to a phenomenal change in the business. Fred, I've talked to a number of people who worked at consulting firms, Bain or McKinsey. And I've, every time I've come away really impressed. And the part, the reason I say that is because I think at times companies like Bain or McKinsey and those can get kind of a bad rap. They have huge fees. They get brought in when times are bad. Sometimes they're connected with political leaders and it's easy to kind of dunk on those types of people.

Yet my experience has usually been pretty positive. I'm curious, like, what do you think about that, like the space of this big, big consulting firms, what you do for clients, as well as this kind of feeling out there where it's easy to criticize companies, companies like ones you've worked for. Yeah, I can't comment on the competitors, but Bain, I know pretty well, have been there 44 years. And Bain wasn't always the best place to work. Trust me, there were times in the 90s when it was a really tough place. And I lay bare all of those weaknesses in the book. I think this is the most transparent critique of Bain ever, ever made public. But it's for the purpose of showing that you can go from the absolute worst situation,

almost bankrupt in the 90s, to the best, according to Glass Store, Bain's the best place to work in the world. And it's been number one on that list, I think four or five times over the last decade. It's been in the top handful since Glass Store started. It's a very special place. And I know some of the things we do, but I'll tell you the one thing I think at the core of it is our value. We exist to help our clients succeed and to make the lives of the individuals, their careers, to help them solve problems and succeed.

So when I mentioned earlier, we did a survey of executives of what's the primary purpose for your company and only 10% said it was customer. At Bain, when we survey our frontline teams, two-thirds of them will say it's clients, our customers. We exist. Our business exists for our customers. And I think that is why it's a great place to work. If you're in a business where people believe they're there for a purpose of service

and they'll be rewarded by helping their teammates deliver more consistently innovate, that's a wonderful community to be a part of. You live this golden rule idea. Martin Luther King Jr. had a statement of everyone can be great. Everybody can be great because everybody can serve. He's right, but you know, mediocre service is not great. And having feedback mechanisms like net promoter,

both on the employee and the customer side, it opens the door to really letting people aspire toward greatness and be recognized and rewarded when they achieve. it. Before doing my research for this, Fred, I didn't know who was the inventor or creator of NPS. I just knew that we had implemented this many years ago at where I've worked at, like I said, multiple places. Seem pretty cool. I liked it and we kept using it. What does it feel like to be the guy who created, who invented this thing that now basically everybody uses as a way to get a score of people who want to promote or not their company.

I mean, what does that feel like? Well, I told you earlier, I think most people are using it poorly and abusing it. So it's a mixed feeling. I'm thrilled. We made the choice early on to make this an open source system that didn't make me and probably didn't make Bain as famous as they deserve to be given the foundational role. but we have so far to go in making it the system it should be. So it feels like, yeah, I'm turning 70 next year.

And I hope I stay healthy long enough to get this thing back on track and help it reach its full potential. Because the companies that net promoter identifies as the superstars, they are special as places to work. They're great for customers, but they're also great for investors. I've been investing in NPS leaders over a decade. I've more than tripled the stock market. I'm crushing the private equity funds with my personal strategy because I have a way of really understanding who is the net promoter leader, net lives enriched leader in each industry segment.

And that makes me feel good. What makes me feel bad is, you know, it's still a secret. And people don't get it. Really? I still think it's about marketing. No, it's, no, leaders don't understand that net promoter is a philosophy of leadership that helps them. It shines, it's the guide star for, for sailing toward greatness. Why do you think they don't get it?

That pigeonhole down into the marketing department. And market researchers are arguing about whether a one through seven scale is better than a zero through 10 scale. interesting there's something called an earned growth rate what is it and why do we need it well people have been misusing a survey-based score and linking to people's bonuses and therefore destroying its credibility pleading and gaming and all the gimmicks and then companies actually reporting net promoter to their investors they you know good leaders understand this logic of the flywheel and customer loyalty. But they think by putting more pressure on a survey-based score, they can prove to the world how customer-focused they are. And in fact, those numbers are

meaningless. They're not audited. They don't say which customers, what the response rates were. Was it right after a transaction? Did you ignore a bunch of customers? Like, you never bothered. The people who you refused their claim, you didn't send a survey to them. So these scores are well-intentioned but meaningless. So I had to come up with a sister metric. that was essentially net promoter for accountants. And it took a while, but I finally saw it. I saw First Republic Bank telling the investors that, you know, we're growing at 15% a year, which is five times the market growth rate of the loan market right now.

But don't be worried that we're diminishing our credit standards and taking in a bad book of business because 90% of our growth is coming from our existing customers doing more business with us. We know them well and their referrals who are good people. And I said, wow, they're measuring what Andy Taylor back at Enterprise told me originally coming back for more and bringing their friends. That's the magic here. And you can measure that as an accountant. If you do net revenue retention, you know, how much of our revenues this year are coming from customers who were with us last year? And then the extra part of earned growth rate, their two components, it's a little harder, is and how much of our business is coming from referred customers that are essentially second

order benefits of treating our existing customers so well. That earned growth rate for great businesses like Warby Parker just went public. Over 90% of their new business comes through referral. When you ask a customer, what's the primary reason you decided to come on board? 90% are saying referral. And the weaker businesses we, see out in the world, that will get 5 or 10% of their business through referral. That has an incredible impact on cash flow generation, profitability, and inspiration of the workforce, but it's an invisible reality. I'm saying, great businesses build on love. And until you can measure it, you can't manage it. And suddenly, I think with earned growth rate and net promoter in tandem, we have a system

that pretty darn good. Yeah, I love that. Even in the speaking world, I think you can, how to know if you gave a great keynote speech, how many of the people who were sitting in that audience call, email,

ask you to come to their, hey, can you come? Or they're at the side of the hitching. I'm having a conference or I'm having a meeting here in three months. Can you, that's, to me, is like earned growth rate. It's like, okay, enough of the, these are hanging out by the side of the stage following up email here's my car please we got to get this

set up really quick that is like earned growth rate of how do you how do you know that you delighted your customer they're asking for more for that for their own conference or or hey my friend has one coming you got to go to his too you know yeah i i you're you're really good and you're i think there is a way that this only happened a few times my life but when you get a standing ovation you really know that you've done something special on the other hand, when you people talk to people in audience, a lot of them say, you know, I stood up just because everybody else was and I didn't want to be a Debbie Downer. But so earning growth actually is the real one. Did they call you up and book you to speak at their conference? That's the reality.

So that promoter is the survey, the standing ovation. It's pretty good. It generates the energy, but let's look at earn growth rate as well. By the way, have you heard of Joe Girard by chance, Fred? I don't think so. So my dad told me the story of Joe Girard. Joe Gerard is the greatest car salesman who ever lived. And this was, he was audited by, I think Delight did this because I think he's in the Guinness Book World Records, or at least he was, for selling the most cars ever. And so you're like, wonder why this, how this guy sold the most cars ever. What did he do?

Because, you know, I used to work in sales and I was, I was curious. And this is what Joe would say after he'd sell a car. And he'd sold one car at a time. Never sold fleets. Didn't sell orders of 100 vans or whatever. He sold one car at a time, like Chevrolet or something like that. Mercedes or anything. He'd get done and he'd say, I hope it's a lemon. And they're like, what? And he'd say, I hope it's a lemon. And a lemon, you know, obviously means a bad car, car done,

car done work. And they're like, what do you mean, Joe? Why would you hope it's a lemon? That's, no, you don't want this to be a lemon. He goes, then I'll get a chance to show off. And you, because of the service that I'm going to provide you, if it doesn't go well, you, because of that, you're going to buy every car for the rest of your life from me. And not only that, but you're going to tell everybody you know that you've got to go see Joe Gerard. So, yeah, he had a little bit of a salesmanship to him. He got a little, you know, a little bit of a little bit of a swagger about him. But that's how he did it.

He leapt on top of problems and issues and took care of them quickly. And that built up so much, whether it's earned growth or the NPS for Joe as the same. sales guy where people said when something went wrong, he was right there. He was right on top of it. So they couldn't help but tell all of their friends and family. And so over time, obviously, over years and years of this type of service, of this type of taking care of his customers, he had more, he had more people wanting to buy a car from him than he could even handle. And this led to him averaging multiple car sales per day, every day for years. And I think it's just a good reminder of I don't want to I don't hope things go bad for people but having the mindset that

if it does part of how I can earn that loyalty and earn you telling your friends and your family is leaping on those problems and taking care of it for people because it's hard it takes time it's not that fun but that's actually over time what earns that loyalty I think it's a great example and it's just evidence that really strong intuitive entrepreneurs understand this idea. That's the only way you can grow is create a lot of promoters who will become your sales force, your PR, your idea generation, all for free. So you have a world of friends. Andy Taylor grew his business, the largest car rental business on earth by that simple idea.

Make sure people are getting treated at the branch so that they'll come back for more bring their friends. The problem is bigger businesses start measuring themselves on financials. And the financial mindset creeps in and you forget, this is a human world where my job is to turn frowns into smiles. And when I can do that, I can create a wonderful economic flywheel and keep everybody happy in my organization, investors and employees alike. But remember, it's not a financial thing. It's turning frowns into smiles. Yeah, I like that it comes back to being human. And speaking of that and talking about the financials, what's the difference between good profits and bad profits?

Good profits are the profits you earn from your promoters. The people who are loving you and referring friends, obviously you are not taking an excessive part of that value pie from those guys because they're happy. The money, the profits you're taken from detractors are bad profits. Scott Cook joined Bain about the same time I did. He left Bain to become the founder of Intuit, the software turbo tax, Intuit, huge success. I think they just bought Mailchimp, the monstrous and SaaS company. So Scott's philosophy says, Fred, we do not deserve a dime of profit unless the customer is happy. And that means he's not earning any bad profit.

If you're taking money from a customer who feels like their life has been diminished, that's bad profits. And then there are policies that are just horrible. The marking up gasoline refills at rental cars, you know, three, 400 percent, gouging you with minimum balance fees and all the things the airlines do that are just designed to grab maximum value. And the reason people, you know, they don't like me calling them bad profits, but they're bad because you would not, if you loved your neighbor, if you lived up to this golden rule standard, you wouldn't do debt to that person. So it looks like it makes profits right away to the accountants. It feels yucky to the employee implementing it. It feels really bad to the customer who is being abused by it. and your investors are really getting screwed because you have just made that potential asset into a liability who will never come back and they'll say bad things for you.

Well, it's just short term win, but the people, I'd rather play the long game, even if you take a hit short term, because over time, people kind of ask you like, how does this flywheel seem to be turning pretty well? You're like, well, for the last 15 years, I've tried to just live by good profit. I've tried to think long term as opposed to eking out extra fees or extra wins along the way that, yes, temporarily looks good. But long term, it's not going to last. And I think that's when I think of good profit and bad profit. And I really appreciate that.

Fred, I want to like turn this personal for a bit. how can we apply NPS net promoter score principles in our own lives, like thinking about our own relationships, our own growth as we're developing and we care about first and foremost about our families and the people most important to us. Like how can we think of net promoter score and MPS in our own lives? Yeah, I don't know if you noticed this when you were reading the book, but winning on purpose is really a book about a moral existence. it's sort of a religious philosophy book written for my family.

You see, it's dedicated. Business done right creates the potential for a golden rule community. And my message is to be very thoughtful about the people and the communities you invest in. Because in the end, the loyalties you choose, really they shape your, life, they define your legacy. And so the hope is that with net promoter and earn growth, it creates a systematic way to live that philosophy. What I try to make clear in the book is, yeah, that's how you decide as a customer who you want to do business with and buy from. It should influence you as an employee, what kind of company you want to work for,

as a leader how to help people achieve their full potential. And as an investor, as I mentioned, I use it to invest in companies. And it's, it's been crushing it. So in some ways, probably the last two paragraphs, all you have to read, it's all about the future, the grandchildren. What's your family set up? Four kids. I guess it's unusual.

but I've been married for since 879, and then the four kids are, three of them married, all have relationships, and we're starting to have grandchildren. And so at my age, how you pass these ideas on in a world that thinks the purpose of a business is profits

or some fuzzball stakeholderism, when in fact it's service to others, primarily customers. And so this is a little bit of how much time do I have left and how can I make sure that this philosophy continues on. Man, I can't imagine how proud your kids are of you. It's got to be pretty cool feeling, man. I love the personal part because I think ultimately like what's the point of doing all this stuff because they're far more important than anything else will do. and I think but part of that can inspire them, right? What we choose to wake up and do and who the time we invest to make a difference

and to help people and to serve can be an awesome model. And that's, I mean, that's what I think about is like each day did I get up and kind use whatever talents and skills that I've been given and I've earned to the best of my ability to impact other people. I feel like I can then look, look at children and my wife and people. with a straight face and say like, that's, that's, that's what I'm just trying to do, right? Because, because, you know, how kids are, they, they are watching what you do so much more than listening to what you say, at least mine are. I think most of them are, you know?

And what reputation business has in this, you know, most young people, this, they think capitalism is, is one step away from evil. It's, it's horrible. And they have examples that I can understand why they feel that way. Whereas I see a lot of bad things in business. There are a lot of sociopaths getting to powerful business positions and abusing their customers and employees and investors. But man, the companies that are growing and prospering and are quietly crushing it, they're running on this principle. And I think business creates the opportunity for the best golden rule of community on earth. because it's a unlike families and unlike society in general, you don't have to keep everybody. You're allowed to keep association with the customers and the employees and the investors that you

feel are contributing to the success of the community and living those community values. And the really smart companies are finding ways to warn misbehaving customers, for instance, and then kicking them out if they continue to abuse employees. It happens on airlines. When somebody had COVID and came on a jet blue flight, they're out for life. Too few businesses think about or leaders. My job is to build a community that prospers and I'm proud to be a part of. And where loyalty is in people's best interest, not faking them out with gimmicks and fake

scores to accomplish their short-term objectives. You've said that you use NPS and the Golden Rule now as an investor. So I think there are people certainly listening that have the means to invest, and this comes up in questions I receive, and I'm curious about it. So how do you do that? What are some of the way, like, what do you look for? You probably have better access than most because you can actually speak to the leaders of these companies, but what are the ways that you use, kind of the things you've created to help

you choose where to place your bets, where to invest? I have two approaches. One of them is going to be a little frustrating for listeners, but not for long. There is a database is being built within Bain that gets true net promoter scores for everyone across an industry on an apples to apples basis. So every time NPS prism, X-rays in industry, I can see, for example, in automobiles, I saw Tesla. I mean, you hear all these great things and bad things and, you know, the leader is an unusual guy. But their net promoter score is five to ten points higher than anybody else in the industry. And it makes me say, oh, their customers love them.

So I invested in them. Early? You'll see the leaders in the book. Early, early in, you invested early in Tesla? My son did. Me, not early enough. But was it a couple years ago, three years ago? That's still pretty good.

It's a real happy time. Yeah, yeah. That's pretty good. Chewy was a company that we identified in Bain because they had the highest NPS. And that's been a happy time. So net promoter prism and things like NPS prism will identify net promoter leaders. And people should invest on that. I do.

Then the second thing, even if I don't have an NPS prism insight, when I run across a company that has this philosophy that I talk about in the And I just see them living it in their people. If I'm a customer, I can see that's, I know their net promoter score is going to be off the charts when it's measured. I invest in those companies. If I see someone who is committed to making the lives of their customers better and their employees are inspired by that mission, you know, the economics have to, you know, it has the basic business model has to make sense to me. But that comes third. It's this notion of committed to enriched lives that I touch. Because when people are, when they're committed to doing that,

there are a lot of ways to make people's lives better. That are, and it's not, I mentioned these nice things that SertaPro painter does. They don't cost being kind, listening. A quick example, California Clauseits is another subsidiary of first service where I serve on the board. Cal Closets came. and put in a new closet space in my Florida condo. And they did it so well that they were done early. And instead of just running out and getting a cup of coffee,

they said, you know, we've got an extra half hour. We were booking. Is there anything you need done around the house? I said, oh, my, I've been trying to get my counter level on the pass-through because it's been shinking down. I guess I lean on it too much. So everything just rolls out onto the kitchen, the living room floor.

They said, sure, 20 minutes, they've done it, and drill the hole in and put a new bracket. I said, what do I owe you? And they said, oh, it's nothing. That, that seems nuts, right? It's giving, it's leaving money on the table. But at first service, where I sit on the board, we looked back 25 years when, when first service went public.

They're in Toronto. So they're a little bit off of the, you know, not everyone's heard of them. They've heard of CERDA pro painters and Cal closets and some of the businesses they own. But their total shareholder return has been number eight out of the 2,800 companies that existed as public companies back then 25 years ago. So that's above Apple, just one step up below Amazon. It's just unbelievable economics that come out of kindness and sort of local excellence, living your values. And what I hope this book will do is give people faith that actually in this digital world of today, and it's still that same formula.

But to manage it, you either have to be a brilliant, intuitive leader, or maybe you need a little help from a science of measurement with net promoter and earn growth rate to help keep you and everybody in your organization focused on the right purpose. that the story about your your counter and them fixing it and you asking what you owe uh it it reminds me of um a good good story i learned it from reading about warren buffett when talking about negotiation and doing deals and i've tried to implement this in my life with the deals that i've done or partnerships um he just said you always leave some on the table uh you don't have to you don't have to get every last penny of every deal because if you're a long game,

long-term thinker and player, you'll probably do a deal with them or somebody else that relates to them. And why would you rather be known as this ruthless guy who tries to crush every last penny from everybody and gain a little bit more in the short term or say, yeah, that's fair. That's reasonable. I could probably get what you're saying in your head. I could probably get a little bit more. But do I really need to? No. No. And I really like that like a negotiation. It doesn't make you tough or strong by being all hard and trying to go after every last penny. It's like, this is fair. This is reasonable. Let's do the deal and move forward. Or try this. What if you actually loved that person? You wouldn't just leave some money on the table. You would give them as

much money as you could afford to give them and still have a prosperous business yourself. And I don't just say that theoretically. The companies, Costco is one of the stories I use in the book. But Jim Sinigo, the founder of Costco, told me the philosophy he has of, you know, we basically charge a membership fee that guarantees our required profit to keep us happy. And then everything we do is in our customers, our members best end. interests. And we mark up stuff 14%, everything, except Kirkland, private label, that's up 15%. So that's our pricing lesson. You could start working at my pricing department right now, as opposed to all the

complex, you know, airlines doing all these yield management things that seems so smart. But nobody trusts the airlines anymore. Everybody trusts Costco to treat them fairly. And he said, we sold, We sold out of a bunch of Calvin Klein jeans that the top retailers were selling for 70 bucks. We were selling for $2,999. And we sold a million pair. And then, and everyone is saying, oh, why didn't you charge more? You left so much money on the table. Then they got a competitor of theirs overseas, failed on a letter of credit.

So Calvin Klein had another million jeans that Costco bought an even lower price. And so they put same 14% markup standard. So now they're selling these at 2399. And everyone's going, you're nuts. You're just, but you know, they sold out. And I was with a group at the MIT at the Sloan School. And the professor asked Senegal, why didn't you just give more to your employees? You know, you really did underprice.

And he said, you know, the instant your employees think, first of all, they're the highest, they pay more than anyone else in retailing to their employees. So we already knew they had a good. system. He said it's like crack cocaine. Once you start breaking the rules, people, they'll never stop. And we exist with customers first. That is the stakeholder who comes front and center as our number one. And I would, I'll compare Costco's total shareholder return versus Warren Buffett's over the last 20 years. I see the companies who work hard to give you as much as they can in a negotiation. as opposed to as little as can. Those are the guys who are,

they're the future. I love it. I think that's a great way to think about it a couple more, Fred, because I'm not going to waste this opportunity. So you think about like the people you write about in this book, which is awesome, winning on purpose. I highly recommend the leaders you write about. And there are,

I notice there are common themes or threads in those who sustain excellence over an extended period of time. What would you say are a couple of those commonalities among leaders who sustain excellence? Well, they think about net promoter as a moral compass. It's not, I mean, it's economically rational, but more than anything, it catches situations where people don't feel they have been treated well, whether it's employee net promoter or customer net promoter. If someone would not recommend this team as a great place to work or they wouldn't recommend that brand as a great place to buy, something's wrong. It's morally wrong to let that sit there if your mission is to enrich the lives you touch. And I think it's raising it to this

responsibility. I mean, what is a great leader? It's someone who creates a community that lets this golden rule be the standard by which we treat each other. and where greatness is defined by how consistently you're enriching the lives that you're responsible for. That's the difference. They're smart financially. They understand you can't run a sustainable business without earning fair profit, but it's growing the business that makes it sustainable.

And they see the only way to grow, treat customers so they come back for and bring their friends, build systems and a cultural reinforcing. values set and daily and weekly huddles so that values becomes the discussion, not just financials, which I think is the real problem in so many businesses today. That's how their mindset is. But it is funny. 90% of these companies, these leaders are people you'd want to have as a father or an uncle or you're proud to be associated with them. One last thing, Fred, there's somebody earlier in their career. Perhaps they've graduated within the last couple of years. They're not 100% sure what they want to do, but they're, they definitely know they want to leave a dent in a positive way.

They want to impact people. They want to enrich other people's lives, as you might say. What are some of the few pieces of life slash career advice you give to that person? you know who you hang with the people you spend your life with they influence how you measure success how you think about important values so it's just don't don't just think of this as a step along a career where you're going to learn an important lesson think of this as choosing a group of colleagues who are going to become your weight average self because your your human existence is heavily influenced by the people you spend your time with. And you didn't get to choose your family, but you do get to choose your work colleagues and choose them very carefully. And then make sure

you're only investing in places where you feel confident you can bring something of value and can be proud of what you're contributing to their success. It's not how much I can suck out of this by learning and getting a skill. It's, I want to be sure I'm in a place where I can, can be a valued member of a winning team. By the way, that's the insight. One thing determined the happiness of teams. It was just this agreement with one statement. I feel like a valued member of a winning team.

And I think if there's a lesson for an individual, young and just starting in their career, that is the objective you should have front and foremost. Love it. The book is called Winning on Purpose. The unbeatable strategy of loving customers. I highly recommend it. It's really good, really well done. And it does one of those things where you mix the story and science and practical application really well.

I try to do the same. And you've obviously got great experiences, great companies, great people that you're able to write about. And it's useful for leaders and for people in general. So winning on purpose, the unbeatable strategy of loving customers. Fred, thanks so much. for doing this. I would certainly love to continue our dialogue as we both invest. That's a great idea because we've only touched a small set of the issues here, including the investment one. Where would you want your listeners to invest their money? This could be an interesting conversation.

Hey, I'm all in there, man. I know I have a lot to learn. I'm all in. I really appreciate it. This is so much fun. I really appreciate how much time and care and effort you put into this. It means a lot. My pleasure, Ryan. Thank you. Thank you. Conversations like this one, quite frankly, are why my podcast exists to get the opportunity to sit down for an hour with somebody who has been working with the world's most impactful leaders, those who enrich the lives of others. This guy's been doing it since 1977 is when he started at Bain. He's racked up so much life experience and then shares it in a way that is enjoyable and kind and sweet, highly competent. I just love it.

I'm so grateful that I get to do this. And obviously, I hope you enjoyed it as well when reviewing my notes. You know, cool moment. And I actually would suggest you check out the YouTube video of this because you can really see it. When I was asking about how to use NPS in your personal life, He had to pause and he readjusted himself and he had to collect his bearings a bit. He was getting emotional, thinking about his family and the people most important to him.

And it was just cool to see this leadership titan so moved when he thought of the people that he loved and why he really does what he does. And I thought it was a real human moment that I enjoy. Then the difference between good profits and bad profits. and the thought of playing the long game, it's not helpful to earn a profit from someone who's had a bad experience. Sure, you'll win in the short term. It may make your balance sheet look better in the short term,

but long term, we're not going to win playing that way by winning with bad profits. We want good profits. And then negotiation. When I brought up the Warren Buffett quote, and he took it a step further, not only should you not get as much as you can, can, but try to give as much as possible to the other person in the negotiation. That story of

the Costco CEO is awesome. He got the jeans for less. And instead of keeping them at an already low price, he lowered them even more to the 14% margins. I love it. And I just say, think about how you can do this in your negotiations with your family and friends and work colleagues and how you'll become known as the person that people want to be around the person that people want to do deals with. isn't that the type of person that we want to be? Once again, I just want to say thank you so much, truly, for continuing to give me the opportunity to have conversations like this one with Fred. I hope you'll tell a friend or two,

hey, this episode with Fred Reichelt on The Learning Leader Show will help you become a more effective leader. It'll help you enrich the lives of others. And because you continue to do that, because you continue to write reviews on Apple Podcast and rate the show, hopefully five stars. You are giving me the opportunity to do what I love on a daily basis. And for that, I will forever be grateful.

Thank you so, so much. Talk to you soon. Can we?