He wants to help you turn your company around, but the fact is most people won’t do what he’s recommending.
Sure, sure, the guy has a great story to tell. And nobody sums up the plight of The Middleby Corp. in 1999 better than Bassoul.
“We had very limited resources and capital, we were running out of cash, we were very highly reliant on three customers that generated more than 60 percent of the sales,” he says. “We lacked innovation, and the products we were generating or creating were very me-too products. The competitors were stealing our best employees, and the turnover at Middleby was more than 33 percent. Roughly 30 percent of the orders were not shipped on time, so we had a case study of a lousy company.
“Externally in 2000-2001, we had a recession. Patents on our highest margin product line, which is the Middleby conveyor oven, had just expired and competitors were all jumping in. Good scenario to start the story, eh?”
OK, it’s a good place to start the story. But the turnaround that Bassoul, Middleby’s chairman and CEO, made is a lot to handle. He slashed nearly 30 percent of Middleby’s sales and dropped the company from more than 10,000 SKUs to 1,000 in a matter of 90 days. He came up with a plan to completely rearrange the provider of restaurant and food service equipment because it was stuck around $100 million, and he had the audacity to focus that strategy on taking giant risks on innovation and building a global brand. This is the kind of stuff that you don’t try at home. But, if you’re still interested, Bassoul wants to show you how to completely rethink a company.
Be No. 1
Middleby’s industry is turnkey and simple: You make a range of products and you go to visit a restaurant and sell them all. But Bassoul realized something that a lot of companies struggle with: Middleby wasn’t that great at anything.
“The problem is if you’re not No. 1 or No. 2, then you’ll never get pricing,” he says. “So, being No. 1 always generates a higher price premium because you can service your customer better, you can innovate better, and you can retain your employees better because you can pay them better bonuses.”
So Bassoul made a decision that he recommends to you if you need to get your company out of a rut.
“We audited all of our engineering resources, and we decided we wanted to be No. 1 in one segment -- and we were not No. 1 in anything,” he says.
That audit told him that his company could not be No. 1 in things like refrigeration or dishwashers. So Bassoul and his team dropped everything but the hot side -- conveyor ovens, fryers and the like. Knowing that area was the strongest, they put all of their resources into it and began doing new things. With more engineers working on that core competency and more salespeople dedicated to it, Middleby was able to start leveraging a new customer base. With more than 60 percent of the sales going to just three customers, the company was in a risky area, but by taking a new risk on just one core competency, they actually made things safer. Having bet everything on the hot side, Middleby began getting its foot inside the door with new customers by offering the most liberal guarantee in the industry.
And that’s Bassoul’s first lesson for you: If you want to start digging your company out, find something that you do well and do it better. You have to be responsible for dropping your dead weight and charging your people with being truly great in one area.
It was risky, but here’s a sneak peek on how it worked for Middleby: “Our market share increased from a 6 percent to around 20 percent,” Bassoul says. “And today, we are No. 1 or No. 2 in every segment we serve worldwide.”
Swing for the fences
If you really want to turn the corner, you need to go beyond refocusing your company to find a few areas you can make a difference and then use your limited resources to take a big swing.
“You need to identify trends, and you need to go out in the trenches and identify your customers as well as customers that don’t choose your product,” Bassoul says.
So when Middleby’s focus on ovens turned up, Bassoul began making visits to customers that bought his product and ones that didn’t.
“I tend to spend a lot more time with customers that don’t buy my product, and I’m not trying to convince them to buy my product,” he says. “I’m trying to learn why they didn’t buy us and what they don’t like about the products they use so when I go back to my customer they buy me because I become better.”
But this is where Bassoul says you have to really pay attention to see what innovations can truly spark the industry.
“How many people tell you they are customer-driven?” he says. “We are not customer-driven, we are customer-driving. Customers don’t know an iPod; they can’t help you create an iPod.”
So to create an iPod, you have to pick up on things beyond what people are complaining about by sitting with them long enough to listen to current state of their business. At Middleby, for example, Bassoul noticed two things in restaurants that might not seem directly related to his business. One, restaurants were cutting back on costs wherever they could. Two, the trend of dining out casual was growing every day.
So Bassoul took everything he had and put it into addressing these issues. Middleby decided that it would build its brand up around more casual dining -- going so far as to make that brand global -- and put all of its engineering focus on the innovation required to make more energy-efficient ovens.
“We bet the company on these things, and that’s what people need
to do,” he says. “We didn’t take on 20 projects. The customer told us change that knob to red or green; we didn’t want to waste our time. We wanted to do bold moves, so in 2000, we bet on energy saving. We put huge resources in designing ovens and fryers with energy management systems that could save customers hundreds of dollars -- and today, thousands -- on the monthly utility bill. It was the same year Hummer introduced H2 at 9 miles a gallon.”
The company also attacked the global market by going into markets where there was no local player and building test kitchens and funding complete operations. Both moves were completely different than anything that Middleby’s competitors were doing -- and that’s exactly the point.
“When you look at our competitors, they are still trying to change knobs,” Bassoul says. “We’re not working there, we’re working on huge disruptive technology, we’re working on plasma TV versus tube TV, we’re working on iPod versus Walkman.”
As a result, Middleby today has been growing its international business by double digits annually and 30 percent of its employees work overseas. Oh, and in case you didn’t guess, customers have been pretty interested in the more efficient equipment, too.
Get your people on track
Bassoul doesn’t sugarcoat some of the facts that come with turning your company around: If you want to do things like Middleby, you’re going to have to fire some people and you’re going to have to pay for orthodontics.
Those things might not sound like they go together, but if you’re looking to make big moves, you need the right employees and the right culture. Middleby was focusing on cash flow to help fund innovation, so there was an obvious need to cut some sites and some people. So Bassoul went through a quick process of cutting the dead weight and then put the people he had left in a more simple structure that was only three layers deep with better bonuses for everyone.
Do you want to know who he got rid of? He cut four types of personalities without a second thought: the whiner, the sniper, the passive-aggressive and the contaminator. Fittingly, the names for all four tell you what you’re looking for.
“The whiner is the person who every day whines about everything,” Bassoul says. “‘The weather isn’t good; the coffee isn’t good.’ The sniper is the person who snipes at everybody else. ‘I can’t do my job because accounting didn’t give me that’ -- they have to go. The passive-aggressive can tell you everything you want to hear, and then a month later, they’ve done nothing. And then the contaminator: Those people have a history in the company. They are smart, but they use that to build arguments to prove you’re wrong instead of working to make it successful.”
Those traits stick out at any company and, with all due respect to Jack Welch, Bassoul says you can’t cut just the bottom 10 percent of your company.
“Most people talk about, ‘Oh this person is not performing; we take out 10 percent of the nonperformers,’” he says. “Of course, if they’re not performing, you should take them out, but it’s tougher to take out people who are performing, but they are whiners. Those four (personalities) create morale issues.”
Bassoul knows it’s not easy to let people go, but he’s worked out a way to be civil while being quick: He gives people one month of severance pay for each year they worked at the company.
“It took me a long time to convince my board that (good severance pay) needs to occur because then you free people to take people out,” Bassoul says. “A lot of people expect managers to fire people and give them one week per year. You know what, nobody is going to do much unless they are forced to because they feel guilty.”
If you’re cutting nonperformers and the four bad personalities, Bassoul says what you’ll be left with is a group of employees that he calls game-changers and plug-and-play people. Both are autonomous and self-driven, and you need to hold on to them. That’s where the orthodontics comes in. Middleby gives all of its employees lavish health care that includes orthodontics and vision.
Like paying the severance to get rid of people poisoning your culture, the health care costs are worth it once you have efficient employees. And once you get to that point, Bassoul says those employees will bring in more of the same. Today, Middleby’s primary mode of hiring is from employee reference because he believes his people understand the culture the company has created and the type of people that will fit in.
Look, no one is telling you to risk your entire company on one project or to fire all the whiners in your company. Bassoul wants you to feel free to take any part of this and apply it to your turnaround. Of course, if you are willing to risk it all, he’s seen some benefit to it.
“We have 2 percent turnover from, remember, 33 percent,” he says. “Our employees have referred 85 percent of our new hires since 1999. We have the most productive work force in the industry, as our sales per employee has risen from, in 1999, around $130,000 in sales per employee to around $500,000 per employee.”
Oh, and Middleby has one more chip to bargain with in case you still think the plan was half-baked: In 2003, it had net sales of $242.2 million with net earnings of $18.7 million, but in 2007, it had net sales of $500.5 million and net earnings of $52.6 million.
HOW TO REACH: The Middleby Corp., (847) 741-3300 or www.middleby.com