What should a small business do when they receive a negative review on Yelp?

Craig,

It depends. If it's the only negative review in a sea of positive reviews, you can simply respond to the poster by thanking him/her for the feedback and say that you'll looking into making sure the situation is fixed.

If you have lots of negative reviews, then that is a different kettle of fish.

Obviously, it is the first negative review that is in question. Of course you should respond to the post, thank the poster, indicating that you will look into and fix the problem. Ask if the problem is fixed, would they return to your establishment (perhaps with a gift certificate for a discount for a third visit), re-review and re-post. Hopefully the offer will be accepted and negative review will be over-turned.

In the interim, launch a social media campaign for current clients/customers with competitions and prizes for winners. Tweet the events. Encouraging their feedback. One negative post can be overshadowed in a short amount of time.

With multiple negative reviews, I would re-consider my business and employees, and invest in a business coach/developer.

I agree with Dianna, if you only have a small percentage of negative reviews among many great ones, you shouldn't worry much. Readers are used to that, they understand that there will always be complainers, and will come to their own conclusions. Much of the time in that situation you don't have to do anything.

However, as Dianna also said, if the complaint merits a reply, you should post one--that is good practice for any comments you see about your company online. The more visible you are and the more you participate, the more people will trust you and see you as a company of real people and one with a "soul."

It is *very* important, though, when you do respond to customers online, that you be very careful in the way you word things. No matter how tempting it may be, even if the complaint is outrageous and unfounded, you should never get aggressive or defensive. Always take the high road and make yourself look like a class act. You might find some interesting tidbits in this article I wrote recently:

http://www.bnet.com/blog/customer-relationship/how-we-kept-a-customer-service...

Finally (again, agreeing with Dianna), if you have a disproportionately high number of complaints, chances are you do have a real problem--whether with your product, service, customer care, etc.--and you need to address it internally, and urgently. Then post a response very humbly acknowledging that you've had some issues and challenges, you apologize for any inconvenience, you are working hard to get things fixed, that kind of thing. But be honest and genuine and above all, do what you promise.

If appropriate, you might also offer a "make good" if a number of customers were affected by a screw-up of some kind. For example, if lots of people are complaining that the wrong item was shipped to them, invite them to contact you, post a comment that any time that happens, you will arrange immediate pre-paid return shipping of the incorrect item, rush out the correct item with no shipping charge, and reduce the price by X% to make up for the inconvenience. It can be any variation of that general idea, but typically the more you shower customers with "sorry gifts," the more goodwill and trust you'll engender.

In short, accept that you can't make everyone happy all the time (though that should always be your goal), and don't sweat a small number of minor complaints. But if you get a large number of complaints and/or major ones, recognize you may have a problem, deal with it actively, openly, cooperatively and hyper-responsively. I have almost never met an upset customer who can't be won back by a good company. As is often said, the problem is usually less important than how you deal with it.