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We have all seen businesses with policies that make you wonder if anyone is paying attention. Learning from this experience might help you see areas within your own policies that could drive away business.

I was facilitating a monthly gathering of cadre members in Tyson’s Corner. About 35 of the 100+ CEOs attended a classic un-networking event. The founders, Derek and Melanie Coburn, had arranged for the lunch to be provided in the private dining rooms at a local restaurant that is part of a larger restaurant group. The restaurant set a minimum fee for the rooms, to which Derek and Melanie agreed.

Each member covered their own meal, and at the end of the function the server presented a balance of about $300 to Derek. Derek asked “I guess I could just purchase an incredible bottle of wine to share with my friends, right?” Being that it was lunch, he didn’t have many takers. So, he asked the manager “How about instead you sell me six $50 gift cards I can give to people who will come to your restaurant for a return visit?”  Derek, who is always looking to help other businesses, thought this would help the establishment get more business. The manager said the gift cards are not allowed as part of company policy. In comparison, we asked uber-successful restaurateur, Drew Kim of Matchbox, how they handle minimums. His unprompted response was “We give them the balance in a gift card to create goodwill and invite them to return to the restaurant and share it with others.” Maybe that’s part of why Matchbox continues to have success at each property they open.

What is the number one goal of every business?

Each and every business shares a common goal: Namely to increase repeat and referral business. The restaurant had the option of getting a one-shot transaction or getting six individuals coming back with other diners. They chose poorly. But, what happened next was the classic example of taking a bad situation, and making it worse.

How to turn a bad situation into a disaster

Derek agreed to have the manager, Aaron, bring a $300 bottle of wine. The server already had a bottle in his hands. Aaron said “Here it is.”  Aaron perhaps did not realize that Derek and several others in the room were wine guys. The bottle presented was from a label that has never produced a bottle that exceeded $50. Derek asked Aaron to show him the bottle on the wine list. Aaron responded “It isn’t on the current list. It used to be.”  A simple web-search showed the bottle being sold in retail outlets for less than $40. Their reserve wine list has one bottle that sells for $300. A quick web search shows that it has a retail cost of $179. Why was this “unlisted” $40 bottle offered at almost an 800% markup?

Though it may have been an honest mistake, The dozen or so CEOs remaining in the luncheon seemed to think it was an attempt to pull a fast one. Derek then asked how the restaurant was adjusting the bill for the service issues (nothing too terrible, and stuff happens in banquet situations). The manager explained that a couple of entrees were very late, but the restaurant did not charge the diners for their meals. There was one problem, though… The restaurant did not subtract those from the balance due. So, Derek and Melanie were being asked to pay for the restaurant’s mistakes. It would be like your lawyer inviting you to dinner, and then sending you a bill for the meal (and billing for the time ,too).

See the big picture

Derek and Melanie founded one of the most envied CEO networking groups in the region. Cadre hosts multiple monthly meetings for its 100+ members. A successful outing likely would have resulted in additional banquet business from members, and repeat bookings from cadre. However, by overlooking the credits on the bill, not seeing the opportunity for referral business, and trying to sell a $40 bottle of wine for $300, the restaurant – despite having good food – convinced those who were there to not consider their facility for a party or luncheon.

Ultimately, after getting caught in the wine bottle scandal, the manager offered to simply remove the $300 charge. But, the damage had already been done.

The meeting was more than a week ago, and I checked with Derek to see if the restaurant had taken steps to resolve the issue. They have not.

What can you learn from this story?

Many of the attendees had eaten at this very restaurant in the past. Whether you attribute the problems to corporate policies or poor training, the bottom line was that when presented with an opportunity to drive future business, they failed.

How can this happen in your business?

Leaders define policies for their teams. Matchbox clearly has a model of goodwill. Many businesses have the principle of under-promise, over-deliver.  Without such guidance, you could damage a relationship simply because your accounting department aggressively pursues a delayed payment not realizing that your business was actively addressing a service issue for them. It could be that your lawyer is negotiating to get more than what you already agreed to with the client. Ensure that every team member knows your priorities.

Take steps to ensure that your team understands the big picture and knows that your #1 goal is repeat and referral business. Yes, profit matters. But, if you lose goodwill with your clients, your margins won’t matter when the doors are closed.