Eddie Sung - Customer Moat: How Loyalty Drives Profit

• intro: A JOURNEY BEGINS
• Preface
  
• PART I: CUSTOMER MOAT FORMULA
• One
  
• Two
  
• Three
  
• Four
  
• PART II: the EIGHT MOAT BUILDER TOOLS
• Five
  
• Six
  
• Seven
  
• Eight
  
• Nine
  
• Ten
  
• Eleven
  
• Twelve
  
• PART III: THE ORIGIN OF PROFITS
• Conclusion
  

I t was on a cool Saturday morning in October 2004 that I finished packing the last of my possessions into a rented Ford Windstar van. I was leaving behind a life that I established in Chicago. After finishing my undergraduate degree, I landed a job as an operations consultant. Everything had been going well, but now I suddenly found myself heading far away from the towering skyscrapers of the Windy City.

My destination was Lake Charles, Louisianaa small city that sits at the southwestern heel of the state, near where the warm waters of the Gulf of Mexico butt against the Texas-Louisiana border. This region has long been shrouded in a cloud of industry. Its landscape is dominated by oil refineries and chemical plants, with a river that cuts through that both divides the land and serves as its economic lifeblood. By far the most important attribute of Lake Charles was that it was the place my parents called home.

My parents immigrated to the United States from Taiwan in the 1970s. In their search for opportunity, they discovered a life of hard work and long hours. Even though they encountered numerous setbacks, they believed in the promise of the American dream: those who worked hard would be rewarded.

In 1980, they decided to pursue their ambition by becoming entrepreneurs. They purchased a small grocery store on the northern outskirts of town in a relatively underserved neighborhood. As is often the case with small family businesses, their store quickly took over their lives. My sister and I grew up knowing the store as our perpetually demanding third sibling.

Over the years, I watched as my parents worked tirelessly. The grocery store was open seven days a week, from seven in the morning to nine thirty at night, 365 days a year. On holidays, the entire family pitched in to keep the doors open when most other stores were closed. These were some of our busiest times.

Survival sat first and foremost on my parents minds. Always looming in the background were national giants like Wal-Mart and Kroger. To combat their presence, my parents adopted a strategy of pushing for greater sales through the use of heavy promotions and large discounts. Over the years, this appeared to work, as revenue soared thirtyfold, and at its peak, the store employed twenty-five workers.

Success, however, cannot be measured by size alone. My parents achieved substantial sales growth, but they accomplished little in the way of financial success. Profits remained elusive, and what seemed a prosperous, thriving business was a growing internal disaster. In a vicious cycle, the more the store grew, the more capital investment it took: purchasing coolers, fixing freezers, repairing roofs, repaving parking lots. The business was a bottomless money pit. With each passing year, my parents had to run faster just to stay in place.

In 2002, after two decades of struggle, they threw in the towel and sold the store. They realized that their situation was unsustainable. Luckily, a bright spot remained that allowed my parents to hold onto their entrepreneurial dreams. Over the years, a small side business inside the grocery store had been growing and prosperinga booth dedicated to cashing checks and paying utility bills. Upon selling the grocery business, my parents opened a small storefront across the street, dedicated to those limited financial offerings.

As my parents embarked on this new venture, they were not wealthier people, but their years of hard work had paid off in less tangible ways. My sister and I had the fortunate opportunity to attend the University of Chicago. Thanks to my parents strong encouragement, college was not a place for teaching me a specific skill set but a fleeting time and space where I could learn anything that my heart desired. It was a rare gift for which I am still grateful.

I majored in public policy, but my curriculum was largely liberal arts based. My curiosity drove me to explore all facets of the world. From behavioral economics to probability to immunology, any subject that piqued my interest was fair game. My deep underlying fascination was in discovering the nature of systemswhether they happen to be economic, mathematical, or biological.

Out of all subjects, I was most drawn to business. While my college did not offer a degree in the field, I devoted innumerous hours devouring everything I could find on the subject matter: its strategies, theories, and practices. The forces and behaviors that drove and doomed companies captivated me. In front of me was an incredibly complex game that was not only poorly understood but held such vast implications for the health of our society.