Four years ago, PBD Worldwide was on a roll, tearing through its eighth consecutive year of hand-over-fist growth. Then, in the second half of 2008, a hard one-two combination knocked down the Atlanta-based storage and distribution company.
The first blow that staggered PBD was the recession. The broad downturn rocked all the market sectors in which the company does business, forcing customers of all stripes to pull on their reins and cut their budgets.
Second, and more ominously, PBD’s core business — distributing books and other printed educational material — began to shrink noticeably. Customers that had been dipping their toe into digital media started jumping in with both feet. The shift cut into PBD’s core revenue dramatically.
“In 2008, we had our best year ever,” says Scott Dockter, president and CEO. “We’d had eight straight years of double-digit growth. A phenomenal amount of new clients had come on board. Our Chicago distribution center had opened the year before, and it was growing fast. We had a lot of good things going on.”
PBD’s leaders were aware that the print-based book business’s best days were behind it and that digital media was the wave of the future. But they weren’t as prepared as they wish they’d been for the speed and impact with which that wave would hit.
“The thing that had been lurking before the economy took its turn was that our company was very dependent on books — in particular educational material — to achieve that growth,” Dockter says. “There were a couple of groups who were starting to talk about moving to a digital opportunity, and they were looking to change their program.”
PBD had originally stood for Professional Book Distributors. The company changed the name in the late ’90s because it was starting to diversify its product.
“But we hadn’t really diversified all that much,” Dockter says. “Then, in late 2008, we started to see our core business effectively disappear due to some changes some of our clients were making in their business models.”
Those changes involved a couple of shifts that were happening simultaneously: Schools were buying fewer books, and some of PBD’s major clients were being acquired by companies with new and different ways of looking at the business.
PBD had a division, the Georgia Schoolbook Depository, which shipped books to schools mainly in the state of Georgia for grades K through 12.
“We also had a nice contract going with Harcourt — we were doing all their distribution throughout the Southeast,” Dockter says. “Then a couple of things happened. No. 1, Harcourt was purchased by Houghton Mifflin, and No. 2, schools quit buying books. Their budgets effectively changed overnight. A lot of this was economy-driven.”
Suddenly, PBD was facing some core changes that, while it had been aware they were coming, it was not fully prepared.
“Frankly, when you’re going through a long period of double-digit growth, you think you’ve got it all figured out, and you don’t worry so much about what may be coming,” he says.
The long string of robust growth turned to double-digit contraction in the blink of an eye. Between 2008 and 2009, PBD’s revenue dropped 10 percent. It was time for the company to get serious about diversifying its business base.
Broaden the base
By 2008, PBD had built itself into a $50 million-a-year business with five distribution centers around the country. At its peak, the company employed more than 500 people. PBD attained this growth mainly by distributing books and other printed material using a traditional distribution model: pick, pack and ship.
But with the sharp business downturn that PBD experienced between 2008 and 2009, Dockter and his leadership team realized that the company needed to branch into new areas to broaden its base — to put its eggs into more baskets so it wouldn’t be as vulnerable to market downturns in the future.
After looking at what they do well, Dockter and his team talked about applying those revelations to other related businesses.
“We said, ‘We’re good at inventorying items. We’re good at taking orders. We’re good at building e-commerce. We’re good at integrating all of that. So what else can we distribute?’” he says. “It sounds simple, but when you’ve been doing books for 30-plus years, you’re pretty much siloed in. Prospects are out there thinking, ‘Well, they’re really good at book distribution, but I can’t see my product in there.’”
One of the first areas that PBD expanded into was distributing protective cases for handheld electronic devices.
“We got a new client that was really growing their business,” Dockter says. “They had a product that was related to iPhones and BlackBerrys. That was a great diversification for us. It gave us a chance to show outside groups that we could distribute practically anything — anything that could go in a box — that became our mantra.”
PBD’s new philosophy also encompassed a move into an area that — in light of the overall trend of print dying off and digital media booming — seems counterintuitive: printing and mailing acknowledgments of donations for nonprofit organizations.
“We have a lot of not-for-profit clients, and when they receive donations, the IRS requires that they send out a printed acknowledgment,” Dockter says. “There were a lot of printing companies going out of business, so we saw this as an opportunity. It was a chance for us to basically extend our markets within our current client base.”
It was a wise move. PBD’s printing and mailing service, bolstered by the 2012 acquisition of a similar company that was looking to get out of the business, has grown exponentially since PBD began offering the service in 2008.
“It was a natural fit for us,” Dockter says. “We just had to get the right equipment and the right people in place that knew what they were doing. And lo and behold, [last] year, we had a company that went out of business that we absorbed. So now the revenue we’re getting from that part of our business is 300 times what it was in ’08-’09 when we started it.”
PBD has diversified into other areas as well. Among the operations that are bringing in substantial new revenue are electronic distribution, consumer products, gift catalog items and logo promotional items, such as clothing and pins to be distributed at conferences.
“We’re excited about all of these new lines, because they all have a tremendous amount of capacity to grow,” Dockter says. “Plus it gives us more sales points, both within the current organizations that we work with and with prospects.”
As the economy has fitfully rebounded from the recession, all of this diversification and spreading into new markets has begun to pay off for PBD, according to Dockter.
“The economy has gotten a little bit better, and as a result, some of our sales are coming back naturally,” he says. “Our clients are putting more money into their marketing and into new product.
“These newer services we’ve expanded into have really helped us to right our revenue ship. We now have a better array of services to offer and a wider range of products. That’s allowing us to win new business at a better clip. And it’s helping offset the decline in what was our traditional core business — pick, pack and ship fulfillment.”
Dockter says he’s learned a lot from guiding PBD through this ordeal, and he and the company will be better prepared the next time they face a similar set of circumstances.
“One of the key things I learned, from a leadership standpoint, is that you can’t let yourself get too comfortable when things are going well,” he says. “You have to always be challenging yourself and your team with some what-ifs.
“When we were flying high, we weren’t challenging ourselves as hard, because we felt great about what we were doing. But there were some signs that we missed. So even when things are going well, you have to make sure you’re challenging yourself on things that might not go well going forward. Sometimes it’s hard to force yourself to think in that mode when you’re hitting on all cylinders.”
Dockter also says he believes that when PBD runs into a similar challenge in the future, he and his team will recognize the signs of impending change and react more quickly to counteract them.
“Of course, as a leader, you want to show confidence — you want to exude confidence — but you’ve got to be careful not to lose sight of the changes that can happen,” he says. “We knew certain things could happen, but we didn’t want to admit it while everything was going well.
“And, of course, the most important thing is when you do get to that place — when those changes are starting to happen — how do you react? You’ve got a couple different ways you can do that. I think we were slow. You’ve got to be fast. That doesn’t necessarily mean working harder. It means putting your strategy in place as quickly as possible, and then executing it, decisively.” ?
How to reach: PBD Worldwide, (770) 442-8633 or www.pbd.com
The Dockter File
President and CEO
Education: Bachelor’s degree in economics, University of Virginia
Looking back over your years in school, can you pinpoint a business leadership lesson you learned that you use today?
I played tennis at the University of Virginia. A big part of doing that was creating leadership within my team, especially in the small-team environment. And the work balance was important from a time-management standpoint.
What was first job, and what important business lessons did you learn from it?
I had two jobs that were tied together — delivering newspapers and cutting lawns. The premise was to be able to earn my own money that I could spend the way I wanted to, and to do it without anybody telling me what to do. I learned a lot about responsibility from doing this. And I learned that figuring out how to create an avenue to make money can be a lot of fun.
Do you have a main business philosophy that you use to guide you?
Communicate as often as possible in a face-to-face mode with both your clients and your employees. Our company has a no-email policy on Fridays. We’ve had it for six years. The idea is to communicate at the highest level and to build relationships in order to get things done. When you communicate in that mode, you tend to create partnerships and true teamwork. That’s something we feel strongly about.
What trait do you think is most important for an executive to have in order to be a successful leader?
You need to be trustworthy. Your customers need to trust you, and your employees need to trust you. It comes down to this: Do you look them straight in the eye? And do they look back at you straight in the eye? When you’re able to create that bond, that means you’re truly a trusted partner and leader.
As the U.S. housing bubble started to burst in late 2006, Bill Darling monitored the situation from his home base in Dallas with deep concern. Homebuilding markets were collapsing around the country — first in California, then in the Southwest, then in several other economically vulnerable pockets around the United States.
“We first heard about it happening out on the West Coast in 2006,” says Darling, chairman and CEO of Darling Homes, which today employs 190 and generates $176 million in annual revenue. “Then we heard about it in other markets. Our own sales didn’t really start to slow until six to nine months after we’d first started hearing about it around the rest of the country.”
In fact, says Darling as he recounts those dark days, the “slowing” of sales that Darling Homes experienced was actually more like a dead stop for his company, which builds homes in the Dallas-Fort Worth and Houston areas.
“It was like the faucet shut off in our sales offices,” Darling says. “Sales stopped in Dallas first, and then about 90 days later in Houston. Obviously, we weren’t totally shocked by these developments because we’d been seeing this happening elsewhere in the country. But we didn’t have any idea how severe it would be until ’08, when the larger financial crisis started impacting the whole economy. That’s when we started to realize we were in for something maybe a lot deeper than a typical housing downturn.”
There were no maybes about it; it would go a lot deeper indeed.
“Our main metric that we use is housing starts,” says Darling, who co-founded the company with his brothers Bob and Steve in 1987. “In our markets, we determined that by 2008 both of them were off 75 percent. Obviously, we had a huge challenge on our hands. We had to figure out how to guide a 21-year-old company with responsibilities for our 250 associates’ families through the most difficult housing market in more than 60 years. From the CEO’s standpoint, I had to figure out, first, how do we survive this? And then, eventually, as we began to see that we actually were going to survive, how do we start thriving again?”
As Darling Homes’ sales started plummeting in 2007, the company’s leadership team pulled itself together to decide how to address the unfolding crisis. They quickly determined that it would be critical for them to be realistic in their assessment of the situation and forthright and transparent in communicating with their staff about the gravity of the problem — and how they planned to get the company through it.
“One of the most important things was that, as a CEO, I knew this was significant, and it was going to be deeper than other downturns in the past,” Darling says. “So it was going to be very important for me and the rest of our management team to be realistic, not just your typical optimistic executive management team.”
Darling and his team put together a multipart plan based on a series of benchmarks, with actions to take depending on how deep the company’s sales plunged.
“We had action plans outlined to execute if we saw our results tick to certain levels,” he says. “The way it worked was if we saw sales fall off and margins start to get eroded, and we found ourselves missing budget by a certain percentage, then we would implement the first part of the plan, which would consist of various cost-cutting measures. We didn’t go super-deep with these benchmarks at first because we didn’t know how deep the downturn was going to get.”
Ultimately, Darling Homes’ leaders found it necessary to create a series of action plans for four declining benchmark levels — four levels of “Defcon,” as the company referred to them internally.
“As the market took us to each of these levels, we executed some operational types of restraints to measure up with those kinds of results,” Darling says. “Those restraints would be, first of all, cost-cutting measures internally — operational costs, belt tightening. Then, after that, as it got deeper, it went to cutting benefits, unfortunately. As it got even deeper, we had to get into some personnel issues.
“And it even went as far as the remaining employees having to take a cut in salary for a period of time.
“Here we were, from one end of this downturn to the other. We started with 240 employees, and we eventually went down to 140. And those that were left were making less money with fewer benefits.”
Retain key people
Two other crucial elements of Darling Homes’ survival-and-turnaround plan were clear communication, both internal and external, and keeping the company’s management team intact.
“A real key in the whole downsizing plan was communication,” Darling says. “Communication internally, communication with our vendors, communication with our developer friends and partners. There was no way we could communicate too often about what was going on.
“Our executive management team and leadership team needed to do the same with the rest of the Darling Homes team. We did some all-hands-on-deck conference calls for the bigger issues and written communication for some of the updates in between those bigger calls. On a regular basis, we kept the executive management and the leadership teams on their toes to offer guidance to any of their associates who wanted to know what was going on.”
Retaining key management personnel was important because Darling Homes’ executives felt it would make it easier for the company to spring back quickly once its markets began to recover.
“We wanted to make sure to keep our management team in place because we knew at some point in time the markets would turn around for us,” Darling says. “Going into this, we knew there were going to be some companies that weren’t going to survive this downturn, but we felt that we could, and if we did, we wanted to be able take advantage of our two platforms in Dallas and Houston.”
The management team’s clear, forthright communication with staff benefited Darling Homes in several ways.
“As some people left that had been with the company for a long time, as difficult as that was, we got responses from them saying that they appreciated the openness and the caring attitude and that we kept them as informed as possible,” Darling says. “And they said they’d be ready to come back when things turned around. And it was certainly appreciated by the rest of the management team, because they were well-prepared and knew how to address their associates’ questions.”
As a result, some employees indeed have returned as Darling Homes’ fortunes have begun to turn back around.
“We’ve started hiring again this last 12 months, and a good percentage of people have come back,” Darling says. “We have a special culture at Darling Homes. It was special going into the downturn, and it’s only been strengthened during the downturn because of the way we handled it, particularly being upfront with our communication. So not only have we attracted past employees back, we’ve also maintained our subcontractor base, and we’ve maintained our developer relationships and taken those to another level.”
Keep it real
Darling says if he were to offer a few key pieces of advice to CEOs facing a similar challenge, they would be to avoid excessive optimism, to see and call things exactly as they are, to create a solid, well-thought-out plan, to follow through with the plan, and to communicate the plan clearly and openly to everyone involved.
“Most of us CEOs are very optimistic people,” Darling says. “We always think that things are going to get better. But you’ve got to be realistic first and optimistic second. Also, it would be a mistake to just take the problem into the boardroom and work it from there. If you do that, no matter what type of plan you come up with, you run the risk of coming across as secretive. You can scare people and lose their confidence by not being upfront and communicative with your operating team. There’s a real danger there.”
But the plan itself is the most important element, according to Darling.
“The benchmark plan we came up with was invaluable to us,” he says. “It’s a document that we put together as an executive team. And we executed it step by step as we hit each benchmark. If the results were there, we implemented the part of the plan related to it. You’ve got to stay true to your plan and make the difficult decisions as they become necessary. Be realistic, put a plan in place, stay true to the plan and communicate it clearly.”
Darling Homes’ executives knew they had turned the corner about a year ago when credit facilities came back into play and banks started lending them money again, enabling them to start building and hiring again.
“At that point, we knew the worst was over for us and we could start planning our growth and take advantage of the platforms that we’d been able to enhance during the downturn,” Darling says. “We knew then that it was time to move from our heels back to our toes. We have a surplus of credit lines available to us now. They wouldn’t be here if we weren’t doing things right.” ?
How to reach: Darling Homes, (469) 252-2200 or www.darlinghomes.com
THE DARLING FILE
Chairman and CEO
Born: Tucson, Ariz.
Education: Bachelor’s degree in marketing, University of Arizona
Looking back over your years in school, what business leadership lessons did you learn while you were there?
I played baseball in college, and football, basketball and baseball in high school. I think I learned a lot about my leadership abilities through sports. I’ve always seen myself as a quarterback.
What was your first job, and what important business lessons did you learn from it?
My first job was as marketing director and promotion director of the Dallas Tornado soccer team in 1975. My first two bosses — in the Dallas Tornado job and in the real estate business right after that — were two of the best marketing people I’ve ever been around. I learned from them how important marketing and promoting your service is.
Do you have a business philosophy that you use to guide you?
Surround yourself with people smarter than yourself, and treat people the way you want to be treated. Those philosophies have built one of the finest cultures a company could have at Darling Homes today.
What trait do you think is most important for an executive to have in order to be a successful leader?
Optimism, because you go through goods times a lot more often than you go through downturns. Of course, if you just keep doing things the same way during downturns, you’re going to struggle. There has to be a balance on that optimism during difficult times.
How do you define success in business?
When a team comes together and executes a plan and grows as a team while the members grow as individuals at the same time.
What’s the best advice anyone ever gave you?
Keep your nose clean. You’ve got to be able to wake up every day and look at yourself in the mirror and feel good about yourself. That was from my dad.
About six years ago, Doug Dunn and some his peers at other bus dealerships around the country began to sense that their industry was undergoing a significant shift. So a group of them sat down to take stock and talk things over. They concluded that while their market was quickly maturing, their branch of it — the dealership sector — wasn’t keeping pace.
“I had gotten into this business back in the 1980s when it was just getting started,” says Dunn, CEO of Atlanta-based Alliance Bus Group, a company that today operates seven dealerships in the southern and eastern United States and generates annual revenue of $120 million. “Transportation needs were starting to explode in a lot of cities, and most people bought buses that were converted school buses or they just ran 15-passenger vans. Transit budgets were starting to really catch some wind, and the commercial needs around airports were exploding. It was a good business to be in.”
By 2007, however, the bus industry was starting to grow up. Most of it was, anyway.
“We started seeing some consolidation on the manufacturers’ part,” Dunn says. “And the customers started getting a lot more mature too. They started knowing a lot more about buses than they did before. As a dealership, you needed a lot of infrastructure to keep up with these changes.
“One of my favorite sayings has always been ‘Volume speaks volumes.’ You need a lot of volume and a lot of product to catch the attention of manufacturers, from the areas of support and pricing. It wasn’t easy operating as independent, single dealerships.”
It was time to get bigger or get out.
Unite the colonies
Dunn’s company at that time was simply called Bus Group. It operated dealerships in Atlanta, New Orleans and Jackson, Miss. Those dealers operated almost as if they were separate companies, with outdated software systems, too much overhead, inadequate service facilities and no centralization of business functions to achieve efficiencies.
Getting bigger wasn’t going to be easy. While several other dealers had shown an interest in joining forces with Bus Group, the company saw that it would need to integrate these outposts into a more smoothly functioning unit first.
“We began to see that we wanted to make the transformation from a locally owned and managed dealership into one more national in scope, with all of the benefits that come from that,” Dunn says. “The synergies would make a lot of sense: being able to consolidate inventories, to have better training programs for our salespeople, to achieve the economies of scale of insurance consolidation and things such as that. All of this made a lot of sense, so we decided we wanted to pursue it. But, first, we would have to lay the groundwork and get organized.”
The key elements to achieving this expansion plan were centralizing the company’s operations by creating a corporate office in Atlanta, investing in a dealer management software system, expanding and upgrading the dealerships’ service facilities, and then, after all of that groundwork was laid, leveraging buying power by expanding and acquiring new dealerships.
“We designated Atlanta to be the corporate office for functions such as accounting, finance analysis, HR and legal,” Dunn says. “We reached out and used some different sources to add an assistant controller, some other accounting people, an HR manager and some financial people to help us run the business as an ongoing, larger organization.
“Getting the right people on the bus — pardon the pun — was a major focus for us.”
The task of centralizing the company’s operations and making the outposts operate more uniformly forced Dunn to change his management style.
“This is one of the things that has been a challenge for me,” he says. “I had to almost completely change the way I operate. I had always been very hands-on with my dealerships: everything from parts inventory all the way up to dealing with the largest fleet customers. As you start getting larger, though, you need to start assembling a different kind of team.”
One of the toughest challenges Dunn faced was taking the dealer principals he had been working with — “the lone rangers,” as he calls them — and showing them how to work within the framework of a large corporate entity.
“It was a difficult transition, and it took time to get it working smoothly,” Dunn says. “To go from basically running your own shop for many years to becoming part of a team running an integrated auto distribution business in a more corporate environment, with all of the associated checks and balances in place, has been a challenge for all of us. But these guys have been wonderful to work with. All along, they’ve had the right attitude to make this happen. And I’m very proud of where we are right now.”
The dealer management software system proved to be a challenge to install and get running smoothly. The system, which centralizes all of Alliance Bus Group’s data and operations and is accessible 24/7 from any computer with Internet access, enables Alliance’s personnel to address customer service questions immediately with reference to any of the company’s departments.
“We launched the software system in 2010,” Dunn says. “It’s a complete dealership management system, similar to what automobile dealers use. It drives our entire process.”
The software system has a wealth of features. It has a contract manager for Alliance’s sales force. It interfaces with the company’s website so that as employees add and delete inventory items, the information is immediately uploaded to the site.
On the parts and service side, the system handles all of the company’s shop tickets and parts orders. It also manages Alliance’s service work orders and its accounting functions.
“One the best things about it is that it’s all in the cloud,” Dunn says. “The information is on the software company’s server, and we can connect to it through the Internet from anywhere. It has completely changed the way we do business.”
In the two years since Alliance centralized its corporate operations and installed the dealer management software, the company has acquired dealerships in Lewisville, Texas, Carlstadt, N.J., and Orlando, Fla. These acquisitions bring Alliance’s total number of business locations to seven.
Blending the new dealerships into Alliance’s corporate system, especially with regard to the dealer management software system, has been problematic, but it is growing less so as the company gets accustomed to the process.
“The integration of the new dealerships is getting less difficult as we do each one,” Dunn says. “With the first one, you know, you almost want to kill yourself, the second one, you just get real sick, and the third one, you sort of catch it in stride. That’s the way the process has gone for us.”
Dunn says conviction, clear communication and decisiveness have been keys to Alliance’s ability to successfully integrate the new dealerships into the company’s corporate structure.
“You can’t lose the faith,” he says. “It can be lonely at the top, and it’s easy to get discouraged, but I’ve learned that when you start feeling a little uncertain, you need to start communicating more. Get out and really research the situation, and then go at it with everything you’ve got.
“Gather as much data as possible, analyze it quickly, decide what’s important, follow up expeditiously, and then make the best decision you can. And once you make a decision, go for it. Don’t back off.”
That last point — not pulling back from decisions once they’re made — was especially important to Alliance as it moved through the process of acquiring the dealerships and assimilating those organizations into the company.
“If you make a decision and then you back off from it, everybody will start to question all your decisions,” Dunn says. “It can make it difficult to pursue an effective course going forward when people … you know, they may not necessarily lose confidence in you, but they may start to think you’re not as committed to something as you should be.”
With seven locations in six states spanning from Texas to New Jersey, Alliance Bus Group has expanded its reach from what was once a group of small, loosely connected “lone ranger” dealerships to a large regional bus distribution network. The greatest advantage Alliance has gained as a result of this expansion is its ability to offer more interesting and potentially lucrative opportunities to its employees.
“This is a different game now,” Dunn says. “I have the ability to take a good sales manager in Texas and promote him to be the general manager in New Orleans or Orlando. I’ve never had that opportunity before, and when you start talking about a company and the opportunities for people inside it, you know, that’s pretty special.
“As I’ve gotten older and seen things, what gives me the greatest pleasure is to see people that have come on board in the organization, worked hard and developed, and then benefited from it, for themselves and their families. That’s what gets me fired up most nowadays.” ?
How to reach: Alliance Bus Group Inc., (866) 287-4768 or www.alliancebusgroup.com
THE DUNN FILE
Chairman and CEO
Alliance Bus Group Inc.
Education: Mercer University, bachelor’s degree in political science; Vanderbilt University, MBA
What was your first job, and what business leadership lessons did you learn from it?
I was an intern for a natural gas company my second year at Vanderbilt, and the senior vice president made me an offer to stay and fill a hole, which was director of personnel for a 600-employee utility. One of the first things I had to do was negotiate a contract with a pipefitters’ union. So I went from the academic world down to the front line about as fast as you possibly could go. I got instant management experience, immediate personnel experience, and more legal stuff than I cared to know about. That worked out well for me. It was a great springboard into what I’ve done since.
Do you have a central business philosophy that you use to guide you?
I try to rally the troops constantly by staying in communication with them, and I strive for clarity to make sure people understand what I want. Also, I’ve always been a data hound. I try to stay on top of as much relevant data as I can get.
What trait do you think is most important for an executive to have in order to be a successful leader?
I think it’s perseverance. Staying with it; staying on top of the important things. Deciding what’s important and what’s not. You don’t want a dollar chasing a dime.
What’s the best advice anyone ever gave you?
That would be from my father, who has passed away. He was an executive for 48 years with Delta Airlines. His advice to me was, ‘Decide what you want to do, do what you like and never worry about the money, because it will always come.’ That has always worked for me.
Five years ago, Andres Ruzo was on the verge of pulling the plug on Link America Inc. The company, whose operations revolved around manufacturing and refurbishing telecommunications switching equipment, had fallen on hard times.
After riding the wave of the telecom boom in the late 1990s, Link America had been slammed by the dot-com crash in 2001 and had been on the decline since. Its revenue, which peaked at $12 million in 2001, had plunged to $3 million by 2007. Many manufacturers, unable to compete with China’s dirt-cheap wages, were moving their operations to the Far East.
Ruzo detected that trend gathering momentum and consequently was trying to transform Link America from a telecommunications equipment manufacturer to a provider of related services. But the plan wasn’t working well and time was running out.
“We were losing money, cutting costs, racking up debt,” says Ruzo, who started Link America as a one-man operation working out of his son’s bedroom in 1994. “The demand kept getting smaller because people were learning to dispose of equipment and replace it as opposed to repairing it or refurbishing it. Up until then, I had always thought repair was a recession-proof business. It turned out to be the opposite.”
Link America kept sinking, and Ruzo wondered how much further down rock bottom might be.
“It was painful,” he says. “I saw that we could no longer manufacture four lines of products and be successful. We couldn’t compete with companies in China paying workers $2 an hour when we have to pay $14 bucks an hour here. It’s impossible.
“So we went from four buildings down to one, and from 100 employees down to five. I even cut myself for six months without salary to keep the other four people working. I was just trying to stay in the game. That was 2007. I think we touched bottom there. I almost bankrupted the company.”
Turn the tide
At about that time, Link America won a contract to build five communications towers at a military base in El Paso. That tided the company over for a while as Ruzo looked for strategic partners to help him convert Link America from manufacturing to services.
Eventually he concluded that his plan to gradually convert the company’s operations from manufacturing to services wouldn’t work. Link America had to bite the bullet and plunge all the way into services, head-first.
“I started looking for an opportunity to sell all of our manufacturing and repair assets,” he says. “We had to jump all the way into the pool and swim — swim into services. After a while, we found a buyer. We sold our assets to a company called CTDI, and that company became our partner.”
CTDI not only bought all of Link America’s manufacturing assets, it also permitted Link America to leverage its balance sheet to obtain lines of credit to help it pursue its plan to become purely a service provider.
“CTDI came to the table and bought a piece of our company and bought in to our vision,” Ruzo says. “They gave us the funding necessary to do the turnaround, and they gave us the financial wherewithal and lines of credit so we could start doing large transactions and grow quickly.
“In reality, they saved us. It’s like building a 15-story building: We knew we had the footprint. We knew we had the design. But we needed someone to help us build the foundation, someone to say, ‘OK, I will fund the construction of the first floor. You do the rest.’ If we hadn’t found that, I wouldn’t be here.”
Ruzo’s vision included converting Link America into a service provider in two market segments related to its already-established expertise in manufacturing telecom equipment: No. 1, offering warehouse management solutions for large telecom carriers such as AT&T and Verizon, and No. 2, building wireless communication networks for public and private emergency service providers.
“The warehouse management solutions part of our business is basically logistics,” Ruzo says. “We support logistically the deployment of hundreds of networks nationwide for optical gear, and we also provide heating, rack and stack, and many other things. That’s one of the two main types of service we provide.
“The other type of service we provide is we build networks for first responders — police, fire, EMS. We build their networks, we provide their radio, we do the installations, we do the engineering, we do the provisioning of all the radios, and we do the support and maintenance.”
The conversion of Link America from a product-based company to a service-based one has worked remarkably well. Once the new model was in place, Link America started growing again immediately. Revenue bounced back from $3 million in 2007 to $12 million in 2008, then leaped forward to $40 million in 2009, $136 million in 2010 and $214 million last year.
“How do you know you’re doing well?” Ruzo says. “Well, I’ve always followed the money. You know you’re doing well when the money starts coming in. And that started for us in 2008. We started landing some contracts — some serious, sizable contracts.”
Among the earliest of those sizable contracts was a pact with a router company called Redback Networks, which has since been acquired by Ericsson. Other large clients quickly came on board, including Fujitsu, Ciena, Dallas Area Rapid Transit and Dallas County Community College. All along, keeping abreast of the latest technological trends has been a key element in Link America’s success.
“We were able to invest in a lot of technology to enable us to be profitable,” Ruzo says. “A large portion of our business is big-volume, low-margin, and what you have to do to be successful in that type of environment is you have to leverage technology in a big way.
“Technology is your enabler. We do thousands and thousands of shipments, and with those types of volumes, everything has to be digital. All of our invoicing, our receivables, our payables, our notifications — everything is electronic. We don’t do anything on paper. If we did, we would need 10 people just in accounts receivable to do invoicing. We have two.”
Link America is committed to keeping its operation lean and scaling up with as few newly hired employees as it can manage.
“We have systems such that, if we scale up on the back-office side, we don’t have to add much,” Ruzo says. “At one point, we added $10 million a month in sales, and we only added one person in accounting. Of course, we had to add a few more people to move the physical product, but we only added one in accounting. That’s crazy. That’s unheard of. And that’s exactly what I mean by leveraging technology.”
Ruzo attributes Link America’s success to its approach of forming strategic partnerships with its clients by showing them how to use cutting-edge technology to manage their inventories more efficiently and, in so doing, to become more profitable by increasing their sales, cutting their costs or both.
“A big part of it has to do with moving a lot of product using just-in-time inventory systems,” Ruzo says. “You have to move the stuff very quickly so that the carriers can order hundreds of thousands of products and you can drive costs out of their supply chain.
“The other part of that is showing them how to increase their sales incrementally. It’s about increasing incremental sales on the top line, and then driving costs of their operations by doing everything cheaper, faster and better. If we do one or both of those things, we increase their profit. And when you do that, you become not only a vendor, you become a strategic partner, because you’re bringing constant innovation to their processes.”
Faith — in the spiritual sense — has also played a major role in Link America’s turnaround, Ruzo says.
“My spiritual life has helped me,” he says. “If you want my secret recipe, it’s human effort and the grace of God working together. I try to be a spiritual person and to always strive to do the greater good — to help our community, to help other people, to treat the world good.
“Paul Coelho has a book called “The Alchemist.” In it, he says that if you always try to do good and to do the right things, the universe will conspire to help you, because the universe is always looking for those kinds of people and for the type of positive energy they’re putting out. When you do the right things, other things will start to flow for you. I believe that. I’ve seen it happen.”
Perseverance has been another key driver in Link America’s success.
“You have to persist to see things through,” Ruzo says. “There have been times when it has come to the point that if the door was shut, I would open a window. If the window was shut, I would go through the roof. If the roof was shut, I would dig a hole. That’s what it takes. You can’t give up. You have to be extremely persistent.”
Recognizing future trends and being willing to cut ties with one type of technology and move on to the next is essential, not just in the telecom business but in many other markets driven by technology.
“It’s good to be in love with your business, but don’t fall in love with the technology,” Ruzo says. “You have to constantly morph yourself and keep up with innovation and collaboration and value co-creation, and you have to always be ready to jump onto the next wave.
“Business comes in waves. You catch one and you ride it for a while, and then that wave starts going down and a new technology starts coming in. You have to constantly be on the lookout for what’s coming next so you can decide where to put your time and resources and when to staff up with the right people to stay successful.”
Courage and decisiveness are other key traits that have helped Ruzo shift Link America and drive it back into growth mode.
“Business changes constantly,” he says. “If you see that writing on the wall and you don’t act, you’re doomed to failure. You’re going to be a dinosaur. You have to keep a close eye on the situation, and when you see it’s time for change, act immediately. Make the decision, formulate a new strategy and implement it — now.
“The other thing is do not be afraid. Sometimes leaders are afraid to call it like it is and make hard decisions. You have to be decisive and make the right decisions ahead of time. Don’t assume things are going to get better. If you have to cut, cut. Don’t wait until the last minute. Don’t keep saying, ‘It’s going to get better,’ and then another month passes and another, and before you know it, you’ve racked up millions of dollars in debt. Take the pulse of your business monthly, weekly, daily. Be smart, be shrewd, be fast. Make strong decisions from the get-go.” <<
How to reach: Link America Inc., (972) 463-0050 or www.linkam.com
THE RUZO FILE
Link America Inc.
Born: Lima, Peru
Education: Bachelor’s degree in engineering, Texas A&M University
Looking back over your years in school, what important business leadership lessons did you learn?
The main thing I learned was that when you don’t have the answer to question, you have to have the discipline and the know-how to go find the right answer. That’s the key thing the university gave me: If you don’t have the answer, here’s how you go find it.
Do you have a central business philosophy that you use to guide you?
Basically, our tagline says that we are in the business of powering sustainable solutions through innovation, collaboration and value co-creation. Those are the three things that are very dear to us.
What trait do you think is the most important one for an executive to have in order to be a successful leader?
Laser focus and persistence. If you can be laser-focused and persistent, you’ll get there. Another important one, especially for entrepreneurs, is you have to be careful not to drink too much of your own Kool-Aid. I’ve had partners and have known people with companies that have grown incredibly, and they start thinking that they can do everything and be everything, and they don’t watch the ball, and eventually they lose their company. Entrepreneurs in particular have to watch out for this. You have to find people to challenge you, in terms of your beliefs and your vision. People that ground you. People that don’t think like you. It’s important to always have somebody who can help you keep your feet on the ground.
What’s the best advice anyone ever gave you?
Live in the present and do your best. Also, invest in yourself and invest in the things that you can control. Believe in yourself. That advice was given to me by a guy I knew when I was working in the real estate business many years ago.
For most of its first decade of its existence, Cbeyond Inc. was a growth machine, achieving double-digit revenue advancements year after year. But four years ago, the IT telecommunications firm’s growth engine was stalled by a double dose of bad news: the onset of the recession and an incursion by cable companies at the low end of Cbeyond’s market. This malignant combination began to smother Cbeyond’s year-over-year growth rate, which gradually fell into low single digits.
“Our customers are small businesses, and the recession was tough on them,” CEO Jim Geiger says. “Many of them went out of business. The incidence of financial default and bankruptcy was significant over the past several years.
“Also, a lot of these folks are Subchapter S corporations. Their income flows to them personally, so they’re very concerned about all the uncertainty and the issues surrounding their tax liabilities. All of these things that have become political fodder of late are very real around the kitchen tables of our customers.”
The emergence of cable companies as players in the market has exacerbated Cbeyond’s recession-fed slowdown.
“That’s the other aspect that has been difficult for us: the emergence of cable as a competitor,” Geiger says. “I hesitate to say ‘competitor’ because cable only competes with us at the lowest end of our market. But at that end of our market, they have been very effective and have caused us to react.”
Gradually, the twin challenge of the recession and the cable companies’ encroachment started sending trouble signals to Geiger and his leadership team.
“Our incidence of business failure in our base started increasing, and the cancellations due to financial duress in that time frame literally doubled,” Geiger says. “Our bad debt expense has increased. And while we still have a very small churn rate — in the neighborhood of 1.5 percent of our customers per month — it used to be only 1 percent. And just about all of that increase in churn has been because of increased business failures and business contractions.”
Alarmed by the slowdown in growth, Geiger and his leadership team started looking for ways to turn the trend around. And throughout the last two years, as a new technological opportunity began to materialize, they shifted their company’s business strategy to capitalize on it.
Adjust and adapt
Geiger and his team realized that Cbeyond would need to change and adapt in order to get the company’s growth rate back on track. Some of the changes they made were small and incremental: running Cbeyond in a more lean, cautious fashion; competing more on price; and introducing greater flexibility in the company’s product and service offerings.
“Those are some adjustments we made to our core business, adjusting as any business would, and we continue to focus on them,” Geiger says. “We’re conservatively capitalized, and we don’t have any debt, so this slowdown never threatened our future. It just threatened the fairly gaudy growth rates that we had experienced for most of our history.”
One other change Cbeyond made was more substantial, however: It started offering cloud-based telecommunications and computing services.
“In that same time frame, about 2010, technology took a leap forward and virtualization became economical,” Geiger says. “Along with greater bandwidth and access rates, this allowed us to start focusing on a different piece of the marketplace. This was exciting to us. Of course you’ve heard the overused phrases ‘cloud computing’ and ‘cloud services.’ Everybody wants to be offering cloud services today. But, indeed, we are.”
Geiger explains Cbeyond’s move into the realm of cloud-based technology in terms of “boxes.”
“It’s as simple as this,” he says. “There are boxes that companies — small businesses as well as large ones — used to have on their premises. When I say boxes, it may have been a firewall, it may have been a PBX [private branch exchange] or a key phone system, it may have been a server that ran some piece of their company’s automation.
“But now these boxes can be housed in a data center out on the Internet, if you will — out in the cloud. And we recognized this as a very natural strategic extension for us.”
One benefit of extending its business into the cloud is that Cbeyond is now attracting a different breed of customer: businesses that are slightly more, as Geiger terms them, “upmarket.”
“With companies that have a real technology dependence, if they don’t have access to their systems, they’re basically out of business,” Geiger says. “Professional service firms, doctors and dentists — who happen to be two of our biggest verticals — as well as attorneys, accountants, small manufacturing — these are companies that really depend on technology. They have knowledge workers. In many cases, they have multiple locations or at least remote workers. And they are willing to outsource. So we’re able to come in now with our new products and channels and offer a much broader package of capabilities to our customers.”
Cbeyond’s new set of offerings is also attracting larger companies with greater revenue and more employees as prospective customers.
“We’re now able to access a larger wallet of spending capacity of these slightly larger customers,” Geiger says. “Whereas our average customer used to have 12 employees, our new customer has somewhere in the 20s. And these newer customers have been growing, so I would say probably that average will end up being about 30 employees.”
The result of these changes is a redefined, repositioned Cbeyond. The company, which was launched in 1999 as a small group of entrepreneurs to solve technology problems for other entrepreneurs by providing them with basic IT and communications packages, is now a cloud-based, broadband Internet, Web-hosting telecommunications firm with 2,000 employees and projected 2012 revenue of $485 million.
Additionally, Cbeyond now has offices in 14 markets across the United States and four data centers in Atlanta, Louisville, Dallas and Las Vegas.
“The positioning of the company is really a lot different now than it had been,” Geiger says. “In the past, we had really good, broad solutions for a rather simple bundle of communication services. Now we’re a much more rich service provider in technology services.
“Our positioning now is to be a technology ally for small businesses. We’ll do the hard stuff, the heavy lifting: make sure that your data is always available to you, that it’s accessible over an adequate piece of bandwidth, that it’s up and running 24/7, that it’s protected, that there aren’t any viruses, that the operating systems of the servers and devices are all up-to-date and patched. We’re really acting almost as an outsourced CIO to our small-business customers.”
To get itself moving toward that goal, Cbeyond did a great deal of research to determine what types of cloud-based products and services it should offer its customers.
“While we knew that this was the direction we were going in, we weren’t so certain about which specific product offerings our small businesses would be interested in buying,” Geiger says. “So we did a ton of primary research. We talked to about 7,500 small businesses, both existing and prospective customers. We gathered a bunch of data, and then we went to work developing products to satisfy what we understood the market to be.”
Two of the primary results of all that research are Cbeyond’s new TotalCloud Phone System and TotalCloud Data Center. Both products are aimed at giving small-business customers greater flexibility in concentrating on their core business operations and not having to directly concern themselves with the operation of their communications and IT systems.
“The TotalCloud Phone System gives our customers the ability to have remote workers anywhere, with many different types of phones, and it gives them all of the same types of phone capabilities they would have if they were on a phone system in the same building — four-digit dialing to co-workers, transfer, etc., etc.,” Geiger says. “And it takes the job of taking care of the system’s uptime and performance and makes it our problem instead of our customer’s technical person’s problem. You can wash your hands of it once it’s in our care.
“Our TotalCloud Data Center is a similar offering for servers — for computing power. It enables our customers to outsource their servers. We’ll take their servers and house them in the cloud, and we’ll connect them securely and be responsible for their operation systems. Also, many of our customers have certain compliance regulations for their data today, which aren’t easy for them to figure out, and we can do that for them.”
Cbeyond’s leaders project that these new services will represent a quarter of the company’s revenue by the end of 2013, and that Cbeyond will be back to double-digit revenue growth by that time.
“These are very popular services, and they’re growing fast in popularity,” Geiger says. “They represent a material amount of our growth opportunity.”
Take quick action
Once Geiger had a clear picture that an economic downturn was deeply impacting the company, along with a new group of competitors nipping away at his company’s market share — it was crucial to be decisive and act quickly.
“If your gut tells you to make a change, do it sooner rather than later,” he says. “Follow your instincts and make the changes you need to make right away. Don’t waste a lot of time trying to improve the status quo. When you start to feel things shifting in a major way, don’t wait. React and respond.”
Trusting one’s intuition is a theme that Geiger keeps circling back to.
“It’s a mistake to fall into the trap of always listening to the experts,” he says. “One of the things you have to constantly remind yourself of is that no one knows more about your business than you do. If that isn’t true, then you need to find a new line of work. But assuming it is true, you absolutely have to trust yourself and your own instincts — and don’t listen to the experts.”
Lastly, Geiger says, a leader faced with the type of challenge that Cbeyond faced has to keep an eye out for opportunities and always be poised to act, to move forward quickly and forcefully.
“You have to have a high level of aggressiveness,” he says. “I think the level of aggression with which we embarked upon the change wasn’t enough at first. We were a little more hesitant than we could have been. And we’d necessarily be further along today had we had acted sooner.
“Of course, a lot of people could say that about many different aspects of their business. But if you see changes starting to happen and you feel it and you believe it, it’s probably true. As the often-said quote goes, the only constant is change. So you have to embrace it and act decisively and rapidly.” <<
How to reach: Cbeyond Inc., (866) 424-2600 or www.cbeyond.net
THE GEIGER FILE
Chairman, president and CEO
Born: Syracuse, N.Y.
Education: Bachelor’s degree in accounting and pre-law, Clarkson University, 1981
What was your first job, and what business leadership lessons did you learn from it?
In my midteens, I had a mentor who lived down the street from me. He ran a successful produce business. His name was Frank Mento. I worked at a farmer’s market unloading produce from rail cars and tractor-trailers. Frank started out with a single truck and would get up at some ungodly hour like 2 o’clock in the morning and go down to the farmer’s market, pick the best produce and deliver it to his customers personally. He was an advocate for his customers. The quality was all that mattered. He didn’t think in terms of short-term profit; he thought in terms of long-term relationships.
Do you have a central business philosophy that you use to guide you?
We’re very metric-driven at our company, and I’m personally very focused on creating systems that give us the best chance to meet those metrics: management systems, talent identification and development systems, incentive systems. I find that when all of those things are consistently defined, communicated, understood and implemented, that’s the fastest route toward the success of the business. Also, I have a coach: I’ve used the same consultant for the past 16 years, and he has helped me design those systems and be true to them.
What trait do you think is the most important one for an executive to have in order to be a successful leader?
Trust, which flows from integrity. We have a lot of long-tenured employees, and I’m very proud of their continued support and commitment to the company. We’ve gotten to where we are because there’s a tremendous amount of shared values and cross-commitment and trust.
What’s the best advice anyone ever gave you?
Listen to your customers, listen to your employees and do what they tell you. Frank Mento taught me that.
The wholesale distribution business in the United States is changing at warp speed. The recession hit wholesalers hard; only the most robust, best-capitalized distributors made it through the downturn in good fighting shape, and now that they have emerged, they’re facing a flurry of new competitors and new technologies.
The biggest, strongest and smartest distributors — let’s call them the lucky few — are making the investments needed to keep pace with the changes. Many other distributors are looking for more affordable ways to stay relevant. And some are cashing in their chips and finding something else to do.
“Distributors’ customers’ demands are changing,” says Brent Grover, managing partner with Evergreen Consulting LLC in Cleveland. “They want to be able to call you or access your website and find out three things immediately: ‘Do you have the product I need?’, ‘What’s the price?’ and ‘When can I get it?’ And they don’t want to wait around for somebody to fumble through their system and figure out what the price is supposed to be.”
Sophisticated online sellers with roots in retail, such as Amazon and Staples, have starting moving into some wholesale markets, and those sellers’ technological expertise has upped the ante for traditional distributors.
“Keeping up with those companies and their advanced systems requires a big investment in information technology,” Grover says. “The traditional ERP [enterprise resource planning] systems that distributors have been using don’t necessarily have the capability to provide all of these options to the customer. So distributors have to change their business processes and their support systems to make that happen. And it requires an investment in IT that some distributors may not be able or willing to make.
“But I think most of them will decide that they like adaptation a whole lot more than they like becoming irrelevant.”
The new technological requirements are forcing distributors to come up with answers to difficult questions and make tough decisions.
“It takes capital and management acumen to make these types of changes happen,” Grover says. “In the wholesale distribution business, the companies that are not big and well-capitalized have three choices in front of them: get bigger so they have the ability to afford these IT investments, get very specialized so customers will deal with them for reasons that don’t have to do with technology but because the customer needs their specialized knowledge, or get out — in other words, sell your business.
“All of this pressure, coupled with the low interest rates we’ve been seeing and the fact that banks have money to lend, has led to a lot of merger and acquisition activity in wholesale distribution.”
Guy Blissett, a wholesale industry expert with the IBM Institute for Business Value and a fellow with the National Association of Wholesaler-Distributors’ Institute for Distribution Excellence, underscores Grover’s points about the technological and economic shakeout taking place in the wholesale distribution business.
“We’ve seen the economic crisis drive many distributors out of business and damage others to the point where they’re struggling to grow now that the economy is starting to turn around,” Blissett says. “Unfortunately, some of those distributors now are not in a position to make the investments that they’ve been deferring.
“The key challenge that wholesaler-distributors face is simply continuing to drive their relevance in the supply chain. The traditional source of their value proposition — the ability to stock all the products their customers want and get those products into their hands quickly and efficiently — is still critically important, but it’s no longer enough. There’s so much transparency now with product pricing, product availability and individual company capabilities that distributors are having to think very differently about what will differentiate them over the next five to 10 years.”
The game changers
Amazon and Staples are the two most visible new players in the wholesale distribution market, and their technological sophistication is changing the rules of the game.
“AmazonSupply.com, in particular, has definitely had an effect on people’s psyche,” Grover says. “It’s not that they’re stealing everybody’s business, at least not so far. Our view of AmazonSupply.com is that it’s really for unplanned purchases of maintenance, repair and operating supplies for the noncontractor segment.
“Is AmazonSupply.com going to decimate anybody’s business? Probably not. Was it reasonable that the stocks of distributors, such as Grainger and Fastenal and MSC Industrial, took a hit when the news about the launch of AmazonSupply came out in April? No, it really didn’t make a lot of sense.”
Sensible or not, those distributors’ stocks did take a dive when the online giant came on the scene.
“When AmazonSupply.com was announced, the splash was that here was a business-to-consumer-style website appearing in the distribution world — and we all know about the bells and whistles Amazon has,” Grover says.
“Here they were repositioning themselves as a distributor, coming on-stream with prices that weren’t really low, but they were decent prices, and they were offering free two-day shipping for orders of $50 and up, which, I mean, that’s crazy, and a 365-day return privilege — a new feature. And they were offering a toll-free number to call during business hours for support, so you could actually talk to somebody at Amazon. That was a new thing. They’ve emerged with 14 different product lines and a half-million items in stock.”
Analysts who follow the stocks of publicly traded distributors overreacted to the news, Grover says.
“They reacted like, ‘Boy, this is terrible news for these distributors and AmazonSupply.com is going to come in and crush everybody,’” he says. “My personal view is I think that while AmazonSupply.com is the real deal and they’re going to be here for the long run, they’re not going to destroy anybody’s world, at least not right away.”
While Amazon is not expected to immediately cut a swathe across the old-line distributors’ business, the deep-pocketed gatecrasher has raised the technological stakes in the industry, and the other distributors will have to step up their games to compete effectively.
“The issue for distributors is that if they have an online portal, it’s probably something fairly rudimentary, a typical business-to-business-type Web experience,” Grover says. “The bar has definitely been raised by AmazonSupply.com bringing a business-to-consumer electronic commerce experience and putting it out there. For all of the other distributors, if they don’t have a good e-commerce portal, it’s going to make whatever they have look pretty bad. So they have to step it up.”
Blissett agrees that distributors will have to make serious investments to improve their e-commerce sites if they hope to compete with the new competitors moving in.
“Distributors have to ask themselves, ‘How do I sell my products to my existing customers, as well as new customers, using mobility, using the Web, using other channels of distribution?’” Blissett says.
“In some ways, customers’ demands are the same as they’ve always been — they’re just more acute now. So pricing continues to be key. Customers demand low prices. The difference now, I think, is that with more products being able to be purchased over the Web, price transparency has become a much more real tool that customers can use against distributors — if pricing is what they’re primarily focusing on.”
New ways to compete
There are several strategies that wholesale distributors are hatching to differentiate themselves in the new competitive landscape. An interesting new tactic is the use of vending machines to distribute supplies.
“This is a trend that’s just starting to emerge,” Grover says. “Distributors are placing vending machines in their customers’ industrial plants or in hospitals for nursing staff supplies. The employees use an ID card to get the needed supplies out of the vending machine.
“For example, in an industrial plant, let’s say a worker needs some safety goggles or some gloves. Instead of going all the way to the tool crib or having to fill out a requisition form, they can just go to the vending machine near their workstation and put their ID card in, and they can pick what they need out of the machine.
“It tracks who got the item and when they got it, and it also electronically signals the distributor when it’s time to replenish the machine.”
Blissett points to the use of data analytics as an exciting untapped opportunity for distributors to serve their customers in a new way in the future.
“Some distributors are looking at their role in the supply chain and the tremendous amount of information and data that flows through their organization and they’re realizing that can be a potential source of differentiation going forward,” Blissett says.
“They’re looking for ways to capture that data, do some analytics on it and turn it into something meaningful for their customers and suppliers. They’re starting to wake up to this potential and invest in it.”
Some distributors are envisioning that within the next five years they could reposition themselves as an information provider for their line of trade similar to companies such as IHS Global Insight and IRI Nielsen, Blissett says.
“They would be able to aggregate information from suppliers, information about customer interactions, as well as macroeconomic data and other information that they have access to,” he says.
“Their ability to pull all of that together, do some analytics on it and make some sophisticated forecasts and projections about where the overall economy is going and where individual facets of the economy and particular commodity prices are going — they could provide a lot valuable information by doing this.”
Economic modeling is just one area among many in which distributors could apply data analytics to create useful information for customers and suppliers.
“It’s essential, now more than ever, for distributors to understand their cost structure and all of the different activity-based costing elements of their supply chain and to be able to drive down the cost as much as possible, and then be able to go to their customers and have a fact-based conversation about that,” Blissett says.
“That allows a distributor to go in to a customer armed with a great deal of information and insight about their own cost structure and how things work, and they can use that to surface some inefficiencies in their customer’s supply chain that the customer might not even have been thinking about.”
Whether it’s in the supply chain, pricing, labor management, fleet optimization or customer segmentation, the opportunities for distributors to drive revenue to the bottom line via the application of analytics are many.
“We’re seeing many distributors make investments in this area,” Blissett says.
“As they get their basic data and their core IT infrastructure in place and they have either a packaged or a homegrown ERP system that’s robust and comprehensive and they can start to do some analytics on top of that, we’re seeing some exciting examples where distributors are challenging long-held perceptions about how to most efficiently move products through the supply chain and how to do things differently and capture a significant value along the way.
“Analytics is a potentially huge source of differentiation for wholesale distributors. Going forward, that type of role for these companies is pretty exciting.” <<
How to reach: National Association of Wholesaler-Distributors, www.naw.org; IBM Institute for Business Value, www.ibm.com/services/us/gbs/thoughtleadership; Evergreen Consulting LLC, www.evergreenconsultingllc.com
The growth rate of bank loans has slowed over the last three months for small to midsized businesses in general and for wholesale distributors in particular as economic and political uncertainties cause business leaders to ease up on their growth accelerators.
“We started to see a slowdown in the summer,” says Jordan Peterson, senior vice president and business banking credit manager at PNC Bank. “In July, we started seeing a lower volume of applications for loans. We’ve been talking with our bankers about what they’re seeing out on the street. It mirrors what we’ve been seeing in the economic outlook surveys, and it’s also in sync with what we’ve been hearing from our customers. They’re hesitant right now. They’re concerned about the economy.
“And they’re looking at the upcoming election and wondering what government is going to do to help small business.”
Post-recession business has resumed for some wholesale companies in some sectors, but the recovery for wholesalers has been spotty.
“Whether they’re feeling optimistic and looking to grow depends on the type of wholesaler they are and the type of industry they service,” Peterson says. “Some are doing well and are optimistic. Others are still waiting for things to improve. An example would be wholesalers that sell building construction materials. They are still waiting for things to recover and get back to normal.”
Peterson says wholesalers and other businesses looking to take out loans to grow their businesses should take a dim view of recent reports that banks are currently in a tight-fisted frame of mind when it comes to lending.
“Wholesalers and others have probably heard on the radio or seen in the papers that banks are hesitant to lend right now,” he says. “But they should know that, in fact, banks are anxious to lend to them, as long as they qualify and they’re a good candidate to borrow — as long as they have good financial information and can show that what they’re selling has good value and can clearly demonstrate how much they need to borrow and why.” <<
How to reach: PNC Business Loans and Credit, (800) 762-5684 or www.pnc.com
Modern Distribution Management/Gale Media, 128 pages
Grover’s “Little Black Book” covers the critical pieces of creating a strategic plan for a wholesale distribution company, including case studies, exhibits and end-of-chapter questions for the wholesaler-distributor’s management team. These days companies are almost always focused on “the now,” and the recession exacerbated that tendency. This book will help shift that mindset. Its insights will help distributors organize a strategic planning project, gather the needed information and build a one-page plan. Execution is the final step, and that is where many distributors fail. This book gives distributors what they need to put their plan into action.
Amazon Digital, 149 pages
“5 Fundamentals” is a guide for wholesale distribution branch managers to help improve their business and leadership skills. Ambrose asserts that the branch manager is the key to success for wholesaler-distributors. Expectations for managers’ performance are higher than ever, and the traditional advancement from inside sales to outside sales to branch manager is no longer the assumed track. The branch manager who follows this track with no leadership skills will struggle as companies push for improved performance at the branch level. Regardless of the company’s structure, the branch manager will need the fundamentals outlined here to keep the company profitable and provide the best value for customers.
Modern Distribution Management
Gale Media, 192 pages
MDM’s “Wholesale Distribution Economic Factbook” is widely regarded as the best source for accurate statistics about the wholesale distribution industry, including segment and overall industry revenue trends, inventory levels, 2012 sales forecasts and other critical benchmark data. Executives who manage, sell to or invest in wholesale distribution companies can use this report to stay on top of key economic and market trends. The report is produced by MDM, which has been researching and reporting on the wholesale distribution industry since 1967. MDM uses that experience to compile an accurate, comprehensive picture of the wholesale distribution industry in this report.
Brian Schultz has learned some important lessons while leading Studio Movie Grill on its impressive growth path since he founded the Dallas-based company in 1993. Two of those lessons stand out among the others. The first is that if you want to change an entrenched business practice in your market, expect stiff resistance and you’ll need to be extremely tough and persistent in order to see the change through.
The second thing Studio Movie Grill’s CEO has learned is the meaning behind the saying, “Be careful what you ask for because you may get it,” coupled with this corollary, “And then you may find yourself with so much new business pouring in your doors that you don’t know which way to turn.”
“The first big challenge we faced was the need to get first-run movies so we could be considered a real movie theater,” Schultz says. “In our early years, we couldn’t get first-run features. Basically, all of the movie-theater-restaurants in those early days were like us — in older theaters that had one screen, maybe two. And therefore, we were only able to get sub-run movies — movies that had reached the end of their first run and would soon be released on video.”
Then Studio Movie Grill began building its second location in Addison, Texas. It was a larger-capacity theater with five screens in an upscale area. Schultz recognized that SMG might run into difficulty obtaining enough sub-run movies to fill those screens.
“We were looking at film distribution and the number of competitors that were in the area, and we were thinking, ‘Oh, man — we’re not going to be able to get enough movies,’” he says.
So a key challenge presented itself to Schultz: For SMG to realize its long-term growth goals, it would have to persuade the Hollywood studios to let it show first-run features on its screens.
“I saw that as the next evolution for movie-theater-restaurants,” he says. “As a moviegoer, you should be able to have the option to see whatever movie you want to see in this environment. So we began to think about what arguments we could make to break through this established mindset.”
Here is how Schultz got his 2,400 employees in focus for SMG to earn annual revenue of $70 million.
Insist, persist, repeat
Schultz began making rounds asking the studios to let Studio Movie Grill screen first-run movies at its theaters. The response was discouraging.
“I started contacting the people with their hands on the reins to tell them what we wanted to do,” he says. “The reaction was negative — strongly negative. I got doors slammed on me, one after another, for a lot of reasons: because we were too small, because the studios had their traditional system down and they weren’t willing to change, because they wanted to hold on to the way things were.
“But one thing I’ve learned about being an entrepreneur is that, a lot of times, it’s not about being the smartest guy in the room or anything like that — it’s about being able to get back up when you get kicked down.”
So Schultz kept calling and knocking. And calling. And knocking.
“I told myself that I was just going to keep on calling every studio distribution head for as many days as it took to get this thing done,” he says. “So that’s what I did. I would find their home phone number, their home fax machine, all of these different ways to contact them. I’d find out where they were going to be and I would show up at the place. I’d try to call their assistant. I’d try every way I could think of to get through to them. But I didn’t have any success.”
Finally, a gentleman who worked for Disney threw Schultz a bone — a meager one, or so the bone-thrower thought.
“This guy was the regional head for Disney in Dallas,” Schultz says. “I had been working on him for months. He kept saying no. I had annoyed him so much. Finally he said, ‘OK.’ I said, ‘OK what?’ He said, ‘Here’s the deal: I’m going to give you one movie to try. If it does well, we’ll talk. If not, you have to agree to never call me again.’ Then he basically picked the worst movie he could think of, just to get me to shut up.
“There was this no-name actor and this small movie that was supposed to do absolutely horribly. There was no marketing behind it, nothing. And that small-named actor was Adam Sandler, and the movie was ‘The Waterboy.’ We ended up being the top gross in all of Dallas with this movie that was supposed to be a dog. It just happened to fit perfectly with the type of customer that likes to come to a movie grill.
“By the time I got to work the following Monday, I had messages from all the other studios asking us if we would run their first-run movies.”
A key barrier had been knocked down. The tiny movie-theater-restaurant sector now had a critical tool in its hands that would enable it to compete with “real” movie theaters and, consequently, to grow and thrive.
“We were actually the first movie-theater-restaurant in the world to get first-run products,” Schultz says. “It changed the entire industry. It created this niche, which has really become the future of movie going.”
Prepare for the flood
The scene now turned to the “Be careful what you ask for” part of Studio Movie Grill’s story. Practically overnight, SMG was inundated with new business. People loved the idea of going to theater-restaurants where they could watch big-screen Hollywood movies while they were still hot, before their pop-culture glow had begun to fade.
But feeding those big crowds and serving all of the new customers well would not be easy. For Studio Movie Grill, it was time to scale up, and fast.
“We went from marginal attendance to huge attendance very quickly,” Schultz said. “So we started to run into problems. Instead of figuring out how to serve 150 meals in an hour when people came in, it was more like how do you serve 800 meals in an hour? That really got us into some operational challenges.”
To make matters even tougher, at the same time SMG was scaling up the quantity of food it had to serve to the bigger crowds, the company had ambitions to increase the overall quality of its offerings as well.
“The basis of this concept was originally more along the lines of, you know, beer and frozen foods — kind of like cheap bar food,” Schultz says. “But I never envisioned it like that. I thought it was important that we had to be able to compete with any casual dining restaurant. So we had to serve all fresh made-to-order food that’s high quality, presented well and tastes good.”
A key move Schultz made at that time was to hook up with a new mentor: Norman Brinker, founder of Brinker International, Steak & Ale and Chili’s.
“I went to a leadership event that [Brinker] hosted, and we hit it off,” Schultz says. “Eventually, it turned into a monthly meeting, with accountability, and it really informed our organization and helped us immeasurably. So if I were going to give advice, I would say that having a great mentor has always been one of the most important keys to our success.”
Optimizing its kitchens was one of the key initiatives that SMG undertook in order to scale up its food service operation to meet the huge increase in demand for tickets to its movies.
“It goes all the way down to the type of equipment you use and simply doing math equations,” Schultz says. “For example, we need to serve this many pounds of french fries, and the output of this particular fryer is X. So will that work, and how many of these do we need?
“How can you reduce the number of steps that it takes for an employee to do their work? Can we place all the things that they need to be successful in a small space to minimize the amount of traffic in the kitchen?”
Another key tool SMG began using was dining trend analyses.
“We saw that we needed to be able to follow the trends of what people are eating, how they’re eating it and when they’re eating it, so that we could be adequately prepared with the right quantity and quality of food and beverages,” Schultz says. “We keep track of what every customer eats and drinks on a per-movie basis. This enables us to predict what people are going to eat in the future. It’s a forecasting model, and it’s been a key basis for our success.”
Mobilize the team
Asked what other recommendations he would offer CEOs faced with the challenge of having to scale up operations quickly to meet a sudden increase in demand, Schultz says soliciting ideas from everyone who works for the company is crucial, as well as making sure everyone is on the same page in order to move forward as a team.
“Ask your line employees who are doing the work what success looks like to them, and use those perspectives to get everyone in alignment,” he says. “It seems like that has been a pretty common theme when we’ve been successful: We’re all aligned on the same page as far as what success looks like.
“What you need to scale up your business is to figure out how you can get your organization in alignment so everyone understands what their success means and what their contribution is supposed to be.”
Another point Schultz recommends is keeping an eye on cash flow.
“Especially when you’re scaling up, it’s important to realize that revenue doesn’t mean cash flow,” he says. “That’s a good lesson. If you’re going through a growth phase and you’re raising revenue but you’re ending up with less [cash] at the end of the day, that’s not a good trade.
“I think some CEOs get too enamored with the top line, and they forget that there are all these details and complexity when you get to a certain size. It becomes a little different. You can no longer touch everything. So cash flow becomes more important. You’ve got to watch it closely.”
Lastly, Schultz suggests that knowing how to uncover the important questions that need to be asked and then figuring out where to go for answers are more important skills than simply trying to answer all the questions yourself.
“The advice I would give is it’s OK not to know the answer,” he says. “I would have saved myself a lot of missteps and problems if I didn’t feel compelled to be a knower versus a learner. If you don’t know how to do something as it relates to, say, financing — or accounting or purchasing or you name it — a lot of times when you’re in the leadership role you feel compelled to respond, to answer — to, you know, provide leadership.
“But hopefully you can get to a point where you realize it’s OK to say, ‘I don’t know the answer to that — let’s figure out how to find the answer.’ And that can become a breakout moment for the CEO and the company.” <<
How to reach: Studio Movie Grill, (972) 388-7888 or www.studiomoviegrill.com
THE SCHULTZ FILE
Name: Brian Schultz
Company: Studio Movie Grill
Education: Bachelor’s degree in finance, California State University, Chico
What lessons about business leadership did you learn during your time in school?
I was the vice president of finance for the student body. We owned and operated all the businesses on campus: food service, event management, catering, copy service, the bookstore. So I basically ran a $15 million corporation all through college. It was unbelievable training and experience.
What was your first job, and what did you learn from it?
It was car detailing. I started doing it when I was 10 years old, and I basically ran my own business. I learned that speaking with the customer and giving them what they want and doing it with quality always yielded better returns, appreciation and repeat business.
Do you have a business philosophy that you use to guide you?
Yes. It’s based on the principles of conscious capitalism. It’s the idea of doing good in the world through business. Our goal is to provide value for all of our stakeholders, which include our customers, our employees, our investors, our vendors, and our local neighborhoods. If we make all our decisions based on that philosophy, we believe it creates superior returns, an energized workforce, and community attachments.
What trait do you think is the most important one for an executive to have in order to be a successful leader?
Persistence — the ability to get back up when they get knocked down.
How do you define success in business?
Our success is based on making the world a better place one movie at a time, creating great experiences for families and memories for individuals. We’re pretty specific on how we measure that, rather than just measuring success on an income statement or a balance sheet. We think the two are related and that we actually get superior returns by doing the right thing.
What’s the best advice anyone ever gave you?
The thing I remember hearing from a young age is the harder you work, the luckier you get. That’s from my father.
While the U.S. manufacturing sector has been resurgent for three years and counting, the recovery cooled a bit in the third quarter — and there’s no clear consensus among experts as to the reasons why. The reasons for this leveling off are varied and complicated.
Many experts have lists of theories to explain the slowdown, but there’s a lot less consensus among these authorities’ theories than you might expect. There is one commonality, however, among the experts’ opinions. They remain guardedly optimistic that the rebound will continue but at a slower pace.
“We’re definitely seeing a little bit of a blip in our multiyear recovery over the last couple of months,” says Chad Moutray, chief economist for the National Association of Manufacturers.
“What’s causing that blip is uncertainty — uncertainty caused partly by the ‘fiscal cliff’ everyone has been talking about, partly by the [economic] problems in Europe and a few other factors. We haven’t solved these problems yet, and it doesn’t look like we’re going to be solving them anytime soon, so that’s a headwind that we expect is going to be persistent over the next few months and probably longer.”
What happens domestically over the next few months will be hugely important for U.S. manufacturers over the next year or two. That includes next month’s election, how steep the so-called “fiscal cliff” drop-off turns out to be at the beginning of 2013, and then the subsequent direction of the U.S. economy thereafter.
“The biggest unknown out there right now for the U.S. economy is the ‘fiscal cliff,’ and the fact that on Jan. 1, assuming that Congress doesn’t act between now and then, we’re going to see tax increases and spending cuts of around $500 billion to $600 billion,” Moutray says. “That obviously could have some dire consequences for the economy. We’ve had the Congressional Budget Office and a lot of others saying we could have a recession early next year if that’s the case.
“We’re seeing a lot of people in Washington angling to see if they can try to avert that. But there’s an enormous amount of pessimism that that’s going to happen. So that’s a key thing manufacturers are worried about: the uncertainty over what their tax rates are going to be and what the regulatory environment will be like next year.
“People are very engaged in what’s happening in the U.S. election because it obviously will impact manufacturers deeply.”
Nonetheless, Moutray says that on the whole, U.S. manufacturers’ outlook for 2013 is positive but guardedly so.
“Of course, that could all change very quickly,” he says. “We’re seeing some pessimistic numbers coming out right now, which I think should be a wake-up call to folks in Washington that, ‘Hey, maybe this is something we’d better act on. We need to reduce the level of uncertainty in the economy that’s out there.’ ”
Scott Paul, executive director of the Alliance for American Manufacturing, agrees that a large number of concurrent factors have conspired to flatten the U.S. manufacturing curve. One crucial factor he points to is import-export problems with both Europe and China.
“One thing that was helping to drive the boomlet in manufacturing over the last few years was increased demand for our exports to Europe and to Asia,” Paul says. “A key reason for that has been that our exchange rate has been, while not perfect, much more suited to exports than it used to be.”
But the days of gangbuster exports to Europe and China are fading.
“We’ve seen that tailing off dramatically over the last couple of months,” Paul says. “The Chinese are reverting to their traditional strategy of continuing to produce and export as much as they can regardless of what the demand is. That creates problems for other countries such as the United States. At the same time, we’re seeing the value of the Chinese currency take a nosedive. That, to me, is troubling.”
Exacerbating this set of complications coming from Asia is a different kind of economic headwind pushing across the Atlantic from Europe.
“Some of Europe is headed back into a recession again, related to the debt crisis financial situation,” Paul says. “That has an impact on demand, on unemployment, on a lot of things. And that, in turn, impacts U.S. manufacturers, because Europe is an important market for us.”
Cliff Waldman, senior economist for the Manufacturers Alliance for Productivity and Innovation, is another insider who attributes the U.S. manufacturing slowdown to a convergence of several factors. Waldman postulates that the key factor was the sharp inventory fluctuations that took place during the recession and in the years since.
“Over the last three to four years, the U.S. economy had probably the sharpest inventory swing in modern history,” Waldman says. “During the panicky days of 2008 and 2009, inventories were liquidated very rapidly. Some companies were liquidating inventories just to raise cash.
“So then, even though we had just a modest turn in the economy after the recession, there had to be a rapid restocking of the shelves just to handle that moderate traffic. That got our factories humming again. If you think about it, manufacturing essentially produces inventories for the economy. So that helped a lot.”
Now, though, the manufacturing sector has caught up with the shelf shortages, so the inventory catch-up surge that got the factories buzzing is dying away.
“The inventory swing is finite,” Waldman says. “Eventually the stocks on the shelves reach short-term equilibrium with the pace of sales. It’s a one-shot deal, in effect. It comes back to equilibrium.”
Another factor in the slowdown has been economic volatility in countries that Waldman labels emerging markets.
“After the recession, we had a stronger and a faster rebound in emerging markets, particularly some of the larger emerging markets, than people had thought,” he says. “China, India, Brazil, Mexico — these markets all felt the downdraft of the crisis in the industrialized world, and they certainly slowed.
“But they implemented policies rather quickly and came back rather quickly. As we all know, over the last decade, U.S. manufacturing has been making a lot of investments in those markets, and the health of those markets has been increasingly important for U.S. manufacturing profitability. This helped propel manufacturing into a more normal recovery than almost any other sector of the economy. That’s why manufacturing was able to lead the recovery.”
However, that’s another development that can be added to the list of trends that drove the manufacturing rebound but have now begun to slow down.
“Now, the storyline is changing,” Waldman says. “The global situation is troublesome, particularly for manufacturing. The activity in the emerging markets is slowing dramatically. That’s why we’re seeing that manufacturing is not really the leader anymore. It’s starting to get mixed up with the troubles of the U.S. and the global economies.”
But not all of the recovery-driving trends are disappearing. Some look like they’ll have staying power, and that endurance should, barring other unforeseen problems, continue to keep the U.S. manufacturing rebound at least somewhat on track.
Exhibit 1 — leanness and efficiency: “Manufacturers have been able to take advantage of being much more lean and efficient, which has improved their overall competitiveness,” Moutray says. “When I look at the sectors that have done well the last couple of years, I think they’ve taken advantage of exports, which speaks to that level of increased competitiveness.
“Exports are going to be an evermore important part for the manufacturing sector. I think we’re going to continue to find ways that we can better compete.”
Another manufacturing-positive trend expected to have staying power is U.S. manufacturers’ increased competitiveness, which is being fed by several factors: advances in technology, consequent gains in productivity and decreases in costs, particularly energy costs.
“We definitely have seen a little bit of a sea change in terms of the overall competitiveness of U.S. manufacturing,” Moutray says. “Nearly every manufacturing sector is becoming more efficient by using technology. That’s why we’ve seen such huge gains in overall labor productivity the last few years.
“U.S. labor productivity grew more than 5 percent in the first quarter of this year. In the durable goods sector, it was almost 10 percent. Those are unheard of levels of labor productivity growth, and as a result, we’ve seen the overall cost of labor per unit fall dramatically. That has helped keep U.S. manufacturing more competitive.”
Declining energy costs have also been a boon to U.S. manufacturers’ attractiveness relative to foreign competition.
“Another key reason why we’ve seen this boomlet in manufacturing is that energy costs have come down with so much natural gas coming online,” Paul says. “That, in itself, has spawned an industry: supply pipe that goes into the natural gas. But more broadly for manufacturing in general, especially energy-intensive manufacturing sectors, it has helped to bring down their energy costs. And I see that continuing to be a very strong factor.”
Reshoring is another trend expected to have some durability, and thus continue to help U.S. manufacturing sustain its recovery to some degree, Waldman says.
“What appears to be happening — and underline appear, because it’s still in its early stages — is that for global manufacturing supply chains, which are spanning many countries these days, the U.S. is playing a somewhat better, stronger role in terms of production in those global manufacturing supply chains,” Waldman says. “It’s being driven by multinational decision-makers. When they look at the map of their world, U.S. manufacturers are looking more attractive.
“That’s because there are a lot of hidden costs to doing business and to having a production presence in a low-wage economy, and those costs are now becoming less and less hidden. And while the benefits of market potential in emerging economies are tremendous and always will be, these multinational decision-makers are beginning to realize that the costs are a little higher than they thought, so that puts the U.S. and North America in a better position.
“This is clearly a positive for the strength of U.S. manufacturing, and it’s something I think the United States needs to see as a glimmer of light and to capitalize on.”
Policymakers are expected to play a crucial role in the coming years in terms of whether the manufacturing sector continues to recover and perform well.
“We’re in a time that’s somewhat similar to just after World War II, in the sense that policy matters a great deal these days,” Waldman says. “And not just U.S. policy; central bank policies and fiscal policies around the world are absolutely crucial now.
“We’re also in a time where you have to watch policymakers. Manufacturers in the U.S. might have thought some time ago that monetary policy in India or in Europe or even in the Federal Reserve was a bit removed from their business, a bit arcane. Not these days. They need to follow it. It’s crucial. And the same holds true for fiscal policies.
“Over the long term, getting past the sluggishness and the challenge of this year and the next couple of years, we need to make policies that engender long-term investments in our workforce, in innovation, in technologies. So policy around the world matters more to manufacturers now than it has in a generation.”
In the big picture, the resurgence of U.S. manufacturing during the last three years has changed the way the public and political leaders view manufacturers and their role in the economy and in society, and that bodes well for the future of the domestic manufacturing sector.
“I think it’s healthy that we’re hearing more talk about the importance of manufacturing than we have in the past by everyone,” Paul says. “There’s this realization that it has to be part of our future, and everyone — particularly those in leadership positions — seems to be embracing that. I think that’s a very good thing.” <<
How to reach: National Association of Manufacturers, www.nam.org; Alliance for American Manufacturing, www.americanmanufacturing.org; Manufacturers Alliance for Productivity and Innovation, www.mapi.net