From the October 1998 issue of Startups

They're everywhere: an army of rude clerks, waiters and sales staff who seem indifferent to just how irritating they can be. But as America's business climate becomes increasingly competitive, growing numbers of employers are realizing they can't afford to alienate even a fraction of their customers with poor service.

The need for businesses to know how the staff really treats customers when the boss is out of earshot has given rise to more than 500 mystery-shopping firms nationwide--double the number of just five years ago, according to Mark Michelson, owner of Michelson & Associates Inc., an Atlanta market research firm. Usually started on a shoestring by people who understand what the public wants, mystery-shopping firms hire subcontractors to go undercover and make a purchase, eat at a restaurant, visit a movie theater or apply for a loan, then complete a report about the experience.

"Businesses know many customers don't complain directly to them about bad service. Instead, they tell friends and relatives or just stop going to the store," says Bruce Van Kleeck, vice president of member services at the National Retail Federation. "Mystery shopping is one of the best ways to see if employees are doing their jobs."

Many mystery-shopping firms go beyond providing clients with reports. Vickie Henry, CEO of Feedback Plus Inc. in Dallas, also provides one-on-one consulting and conducts a national workshop for managers called "Would You Do Business With You?" Other firms train their subcontractors to do product demonstrations, evaluate displays and solicit customers to apply for store credit cards.

Start-Up Steps

Part of the reason mystery-shopping firms are so appealing to entrepreneurs is that they cost relatively little to start, and the focus of the business--shopping--is something most people feel they know something about. Mark Csordos, 27-year-old owner of C&S Mystery Shoppers Inc. in East Brunswick, New Jersey, decided to put his cash and insider perspective to work when he launched his business three years ago.

"I was one of those rude employees," admits the former supermarket cashier. "I could've been fired many times for things I did. I wondered whether the supermarket knew what was going on, because the [boss] never came in on Sunday when a lot of people were spending their money."

With about $4,000, Csordos purchased office equipment and set up the business in his home, gaining clients through direct mail, referrals and articles about him in the press, including The New York Times. From a core of just three shoppers, C&S has grown to employ about 100 part-time shoppers who do between 50 and 100 mystery shops a week in New Jersey, New York and Philadelphia. The company expects revenues of $250,000 this year.

A mystery-shopping business can easily be started from home, with basic office equipment and yourself as the sole employee, then expanded as needed. You can begin by working with one store, then build from there. Most mystery-shopping entrepreneurs prefer to target regional or national chains, simply because they garner more revenue.

Mystery-shopping firms charge from $20 to $200 per report, depending on how much detail is required, how often the stores are shopped (the more times they shop a store, the less they charge per report), and how many stores are being shopped.

Targeting The Market

Because virtually any company that has contact with the public is a potential client for a mystery-shopping firm, the phenomenon has spread to include almost every industry. Matt Wozniak, president and CEO of National Shopping Service, a mystery-shopping firm in Los Angeles, has more than 10,000 shoppers based in almost every major U.S. city. They check out fast-food restaurants, mail order companies, service stations, car rental agencies, home improvement companies, golf courses, hotels and even race tracks. His business grosses close to $5 million a year.

William J. Nowell, 41-year-old president of ServiceTRAC Inc. in Scottsdale, Arizona, is a former marketing director of retirement communities who turned his knowledge of the retirement housing industry into a $1 million mystery-shopping, sales-training and consulting business.

"In 1990, I wanted to know what the people who visited our retirement communities thought about them," he explains. Nowell looked for a mystery shopper with expertise in the area of retirement communities and found none. Three years later, with $40,000 in start-up capital ($30,000 of his own funds and $10,000 from his former employer), Nowell left his job to start ServiceTRAC. Nowell now offers his services to the retail, home-building and credit union industries as well.

With a roster of 77,000 mystery shoppers and annual revenues of more than $2 million, Feedback Plus has become one of the industry's heavy hitters. "We're not on a witch hunt," Henry, 53, says of her service. "Our shoppers are looking for people who do a good job as well as [those who perform poorly]. Our reports can help managers run their companies by providing pats on the back."

Entrepreneurs say indifference to the customer is the most common fault they find. "The staff just ignores you," say Csordos, "or continues talking about [the latest movie] while they wait on you."

In other cases, the service may be fine, but the staff isn't aggressively selling the products or services. As Henry points out, "Waiters who don't ask whether customers want dessert can take tens of thousands of dollars off the bottom line."

Skills For Success

Despite the financial and personal rewards of running a mystery-shopping service, experts recommend doing a careful self-assessment before leaping into the business. A love of shopping is not enough: You need organizational abilities, marketing know-how, strong people skills, an understanding of what customers want and plain old common sense.

The greatest challenge, entrepreneurs agree, is hiring and retaining high-quality shoppers. Because shoppers are paid relatively little--often just merchandise or a minimal fee--there's a high turnover among them, and the sheer volume of their numbers makes such a large group difficult to closely manage. Csordos says his company interviews each shopper in person and trains him or her on what to look for and how to fill out a report, but such close supervision is rare. Because mystery-shopping firms usually cover a wide territory, most shoppers are hired over the phone, and the mystery-shopping firm must cross its fingers and hope for the best.

Nor is mystery shopping an easy sell to business owners. Csordos says in some companies, managers would rather not find out bad news; in other cases, they doubt anything can be done to improve the situation. To win over reluctant clients, successful entrepreneurs must be persistent.

Some states require mystery-shopping businesses to be state-licensed private investigation firms, according to Wozniak. To find out your state's requirements, call the general information number for your state government, or the Department of Consumer Affairs for a referral to the proper administrative agency.

Those of you with the right mix of people skills, business savvy and determination can look forward to a long career in the mystery-shopping industry. Says Van Kleeck, "I don't see this trend bottoming out any time soon."

Resources

Want to learn more about how to start a mystery-shopping business? Although there's no trade association for this industry yet, the following sources can provide some assistance:

Pamela Rohland is a writer in Bernville, Pennsylvania.

Contact Sources

C&S Mystery Shoppers Inc., 77 Milltown Rd., East Brunswick, NJ 08816, (732) 432-5533

National Shopping Service, http://www.nssmysteryshoppers.com

ServiceTRAC Inc., (602) 941-3121, http://www.servicetrac.com