Ira Sharfin had thought Indianapolis would be a great market for his company, Continental Office Environments, an office interior and furniture business. The company already had offices in Columbus, Toledo and Pittsburgh, and it made sense regionally to be in Indiana.
But after some years of trying to operate the branch location, including through the weak economy, the numbers just weren’t there. There also was a problem in that Continental Office Environments and a competitor were both selling the same high-end furniture brand. Continental wanted the exclusive right to sell the furniture.
The decision was about to be made to exit the Indianapolis market and find another way to grow profitably.
“We suffered from not being able to drive enough volume,” Sharfin says. “From the Indianapolis standpoint, we just couldn’t get enough scale.”
Contrary to conventional wisdom, the plan was to grow the company ― by closing the store, which was sold at the end of 2010.
“It turned out that in order for us to grow in other areas, we just couldn’t be all things to everybody,” Sharfin says. “The effort that it would require to get the business to the size and scale that we wanted wouldn’t allow us to invest and grow other areas.”
By closing the store and growing the company in other areas (Continental’s flooring business grew about 400 percent in a year and a half, with 30 new employees hired), the numbers were much better overall. The revenue loss from the Indianapolis market has been replaced by the growth in other areas.
“We are still growing, not for growth’s sake but because there is demand out there, because we’ve got some pretty strong capabilities,” he says.
Sharfin, who had a 17-year business consulting career before becoming CEO of Continental, knew that his task was to look at the overall revenue targets and at the bottom line to see what the best route was.
Here’s how Sharfin found the solution to his predicament, made it happen and how the $120 million company is realizing the rewards.
Make the decision
Closing an office so that a company may focus its energy elsewhere is not as simple as it sounds. Leaving a market means a CEO must check his or her ego and pride at the door. As much as you want something to work, especially with all the time and effort you put into it, sometimes it’s just not the right fit. Every so often you have to prune to grow.
Once Sharfin decided this was the right direction for the long term, he had to rein in any lamentations for leaving, and start the communication process.
“I have no regrets of being in Indianapolis, because I think you learn from those experiences, and I met a lot of great people, but it just didn’t fit for us,” he says.
“You will never want to impact people’s lives like when you close a store. It’s tough when you are sitting at the top ― and you really are trying to make something work ― to look in the mirror and say, ‘This just isn’t the best fit for us. We are really taking time and effort away and focus from other things that would drive profitable growth, which would help us further our strategic goals.’
“As a business leader, you constantly have to ask yourself the questions: Are these the right markets for me? Are these the right products? The right services? Should I be investing more in other areas?
The more the situation was analyzed, the more the challenges arose.
“It’s very difficult sometimes to pare down,” he says. “I think it’s easier to expand, grow and add, but it’s much harder to realize, ‘Hey this just isn’t working for us.’”
As far as options, Sharfin started with the obvious ones that would allow the company to grow profitably.
“You want to grow financially stable,” Sharfin says. “It allows you to invest and do things in the community and do things for your associates. It’s the bottom line that you want to track ― monthly, quarterly ― your top line and what your order entry numbers look like.”
When you consider scale, you need to make a concerted effort to judge how long it would take to drive the volume needed in a market to put you on solid footing.
“It may take you too long to become large enough to really drive adequate volume, and you may think you are either going to invest for the next few years and make a commitment or you could exit now and focus on other areas that you thought would have a greater return,” Sharfin says.
There are few, if any, instances when closing a store or location can be decided and carried out overnight. Rather, it may involve discussions and planning sessions taking up to a year or more.
“About a year before we got out of the market in Indianapolis, we had the sense among my executive team that we really should look at options for exiting, because the store was consuming resources and attention, and we probably weren’t going to get the same return as if we focused on the other three markets,” Sharfin says.
“The first approach is to vet your decision quite a bit,” he says. “Don’t use only your executive team; use your managers as well. Ask for their input and engage them ― which I think certainly helps. When you engage people, and the more that you can share without getting into all the details, it’s all the better.”
Sweat the fine points
Communication is very critical at this point. Spending any time on the “if onlys” doesn’t gain support from employees who may fear for their jobs. You should realize that at this difficult point, your decision may not make new friends with anybody.
“You know some employees wouldn’t be offered a job if another dealer acquired your business,” Sharfin says. “I always believe you should be as open as you can with employees whether it’s good news or bad news.
“You tell your company that you are going to invest in areas where you can grow and be profitable and, occasionally, you are going to have to make decisions that may be less popular but they are for the good of the company,” he says.
People need to have a clear sense of the direction in which the company is going. Think externally as well as internally.
“Some manufacturers may ask questions, but you may not have any clients concerned about the strategy where you are going,” he says. “However, you will get questions from your people, and without sharing details or confidential information, tell them that part of your plan was to grow where you were strong and to continue to expand in areas you were very good at.”
Once employees understand the decision, questions should die down pretty quickly. If you explain your reasoning for the change, it will help keep open the lines of communication as well as trust in your leadership.
“Do it through face-to-face meetings saying that this is isolated to this market,” Sharfin says. “Tell them that you are doing fine in spite of the economy. You are meeting your overall company objectives and your financial targets, but you will be able to exceed those going forward by refocusing your efforts and closing the location.”
You have to cascade communication throughout the company and make sure people are grounded in the company’s vision and strategy.
Tell them this is actually going to help you focus on areas that all employees are involved in, and depending on the size of the company, you will have more attention to focus on those groups of people and of those businesses if you’re not distracted trying to grow or fix another part of your business.
“Obviously, you see it in Fortune 500 companies all the time where the CEOs communicate that they are exiting businesses because it’s no longer strategic or that they can realize a financial gain by reinvesting,” he says. “People still need to hear from you that everything is fine and that reiterates your strategy.”
What may speak loudest is your decision to hire people at your other locations ― in order to grow.
“Any fears that employees had will lessen as employees see new people coming in to bring in new business,” he says. “They will be seeing the physical results of the things that they had been told.
“As you grow your business, you may add more sales and business development people and others,” Sharfin says. “That is the way that people will really get it ― ‘Oh, now I understand. They are really serious about growing our business in expanding the areas where we are already strong.’”
After Sharfin decided that keeping the status quo wasn’t the most viable solution, he realized he was learning two lessons.
“One lesson is to know your strengths, and if your gut is telling you that something may not be good in the long term, it probably isn’t,” he says. “But the biggest lesson is, don’t ever rule out any potential business partners. You might never think that a competitor would strike a deal with you for your business.
“We spent about a year talking back and forth with our competitors, and I really grew to like them,” he says. “We were able to work a deal, they absorbed a bunch of our folks and I think it was a win-win. I still talk to those guys today.”
Start to see the rewards
If you know where your company is strong, a large part of your strategy should be to grow in existing geography and go deeper with the clients that you already serve. Grow some different services and capabilities in the markets that you are in.
“Try to leverage existing relationships and what additional services and products you can deliver to the current client base,” Sharfin says. “I learned early in my career the best future customer is the customer you already have. You always want to be as relevant as you can and not pitch everything.
“There are a lot of different areas that you can kick around with their management team or your leadership team ― things that you could be doing for clients that you are not even doing yet.”
By investing in your new and existing employees so they are trained in the new areas of business, it will give you the best chance to achieve profitable growth. It’s also time to re-emphasize that an attitude of grace goes far.
“Tell your salespeople, and believe this even when you lose a sale, you want to win graciously and lose graciously,” Sharfin says. “If a client decides not to select you, say, ‘We respect your decision; we are disappointed. Keep us in mind. Is it OK if we continue to call on you from time to time, or if we have some cool ideas for cool new products, can we share those with you?’ Always take the high road because you never know what could happen.”
If you communicate well with employees and customers, it can’t help but see you across the finish line where employee buy-in is the prize.
“I think buy-in is critical,” he says. “I’m not a big believer in consensus. I think you vet issues, you get people’s opinions and ideas, you get general agreement, you make a decision, and you move on. If you try to get consensus, it takes you forever. You may not have everybody agree, but if you explain why we’re doing it, why you made a specific decision, I think you do get that buy-in.
“It’s hard to grow and really be successful long-term if you don’t have buy-in. I think you can fake it, and you can get through a year or two, but at the end of the day, especially when you have a challenging economy, if you don’t have buy-in, you’ve really got your work cut out for you.”
And with that commitment and a plan to expand, you are in line to focus the company’s energy on its strengths and grow.
“It actually pays off,” Sharfin says. “It’s great when a plan comes together.”
How to reach: Continental Office Environments, (614) 262-5010 or www.continentaloffice.com
The Sharfin file
Born: I grew up in Columbus, but I was born in Brooklyn, N.Y. I only lived there a few months, but I always joke with people if they give me a hard time, I say, ‘Listen. Don’t mess with me. I’m from Brooklyn.’ The people who know me say, ‘Yeah, but you were in diapers when you left.’
Education: The University of Michigan, so I am very popular in Columbus. I have an industrial engineering degree from there.
What was your first job?
My first job was working for my dad’s construction company when I was 14. I was a construction laborer, really a go-fer. They didn’t cut me any slack. They worked me, and in looking back, I appreciated it because it was hard work. You know, hot summer days in August working on the roof of a new building. You would bake, and these guys had me running for tools and parts, lunch, and I learned a lot about working hard. It was a good place to start, and I made a lot of mistakes. They would send me for 10-penny nails, and I would come back with 12-penny. I definitely got a workout.
What was the best business advice ever given you?
Don’t argue over nickels. I learned this early in my career. Be fair when you are doing deals, don’t try to take advantage of people because it always catches up with you. I’ve always tried to live by that. It was from two people: my father, and Frank Kass, who is a business partner of mine. Frank always uses that statement as well. Frank over the years has been a mentor, and he’s reminded me of that.
Who do you admire in business?
I would probably say Howard Schultz. I have never met him; he’s the CEO of Starbucks. What he did was he created an unbelievable brand name and a brand where people have an emotional attachment. I really admire that. I am not a coffee drinker, but people tend to feel good when they think about Starbucks, or see the logo. One of the reasons I admire him is that a few years back, he shut down all the Starbucks stores saying, “We’ve gotten away from our quality and our roots, and we need to retrain our people on making the perfect espresso.” He had a lot of critics. He shut down stores. And I think they benefited from that.
What’s your definition of business success?
I really learned a lot over the years from learning through mistakes and having a company where people truly buy into the vision. I think when you are viewed by your customers as a valuable partner, that’s the definition of success, being able to solve their complex problems, and I think also giving back to the community. I would be remiss in saying driving profitable growth. Not being profitable, but continuing to drive profitable growth, whether it’s for shareholders, whether it’s being able to provide a home for a lot of associates. Also, that you can also give back to the community the more profitable you are. If it’s first and foremost about making money, then you lose sight of your people, of your customers and community. I think making money should be the lesser concern.