July 24th, 2010 | 
Author: Small Business No How Dont Give Away The Farm
You’re pretty proud of yourself! After all only four months ago you came up with the idea of opening your own business “Jenni’s Interior Design” Your friends have always said you were gifted when it came to arranging furniture and picking out colors and you love to do it so you decided it was time to get serious.
You went to a few “Starting Your Own Business” seminars picked out a name and registered it had your nephew build a great website printed up some business cards got a second phone line and took out an ad in the local paper “Are Your Walls and Furniture as Stagnant as Pond Scum? You Don’t Need to Break the Bank for a Fresh Look You Just Need a Makeover!”
Then you crossed your fingers and waited. Day one no calls. Day two no calls. Day three the phone rings! Success! Your heart is pounding as you pick up the phone. The conversation goes something like this:
“Hi! This is Jenni with Jenni’s Interior Design how can I help you?”
“Hi my name is Celia I saw your ad in the paper. What do you charge for your makeovers?”
“Well my rate is 25 per halfhour for consultations or 100 per room to redesign the entire room. If we decide on new furniture or paint that is your cost of course”
“Hmm I have a lot of rooms I’m thinking about changing. Can you come over for a free consultation just to see what I have? If I do more than one room can I get a discount?”
“Umm sure that’s fine. If we do more than one room I can do a discount too no problem”
Hold on. Maybe Jenni hasn’t given away the farm yet but she’s on her way. When Jenni hangs up the phone she’s going to realize a few things:
- She is committed to spending her time and gas money to visit Celia.
- She has no agreement or commitment from Celia
- She indicted that some of her time is “free” time.
- She let Celia know her price could be bargained down.
The problem here isn’t that Jenni was caught off guard the problem is that she instinctually began to doubt herself and her prices. You can’t blame Jenni after all this is her first potential customer and while she’s talking on the phone she’s probably thinking “Gee am I really worth 25 per halfhour? I do this for my friends for free. I don’t know if I’m really qualified to charge that kind of money”
The potentially bigger problem is Jenni pretty much threw her pricing structure out the window when questioned. There is nothing wrong with bartering and making deals but it shouldn’t be your standard business practice. Without a doubt if Celia likes Jenni’s work and recommends her to a friend Celia will be sure to brag about the great deal she negotiated as well. Now Jenni is probably stuck with this “free consultation with a discount” policy for any referral customers. Jenni is setting herself up to run all over town free of charge give good advice and potentially not make a dime.
What Jenni should say is “I would be thrilled to come out but I’ll have to keep the consultation charge in place. What I can do is credit your consultation towards the first room we makeover each additional room would be at the regular rate. I’m sure I’ll have some great ideas that we can work on together”
Of course it takes confidence in yourself to come back with that kind of a reply. Jenni is only going to have that kind of confidence in herself by knowing her competition what they charge and that fact that she is as good or better than they are.
So here’s the key to not giving away the farm:
Know your competition and the commonly established rates for your service.
If you are competent confident and know you have as much skill and talent as your competitors there is no reason why you should be charging any less than they do. In fact some people believe if you charge more it’s a sign that you must really be good!
But let’s not get carried away the point isn’t to see how much you can charge before you run yourself out of business. The point is “Don’t sell yourself short”
One great way to measure your competition is to call and try them out. I personally did this not long ago when I was thinking about opening a software consultation / training business. I found a small business specializing in software training and had them send out an employee for two hours of Microsoft Access training. The friendly lady who arrived spent two hours reading the ‘help’ screens (to herself) and flipping though the paperback user’s manual trying to figure out how to show me some rather simple tasks I had questioned her about. Hardly what I would call expert training. However it served its purpose I knew I could do a better job.
Do your research and provide an efficient professional service. Show them that you’re worth every penny. If you build that kind of reputation price will not be much of an issue. Your customers will admire your confidence and work ethic and be happy they’re doing business with you.
Oh and keep the deed to the farm in your drawer where it belongs.
About the writer:
David James is the editor of “Home Income Digest” a publication updated quarterly which presents more than 40 of the best homebased businesses currently available in the country. Located at http://www.homeincomedigest.com Home Income Digest includes only wellresearched established small business opportunities. For more information about the author visit http://www.homeincomedigest.com/aboutus.htm
davehomeincomedigest.com
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Six Sigma Tools For Process Control
Part 4 of a FourPart Series
Part One: http://www.bizmanualz.com/articles/020805_Process_Improvement.html?src=ART83
Part Two: http://www.bizmanualz.com/articles/021405_Core_Processes.html?src=ART84
Part Three: http://www.bizmanualz.com/articles/021605_Process_Mapping.html?src=ART85
Aim for perfection.
Thats a pretty lofty concept. Its definitely not easy especially when speaking of core business processes. Moving toward perfection requires measurement analysis and documentation. And if you really want perfection then you need more sophisticated tools. But is driving toward that ideal of perfection worth the effort?
If you want to increase quality and dramatically save costs in production then yes the road to perfection is definitely worth the driving time.
Forward Steps Quality and Processes
Last time we discussed process mapping to increase communication and understanding within an organization and to effectively develop a system of procedures. Now lets take a forward step and look at how Six Sigma tools can decrease variability and increase quality in your processes.
Six Sigma Pyramids and Systems
The Six Sigma methodology is an advanced set of tools designed for problemsolving and quality improvement. A ‘sigma’ refers to the standard deviation from the mean of a population. Standard deviation indicates the likelihood that your next data point will deviate from the mean of the data set.
At the bottom of the Six Sigma pyramid begins a systems current process capability. Usually at 1 or 2 Sigma levels is tribal knowledge based on firsttime experiences. An organization moves up the pyramid to 3 Sigma as systems are put in place. To hit 4 Sigma statistics and modeling tools are used for significant process improvement. And finally to aim for that near perfection organizations apply DFSS or Design for Six Sigma.
Why?
Measurement Analysis and Documentation
Why do (and should) organizations use these concepts to move up the pyramid and toward quality improvement? Why is it necessary to measure analyze and document processes and if needed make those desired changes? Why drive toward perfection and what does it mean in real terms?
If your current process capability runs at 1 Sigma then that effectively means you have two defects (unusable products) out of every 3 parts. That means 67 of your costs simply become waste with no return on your investment. At 2 Sigma quality improves with 1 out of 3 parts as defects. But that still has an error rate of 33. Not until 3 and then 4 Sigma levels will you see dramatic improvements. Put in these terms you quickly see how such errors keep you from realizing a greater potential.
Transactions Multiple Steps and Tolerance
Organizations most effectively utilize Six Sigma methodology in two situations. One if a business works with a very high volume of transactions per year then they can not tolerate low sigma levels. For example a 99 effective rate for 1 billion transactions per year still yields 10 million defects. In any industry that is not acceptable.
Another situation that calls for Six Sigma methodology is when an organization (i.e. manufacturing) has processes with multiple steps. Here total error rate is critical. For example the effective rate is 99 for each step; however that does NOT give the total error rate as 1. You must take the 99 for the first step and multiply it by 99 for the second step the third step and so on. With a great number of steps your total effective rate could significantly decrease. So to avoid high volatility this organization can not tolerate low sigma levels.
Organizations can also determine error rate by effectively reversing the typical process of Six Sigma. You can calculate the mean and variance in your process to define the error rate. This tells you where you are currently on the Six Sigma curve. For example if your calculation tells you that you’re on a 1 or 2 sigma level then this is an area in need of improvement. This gives you an opportunity to look at the data more carefully take the mean and variance of each step of the process and determine in which step the process is having problems. Or it could tell if you there are many steps causing the problems and thus the cumulative increase in error rate.
Processes Procedures and Control
Organizations use the Six Sigma methodology because you can’t get any higher than 2 Sigma (tribal or basic knowledge) without putting strong processes and procedures in place. And without strong processes and procedures you can not move toward higher quality and system optimization toward perfection. Are you really satisfied with 67 of your product lost as waste? Are you satisfied with such high variability in your system?
Problems Resources and Results
If needed you can change your process to reduce or eliminate this variability or error. Six Sigma methodology tells you when to take action to solve a problem. It moves an organization to consistently meet the requirements and minimize the resources used in its management system. And it creates the desired results for which the system was designed.
Systems Control and Perfection
Remember though you can only get to 3 or 4 sigma by developing a system of policies and procedures of measurement analysis and documentation. And with this you will easily see that reducing your error rate and moving toward perfection with Six Sigma tools is well worth the driving time and more crucial to your systems control.
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About the writer:
Chris Anderson is the managing director of Bizmanualz Inc. and coauthor of policies and procedures manuals producing the layout process design and implementation to increase performance.
To learn how to increase your business performance visit: http://www.bizmanualz.com?src=ART86
Six Sigma Tools
Statistics are at the heart of Six Sigmas powerful methodology for quality improvement. It pays to get to know some of the most important of the Six Sigma statistical tools.
Control Charts
The control chart is the fundamental tool of statistical process control; a proven technique for improving productivity. It monitors the variation of key characteristics and indicates the range of variability that is built into a system. Control charts provide diagnostic information about process capability that can be used to analyze variation in process data to demonstrate whether a process is operating consistently. The bounds of the control chart are marked by upper and lower control limits that are calculated by applying statistical formulas to data from the process. Data points that fall outside these bounds represent variations due to irregular causes which can then be identified and eliminated. Control charts are effective in defect prevention and will help ensure that your process performs consistently. From them you can in a precise manner monitor control and improve on process performance over time. This will allow you to be able to predict fluctuations lower costs and ensure the process has a higher effective capacity.
Failure Modes and Effects Analysis (FMEA)
FMEA is a powerful structured approach that helps you to identify and counter weak points in the early conception phase of products and processes. Using FMEA allows you to analyze any system or subsystem in manufacturing or service industries in the early stages of the process. This systematic methodology identifies potential failure modes in a system caused by either design or process deficiencies. It also identifies critical or significant design or process characteristics that require special controls to prevent or detect failure modes. FMEA improves the quality of products and services and processes by preventing problems from occurring. It documents and tracks action taken to reduce risk while it integrates with the DMAIC methodology.
Histogram
A histogram is used to graphically summarize the distribution of a data set. A histogram is constructed by dividing the range of data into equally sized segments. This data tool enables you to quickly and easily answer several important questions: what distribution does the data have? What is the most common system response? Is the data symmetric or does it contain outliers?
Pareto Chart
A pareto chart is used to graphically summarize the relative importance of the differences between groups of data. A pareto chart is constructed by dividing the range of data into groups. The vertical axis of the pareto chart is the cumulative percentage and the horizontal axis of the pareto chart is the groups of response variables. Unlike the histogram the pareto chart is ordered in descending frequency magnitude. The Pareto Chart allows you to focus your efforts to achieve the greatest improvements by identifying the largest issues facing the process. It identifies the 20 of sources that are causing 80 of the problems.
About the writer:
Peter Peterka is the Principal Consultant in practice areas of DMAIC and DFSS. Peter has eleven years of experience performing as a Master Black Belt and has over 15 years experience in industry as an improvement specialist and engineer working with numerous companies.