09/09/2013 12:26 pm ET Updated Nov 09, 2013

Your Response Matters - Especially to Errors


No company operates with total perfection. Every once in a while, mistakes are made, and a customer is unhappy. It's a fact of business life.

If you've done all the right things regarding quality control, trained your people, put all the proper procedures in place, made staff accountable for accuracy and generally committed to a zero-defect policy, it's extremely important for you to respond correctly when something falls through the cracks.

Yelling at the staff is counter productive. Summarily firing an employee hurts morale, and only makes others fearful should they make a mistake. You've made your own mistakes, and the only difference is that only you know about most of them.

To help respond correctly to mistakes that affect good customer and employee relations the following may be useful:

Take a breath ---- Count to 10 or 20 or to 107--- whatever it takes to tone down your emotions. No good response happens without calmness. So, once the initial news gets to you, allow some time to regain your equilibrium before reacting.

Get the details ---- Quite often the messenger is emotionally involved in reporting the misstep and garbles the facts. Without the facts, you can't make any type of decision, let alone one focused on the big picture. While investigating the incident do not allow yourself to engage with the error right away. Remember NEOTWY. WheN, WherE, WhO, WhaT, HoW and WhY?

Evaluate the damage ---- While looking into the situation, you'll be able to determine how extensive the damage is in terms of people, dollars, customer relations and company standing. It's really important to pay close attention to the possible consequences of the mistake. How valuable is this particular customer? Don't just think in terms of dollars or number of orders they have placed. Also consider their value in your referral network. Happy customers continue to refer even after missteps, depending on your response. New or one-time customers should be treated fairly but not to the same extent as those with long-term relationships and partnerships. At this stage, it's very important to ask if the customer will be damaged monetarily. If so, what is the potential of that damage? Has the mistake put the customer's business in jeopardy in a tangible way. Could there be possible legal action?

Construct the solution ---- Can the work be redone? Is the product damaged? Does it need to be replaced? If you can't redo the work, or replace the product, what will it take to satisfy the customer? Sometimes a sincere apology is all that's necessary. You'll need to think about the appropriate type of compensation -- a deep discount, not charging for the work or product, a token gift of some kind? Remember you are running a business so try not to give away the store just because a mistake has been made. Be fair, but not dangerously generous.

Empower the resolution ---- Once you have determined your course of action, make certain that those involved understand the scope and magnitude of the resolution.
If there needs to be funding approved, discounts applied or invoices forgiven, make sure the staffers responsible for such things understand the action they're being asked to take. Don't be ambiguous; give clear and precise orders so you know the end result will be what you planned.

Follow-up ---- This is the clean-up part and in some ways the most important part of any miscue. Armed with all the facts, you need to address the cause, the person responsible, the money lost, the damage to corporate reputation, the unhappy customer, etc. If the mistake happened due to a breakdown in a particular process take a hard look at it and how the process needs to change. If a human caused the error, that person must receive a review that examines their accountability, function and future performance. Determine if the resolution has satisfied the customer completely. If not, is there anymore that can be done? If there's any residual ill will on the part of the customer; how will that impact the company? Do what you can to proactively short circuit any serious bad publicity for the company, all the way up to, and including, a news conference to get in front of the issue. The money is lost, so forget about it. Focus on the overall results.

Miscues, mistakes, missteps, screw ups or whatever else describes performance that is subpar will happen. It's how you handle them that's the real indicator of who you are as a person, negotiator, teacher, counselor, and leader. Out of lemons we must try to make lemonade.

This blogger graduated from Goldman Sachs' 10,000 Small Businesses program. Goldman Sachs is a partner of the What Is Working: Small Businesses section.