Matt Rutledge prefers to set the bar low. As founder and CEO of Woot Inc., he says the best way to have excellent customer service is to set low expectations and then far exceed them.
The online retailer sells only one item each day, and while perusing Woot’s Web site, you’ll read that if you have a problem with your purchase, then you need to figure out what you’re doing wrong because you probably are doing something wrong. If you have buyer’s remorse, the Web site suggests selling the item on eBay to save everyone a lot of hassle.
Rutledge says that if customers are willing to do business at this level, they’ll be surprised by the high service they actually receive, which makes them want to purchase again. This creative approach allowed Rutledge to grow Woot to more than $100 million in revenue last year.
Smart Business spoke with Rutledge about his approach to business and why you don’t want to paint smiley faces on the walls.
Don’t micromanage. We’re a bootstrapped company from a small stage, so the style that develops from that is hands-on and wanting to be involved in the detailed level but a balance of not micro-managing, not overshadowing other people’s works and trying to inspire independent thought.
It’s a tough line to walk. It’s a lot of checking-in conversation with people. Try to stay objective, and you want to assess work output and understand what went into it and be fair and objective when you’re doling out praise or suggesting change. You still want to have touch points at the floor level of the business, as well.
Micromanagement’s a negative, bad thing you want to avoid. It’s a cultural problem and an efficiency one. You want to have a healthy culture and work environment. If every manager were heavy-handed or too active in the detail work, then there wouldn’t be much time for strategy and overall business direction thinking.
Assess work outputs. There are some positions that lend to measurement. Sales, purchasing, accounting they have black-and-white definitions of good, mediocre or bad job.
When you get to old-school business operations, you don’t try to reinvent the wheel. If there are commission plans and incentives that have made sense for 100 years, let’s use those.
Trying to put metrics on a creative output department is a classic example of an impossibility. Realize that, and don’t have the same management approach to a group of writers as you would a group of sales-people. ...
There is no metric to measure the quality of creative work other than a subjective pulse or atmosphere around the office or in our audience for various initiatives. It really boils down to peer opinion, so you want to start with a core group of people that you respect and then build from there.
In the creative departments that we have, it really is a fair amount of peer-to-peer driven growing. Peer respect is a major factor.
Have a great work atmosphere. You hope a lot of that is organic. You don’t want to paint smiley faces on the wall and throw meaningless parties you don’t want “The Office” TV show. You can only input your ideas and direction for that every so often.
It helps if your company has a somewhat exciting brand and appeal to it. Our demographic is fairly young and energetic toward us, so internally, it’s the same culture you hope for.
It’s fairly cliché, but don’t be afraid to have fun. You don’t want to have a draconian management style and cut down every fun thing in your business. There aren’t any rules. It’s going to come down to personality and letting people have their space and seeing what develops.
You go through phases, and maybe those phases are tied to economic performance or maybe they’re seasonal. There are causes for celebration, and there are causes to clamp down and meet goals and meet expectations of our audience.
Measure what you can. You want to keep your finger on the pulse. Then your job as an executive is to share that pulse because the higher position you’re at, the more points of data you have to measure that pulse.
A lot of things are important, so it’s not a short list. It’s more an effort of what’s not important and removing those from the reports you get. You have to have a good gut reaction. If you find yourself spending time, you’ll usually have a gut reaction, ‘Hey, this is disproportionate to the needs of this priority,’ and you can do a daily assessment of what your priorities are.
Prepare for growth. If you’re in a constant state of growth, you go through phases of speeding along and then getting your legs back under you.
Catching up becomes being ready to recognize deficiencies in departments. That’s how you continue to fuel the growth. You usually see signs in work output or frustration levels. ... When teams are stressed out and departments are bottlenecked, those are pretty clear signs.
You probably hear about it from them and don’t need to be that proactive. It depends on the work environment and the mix of whether it’s a department you have metrics on ... or a department you’re relying on personal skills and relationships to measure.
It’s a lot of conversations with your employees to find out what their perceptions are. Ninety-plus percent of the time, your employees know what you need to do. It’s a matter of finding out from them the direction that’s necessary.
HOW TO REACH: Woot Inc., (972) 417-3959 or www.woot.com
Success breeds success. The tenet is far from revolutionary, but Denny Gerdeman still spreads it among his 50 employees with vigor.
“When you have a successful project and a happy client, guess what? More business,” says the principal and co-founder of Chute Gerdeman Inc., a retail design firm.
To create this snowball effect, Gerdeman grants his employees the autonomy to flex their creative muscles and maintains a constant channel of communication with clients.
That old adage has paid off for Gerdeman, whose company posted 2007 revenue of $7 million, up from 2003 revenue of $3.4 million.
Smart Business spoke with Gerdeman about the importance of establishing a strategic plan and how to determine how much growth your business can accommodate.
Q. How important is it to establish a strategic plan?
If you don’t know where you’re going, any road will get you there. We draw a very clear chart of the direction for the design, based upon what the brand attributes are. Once we’ve established those attributes, those then help define what the design is going to be. It really eliminates a tremendous amount of guesswork.
It’s a very surgically done approach. Certainly, there’s design applied and art to it, but it’s very much a business strategy that we use as we start developing that design strategy. Otherwise, you’re throwing darts at a big wall.
We start out every year with a game plan of what we want to end up with by the end of the year. And the same way with our clients we can’t be successful with ourselves unless we know how we’re going to do it for our clients.
Q. How do you determine how much growth you can handle?
I have found, as a rule of thumb, that growing 15 percent has always been my target because it’s a creative service, and it’s all driven by people.
You can’t do quality work on every single project if you’re growing too fast. It’s about how you teach the new individuals that you bring into a company. How you find the right individuals to bring into a company. That puts a bit of a limit on how fast we can grow, but it’s a self-imposed limit. We’re much more about quality than we are quantity.
Our ambition has never been to be the biggest.
What I want to do is be well-known for the kind of work that we do, the quality of work that we put out. We can make a good enough margin doing that versus just having to have a high-volume place that just pushes projects through the doors.
We’d make more money overall if we did it that way, possibly, but it’s just not what is my motivation.
Q. Once you have the right people at your company, how do you keep them?
We’ve made it a policy that we would treat everyone like they were family. It sounds hokey, but we really did make it warm and friendly. It’s just our culture of being open-minded.
We don’t have strict discipline. (Employees) know they have to get their jobs done and the projects completed within schedules and budgets.
Could I run it tighter and make more money? I’m sure we could, but you’re not going to get the best results. You have to allow them the flexibility and the opportunity to flex their design muscles. That’s how we get the best work, and that’s how we get the best talent.
Q. How important is constant communication with clients during a project?
If clients don’t hear from you, they don’t know what’s going on, they start to wonder what’s happening. On active projects, we’re communicating every day with our clients, letting them know what’s going on, what the status is, when they’re going to see something. There’s always constant dialog; that way, there aren’t surprises.
We make them a partner in the whole process so they’re working with us as we make design decisions.
We allow them to be involved in the choices and have a voice.
That’s very important, and when they have that voice, they become part of the process and they take ownership. Once they have ownership, they’re absolutely less apt at the end of the day to say, ‘I don’t care for this; this is not what I thought I was going to get.’
It really does increase the likelihood of having a successful project.
Q. How do you keep going in tougher economic times?
It’s really giving it the best effort every day and being extremely persistent. Nobody wins every day. It doesn’t happen. But if you can win three out of five days of the week, four out of five days of the week, you’re going to be very successful.
I believe in being persistent, always being positive, doing your best and getting the best people you can find and supporting them.
HOW TO REACH: Chute Gerdeman Inc., (614) 469-1001 or www.chutegerdeman.com
One thing that shouldn’t change when a business grows, says Don Caster, is the set of values on which the organization was founded.
“I run my business and try to do it on the value and the importance of that person to both what our mission is and our purpose,” says Caster, founder and owner of Raisin Rack Natural Food Market. “It still reflects on taking care of the customer. ... It becomes my priority to communicate as often as possible those important values.”
By focusing intently on hiring the right people and training them according to his own set of values, Caster led the natural foods store to 2006 revenue of $6 million, growing the company nearly 28 percent each year between 2004 and 2006, and it now has 57 employees.
Smart Business spoke with Caster about the value of teaching your employees not to take customer complaints personally.
Q. How do you train new employees?
When we hire somebody new, we will explain some of the real basics in terms of making sure everybody is greeted. Saying hello, thanking them, asking if they couldn’t find anything. I have to do it by example.
Any time I am on the floor with customers, I make sure I do that and make sure they are aware I’m doing it.
That’s who I am. People can become better at it. I don’t expect everybody to be outgoing and confident.
Trusting the individual becomes critical. If we’ve established a trust, we may not want to lose them. We may want to put them in another position we think they would work at more effectively.
We’ve done that with people. Two or three years later, they turn into some of our best floor people and some of our best register people. They learn how to be something that they weren’t.
Q. How do you lead to get the most out of your employees?
If it’s all about me and my company and what I get out of it, then I don’t see how anyone can survive. You’ve got to involve that other person, something they can receive out of it. Maybe it’s just telling them once a month or once a day they are doing a great job or acknowledging something they have done.
When they are at work, I want them to feel good about what they are doing. We’re not afraid to tell them when they are not and show them where they need to be.
It doesn’t have to be unique. It has to be personal. I try not to have just one person in charge of any particular staff or group of people. I always try to have two people that are observing. We can draw conclusions based upon observation.
Most of what I’m trying to describe is almost transparent to anybody else. They can’t see it. They don’t see what’s going on. They shouldn’t know what we might feel about somebody else or what we might know about somebody else.
Q. What is a critical lesson you teach to every employee?
When somebody in a store comes up and confronts you with something they are angry about, remember it’s not your problem. It’s the store’s problem. That’s ownership. When you take it on and you feel threatened that the person is yelling at you, you’re going to become defensive.
That’s the wrong stance to take. If the customer is wrong, then somebody else or two or three of us will decide that and deal with it.
But as an individual, never accept it. If somebody comes up and threatens you by saying, ‘I’m tired of the way you treat me or the way you did this,’ then call for assistance and let somebody else take it over so it comes back to the same problem. You don’t own the problem.
Q. How do you identify the right people to grow with your company?
Be a student of people. Figure out who you can trust. When you hire somebody, find out what it is about that person that you like and what you trusted and what motivated you to hire them. Make note and check it.
It might be their bubbly personality. It might be their degree. If it turns out you were taken aback or excited for the wrong reason, that person won’t accomplish what you want.
I try to take notes when I bring somebody in for a position. I sit and tell the person, ‘Here’s what I’m looking for from you. I’m really impressed that you have this degree. I like the way you talk. I like the way you dress.’
Within a week or two, if any one of those things aren’t met, they come in dressed differently, they can’t seem to understand a balance sheet or whatever you hired them for, you need to begin to confront those situations. Don’t give a person forever to change.
HOW TO REACH: Raisin Rack Natural Food Market, (330) 966-1515 or www.raisinrack.com
When Jay Schottenstein was 21 years old, his father shared some words of wisdom with him: “If you work hard now, you’ll learn good habits that will last you all your life.”
As the chairman of the board of Schottenstein Stores Corp., his late father, Jerome, instinctively understood the meaning of hard work, and the Junior Achievement of Central Ohio honored him in 1991 as a Business Hall of Fame laureate.
Jay has adopted his father’s passion for business, and today, the retail magnate serves as the chairman and CEO of Columbus-based Schottenstein Stores Corp., Retail Ventures Inc. (Schottenstein’s/Value City Department Stores, DSW and Filene’s Basement), American Signature Inc./Value City Furniture and American Eagle Outfitters.
In addition to looking up to his father as a strong role model, Schottenstein has had other great mentors within his companies who have spent valuable time with him and encouraged his professional development.
The first step to becoming a successful business leader, he says, is taking the time to listen to others. He enjoys getting the input of his key managers, and he encourages them to express themselves in a direct and honest manner.
“Good business leaders gather information and then, based upon the information they’ve been given, they have the ability to make a good decision,” he says.
The next step, he says, is one he learned from his father. “My father was a believer in sharing information with your associates. If they had the same information he had, they’d be able to develop and go to the next level,” he says. “That’s been my philosophy. It cultivates an understanding of why you do certain things at certain times. If you don’t have that information, you can’t make those types of decisions.”
As business leaders develop their careers and expand upon their existing experience, they come into contact with their employees and team members in several different ways.
When Schottenstein ran his own stores, he says he had direct involvement with his associates on the sales floor and in the warehouse. Today, his companies are run by groups of key executives, and he has built a different kind of relationship with his managers. It’s a rapport that has evolved through the years.
“If someone’s doing a good job, we don’t interfere with them. We try to be helpful to the people, and we don’t try to interfere where we don’t have to interfere,” he says. “I trust our key people very much.”
Known for his keen business sense, Schottenstein says an executive has to have experience in his industry to recognize a good opportunity when it knocks. The deal also has to have a sense of urgency that requires the business leader to follow through on it immediately, rather than taking a slow approach.
“I try to work a deal as hard as I can and put my full effort into it because if I don’t get it, I want to know I tried everything I possibly could do,” he says. “If I don’t get it, I try to study what I would have done differently so if the same type of deal comes along in the future, I can react in a different way.
“You learn from the deals you get, but you also want to learn from the deals you don’t get. It’s always a learning experience.”
When a business deal lands on an executive’s desk, Schottenstein says that’s the perfect chance for the leader to take his company to the next level.
“In business, you either go forward or you go backward; there’s no staying the same,” he says. “If you think you’re staying the same, you’re going backward.”
While some executives attribute their success to their company’s revenue numbers or brand recognition, Schottenstein believes that success means having a feeling of inner peace with his professional accomplishments.
“When you do a deal, does it still get you excited?” he says. “You always want to be in a position in business that you still feel the thrill of the deal. You never want to lose that thrill.”
HOW TO REACH: Schottenstein Stores Corp., (614) 221-9200
Consumers may not immediately recognize the name of U.K.-based Signet Group plc or its Akron-based U.S. division, Sterling Jewelers Inc., but Sterling’s brands mall-based Kay Jewelers and Jared, the Galleria of Jewelry superstores strike a familiar chord with shoppers nationwide.
With 1,308 stores across all 50 states, Sterling is the largest specialty retail jeweler in the United States. Paula Catterall, the company’s senior director, and Dale Stincic, its vice president, say the company has grown steadily over the past few years due to its focus on outstanding customer service, depth of selection in merchandising, retail excellence and overall customer value. They say that Sterling’s growth is driven by a commitment to brand-name investments, trust and an aggressive store development program.
Catterall and Stincic understand that today’s retail customers have high expectations. Shoppers want personal, expert advice and service, and retail operations must meet and exceed those needs to come out on top. Sterling prepares its employees for this challenge through enhanced training, and its innovative merchandising system for supply chain management has been supported by an upgrade in internal store communications.
Strategically planned real estate development has also fueled Sterling’s growth, increasing total space of retail operations through the opening of off-mall locations and investment in the Kay outlet center and superstore concepts. The company also has excelled in merchandising innovations, such as improved diamond sourcing, developing the right-hand ring promotions, and the marketing of the Peerless Diamond and the Leo Diamond in its Jared locations.
Marketing continues to be an area of investment and innovation for Sterling. While other retailers have drifted from television branding, Sterling has increased advertising spending on national and local cable and network television. As a result, the company has reaped great rewards, improving its brand awareness scores and driving increased retail traffic into the stores.
Sterling’s managers say the company owes its success to its competitive advantages in store operations, human resources, real estate selection and development, merchandising, marketing, and credit operations. These advantages are reflected in above-industry-average sales per store and operating profit margins.
HOW TO REACH: Sterling Jewelers Inc., (800) 743-4401 www.signetgroupplc.com
Beads of sweat roll down a young runner’s forehead, while his mind wills his aching body forward, stride after stride, as he continues on his grueling run. Some miles prove easier than others, but even during those less strenuous ones, he pushes himself to perform better than he previously has and prepares himself for the more difficult, uphill miles he knows lurk around the bend.
While his fatigued body wants to collapse as the miles slowly go by, he cannot stop — there’s work to do, and athletes are always looking to improve.
This same mentality has driven Arthur Blank’s career and created his success as co-founder of The Home Depot (he retired from the home improvement retailer in 2001) and now as owner and CEO of the National Football League’s Atlanta Falcons. Just as athletes have regimens of exercises they practice to improve and succeed, so does Blank. He adheres to a handful of simple philosophies that create and sustain success when continuously practiced. “The whole notion that there is no finish line, which is a life philosophy of mine, reflects in the way you run a business, as well,” Blank says. “The day you think you kind of got it all figured out in any business is the day you’re going to get in trouble.”
Hire the best
When the Home Depot’s sales approached the $1 billion mark, Blank and his partner had lunch with a senior partner at Goldman Sachs, who told them that they’d need to change strategies when the company reached that magical milestone.
That didn’t sit well with Blank, who decided that if they continued hiring and promoting people who “bled orange” and bought into the culture, then the company could, indeed, sustain itself. “We didn’t let people get in the game, as we grew the company, that were just good at getting things done as opposed to good at living who we are,” he says.
Instead of hiring many hourly workers at lower wages, Blank went after the best and paid them more because their knowledge and skills would benefit the customers. But he also held them accountable for creating sales and customer relationships. “They are reflected on the operating statement as a payroll expense, but I’ve always viewed them more as an investment,” Blank says. “We’ve always had the mentality that if we invested in the very best people, not only would they produce the best re-sults for us in the near term but would have capacity for growth and decision-making as any of the businesses have grown.”
When Blank bought the Falcons in 2002, the Georgia Dome, the team’s home stadium, sat about 40 percent empty on game days, and empty seats don’t help propel athletes to victory or generate revenue. To find a way to fill them, he talked to people who didn’t attend the games. He knew he’d hear complaints, but it was the only way to pinpoint the issues and find ways to fix them. “A lot of leaders, they listen, but they don’t really want to hear the results to the answers and when the answers come, they find a way to reinterpret them based on their original perspective of what they think the answers should be,” Blank says. “They might give you their honest opinion of what they think you’ve got to do to improve your business, but then you put it through your own filter and look at it through your own rose-colored glasses, and you choose not to see it that way. You say, ‘That’s not really what they meant. They meant some other things,’ and you just believe what you want to believe.”
Blank says there are bright people throughout an organization, and leaders need to hear them out, as well.
“You don’t have to be a genius to do it — you have to be bright,” Blank says. “Anybody can be bright. Anybody can listen and understand that there are lot of great ideas out there. ... There are a lot of folk out there that don’t have titles that have an awful lot of good ideas.”
And when senior leaders effectively communicate with those nontitled people, businesses grow stronger. After speaking with fans, Blank identified ticket prices and parking as prime concerns. So he lowered ticket prices on 30 percent of the Georgia Dome’s seats and secured parking — including space to tailgate — for season-ticket-holders. As a result, 30,000 empty seats were transformed into a waiting list 60,000 deep for season tickets.
Forbes estimates the team’s 2006 revenue at $170 million, up from $120 million in 2002.
“It’s very dangerous in any business for a minute when you put yourself above the customer or above the fan or above your associate,” Blank says. “There’s an awful lot of bright folks out there, and they can lead you down the yellow brick road if you’re willing to follow, but you have to be willing to follow.”
Look to the next level
While at The Home Depot, Blank often brought in outside people to meetings, which sparked conversation afterward.
“That first meeting was weird,” the visitor would say to Blank.
“Why was it weird?” he’d ask.
“It sounded like the company was really in trouble. You guys were talking about all the things you were doing wrong.”
Despite The Home Depot’s successful track record, Blank always led with a sense of urgency, continuously pushing forward.
“The best executives that I’ve ever worked with have always had a lot of confidence and a lot of security, but a lot of insecurity at the same time,” Blank says. “They’re always concerned with what happens if the market changes. ... They spend time thinking about all the what-ifs as opposed to just what’s happening today.”
Leaders constantly have to assess if their team also thinks that way and can move to the next level. In the early 1980s, Blank had lunch with Charles Lazarus, who was running Toys “R” Us. “Give me a lesson,” Blank asked Lazarus. “Tell me what we’re going to have to do.” “I have to look at my company as we grow every year ... and challenge myself,” Lazarus said. “Can the people you have around you take you to the next billion? Those are going to be the most difficult decisions you’ll have to make.”
Blank has found truth in that as he’s often concluded that people who worked their tails off and got down in the trenches simply didn’t have the skills to move the business to the next level. “You constantly are pruning the tree around your senior management, making sure the folks that are still part of the tree are thinking in a similar way,” Blank says. “You constantly ask every year, ‘The people that have gotten me to this level, can they get me to the next level, or are there issues I need to deal with?’”
Blank says that when issues arise, look for a niche within the company where that person would succeed at the next level. If that person isn’t willing to change, then he or she may need to find opportunities elsewhere. “That’s your last resort, not your first resort,” Blank says. “You have a big investment in that person. They work their tail off and, typically, they’ve produced at a very high level.”
Lead by example
In the early days of The Home Depot, Blank had every person in his senior management learn the business from the ground up.
“The first three months, you’re going to be working in the stores,” Blank told the first legal counsel he hired.
“I’m an attorney,” the man told Blank, looking at him like he was crazy. “Why would you want me to spend three months in the store?”
“You’re not going to understand the legal issues that are going to come across your bow or the environment they were created in or be able to talk effectively to our associates about what happened in stores unless you actually have some of that experience,” Blank said.
And Blank himself didn’t have immunity. He spent up to 50 percent of his time walking around the stores, working with customers and talking to associates. When he returned and sat in meetings, Blank could communicate problems and issues from the front line that nobody else knew about.
He did the same thing when he acquired the Falcons, living in the dormitories with players during training camp so he could see first-hand the issues facing larger men. Then he took those problems into account when he built their new training facility.
To solve the parking woes identified by fans, he and his team spent five hours walking all the lots within a quarter-mile of the stadium searching for inefficiencies. “Great leaders have a lot of integrity, and they do what they say they’re going to do and they mean what they say,” Blank says. “They don’t feel like all the wisdom resides in their office and they’re happy to get out amongst real people and do real work and find out what the world is thinking about the company and the organization and what they’re doing.”
Under Blank’s leadership, the Atlanta Fal-cons Youth Foundation has given $6.4 million in grants to 194 nonprofit organizations across Georgia since 2002. And, Home Depot employees annually log tens of thousands of hours volunteering in their communities. “Part of a piece of fabric, in a general sense, you’re woven into the life of the fabric, and when a company weaves its way into the life of a community, it becomes part of the fabric of that community,” Blank says. “It becomes very hard to tear it out of the community, and you don’t want to tear it out of the community. It’s part of what makes the community unique.”
Beyond helping others, service creates employee loyalty and buy-in because they know their employer is a part of something more than financial reports. “They feel the company has not only a brain but has a heart and has a soul to it,” Blank says. “They end up going home, instead of feeling they were at a job all day, that this was not a job — this is part of their life experience,” Blank says. “This is part of what I am as a person — the company I’m associated with. “When you get to that point with an associate, it’s a very powerful place to be because without asking, without telling — and there aren’t enough hours in the day to tell and ask associates to do everything that you want them to do — they do it out of themselves for the right reasons. That’s a perfect environment.”
But leaders have to genuinely care about a commitment to service and view it as an opportunity instead of a responsibility.
“If you have a responsibility to do something, sometimes you do it, you’re not happy about doing it, but you do it,” Blank says. “If you have an opportunity to do it, and you still do it, that means you didn’t have to do it, but you did it for all the right reasons.”
Just as running plays correctly and cohesively allows a team to win, when an organization combines all of these business plays, it creates a financial victory. “Our philosophy has always been on doing the right thing and having the right kinds of standards, and that by doing that, we’d produce the financial performance that was important to the organization,” Blank says. “It wasn’t based on first producing financial results. It was based on a set of values — living those values, supporting those values.”
HOW TO REACH: Atlanta Falcons, (770) 965-3115 or www.atlantafalcons.com
The furniture retailer was approaching its 100th anniversary and had a strong brand with good products, and there were ambitions to expand operations into additional states.
But brimming just below the surface were several issues that threatened to stall growth and disrupt the flow the company had experienced since after the Great Depression.
“It was kind of floundering a little bit, mainly because it hadn’t really defined its strategic objectives,” says Marks, president and CEO. “It had had a number of years of flat sales. We built a number of new stores. A lot of them were company-operated, and it really wasn’t what we were all about - we added a lot of costs.”
Prior to Marks’ arrival, the company had made efforts to keep those costs in line, but those efforts restricted growth by inhibiting investment into technology. Equipment had gotten old, and it would be expensive to modernize the company.
Then there were issues with the dealers.
“There hadn’t been particularly strong standards of who could become a dealer and who couldn’t,” says Marks. “There were also some dealers who didn’t invest in their buildings, and their buildings looked old and tired. In today’s retail market, the consumer is not going to give you an opportunity to show them how fabulous your service is and how warm and friendly your ... people are if they won’t walk through the door.”
While the company was certainly far from crisis, Marks had to do something to reverse sliding same-store sales growth and thwart the potential for unhappy store dealers.
“Rather than just do accrued maintenance, we said, ‘Look, let’s change our image and let’s make it a little more modern, a little more 21st century,’” says Marks.
He began by instituting a round of strategic planning - something the company had never done before.
“We got all of our management team and owners together and decided what it is we wanted to be,” he says.
They decided they wanted to find a way to continue to service their current client base the middle-class working citizen who typically needs credit while reaching out to other demographics. They came up with an idea to launch a new store concept called “Badcock Home Furniture & more” that would include a brighter, more spacious store display, a new logo and an expanded product line that would now also offer patio furniture, appliances, electronics, floor coverings and accessories.
“The Badcock & more concept was intended to make it a little more modern, bring in a younger consumer, bring in a little more affluent consumer without sending or telegraphing a message that we’d raised prices, because we never did,” says Marks. “We would like ... to attract that other customer without losing the core folks that brought us to the dance.”
The new image was also a potential way to solve issues with inflation and decreasing profit margins.
“The most difficult strategic challenge for the company is the fact that furniture has had no inflation in it in the last 10 or 20 years,” says Marks. “A $400 sofa 10 years ago is a $400 sofa today, while gasoline is up from 80 cents to $3.
“For our dealers ... their labor’s increasing, their insurance, their health costs, all of that. ... So our job has been to get customers to buy, instead of a $400 sofa, to buy a $500 sofa or to take business from our competitors.”
But Marks hadn’t forgotten about the lack of technology. The previous management had tried to keep profit and losses in line by reducing selling, general and administrative expenses.
“If you keep trying to cut money out of general and administrative expenses, eventually you start cutting through the fat and into the muscle,” says Marks. “We had 20-year-old IT systems, for example. The connectivity to our stores was very poor.”
Marks made the necessary investments to consolidate IT systems, as well as inventory, which had previously involved seven different systems. The result is better communication with stores and better functionality with dealers. Now, he’s focusing on supply chain issues.
“Eight years ago, 80 percent of our product was domestic and 20 percent was imported,” says Marks. “Today, 80 percent is imported and 20 percent is domestic. ... What it does is it takes our supply chain from three weeks to four months. So we have to plan out four months in advance, and if we get it wrong, we’re not going to get it fixed for weeks. So we can disappoint customers, which again, according to our business model, is the worst thing in the world that we can possibly do.
“The real strategic focus and the upside for us is being able to be better than anybody else at having the right product in the right place at the right time. I don’t think that the industry does that very well.”
But while Marks saw what was needed to keep the company from slipping further, coming up with a concept to revitalize its operations was only half the battle. Marks also needed a plan to get management and employees on board with the significant changes.
Getting people on board first meant getting them involved, and Marks used the strategic planning sessions as an important first step.
“We developed an action plan that had 14 key initiatives and 376 action steps in it,” says Marks. “What that did is it involved all of the management folks in the company. They each had a role. They each had a piece of those 376 things to do. So they had things that they could see immediate and direct results from, and that enthuses people.”
The next challenge was getting the rest of the employees to buy in. He realized that if the company was going to ask so much of employees, it should give a little something back as well.
“For example, we have a third week of vacation at five years here,” he says. “It used to be 10. It was a hot button with everybody, and when the company was successful and made more money, we had the dollars to be able to go out and offer that to our employees. It’s that kind of thing that keeps everybody engaged, when they know that there’s something that benefits them personally in addition to the company.”
He also started a profit-sharing plan, and in the years that Badcock beats its profit plan, the company gives an extra check to every employee.
“We just say, ‘Hey, look, we did better than we thought we were going to do, so we’re going to share it with you,’” he says.
But Marks still had to address issues with those who had perhaps the biggest stake in all this the dealers. Badcock’s dealer-owned stores operate similarly to franchises, but instead of the company collecting money from the dealer, the dealer receives a check for 25 percent of everything the store sells each month. The dealer pays for the store including maintenance and construction costs the labor and expenses, while Badcock pays for the furniture, inbound and outbound freight costs and warehousing.
Dealers who wanted to upgrade to the new “Badcock Home Furniture & more” concept were going to spend $150,000 on average to revamp their stores. With such a hefty price, Marks thought the dealers deserved a little incentive.
The company’s previous contract with dealers included a 30-day-out clause, with which either party could change their mind about doing business with the other after 30 days.
“If you’re a dealer and spent $150,000 on your building imaging it as a Badcock & more store, there’s no safety in that,” says Marks. “We felt that it was much better for the dealer and for us to have a term-limited contract. We set 10 years as the term, but it also has two five-year options. So as long as the dealer is in compliance, they ... have 20 years to recoup that cost that they put into that building.”
The increased level of commitment and enhanced growth opportunities provide a great incentive for dealers to convert to the new concept and also builds a stronger relationship between them and the company.
When Badcock was developing the new contract, it had a panel of dealers help write it.
“When we changed our whole contractual relationship with the implementation of Badcock & more, we actually had 12 or 14 dealers sit down with us and hammer that contract out,” says Marks. “So then when we rolled it out to the rest of the dealers, they were quite comfortable with it because they had had representation.”
So far, approximately 225 of Badcock’s 319 stores have converted to the new Badcock & more concept, and it hasn’t been in vain. Converted stores are seeing average sales increases of 20 percent to 25 percent their first year.
And the piece that ties the whole thing together is communication.
“You can’t communicate too much,” says Marks. “It’s just like advertising. Just when you think that you’re sick and tired of seeing your ad on television, it’s just beginning to break through to the consumer. The same thing goes with communication, particularly with regard to strategy.
“Does the average guy on our loading dock really care about a speech about strategy? Maybe, maybe not. But if you say, ‘Look, here’s what’s in it for you. We’re going to grow positions. You might get promoted. You’re going to get an extra week’s vacation in five years because the company made more money. I need you to help me do these jobs in order to continue this progress so that we can provide you other things that help you and your family,’ that works.”
The company also makes a committed effort to keep everybody updated on the company’s progress. Three times a year, Badcock holds a lunch for 300 to 400 of its employees, reiterating strategy and highlighting where the company is headed.
Twice a year, the management team jumps on a bus and travels to meet with dealers throughout the eight-state region that Badcock operates in, and twice a year, dealers are brought to headquarters for business review meetings.
The changes, as well as Marks’ strategies for implementing them, have allowed Badcock to return to an above-industry performance, with revenue increasing from $515 million in 2005 to $537 million in 2006.
While sales had started to decrease in the 1990s, there has been eight straight years of increases since Marks became president and CEO. Sales rose 8 percent in fiscal 2005 and 5 percent as of the fiscal year ended June 30, 2006, while the industry tends to average only 2 percent or 3 percent annually.
In July, the company opened its first store in Virginia and has plans to continue expansion in current states while keeping an eye on locations including Kentucky, Missouri and the southern regions of Ohio, Illinois and Indiana.
“There’s so much business out there in towns with 10,000, 15,000, 20,000 people that are not adequately covered,” says Marks. “We have a lot of opportunity. ... I believe this business can do a billion dollars with the business model that it has now.”
HOW TO REACH: W.S. Badcock Corp., www.badcock.com
Hire independent thinkers.
Hire good people, empower them and let them do their thing. I look for people who don’t necessarily always agree with me.
I look for people who have strength and conviction in what they believe, yet who are willing to, at the end of the day, go along with what the group decides.
Correct hiring errors.
There’s always a tendency to make the job fit the capabilities, but it usually ends up with having to replace the person. Try to give the person the benefit of the doubt.
You coach them, and you give them time to see if they grow in the job. Once you decide that they’re not going to, then you have to do something else.
A lot of times you find that there’s another position within the company that they’re more suited to. In the process of deciding that someone is not going to be able to do what you thought they could do, you see everybody has strengths and weaknesses. There aren’t any perfect people. In the process of identifying what they’re not capable of doing, you see what they are capable of, and a lot of times it turns out to suit the need better than the original one.
A lot of times it’s a get-out-of-jail free card for them because they’re not happy. Most people want to be successful in what they do. It’s more of a driver than compensation is just the idea of your self-value and feeling like, every day, you accomplish something.
It pushes decisions back to them and gives them a great deal of headway. When they make decisions that aren’t necessarily what I would make, I don’t punish them for it.
I may go to a manager and ask why they did something or how they evaluated that and what their thought process was, and try to share with them another perspective on it something that they may not have considered. Maybe it was outside the range of what they’re aware of. For the most part, [it’s] letting them make decisions and supporting them, good or bad.
One person can’t make all the decisions. My big job, in terms of management, is to make these other people successful. The way to do that is for them to learn from the good and the bad of what they do.
Make employees happy.
Keep sight of the fact that there are a lot of people in the organization, and a lot of different needs and wants. Try to keep everything focused on your own people, because if they’re happy, they’ll treat your customers well, and if they’re not, they won’t.
Ease people’s growth fears.
Every company has some up and down cycles, particularly a fast-growing company. It will go through a period of really rapid growth, and it will bring on a lot of folks, and then the growth settles out, and you end up having to readjust personnel levels and jobs and changes.
When you go through one of those cycles of having some reductions of force or reorganization, that kind of change brings a company down. What we’ve done over the years is focused really hard on the employee relationships in terms of company parties and picnics, doing the little things around the office bringing in lunches, taking everyone to the ball game.
We really focus hard on that to counterbalance the fear that ‘I’m going to lose my job.’ In general, it’s fear of the unknown that’s the biggest drag on a company’s growth.
Watch your emotions.
Never let them see you sweat. You can’t let the people that work for you know that you’re concerned, even though you are concerned and you are worried, and you’re making decisions you’re not 100 percent sure of.
You have to keep a good attitude. It starts from the top and goes all the way through the organization.
I can see it in stressful times. We went through a period of time where there was some litigation going on, and it was very stressful for myself and the CEO, and you could really feel it out in the organization just this stressful sense all the way out from the people inside to the salespeople.
At the same time, when those things get behind you and you get on a roll and you’re setting records for sales, and I’ve got a bounce in my step, it just goes on through the organization as well.
A lot of people pay lip service to communicating in top-down, bottom-up type of stuff, and they will communicate once and then expect that to be it. You have to circle back and re-communicate over and over again.
We had a period of time when we lost a product line we had for a long time it was 50 percent of our revenue. We had to adjust and make changes. We had always had quarterly company meetings, but at each of the quarterly meetings for the next year or year-and-a-half, I went back over everything that had gone on since we lost those lines.
I know it was saying the same things over and over again, but it gave them comfort to circle back and see, ‘Yeah, this is what happened to us, but even though this is what happened, this is what we’ve done and been able to do,’ and kind of spread the optimism a little bit.
It has to be communication, but it has to be repetitive communication, because communicating change, it won’t stick with them. Not that they don’t remember it or don’t understand it, but when you communicate it, it relieves the anxiety, but the anxiety comes back, so you have to go back and address it again.
HOW TO REACH: HADCO, www.hadco.net
Dille, president and global business unit leader of SofTechnics Inc., says it’s more important to ask customers about their objectives and listen to the answers to help achieve those goals.
“It all comes down to knowing your customers,” Dille says. “If you work closely with your customers, and you’re a business partner, not a vendor, the customers will tell you what you have to do to grow.”
SofTechnics, a division of Switzerland’s Mettler-Toledo, provides retail price and inventory management solutions. The 50-person Columbus company has grown from revenue of $6 million in 2003 revenue to $15 million-plus in 2005.
Smart Business spoke with Dille about how he creates partnerships that benefit both his clients and his company.
How do you become a business partner?
There are always these questions of, are you trying to just close a deal with a customer, take some revenue and some profit, and then go on to the next customer? Or are you really trying to establish yourself as part of their community for an extended period of time?
You can always close a one-off deal with a customer at any point in time, then run away and leave the customer where they got value but may not have gotten the maximum value. You’re talking a seven-, 10-, 15-year relationship that you’re establishing.
Go at it from the beginning as, ‘We’ve got to understand what the customer’s needs are. We have to make sure that we’re honest with them about what we can do to help them solve the problems.’ Where do you have strengths, and where do you have weaknesses?
If you don’t come at that very honestly from the beginning and look to make it a win-win, you’re setting yourself up for a miserable seven to 10 years. If you create an adversarial relationship, you’re going to deal with it for a very long period of time.
How do you manage that?
We tend to take a very long-term view. We understate what we can deliver to a customer. We encourage them to have their own people very involved in the projects that we do with them because we want to transfer knowledge to them and make them capable of really understanding our products and our solutions.
Our best salespeople are our current customers because we can say to a new account that’s looking at us, ‘We’ll give you a list of five or 10 of our current accounts. You call and talk to them.
You find out what we do well and what we don’t.’ It forces us as a company to be good. You can’t afford to alienate or aggravate your customers because when you want to use them for a reference, you don’t have them.
What advice would you give other top executives trying to grow their companies?
Know what you do well and how to leverage what you do well, but don’t think that you can be all things to all people. There are times that you just have to say to a customer, ‘That’s not our area of expertise.
We could try and do that for you, but I don’t think you’re best served by having us do it, and I don’t think we’re best served at trying to do that.’
It’s hard to say that the first time because you want to solve their business problems. But if you do something that’s not in your core areas of expertise, you run the risk of damaging that reputation that you’ve built with them.
We all know about how many good experiences you have to provide to overcome the one bad one. Do you really want to knowingly walk into a bad experience?
If it’s a partnership, it may, in some ways, enhance your credibility. When the next project comes up, instead of the customer saying, ‘I’m not going to talk to those guys.
They said no last time,’ you could end up in a position where they come to you first no matter what because they want to kick it around with you. To get to that level of relationship with a customer, that’s really what it’s all about.
HOW TO REACH: SofTechnics Inc., (330) 665-1698 or www.softechnics.com
While nearly 30 acquisitions in the last eight years have made MarineMax the largest boating retailer in the country, McGill knows he can’t rely on acquisitions alone to succeed. He has to offer something different something better than the competition to both his customers and to his employees.
“The people are the most important part of it, because that’s the business we’re really in,” says McGill, chairman, president and CEO. “By investing in our team ... and enhancing our customers’ experience, we will build upon the solid foundation we have constructed over the past several years.”
McGill and the company’s leadership have worked hard to build a customer-centric culture and hire top performers at MarineMax’s 85 locations in 21 states. These are things he considers critical to the company’s overall growth strategy of increasing same-store sales and completing successful acquisitions.
McGill’s focus on people has enabled the company to grow revenue from $291 million in 1998, when the company was born out of a merger of six marine retailers, to $947 million in 2005.
Anchoring on people
Because the customer experience is so fundamental to the company’s growth strategy, MarineMax is very focused on the type of people it hires. To get good people who are well-suited for their positions, McGill uses personality profiling and a process called Topgrading.
Developed by management psychologist and consultant Brad Smart, Topgrading is an interviewing and evaluation process meant to ensure a company is hiring what Smart calls “A-players.” A-players are those in the top 10 percent of available talent for a given position. The process not only seeks to hire great people but to make sure that they are in the position best suited for their skill set and personality.
By putting job candidates through a chronological, in-depth, structured interview often lasting a few hours Topgrading seeks to get past the faade that people often present on their resumes and during an initial interview.
“It’s an interviewing process where you can discover the kinks in the armor,” says McGill. “You drill down on the things that you discover to make sure you have an A-player.”
Although the process requires a significant time investment from MarineMax’s leadership, McGill says the end results are worth the effort.
“Nothing is more expensive than making that bad hire or having someone in the wrong position,” says McGill. “Our managers, they probably spend a little more than a third of their time involved in making sure that we have the right people in the right position, because we’re in the people business.”
MarineMax implemented the process a few years ago and has since brought the number of people in the company who are A-players or have A-potential to above 90 percent.
The process has been applied to most of MarineMax’s current employees, including McGill and his senior executives.
“It has to start from the top,” says McGill. “That’s where the word [Topgrading] comes from. Like any culture that you have in a company, it must begin with myself and all of our senior team.”
By assessing the value of his current employees, McGill can target individuals who have potential but aren’t quite A-players and work with them to bring them up to par. Those who don’t progress to A-player status after extensive coaching and development usually quit, and in a few cases, have been fired.
The last part of cultivating a high-quality employee base involves a developmental plan and career path for all employees. Employees especially store managers are measured against certain goals and are held accountable for their performance. Executives are constantly looking at consolidated reports that compare all its stores across the country.
“We’re continually looking at the numbers,” says McGill. “So we’ve got them all focused on how to do it better and how to keep growing. About once a quarter, we sit down and say, ‘OK, here was the plan. Are you on track?’ Pretty soon, if you keep getting, ‘No, not on track. No, not on track,’ then they need to be redeployed.”
Redeployment doesn’t always mean out of the company sometimes it just means shifting job duties to better match someone’s skills set.
Wind in their sails
At MarineMax, it’s not enough just to get good people in the door. Whether employees were already with MarineMax or were part of an acquisition, McGill empowers them and helps them do their jobs better.
Although the company uses traditional training methods such as videos and online courses through MarineMax University and MarineMax Online, McGill believes it’s important to also provide people with training that will instill in them a passion for what they are doing.
“If you’re passionate about what you’re doing, that’s probably the biggest ingredient that leads toward success than any other single thing,” says McGill. “You’ve got to have team members that believe in what you’re doing and understand this thing called boating and really have a passion for it. There’s no substitute for that. Because guess what? Our customers pick up on it immediately.”
One way McGill instills that enthusiasm is by sending employees on “Passion Days.”
“Passion Days were created to get our sales team and managers ... learning about the boats, navigation and the whole experience of boating to better understand and relate to the needs of our customers,” says McGill. “Usually they are three days long. We supply the sheets, pillows, food, fuel and location, and team members get (our employees) learning by doing. A big benefit is also derived by involvement of the manufacturers to assist in learning the boats or yachts.”
This intimate knowledge is critical if employees are going to relate to customers. McGill makes the point that a customer probably wouldn’t buy a motorcycle from a Harley-Davidson sales employee who has never ridden a motorcycle. Likewise, people aren’t going to buy a boat or yacht from someone who isn’t well-educated and excited about the product.
McGill’s philosophy is that MarineMax can’t just sell boats; it has to sell a boating lifestyle. And to do that, it needs to deliver an outstanding sales experience and continue to connect with customers even after a boat has left the showroom.
McGill recognizes that buying a boat can be intimidating, so he has built a business model focused on removing obstacles for customers and that maximizes the enjoyment of owning a boat.
For starters, purchase deliveries take place on the water, where customers are assisted by certified captains. MarineMax encourages the entire family to be present so they can also receive hands-on instruction in the operation of the new boat. Customers can also take part in training and classes throughout the year.
“We focus on what does this thing called boating do ... not only from an individual standpoint but also for the entire family,” says McGill
For example, MarineMax’s “Women on Water” and “Kids in Boating” educational classes help improve customers’ skill and confidence.
MarineMax has developed several events that allow its customers to interact with one another, as well. The hope is that these events will further stimulate people’s interest in boating, which may lead to additional investments in their boat and/or future purchases from MarineMax. One such example is the company’s “Docktail” parties, where past buyers socialize over cocktails and drinks at a local marina.
“The Docktail parties, as well as all our events with customers, create an atmosphere where customers can make new friends by having a mutual interest in the lifestyle of boating,” says McGill.
The company also organizes some 300 armada-style excursions a year, guiding current and prospective owners out for one-day to weeklong events from Chesapeake Bay to Catalina Island to the Bahamas and everywhere in between.
The trips help new owners gain boating confidence and provide opportunities to showcase larger boats for customers looking to upgrade.
It’s another way to build loyalty with the customers, as well as provide some subliminal marketing.
“Our brand is the experience our customers receive,” says McGill. “Every interaction is an opportunity for our team members to build the relationship and our brand.”
Building that relationship is important because MarineMax’s primary business comes from repeat sales and word-of-mouth referrals from families who have enjoyed their experience with MarineMax.
McGill also wants to create a better experience for customers and employees by maintaining an entrepreneurial spirit throughout all of MarineMax’s locations.
He knows that while things such as stock options and stock purchase programs are helpful, they alone aren’t enough to maintain that spirit of ownership, which he believes drives people to work harder.
He found the solution when he stopped to think about how he spent his time as the owner of Gulfwind Marina, one of the original merging companies that formed MarineMax. Most of his day was spent talking about financial issues, dealing with floor plan concerns, handling taxes and insurance, and doing other time-consuming and tiresome duties. But those things weren’t really conducive to being an entrepreneur.
“Those are the things that I did, but there were things that I could do better,” says McGill. “The things that I really enjoyed doing were dealing with our team members and dealing with the public.”
So instead of creating the usual corporate headquarters, McGill created Team Support. AS its name implies, these corporate offices support the field by managing the tedious day-to-day tasks that can detract managers from what McGill considers to be their most important job dealing with people.
Team Support manages everything from human resources and marketing to computer systems and IT issues. It is responsible for most accounting and finance tasks and even monitors inventory and orders product. This allows managers to focus all their efforts on motivating staff and satisfying customers.
There’s no disputing that MarineMax’s systems are working. McGill credits the company’s focus on people for same-store sales that grew 21 percent from 2003 to 2004, and grew another 23 percent from 2004 to 2005.
“Our strategies are pretty basic,” says McGill. “It takes the right people. We really try to instill in our team that we ... need to be passionate.
“It’s a business that we’re going to continue to keep making better, not just through acquisitions, but also through internal growth. We’ll grow this thing to $2 [billion] and $3 billion in size in the not too distant future.”
HOW TO REACH: MarineMax Inc., www.marinemax.com