How John Heyman led Radiant Systems through the economic downturn Featured

8:00pm EDT June 25, 2010

Autumn always marks a changing of seasons as leaves fall and animals begin to prepare for the winter ahead of them, but in 2008, autumn also marked a new season for John Heyman and his business, Radiant Systems Inc. (Nasdaq: RADS).

In 2008, things were rolling along quite well for Heyman at the company, which provides technology focused on the development, installation and delivery of solutions for managing site operations in the hospitality and retail industries.

The company was aggressively investing in its future and was experiencing financial successes, having grown from $172 million in revenue in 2005 to eventually hit $301.6 million in 2008, while also doubling net income in the same time period.

But in the autumn of that banner year, the economic environment shifted, and Heyman knew things were changing and he’d have to change, too, if Radiant was going to continue to do well.

“We had what felt like this incredibly bright future, but in the short term, given our customer base is primarily retailers and restaurateurs who were hit hard with the economic crisis, we were having to assess what that meant to our business, not over the long term but over the short term,” the CEO says. “Leading the company through that has been my biggest challenge.”

In order to make sure Radiant succeeded during the downturn, Heyman had to make some tough decisions, communicate with his employees and then continue focusing on his customers.

Make tough decisions

Knowing the season of change was upon him, Heyman had to first make some tough decisions about how to adapt the company.

He decided to invest in the bright future he believed the company had, but everyone had to sacrifice a little to do that — going without raises last year and giving up 401(k) matches. In addition, he had to slightly reduce the work force.

He also went to supply partners, who agreed to significant concessions in order to partner with Radiant. Despite all of these changes and concessions being made, he didn’t cut any initiatives that affected customers.

While these weren’t necessarily easy conclusions to come to, Heyman referred back to the vision, values and strategy that Radiant already had in place — to strive to be a remarkable company to work for, to buy from and to invest in — to guide him as he evaluated the possibilities.

“The first thing is you have to be able to face the facts and face the reality of your business,” he says.

“The facts and the analysis around it are really important. You have to understand the key trends both in terms of what your customers want, what their customers want, what are competitors doing. At the end of the day, the essence of strategy is for a company to understand what can they be best at in the world and why can they be best at it. What value are they going to bring to their customers, and can they bring that value to their customer base in a way that creates a sustainable model to add value to the customer, to channel partners, to their employees and to their shareholders? That’s all really easy to say, but that’s really hard to do on a sustainable basis.”

He also had to look at all of the possible scenarios.

“There’s the short-term scenario, which could be the next quarter,” he says. “There’s the medium-term scenario, which could be the next couple years, and then longer-term scenario, which could be three years out and longer. The two key elements there are the revenues of the business, which brings money in, and the cost of the business, where money goes out. The key for us was understanding in, with the analysis, what part of our revenues were at risk in what industry across what product lines, and we had to make certain assumptions about all the scenarios of uncertainty.”

Once you look at the scenarios, then you have to look at the cost-structure.

“From the cost-structure standpoint, that’s where you have to take a step back and say, ‘What things may impact the quarter or the year or the strategy?’ and that’s where the balancing is of different priorities,” Heyman says.

Lastly, you have to act fast. It took Heyman about 60 days to do all of this and make his decisions.

“What leaders don’t realize is that the people who work in their organizations, they want the tough decisions to be made and they want them to be put behind them and they want to move on from there. The biggest lesson I could say is act prudently but act fast — probably act more conservatively than you think you need to — and get those tough decisions behind you so you can build from there.

“Continuing to make incrementally tough decisions can create a loser mentality versus I think people can really rally behind a leader who is transparent, paints the vision, paints what needs to be done, is empathetic with people and makes sure that he or she knows the pain, and get those behind you. From there, you can go recreating a winning team,” he says. “It’s not unlike a football team that may be unsuccessful for a long period of time, and they realize they need to rebuild their team. They may have a tough year, but they start rebuilding quickly to get strong again whereas some teams don’t recognize the need to rebuild their organizations.”

Communicate

When the crisis began, Heyman remembers listening to Jack Welch speak.

“He mentioned there were three things that leaders had to do, and the last thing he said was, ‘Communicate, communicate, communicate,’” Heyman says. “I love being out in front of our employees, but this gave me — even though some of the messages were tough — a platform to get people focused on the long term. The long term for us was and is very bright. It gave me a platform to get out there and triple up on my communication.”

With about 1,300 people in the company, he started communicating the decisions that had been made and the reasons for those choices with the 90 people comprising his leadership team.

“The first thing was to get buy-in from our leadership team,” Heyman says. “They knew we were going through this decision process, and so we laid out the principles for why we made the decisions we made and positioned them as leaders to be able to explain it to their people.”

Then Heyman conducted a series of conference calls and visits to each office to explain the changes and the reasons behind them. He also took questions from them so they fully understood how the decisions fit into the long-term plan. After those communications, he did a number of town halls and followed up with more conference calls and smaller group meetings. He built on those by continuously talking about the state of the business so people felt like they had a transparent management team and an opportunity to dialogue.

“I forget who said it, but don’t let a crisis go to waste,” Heyman says. “It’s a great time — your people are very attentive. Their ears are clear, and they want to hear from you. They want to hear from you face to face, and they want to hear from you in conference calls, in small groups. Take every opportunity. They are looking to you for leadership in these times, and if you’re not providing it, you’re in a very dangerous spot as a leader.

“The messages aren’t always going to be positive ones. A lot of times, we, as leaders, like to get out there and we like to speak about all the positive things that are happening in our businesses. Every single company has problems, and in times like this, everybody has t

he same problem — it’s called the economy. The people are looking to their leaders for strength and what that instability means to them, and they want to be working for leaders who understand that and are planning accordingly, and they will be able to take comfort from that and be inspired by that and focus on the job at hand.”

But while he communicates all of these things, he doesn’t just trust that they understand it. Heyman conducts quarterly company surveys and measures what he calls employee engagement.

“In those surveys we test how well they feel like they understand [what] their role is inside the company and how it impacts our strategy and operations and things like customer satisfaction, and we report back on those things quarterly to them,” he says.

Radiant’s employee engagement scores hover in the 70 percent range, which is high, as the typical benchmark in the industry is in the 40 percent range.

“In our business, our people are our most important asset by far, so any organization that feels that way about their people really needs to not just have a strategy, but make sure that their people understand their strategy and then take it to the next level,” Heyman says. “ … Test it — you understand if you’re not doing a good job.”

Focus on customers

In addition to making tough decisions and communicating with employees, Heyman has also had to focus on his customers.

“The most important thing is to understand your customers’ wants and needs really well and not spend time as an organization on things that really don’t matter to your customer and to, alternatively, bring a tremendous amount of energy to the things that do matter to your customers and can, especially in these times, drive improved profitability and revenue growth in their businesses,” he says. “It always starts with products that can do those types of things.”

Then there’s a second component to that.

“Once you have the products, have a model that you can sell and deliver and service those products to the customers,” Heyman says. “Those two things have to work together. A really good product without a strategy around selling and servicing those products won’t work, and, alternatively, if you have the best sales and service organization in the world but you don’t have the right products, you don’t have much to sell. Those two models have to work in sync with each other.”

But to be able to do either of these components effectively, you have to build strong customer services and relationships. He can’t get to all 100,000 of his smaller customers, but he can work with Radiant’s largest customers, who spend millions of dollars with him and have a large vested interest in the company’s success. While his employees are interacting with them every day, and that’s important, the executives also make focused efforts to reach out to them every six months through face-to-face meetings.

“We go through a very rigorous process of evaluating how we’re doing in different areas,” Heyman says. “That drives a set of actions amongst the team in the six months. If we’re talking in January as executives and agreeing these five things are critical to be working on, you can believe that the rest of the organization is going to be working on those before our July 1 meeting. It’s just the blocking and tackling of implementation plans like that around every single customer.”

He says you have to ask a lot of questions to really get to the heart of your customers’ issues. Heyman and his team ask about 40 different questions around things like their products, product road map, software quality, hardware quality and services quality. But then there’s one final question.

“We ask one question at the end, and that is, ‘How likely are you to recommend Radiant to a friend or colleague, on a scale of 1 to 10,’” he says.

He’s not happy with any score below a 9, so it sets a very high bar for the company’s customer service standards. When he gets lower scores, that’s where the other 40 questions help Heyman and his team realize why the score isn’t higher and helps them identify ways and areas to improve.

While these sessions were in place before the downturn, they’ve been critical to helping customers during the downturn, as well.

For example, many restaurants and retailers — Radiant’s primary customers — said they face issues of theft, so Radiant has focused on technologies to prevent theft and help them keep dollars inside their stores to increase profitability. They did similar things with helping them reduce costs and waste. And helping them earn more money makes them give a higher satisfaction score.

By focusing on his customers as well as making the tough decisions and communicating with employees, Heyman has successfully moved the company through the downturn. While revenue did drop slightly — from $301.6 million in 2008 to $287.5 million in 2009 — his 1,300 employees have rallied together to make the company stronger, and he foresees a bright 2010 and beyond.

“Our products are stronger, our customer satisfaction got stronger, we’re able to do raises, we’re making plans now to return the 401(k) match, and the product staple is super strong in terms of our ability now to add even more value to our customers,” Heyman says. “People now feel like the sacrifice was worth it and they’re playing on a winning team, and we’re now even better poised to capture the opportunities that were part of the company when the crisis began.”

How to reach: Radiant Systems Inc., (877) 794-7237 or www.radiantsystems.com