28 October 2016
How a company handles its mistakes is often seen as an important test of how reliable it is.
How a company handles its mistakes is often seen as an important test of how reliable it is.

Message for startups and SMEs: Credibility is everything

Many startups and small and medium-sized firms dream of becoming big players one day. However, realizing that goal is a long and arduous task that requires several key elements to be in place. Among the most critical factors is winning customers’ trust and gaining a reputation for honesty.

It may not always be possible for companies to get it right the first time when they introduce new products or services. What is important is how the firms handle their blunders and be totally honest with their customers.

It takes a firm lot of guts and money to face up to mistakes, but for those who can do that, they will discover the credibility boost will bring tremendous gains that far more than compensate for the short-term pain.

Here are two cases that can attest to this theory. One is from Dailian Wanda, China’s top private sector firm, while the other is from Hong Kong tech firm Sengital.

Wanda built a mall in Shenyang in 2003. At the time, the company was new to the business and wasn’t quite sure about the best way to design and run such facilities.

But it was able to sell more than 300 shop units for 610 millon yuan.

Then the layout turned out to be wrong and customer traffic was never sufficient to keep the small businesses in the mall alive.

Wang bit the bullet and spent a billion yuan to buy back those units, and later tore down the mall and rebuilt it.

“If we want to claim to be the leader in mall operation and then people use the Shenyang project as an evidence that we are actually not so good, there is no way we can defend ourselves,” Wang wrote in a Hong Kong Economic Journal column.

“Credibility costs money and time, but once a company builds up its brand by being credible, that will bring endless value accretion,” he added.

The move paid off handsomely. In Shenyang, as well as across the nation, Wanda’s buyback move was well recognized and highly appreciated. This helped the company successfully establish itself as a responsible operator. It’s now the biggest mall operator in China.

Sengital’s founder Alan Lam went through a similar experience.

A few years ago, Lam received an order for designing drones that will be used for filming purposes. Sengital had to complete 14 models in two years.

Although initial testing was okay, product quality was unstable when undergoing mass production.

Lam was struggling between two choices, he told a radio show.

Since the client had already signed the approval letter, Lam could pretend that nothing happened, go ahead with the production, ship out the faulty products and get away with it.

But he chose to inform his clients of the problem, apologize and ask for more time to fix it. He was prepared to accept if the client said no and demanded a deposit refund.

Eventually, Lam was given the time to redo the design. The blunder cost Sengital US$1 million, a relatively big blow for a small firm.

But Sengital’s integrity became known in the electronics industry and brought it many new customers looking for a trustworthy counterparty.

The company soon bounced back and emerged even stronger.

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EJ Insight writer

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