Last night an employee sent me a link to an article about a competitor that was getting a lot of press on the front page of Digg:

http://elliottback.com/wp/archives/2007/05/03/dreamhost-sucks-at-hosting/

While I'm reluctant to name competitors directly in my post, the URL leaves me little choice. I think it is worth a read. When I first saw the link I was ready to get up on my soapbox and proclaim why this particular company was wrong and why we need to do better as an industry to earn the trust of our customers. Although I do believe that, I think the issue is not as black-and-white as I originally imagined it would be.

Looking at the issue in some detail, I did feel a lot of sympathy for the web host being dragged through the mud here. Despite what some may think, web hosting of any sort is an exceedingly tough business. I found it somewhat amusing, concerning, and disheartening to see people making wild claims about "industry guidelines" dictating how many users should be on a server and bashing the specs of that particular machine. There are no guidelines that I know of, and every host runs their business a little differently. Customer expectations are through the roof for bandwidth, storage, uptime, and support execution. The business has changed quite a bit from when my business partner and I dipped our toes in the water in 1997. We pride ourselves on having great service and while our reputation supports that, we are far from perfect. We take every misstep as a learning experience and an opportunity to improve. I know that seeing an article like that on the front page of Digg would be gut-wrenching for me, and I'm sure the owners of Dreamhost don't feel great about it.

So from my outside perspective, where did things go wrong for this particular customer? Well, first let me sympathize with Dreamhost. Web hosting involves the interactions of many complex systems to make things. Not just networks, servers, power, cooling and other infrastructure but people, processes, and procedures. In even the best run businesses things go wrong all the time. All the time. Every day. If someone tells you differently they aren't being honest. A big part of what separates the best from the rest is how they deal with problems and adversity. Do their processes, procedures, and culture really focus on caring for the customer and making things right when problems happen?

Customer expectations are very high for all forms of hosting, including shared. Saying "you get what you pay for" as some people did on that blog is subjective and unfair. As web hosts we are obligated to give people everything they pay for, and if we really want to be good at our craft, a whole lot more. Overselling is a harsh reality of our business. Competition on price, bandwidth, and disk space is intense. Shared hosting is a wild free-for-all on server resources that has become more and more difficult in a time where fewer and fewer sites are brochure-ware.

But make no mistake, customers expect 100% uptime, all of the disk space and bandwidth included with their plans, and enough processing power to do whatever they need with their website. Whether we like it or not, whether it is fair or reasonable, that IS the expectation.

And it will continue to be the expectation until we tell customers otherwise, emphatically and clearly.

Think burying it in your terms of service or AUP is good enough? It isn't. No one reads that stuff, and while it may protect you legally, it certainly isn't making happy customers or helping your reputation. The problem is that we are so involved as an industry in selling lower prices and more disk space that no one wants to tell customers about the inherent flaws in shared hosting. I'm not indicting the platform necessarily, but it certainly isn't for everyone and has a lot of room for improvement. As customers' expectations continue to skyrocket, we clearly need to do a better job as an industry of educating our customers on the risks associated with the platform they select. Some hosts are trying to address these limitations with shared grid, load balanced, and clustered offerings but even those have had some fairly well publicized problems lately.

Now that I have gone in more than a few directions with this post, I'll get to what matters. How could this host have done better? It boils down to communication and ownership. Shutting down someone's website is not something to be taken lightly, regardless of the circumstances. To quote a wise man, the needs of the many outweigh the needs of the few, and they didn't necessarily do the wrong thing to protect their other customers on the server. But they did forget about the customer they shut down. Instead of taking an adversarial stance, they should have found a way to get him back online and worked together to find a solution. We keep isolation servers and VPS's readily available for just this purpose. Phone calls are always preferable to emails, especially under less than ideal circumstances. Sometimes doing the right thing is expensive and involved but the customer goodwill it builds makes it worthwhile. That sure seems preferable to all the negative press this incident generated.

I have been a loyal Costco customer for at least 5 years. One of the main reasons I shop there is for their excellent, no hassle return policy. For me it started with a vacuum. A few years back, I bought a new vacuum at Costco which broke after I had it for about 8 months. I took it back, no box or instructions, just the vacuum, and they promptly refunded my money without any trouble. I repurchased the same vacuum which broke again 6 months later. Again, I returned it to Costco where I was issued a full refund. I was determined to find a different vacuum this time. As I looked around, a new model from Dyson caught my eye. Although it was very expensive, I decided that I should buy a quality model instead of continually hassling with getting a cheaper one replaced. However, looking at the price tag on the Dyson made me really think about the "20% off" coupon I had from Linens N Things. Initially I thought about going there to save some money, but I also thought "What if it breaks in 6 months?" Would they stand behind it? What about after a year? Since I was making a sizable investment, I decided that Costco's return policy made it worthwhile spending a little more to buy it from them.

A few years later I bought a 37" LCD TV from Costco. It was a brand I had never heard of, Vizio, but because of their return policy I was comfortable buying just about anything Costco sold. I knew they stood behind it and guaranteed my satisfaction. After I got it home I proceeded to enjoy the TV for about a year, at which point it began turning off randomly. I took it back to Costco looking to exchange it for a new one. I couldn't find my receipt and I expected to encounter some difficulty. When I got to the service desk, they promptly looked up my receipt. They asked me if I had the manual or the stand. Sheepishly I said "no" - I had thrown them away. The rep told me that she would need a manager's approval which she promptly secured and began the process of issuing me a refund. I told her that I wasn't looking for a refund, just an exchange. She said that their policy was to issue a store credit and that I could use the credit to purchase a replacement. Not wanting to be dishonest, I informed her that the TV was $500 cheaper now than when I originally purchased it. I wasn't trying to get one over on them, just get a defective set replaced. She suggested that I could use the difference to get a larger TV, or put it towards anything else in their store.

At that point I was thrilled and grateful. I promptly got a cart and went to pick out a new TV. I decided that I would replace my defective TV with the same model and use the $500 difference to get a new TV for my family room. I purchased a 46" Sony LCD TV which was over three times the cost of the Vizio, but I had no hesitation in buying it from Costco. The way I look at it, Costco took great care of me that day, and I returned the favor with customer loyalty and additional purchases. I'm not sure what their margins were or how the math worked out, but hopefully we all did well that day. It probably didn't hurt that I also bought a few hundred dollars of "odds and ends" that day too. In fact, I think it may be physically impossible to go to Costco without spending at least a couple hundred dollars.

You can probably imagine I was disappointed yesterday to see the following article:

http://www.latimes.com/business/la-fi-costco28feb28,0,7973536.story?track=mostviewed-storylevel

Costco is cutting back their return policy on electronics from "unlimited" to 90 days. The first thing that jumped out at me in that article was that their old policy was "costing them tens of millions of dollars." That is a really short-sighted way to look at it. It may directly cost them "tens of millions of dollars" to support the policy, but what about the increased sales and customer loyalty derived from taking care of their customers in such an uncommon way? It may be much harder measure than the cost of taking back a broken year-old TV, but I can assure you that it is not insignificant. In a competitive market place like warehouse clubs, customer loyalty is difficult to earn and easy to lose. To me, this seems like a bad move, particularly since I have been the beneficiary of the policy in the past. Why would I buy a TV from Costco vs. Circuit City or Best Buy now? Maybe I'll try Sam's Club which is smartly and opportunistically touting that they still have a "100% satisfaction guarantee." I'm not a fan of Wal-mart (the owner of Sam's Club) for other reasons, but it is at least worth a look before my next purchase.

http://finance.yahoo.com/q?s=COST

Costco isn't doing poorly. In fact, I'm not even sure that at face value "tens of millions of dollars" is an unreasonable expenditure for a company of that size to make on customer satisfaction. I'm sure I'm not the only one who was a vocal proponent of Costco due to their excellent customer service policies. I think this is a classic case of numbers-driven management winning out over a more holistic approach. I believe that where possible, it is better to spend liberally on treating customers and employees well. The direct costs may be high, but there needs to be a little faith that smart investments in treating people right will ultimately pay off in loyalty, profits, word-of-mouth, and productivity. Sure, there will always be abusers, but they tend to be the exception not the rule. Sometimes I think it is easy to focus on the abusers and shape policies accordingly, but they always prove to be a small part of the equation when looking at the big picture.

Ok, so I'm not really on top of this whole blogging thing, I'll admit. But here is my promised follow up to why it is a bad move to fire customers.

First, I'll say there has been a lot of interesting debate going on around some recent comments posted by the CEO of a web hosting company. I saw an email excerpt of a customer being insulted followed by the statement along the lines of "we have enough business that we can pick and choose who we deal with."

Wow. First of all, congratulations to that CEO for having so much business you can afford to insult and fire your customers. But look out for the bus coming your way, because when it runs you over, it isn't going to be pretty. In my humble opinion there is no way that business can sustain their success for the long haul with leadership setting that kind of example.

Look at Dell - they didn't blatantly insult customers - they just got too aggressive with cutting costs and let the quality of support and service slip to where they lost their leadership position (not that it was ever great to begin with). Now Michael Dell is back at the helm trying to right the ship and put their company back on top. What was the first area he decided to address? Customer service.

The web hosting industry is young and raw. After doing this for nearly 10 years, that sounds a little funny but it is still true. Right now, people can get away with a lot and if you mix the right ingredients of bandwidth, disk space, pricing, and automation you can get away with some pretty lousy things and still make money. However, that just isn't the way solid organizations are nurtured, built, and sustained. Trust me, the guys you see insulting customers, proclaiming their own greatness, and callously tossing business aside are not in it for the long haul. Our industry is still made up primarily of technologists who also find themselves running businesses. As our industry matures, I'm sure those guys will find a very lucrative exit for themselves. I'm not knocking their business model or taking away anything from the success they have had, but they're just not positioning themselves to make the transition to the kind of mature organizations we need leading this space.

But back to the topic of "firing customers." This is something that can be almost completely avoided in most organizations with the right training and service philosophy.

Myth 1: Abusive customers demoralize employees and increase turnover.

This may be true for employees feel unsupported by their managers or who don't have the proper management escalation path when things get out of hand. Those really are completely different issues though, aren't they? Don't fall on the "fire difficult customers" strategy as a crutch to avoid dealing with bigger issues at hand. I have taken my share of customer beatings over the years and our management team is glad to do the same when situations escalate. We don't take it personally, do what we can to make the situation right, and our employees know they can lean on their managers when things get rough. I'll repeat, "Don't take it personally." If you take a contrite position, remain calm, and never ever argue with customers, you'll find that most situations are diffused before they ever get too bad. It may be cliche, but it takes two to argue.

Myth 2: Difficult customers are unprofitable and use more support resources than they pay for.

This is true, but it is a fact of life. Pricing pressure in our industry is intense. This is not the customers' fault. I subscribe to the theory of "it all comes out in the wash" and I would encourage you to do the same. Some customers are not going to be profitable, but you made that choice when you decided to charge $1.50 for hosting. You need to be concerned with average cost per account and profitability on a broader scale if you have the chops to compete in the high volume hosting business.

Myth 3: "Problem customers" distract management focus from the strategic goals of the company.

Only if you let them. I find that some amount of customer interaction is good at all levels of the organization because it keeps you grounded. It doesn't need to prevent you from focusing on strategy, and sometimes it can help you identify and fix some glaring issues that you might have otherwise not have recognized. As with anything you spend time on, it's a matter of balance. Most of the time when I call customers, I'm calling to deliver good news. That's because I rely on my very capable staff to fix issues, research problems, and devise solutions so that I can focus on the things I do to keep our company moving. There's no shame in delegating as long as you're not hiding behind your employees.

Myth 4: There are some customers who will never be happy no matter what you do.

Rarely. You're probably just not taking the time to listen to what they really want. People genuinely want to be satisfied with the services they purchase, but some customers' have higher expectations than others. Take the time to listen with an open mind. Sometimes we tend to get indignant when someone calls us out on every little mistake we make. Instead of getting defensive, use it as an opportunity to improve and appreciate the customer for taking the time to complain. It's a fair bet that some other customers were equally dissatisfied but didn't take the time to tell you.

Myth 5: If I fire problem customers, I will have more time to devote to good customers.

I'm sure many hosts would appreciate it if customers came with virtual name tags, neatly categorized in advance. "Unprofitable", "Cheap", "Aggressive", "Has Paranoid Delusions", "Calls our Support Center Drunk" - if only we could know ahead of time, all our problems would be solved. Unfortunately, many people fit into many categories and few are the same on a day to day basis. Some of our best and most loyal customers have fit into some of the worst categories at times. Where do you draw the line? How do you separate the good from the bad? My answer is that you don't. You're much better off being prepared with sound strategies for handling any situation than you are trying to pick and choose who you do business with after they have already signed up for service. If you want to target the high end of the market or a certain type of customer, leave that to your marketing team BEFORE the sale. Once they sign up - treat them all the same - like gold.

I have quite a bit to cover today. First, a follow-up on my Dave and Buster's experience. To their credit, corporate management has handled the situation very well so far. After a very apologetic call from the district manager, I was invited to have lunch with the vice president who is overseeing the turnaround of the Philly location. At our lunch, he made an extraordinary offer to set things right. He offered to "redo" our entire party, at our convenience, for free. Not only was I impressed by the magnitude of the offer, but his sincerity demonstrated real customer focus. The general manager who threw me out was confrontational and condescending, but the VP I had lunch with was the complete opposite. On top of that, the CEO has called me twice to apologize, and I owe him a return call today. Stay tuned for the results. Thus far I have to say that D&B has made a truly impressive effort to set things straight.

Next, the CEO of another hosting company posted to his blog recently extolling the virtues of "firing" difficult customers. This is a controversial topic that comes up pretty often in our industry. I'm actually surprised at how much negative press he is getting, because most people I talk to seem to think that firing difficult customers is perfectly acceptable. Of course, I wholeheartedly disagree and I think that "firing" customers is a terrible practice. I'll start by being honest and saying that there have been times over the last 9 years where I have either directly terminated a customer relationship, or have given my approval for a member of our management team to do so. However, those few times have been serious, gut-wrenching business decisions that carry a fair amount of doubt, sometimes remorse, and that's the way it should be. Parting ways with a customer is something that a serious business person cannot afford to take lightly. Not if the customer initiates it, not if you initiate it, and not even if it is a mutually agreed upon split. We work hard for our customers and our reputation which are two inseparable components of our success. Firing a difficult or abusive customer solves a short term problem (the drain on support resources), but creates long-term unhealthiness in your business. It puts former customers on the street with a never ending stream of terrible things to say about your company, and trust me, when you leave them out in the cold they're not going to forget. They were probably unhappy to begin with, and now you have validated all of their negative sentiment. If you make a business practice of terminating difficult customers, and we all have difficult customers, how long does it really need to go on before you have critical mass of scorned ex-customers generating adverse financial impact?

Even worse, your employees will start down the "slippery slope." Once you start drawing the line and firing customers who cross it, that line has a funny way of taking on a life of its own. It won't be long before your employees begin encouraging managers to get trigger happy and cut ties with every customer who gets a little huffy, even those with legitimate gripes. Think about the manager who gave me the boot from Dave and Busters. He essentially "fired" me as a customer. As a newly promoted manager in a restaurant that clearly has issues with its guest service culture, he was already in attack mode when he came out to talk to me. It didn't take much for him to determine that I "crossed the line" and should be ejected. That underscores the importance of building a strong service culture and preparing your employees to handle difficult situations constructively.

Still, I regularly hear quite a few arguments for "firing" difficult customers. I'll list the top 5 of them here:

1. Abusive customers demoralize employees and increase turnover.
2. Difficult customers are unprofitable and use more support resources than they pay for.
3. "Problem customers" distract management focus from the strategic goals of the company.
4. There are some customers who will never be happy no matter what you do.
5. If I fire problem customers, I will have more time to devote to good customers.

Some of these sound great in theory, some are obviously absurd, and in my opinion, they're all wrong. In my next post I'll talk about why, and provide some of my own battle-tested strategies for working with high maintenance customers effectively.