04/18/2012 11:40 am ET Updated Jun 19, 2012

The Hidden Payoffs of Good Customer Service

Some things are so simple, they're hard to understand.

Customer service, when you're a company founder and owner, or manager, is like that. On the surface, it seems a nagging irritant: Customers aren't happy, and you have to deal with them.

But underneath that initial perception is a world of opportunity -- and profits. Let me explain:

In the early 1980s my wife and I started a catalog company. For the first two and a half years we ran a hellish gauntlet of long hours with too little capital, too much stress, products that wouldn't sell, and the joys and challenges of a newborn baby in a tiny rented house. Dealing with customers was something we had little time or stomach for. Or so we thought.

Towards the end of that time we stumbled on a hot product around which, over the next few years, we built a durable, fast-growing company that made the INC. 500 three years in a row, while remaining very profitable. Still, our operation was unpolished, a train wreck waiting to happen.

So we lured a talented personal friend to head up operations. Thanks to him, soon we had the beginnings of a smooth, growing company. Profits and cash flow kept growing, banks were eager to lend to us, and the internal operations became less stressful.

Which brings me back to customer service. By then my wife had borne our second child and was full-time at home. Fortunately I had enough staff support to afford the time to look more seriously at customer service. What I found changed my business. By taking the time to pay good attention, I realized that our customers were telling us what they liked and disliked about our company and its products; where we were screwing up, and where we were doing well; who to promote, and who to re-train or let go; what products they would buy if we could develop them. They were essentially writing a business plan, at zero cost. No high-priced consultant could have provided such insight.

Before long, letters of complaint were vastly reduced, relative to our sales volume, and the customer service staff was pouncing on the few letters received while I often looked over their shoulders. I began to understand that if customer comments were read, understood and acted upon as quickly and thoroughly as possible, our operations couldn't help but become smoother and more profitable in the long run. I began to see communication from customers as an invisible source of priceless advice. No longer were their letters an expense; they were an opportunity. Our customers showed us how to improve, and how to fix things so we didn't create problems again.

In my book, Chicken Lips, Wheeler-Dealer, and the Beady-Eyed M.B.A.,: An Entrepreneur's Wild Adventures on the New Silk Road, I tell the wacky story of my own company's foibles with customer service as it grew from a ragged start-up to a smooth retailing engine, becoming a three-time INC. 500 company along the way. One of the keys was being dedicated to our customers and understanding the payoff to quality control, smoother operations, and profits such an effort would make. By showing our customers that we cared for them and would be there for them in the long haul, they in turn became more likely to stay, and pay, for our expanding line of products.

One of the other things I learned was that satisfied customers tell several other people about their experience with a company, and dissatisfied customers tell dozens of other people... Which side of the table do you want your company's chips to fall to?

In 1995, thanks mostly to the friend I hired and the great people he trained, the company won the national customer service award in our industry, beating out giants Lands End and L.L. Bean. We had arrived; we had built a smooth ship underlying our company's growth. The key was realizing that providing good customer service was an investment of time and resources that would pay off handsomely: Repeat orders would increase, referrals to new customers would multiply, customers would help direct the future of the company, and the bottom line would strengthen. It's a win-win for everyone involved.

Now when I see a business owner or manager wince at the sight of customer complaints, I feel sorry for him or her. When they see these letters as a hassle and try to slough them off, they are just shooting themselves in the foot. Instead of embracing a problem and solving it now, they are pushing it off into the future, where it will do more damage. It's far more cost effective to fix problems in the present and save a customer, than to slough off the problem and have to spend more marketing dollars later to replace a customer.

Just about every veteran entrepreneur will tell you it's very hard to build an enduring, profitable business without good customer service. So you might as well start now and do it right, and have a longer time horizon to reap the rewards of your efforts.

When it came time for me to sell my company, after an exhausting ten years of building and managing a start-up, there was an added bonus of good customer service. After many dead ends trying to divest my company, a veteran acquisition pro contacted me out of the blue. "My wife is one of your customers," he said. "She told me I should buy the company." He ended up out-bidding another suitor and closing a deal ten months later. I have been a free man ever since.

Without a commitment to good customer service, the outcome could have been far different...

Frank Farwell is founder and past president of the WinterSilks catalog ( His book, "Chicken Lips, Wheeler-Dealer, and the Beady-Eyed M.B.A.: An Entrepreneur's Wild Adventures on the New Silk Road," was nominated for the Financial Times/Goldman Sachs Best Business Book of the Year Award, is sold in most English-speaking countries, at and