In their book Angel Customers and Demon Customers: Discover Which is Which and Turbo-Charge Your Stock and in a Fortune article in which they blow up their own horns (authors' words), Selden and Colvin talk about the importance of treating customers well. I also agree with them when they say, "Sure, companies say they put their customers first. But only a few do." However there are several areas where I think that their conclusions may not be applicable when using their "5 Rules for Finding the Next Dell".
Let us first take a look at their excellent list (which I doubt any expert will argue with):
1. Is the company looking for ways to take care of you?
2. Does the company know its customers well enough to differentiate them?
3. Is someone accountable for you as a customer?
4. Is the company managed for shareholder value?
5. Is the company testing new customer offers and learning from the results?
These are great questions that I will ask whether I want to own stock in a company or want to work for or have as a business partner. However, how will you get the answers to these questions, unless you are as intimately involved with these companies as the authors are (through consulting work). Here are some of the gaps that I see in their approach to using this criteria for picking stocks:
1. All the questions are likely to give 'qualitative' answers rather than hard numbers.
2. If I am an outsider and have no way of getting inside the company, how do I know what they are doing other than reading their press releases and investor presentations (which I always read with a skeptical mind)?
3. I own stocks in companies that I am not a customer of and vice versa. Who I do business with and what companies should I invest in are two different things. I like the customer service at my local supermarket but I just don't think it is a great idea to invest in my supermarket's stock.
4. You can pick almost any stock that has done well during the past and if you analyze the reasons for their performance, you will see that they did something nice to their customers (nothing to argue about). But there is hardly any public information available on what a company is doing today so that one can pick the right stock.
Conclusion: Good points about treating your customers right and making the center of your business, but difficult to ask the questions in real life and apply that knowledge for picking stocks.
Suggested reading: Customer relationship management that costs nothing
Let us first take a look at their excellent list (which I doubt any expert will argue with):
1. Is the company looking for ways to take care of you?
2. Does the company know its customers well enough to differentiate them?
3. Is someone accountable for you as a customer?
4. Is the company managed for shareholder value?
5. Is the company testing new customer offers and learning from the results?
These are great questions that I will ask whether I want to own stock in a company or want to work for or have as a business partner. However, how will you get the answers to these questions, unless you are as intimately involved with these companies as the authors are (through consulting work). Here are some of the gaps that I see in their approach to using this criteria for picking stocks:
1. All the questions are likely to give 'qualitative' answers rather than hard numbers.
2. If I am an outsider and have no way of getting inside the company, how do I know what they are doing other than reading their press releases and investor presentations (which I always read with a skeptical mind)?
3. I own stocks in companies that I am not a customer of and vice versa. Who I do business with and what companies should I invest in are two different things. I like the customer service at my local supermarket but I just don't think it is a great idea to invest in my supermarket's stock.
4. You can pick almost any stock that has done well during the past and if you analyze the reasons for their performance, you will see that they did something nice to their customers (nothing to argue about). But there is hardly any public information available on what a company is doing today so that one can pick the right stock.
Conclusion: Good points about treating your customers right and making the center of your business, but difficult to ask the questions in real life and apply that knowledge for picking stocks.
Suggested reading: Customer relationship management that costs nothing