Technology
Stepping up
How Mark Layton overcame the challenges of rapid growth at PFSweb by broadening his markets and developing future leaders
By Robyn Davis Sekula
Smart Business Dallas | January 2008
Mark C. Layton says growth is both a blessing and a challenge.
Layton’s toughest task as senior partner, chairman and CEO of
PFSweb Inc., has been preparing the company for growth.
It’s difficult because you can’t always tell when it’s coming, especially in a service-related business that relies on large-scale contracts with major corporations. PFSweb handles outsourced technology and back-office functions for companies and has capitalized on the global trend toward outsourcing. The company went
public in 1999 and had $423 million in 2006 revenue, up from $97
million in 2002.
The large companies PFSweb has as clients don’t make decisions
quickly, and the investment that PFSweb has to make to serve a
new client is capital intensive. When business comes in, it’s time to
ramp up, staff up and meet that challenge. Then comes another
plateau, and you can’t necessarily see when it will be time to step
up again.
Layton says PFSweb tried marketing its way out of the stair-step
model, buying more advertising and hiring more salespeople. But that
didn’t work. Ultimately, the company had to find another way to accelerate growth, and that turned out to be two things: making an acquisition to broaden the company’s market and getting and keeping the
right people.
“What we had to do was sit back and focus on our core strengths,
what we did well as a business, and find ways to fill in those gaps on
that stairways model I was talking about, like deploying our assets in
other market areas,” Layton says.
Aquiring a broader reach
Because PFSweb was primarily concentrated in large contracts
with major companies, Layton and his team looked for a company to
acquire that handled the other end of the spectrum: consumer products. If done right, it would bring in a steadier stream of income, with
more natural peaks, such as before and during the holiday season.
Layton examined several businesses that sold consumer products
and eventually bought a business called eCost.com, an online store
and Web site for consumers that sells computers and other technology equipment. ECost was in a profitable market segment, consumer
technology, but was not performing well.
Layton took a good look at its business and thought that the things
that eCost lacked were PFSweb’s strengths. ECost had struggled to
deliver products customers wanted on time and had its own technology problems, including down times when its own computers weren’t
working. Both of those issues were something Layton felt PFSweb
could solve, so in February 2006, PFSweb bought eCost.
“We thought we’d end up with a business in a fast-growing industry
that was meaningful and sizable and would make a contribution to us
and something we could use to expand into other categories,” Layton
says. “Many of the problems they had were our strengths, so it was a
good fit for us from that standpoint.”
Also, eCost was the right size for PFSweb to acquire because it
wouldn’t stretch PFSweb’s financial or physical resources too thin. It
has turned out to be a good move.
“This was a business we acquired that was in quite a bit of financial
difficulty, so we gave it a lifeline to survive,” Layton says. “Now, we’re
beginning to see the fruits of that labor, and that business is growing,
and it’s doing exactly what we hoped it would do, which is to smooth
out the growth cycle for us, and be a complement to the service business.”
Acquisitions can be difficult to judge. Layton says anyone in the
midst of an acquisition needs to be honest with his or her fellow
employees and the company’s shareholders about the problems of the
business you’re acquiring and how long it will take you to turn the
business around.
“Just don’t try to be overly optimistic,” Layton says. “Be conservative in terms of the time and cost to get it done. Too many companies do a deal and say, ‘We know we’ll have to close these three
plants,’ but they’ve underestimated the time, the difficulty and the
cost to get that completed, and they come back eight months later
and have to deliver disappointing news to stakeholders because of
the cost and time involved. Take a good look and be honest about
the risk assessment.”
But on the other side, don’t abandon an acquisition just out of fear.
Acquisitions are risky, but if done right, they are worth it.
“They are a necessary evil,” Layton says. “I have a client and former
business partner of mine who came up with the phrase, ‘Profit is a
reward for risk.’ If you don’t take risks, you won’t be successful. It’s
important that you understand what the risks are, and you do it in an
honest manner. It shouldn’t mean that just because you’ve identified
all of the risks in front of you that you walk away from every deal you
have. If you did that, you’d never do an acquisition.”
Getting buy-in
Layton says that, ultimately, it’s what happens after the acquisition
that makes or breaks a deal. The acquiring company has to help its
newly acquired staff fit in to the new company, and it’s something that
should never be ignored.
“Culture integration is probably one of the most difficult aspects of
any acquisition, and it’s often the most underestimated or just
ignored,” Layton says. “If you walk into an acquisition, in my opinion,
and immediately eliminate the leaders or the leaders resign after the
acquisition, your ability to integrate their culture is substantially
diminished. The impact on morale without the leadership of an
acquired company buying in to the vision and helping to build morale
and integrate the culture is very difficult. So we embraced the leaders
of that business. They embraced the overall business plan. Both of the
guys there and the level of management below them are still involved
today.”
That doesn’t mean, though, that no one loses a job after an acquisition. Layton says that’s almost inevitable, but be careful about how
you handle it. Communicate well with everyone, including your own
company’s staff, to make sure everyone understands why the jobs are
ending.
“You have to manage those correctly and make sure that the people
still on board understand why these things are necessary and where
you are trying to go with it and aren’t viewing the acquirer as a hatchet company,” Layton says.
Layton says PFSweb would like to do another acquisition, but the
company has set milestones that need to be passed before the company does another one. Allowing time to prove that you can successfully buy and turn around a troubled company is a valuable selling
tool, both for investors and for the prospective company you want to
acquire.
“We need to allow a little bit more time to complete the turnaround
and get eCost back to profitability,” Layton says. “It’s a business that’s
now hovering near break even, which is a stark contrast to where it
was a few years ago in terms of its losses, and it’s growing again.”
Buy-in starts with information and with integrity. Employees have to
be able to trust what you’re telling them, so above all, share what you
know and tell the truth.
“Most often, it’s sitting with groups of employees and sympathizing
or empathizing with the pain they have in the business today,” Layton
says. “I don’t have the resources, I don’t have the people, or we haven’t
had the cash, and talk about how it is going to be better, or why it’s not
going to be better. ... Once they are bought in to the vision of what
that’s going to do for the company and for them as individuals, it’s
amazing what people will do.”
Layton says communication during the execution of the plan is crucial. If you are going to have to deviate substantially from what you
promised employees, tell them that you are and why, including any surprises that came along or other difficulties. Keep the communication
coming, and include the staff of your original company in those communications.
“You can’t forget about the people who are making the sun shine
while you are out there chasing the rain away from the new division,”
Layton says.
The right people
One aspect of PFSweb that Layton says has been key to the company’s success has been its management team, many of which have
been with the company 15 years or more. Layton says PFSweb has
been able to achieve this by communicating openly and honestly with
each other and by behaving with integrity.
“It starts with an atmosphere of trust,” Layton says. “We have a lot
of respect for one another. We all bring different skill sets together. We
have learned to be able to debate and speak honestly and fight professionally without it impacting professional relationships between
us. ... Don’t get me wrong. We’ve all had our rough roads and times
when we get mad at each other and stomp away, but we come back
the next day when calmer minds prevail.”
Also, executives make a point not to spend a lot of time together outside of work. Each fosters his or her own personal life, which allows
each of them time to get away from the office and work, and keeps it
from becoming what Layton refers to as a “soap opera.”
One small change that helps senior managers feel more deeply
invested in PFSweb’s success is giving each the title of partner.
Layton says it’s also customer-service-friendly, as someone with
the title partner is assigned to customers on the company’s service
side. That way, if customers have a problem with how their
account is being handled, they can call the partner for help and
talk to someone high up in the organization who can fix their problem.
“We try to mold our organization to have an exterior-facing capability of being a client services organization,” Layton says. “The
second thing is, I need my management team to be bought in to our
strategy, and I want them to look at themselves as a partner in the
business.”
Layton looks forward to and thinks about the company’s future
leaders. The company hires eight to 12 recent college graduates on
an annual basis, looking for self-confidence, but not arrogance,
and a solid education, especially in finance. Layton pays special
attention to how the graduates communicate in e-mail. He wants
to see professional communication via e-mail, and Layton has the
human resources department at PFSweb send the candidate an e-mail following the interview just to see his or her response.
“We do so much communication by e-mail, and a lot of people are
not sensitive to how their e-mail comes across to somebody else,”
Layton says. “We like to see how they write an e-mail. We watch to
see if people take the time to be courteous, and do they take the
time to make sure the right kind of emotion is being communicated?”
Then, PFSweb trains the new hires to become tomorrow’s executives, putting them through the paces in every aspect of the business through a six-month training program.
“We ask them to pack boxes in our distribution center,” Layton
says. “We put them on the phone and have them answer calls, we
have them work in our technology area, and in finance, they work
in accounts receivable and collect money. We try to give them an
entire picture of what our business looks like. With that training
and their professional education, we’ve found that to be a very successful formula for growing executives in our business.”
With the right business model in place and with the right team,
Layton believes PFSweb is poised for continued growth. He looks
forward to seeing what the future brings to the company.
“We’re at an important and exciting part of our evolution,”
Layton says. “We’ve got a good, fast-growing business on the
eCost side and a solid service business that has elevated itself to
become one of the better players in the world in the business
process outsourcing service business. I’m hopeful that the next
few years will finally give us the kind of returns we thought we
would have been able to earn a long time ago.”
HOW TO REACH: PFSweb Inc., (972) 881-2900 or www.PFSweb.com
