Many small to mid-sized companies want to export, but it can be challenging to find a way to initiate or support international efforts.
“For those companies that are exporting today, sure, it’s great if ... on every one of our exports we could say, ‘Yeah, give us 100 percent cash up front, and then we’ll send you the product,’” says Patrick Hayes, export finance manager with the U.S. Export Assistance Center. “But in today’s world, we know that that’s not how it works, and financing is part of the deal.
“There are cash flow issues. There are also issues of, ‘Hey, am I going to get paid?’ Those are really the two issues that impact small businesses the most.”
Fortunately there is help through The Small Business Administration, which offers loan programs to help companies finance their exporting operations.
The Export Working Capital Program’s philosophy is that a business should not lose a viable export sale due to a lack of capital, says Hayes.
“Simply put, if your business has a deal and it makes sense and we’re pretty sure you’re going to get paid but you’re just having a cash flow issue and your bank is unwilling to lend against that foreign receivable, the SBA wants to step in with the Export Working Capital Program,” he says.
The EXCP will provide your bank with a 90 percent guarantee, so if something were to go wrong, the most the bank would have at risk is 10 percent of the amount lent to you, says Hayes. The maximum SBA-guaranteed portion is $1.5 million, but the gross amount of the loan can be up to $2 million under an arrangement the SBA has with the Export-Import Bank of the United Stats (EM-Im Bank) to co-guarantee the amount.
This SBA loan also can provide a preliminary commitment.
“It would be a situation where you go to your bank and your bank says, ‘We’re not interested in providing this type of export financing,’” says Hayes. “You can then approach the SBA directly, and, if we can do the deal, we’ll issue a preliminary commitment that says we will do that deal. Then, you can take that back to your bank, or any other bank in town for that matter, and say, ‘Look, the SBA has already agreed to process this deal.’”
The loan is characterized as transactional financing.
“We will finance specific transactions,” says Hayes. “Your line of credit can be approved by both the bank and the SBA. However, before you can get any draws on that line of credit, you would first need to have an actual transaction in hand and say, ‘Here’s my $1 million sale to Brazil with my letter of credit or my credit insurance. Now I need to draw on the line of credit to pay my people, to pay suppliers, to produce for this $1 million sale.’”
To qualify for the EWCP, a company must have been in business for at least 12 months or show a proven expertise. It must also meet the SBA’s size standards, which are evaluated on an individual basis, and the SBA must make sure that what the company is selling is, in fact, titled and shipped from the United States.
“We do get many inquires from somebody who wants to pay a supplier in China to make a product and then have that product shipped directly to England, for example,” says Hayes. “Those sales would not qualify for EWCP.”
HOW TO REACH: Small Business Administration, http://www.sba.gov
Companies have a legal obligation to make sure they are doing their part to limit as well as prevent pollution through wastewater discharges, even if they have discharge permit.
“The Clean Water Act has significant penalties attached to it,” says Erika K. Powers, a partner in the Chicago law office of Barnes & Thornburg. “Companies that have wastewater permits know that they need to pay attention to water pollution, and that it’s much more expensive to address pollution problems later than to prevent them. No one wants to be in violation of a permit.”
Smart Business spoke with Powers about the requirements of the Clean Water Act and how business can take a more active role in preventing pollution and creating environmental policy.
What does the Clean Water Act seek to do?
The Clean Water Act sets forth the goals that Congress wanted to achieve in the nation’s waters. One of the primary goals is to protect and maintain water quality in order to support a number of uses, including navigation, recreation in and on the water boating or swimming aquatic life ... and also wildlife. Other uses are agriculture supply, industrial water supply and, of course, drinking water.
After discussing the overall goals, the Clean Water Act establishes a framework for states to adopt water quality standards to support their waters’ uses, as well as a permitting program to apply those water quality standards to wastewater discharges.
What are some of the consequences of violating this act?
There are a number of things that could result in violations. For example, if you discharge any type of pollutant to a waterway without a permit, that can be a violation of the Clean Water Act. Even if you have a permit, if you discharge pollutants in excess of your permitted limits, that can be a violation.
Violations can result in a variety of consequences. You could face federal or state enforcement action. The Clean Water Act provides for penalties of $37,500 per day, per violation. And as part of the enforcement action, the discharger responsible may be required to perform or contribute to any clean up necessary to address the adverse effects of the violation.
Knowing violation, such as intentionally dumping a truckload of chemicals down the sewer, also carry criminal sanctions.
How can a company prevent violations?
First, understand the limits that apply to your discharge and the water quality standards that apply to your receiving water. Next, make sure you are aware of any relevant information about your receiving water and whether it’s impaired, or being adversely affected, by pollutants in your discharge.
If you find that there is a problem, measures to reduce pollutants in a company’s discharge generally fall into one of two categories. The first, called BMPs, or Best Management Practices, are measures like recycling, source control and better housekeeping practices.
For example, if you’re discharging mercury, look at the equipment you use in your factory. Do you have mercury switches? If so, you may be able to obtain equipment that does not use mercury switches. Do you have mercury in fluorescent light bulbs? If so, you may be able to recycle more appropriately to make sure that none of that mercury gets into your wastewater.
Source control efforts look at using different raw materials that don’t have as many pollutants in them. BMPs are the first step look at anything you can do to get pollutants out of your wastewater.
If you have done everything you can and there are still too many pollutants in your wastewater, you move to the second step, which is treatment actually taking the pollutants out of the wastewater through mechanical, chemical or biological treatment.
Can businesses have a say in the environmental policies that affect them?
An important thing for business leaders to understand is that the provisions of the Clean Water Act are implemented by EPA and by the states, so what ends up in a company’s permit is largely dependent on policy and regulatory decisions made by those agencies.
EPA and the state environmental agencies generally follow a public process when they develop new regulations interpreting the Clean Water Act and when they develop guidance documents interpreting their regulations. So companies often have opportunities to provide input into those decisions.
Erika K. Powers is a partner in the Chicago office of Barnes & Thornburg LLP. She is a member of the Environmental Department and concentrates her practice in the area of water quality. Reach her at (312) 338-5904 or email@example.com
Core-Tech Inc., a manufacturer of ceramic cores for use in investment casting, sought this long-term, fixed-rate loan to finance the purchase of two new buildings for expansion.
“You’ve got other SBA loans for start-up and other things, but this is just for real estate,” says Core-Tech president and founder James Corbett. “We started in a 6,000-square-foot rental facility in Cleveland with four employees. Now we have 65 people and about 50,000 square feet (in Mentor). We are very pleased with the (loan), and it certainly has helped us.”
The SBA 504 loan can be used to purchase land, buildings and long-term machinery and equipment, or for renovation projects including street improvements, parking lots, utilities, landscaping or renovation of existing facilities.
The loan is used as a tool for economic development within a community, and qualified businesses usually must create or maintain one job for every $50,000 borrowed, says Tom Thielman, executive director of the Mentor Economic Assistance Corp. (MEACO), one of 270 Certified Development Companies (CDCs) nationwide.
A CDC is a nonprofit corporation set up to contribute to the economic development of its community. CDCs work with the SBA and private sector lenders to provide financing to small businesses. Each CDC generally has a review committee to determine eligibility and ability of a company to pay back the loan.
Only specific businesses qualify for 504 loans, Thielman says. Eligible businesses must operate for profit and have a net worth of less than $7 million as well as average net profits of less than $2.5 million after tax in the last two years.
Thielman and Corbett agree the SBA 504 offers significant advantages over other conventional loans.
“Typically, what makes an SBA 504 loan attractive to the consumer is that they have a lower owner equity injection in a project formula,” Thielman says. “We also provide a fixed rate and longer terms as high as 20 years. Also, our interest rates are below market.”
Corbett says the fixed rates will help his company plan financially by eliminating any guesswork. Long terms also make the monthly payments lower.
The SBA 504 loan has three components. First, a private lender, or bank, makes a conventional loan for at least 50 percent of the cost of the project. The SBA then guarantees up to another 40 percent. Borrowers can get the loan by putting as little as 10 percent down.
With other loans, most banks will lend only 60 percent to 70 percent of the appraised value of the project, says Thielman, leaving a business to front 30 percent to 40 percent of the cost, plus any soft costs.
Most CDCs require the company to get approval from a private lender before submitting a 504 application to the SBA. If the private lender agrees to participate, it will interim finance 90 percent of the project. Once the SBA approval comes through, 40 percent will be returned through the CDC to the private lender.
Throughout the process, the CDC will help fill out applications, monitor required paperwork and coordinate the process. The SBA Web site has a complete list of CDCs by state.
Also, most banks are well-versed in the specifics of the 504 loan and can help you through the process if there is not a CDC in your area.
HOW TO REACH: Core-Tech, www.core-tech-inc.com; MEACO, (440) 974-5739
In fact, some executives have a whole behind-the-scenes army of advisers to lend their expertise and advice. Smart Business spoke with the leaders of several regional businesses about engaging the help of advisers, as well as area experts to see how they view their role as a trusted adviser.
Join the club
So what constitutes a trusted adviser? Is it an accountant? A banker? A financial planner? How about all of the above?
“I have a network of advisers, all with different areas of expertise, and I turn to the appropriate talent,” says Barb Cagley, president of visual marketing firm SCK in Tremont.
When it comes to advisers, most CEOs subscribe to the idea of the more, the merrier. Often, various advisers play different roles and come in at different times in the decision-making process.
“My employees are the first [ones consulted] to seek answers to certain questions,” says David M. Wheeler, president of Hughie’s Audio Visual Service Inc. “Once a decision is considered, then it’s time to consult the money men my accountant and banker. The accountant keeps me focused as to whether this is the right direction for the company to head and if this is the best use of time, money and resources.
“The bank is then brought in, and if they give the green light, then it usually means that all the planning and thought process has been done correctly. Banks do not like to lend money to bad ideas or losing propositions. The attorney is finally consulted to make sure we have covered all the legal ramifications.”
Each one of those individuals can bring distinct insights into your business operations. They regularly see other companies and how they operate, which lends itself to making good decisions within your own business, says Terry Poltorek, CEO of HP Manufacturing Co. Inc.
Advisers also complement your knowledge and should be considered an extension of your own skills.
“Even though I am a former CPA, I still don’t know all the ins and the outs of the changes on the new tax laws, for example,” says Richard Sippola, president of Carnegie Body Co. “So I rely on my CPA to do that for me. ... I’m asking somebody to have some expertise that’s different than what I have, or where we don’t have the time or capability in-house to get something done.”
Advisers are also there to help you navigate unfamiliar territory. Sippola says his corporate attorney was an invaluable asset when he was purchasing the company out of bankruptcy several years ago. Sippola didn’t have the background to navigate the complicated issues of bankruptcy court and the necessary pleadings and filings.
“He was able to help me through that maze of problems so we could get through the end goal, which was to buy the company,” says Sippola. “He helped to properly structure the deal without killing it so I ended up with the company that I wanted to purchase.”
While advisers may be beneficial to your operation in nine out of 10 situations, they aren’t infallible. It’s important to get someone who is truly knowledgeable in their field, something Sippola learned the hard way.
“My former 401(k) adviser told me that there would be no fees if we transferred our 401(k) plan to a different investment platform,” he says. “We went out to bid and changed firms. When we transferred our plan, we were hit with a substantial penalty for early withdrawal, and of course our pension adviser completely changed his story. I should have gotten the withdrawal liability in writing.
“Needless to say, I am pleased to no longer use that adviser for our retirement plan.”
What to expect
While everyone makes mistakes, it shouldn’t be a regular occurrence with your adviser. This brings up another important question: What, exactly, makes a good adviser? For this, we turned to the advisers themselves.
Dave Nash, an attorney at McMahon DeGulis LLP, says first and foremost, make sure you are seeking out a trusted adviser and not simply a vendor of certain services.
“Trusted advisers, by definition, give equal or better value for their services compared to cost,” says Nash. “Vendors, on the other hand, are out to maximize their own profit.”
And nearly every adviser questioned said it was important for them to thoroughly know their client and his or her business. The more they know, the better advice they can give.
“We need to understand our clients’ business issues,” says Don Misheff, managing partner of Ernst & Young’s Northeast Ohio office. “This allows us to bring the necessary specialization to fill their needs.”
So how does an effective adviser gain that crucial inside knowledge?
“It’s by having a very strong informal relationship as well as a formal relationship, and actually rolling up your sleeves and visiting the business and learning more about it,” says Misheff. “It also takes somebody that’s a good listener as well as a good answer provider.”
Executives appreciate an adviser who will be frank and honest with them.
“As a trusted adviser, my clients include me in some of their most sensitive and important business discussions because they know I bring value to the table,” says Nash. “Much of that value involves giving straight advice no sugar coating.”
Also, don’t be afraid to seek out specialists or experts in specific fields, even if you have a good, long-standing relationship with other professionals.
“All lawyers are not created equal,” says Nash. “Small businesses often rely on general business practitioners when they really need expertise in specialty areas such as tax, labor, real estate, corporate and securities, estate and succession planning, and regulatory areas like our own.
“Our firm, for example, does nothing other than environmental law and related litigation. ... We help our clients find other trusted counsel for their other legal matters so that they can get the best advice as efficiently as possible.”
A trusted adviser also should have frequent interaction with his or her clients, maybe even daily, says Misheff.
“You have to be proactive, not reactive,” he says. “Interaction has to be a normal part of your business day where you’re just talking to the people to see what’s going on, or see things that may impact them.”
However, it is possible to overuse your trusted adviser. And it may be necessary to learn when to call for help and what issues can be handled without legal or other expenses.
Good advisers also will be understanding when you choose not to take their advice.
“There are many times the client has other facts that go beyond our current knowledge of the company,” says Misheff. “At the end of the day, it’s their business. ... It’s OK to agree to disagree.”
So if you’re considering enlisting the help of an adviser, go ahead and take the plunge. More than likely, it will not only help you run your business better, it will help you run a better business.
HOW TO REACH: McMahon DeGulis LLP, www.mdllp.net; Ernst & Young, www.ey.com; Carnegie Body Co., www.carnegiebody.com; Hughie’s Audio Visual Service Inc., www.hughies.com; HP Manufacturing Co. Inc., www.hpmfg.com; SCK, www.sck.net
The furniture retailer was approaching its 100th anniversary and had a strong brand with good products, and there were ambitions to expand operations into additional states.
But brimming just below the surface were several issues that threatened to stall growth and disrupt the flow the company had experienced since after the Great Depression.
“It was kind of floundering a little bit, mainly because it hadn’t really defined its strategic objectives,” says Marks, president and CEO. “It had had a number of years of flat sales. We built a number of new stores. A lot of them were company-operated, and it really wasn’t what we were all about - we added a lot of costs.”
Prior to Marks’ arrival, the company had made efforts to keep those costs in line, but those efforts restricted growth by inhibiting investment into technology. Equipment had gotten old, and it would be expensive to modernize the company.
Then there were issues with the dealers.
“There hadn’t been particularly strong standards of who could become a dealer and who couldn’t,” says Marks. “There were also some dealers who didn’t invest in their buildings, and their buildings looked old and tired. In today’s retail market, the consumer is not going to give you an opportunity to show them how fabulous your service is and how warm and friendly your ... people are if they won’t walk through the door.”
While the company was certainly far from crisis, Marks had to do something to reverse sliding same-store sales growth and thwart the potential for unhappy store dealers.
“Rather than just do accrued maintenance, we said, ‘Look, let’s change our image and let’s make it a little more modern, a little more 21st century,’” says Marks.
He began by instituting a round of strategic planning - something the company had never done before.
“We got all of our management team and owners together and decided what it is we wanted to be,” he says.
They decided they wanted to find a way to continue to service their current client base the middle-class working citizen who typically needs credit while reaching out to other demographics. They came up with an idea to launch a new store concept called “Badcock Home Furniture & more” that would include a brighter, more spacious store display, a new logo and an expanded product line that would now also offer patio furniture, appliances, electronics, floor coverings and accessories.
“The Badcock & more concept was intended to make it a little more modern, bring in a younger consumer, bring in a little more affluent consumer without sending or telegraphing a message that we’d raised prices, because we never did,” says Marks. “We would like ... to attract that other customer without losing the core folks that brought us to the dance.”
The new image was also a potential way to solve issues with inflation and decreasing profit margins.
“The most difficult strategic challenge for the company is the fact that furniture has had no inflation in it in the last 10 or 20 years,” says Marks. “A $400 sofa 10 years ago is a $400 sofa today, while gasoline is up from 80 cents to $3.
“For our dealers ... their labor’s increasing, their insurance, their health costs, all of that. ... So our job has been to get customers to buy, instead of a $400 sofa, to buy a $500 sofa or to take business from our competitors.”
But Marks hadn’t forgotten about the lack of technology. The previous management had tried to keep profit and losses in line by reducing selling, general and administrative expenses.
“If you keep trying to cut money out of general and administrative expenses, eventually you start cutting through the fat and into the muscle,” says Marks. “We had 20-year-old IT systems, for example. The connectivity to our stores was very poor.”
Marks made the necessary investments to consolidate IT systems, as well as inventory, which had previously involved seven different systems. The result is better communication with stores and better functionality with dealers. Now, he’s focusing on supply chain issues.
“Eight years ago, 80 percent of our product was domestic and 20 percent was imported,” says Marks. “Today, 80 percent is imported and 20 percent is domestic. ... What it does is it takes our supply chain from three weeks to four months. So we have to plan out four months in advance, and if we get it wrong, we’re not going to get it fixed for weeks. So we can disappoint customers, which again, according to our business model, is the worst thing in the world that we can possibly do.
“The real strategic focus and the upside for us is being able to be better than anybody else at having the right product in the right place at the right time. I don’t think that the industry does that very well.”
But while Marks saw what was needed to keep the company from slipping further, coming up with a concept to revitalize its operations was only half the battle. Marks also needed a plan to get management and employees on board with the significant changes.
Getting people on board first meant getting them involved, and Marks used the strategic planning sessions as an important first step.
“We developed an action plan that had 14 key initiatives and 376 action steps in it,” says Marks. “What that did is it involved all of the management folks in the company. They each had a role. They each had a piece of those 376 things to do. So they had things that they could see immediate and direct results from, and that enthuses people.”
The next challenge was getting the rest of the employees to buy in. He realized that if the company was going to ask so much of employees, it should give a little something back as well.
“For example, we have a third week of vacation at five years here,” he says. “It used to be 10. It was a hot button with everybody, and when the company was successful and made more money, we had the dollars to be able to go out and offer that to our employees. It’s that kind of thing that keeps everybody engaged, when they know that there’s something that benefits them personally in addition to the company.”
He also started a profit-sharing plan, and in the years that Badcock beats its profit plan, the company gives an extra check to every employee.
“We just say, ‘Hey, look, we did better than we thought we were going to do, so we’re going to share it with you,’” he says.
But Marks still had to address issues with those who had perhaps the biggest stake in all this the dealers. Badcock’s dealer-owned stores operate similarly to franchises, but instead of the company collecting money from the dealer, the dealer receives a check for 25 percent of everything the store sells each month. The dealer pays for the store including maintenance and construction costs the labor and expenses, while Badcock pays for the furniture, inbound and outbound freight costs and warehousing.
Dealers who wanted to upgrade to the new “Badcock Home Furniture & more” concept were going to spend $150,000 on average to revamp their stores. With such a hefty price, Marks thought the dealers deserved a little incentive.
The company’s previous contract with dealers included a 30-day-out clause, with which either party could change their mind about doing business with the other after 30 days.
“If you’re a dealer and spent $150,000 on your building imaging it as a Badcock & more store, there’s no safety in that,” says Marks. “We felt that it was much better for the dealer and for us to have a term-limited contract. We set 10 years as the term, but it also has two five-year options. So as long as the dealer is in compliance, they ... have 20 years to recoup that cost that they put into that building.”
The increased level of commitment and enhanced growth opportunities provide a great incentive for dealers to convert to the new concept and also builds a stronger relationship between them and the company.
When Badcock was developing the new contract, it had a panel of dealers help write it.
“When we changed our whole contractual relationship with the implementation of Badcock & more, we actually had 12 or 14 dealers sit down with us and hammer that contract out,” says Marks. “So then when we rolled it out to the rest of the dealers, they were quite comfortable with it because they had had representation.”
So far, approximately 225 of Badcock’s 319 stores have converted to the new Badcock & more concept, and it hasn’t been in vain. Converted stores are seeing average sales increases of 20 percent to 25 percent their first year.
And the piece that ties the whole thing together is communication.
“You can’t communicate too much,” says Marks. “It’s just like advertising. Just when you think that you’re sick and tired of seeing your ad on television, it’s just beginning to break through to the consumer. The same thing goes with communication, particularly with regard to strategy.
“Does the average guy on our loading dock really care about a speech about strategy? Maybe, maybe not. But if you say, ‘Look, here’s what’s in it for you. We’re going to grow positions. You might get promoted. You’re going to get an extra week’s vacation in five years because the company made more money. I need you to help me do these jobs in order to continue this progress so that we can provide you other things that help you and your family,’ that works.”
The company also makes a committed effort to keep everybody updated on the company’s progress. Three times a year, Badcock holds a lunch for 300 to 400 of its employees, reiterating strategy and highlighting where the company is headed.
Twice a year, the management team jumps on a bus and travels to meet with dealers throughout the eight-state region that Badcock operates in, and twice a year, dealers are brought to headquarters for business review meetings.
The changes, as well as Marks’ strategies for implementing them, have allowed Badcock to return to an above-industry performance, with revenue increasing from $515 million in 2005 to $537 million in 2006.
While sales had started to decrease in the 1990s, there has been eight straight years of increases since Marks became president and CEO. Sales rose 8 percent in fiscal 2005 and 5 percent as of the fiscal year ended June 30, 2006, while the industry tends to average only 2 percent or 3 percent annually.
In July, the company opened its first store in Virginia and has plans to continue expansion in current states while keeping an eye on locations including Kentucky, Missouri and the southern regions of Ohio, Illinois and Indiana.
“There’s so much business out there in towns with 10,000, 15,000, 20,000 people that are not adequately covered,” says Marks. “We have a lot of opportunity. ... I believe this business can do a billion dollars with the business model that it has now.”
HOW TO REACH: W.S. Badcock Corp., www.badcock.com
“The traffic control industry is very cyclical,” says Pollock. “During the winter and certain times of year, it slows down. So we were looking for a way to smooth out the peaks and valleys of our business by offering broader products.”
Since 1989, Signs & Blanks has manufactured finished road signs and aluminum sign blanks for customers ranging from government agencies to private individuals, with an expertise in road, street, and construction and school zone signs. But Pollock thought expanding its marketing offered an opportunity for growth.
“One of the first things we did is we got into doing reflective real estate signs because they offer the Realtor visibility at night,” says Pollock. “What we’ve found is anybody is a potential customer now, whether it’s real estate, construction, contractors, retail stores or restaurants.”
Signs & Blanks invested in a new printer that allowed it to digitally print Realtors’ pictures on signs. Pollock also hired a graphic designer, which reassured businesses of a quality product and allowed companies without their own artwork to have something custom-designed.
“For this company, I’d say (the investment) was pretty significant,” says Pollock. “But I’m happy to say it looks like we’re getting an adequate return for what we’ve put into it.”
As a result of the investment, Pollock expects 8 percent growth in revenue this year.
The company also began marketing to other sign shops, offering aluminum blanks they could finish themselves or finished ones they could resell. The process mirrors its arrangement with smaller municipalities and townships that prefer to purchase unfinished signs so that a local sign business can profit from finishing them.
Pollock says direct mail, and phone and print marketing, in addition to networking, have been key components of his marketing strategy.
“We’ve joined a couple of the local chambers of commerce and also done some donations of signs and banners to try and get our name out,” Pollock says.
Signs & Blanks has also built on its reputation in the traffic sign business to spread into new markets. In its brochures and marketing literature, it has stressed its experience with high-quality materials and attention to detail, hoping customers will recognize a distinct value in its product.
“If you’re able to use techniques or your area of expertise as a springboard for future growth, you have a higher opportunity for success,” says Pollock.
Based on his previous success in expanding markets, the company is now looking to take the expansion a step further Signs & Blanks has started selling trade show displays and expects that to be another potential growth area in 2006.
HOW TO REACH: Signs & Blanks Ltd., (330) 630-0773 or www.signsandblanks.com
“‘Al punto’ means ‘to the point’ in Spanish,” says Bottger, president and executive creative director of the agency that is focused on marketing to Hispanic consumers. “And it’s something still today that’s very relevant to the way we do business. ... When we set out to do business we said, ‘Either we can explain how we do things, either we can gain our clients trust by showing how we think, or we don’t.’ And part of that had to do with being to the point.”
By being transparent with clients and fostering creativity throughout al Punto, Bottger and partner Peggy Goff have grown revenue from $42 million in 2004 to $52 million in 2005.
Smart Business spoke with Bottger about how his agency connects with Hispanic consumers and how he maintains a culture of creativity and open debate.
How should a business target the Hispanic market?
They need to look at this market as they would at any other market — as an investment. I would like them to say, ‘If I put one dollar in, how many dollars am I going to get out?’ If you don’t care where the dollars are coming from, then we have taken the most important step.
After that ... they have to be more open to do things that they are not comfortable with because this market is different. Sometimes the consumer in many ways reacts different to certain products or services in the same geography and at the same time as the general market.
Third would be, do not approach this market as a test. There’s 44 million Hispanics [living in the United States]. There’s more Hispanics in the U.S. than [there are people] in Canada. You would not go to Canada and say, ‘Hey, let’s do a couple of million dollars and see what happens.’ You would not launch a product in the United States with a mentality of, ‘Let’s see what happens.’
The word test is a four-letter word, because the moment you say it is a test, you are not committed to the results.
How do you make sure people will fit in to your culture?
I do get involved with all the hires, and I do like to spend time with the candidates. Regardless of their level, I love to take them out for dinner, lunch or coffee.
I like to talk to them about their personal lives in the sense that I want my employees to have a life. I want my employees to have something to bring to the table, and if you do not have a life, you cannot bring anything to the office.
My style is ‘in person.’ I need to understand how people behave in public, how people relate to other people in a social setting. Of course, we ask all the questions about the task.
And then a lot has to do with how much willingness this candidate has to give the best — how much inner fire they have. Even though they may not have the experience, [they need] to overcome the lack of experience with desire to do the best and desire to show that they can do the best.
How do you foster creativity?
We don’t hire clones. We are always hiring people to bring a different perspective. We love to hire people that haven’t just worked in advertising but people who have worked in different areas.
Several people at the office have had their own business and succeeded or failed. To me, it doesn’t matter in many ways, but ... that showed two things — the desire of being entrepreneurial and doers, to not just wait for somebody to tell them what to do.
They know how hard it is to run a business, so they don’t take a client for granted. They know they need to earn the client’s business every time.
Sometimes that has led to some very heated debates, which is fine — I encourage those. The fact that we don’t hire clones means that everybody’s different and brings a different perspective.
It is an environment where people are not told what to do every day. We expect them to lead their own projects and their own tasks.
How does open debate benefit you business and your clients?
The consumer is not one homogeneous person. So we cannot expect one way to do business, one way to approach our marketing solutions. The debates are very important in the sense that it brings the best out of everybody.
I would be very concerned if everybody agreed with each other. That means two things: Either we’re not thinking hard, or that means somebody’s being quiet, not bringing their points across.
HOW TO REACH: al Punto Advertising Inc., www.alpunto.com
Perhaps a better, but often-overlooked alternative, is through philanthropy. Embracing a cause or getting involved in community activities gives employees a positive way to interact while at the same time benefiting people in the community.
Cleveland’s Forest City Enterprises Inc., a commercial and residential real estate company with $8 billion in assets, has embraced this idea for years. But the company stepped up efforts even further three years ago with the advent of its Community Day.
The event takes place in cities across the country where Forest City has offices.
“We’ll send about 1,400 employees out across the country to help in about 35 or 40 nonprofit organizations,” says Allan Krulak, Forest City’s vice president and director of community affairs. “They will spend the whole day painting and cleaning and doing landscaping - whatever it takes.
“The accomplishments are amazing, because when you send 100 employees out to one location to do painting and landscaping and cleaning up, there is a significant difference from the beginning of the day to the end of the day. It makes the employees feel good, and we know it makes a difference to the nonprofit organization.”
For Forest City, the idea of philanthropy ties in closely with many of the company’s core principles, especially sustainability, teamwork and integrity. Community Day is also a great way to promote what many of the company’s employees were already doing.
“What got this started is our employees have been doing this for years on their own,” Krulak says. “We just thought it would be nice to give them time off from work to do a lot more, to meet their fellow employees, to work with them out on a job site.”
With more than 4,000 employees in 25 states, Krulak has found it’s a better way to bond employees than any teamwork exercise or company picnic could have done.
“Many of the employees don’t know each other,” he says. “They work on different floors in the building, they work in different departments. They’re getting together for the very first time meeting their fellow employees. You get a lot of teamwork out of it.”
Not only is the event a great way to build teamwork, it also has an effect on employee morale.
“Part of it is the satisfaction that they make a difference by helping out,” Krulak says. “At the same time, they are sharing a common experience with their fellow associates. They gain new friendships. It connects them directly to their communities and the people we do business with.”
The event has grown each year as employees share their experiences with those who haven’t yet participated.
“Once the employees do it, they like doing it and they want to come back,” Krulak says. “They tell the other employees who didn’t do it, and the next year they all pitch in. ... It’s an experience that they’ll remember forever - that they seem to remember forever. We talk about it all year long.”
Regardless of a company’s size or how many causes it undertakes, there’s no question that it’s a win-win for everyone involved, Krulak says.
“I don’t know how much Forest City benefits from this or how much the organization does. It’s hard to calculate,” Krulak says. “We just know it’s important and something that we’re supposed to do.”
HOW TO REACH: Forest City Enterprises Inc., www.forestcity.net
“Most of the products in America work the way they are supposed to work, so we want to warrantee things that we can control rather than things that we can’t,” says Acosta-Rubio of his company, which sells products including office consumables such as toner cartridges, ink jets and ribbons. “We know what really matters to you is to have a pleasant, quality-driven experience where you can call, get a smile, talk to your rep, get what you want, get informed and get the product and then not worry about it.”
The company also helps its customers by staying on top of their inventory.
“We call you in advance and tell you what you’re going to need, get you to place that order, so you never have to think about (it),” he says.
Onestop’s commitment to its customers is paying off, as revenue increased from $6.5 million in 2004 to $8.4 million in 2005, with projected 2006 revenue of $12 million.
Smart Business spoke with Acosta-Rubio about the culture he fosters among employees and how it contributes to customer satisfaction.
How do you ensure a good experience with your company?
Cheerful employees. There was a (saying) decades ago, ‘We don’t train our people to be nice, we simply hire nice people.’ And that’s the philosophy we sort of adopted.
And then (being) trustworthy. If (people) don’t trust you, they’re not going to buy from you. You know how people trust you? Tell them the truth.
If you say, ‘Hey, Bob, I can’t have it tomorrow,’ he’s going to be pissed off, but he knows you didn’t lie to him. Integrity is doing what you say you’re going to do, so our clients trust us because we try to tell them how it really is going to be every time.
People don’t tell the truth because they have fear. They’re afraid to tell you, ‘I can’t get that there tomorrow because it’s not in the warehouse.’ So they say, ‘OK, sure, tomorrow,’ and make up some lie why it didn’t get there the next day.
They think you won’t like them if you can’t perform for them. But the truth is the opposite. They may get mad, but ... one thing is getting mad at somebody; another thing is not trusting somebody.
How do you stay ahead of your competition?
We do a constant, never-ending improvement. It’s so important nowadays to never, ever set your standards static or lower them. If you don’t change from one month to the next, you’re not going to survive.
What we did a year ago is not at all what we do today, because what we did a year ago, all our competition is now doing. Next-day delivery? Who cares? It was the big thing a few years ago. It ain’t so big now.
The market changes continually, people change continually, society changes continually, competition changes continually, so our training is always up-to-date, and we do it every week. We change based on what’s happening.
How do you keep employees adaptable to change?
You never let them stay comfortable. You let them know that change is the only constant in your organization. Leadership is about creating disorder. Management is about creating order.
So my job is to always create disorder, to always blow things up, to change things constantly. How can I make things better? How can we do this better? That’s my job. Management’s job is to always try to put order to what I’ve dictated.
After awhile, the company gets big enough and the culture gets strong enough where when change happens, people who bitch about it because you’ve always got one or two the rest of the guys go, ‘Dude, get over it.’
So now you have the culture (taking charge) ... so leadership and management can focus on the job that’s most important, which is creating opportunities and managing the strategy to get value to the clients.
How do you get employees to buy into your culture?
We gotta kill the ego right off the bat. The No. 1 killer of any organization is the ego. All the backstabbing, politicizing, drama all that is because of the ego.
When you join the military, what’s the first thing they do? They destroy your identity as a unique individual to absorb you into a greater culture.
How do you do that? You put them on the phone, and you watch them get beat up. You don’t help them. They’ve never done this before. So now they’ve been humbled.
They’ve been shamed into realizing, ‘I really don’t know what the heck I’m talking about.’ Now they’re open for feedback on how to do it right.
HOW TO REACH: Onestop, www.onestopshop.bz
While nearly 30 acquisitions in the last eight years have made MarineMax the largest boating retailer in the country, McGill knows he can’t rely on acquisitions alone to succeed. He has to offer something different something better than the competition to both his customers and to his employees.
“The people are the most important part of it, because that’s the business we’re really in,” says McGill, chairman, president and CEO. “By investing in our team ... and enhancing our customers’ experience, we will build upon the solid foundation we have constructed over the past several years.”
McGill and the company’s leadership have worked hard to build a customer-centric culture and hire top performers at MarineMax’s 85 locations in 21 states. These are things he considers critical to the company’s overall growth strategy of increasing same-store sales and completing successful acquisitions.
McGill’s focus on people has enabled the company to grow revenue from $291 million in 1998, when the company was born out of a merger of six marine retailers, to $947 million in 2005.
Anchoring on people
Because the customer experience is so fundamental to the company’s growth strategy, MarineMax is very focused on the type of people it hires. To get good people who are well-suited for their positions, McGill uses personality profiling and a process called Topgrading.
Developed by management psychologist and consultant Brad Smart, Topgrading is an interviewing and evaluation process meant to ensure a company is hiring what Smart calls “A-players.” A-players are those in the top 10 percent of available talent for a given position. The process not only seeks to hire great people but to make sure that they are in the position best suited for their skill set and personality.
By putting job candidates through a chronological, in-depth, structured interview often lasting a few hours Topgrading seeks to get past the faade that people often present on their resumes and during an initial interview.
“It’s an interviewing process where you can discover the kinks in the armor,” says McGill. “You drill down on the things that you discover to make sure you have an A-player.”
Although the process requires a significant time investment from MarineMax’s leadership, McGill says the end results are worth the effort.
“Nothing is more expensive than making that bad hire or having someone in the wrong position,” says McGill. “Our managers, they probably spend a little more than a third of their time involved in making sure that we have the right people in the right position, because we’re in the people business.”
MarineMax implemented the process a few years ago and has since brought the number of people in the company who are A-players or have A-potential to above 90 percent.
The process has been applied to most of MarineMax’s current employees, including McGill and his senior executives.
“It has to start from the top,” says McGill. “That’s where the word [Topgrading] comes from. Like any culture that you have in a company, it must begin with myself and all of our senior team.”
By assessing the value of his current employees, McGill can target individuals who have potential but aren’t quite A-players and work with them to bring them up to par. Those who don’t progress to A-player status after extensive coaching and development usually quit, and in a few cases, have been fired.
The last part of cultivating a high-quality employee base involves a developmental plan and career path for all employees. Employees especially store managers are measured against certain goals and are held accountable for their performance. Executives are constantly looking at consolidated reports that compare all its stores across the country.
“We’re continually looking at the numbers,” says McGill. “So we’ve got them all focused on how to do it better and how to keep growing. About once a quarter, we sit down and say, ‘OK, here was the plan. Are you on track?’ Pretty soon, if you keep getting, ‘No, not on track. No, not on track,’ then they need to be redeployed.”
Redeployment doesn’t always mean out of the company sometimes it just means shifting job duties to better match someone’s skills set.
Wind in their sails
At MarineMax, it’s not enough just to get good people in the door. Whether employees were already with MarineMax or were part of an acquisition, McGill empowers them and helps them do their jobs better.
Although the company uses traditional training methods such as videos and online courses through MarineMax University and MarineMax Online, McGill believes it’s important to also provide people with training that will instill in them a passion for what they are doing.
“If you’re passionate about what you’re doing, that’s probably the biggest ingredient that leads toward success than any other single thing,” says McGill. “You’ve got to have team members that believe in what you’re doing and understand this thing called boating and really have a passion for it. There’s no substitute for that. Because guess what? Our customers pick up on it immediately.”
One way McGill instills that enthusiasm is by sending employees on “Passion Days.”
“Passion Days were created to get our sales team and managers ... learning about the boats, navigation and the whole experience of boating to better understand and relate to the needs of our customers,” says McGill. “Usually they are three days long. We supply the sheets, pillows, food, fuel and location, and team members get (our employees) learning by doing. A big benefit is also derived by involvement of the manufacturers to assist in learning the boats or yachts.”
This intimate knowledge is critical if employees are going to relate to customers. McGill makes the point that a customer probably wouldn’t buy a motorcycle from a Harley-Davidson sales employee who has never ridden a motorcycle. Likewise, people aren’t going to buy a boat or yacht from someone who isn’t well-educated and excited about the product.
McGill’s philosophy is that MarineMax can’t just sell boats; it has to sell a boating lifestyle. And to do that, it needs to deliver an outstanding sales experience and continue to connect with customers even after a boat has left the showroom.
McGill recognizes that buying a boat can be intimidating, so he has built a business model focused on removing obstacles for customers and that maximizes the enjoyment of owning a boat.
For starters, purchase deliveries take place on the water, where customers are assisted by certified captains. MarineMax encourages the entire family to be present so they can also receive hands-on instruction in the operation of the new boat. Customers can also take part in training and classes throughout the year.
“We focus on what does this thing called boating do ... not only from an individual standpoint but also for the entire family,” says McGill
For example, MarineMax’s “Women on Water” and “Kids in Boating” educational classes help improve customers’ skill and confidence.
MarineMax has developed several events that allow its customers to interact with one another, as well. The hope is that these events will further stimulate people’s interest in boating, which may lead to additional investments in their boat and/or future purchases from MarineMax. One such example is the company’s “Docktail” parties, where past buyers socialize over cocktails and drinks at a local marina.
“The Docktail parties, as well as all our events with customers, create an atmosphere where customers can make new friends by having a mutual interest in the lifestyle of boating,” says McGill.
The company also organizes some 300 armada-style excursions a year, guiding current and prospective owners out for one-day to weeklong events from Chesapeake Bay to Catalina Island to the Bahamas and everywhere in between.
The trips help new owners gain boating confidence and provide opportunities to showcase larger boats for customers looking to upgrade.
It’s another way to build loyalty with the customers, as well as provide some subliminal marketing.
“Our brand is the experience our customers receive,” says McGill. “Every interaction is an opportunity for our team members to build the relationship and our brand.”
Building that relationship is important because MarineMax’s primary business comes from repeat sales and word-of-mouth referrals from families who have enjoyed their experience with MarineMax.
McGill also wants to create a better experience for customers and employees by maintaining an entrepreneurial spirit throughout all of MarineMax’s locations.
He knows that while things such as stock options and stock purchase programs are helpful, they alone aren’t enough to maintain that spirit of ownership, which he believes drives people to work harder.
He found the solution when he stopped to think about how he spent his time as the owner of Gulfwind Marina, one of the original merging companies that formed MarineMax. Most of his day was spent talking about financial issues, dealing with floor plan concerns, handling taxes and insurance, and doing other time-consuming and tiresome duties. But those things weren’t really conducive to being an entrepreneur.
“Those are the things that I did, but there were things that I could do better,” says McGill. “The things that I really enjoyed doing were dealing with our team members and dealing with the public.”
So instead of creating the usual corporate headquarters, McGill created Team Support. AS its name implies, these corporate offices support the field by managing the tedious day-to-day tasks that can detract managers from what McGill considers to be their most important job dealing with people.
Team Support manages everything from human resources and marketing to computer systems and IT issues. It is responsible for most accounting and finance tasks and even monitors inventory and orders product. This allows managers to focus all their efforts on motivating staff and satisfying customers.
There’s no disputing that MarineMax’s systems are working. McGill credits the company’s focus on people for same-store sales that grew 21 percent from 2003 to 2004, and grew another 23 percent from 2004 to 2005.
“Our strategies are pretty basic,” says McGill. “It takes the right people. We really try to instill in our team that we ... need to be passionate.
“It’s a business that we’re going to continue to keep making better, not just through acquisitions, but also through internal growth. We’ll grow this thing to $2 [billion] and $3 billion in size in the not too distant future.”
HOW TO REACH: MarineMax Inc., www.marinemax.com