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09/14/2003 Entry: "O'Reilly shows how risk leads to rewards"

O'Reilly and Associates publishes most of the best computer books on the market. When I need a book on a computer-related topic, I go to the bookstore looking not just for a book, but an O'Reilly book. From experience, I know that their books will be accessible and in-depth.

Not only does ORA publish great books, but they know how to provide excellent customer service. They understand a key point of superior customer service: some expenses contribute a lot to your bottom line in ways that never show up on a balance sheet.

One way they took a financial risk is detailed in this letter on their web site. When a customer had problems accessing their online service because ORA's credit-card processing system was down, they didn't turn the customer away, or delay the customer's order. They got him right to a person who authorized the account, even though the credit card couldn't be processed for a few days.

ORA made a smart decision with this policy. Their actual potential loss was miniscule: perhaps this customer might get access to the service for a few days without paying. If the card was declined, the account could be revoked. Despite the "new math" of the RIAA, there's essentially no cost in providing an electronic copy of a work like a book.

The risk that ORA was taking was clear, a dollar value for the subscription that slots right into a balance sheet. The gain from having a delighted customer can't be itemized. However, do you think that the customer who wrote that letter is going to purchase a competing product in the future? They know that ORA will go out of their way to satisfy the customer. That's a powerful intangible asset.

Another example of ORA's good sense: When they take a book out of print, such as when the subject material is obsolete or no longer popular, they don't file it away somewhere safe and isolated. They've released many of their out-of-print books under an open-source copyright, so that they may be read and copied without charge. Their Open Books Project probably appears as a charge on the balance sheet. Certainly it isn't a "profit center." Today's MBA would probably say that it's dead wood that should be cut to save money... not understanding that it's a way for potential customers to discover the brand and become avid customers, as well as a powerful bonus to established customers who occasionally need the esoteric titles.

Good customer service involves taking risks. Those risks will involve charges on your balance sheet. Don't forget that the rewards may not show up as balance-sheet profits, even if they are real and powerful.

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