Life is good!

You’re sitting in a private box in the Royal Albert Hall.

The canapes have just been around for the third time and you’re nursing a glass of Champagne. Around you, your fellow directors and management team, are settling in to listen to the CEO’s speech.

In the teeth of a recession, you’ve not only survived but increased market share and returned a healthy profit. You all know its been tough but, quite rightly, the hard work has paid off. In a couple of minutes several thousand attendees of the IOD Annual Conference will applaud your company’s business acumen.

Within four minutes of your CEO’s opening remarks you know that the gut-wrenching pain in the pit of your stomach has nothing to do with the canapes.

It’s all over…

Your fellow directors possibly haven’t worked it out yet, but your company is about to be brought to the brink of bankruptcy.

What can Gerald Ratner Teach us About “Honesty”

The first four minutes of that speech are now notorious. The rest of it is a wonderful masterclass in how to build a lean and agile business in a recession. Something many aspiring entrepreneurs would be eager to discover.

The whole piece can teach us that “honesty” is not the same as “authenticity”. Ratner was guilty of a monumental breach of corporate “authenticity” whilst telling everyone : “… well I have to be honest”.

This happened long before our social media connected world developed. The catastrophic effects were wrought not by a #tag trending on Twitter but by traditional TV and newspaper reports leading to shareholders questioning the sustainability of their investments and a massive drop in share price was the result.

Investors don’t like surprises. They like to see the path ahead clearly. To them the value of the company rested on the customer’s perception that they were getting the fashion accessories that everyone wanted at an unbeatable price. In a world where people are driven by the external pressures of fashion and peer group advancement, the intrinsic cost/value equation is stretched. An item is worth what someone will pay for it. The cost of production is not relevant to the buying decision. This relationship is like a bubble built from a delicate membrane of dreams, perception and promises. Without the support of authenticity they are vulnerable to the slightest slip by customer services, marketing or quality control departments.

The socially connected world

Bad news is amplified and spread in minutes. Your customers are far better informed, they can compare prices, judge deals and check reputations online. If the CEO of your company tells them it’s “crap” and you are a fool to buy it, suddenly this is of prime importance, your customers become embarrassed to admit they bought your products.

The bubble bursts.

So how do you stop the bubble bursting?

The fabric of a successful business is woven from strands of trust.

• The customer trusts that the products they buy will perform as advertised.
• Suppliers trust that you have the means to pay for your goods
• Everyone trusts that you’re not going to change the terms of your agreement without proper negotiation.
• Your staff trust that if they do their jobs diligently they will be rewarded properly. If they go the extra mile they may be able to seek promotion and feel part of the future of the business.

This trust is granted on the basis of the company’s declared policies which should conform to the company’s purpose and appropriate legal frameworks. This conformity is often described as “Authenticity”.

What is Authenticity?

In philosophical terms it is the idea that we try to live in accordance with our inner core beliefs. How we form those beliefs and to what extent we can live in accordance with them has put food on the tables of the likes of Sartre, Kierkegaard and Nietzsche over the last century, my personal favourite is Erich Fromm who asserts that:

Behaviour resulting from a personal understanding and approval of its drives and origins, rather than merely from conformity with the received wisdom of society can be considered authentic

You’ll be relieved that I’m not going to dwell on philosophy here, but the Wikipedia entry on the subject of Authenticity is a good starting point!

From a business perspective it is one of the most important ways you can protect your brand and realise your purpose:

It’s the bedrock of your public image

The face you present to the public is, of course, the thing which differentiates you from your competition. It’s essential that this face is consistent with the purpose of your enterprise.

A bank will present an image of security, prudent financial management and wealth creation. You need to know that when you deposit your hard earned cash it will be looked after, it is essential to their business model that you are confident that if you asked for your money back it would be available. This then should be consistent with the internal operations of the bank and the communication of those operations to the customer.

A bookmaker will project the image of excitement, sport and the potential for financial gain. There is no expectation that if you place a bet that it follows there will be a payout. However you do expect that the rules of the game are scrupulously observed.

Both businesses operate in the realm of finance. You would not expect to be offered a service by a bank that amounted to a game of chance. You would not be offered a service by a bookmaker that promised risk free investment. Both businesses are authentic and the consequences of any breach in authenticity can be catastrophic to their public image.

It’s the framework by which you train your staff and brief your consultants

Even if you are a self-employed, sole trader, you still need to communicate the values and ethos of your business to your advisors. As the business grows, there is a tendency for the ideals of the startup to be moderated by commercial pressures. Successful businesses understand their customers expectations, they have grown by managing and satisfying those expectations. Every new appointment to the team can risk the loss of authenticity as other people’s views of what is important become part of the mix.

Your business may start with close customer contact, an openness and integrity that differentiates it from the competition. The customers love the occasional personal email from the CEO and a can-do attitude from the staff. If it is a “people” business then such things are particularly important. All staff employed need to be trained in the company policy of treating the customer as a friend and being open and accessible.

At some point though, the business grows to the size which requires a management team. Suddenly the spontaneous “honest” progress reports stop. Callers are answered by “customer representatives” who work from a script. The CEO doesn’t engage with customers. The differentiation, the competitive edge, dies with the loss of authenticity.

It guides your network to identify your brand and attracts new customers

For an online business, your network is pivotal to your success. Your network is bound together by a web of communication woven from the strands of EMail, social media channels, website, public events and publications. In most of these channels instant recognition is vital. On Twitter you may literally have a tenth of a second to register in a follower’s timeline. An email message will depend on instant recognition and a compelling subject line if it is going to be opened and read. Your subscribers need to associate previous satisfying encounters with the visual cues you present. Recognition is key. You have less than a second to make that link.

If you present a consistent standard that is based on your framework of authenticity people will recognise you immediately and will not hesitate to open your communication. If you try something new and out of character there is a strong chance they will not recognise you. If you keep changing the model no one will be able to reliably recommend you or pass on your message. They need to trust that if they recommend you to a friend then there will be no negative comeback on them. People like to help their friends and being able to make a valuable positive recommendation with confidence will help to grow your network.

How do we build resilience into a business with authenticity?

In a highly competitive world, rumours don’t have to be true to cause irreparable damage.

“A lie can be halfway around the world before the truth has put its shoes on” – Mark Twain

The reputation of your business is what protects you from false rumours. If your reputation is authentic then those that know you will not believe the rumours.

Building your business on an authentic foundation gives it resilience. Businesses that operate behind closed doors, never admitting any failure, are building a house of cards. No one is perfect. If you never admit to any errors and word gets out that you have hidden something, the damage will be far greater. Most people understand that accidents happen. Orders get mislaid. A product develops a fault. If someone screws up you can share an apology with the world without the risk of damaging your reputation. If it takes a major disaster to prompt an apology or honest explanation then your customers will suspect that unfounded rumours spread about you are true.

So when the CEO gets up to speak at a conference, you can relax in the knowledge that because everyone knows he’s a “bit of a wag”, the audience and shareholders will appreciate the joke when he “goes off-piste”.

Probably best to keep the Champagne hidden till after the speeches though!