When David Lazor founded Lazorpoint Inc., he knew exactly how he would set his company apart in the overcrowded IT sector -- with personality.
Unlike large technology and consulting firms, where billable hours are more important than customer satisfaction, and employees push the newest technologies, Lazor wanted to run a business built on personal relationships and honesty, with a strong bias toward the client and its technology needs.
To achieve this, Lazor built his company around the right people. He hired associates with the technical know-how vital to an IT position, who also had the ability to communicate effectively with clients. And he developed a list of company values -- named the Six Rules for Winning -- for each person to strive toward.
1. Get better every day.
2. Stay with it -- never quit.
3. Do it right.
4. Pour your heart into winning.
5. Take ownership.
6. Keep your promises.
And for Lazor, the rules aren't just talk; he ensures his employees are living them. Associates are given Individual Accountability Plans and asked to gain one certification each quarter. They're also rewarded for actively living the rules and for bringing in new associates who do the same.
With this attention to people and adherence to company values, Lazorpoint has grown steadily. In the next year, Lazor plans to double his number of employees and hopes to one day expand his company's reach across the Midwest.
And he'll continue to build it the same way he always has -- with good people and good values.
How to reach: Lazorpoint Inc., (216) 226-7101 or www.lazorpoint.com
Cox knows a thing or two about great leadership. Not only is he the pacesetter at his own company, he is also active on the boards of several well-known Ohio organizations, including Canton's The Timken Co., the Federal Reserve Bank of Cleveland and Cincinnati Bell, where he serves as chairman.
And while leadership is more of a natural talent for Cox than an acquired skill, he still struggles with how to create an environment of openness and candor.
"You have to understand that it's important to be candid," he says. "It's important to have an environment of trust [and] hear what people really think."
That kind of environment depends entirely on one vital skill - the ability to listen.
"A good leader has to be a good listener," Cox says. "You don't chide somebody when they say something you don't like. You don't show disapproval for a divergent point of view. You listen.
"Leadership is about listening, asking and questioning, and developing heroes at every level. [When you do that] people get a sense of trust, a sense of openness and a sense of candor."
Developing heroes at every level is an ambitious goal, but Cox sets the bar high. He looks for particular traits, the foundations of company heroes, in all of his employees, whether they're coming in as senior management or at entry level.
"The traits remain the same at every level," he says. "Loyalty, trust, mental dexterity - the ability to go from one thing to another and still be on point. People who are constantly questioning, 'How can we do it better?' Not what you do, but how can you do what you do better? [You also need] people who bring order when there is time of great change and people who can bring change when there's a time of order."
The concept of company loyalty is almost old-fashioned. After all, a study conducted by the Bureau of Labor Statistics found that baby boomers have held an average of 10 jobs by the time they reached age 40. Cox recognizes this and takes a realistic approach to achieving his goals. Loyalty must be created. And for the most part, it is earned, not expected.
"You expect people to say, 'OK, I'm here. I'm on the team. I'm [going to] be loyal to the team,' and then you build from there," he says. "They can't come in saying, 'I'm going to jump ship the minute something goes wrong.' But you have to earn it. Loyalty is constantly growing."
So how does Cox build loyalty? By being consistent.
"Do what you say and say what you mean," he says. "When you tell somebody something, it happens. If it can't, you deliver the worst news the quickest. You tell them it didn't happen and why. I think that's what builds loyalty - a sense of safety and trust; a sense that somebody's going to be fair with me and I don't have to watch my back."
One foot in front of the other
Creating and keeping loyal employees may be one challenge Cox faces no matter where he goes, but it's not his greatest one. As an African-American, Cox finds that his greatest challenge is not over-analyzing his interactions with others.
"I think people who are minorities have a tendency to misunderstand," he says. "You can spend a lot of your time focused on things that don't exist. There's enough of it that does exist.
"My biggest business challenge is making sure that as I interact and work with people and things happen, that I don't attribute it to the wrong thing. That I don't take it to a place that is inappropriate [and] that I don't dwell on it, even when the reason was clear to me."
That may sound easy but it requires a commitment to sticking to it.
"You put it behind you," says Cox. "You just do it every day. You put one foot in front of the other and you go through that exercise."
Much of what Cox knows about leadership has been fine-tuned by his experiences serving on boards. While there are great similarities between running your own private company and running a public company, there are great differences as well.
"[In the role of] chairman," Cox says, "You are more a statesman, more a diplomat, more a mentor. As CEO, you set the strategy, you direct the strategy, you execute the strategy, and at the end of the day, you are accountable for its outcome."
These differences have given Cox a new perspective on his own business.
"[My board responsibilities] help me stay better prepared in my own company, help me be more thorough and help me take advantage of the pace, the rapidity with which we can change a decision, make a decision, adjust a decision. You can't [do that] in corporate America today.
"And I think [it's taught me] governance; how to lead an organization in a fashion that is fair to everybody else. As [Rudyard] Kipling says, 'All men count with you, but none too much.'"
All men count in both private and public businesses, but in the latter, employees aren't the only concern. There are shareholders to consider, and sometimes there are conflicting interests.
"You're trying to make sure you do the right thing for all of them," says Cox. "The employees, the management team, the people who buy your stock, the shareholders. All those people count."
The key, Cox says, is to "get on the page of right thing, right reason. If you do that, you will serve everybody well. Nobody can ever criticize you if you do the right thing for the right reason."
When Cox is faced with tough decisions regarding conflicting interests, he asks himself three questions. What is the situation? What's the right thing to do? Why would I do this?
"You can't look like you're favoring one group or interest over the others," he says. "So if you can look back and see right thing, right reason, you'll come out pretty good all the time."
Again, that's easier said than done. Leadership brings with it several downsides. It is the leader who must make unpopular decisions. And it is the leader who has to present and defend these decisions to employees and shareholders. As such, Cox approaches his decision-making logically.
"When I have a tough decision to make, I try to first define the problem," he says. "Someone once said 'Fanaticism is redoubling your effort after you've forgotten your aim.' Sometimes people forget what the problem is. So the first thing you have to do is define the problem, not get an answer."
Once you really know what you're facing, Cox says, "The solution becomes very clear. It may not be one that you like, but it becomes easier. You have to ask yourself, 'Am I real comfortable with it or am I not?' If you're not always comfortable with it, you have a chance of it being a better solution.
"Solutions are not normally comfortable things. You might be happy that you made one, but somebody isn't going to like it."
Cox cites an example from his own experience.
"We closed an office in Columbus once. That was difficult," he says. "We are a small dog running with big dogs, and we've got to do certain things to compete. So making those decisions about where you put your resources outside the company and in the community and still stay a viable player, that's tough."
Cox asks himself, "What is the problem? Who is it going to impact the most? Why is it going to impact those people? What would happen if I did nothing about the decision? And what happens when I make the final decision?"
And when it comes time to deliver the news, "You stand up straight and tall. You don't blink and you tell people, 'This is what I've come to and this is why. And now I need everybody to buy into it.' It may not have been your best decision, but having been made, we've got to go this way together.
"And you get everybody to join you in that, because that's what the leader does."
Cox speaks about getting everyone to join in on his missions as though it's the natural course of things. But he knows it's not. To get people on board, he uses the Gestalt theory - the whole is greater than the sum of its parts.
"We try to get employees to understand that's the key to being happy in life," he says. "All of us have this innate feeling, whether we understand it or not. All of us want to be a part of something that is greater than we ever could be individually."
Cox believes that when people understand that the organization they're working with can help them get there, they'll buy into its mission.
"If the organization reaches its goals, [they] will ultimately have the things that they want," he says. "The part, no matter who that part is, can never be greater than the whole."
He includes himself in that. Cox measures himself not by his personal accomplishments but by the impact his accomplishments have on others.
"I measure success in terms of [the community]," he says. "Have I created good citizens of my children? Can they go out and become good contributors to society, as opposed to takers? Are people changed and improved and better people as a result of interacting with me and knowing me? Have I created a business where other people and families can do those same two things?
"And do I have something that will go on and live after I am gone, so that that entity, that business can continue to do those things for generations that I won't even live to see? If I've done that ... then I'm a successful guy."
Cox Financial, (513) 621-1771 or www.coxfinco.com
In 1992, Mike Conny opened a trailer repair business with a loan from his mother and stepfather. He had just one employee -- himself -- and he operated out of a single-bay garage.
Not long after, a trailer-repair customer asked Conny if he could build a new trailer. It took him a month-and-a-half, but he did it, and the customer was so pleased it ordered 20 more. Within seven months, MAC Trailer had 10 employees and was on its way to becoming a full-blown trailer manufacturer.
Today, MAC Trailer's staff of 400 builds more than 40 trailers each week, from dump trailers to flat-bed trailers. And it's still growing.
Much of its success can be attributed to innovation. It has stayed competitive and, in some areas outpaced the competition, by implementing new designs and technologies. The best example is MAC's Smooth Wall Trailer line. According to Conny, MAC was one of the first three manufacturers to bring this new style to the marketplace. The addition of Smooth Wall Trailers to MAC's portfolio reduced much of its competition but Conny really wanted to really set the company apart in the marketplace.
"We offered a fully polished and buffed smooth wall that was standard," Conny says, "while the competition, they wanted to option it. We spent money on computer automation to buff our smooth walls, so we could go into the market with a nicer product. That was a huge, huge step that we took up front, but in the long run, it's helped us."
The Smooth Wall Trailers were also designed with extra inches, allowing them to move larger volumes.
"The third thing," says Conny, "was we could offer the old conventional trailer, which was a sheet-and-post, and a smooth wall. Some of our competition just offered the smooth wall. It increased our market so we could sell more people."
And has it ever sold. According to the Polk Report, a trailer-industry publication, MAC is responsible for one-third of all aluminum transfer trailer and dump trailer business in the country, and is the leading domestic manufacturer of dump trailers.
Not bad for a company that began 12 years ago with a single man and a single trailer.
How to reach: (330) 823-9900 or www.mactrailer.com
You'll sift through page after page of listings for museums, foundations, institutes, PBS documentary Web sites, online tools and business professionals dedicated to fostering and honoring innovation. And it's no wonder -- with ever-expanding global competition and a slow domestic economy, creative new ideas and products are more valuable than ever.
Just ask Jack Gordon. After serving for eight years as a military intelligence analyst, he launched a civilian marketing career, working for companies such as Procter & Gamble, Beatrice and My Own Meals, and introducing more than 50 new products to the marketplace. He gained first-hand understanding of the make-or-break effect new product and service launches can have on companies and of the pressure on employees to come up with bright new ideas.
In 1991, Gordon joined consumer research company AcuPOLL Research Inc. in its founding year as its CEO.
AcuPOLL uses the Internet and local polling stations to gather the thoughts and opinions of consumers, introduce them to potential new products and provide clients with feedback. The company also offers comparative data pulled from an extensive database and actionable advice based on research results.
Over the past decade, AcuPOLL has tested more than 30,000 product concepts, advertising campaigns and services from clients including The Coca-Cola Co., Johnson & Johnson and Colgate-Palmolive. With its headquarters in Cincinnati and offices in Mexico, Brazil, the United Kingdom and Hong Kong, AcuPOLL has its finger on the pulse of markets worldwide.
Smart Business spoke with Gordon about the secrets to creating the next great innovative idea and tried-and-true tips for making that product a market success.
What makes for a successful product rollout?
We're a concept testing company, to a large degree, so we test the basic idea before [the client] even has a product. The biggest mistake manufacturers make is that when they develop the idea, it's not complete. It doesn't have consumer insight behind it. There's no wow factor, where the consumer says, 'I really have to have something that does this for me.'
The second thing is if they do have the consumer insight, they don't state the benefit well enough. There's not a very clear benefit to the consumer coming out of the idea.
The third thing is, if they do have the benefit, they often don't have the support for the benefit. They'll make wild statements like, 'We're going to clean better than anything you've ever had,' and then they don't tell them what they put in the product to make it clean.
Those are just common pitfalls that can keep you from getting trialed, because it's the idea that gets you trialed. Then, of course, it's the product that gets you repeat (customers). Once you get the idea and you understand that you have a winning idea, it becomes a matter of, 'Can you develop a product that will deliver all those benefits to where the consumer isn't disappointed in the product?'
And then you've got all the problems of execution. Can you build awareness? Can you make advertising that's really going to support and elevate this product?
What's the best way to get your advertising noticed and build that product awareness?
Some point of uniqueness you can leverage is the best way, because if there's nothing unique about your idea, if you haven't added anything new, why would somebody switch from what they're using?
I use Tide as an example. If you're introducing a new detergent, and your detergent cleans well, and you say, 'We have this really good-cleaning detergent,' consumers might say, 'Yeah, I'd like to try that. I would buy that.' But there's nothing unique about it.
So when they're are out there in the grocery store looking at that shelf, they see your new product and they see their Tide, and they say, 'You know what, I've been using Tide for 20 years. My mom used Tide. I trust Tide; I know it's going to work. Why should I switch?' And they won't pick (the new product) up.
Now, all of a sudden, you change the category parameters and introduce something unique. You introduce the very first detergent that has fabric softener in it. OK, so now you've got two products in one, and you've got a unique detergent in the marketplace.
Now they're standing there looking at their Tide, and they know they're going to have to go buy another product with it. Or, they've got your product, which says it cleans ... and it softens as well as anything on the market, and it's the same price as Tide.
Those are the kinds of products that tend to do well. If you don't have uniqueness, if you don't have a point of difference, your chances of having a profitable introduction are very slim. Without that uniqueness, what you have is a commodity. And the only way you're going to get trial is to promote it on price.
Are there products that have done well in consumer testing but not fared well on the market?
The most famous one, unfortunately, is Crystal Pepsi. Crystal Pepsi is a classic example of an idea that did well, and a product that did very poorly. Truth of the matter is that Crystal Pepsi got all of the trial that we predicted it was going to get, but what Crystal Pepsi didn't get was any repeat.
And there's two reasons for that. One of them is that the company did not make a product that delivered what they were promising. But the second piece with that is I don't know that they could have. What somebody should have done is caught that idea and said, 'This is not a product that can be made in the first place.'
The promise for Crystal Pepsi was that it was kind of halfway between a cola and an uncola, or a lemon-lime drink. People kind of think that there's a big gap between those two products, but there isn't. The truth is that a cola is just a lemon-lime cola with additional flavoring in it. So, of course, they famously missed.
What are the best ways you've seen companies innovate?
When they use an outside innovation expert. A lot of companies try to innovate year in and year out internally. And they do a very poor job of that because they're not really trained. They call these meetings, and people come to these meetings with the same ideas they had last year, that nobody accepted last year.
When a company tries to innovate internally, they just resurface old ideas. Or, a lot of companies will try to use their advertising agencies for innovation. And ad agencies aren't very good at this, either, because advertising people are very good with words.
What works for a basic concept or a basic new product idea is a simple-to-understand, straightforward statement of the benefit of why it works. And as soon as you turn it over to your advertising agency, it tends to become this long thing with lots of great words, and nobody can understand what the benefit is.
So the best people at it are the people who do it for a living. And there's a lot of those people around. Doug Hall at the Eureka Ranch does a very good job. Marco Polo, also in Cincinnati, does a very good job. Some of the design agencies actually do a pretty good job of doing new product work when they're turned loose.
When a CEO has a great innovative idea to implement, who should he or she get involved in the project?
Well, you have to have internal people involved. And the people that are usually best at that are marketing people, product development people. The people that understand what it's going to be like to make the product, because that kind of grounds you in reality and won't let you go out too far.
And then marketing people, who are usually better at seeing the big picture and the objectives behind the whole thing. Those two groups are very critical to get involved.
Once that great idea is ready to roll out, how do you get everyone in the company to buy in?
That's the $64,000 question. That's what leadership is all about. There are many, many techniques for doing that. I think the most successful way of doing that is to create ownership in the people that you want to help you get there.
What you have to do is not hand them a finished idea and say, 'Go do this.' If you do that, they may do it because they're afraid of you, but they're not going to say, 'I really believe this is the right way go.' What you have to do is convince them it's the right way to go and let them help craft the finished idea.
Then they'll have ownership. And if they have ownership, they'll do a heck of a lot better job of executing.
What was the most valuable lesson you learned when you were at Procter & Gamble?
This is the truth -- the first thing I learned at P&G was if you get the product right, you can make a lot of mistakes in sales and marketing and still sell a hell of a lot of product. So what I learned is the importance of the product.
It's nice to have the messages, but if the message is off-base, you can fix it. But the hardest thing to do is to get retrial. Trial is a difficult thing to get on a new product. But once somebody's tried it and they're disappointed, trying to get them to buy it a second time, even though you've changed it, is one of the hardest things in the world to do.
If you get the product right, then you can experiment with all the other marketing angles to find the right message and the right way of delivering the message, and you can do all of those things over time. But if you don't get the product right the first time, you've killed it.
How to reach: AcuPOLL Research Inc., (800) ACUPOLL or www.acupoll.com
The second thing you can't miss is the "Dirty Dozen" movie poster that hangs prominently on the wall near the lobby.
"It's a badge of honor," says Stein-Sapir about the poster, which graces the entrance of every one of MIS' locations nationwide.
The poster's story has its roots in the scrappy, entrepreneurial nature of this lawyer-turned-businessman, and the role of underdog embodies not just Stein-Sapir's personality but those, too, of his 750 employees. Stein-Sapir and his MIS team have made it their mission to beat the odds at every step of the company's evolution and succeed where the competition doesn't give it a chance.
MIS, which provides mortgage title insurance, valuation assignment and other settlement services, is not Stein-Sapir's first venture. He's had numerous companies over the years, including one he sold to TRW in the 1980s (Record Data) and a public company (Morgan's Foods) of which he's still majority owner.
MIS is in growth mode, expanding almost monthly by adding new service centers nationwide. Stein-Sapir loves growth, and, if the past is any indication, his penchant for building and selling businesses will lead him to another enterprise or two before he retires.
But despite the change that growth has brought, one constant throughout Stein-Sapir's career has been his commitment to his employees.
"We have little things," he says. "Like if we have to go out and have a dinner here outside of the office, we always require the people at that dinner to bring home a dessert to their significant other. It's never about the money. It's the fact that someone thought of you."
Stein-Sapir gives more than just lip service to building a corporate culture comprised of team unity, loyalty and a sense of family; it's what drives him. Smart Business spent the day with him and his staff to learn about the importance of family and of creating a sense of family in the workplace.
How important is it to make a commitment to employees and their families?
If a family unit is not united, you're going to have strife. That's not going to be good for anybody. When we hire the highest management levels in this organization, I have those people over to my house.
If they're from out of town, they stay with me because I want to see what they're like as people and what their relationship with their other partner is like. (My goal) is to see if there's a solid foundation, because that's very important. They can make a judgment about my values and I can make a judgment about them. In the final analysis, that's what's most important.
Do you think it's necessary to dig deeper and really get to understand your staff?
All knowledge is critical in terms of being successful, not only in business but in life. Psychology is a big part of running an organization. How do you handle the demons of certain people who are very important to you and make them feel comfortable and at home?
Everyone has their demons. It's simple human relationships. Those are very important things.
What happens when companies get bigger and bigger is that they start getting departments and committees and no one is really attending to the important things. So far, for us, it's working very well. Every time I have a chance, I tell my new staff members, 'If you ever have a decision to make that involves your family or this company, as much as I love (this company), you always pick your family.' It isn't even a question. It's not even something to think about.
And it's worked. It's worked to instill motivation in people and build their loyalties.
So how does the Dirty Dozen relate to you and your team?
There was a company called Record Data that I sold to TRW in 1985. Not long after that, I was getting phone calls from people who worked for me at Record Data saying, 'Please help us find a home because we're getting chewed up and spit out by this Fortune 50 company because we don't have college degrees and we don't have MBAs and we don't have gray flannel suits and we don't have attaché cases.'
All they had was that they really knew the business cold and they were honorable, hard-working people. But they didn't fit into the TRW mold. So when my noncompete (agreement) was up, I started (MIS) strictly as an opportunity to create jobs for people.
We promptly took most of the business away from TRW. One of the people who worked for me called me and said, 'We have to tell you about this meeting (of the TRW executives). (One of them) said that you were nothing but the Dirty Dozen and that you were going to be out of business in six months.'
I laughed when I heard that and said, 'Go back and tell (them) they ought to see the movie, because the Dirty Dozen beat the Nazis.'
To make long story short, that subsidiary of TRW is out of business, TRW is out of business, and we now have a service center there (in the city where Record Data was located) that has 60 people. So there is justice in the world. So every time we open an office now, I get a Dirty Dozen poster and we hang it in the hall.
What strategies do you use to create a sense of loyalty in your employees?
Business is people, and it's the people in the trenches who interface with customers and do the things that have to be done to make the difference. You cannot motivate people by looking over their shoulder 10 or 12 hours a day.
You can't say to them that this has to be done, and will you stay a couple extra hours tonight or come in on a Saturday and clean up the ant problem or stop by because you think the desks need cleaning. That comes because of a feeling of self-worth that you imbue in these people, a feeling of empowerment and a feeling that they're being treated fairly.
It sounds corny, but it is true. Think about your own family. If you want your wife to be loyal and she wants you to be loyal, it's not going to be because you're looking over each other's shoulder. It's because in your hearts you want to be.
So how do you get people to want to do something? You treat them fairly. People here are happy. They know they're being judged for themselves.
And I'll tell you one of the things we get out of it, especially with the teams we have. If someone is slacking off, they'll tell their supervisor. They don't think about it as being disloyal to a friend; they think of it as being loyal to their family.
I think it's Management 101, but not a lot of people do it. We do, and you can see the results.
I love the opportunities we give to people. I love coming into the office and seeing the people in this organization. There's an energy here, and it's true of every single service center we have. People are happy and they're excited. They work sometimes until 10 or 11 o'clock at night when they don't need to do that. That's exciting.
How to reach: Mortgage Information Services, (216) 514-1330 or www.mtginfo.com
But what if people were rewarded for doing things they do every day, such as going to work? That's the idea behind JACO Manufacturing's Rewards Based Incentive (RBI) program.
JACO, a plastic injection molding manufacturer, was experiencing high employee turnover and high absenteeism, forcing it to rely on expensive temporary labor to fill in the gaps. In addition, there were a number of workers' comp injuries, and workplace safety was becoming an issue.
"We've always been an organization that has really believed in employee involvement," says JACO president and CEO Stephen Campbell.
JACO implemented the RBI program in 2000 that targets attendance, safety, service, performance and recruitment. Employees who don't miss any shifts, who recognize and improve unsafe work conditions and who perform above-and-beyond the call of duty are nominated quarterly to receive incentives.
Incentives include monetary bonuses, collectible items and entry into a quarterly raffle for items such as television sets. By the fourth consecutive quarter of perfect attendance, an employee can earn $250.
"You're always looking at the things you do poorly, and, as a result, it's easy to get caught up and look at what you're doing wrong all the time, where this gives us an opportunity to really focus on what we're doing right and recognize those people that are doing the things that are right," says Campbell.
In 2003, a Performance Shared Bonus Pool was added. The pool is determined through a formula based on the company's return on assets. At the end of the year, each employee's attendance points and hours worked are tallied, determining their percentage of eligibility. Hourly employees with 100 percent eligibility received a $746 bonus at the end of 2003.
With the programs, absenteeism has dropped by 35 percent and turnover was reduced by 30 percent. JACO eliminated reliance on a temporary work force, saving more than $186,000, and cut employment advertising costs more than 60 percent.
And in 2003, JACO had 130 employees in a manufacturing setting, and not one had a recordable injury or lost time due to a work injury.
And the greatest reward for Campbell?
"This is the best quote, one that really sums it up for me," he says. "An employee cornered me one day after an event and said, 'You know, it's nice to know we do more than just make plastic parts here.'"
How to reach: JACO Manufacturing Co., (440) 234-4000 or www.jacomfg.com
Accounting degree, master’s degree in finance, Xavier University
Managed Burger King restaurants in Northern Kentucky
What is the greatest business lesson you’ve learned?
You must always, always, always tell the truth, act with integrity, never mislead anybody about anything, no matter how bad it hurts. Everything you ever say or do comes back on you. I have never seen it fail, whether we deal with one another internally or whether we’re dealing with a customer.
The world is such an ephemeral place. A lot of times you might be tempted, when you disappoint a customer, to maybe say something that’s misleading. The customer winds up searching around to solve the problem, and if they felt they’ve been misled, you never get that customer back.
There’s no point to it everyone understands that it’s not a perfect world. So when you act with integrity, you’re putting someone’s best interest in front of your own embarrassment or your own disappointment. And the only way to meet or exceed a customer’s expectation is to deal with them with integrity.
Whom do you admire most in business and why?
I’ve got a lot of mentors. Probably the greatest inspiration to me was a philosopher by the name of Napoleon Hill. ... He was the first person to organize a thought process on how to succeed.
Many people have stumbled across it, but what you find out is once you understand this person’s thought processes, you can look at almost any other person and start to appreciate who those people are and how hard their job is, and that they’re probably pretty decent folks or else they couldn’t get to where they’re at.
What has been your greatest pleasure in business?
It is really, really a pleasure, when you have a successful company, to associate yourself with other people who aspire to do good things. The hardest person for us to find is someone who is inspired, who is coming in with the flame every day, someone who has a vision, who has a burning desire to see things in this world get better. And it is such a pleasure for me to work with really quite a few people today that I’m able to work with and share in their enthusiasm. That really is exciting.
I’ve hired people from a lot of larger organizations in the last few years, and I used to just laugh ’til I cried when I’d come in and say, ‘Lets talk about this,’ and (they’d say), ‘OK, give me my opinion, and I’ll go get it done.’ It’s like, where did you learn to think that way?
So it’s great to watch people transform when they realize they can go do things and they’re empowered to make decisions and that they’ll take the accountability for it. I can’t think of anything else I’d rather do.
For Homi Patel, chairman, president and CEO of Hartmarx Corp., a century-old producer of men’s suits, changes in business culture posed a life-or-death dilemma: Stay focused on a product with declining market share, or adapt.
So Patel established a diversification strategy that used acquisitions and internal product development to propel Hartmarx toward a successful future. And with dedication and hard work, that strategy has paid off.
To many members of corporate America, the advent of casual Friday was a relief a day to work in comfort, without being hampered by suits and ties. But to Patel and Hartmarx, the popularity of casual Friday signaled a disheartening trend.
“The suit market, back about 10 years ago, 15 years ago, started to decline rather precipitously with the casualization of America,” says Patel. “It started off with casual Friday, and soon it became casual every day. It was just very obvious that the market that we were in was declining at 5 to 7 percent a year, and I don’t care how good you are, if the global market is declining, it’s not a good place to be.”
Patel and other company executives took stock of what they had a 118-year-old company with a respected and trusted brand that was intensely focused on a failing market. They needed to get into growing markets women’s wear, sportswear, golf wear.
Hartmarx could no longer be just a men’s suit company. It needed to diversify.
There were only two ways to achieve product diversity: Create new products internally, or acquire companies that were already producing them. Rather than pick and choose, Patel decided to pursue both.
Building on relationships
For Patel, acquiring companies is an ideal diversification strategy. By purchasing another company, Hartmarx not only gets a time-tested product with established market share, it also gets an experienced management team that understands the product and its consumers.
In fact, a competent management team that is willing to stay with the company after an acquisition is one of the main criterion that Patel and his executive team look for in a potential acquisition because, as Patel learned the hard way, the production of men’s suits takes niche talents that may not transfer well to other apparel niches.
“When you’ve done something for a long period of time, that’s your expertise,” says Patel. “As we moved into another level of products, we thought we could take our own people who have done tailored clothing and introduce them to other products and let them do other things. We found out very quickly that that doesn’t work.
“Even though apparel is apparel, men’s wear is not women’s wear, and tailored is not sportswear, sportswear is not golf wear. There’s significant differences and nuances between each subset of the industry. You do need whole new teams.”
Patel also looks for other things in potential acquisitions: an upscale product line, high inventory turnover and profitability. And he often finds those companies through Hartmarx’s employees.
“We ask all of our divisional people, people who run the businesses, the sales managers, etc., to keep their eyes and ears open when they go to shows, when they talk to retailers and when they’re in markets,” Patel says. “(We ask them) to try to figure out who are the up-and-coming companies and who would make a good fit. We get names of people and companies that we would like to acquire from the ground up.”
By identifying companies through business networks, Patel often finds that the companies he wants to acquire aren’t looking to sell. The Hartmarx team works to establish a laid-back personal relationship with the leadership of the potential acquisition, giving the acquisition’s leaders take time to understand Hartmarx, its businesses and philosophies and giving Patel the opportunity to gauge whether the company’s leaders will be a good fit with Hartmarx.
“We’re looking for people who still have an interest in working for some length of time, [at least] five to 10 years,” says Patel. “We are looking for people who have creativity. And I think what we look for is the fit of the human beings more than anything else. We use an expression are they our type of people?
“It’s one of those things that’s kind of hard to define, but when you go through an acquisition ... you get a sense whether you’ll fit with the rest of the organization or not. We know it when we see it.”
This relationship-based approach is often successful, if time-consuming, and it allows Patel to avoid a significant hurdle that he doesn’t want to face: competition for the purchase.
“While we will look at businesses that are for sale, we generally don’t like to get into bidding wars, particularly of late because the price of businesses skyrocketed,” he says. “In the last two or three years, private equity has come in and really raised the prices of retail businesses and apparel business significantly. And so it’s hard for us to compete with private equity in particular bidding for a business.
“We prefer not to get into bidding wars; we prefer to identify individual companies and then work with their management.”
Once a company agrees to join Hartmarx, leaders from both sides establish a five-year plan. This plan is vital in two ways. First, it establishes clear expectations for the acquired company’s performance, post-acquisition. Second, it establishes a profit-sharing payout for the acquired company’s owner, based on reaching those goals. As a result, says Patel, acquired companies don’t need intense supervision or management.
“We don’t manage the business,” he says. “Our general propensity is to leave entrepreneurs alone they become our general managers. We have a very clear set of guidelines as to what is expected of both parties, what the financial rewards are. We’re here to help, if we can help add synergies to retail relationships, sourcing relationships, but we let them run their businesses very autonomously. As long as we’re meeting targets, then we’re good.”
From the inside out
While Hartmarx devotes many of its resources to securing the right acquisitions, its leaders also encourage the development of new ideas and concepts internally. This internal production is vital, says Patel, because with the increase in the number of private equity firms, Hartmarx may not always be able to afford new acquisitions.
“As the price of acquisitions continues to get higher and higher, growth through new, internally generated, organic programs is going to become more and more important for us,” he says. “And we’ve embarked on a number of new projects which are growing from within a greater number of products being offered under existing brand names, the development of new brands, etc.”
These new products and brands may be the future of Hartmarx, so the company does everything it can including offering financial incentives to encourage leaders to continually generate new ideas.
A large portion of Hartmarx’s executives’ compensation is based on the short-term and long-term performance of the businesses they oversee. And the only way those businesses reach their goals is if they are continually energized by an influx of new products.
“We have think-tank teams in each group or each business who are coming up with ideas as to what they should be doing, and then we decide which ones merit” funding, he says. “For them to reach their long-term goals and earn long-term bonuses, they need new ideas to be funded, and to be funded the ideas need to be good. So there’s an internal competition for funding.”
And while the competition can be fierce, when it’s time to fund ideas, leaders turn from competitors into collaborators. That’s because the decision to fund an idea is reached by consensus among Patel, the CFO and other executives, and the leaders of each business. By including everyone in the decision-making process, leaders not only get to promote their own concepts, they also get to see whichconcepts are gaining approval, increasing their own chance for success in the future.
A balanced approach
This diversification, while necessary, doesn’t mean that the company has forgotten its roots Hartmarx is still devoted, at least in part, to its tailored clothing lines. In 2006, the company will achieve what Patel identifies as the perfect product mix: half of its business will be focused on tailored lines (suits) and the other half devoted to nontailored lines (sportswear).
By maintaining its traditional product lines, Hartmarx has also maintained a steady influx of revenue. While the tailored market is on the decline, it still brings in enough to fund the company’s diversification efforts, and its two sides work together to keep Hartmarx a major player in the apparel market.
“We have a suit business that is basically large market share, nongrowth, generating a lot of cash,” says Patel. “The strategy essentially is to take the cash generated by this static business and invest it in growth businesses where we don’t have large market shares. One generates cash and one uses cash, so we take the cash from one and put it into the other, and use it to either grow from within or find acquisitions.”
Hartmarx’s dual-diversification strategy helped the company achieve nearly $600 million in total revenue in 2005 and increase its 2005 net earnings by 48 percent over 2004.
Beyond the company’s financial success, its diversification has added a level of security in the face of the recent trend toward consolidation of retail stores and suppliers.
“Consolidations continue unabated,” says Patel. “As a result of that, the power structure continues to move toward the large stores, who are more interested in creating their own brands and doing private label. Private label is probably the most important element in their strategy of gaining profitability.
“If they can do it on their own without manufacturing, they’ll put that margin in their pocket.”
That margin is good for the large stores but not so good for Hartmarx. Not only do private labels mean more competition for consumers’ attention, they also mean Hartmarx has to work harder to sell its apparel to retailers, because now the company’s sales team has to convince retail buyers to purchase a brand that will compete with its own label. Not an impossible task, but one that’s more challenging than selling to a retailer without its own label.
But by acquiring many brands and expanding into niche markets, such as golf wear, Hartmarx has built a relative safety net for itself.
“No brand accounts for more than 20 percent of our business,” says Patel. “We’re diversified enough that we’re not too terribly affected by consolidation.”
Overall, the diversification strategy has created a stronger, more balanced and more adaptable Hartmarx, providing a foundation for increased future success.
Says Patel, “It helped our earnings, and it’s helped us position ourselves as a broad apparel company, as opposed to a narrow segmented company. Overall, we’ve been pleased.”
How to reach: Hartmarx Corp., www.hartmarx.com
This theory was based largely on the experiences of CEO and President Paul Houston, who helped create the funeral services company from the bankrupt remnants of Loewen Group International.
A self-professed student of the School of Hard Knocks, Houston says: “I’ve had the chance to work in Canada and the United States, England and Japan. Having looked at different organizations and companies, and knowing that every company has financial objectives and business objectives that have to get done to keep shareholders happy, I realized really early in the process that unless we create an environment where there’s a real team spirit and people are working professionally and acting ethically, whatever we get in results for our shareholders wouldn’t be sustained.”
And without sustained shareholder results, the company couldn’t survive in the long term the fate of Loewen Group International proved that. But there were other considerations, as well. Houston wanted an environment that would foster employee growth and development, remain competitive in the marketplace and offer employees clear-cut criteria for evaluating the performance of both company executives and themselves.
Most important, Houston implemented a set of company values to ensure that Alderwoods’ customers received the empathy and respect that they needed and deserved.
“We want to make sure that when we’re dealing with a family that they’re treated with the same kind of compassion they would expect we’re dealing with them at one of the worst times in their life,” says Houston. “We want our employees to act in a very ethical, professional way, with a lot of compassion. We don’t want (customers) to think for one second that Alderwoods cares more about the business plan or more about the financial objectives than serving that one family properly and showing them the compassion they deserve based on what’s going on in their lives.”
Houston’s challenge was to create an environment to support each of these goals. He found the answer by placing a defined mission statement, vision statement and set of core values developed in partnership with employees at the heart of company operations.
Vision and values
Early on, Houston and his management team traveled to some of Alderwoods’ 613 funeral homes, 72 cemeteries and 60 combination funeral home and cemetery locations across North America., holding meetings with employees to help define the company’s direction. During those meetings, company executives presented their ideas for the vision statement, mission statement and values, and asked for employee input.
“We told them that we really care about what they say, what they feel, and we’ve also got to understand the history of where they’ve been in order to set the set of values and go forward,” says Houston. “We asked them specific questions ‘When you think about integrity, what specific things jump into your mind? What are the things that would make you feel comfortable about measuring (it)? What does it mean to you? What does it mean to the company?’”
While it was not easy to include employees the company held about 50 meetings over nine months with more than 400 employees Houston felt doing so was vital to the company’s success.
“(The values, vision and mission) are just as important as the financial measures of the company,” Houston says. “We had no choice but to say we’ve got to put the time and effort into making sure that all of our team members and all of our associates at Alderwoods know what we represent, what we stand for and where we want to be five, 10 years from now. And that was why we spent as much time and money as we did developing ... the values.”
After nearly a year of meetings, Houston and Alderwoods’ management team met to begin to define what would become the compass for conduct at Alderwoods. They poured over hundreds of pages of notes and boiled them down to five defined values (integrity, teamwork, communication, compassion and creativity), a vision statement (“Using imagination and leadership to exceed customer expectations”) and a mission statement (“We will create value for families, employees and shareholders by being the superior provider of seamless funeral service. We will attract outstanding people and nurture their development. We will be the leader in the communities where we operate.”) that would direct the company from that day forward.
Creating the culture
The next step was to position the vision, mission and values at the center of the company’s culture. Houston did that by inundating Alderwoods’ offices and employees with visual reminders of them.
First came the plaques Houston commissioned plaques with the vision, mission and values engraved on them, to be hung in each of Alderwoods’ funeral homes. Then the company produced handbooks highlighting company policies and the vision, mission and values. When employees received their business cards, the three guiding principles were printed on the back.
And last but not least, Alderwoods’ management team embarked on another tour of meetings.
“We had a full push on trying to get (the values, vision and mission) integrated into the organization,” Houston says. “We had meetings where we rolled out and explained the values to employees, explained to them all of the meanings and explained to them, how did we take those pages of notes that they gave us and translated them down to that value.”
Being surrounded by the guiding principles didn’t guarantee that employees would accept them and live them. But Houston addressed this, as well.
“I like to live the values so that (employees) can measure myself and the management team on the way we act in the organization, to see whether we believe in them and if we’re practicing the values,” says Houston. “Those are times when the values will get credibility by osmosis. (It’s a matter of) practicing what you preach.”
Above and beyond management practicing the vision, mission and values, the guiding principles were also incorporated into human resources. Prospective employees are evaluated against the vision, mission and values will these job candidates help reinforce this core part of Alderwoods culture?
And once employees are hired, living the values and mission is a requirement for staying with the company.
Houston says: “If you look at our employee valuation, it actually talks about, how well do you communicate? Are you a good team player? Do you act with compassion? We actually measure performance against these same values so there’s not a double standard and there isn’t confusion within the organization.
“We’ve found that it’s now easier to find someone who’s not following the values they stand out pretty quickly. Now that we’ve defined the environment that we want, when we get somebody who doesn’t decide that they’re going to communicate, doesn’t decide that they’re going to be a team player, and starts to act with no integrity, they jump out at you.”
The company also implemented award programs that recognize employee contributions and highlight employees who exemplify Alderwoods’ guiding principles.
Establishing the company’s vision, mission and values has had enduring benefits within Alderwoods. After four years in operation, the company posted revenue exceeding $700 million in 2004, compared to a net loss of more than $217 million from continuing operations at the end of 2002.
By the end of 2003, it posted net income from continuing operations of more than $10 million, and through the first three fiscal quarters of 2005, that number was $33.8 million.
“If you can create an environment for continuous improvement and an environment where people think they’ve been respected, results will be sustainable because everybody’s looking to do better and better,” says Houston. “And I think that’s what’s helped sustain Alderwoods’ program over the last three or four years in terms of the actual progress we’ve made as a company, financially and operationally.”
In addition to the financial results, the guiding principles have helped the company establish and maintain the same level of care and service across each of its funeral homes and cemeteries.
“Because we’re really a geographically diverse business, it’s very important for us to say that we can have the same professional impact at that one location down in Florida or that new location in Vancouver, Canada,” says Houston. “Each believes in what we’re trying to accomplish as an organization and understands that even though they’re by themselves, there is a guiding light that helps them make the right decisions.”
“And I’ve always told (employees) in all my town-hall meetings, if you get lost on the path and you don’t know where you’re going, if you look to the values and make the decisions based on those, you will not make a mistake.”
HOW TO REACH: www.alderwoods.com
“We’re not in the business of running the businesses,” Strike says. “We are coaches and trainers, people who consult and help people run their businesses.”
And that is the bare bones behind Martin Franchises’ management style. The company isn’t hands-on, and it doesn’t micromanage. Instead, it places its trust in the store owners.
“Our feeling is that franchisees run a better store than we can run ourselves, because they are on-premise and focused on the success of that store,” Strike says. “We think our expertise is in bringing franchisees together in a way that works synergistically for everyone’s benefit.”
That highlights two of the main benefits to running a franchise operation plenty of experience to draw from and the ability to specialize. Store owners are allowed to focus on what they do best running the store and Martin Franchises then has the time and resources to do what it does best focus on the big picture.
And that is revitalizing the Martinizing Dry Cleaning brand. The first Martinizing Dry Cleaning stores opened in 1949, and by the 1960s, there were thousands. But when business started to dwindle, the company stepped back to take stock.
In 1987, it designed a new franchise agreement, offering improved support in the form of marketing and advertising packages, public relations consulting and equipment assistance in exchange for a royalty of 4 percent gross annual sales and an advertising fee of 0.5 percent monthly sales. And it’s taken steps to hone in on its target customer, households with median income of $60,000 or more. Martin Franchises does this by keeping prices pretty average neither the highest nor the lowest in any market while providing the best service.
“We’re not going to be the lowest-priced cleaner in a market; we don’t want to be,” Strike says. “That does not give us the revenue we need to provide our customers the service they want. We try to provide an excellent service, excellent quality at a very reasonable price really provide an excellent value.”
This approach is one of the benefits of more than a half-century of business experience.
“It’s just a question of training,” Strike says. “[It’s from] working with a lot of stores over a long time and a lot of different markets, gaining that experience, sharing that experience between franchisees and developing slowly, over time, that reputation with customers.”
And today, the company is taking that experience and reputation into new areas in the United States and abroad.
“We’ve been around for a long time more than 50 years,” Strike says, “and a lot of the stores are older stores, so as demographics change and neighborhoods change and stores and shopping centers change, a lot of those old stores are dropping out, closing. It’s just a natural lifecycle, if you will, and we happen to have a lot of stores that are nearing the end of their lifecycle.
“But we’re replacing them with new, high-quality stores in high-growth markets. So the total number of stores happens to be dropping down in the U.S., but it’s just part of a natural growth, a natural process of aging and change.”
But while the number of stores domestically has dropped over the past five years from more than 500 to fewer than 400, the number of international stores has steadily increased from just over 150 to almost 250.
“It’s kind of like pruning in some ways,” Strike says. “We prune the stores that are no longer in the markets or neighborhoods where our key customers are. And try to put in new stores in places where we want them.”
That includes places such as Mexico, Ecuador, Peru, Hong Kong, Japan and Germany, in addition to a renewed focus on American cities such as Nashville, Orlando and Phoenix It might sound daunting to target such vastly different areas, but Strike insists that opening foreign markets isn’t all that different from opening domestic markets.
“Right now, our approach to foreign markets would be similar to what we’re doing in the United States, which is that we would like to find franchisees who are capable of opening multiple stores themselves to be the core in any particular market,” he says.
Strike says the biggest challenge to going international hasn’t been a language barrier or cutting through government red tape. The biggest problem has been distance.
“The challenge for us is being able to establish a big-enough presence in any foreign country to be able to justify the overheads involved, to provide support to the franchisees,” Strike says. “It’s more just a question of distance, distance requiring a sufficient size.”
And there are other considerations that go into market selection, whether that market is domestic or international.
“We look at markets which we feel have the potential to handle the growth of our putting in several dozen stores in a market,” he says. “And we look at stores where we have a kind of open territory, without a big presence, where we could find an area developer who really wanted to go in and put in multiple stores themselves, and we could offer them kind of an open field to do that.
“Most of these markets are areas where we’d expect there to be two, three, four area franchisees who would take parts of the market and develop them.”
Once Martin Franchises decides to open a new market, the most important factor becomes finding the right location.
“We look at the demographics, at the quality of the center, at accessibility, we look at visibility, we want to make sure we’re on the correct side of the street, we want to make sure, in short, that it’s easy for our customers to notice us, recognize us and get to us,” Strike says. “We want to provide as easy an experience as possible for them to drop their clothes off and pick their clothes up. We prefer drive-through locations, if possible, and we want to make sure there’s plenty of parking.”
Once markets are selected and store locations opened, the biggest issue becomes quality control. How, with so many different stores in so many different locations, can Martin Franchises guarantee they’re all living up to the Martinizing Dry Cleaning brand and reputation?
Training, training, training, says Strike.
“Working with our franchisees so they know what’s involved in providing a quality service to their customers,” he says. “Its not just about how you clean the clothes, it’s also about how you greet the customer, how you package the clothes, how you take care of them, how you make sure they get the clothes back, a whole variety of things that are involved in providing good customer service. Meeting the customers’ needs, promoting quick turnaround, quick service, all those.
“So what we do is, we train our franchisees and continue to work with them so that they know how to offer all those things at a price that’s reasonable and provides a good value.”
Each new franchisee must go through a training course before opening his or her store. The course consists of one week of both classroom and hands-on training at Martin Franchises headquarters in Loveland, and another 60 to 80 hours of training in the franchisee’s own store.
After the crash course in dry cleaning, headquarters keeps in touch with franchisees through multiple avenues, from annual regional meetings to a toll-free helpline. And the company drops in on owners periodically to see how they’re doing.
“We have regional managers who visit the stores, inspect, do quality checks and work to train the staff at each individual store to learn to recognize quality and produce it,” Strike says.
But there is some room for individuality in the franchise business. Strike tries to ensure that each franchisee has the power to make the business right for them, without straying from Martinizing standards.
“We try to establish a firm set of guidelines as to how to run a store,” says Strike, “And then tailor the implementation of that very specifically with each franchisee, allowing them to make decisions to run their own business.”
Built-in flexibility is essential in managing a franchise, says Strike. Because while there are definite benefits to operating through franchises the ability to expand quickly, to have many stores and still maintain close contact with each through the owners there are also disadvantages, namely dealing with varied personalities in an organization that relies on standardization.
“You have to work with multiple personalities to maintain one brand image and one approach to kind of servicing the customer,” says Strike. “And that’s the role that we play coordinating the efforts of these multiple owners and helping them get the benefits of working together. It’s not easy.”
But that doesn’t matter to Strike. He says Martin Franchises will stay on top by continuing to tweak its approach to helping store owners and keeping everything in balance.
How to reach: Martin Franchises Inc., http://www.martinizing.com