U.S. manufacturers should continue to fare well in 2013, although next month’s election is a wild card that could change that outlook to some degree.
“U.S. manufacturing should do well next year, but a lot depends on the election and policies that the newly elected president and Congress may or may not undertake,” says Stuart Hoffman, chief economist, PNC Financial Services Group. “We’re assuming that some of what’s being called the ‘fiscal cliff’ will probably go into effect but not enough to be fatal to the economy.”
Hoffman expects that most manufacturing sectors will continue to do well, including household goods, energy-related manufacturing, farming equipment and nondefense aerospace manufacturing. Construction-related manufacturing is expected to be a particular bright spot, and automobile production should continue to fare well, though less robustly than the last couple of years.
“We think auto production will still be rising, so auto manufacturers and the related supply chain should do well,” Hoffman says. “It won’t be a big increase over this year. The rate of increase for next year will probably be around 5 percent, whereas this year it’s double-digits.
“But auto production will still be operating at an overall higher level — a higher production level, a higher employment level, a higher productivity level and, ultimately, a higher sales level.”
A few manufacturing sectors are expected to cool down, including heavy truck production, tool and die, defense aircraft (though that too depends on the direction of post-election government policy) and raw materials such as steel, copper and aluminum.
“Production of raw materials is more of a global issue, and while we don’t expect the global economy to fall into recession, we have seen global problems with steel slowing down and a tremendous amount of supply,” Hoffman says. “Some steel companies might not be all that profitable because of the increase in supply, and global supply could easily meet if not exceed the rise in demand.” <<
To learn more, listen to Stuart Hoffman on PNC’s 2012 National Economic Outlook webinar on Nov. 8. To register, go to www.csvep.com/pnc/110812flyer.html.
? The 12 Principles of Manufacturing Excellence: A Leader’s Guide to Achieving and Sustaining Excellence
Larry E. Fast
Productivity Press, 266 pages
“The 12 Principles of Manufacturing Excellence” provides a practical approach for implementing and sustaining business strategies that promote manufacturing excellence. The author explains how to inspire top-notch performance while creating an atmosphere that encourages leadership and mentoring.
He provides examples that illustrate how companies have achieved vertical and horizontal alignment, he explains how to instill a culture that sustains high-quality and world-class performance via 12 principles of manufacturing excellence, and he provides methods to track progress by plant and by function, emphasizing lean manufacturing and Six Sigma tools to improve manufacturing operations.
? The Toyota Way to Lean Leadership: Achieving and Sustaining Excellence through Leadership Development
Jeffrey Liker, Gary Convis
McGraw-Hill, 272 pages
Many companies across the globe have adopted lean manufacturing practices but few have attained or maintained the levels of excellence that Toyota has. “The Toyota Way to Lean Leadership” sheds light on some of the reasons for this.
Liker and Convis (the former is the author of the popular “Toyota Way” series, the latter a former executive VP and managing officer of Toyota) offer practical ways for executives to spur their employees to focus their efforts on collaborating with co-workers to drive continuous improvement throughout the organization. Case studies demonstrate the methods Toyota uses to produce powerful, capable lean leadership.
? Supply Chain Transformation: Building and Executing an Integrated Supply Chain Strategy
J. Paul Dittmann
McGraw-Hill, 256 pages
As manufacturers expand their offerings and look for new ways to lower their cost structures, the complexity of their supply chain naturally increases. “Supply Chain Transformation” tackles this issue head-on, introducing a strategic framework aimed at helping manufacturers develop a first-class supply chain strategy.
Dittmann presents nine clear, concise steps for manufacturing executives to follow as they retool to improve their company’s management of supply chain dynamics. The book contains numerous real-world examples that illustrate the difficulties inherent in gaining organizational support for the major investments involved in reworking a company’s supply chain strategy. <<
Talk about getting hit with severe hardship right off the bat. In 2008, SRS Real Estate Partners split off to become a standalone company when its parent, Staubach Co., merged with another real estate firm. Then, a month later, the U.S. financial crisis began and flipped SRS’s world upside down.
“We sold all of the Staubach Co. assets to Jones Lang LaSalle except the retail business,” recalls Chris Maguire, SRS’s chairman and CEO. “We closed the sale in August 2008. We were just starting to adjust to life without Staubach. Then we got hit with the financial crisis.”
Virtually all U.S. business sectors were affected by the subsequent recession, but two markets that suffered especially abrupt, deep and lasting cuts were real estate and retail. And those markets are SRS’s bread and butter.
“In the real estate industry, I think anyone would tell you that of the four food groups, the retail business got hurt the most, because it’s led by consumers, and consumers got hammered,” Maguire says.
“When retailers shut their pipelines down in September and October 2008, it resulted in dramatic revenue declines for our business. Our brokerage business, peak to trough, was off 60 percent. And that went on for about two years before we were able to stabilize our business.”
The downturn was a rude shock for SRS. The company found itself thrown back on its heels with business drying up and bad economic news coming from all directions.
“We weren’t sure where the world was headed, much less how we were going to adapt our business,” Maguire says. “It was a scary, unbelievably uncertain time for our business.”
Get back to basics
As SRS’s revenue began to take a dive in the last quarter of 2008, the company’s leadership team members got together and circled the wagons. The threat level they faced was hyper-urgent. They had to find a way to rally their staff and stanch the bleeding.
“The first six months was the worst,” Maguire recalls. “Today, I remind our people all the time about that: Don’t forget how bad it was from September 2008 to March 2009. We really didn’t know what was going to happen to our business.”
The first thing SRS’s leaders recognized they had to do was to guide the company back to the basics of what had made it successful during the two decades-plus that it had operated as a unit of Staubach Co.
“What we realized we had to do was drill down to our core business,” Maguire says. “And our core business at SRS is transactions. We receive fees when transactions are executed. As long as transactions are taking place, that’s how we get paid.”
The financial crisis slammed the retail sector hard, and SRS began feeling the reverberations immediately.
“It was unlike anything I had seen in my career,” Maguire says. “We started seeing retailers who for years had been growing their business by opening new locations not only shut down their new-growth pipelines, but they also were scrambling to figure out how to get out of some of the deals they’d previously committed to.”
Therein, though, lay a key to SRS’s chances to reverse the tide and get back on its feet. Transactions were still taking place in the retail real estate business. It’s just that they were transactions of a different type than the Staubach Co.’s retail division had been used to seeing in normal economic times.
“We were clearly going from a period of growth to a period of contraction,” Maguire says. “That meant our clients were going to need help on the disposition side — getting rid of dark stores, restructuring existing leases. And our landlord clients were going to be doing a similar type of thing: Trying to figure out how to lease their centers in a very uncertain economic environment.
“So we knew the market was going to be difficult for growth. As a result, we had to focus on where the transactions would be. We had to shift from being a business focused on retailers growing to a business focused on retailers shrinking.”
Manage tough transitions
While SRS’s leaders and staff members knew retail real estate transactions were out there, uncovering them proved to be a tough learning curve for the company.
“It was rocky,” Maguire says. “Really, for 24 months, it was very tough going for us.”
Exacerbating the business problems were issues of insecurity related to SRS’s parting with its longtime parent company.
“We were not only dealing with an uncertain economic environment and a continual stream of bad news as it related to the consumer and retailers, we also were dealing with a company that for 22 years had been part of the Staubach organization and was now split off on its own,” Maguire says.
“So we got the double whammy there. It was hard enough going through an economic period that none of us have ever experienced, but to compound it, we were trying to teach our people that life is going to be OK without Staubach.”
The former football star had been an inspirational business leader, and many in the company found it difficult to adjust to having new leaders.
“It was hard for some people to grasp that, for it to sink in,” Maguire says. “Roger was an incredible leader. He had a great reputation. Being part of that company was important to people. And, well, I’m not Roger Staubach; I don’t have a Heisman in my trophy case. But I’ve been in this business for a long time, and our management team has been together for a long time.
“So we had to focus on the details, and on stabilizing our business. We had to focus on teaching our people how to deal with the market and the realities of where the transactions in the retail business were happening at that time, which were very different than where they’d been for the last 20 years.”
During the recession’s deepest depths, staff morale was a particularly tough issue to deal with for SRS’s leaders.
“We’re in a business where most of our people on the SRS side are independent contractors,” Maguire says. “They’re brokers that get paid commissions. It was hard to motivate them, as well as our own employees, when all they read in the papers every day and all they watch on TV is bad news. They walk into the office with their head down every day.
“We had to find a way to show them that, ‘Look, you can’t think about this day to day. You’ve got to ignore the bad news. You’ve got to come in here and focus on what you need to get done. We’ve been doing this for a long time. We’ve been through a number of cycles, and we will get through this. But it’s going to be tough, day to day. It’s going to be a marathon.’ And that’s clearly what it turned out to be.”
Focus on the achievable
For a few months, Maguire and his leadership team found their own morale running low, and that made it extremely difficult to motivate their staff. They learned that they would have to dig deep to find reserves of strength and hope within themselves.
“It was hard because none of us had ever experienced a downturn like this,” he says. “There were times early on when I stood up in front of our company and said, ‘Look, we’ve got to focus on our core business; we’ve got to focus on our history and our track record and the fact that there will be transactions there; if we do these things, we’re going to be OK’ — and for about six to eight months, I’m not sure I even believed it. But I had to get up there and project a positive attitude.”
Concentrating on taking small steps and improving the company’s standing little by little was an approach that began to turn the tide for SRS.
“There was nothing we could do at that time that was going to dramatically slow the decline in our revenue or stop retailers from shutting stores and from shutting off the new growth,” Maguire says.
“So we had to focus on small, achievable goals and wins. I looked at the situation and said, ‘Any progress we can make day to day is important.’ At the beginning of the downturn, five out of five days in the week were bad days. My goal initially was to just find a way to have one good day a week, then two good days a week, then three good days a week.
“Even in good times, not every day is going to be a success, and you’re going to have problems. But we really had to get our people focused on, ‘OK, what are you going to do today? How can we make a difference with these clients who we’ve had long-term relationships with, who still need our help — they just need it in a different way?’”
Not everyone was able to adapt to the new business realities that SRS faced. Some of the company’s longtime staff members found themselves unable to make the transitions that needed to be made.
“We had some people who had rode the wave for a decade,” Maguire says. “They were surfing a wave that was cruising along, and all of a sudden, that wave hit the rock shore and was gone, and those people got up in the morning and said, ‘What are we going to do?’ Our management team’s message to them was, ‘There are transactions out there. These retailers need our help. But you’ve got to get out and you’ve got to be proactive.’ And I’ll be honest with you: We had a number of people that had been very successful with our company that couldn’t hack it. And they had to go do something else.”
Communicating with staff is a tough thing to do when all of the news coming at you is bad, and Maguire concedes that he didn’t communicate very well at the beginning of the crisis.
“It was hard for me early on,” he says. “I like to communicate a plan: Here’s what we’re going to do, here’s our goal, here’s how we’re going to get there, here’s how the company’s doing financially.
“But everything was really uncertain. And I think probably one of my biggest mistakes early on was not communicating up front and talking about all the bad things — the bad news, the uncertainty. I had to work through that.
“My management team and others encouraged me to spend more time talking about those things: ‘Look, these are the challenges, and frankly, if this revenue decline doesn’t stop, we’re not going to have a business. So here’s what we’re facing. Let’s figure out how we can overcome it.’”
Thus, Maguire says a key piece of advice he would give CEOs facing a similar predicament is to be transparent and to convey all of the news clearly from the outset.
“Communication is the most important thing,” he says. “And not just the good news. Not just, ‘We have a plan.’ It’s much more than that. It’s, ‘Where is our business today, really? Where do we stand? Good, bad or ugly, let me know where we stand.’ And then, ‘Let’s put a plan in place to fix it.’
“One thing I’ve learned that I’m not sure I really appreciated before is that employees really want and need to know. I was concerned that if I give them too much bad news, they’re going to curl up and not be able to accept it. But the reality is people are smart and they deserve to know the real news, not just the CEO rah-rah.”
Eventually, haltingly, after rocky transitions and some shakeout, the U.S. retail business began to recover. And SRS’s business began to grow again as well. The 350-employee company now has about $45 million in annual revenue.
“For us, stabilization came when we saw the bottom,” Maguire says. “Our revenue flattened out, and then we started seeing growth. In fiscal 2010, we grew our business at just under 10 percent. Then for fiscal ’11, we were at 12 percent. And this year, we think we’ll be at 15 percent or so.
“Historically, our target has been 20 percent growth. As you get bigger, it becomes harder to hit that level because the numbers are bigger. But for us, we’d love to get back to 20 percent. It’s a bit of a stretch for us right now, but that’s our goal.” <<
How to reach: SRS Real Estate Partners, (214) 560-3200 or www.srsre.com
THE MAGUIRE FILE
Name: Chris Maguire
Title: Chairman and CEO
Company: SRS Real Estate Partners
Born: Trenton, N.J.
Education: University of Texas at Austin
What was your first job, and what business lessons did you learn from it?
My first job was delivering newspapers here in Dallas. It forced me to be accountable. I had to be there every morning on my bike picking the papers up and putting them on the doorsteps of all the people in the neighborhood, because if you didn’t deliver, they weren’t happy.
Also, we had to go out and knock on doors and collect the monthly fees for the papers, and some of those people were hard to collect from, but if I didn’t collect, I didn’t get paid. So that was some early insight into how the business world works.
Do you have a business leadership philosophy that you use to guide you?
In our business, you have two things you have to protect at all costs: your reputation and your relationships. If you do that, and you build a track record, you’re always going to do the right thing.
What trait do you think is most important for an executive to have in order to be a successful leader?
You’ve got to have vision. People want to work at companies that are going to grow, that are exciting, and that can be leaders in their industries. And in order to have that, you have to have a vision that’s not Disneyland. It has to be a vision that you can actually achieve over time.
What’s the best advice anyone ever gave you?
Roger Staubach had a lot of good advice. One thing he said that has stuck with me over time is “There’s no traffic on the extra mile.” It’s about putting in extra effort and working a little harder, because most people don’t do it. Hard work doesn’t necessarily ensure success, but it goes a long way toward achieving it.
When Charles Stubbs left YellowPages.com to take the helm at Primedia Inc. in mid-2008, his new employer was at a critical juncture. Primedia’s market sector — apartment rental and home listings — was rapidly switching from print-based media to digital. Then, a couple of months later, the financial crisis struck, pushing the economy into recession and knocking the bottom out of the real estate market.
“I joined Primedia at an interesting point,” Stubbs says. “We’re essentially a real estate advertising business. Our mission is to help consumers find a place to live, whether they’re looking to rent a single-family home, live in a multifamily complex or purchase a new home. That’s our bread and butter.
“Obviously, being in the real estate business has been an interesting challenge over the last several years. There’s no doubt that when you cater to your clients and they suddenly go through a period where they’re suffering, it’s going to have an impact on your company as well.”
So with the housing market ailing, Primedia’s business went south for a while. But Stubbs recognized that there was important work to be done during those lean times.
The signals were coming from all directions: In order to get through the recession and emerge at the other end in good shape, Primedia — which had been tentatively dipping its toe into the online media pool for almost 10 years — would have to jump all the way in and start swimming.
“All you have to do is listen to your customers,” Stubbs says. “The first two months I was on the job, I went on a number of customer sales calls. About 90 percent of our time was spent on digital media: what our strategy was with ApartmentGuide.com in particular, and what we were doing to win in that space. Very little time was spent on print media, print distribution and the opportunities around that.
“At the same time, it was obvious that there was so much more usage online — just phenomenal apartment lookup usage online.”
The print-to-digital exodus was under way, and Primedia wasn’t in a position to reap much benefit from it.
“The digital migration was happening,” Stubbs says. “Our board realized this. Even though Primedia was continuing to have revenue growth, our business was starting to lose market share to digital-only players.
“So we decided we’d better use that downtime the best we could, to take what was traditionally a print business and move it over to digital. That has been our focus. I think we have used that time very well. We had a print business with more than 30 years of heritage, and in a short period of time, we’ve converted it into a vibrant, almost exclusively digital business.”
The 850-employee company had 2010 revenue of $232 million and went from a public company to a private one in 2011.
Build the team
How did Primedia make the switch from print to online-based media during these last four recession-choked years? First, it circled the wagons and made sure it had the right team in place, with every team member on the same page communicating clearly and pulling in the same direction.
“The first thing you need to do is spend some time with your team,” Stubbs says. “Being a new CEO, sitting down and meeting all the team members, especially the senior team members and making sure that they’re on board with the idea that we have to become a digital leader in this space — that while print has provided tremendous success for the last few decades, it won’t take us where we want to go for the next several decades.”
Making sure the proper players were in place was the essential first step Primedia had to take before it could make the transition from print to digital.
“You have to identify the right team,” Stubbs says. “You have to bring everyone together and make sure they believe in the core strategy. You have to spend time with all the people on the existing team to understand their views, their successes, how they view the business and the opportunities around it and also to see how they adapt to change. Do they embrace change or are they reluctant?
“When you have a traditional business that’s had a lot of success, it’s difficult to reach the realization that those attributes won’t define success moving forward — that you really are at an inflection point. That was only accelerated by the economic crisis we were going through. So it’s really about investing time, understanding the team members and their strengths and observing how they adapt to change. And then, obviously, augmenting the team in areas where you see that you need additional skill sets.”
Once Primedia got its lineup in place, it had to make sure everyone was on the same page, communicating and collaborating smoothly.
“I’ve found in my career that you can have a lot of A players, but they won’t take you where you want to go unless they’re communicating well and working together as a team,” Stubbs says. “That’s paramount, especially during a major transformation of your business. It takes all the energy you have. It’s a lot of hard work. It requires real commitment and real dedication to working together. The teamwork environment is critical.”
Primedia’s leadership team recognized that the communication factor was vital, so it spent a lot of time, effort and energy making sure the right elements were in place to promote the quantity and quality of give and take that would be needed to successfully steer the company through the transition from print to digital.
“It wasn’t that we did anything particularly fancy; it was mainly about investing time to make sure it was working,” Stubbs says. “We had regular weekly meetings. We had specific meetings around subject matter areas. We created a number of cross-functional task teams, because one thing I’ve learned about the difference between traditional media and new media is you have to work cross-functionally especially well, from sales to product to technology to operations. All of those areas have to be integrated, to encourage the teams to come back with creative solutions that can be executed upon.”
Take small steps
Once Primedia’s leadership felt it had its teams assembled and everyone pulling in the same direction, the leadership team began focusing the company’s vision on incremental successes, on rebuilding and restoring its salespeople’s confidence, and on recognizing that it would have to take chances and risk failures in order to set itself on a winning path.
“Over the previous decade, Primedia had ventured into online media and did have somewhat of a digital presence, but it hadn’t lived up to expectations,” Stubbs says. “At the same time, we recognized that we were going through a very tough period with the economy and with the real estate market, so we felt it was important to demonstrate that we could have incremental successes to build confidence that we could execute and win, a little at a time.
“We focused on things such as creating basic scorecards, measuring success month by month, and beginning to look and see steady progress that gets you to an end result.”
The bleak business climate had taken an especially harsh toll on Primedia’s sales staff, so restoring morale in that area was a major focus area for the company’s leadership team.
“That was an overarching thing during the tough economy,” Stubbs says. “We’ve really had to work hard at restoring confidence in our salespeople. During the toughest parts of it, a lot of them seemed to lose some of their swagger, so we had to rebuild that while demonstrating that we have the absolute best product for our clients in the marketplace.”
Restoring the sales staff’s vitality has been a multistep process for Primedia.
“It’s one step at a time,” Stubbs says. “It’s coming up with new pricing schemes and mechanisms. It’s coming up with a number of new products and bundling and packaging those together, creating a number of short-term sales incentives, creating a number of marketing summits to bring clients together and educate them about the change in the business.
“And not only to educate the clients, but to educate the field salespeople on how this is a new game and this is a company they should be proud of — and telling them, ‘Look at the innovation and investment we’re putting into it, which is unparalleled compared to our competitors.’ It’s step by step, and I feel we’ve made great progress in this area.”
Another important element in Primedia’s successful switch from print to digital during the recession has been the company leaders’ acknowledgement that you have to be willing to risk failure to win.
“We realize we’re going to have to try things and test things and risk failing,” Stubbs says. “But that’s OK, because we understand the bigger picture of what we’re trying to accomplish. And you have to manage the failure; you never want to fail too big and create real harm.
“It’s mainly about testing things. Whether it’s multivariate testing online or giving consumers different opportunities to interact with your family of websites or launching new test products in a half-dozen markets and seeing if they resonate with your sales force and your clients.
“We’ve had a number of new products that didn’t make it, but we’ve learned from them and incorporated them into successive product lines that we’ve had great success with.”
Keep looking forward
All of the effort has borne fruit for Primedia. The company has made big strides in its transition from print to digital media and positioned itself well for future success online.
“When we began this journey, only about 30 percent of all the consumer interactions with our properties were digital; 70 percent were print,” Stubbs says. “We’ve been working on changing that for the last four years, and we’ve now reached the point where it’s 92 percent digital and 8 percent print. And back when we started, mobile didn’t even exist. Now mobile alone is three times the size of print for us.
“If you look at our overall lead growth, we’ve been able to increase the leads we provide our clients at a compound 25 percent annual growth rate for the last five years. And with the consolidation of ApartmentGuide.com and Rent.com, we’re approaching between 8 and 9 million monthly unique [users], which is nearly triple the next competitor in our space. We’ve continued to dramatically grow our audience.”
Primedia’s leadership team isn’t spending much time looking back at what the company has achieved, though, because the pace of change keeps accelerating in the online marketplace.
“Every day, you have to continue to be aware of the competitive landscape and force yourself to continue to innovate so you can continue to be a leader,” Stubbs says. “I don’t think anyone in the digital space can afford to rest on their laurels.
“You have to be conscious that there are always disrupters out there, new start-ups looking to disturb traditional business models and change the game. There are countless case studies of those in the digital arena.
“Obviously, we want to continue to have success and continue to gain share and own our space. We’re going to have to challenge ourselves every day to continue our leadership position. We don’t take it for granted for one minute.” <<
How to reach: Primedia Inc., (678) 421-3000 or www.primedia.com
THE STUBBS FILE
Name: Charles Stubbs
Title: President and CEO
Company: Primedia Inc.
Education: Bachelor’s degree in history, Cornell University; MBA, Vanderbilt University
What business leadership lessons did you learn during your time in school that you use today?
While an undergraduate, I had the opportunity to be involved with the business side of a daily student newspaper, on the advertising-circulation-distribution side, so I learned a lot about the fundamental building blocks of the business. I also learned that it’s important to invest a lot of time with your people and to build a great team, because they’re the ones who are going to get the job done. No one individual is going to do it.
What was your first job, and what business lessons did you learn from it?
When I was in seventh and eighth grade, my parents owned a couple small gift shops in Dallas. I worked the cash register and in the back room packaging and shipping. From watching them, I learned that it’s important to hire good people, train them well, and treat them well.
Do you have an overriding business philosophy that you use to guide you?
If you tell someone you’re going to do something, follow through with it. And if you work hard and have high integrity, success will come — not overnight, but over time.
What trait do you think is most important for a CEO to have in order to be a successful leader?
You’ve got to be able to win the hearts and minds of a good percentage of your team. You’ll never get 100 percent, but you’ve got to be able to get people to believe in a common vision and to follow you. And while it’s important to hold your people accountable, it’s even more important to have everyone hold each other accountable.
What’s the best advice anyone ever gave you?
My parents always told me to work hard and be honest and do what’s right, and that often people win simply by outworking others.
When Jim Snow became president of Gold’s Gym International three years ago, he stepped into a tough challenge. The recession was in full swing, and retailers were closing left and right, leaving behind a glut of cheap, readily available retail space. This void presented a ripe opportunity for operators of tiny, low-overhead gyms offering super-low-priced monthly memberships.
The discount gyms were feasting on the opportunity, thereby cutting into the market share of many of GGI’s smaller gyms, in some cases deeply.
“It was pretty clear; when I arrived, I started holding meetings with all of my stakeholders to learn about the business environment, and this was one of the key threats to the business that everybody was searching for an answer to,” says Snow, who took the helm at Gold’s Gym International in 2009 after having worked for five years as regional vice president at Omni Hotels, a sister company of Gold’s.
In its many years of existence, Gold’s has carved out its territory as an operator and franchisor of full-service gyms: large facilities covering 40,000 to 60,000 square feet that offer a wide array of fitness services and amenities. The company, which has 700 gyms and more than 3 million members worldwide, has always fared well in the full-service segment of the fitness market.
In more recent times, GGI has also begun operating and franchising fitness-only gyms — midsize facilities covering 20,000 to 25,000 square feet that offer fewer services and amenities than the full-size gyms, at somewhat lower membership rates. These fitness-only facilities were the ones that were feeling the pinch from the rise of the discount microgyms when Snow came aboard.
“Our full-service gyms are really made up of two kinds of gyms,” Snow says. “We have the big full-service gyms with all the amenities: pools, basketball courts, group exercise programs, etc. And as we looked at the marketplace, we saw that these gyms continue to compete very well because they offer so much value.
“But then we have a segment of fitness-only gyms that are in that 25,000-square-foot range. They don’t have the basketball courts, the racquetball courts, the pools, those kinds of things. They were more susceptible to this new low-cost discount gym that was coming into the marketplace.”
The discount operators were opening scads of smaller gyms — 8,000 to 15,000 square feet — in areas near GGI’s fitness-only gyms. And because the microgyms operate on lower overhead and can therefore afford to offer super-low membership rates, they began luring Gold’s customers away.
“In those markets where they built the discount gyms, there was a lot of attrition,” Snow says. “We started feeling the effects of the low-cost gyms on our product. Sometimes it was as much as 25, 30 percent of the volume. That can be pretty significant to an operator, especially an independent operator or franchisee who’s got their entire life on the line and is personally guaranteed against everything.”
The proliferation of discount gyms had begun a couple of years before Snow joined GGI, and the company hadn’t taken any action to counter it.
“This started happening in ’07, ’08, and it grew from there,” Snow says. “I came in October of ’09, and it had not been addressed. So it was a pressing priority. It was critical that we resolve this problem.”
Weigh risks, benefits
Snow and his leadership team began looking at the idea of creating a new type of gym to compete directly with the discount microgyms that were cutting into Gold’s market share. There were pros and cons to be weighed. The weigh-in became a prolonged process. Eventually the pros prevailed.
“Once we decided to consider this opportunity, we pulled my team together,” Snow says. “My stakeholders in this were the GGI team, the senior executive team, the management team, the franchisees and the board of directors at our parent company, TRT Holdings.”
Adding a new product line to Gold’s traditional full-service line of gyms would be a major shift for a company that hadn’t changed its offerings much since its birth in Venice Beach, Calif., in 1965.
“Nothing had been added to our gym line in 45 years,” Snow says. “We’d been the same company offering the same product, basically, for a very long time. So this would be a major change in direction. We had to think it through: Should we compete in this low-cost, high-growth segment?”
There were significant risks to take into account.
“We had potential risks to GGI that we needed to work through and get everybody comfortable with, and I needed buy-in from the senior team here,” Snow says. “One of the major risks was possible damage to the brand. Not all line extensions work.
“So we went through a pretty long and arduous process of understanding this line extension before we jumped into it, because our brand is the most valuable asset we own. The Gold’s Gym brand has been around a long time. It’s a storied company. It has tremendous value, and you don’t want to damage that brand by making a mistake.”
The company also had to weigh whether it had the financial resources and manpower it would need to put a new brand into the marketplace.
“You don’t just go out and launch a brand,” Snow says. “It takes a tremendous amount of work from everybody and financial commitment. There were many questions that needed answers. Did we have the internal talent required to do it? Could we build these gyms? Could we put them up quickly? There were a lot of pieces to the puzzle when you start looking at launching a new brand like this. So we had got a lot going on here, because we’ve got a lot of divisions, and this would be a major undertaking by Gold’s if we decided to move forward with it.”
On the other side of the ledger, GGI’s leadership team also determined that the potential upside was significant.
“It seemed like an interesting opportunity,” Snow says. “As a full-service gym owner and operator, as well as a major franchiser, the low-cost gym seemed to provide a lot of advantages to our brand.”
Among those advantages: A new line of low-cost gyms would enable GGI to quickly increase its distribution of gyms across the country because the gyms could be built quickly. The gyms would be relatively easy to run, requiring only about half the management team that a full-service gym needs. In addition, they were projected to become profitable quickly.
“In the end we determined, after we’d gone through this process, that there were enough potential advantages and the risks were low enough that it warranted proceeding,” Snows says.
Lay out the plan
The next steps involved conducting consumer research studies, creating the new brand’s concept and image, creating financial models with best- and worst-case scenarios for the new line of gyms, getting the company’s franchisees on board with the new concept, and then, ultimately, presenting the idea to the company’s board of directors. It was a yearlong process in all.
“We presented it to the board of directors in the late fall of 2010,” Snow says. “We had a finance analyst who had completed a compelling set of financial models, and we presented those to the board. And the board, after quite a bit of discussion, agreed to fund the Gold’s Gym Express development on a beta-test basis. That gave us the funding mechanism we needed to move forward, to build between six and eight Express gyms.”
Over the next year, GGI wound up building six Express gyms in a variety of markets around the country to test the concept. The Express gyms offer Basic Memberships for $9.99 and Gold Memberships for $19.99 a month, as compared to the $30 to $50 monthly memberships at GGI’s full-sized gyms. All the Express gyms have performed well in their test markets.
“The beta-test gyms are performing much better than our original models projected,” Snow says. “One of the things we look at is upsell percentage: the percentage of customers who buy the Gold Membership instead of the Basic Membership because of the extra benefits that come with it, like tanning, massage, half-price drinks, and unlimited guest passes.
“Our models projected that these test gyms would have an upsell percentage of about 20 percent. We ended up with an upsell percentage over 50 percent — much higher, obviously, than we thought we would experience, and also much higher than the industry average.
“Our projections are at least a year ahead of schedule in terms of what we thought these test gyms would do. They break even much faster than we thought they would, and they’re growing to maturity very quickly, much quicker than we had projected in our pro formas. Also, they’re ranked right at the top of all of Gold’s Gyms in terms of service and customer satisfaction — and that’s coming right out of the chute.”
Based on these test-gym results, GGI decided this past spring to move forward full-throttle with development of the Gold’s Gym Express line of small, low-cost gyms.
“In the last couple of months, we made the financial commitment to move forward and to build up to 50 new Express gyms in 2013,” Snow says. “That’s where we’re at right now. We have 30 to 40 leases that we’re working on. My guess is we’ll build 10 in the first quarter of 2013 alone. And we’ve got a few gyms that will have leases done this year; we’ll probably get another six to eight done this year. Then we’ll probably get an additional 25 to 50 done next year. Our franchising division has about 30 gyms lined up right now for new franchisees.
“We’ll probably end up with between 50 and 100 Express gyms by the end of ’13, including those that will be in the pipeline. So we feel good about that. It’s right in line with our projections.”
Proceed with caution
Asked what advice he would give executives faced with similar challenges posed by low-cost competitors moving in and grabbing market share, Snow says it’s important to avoid the knee-jerk reaction of simply lowering your price and your standards to meet the competition head-on.
“Don’t jump to conclusions about discounting until you’ve researched and understood all the possibilities available to you,” Snow says. “Discounting is typically the first reaction that everybody has, and it’s typically one of the worst things you can do. Your services and your product line are based on certain things you did when you built the product to maintain certain margins.
“So just going and cutting your rates and allowing your product to stand as is, while this will probably drive some volume, will destroy your margins. And it will be very difficult to ever come back from that.”
Snow also recommends that if an executive is considering introducing a new product line that will affect the company’s overall brand, it’s crucial to avoid getting ahead of yourself and hurrying the process.
“There are times when you would like to move faster as a leader,” Snow says. “But it’s difficult to move fast until your internal teams have bought in. You can’t go forward without them. Now, not everybody is going to jump on board right away. But as long as they jump on board once the decision is made, you’ll be OK.”
In the end, as with most important tasks that businesses face, teamwork and group sacrifice were key elements that enabled Gold’s Gym International to successfully grapple with the tough competitive challenge it faced.
“There’s no problem that we would cross here in this company that any one person believes they have the perfect answer to,” Snow says. “We operate as a team. It’s a team environment. The team works together to help work through problems. We use the leadership and knowledge and expertise from all our people coming from different backgrounds to help us make the right decisions and move forward.”
HOW TO REACH: Gold’s Gym International, (972) 444-8527, www.goldsgym.com
THE SNOW FILE
Gold’s Gym International
Born: Manhattan, Kansas
Education: Bachelor’s degree in marketing, Kansas State University
What important business leadership lessons did you learn during your time in school that you use today?
My marketing classes helped me understand the value of consumer studies, customer focus and the need to drive top-line revenues. Today, my primary role is to balance revenues, customer service, and the owners’ priorities. And everything starts with revenue. You’ve got to look for it everywhere and drive it incessantly.
What was your first job, and what important business leadership lessons did you learn from it?
One of my first jobs coming out of college was with Marriott Corp. Marriott gave me an excellent basis of training for my future career. One of the things they taught is that they expect their managers to work hard and perform at a very high level. I took that credo and told myself I’m always going to be the hardest working person I know, and I’ve tried to do that throughout my career.
Do you have an overriding business philosophy that you use to guide you?
You’ve got to have a dynamic culture that supports your associates. And you’ve got to have an organization that takes the needs of the customers into account, and a mentality that doing those things will take care of your owner’s requirements.
What traits do you think are most important for an executive to have in order to be a successful leader?
You’ve got to be transparent. You’ve got to be courageous enough to go the uncomfortable route when you don’t have complete buy-in. You’ve got to be confident in your direction. You’ve got to think big. And you’ve got to be willing to swing the bat.
What’s the best advice anyone ever gave you?
Be aggressive and set the expectations very high for your company.
Robin Raina acknowledges that the last four years provided a stern test to his prudent leadership throughout the last 13 years as he turned Ebix Inc. into a highly profitable, efficient company designed to weather tough times.
The recession hit the insurance industry hard, putting many insurers out of business and forcing many others to tighten their belts drastically. As a result, companies that supply goods and services to the insurance industry felt the pinch too.
The Atlanta-based supplier of software and e-commerce services to insurers, weathered the storm better than most. Ebix made it through — not unscathed but a stronger, wiser company whose leaders have grown and learned a lot in the process.
“The insurance industry wasn’t prepared for the economic downturn,” says Raina, chairman, president and CEO. “When people are not able to pay their mortgage, insurance becomes a luxury, so insurance companies were suddenly having a hard time. As a result, they tightened their purses and started spending less money on new projects, new initiatives, new distribution media.”
At the same time that the recession forced insurers to start curtailing their spending, a handful of other developments made life tougher still for Ebix. The health reform movement put even more downward pressure on the insurance industry. Some insurance companies declared bankruptcy. Many insurers started getting acquired by other companies, shrinking Ebix’s pool of potential customers even further.
“The health reform movement created a lot of inertia in the insurance industry,” Raina says. “Around the same time, a lot of acquisitions started happening. A lot companies in the financial world — the banks who were our clients, the insurance companies who were our clients — got acquired. And some of them went into bankruptcy mode. They had lots of difficulties.”
A large part of Ebix’s business comes from setting up exchanges to streamline insurance transactions. Thus, insurance transactions are the lifeblood of Ebix’s business.
“The more policies that get written, the more transactions we do and the more money we make,” Raina says. “It’s as simple as that. And when the insurance industry shrinks, less policies are written, less prospects are offered insurance, and Ebix’s exchanges are utilized less. So you have a direct impact — an inhibiting factor in terms of your revenue growth.
“That was the biggest challenge we faced. In spite of the state of the economy, and at a time when the insurance market was shrinking, we had to somehow keep the company growing and still report profitable results.”
Lay the groundwork
To a great extent, Raina had been preparing Ebix from the day he became CEO in 1999 for the economic storm that hit in 2008.
“We didn’t just sit down and create a plan on how to respond when this thing happened in ’08,” he says. “To me, that’s a mistake. Companies have to be ready. Companies that are designed to be run when the economy is strong are not good companies, in my view. You have to have systems in place and the fundamental strength to still do well if the economy goes south.
“For us, this journey of still being able to do well in spite of the economy didn’t happen because we put our heads together when the crisis hit and said, ‘Let’s figure this out.’ We were always prepared for it.”
How did Raina and his leadership team members build Ebix to weather the recession? The ways were many. They made prudent, careful investments. They avoided growth for growth’s sake. They went after new business when it made sense to do so, and had the restraint to pull back when it didn’t. They streamlined and centralized many of Ebix’s business processes. They converted the company to paperless operations, and taught its customers to do the same.
“It’s a series of things you have to be doing,” Raina says. “The fundamental strength of Ebix has always been that we created the systems so that our business scales up as our revenue scales up. And we run a very common-sense kind of business where anything we do has to come up with a particular model operating margin.”
Fiscal restraint, careful investing and caution in executing big transactions have been key elements in Ebix’s leaders’ ability to build resilience into the company’s design.
“Many people underestimate the value of financial discipline,” Raina says. “If you have a business model where you say you want 40 percent operating margins out of everything you do, and you run into a situation where you’re offered a big revenue deal but it will take your margin down quite a bit, then don’t do it.
“Focus on what you evolved as your business model. Have the courage and the financial discipline to be able to say no to such opportunities.”
In many ways, efficiency has been built into Ebix’s model for years. This played a big part in the company’s staying power when it ran into tough times.
“We had centralized and streamlined our business operations,” Raina says. “We had converted Ebix into a paperless company, where very little paper is transacted, and taught our customers to do the same. What did that all result in? It resulted in a highly efficient company.”
That efficiency served Ebix well when the recession struck in 2008. Not that it made the ride entirely smooth, but it served as a base of strength, a stabilizer to enable Ebix to traverse the rough road without breaking down.
“We were well prepared, but that’s not to say it was easy,” Raina says. “We were able keep our head high and make it through, keep growing, stay profitable and maintain our operating margins.
“Obviously, the revenue growth becomes lesser when you go through times like these,” he says. “It might not have been as good as it would have been if the economy was in good shape, but we were still able to show revenue growth.”
As Ebix moved through the storm, its leaders had to make many modifications to keep the company on course. They had to make sure the company’s existing revenue sources were secure. As Ebix’s clients were being snapped up by acquirers, they had to convince the new owners of the value of the company’s products and services. Some of Ebix’s customers’ budgets were cut, so there were issues of price sensitivity that had to be dealt with sensitively.
“The last four years have been an issue of doing small adjustments here and there, and restructuring certain things,” Raina says. “You become more controlled than you ever were. You focus back on making sure you don’t lose a single client because you know in a time like this there’s a possibility that some clients might get price-sensitive, so you have to form a different plan.
“Overall, we didn’t run into a lot of price sensitivity, fortunately. Our bigger issues had to do with the extent of overall budgets, and whether the clients had budgets that were sanctioned or not. We had a few exceptional cases where we had to come up with a solution for them because they had a lesser budget, and we had to somehow help them through that. So we did.”
Ebix managed to find ways to retain most of its customers who were hurting financially by working within their smaller budgets for temporary periods.
“You have to look at the client, and you have a choice to make at that point,” he says. “One choice is you can basically say, ‘Well, I’m not going to change anything that I do.’ The second way to look at it is you look at the client and say, ‘Are they genuine? Do they genuinely have an issue?’
“You look at how long they’ve been your client, and if you think they’ve been a sincere client, you make a decision that this is a time for you to show that you’re a true partner. You tell them, ‘I’m going to work with your present budget, with a basic assurance that as you get into better times, you’re going to come back to the normal level.’
“If they’re willing to do that, you give them a break. That’s what we did with a few of our clients because they had shown that they were true partners to us by staying with us for many years.”
Diversify your business
Asked what advice he would give other CEOs facing a similar challenge, Raina says he believes it’s critical to keep your business diversified and maintain your customer concentration as low as possible.
“It’s important to understand that you can’t have a business that is too heavily focused in any one business area or with any one client,” Raina says. “This was a key learning point for us. If you step back a few years, Ebix had a fair amount of customer concentration. If you go back to 2003, 2004, we had a situation where one client accounted for 40 percent of our revenue. Today, our customer concentration is minimal. We deal with hundreds of thousands of users, and our largest client accounts for less than 2½ percent of our revenue.
“I see publicly traded companies today who are doing extremely well — at least in the stock market they’re doing very well — and they have customers accounting for 52 percent of their revenue. To me, that’s a bad business model. It’s too risky. If one customer moves out, their entire business could be at risk. You have to diversify your business.”
Raina recommends keeping your company’s structural elements simple — your vision, your business model, your financial model — especially when the going gets rough.
“That’s the biggest mistake I see companies make: They get carried away by their own vision,” Raina says. “It’s very important to have a simplified vision, a vision you can explain in a few words, in a few sentences. If it takes longer than that to explain your business model, it means it’s not a good business model. I’m a firm believer in that.”
It’s equally important to have a straightforward financial model, according to Raina.
“You’ve got to have a very simple financial vision and a simplified way of making money,” he says. “It really comes down to this: If you can figure out that your selling price has to be a lot higher than your cost price — if you can figure out that basic fact — then you’ve arrived, in my book. Many people laugh at that statement, but too many companies ignore this. You’ve got to get down to the basics of the business.”
Lastly, Raina says that being able to learn continually and to adapt to constant change are crucial survival strategies for CEOs faced with guiding their companies through harsh economic times.
“You must keep learning all through this process,” Raina says. “Lots of managers are very proud about saying, ‘I came up with a vision a decade back, and that vision has worked very well.’ And they stick to their vision too long sometimes.
“It’s a real-time world we live in, so you have to be dynamic,” he says. “You have to be ready and willing to learn, to change, to keep evolving: the way you sell, the way you deploy, the way you market, the way you host, the way you implement services.
“To me, the key issues are simplification of your vision, simplification of your business plan, being able to spell it out to your employees and your partners, and being ready to change all the time and learn from everything you do.”
HOW TO REACH: Ebix Inc., (678) 281-2020 or www.ebix.com
THE RAINA FILE
Chairman, President and CEO
Born: Kashmir, India
Education: Bachelor’s degree in industrial engineering, Thapar University, Punjab, India
What important business lesson did you learn during your time in school?
Engineering doesn’t necessarily teach you everything you’re going to need in terms of technical skills because times keep changing. But what engineering does teach you is an aptitude to learn. It gives you an aptitude of knowing that everything can be understood as long as you’re willing to apply yourself. You don’t get overawed by things because you learn how to analytically think everything through.
Do you have an overriding business philosophy that you use to guide you?
Be sincere, transparent and truthful to your customers. You have to be able to talk to your clients in a very open manner through thick and thin. If you’re running into a problem, you’ve got to be able to tell them what it is. Today, in the new world that we live in, all the companies are trying to create recurring sources of revenue. We’re trying to create annuity sources of revenue. What does that mean? That means you’ve got to have clients who really want to stay with you, because that’s the only way you will get recurring revenue.
What traits do you think are most important for a CEO to have in order to be a successful leader?
Conviction and the ability to listen. These are key, because we’re not perfect, we make mistakes every day, and people have to be able to relate to you, to talk to you, and you have to be able to listen to them. Ultimately, you make the final decisions, but you have to have the ability to listen and to digest in your mind, am I doing this wrong? Maybe they’re correcting me in the right fashion. So that becomes a key.
Having enjoyed steady growth since Mike Hislop took the helm as CEO in 2006, Corner Bakery Cafe is now hitting the accelerator harder. The company has set its sights on doubling its footprint over the next four years. It’s a big undertaking that presents plenty of challenges, but Hislop is setting Corner Bakery on a course to achieve its goals by attacking the obstacles one by one.
“We’re looking to double the size of the brand pretty quickly, and we decided that in order to do that, we would have to get more heavily into franchising,” Hislop says. “We actually started franchising about four years ago, but up to this point, most of our growth has come from opening company-owned stores.”
Corner Bakery has 134 restaurants across the country: 104 are company-owned, the other 30 franchised. The company plans to increase both of those numbers, but the main emphasis will be on franchising, so that when Corner Bakery reaches its ultimate goal of doubling its size, the ratio of franchise locations to company-owned stores will be about 50-50.
But there are many hurdles the company must clear before it gets there. The main challenges, Hislop says, are finding excellent franchise partners while maintaining the company’s culture, and building its internal infrastructure so it can adequately support all of the new locations and all of the new franchise partners’ various needs.
“Getting more heavily into franchising, and into that kind of growth, there are some tough challenges that fall in line with that,” Hislop says. “A big one, obviously, is choosing the right partners to grow with.
“Another big challenge is maintaining our culture,” he says. “When you’ve built a great company like ours, and it’s been built on this culture that has evolved over 20 years, how do you make sure that culture is passed on to your new franchisees? How do you make sure you choose the right ones, and then how do you make sure that they become part of the fabric of what you’re trying to do?
“Then, building the infrastructure to handle the growth is the other big challenge we’re facing. You might think the infrastructure you have is adequate. But then you get into the thick of it and you’ve got design issues, you’ve got real estate, you’ve got construction, you’ve got product and menu development, you’ve got distribution. And you have all these franchisees you’re bringing in, each with different levels of experience and different needs. And as we’ve learned, one size doesn’t fit all.”
Choose partners carefully
So how does a CEO faced with a steep growth curve and the need to quickly bring in a lot of new partners go about doing that? Experience is one of the key requirements to look for.
“To me, and I’ve been in this for over 30 years, you need the right operators in there that have been there and done it,” Hislop says. “You need to make sure you’re choosing people that have worked extensively within your industry and that have been through growth before.
“Choosing the right partners is huge. We have 18 of them now, and it’s really important that they understand who we are, that they understand the culture, that they understand the complexity of what we do. Because Corner Bakery is a little bit different than the other cafes that are out there. A lot of people want to be in that fast casual bakery-cafe segment, but you need to make sure that they understand how to operate a restaurant, how to choose the real estate that’s needed, how much it’s going to cost to build, and that they understand the economic model you have and the type of intensity you need to have with management.”
Early on, selecting franchise partners was a hit-or-miss prospect for Corner Bakery Cafe.
“Going out and choosing the right partners was pretty difficult in the beginning,” Hislop says. “We found that we had to be choosy in making sure that the people we brought in ‘got’ it. One thing we found out the hard way is that, early on, we had a couple partners that we thought would be OK even though it was a little bit shaky, and it just didn’t work out.
“So then you have to make the decisions and learn from your mistakes on the partners that you’re choosing, and make sure they really get who we are and what makes us successful, and that they’re really passionate about doing more than just opening a restaurant. They have to be passionate about being part of the community and building something they can be proud of. Not just to build as many cafes as they can, but really understand what has made the brand successful over the past 20 years.”
Corner Bakery learned through trial and error to be more selective and careful in evaluating the new franchise partners it brings in.
“What we did differently is we made sure we’re taking more time with them, making sure that they’re coming out here and really meeting our entire team,” Hislop says. “We have a discovery day here where they come in and walk around, and they get to meet of VP of marketing, they get to meet of VP of human resources, they see our training material, they get to spend time with our designer, they get to spend time with construction and talk to them, and with financing to go through exactly what the economic model is and how it ends up working.”
Keep culture intact
Bringing in a large number of new partners over a short period of time posed tough challenges for Corner Bakery Cafe in terms of maintaining its company culture.
“For me, that was the toughest thing, because we have a culture that has evolved over 20 years,” Hislop says. “It’s not like this is some new hot concept. This is a great brand that has evolved over a period of time, and people feel really proud about it. And when you have a culture that has been geared to just building company stores, and then you start franchising and bringing in a lot of new people, it takes a lot of work to get them all on the same page.
“A lot of franchise companies open up just franchise stores, and they don’t have skin in the game. I think our franchisees love that we have skin in the game. I’m opening up 10 [company-owned] stores this year; they’re opening up 20 [franchise] stores this year. So we’re developing the prototype with them. We’re right in the middle of it, right next to them.”
Communication and recognition are key aspects of maintaining the company culture in the midst of the fast franchise-driven growth.
“We are constantly communicating and recognizing our key contributors, and that includes our new franchisees,” Hislop says. “We have a weekly newsletter, and every VP has regular awards that they give out. That’s a big part of the culture of what we do. And we make sure our franchisees are eligible to win those awards as much as anyone else.
“We have quarterly ‘get it’ meetings to keep everybody on the same page and keep everybody aligned as our culture continues to evolve. And we’ve created an advisory board that is made up of all the franchisees, to make sure that they’re in the middle of what we’re doing. We do a lot of product and menu development, and they want to be part of it, so we have them sit in with our culinary meetings, and we have them testing new dinner items.”
Build up support systems
Building the infrastructure to adequately support the primarily franchise-driven growth has also posed some tough challenges for Corner Bakery Cafe.
“You know, we thought we were ready,” Hislop says. “Then all of a sudden you sign up 10 franchisees in a year, and each one may be looking at four to five potential sites, and you might eventually be choosing one, maybe two of those sites. But at the same time you have to be doing plans and doing the schematics and all of the design for all of those.
“To tell you the truth, initially we were understaffed. We were sort of new at it, and I thought we had staffed up properly. But coming out of that recession, where you were not overly staffed at all, to where you just started to grow in building the infrastructure, when it came to design, we started to get a little backed up. And believe me, our franchisees let us know about it.”
Corner Bakery had to do some quick staffing and building up, and not just in the area of restaurant design, but also other areas of support for its franchisees like real estate, construction, information technology, human resources, marketing and distribution.
“Obviously, there’s a lot to it,” Hislop says. “We knew it would be difficult, but once you get right into the middle of it and find out that different groups, although all great and all having our same passion and ideals, need different support, you’ve got to be ready to do that — whether it be training, whether it be HR, whether it be real estate, distribution, etc. — all of the different challenges that we had to meet in order to be a first-class franchisor.
“Everything depends on the partners that you’re bringing in and on what they’re going to need in terms of support,” Hislop says.
Turning the corner
All the hard work is starting to pay off for Corner Bakery Cafe. Employee turnover rates are low. Corner Bakery is opening new locations this year at the rate of about one cafe every two weeks, and the company is establishing itself in new markets across the United States.
“Our turnover is probably the lowest in the industry,” Hislop says. “We’re floating at around 15 percent at the management level, and below 41 percent for hourly. For the segment we’re in, those are some of the best turnover ratios you’ll see. That shows that we do believe that the environment we create is important, and our franchisees love the fact that they’re not franchising with a brand that just started — they’re franchising with a brand that has evolved. There’s a lot of integrity in the brand, and I think they love seeing that we’ve gone through the tough times, we’ve gone through a recession, and we’ve been able to maintain the kind of value we have within the brand.
“The other thing about this brand right now is that when people look at it, it’s highly successful in California, it’s highly successful in the mid-Atlantic, it’s highly successful in the middle of the country, in Texas, in Chicago, etc. It’s a unique brand with a great economic model. We have a strong management team. We’ve been able to prove that this economic model works in many different parts of the country. And we’re here with the systems and the processes that will make that easier for our partners.”
HOW TO REACH: Corner Bakery Cafe, (972) 619-4100, www.cornerbakerycafe.com
THE HISLOP FILE
Name: Mike Hislop
Company: Corner Bakery Cafe
Education: Bachelor’s degree in hotel and restaurant management from the University of Massachusetts
What was your first job, and what business lessons did you learn from it?
My first job within the restaurant industry was with TGI Friday’s. They had a very strong economic model at that time, and I learned a lot about the systems needed to run a company. At the same time, they understood how important the culture was, and the people. Everybody there loved working for the brand. It was a unique brand, and what really drove the guests in and why they came back so often was the food. It was great food. That’s the same thing I do with the brands I have now. It starts with the food and the people, and making sure that everybody understands what you’re trying to do and feels good about what you’re doing.
Do you have an overriding business philosophy that you use to guide you?
Throughout my career I’ve surrounded myself with bright people that are passionate about what they do. I don’t mind them being a little bit competitive, because I think some of the best operators out there are competitive. But they have to love working with people and pleasing people. If they do, they’re going to be successful in this business. Today, walking into a restaurant and seeing people happy and seeing the restaurant execute the way it should, I still get fired up about that. I’ve been doing this for 35, 40 years, and that’s still what drives me today.
What traits do you think are the most important for a CEO to have in order to be a successful leader?
Passion and conviction in what you’re doing, and the ability to make sure you can get the entire team aligned around that.
How do you define success in business?
Being able to grow a company and offer great career paths for everybody, so they can have a good balance at work and at home. And being able to make money at the store level while creating a fun, challenging environment for people to work in.
In business, growth equals success, but growth also usually comes wrapped in challenges, sometimes extremely difficult ones. Liaison Technologies CEO Bob Renner has seen this firsthand over the last few years. The main complication Renner has encounted is keeping his data management company stocked with enough talented workers to keep its growing customer base happy and satisfied.
“The market we participate in is an active one; it’s consolidating and there’s a lot of competition,” Renner says. “And over the last five years we’ve grown at a 50 percent compounded annual rate. So attracting and retaining top talent at the velocity we’re growing is a challenge that has been top of mind for us, especially in the last 12 to 18 months.
“Finding people that have the right skill set and fit into your company’s culture is tougher when you’re growing,” he says. “Some days it seems like there’s zero percent unemployment in the space we’re in. So when I think about business challenges, that’s the key one for us.”
The problem became apparent about two years ago, as Liaison’s leaders started noticing several factors impinging on the company’s ability to attract and retain talented knowledge workers: a sudden salary inflation trend; competitors’ direct attempts to lure Liaison employees away; and a shortage of suitable talent coming from colleges, notably Georgia Tech, the technology-education giant sitting in Liaison’s backyard.
“Over the last 18 months or so, in the local market here in Atlanta, we saw salary inflation that was accelerating more quickly than our standard practices were to raise salary and compensation,” Renner says. “This was counterintuitive, because at the same time you’re hearing a lot of economic news talking about high unemployment rates, which, depending on who you’re listening to, ranged anywhere from 8 percent to 15 percent in our local market. That was the first indicator.
“A second factor that has led to this being a focus issue for our executive team is that as Liaison has grown rapidly, we’ve become more visible to the larger competitors in our space,” he says. “So we’ve seen some very active recruiting efforts from competitors into our organization. Some of those were successful, some were not so successful, but they became quite visible. We saw a lot of pressure being put on by competitors looking at Liaison. Before this, we had been under the radar screen, but once you reach a certain size and visibility, you end up with a more competitive recruiting environment.
“Lastly, we faced a shortage of talent coming out of the colleges. We recruit heavily from Georgia Tech, and you’ve got a lot of other firms like Google, Facebook and Microsoft also fishing in that same pond. So bringing in new recruits from the Atlanta area, even once you recognize and resolve the other two challenges, continues to be a challenge for us.”
Liaison has taken a number of steps to help make it easier to attract and retain talent. Among those initiatives, the company has:
- Hired a full-time recruiter.
“We decided to bring on a full-time permanent employee as a recruiter at Liaison,” Renner says. “This company has been around for 12 years, and this is the first time we’ve staffed that position with a permanent employee.”
- Communicated to employees its vision and the importance of retaining employees and attracting new ones through networking.
“The most rudimentary thing we did, which is something a fast-moving company can overlook, is we began to communicate a message to the employee base focused on retention and on networking to attract new talent,” Renner says. “We began to get much more active in our internal communications about the culture and the mission of the company. We used lot of the methodologies from the Jim Collins ‘Good to Great’ model, which we think fits our culture very well. We ramped up the communication so people understood the vision of the business, how important top talent is to us, and how serious the executive management team takes that. We did this through a series of road shows to all of our facilities. This took a lot of investment by the executive team, by our HR team, a consistent level of communication.
“This galvanized the team in understanding our mission, understanding what we’re looking for, reinforcing how important our people are to our success and to us getting to where we want to be.”
- Created more flexible work schedules for employees.
“We made some adjustments along the way in terms of work flexibility,” Renner says. “We have a lot of people that telecommute now, quite a few more than a couple years ago. We’re probably up to about 25 percent of our workers that telecommute. Some people work two days from home; some work from home all the time. And our Dallas office is 100 percent virtual at this point. That was by their preference. All of our people in the Dallas area are now virtual workers only. So that has ramped up a lot.”
The transition toward having more workers telecommute has been smoother than some of Liaison’s leaders expected it would be.
“I was probably the biggest skeptic of that,” Renner says. “I’m pretty old-fashioned in terms of coming in to the office. But now, seeing this at work, we haven’t seen anything in the way of downside, so I’ve gotten over my apprehension about it. The company has adapted very well to it. We’ve embraced it more than a lot of other companies I talk to on a regular basis. Having people telecommute is one of those things that you wish you would’ve done sooner, once you’ve seen it at work.”
- Consolidated its Atlanta operations into a single headquarters facility.
“In Atlanta, we were spread across multiple offices, but in the last 12 to 18 months we consolidated into one facility,” Renner says. “This created more unity and more visibility across the company. I think it has really helped with the culture, and with retention and motivation. It represents a big financial investment by the company. We took a pretty big hit in doing this, just so we could have a bigger facility everyone could fit into. I think that helped a lot.”
The employee attraction and retention initiatives set in motion by Renner and his team have started to bear fruit for Liaison.
“To give you a perspective on that, we hired 45 people in the last 120 days,” Renner says. “When you’re a 300-person company, that’s pretty serious growth. And we’re really looking for specialized talent; some of it is coming out of college directly, and some of it is experienced knowledge workers.
“In the previous environment we were operating in, in terms of finding talent, that would have been a yearlong process, at least,” he says. “We had been having a lot of open head count go unfilled. The way that manifested itself, in terms of our numbers, is our profitability was far higher than we had experienced in previous years, and that was simply because we had open head count we couldn’t fill. Sometimes it’s not a good thing to have profitability above what you’re expecting. It doesn’t necessarily set you in a good place for the future.”
Liaison’s employee turnover has decreased noticeably.
“We have a human resources executive that sits in on our weekly senior team meetings, and the report from HR has been very good in terms of retention and turnover, especially since we started with the road shows and some of the other things we’ve been doing,” he says. “Anecdotally, that has improved quite a lot.”
Liaison has begun to see the labor market loosen up, so employee referrals are rising, and the company has been able to reduce its reliance on employee recruitment firms.
“In terms of finding qualified candidates, if you go back a couple years or more, we always did most of our recruiting through networking,” Renner says. “We basically had employee referrals, which our employees are incented to do, and we really didn’t use contract recruiters for anything. Then we went through a period of time 12 to 18 months ago where we had to pay an outside recruiter to help us fill almost every open position. We just could not find qualified candidates through the standard means of recruiting that we had used internally. But now we’re back to a place where, to fill these positions, we use recruiters for less than half of them. So that’s a positive sign in terms of good talent being available within the Atlanta market for us.”
Put the word out
Asked what advice he would offer other business executives facing the challenge of recruiting and retaining scarce talent while growing rapidly, Renner says getting the word out to your staff is crucial.
“If I were to give one key piece of advice, it’s communicate, communicate, communicate,” he says. “Create an environment where the staff has a lot of transparency to what it is you’re doing, and they understand the mission, and they’ve bought in to it. Doing this greatly helps with retention, because then when they get a call from a competitor, they tend not to listen as much.
“I think we undercommunicated for a period of time, and when we were a smaller company, communicating was easier. But as you scale the business, more effort needs to go into communicating your message. I know it’s a cliché, but as you grow, it’s easy to lose sight of the exponential communication requirement. It’s not linear. If you’re growing 50 percent a year, the communications requirement to keep everybody on the same page, to keep the culture intact, and to keep the employees engaged and motivated, is an exponential growth in terms of the effort that you have to put into it. I underestimated that at times, and I certainly won’t do that again.”
Liaison has also been challenged because it operates in a fast-changing market sector and finds itself facing larger, more sophisticated competitors than it has dealt with in the past.
“When the landscape you’re working in is dynamic and your competitors are changing, it’s important to spend a lot of time to determine where the white-space opportunity is — that is, where there’s a unique place you can position your company — and not try to compete head to head with the new competitors that you’re being stacked up against. Because the reality is, if you compete on the same basis as the new competitors, due to scale-based economics, etc., you’re just not going to be able to be effective. We’ve continually tried to determine what are the things we can do, based on our expertise and our assets, that will set us apart from the larger competitors.
“That’s a key piece of advice: Don’t try to do the same things they’re doing, because you won’t win. Within our company, we sometimes have senior people slip into the trap of ‘So-and-so’s doing this, so we should go do some of that.’ So you quickly come back with, ‘Can we do it better than them?’ The answer is usually no. So we dust ourself off and say, ‘Yep, we’re not going to go down that path.’ It’s important to leverage your capabilities and assets to do something different to achieve the same objective.”
HOW TO REACH: Liaison Technologies Inc., (770) 442-4900 or www.liaison.com
THE RENNER FILE
Name: Bob Renner
Title: President and CEO
Company: Liaison Technologies Inc.
Born: Streator, Ill.
Education: MBA, Emory University; B.S., Electrical Engineering, California State University, Fullerton
What was your first job, and what important lessons did you take from it?
The first meaningful job I had was I worked in a gold mine in Northern California. And what I learned from that is that I needed to go to college, because it was hard, physical work, and you can do that up to a certain point, but not much beyond that.
Do you have an overriding business philosophy that you use to guide you?
I’m driven and impressed by people that really put their discretionary effort into the business. In some cases, it’s not necessarily the smartest person in the room or the cleverest person in the room. I believe in people committing themselves to the business, in terms of interest. I like to surround myself with people that are engaged and love what they’re doing, so they’re thinking about the business not because they have to but because they want to. And I’ve been fortunate in this job to surround myself with some people that fit that mold to a T.
What trait do you think is the most important for a CEO to have in order to be a successful leader?
You need to be humble. A lot of people that get into executive positions quickly lose touch with how they got there. Most people get to this position through a lot of hard work, and with a lot of luck along the way. So staying approachable, staying humble, understanding that you’re fortunate to be doing the job that you’re doing — I think this is a very important attribute.
How do you define success in business?
Delivering something that’s valuable to the market. That’s not always easy to find, but you have to find it because it anchors everything else that you do.
Early last summer, Half Price Books, Records, Magazines Inc.’s revenue started flattening out noticeably. Many of the Dallas-based chain’s 115 stores were recording lower-than-usual sales increases. Others stores were staring at a flat line, and a few stores were even seeing sales dip a bit.
Sharon Anderson Wright, the company’s president and CEO, says the overall slackening of Half Price Books’ sales — caused by the lackluster economy and the ascendancy of electronic media and online sellers like Amazon — was not quite on a scale that she considered alarming. But it was noticeable and problematic, and Wright knew that she and her leadership team would have to deal with it immediately.
“It’s no secret that factors like the economy, electronic media, online sales — all of these things have been killing off a lot of the bookstores,” Wright says. “In the past our company has been pretty recession-proof, but this has been the worst economy we’ve seen in recent history. And when you couple that with the increases in online sales and electronic media, it’s been tough. So we’ve been having to work with that.”
For virtually all of its 40-year existence and through a number of tough economic periods, Half Price Books has experienced consistent, stable growth. The company derives the lion’s share of its revenue from used merchandise — books, magazines, music, video — which it buys and resells. Dealing in used merchandise has always been a recipe for steady success, irrespective of the economy’s up and downs.
“Normally, we sail above everyone in recessions,” Wright says. “We skate over the top of it, because everyone comes to us. We sell a good product at a good value, and we get incredible buys when people need to either make some extra cash or downsize or move. And we sell a lot of stuff when people are trying to reinvent themselves, or when they aren’t going to work every day so they have a little more time to read a book or watch a movie.
“Actually, we still are sailing above everyone, for the most part,” she says. “It’s just at a lower overall level. Our sales are flat, where we had been having 7 to 10 percent increases every year.”
The danger signs started cropping up in June 2011.
“We were doing fine until the beginning of this past fiscal year — a year ago in June,” Wright says. “That’s when we realized that sales were starting to go flat. The stores just weren’t doing as well as they’d always done. We’d always had increases in comparable stores, but now we were seeing that some of them were flat and some of them were down.
“The overall decrease was not drastic,” she says. “We were still making a profit, but it wasn’t as comfortable as it had been in the past. I wouldn’t say we were worried, but it was enough to get our attention. We had been fortunate to roll along and not have to worry about a thing for many years. But now we saw that it was time to look at some stuff and make some changes.”
The change-making started in earnest at Half Price Books’ semiannual management meeting last fall. Wright asked everyone attending — upper management, regional managers, district managers — to come to the meeting armed with ideas to counteract the company’s sales slowdown.
“At our meeting in October, we broke up into groups and put challenges before the groups,” Wright says. “We had asked everyone to come prepared with ideas for ways to improve their stores, their buying, everything. We spent three days hashing it over, and we came away with things that we are going to try, and with different groups that are going to try to fix different areas. We’re using the expertise of the people that are actually doing the job, to pay attention and see what’s broken or what can be improved on.”
Among Half Price Books’ new initiatives is a program to bar code all of the books on its stores’ shelves and computerize its inventory chainwide. This program, which is being rolled out over several years, has been implemented in about 30 HPB stores so far, and Wright says the company plans to install it in about 35 more stores by the end of this year. The bar-coding and computerization of inventory provides a dual benefit: It enables HPB to search for and find items for customers chainwide, and it allows the company to sell its merchandise online, both on its own website and on other booksellers’ sites.
“Once we’re bar-coded, then we can shelf-scan, and we’re listing the books on our own website, HPB Marketplace, as well as sites like Amazon, Half.com and Alibris,” Wright says. “This enables us to sell anywhere we don’t have a brick-and-mortar store. So we’re selling simultaneously off the shelf and online.
“And with 115 stores, we have probably the best variety and buying power of anybody, as far as what we’re able to get and sell,” she says. “So this is a pretty big deal.”
In addition, HPB is using the new online sales conduit to sell its own excess inventory. Previously the company had sold its excess books in bulk to smaller online-only resellers for a pittance. Now, by selling the books itself, HPB is making a better profit on them.
“We’ve always bought way more books than we could sell,” Wright says. “Some of the excess books we donate, but with most of our excess books, our practice has been to sell them in bulk to other book dealers. But we’ve come to realize that that’s ridiculous, because we’re cleaning the product, packaging it, getting it all neat and tidy, and then selling it to them basically for nothing. And then they turn around and list it online and compete against us.
“So we’ve started selling these books online ourselves,” she says. “My opinion is that if these other companies can sell them online, then we ought to be able to sell them online. And in doing this, we’re drying up those sites’ main source for good, cheap inventory. I think that’s going to work in our favor.”
Half Price Books is also starting to become more active in buying and selling educational textbooks.
“We’re focusing a lot more on the textbook market,” Wright says. “Before, we didn’t really think we could complete with [college bookstore operator] Nebraska Book Co. We brought in a gentleman who has a background in buying and selling textbooks, and he’s working with our stores on databases to help us determine what textbooks are being used at the different universities. We’re even going to experiment with a sort of reverse-bookmobile — a ‘buymobile’ that will go to university towns and buy books from students.”
Build a solid foundation
Wright attributes Half Price Books’ long track record of stable growth to the company’s founding principles, which haven’t changed since co-founders Pat Anderson — Wright’s mother — and Ken Gjemre opened HPB’s first store 40 years ago in a converted laundromat in Dallas.
“Our company has always been different all the way around,” Wright says. “We were founded by a war hero/peace activist/gray panther and a psychologist, and they started the store as a place where individuals and their values would be respected. It was based on the concepts of treating people fairly, providing a good value for the customer, not throwing things away and being good for the environment. Those are our founding principles, and they still hold true 40 years later. So any decision I make, and any decision the people around me make, is based on those basic founding principles.
“We have 3,000 people, and every day we give them a register full of money and say, basically, ‘Buy anything printed or recorded except yesterday’s newspaper, treat the customer right, pay the right amount, price it at the right amount, and put it out and sell it.’ And that has grown from — you know, originally we had eight-track tapes and 78’s, and now we have MP3 players and video games and consoles. We let our people experiment and try new things. If it somehow relates to something we think our customers would want or be interested in, then we’ll give it a try and see what happens.
“Each person that works here gets to think and be exposed to new information all day, every day. They’re basically entrepreneurs. They’re making it up as they go along, and if they come up with a good idea, then we’ll take it and spread it around.
“It’s built on trust, and we promote from within. So that’s why we’re a little different than a lot of businesses. On the other hand, I think it’s becoming more popular for companies to treat their people like that now. It’s kind of a Montessori approach to business.”
Pay attention to details
A couple other initiatives Half Price Books is undertaking could be said to fall under the category of running a tighter ship: sharpening the look of its stores, and making everyone more accountable for what they do, from managers to sellers.
“When you run a place like this, you have to look at the store closely,” Wright says. “The appearance of your store is hugely important. After our management meeting, I told the managers to go back and look at their stores with a fresh eye. How does it look to the people coming in? Because it can get a little doggy once in a while, a little dusty and dirty. And you can’t tolerate that. So we’re working hard to make our stores more inviting and friendly.
“You have to hold your store managers accountable for store appearance and store performance and all that kind of stuff,” she says. “At the same time, I’m definitely not a dictatorial leader. I’m more of a ‘Why not, let’s try it, let’s see how it goes’ type leader.
“The other thing you absolutely cannot tolerate in your stores is surly employees. In any business, there are always a few people around that might not be pulling their weight. We’ve become less tolerant of people who are unwilling to pitch in and do their part, because the other people really work hard. If they’re not going to enjoy what they do and do their job right, then let them go try to work for somebody else.”
In the end, despite the tough competition and the market-share inroads being made by online-only retailers, Wright says Half Price Books remains committed to the brick-and-mortar store concept.
“If we didn’t have the stores, then we wouldn’t have all of the great people that work for us, and we like providing something for our communities,” Wright says. “We feel that there are always going to be people that like not only a physical book, but they like a physical bookstore. The store is a place for people to come and hang out, and they bring in their books, and we get some incredible inventory from them. If we didn’t have brick and mortar, we’d be like those companies that are trying to buy bulk from us. Eventually you wouldn’t have anything to sell but a bunch of castoff excess inventory.”
Wright says Half Price Books’ new initiatives are working: Store sales are inching back up.
“For a while, we were looking at a situation where ‘flat’ was the new ‘up,’” she says. “Now we’re getting back to where ‘up’ is ‘up.’ It’s a good place to be.” <<
HOW TO REACH: Half Price Books, Records, Magazines Inc., (800) 883-2114, www.hpb.com
THE WRIGHT FILE
Name: Sharon Anderson Wright
Title: President and CEO
Company: Half Price Books, Records, Magazines Inc.
Education: Richland College, Dallas — studied art, anthropology, archaeology, photography, history
What were some of your earliest work experiences?
The first real job I had was at a grocery store called Foodland. I started working there when I was 15. Before that I had worked for my dad, filling orders for paint and stuff like that. He was a cuckoo clock salesman. But my first real job was as grocery store checker, and I loved it. My second job was as a trophy engraver and builder. I worked in a trophy shop. I engraved trophies and drill-pressed marble.
What’s a lesson you learned from those early jobs that you carry with you?
The importance of customer service. I always loved working the front counter. At a place like a grocery store, you relate to the person that’s in front of you, you take care of what’s going on right in front of you, and you just do that the best you can. I love talking to people, and in the grocery store we had constant lines, so you’re working directly with the people, and you’re constantly interacting with them and relating to them. I still try to use that approach every day.
Do you have an overriding business philosophy that you use to guide you?
The golden rule: Don’t expect or do anything to people that you wouldn’t want for yourself. Treat everybody equally. And listen to people. Respect them and respect what they bring to your company.
How do you define success in your business?
Being able to provide a good place for people to work and to provide something for the community that they need, and being able to be happy and feel good about what you do every day.
What’s the best advice anyone ever gave you?
Don’t go to bed mad. My mom taught me that.
Richard Carrano knows all about stages — not the prosceniums on which actors ply their trade, but the phases through which companies evolve as they grow.
He also knows how hard it can be for a business to advance from one stage in its development to the next. The transitions seldom come easy.
Carrano has worked for Purchasing Power LLC, an Atlanta-based e-commerce company, since its inception in 2001, initially as chief financial officer and more recently as president and CEO. Purchasing Power, which offers a program that enables its clients’ employees to purchase expensive items like computers and home appliances via a payroll deduction plan, has grown swiftly through three developmental stages over the last decade.
Carrano says the key leadership challenge he has faced is helping Purchasing Power maneuver through the transitions from one stage to the next.
“That has been the toughest thing, managing the evolving leadership needs of a high-growth company as it transitions through different life-cycle stages,” Carrano says. “And those stages come much more rapidly with a company in our space and our size.”
Carrano identifies Purchasing Power’s first stage of development as the period from its inception until it reached about $50 million in annual revenue.
“That first stage took us from ’01 to ’06,” he says. “The leadership needs in a company in that stage focus on what we identify as heroes.”
Heroes, as Carrano describes them, are employees who are versatile and cool-headed in the heat of battle. However, some of the less exciting but still crucial developmental tasks like establishing routines, procedures and best practices are not among the heroes’ strengths.
“Heroes are generalists who are very comfortable wearing many hats,” Carrano says. “They’re great at putting out fires. But subconsciously, they’re not wired to put in process. So what happens is, because of that lack of process, they get to continue to play the hero role. They continuously ride in on the white horse and save the day.
“In an early-stage business environment, when you’re still not exactly sure if the model is going to pan out, and with the limited amount of investment that you’re able to make in head count, you need that generalist, someone that can do many different things.”
The second stage of Purchasing Power’s growth path took the company from $50 million in annual revenue to $100 million.
“Stage 2 for us was from ’07 to ’09,” Carrano says. “At that point, we started transitioning away from the heroes and started looking for what we identify as bricklayers.”
Bricklayers are people whose forte is establishing the framework for a company’s future — the processes, the routines, the procedures that govern how employees do their daily jobs.
“The bricklayers are individuals who have a focus on process and on building the foundation of stability,” Carrano says. “And in situations like this, the CEO is sometimes put in a position where they’ve got this liability of loyalty to all those heroes that have helped them get to that point in time. But unfortunately some of the heroes aren’t maturing their skill sets as quickly as the business’s needs are changing.
“That’s a slippery slope for the leadership of the organization,” he says. “You’ve got these heroes that their co-workers identify as very important, value-added people. And then the next thing you know, they’re starting to transition out, or maybe into different roles, at the same time that the bricklayers start coming in to build the process, the foundation, the infrastructure, so that the scale can be digested.”
The third stage of development, which Purchasing Power is currently undergoing, started when the company reached $100 million in annual revenue and will end at the $200 million level, in Carrano’s estimation.
“We’ve recently entered what we identify as Stage 3,” he says. “This third stage, for us, has been from 2010 through the present. This is where we’re starting to supplement our leadership with specialists.”
Specialists are people who have developed deep expertise in an area in which the company has a need to help it continue to develop and grow.
“The processes have been defined; we’ve got a good understanding of what we’re doing and how we’re doing it,” Carrano says. “So now we’re looking to bring in some specialists to focus and introduce best practices. These are individuals that have had successful careers in other environments that translate well into our environment. And these are the individuals who really help you begin to maximize productivity, production consistency, and predictability.
“In this stage, the way we identify it from an economic resource allocation point of view, you’ve gone from where you might have had one person straddling two different roles and maybe doing each of them at a mediocre level, and now you’re at a place where you’ve broken that down into two specific roles,” he says. “You’re hiring one person to perform each of them, and you’re expecting excellence in both.
“Being able to identify and recognize what stage you’re in as a business is critical at the leadership level, to make sure that you’ve got the right people leading the organization.”
Manage the transition
The most complicated part of leading a company through its growth stages, Carrano says, is recognizing when it’s time to start making a transition — and more to the point, recognizing when it’s time to start making the changes that will enable the company to successfully navigate the next stage.
“There are a couple different concepts I rely on to do this,” Carrano says. “One of them is something I categorize as awareness and emotional intelligence. This is something that we look for in every senior-level leader.
“When deadlines are slipping, the quality of the work might not be what it used to be, and you have that conversation with the individual, and they look at you like you’re crazy, like you have no idea what you’re talking about and everything is fine, that immediately suggests something isn’t right here,” he says. “The needs of the business have obviously outgrown the capabilities of the individual.”
Another signifier that Carrano says he looks for is a two-parter: effort and execution.
“Those are two factors that we look at in gauging the performance of people, especially those in leadership roles,” he says. “Obviously, effort is always first and foremost. If the effort is where it should be, then you can work on the execution. And the execution might be improved by way of additional coaching, training, systems, things like that. But if you don’t have the effort, then you can’t even get to the execution. It’s irrelevant at that point.
“When we’re looking at the organization and the need to make a transition, we’re looking at the people that we have in leadership roles,” Carrano says. “If the effort’s there, we’ll work with them. If the effort isn’t there, we can pretty much recognize that we’re never going to get there, so we know we need to start making changes.”
Loyalty and accountability
Managing a company’s transition from one developmental stage to the next requires a keen understanding of loyalty — and of which constituencies the CEO needs to be most loyal to.
“Again, it’s that liability-of-loyalty concept,” Carrano says. “We’ve all heard the phrase,‘What got you here isn’t going to get you there.’ I think for the senior-level leader to recognize that they’ve got a fiduciary responsibility to not only their investors, but equally to the current employee base, they really need to be responsible for making sure that the building blocks for the future are the right ones. Just because you’ve relied on certain skill sets to get you to a certain point, that doesn’t mean those skill sets are the ones that are going to get you to the next level.”
Times of transition are always stressful, and the CEO often needs to make difficult decisions, and to do so quickly.
“I always put it in the context of: I don’t want to get to a certain level and look back and feel like I short-sold the opportunity by not making the decision that was the right one,” Carrano says. “While those may be tough decisions, that’s the CEO’s job. They have to make the tough decisions. They need to recognize when those changes need to be made, and ultimately they need to be accountable for making them.”
Conversely, when it comes to timing, a transition from one phase to the next shouldn’t be shoved along too quickly. The CEO has to allow for some overlap of the people being brought in versus those being moved out, as well as the incumbents being converted to new roles.
“There are a couple of pitfalls you have to watch out for,” Carrano says. “The first is not having a contingency plan, or not having some redundancy built into your overall plan. Even though you’ve brought in your bricklayer or your specialist, if they’re not up to speed, or if your processes aren’t up to speed, and your firefighter is gone, then you might find yourself in a situation where you’re in a tight spot and you don’t have anyone there to step in and save the day — and you might still need that.
“So the urge to rush through these transitions is something you have to avoid,” he says. “To just knee-jerk and start making changes without laying out a prudent timeline could put you in a position where you’re left without the process that you need in place, and you’re without the individual that can help you get through it in the interim.”
Another key pitfall to avoid is not adequately explaining to employees the context and the need for the changes being made.
“You really need to communicate well with the folks that will be left after such a transition,” Carrano says. “You have to be able to reach out to them and articulate the vision and help them see the future. If you don’t, the grapevine might take over and paint a picture of what’s going on that isn’t reality. It’s critical to control the message so you can bring those individuals to the point of clearly understanding what you’re doing and why you’re doing it.”
Lastly, Carrano says it’s crucial to understand that some people have key assets that need to be retained, and some will surprise you with their capacity to handle change and convert their skills to a new role.
“If you’ve got a good understanding of what’s going on in the business and the people who are involved in it, there might be circumstances that you can tailor one way or the other,” Carrano says. “That hero might be able to transition into a different role that is equally beneficial. And a lot of those heroes have incredible amounts of historical knowledge, and you always need that.
“So when you’re having the conversation with the individual, those are the situations where you perhaps need to act differently,” he says. “If they understand the future vision of the company and the need for change, and they recognize that they might not be the right person for a given role, then the ability to continue to get value out of them in other roles and retain that historical knowledge is something that you should absolutely be willing and able to find a way to do.” <<
HOW TO REACH: Purchasing Power LLC, (888) 923-6236, www.purchasingpower.com
THE CARRANO FILE
Name: Richard Carrano
Title: President and CEO
Company: Purchasing Power LLC
Born: Wilmington, Del.
Education: Bachelor’s degree in accounting, University of Richmond; MBA, Emory University
What was your first job, and what business lesson did you learn from it that you carry with you today?
I worked as a stock clerk in a convenience store, and it was really about hard work — breaking down boxes, stacking stuff in a freezer that was 35 degrees. It wasn’t fun; it wasn’t glorious. But that’s what work is about sometimes: grinding it out and getting the job done.
Do you have an overriding business philosophy that you use to guide you?
On the theme we’ve been talking about — hiring senior-level leaders — the goal should always be to get one step closer to engineering yourself out of a job by only hiring great people that are capable and motivated to take your job. If you’re doing that, then you’re only building strength in the organization, which will clearly leave the organization in a better place.
What trait do you think is most important for a CEO to have in order to be a successful leader?
Obviously they need to have the passion and the intimate knowledge of the business. And they need to be a person that’s willing to make everyone else uncomfortable by asking the questions that nobody wants to answer.
How do you define success in business?
The way we communicate it here with our employees is what we call, simply, happiness. When you do something and you know it was the right thing to do and it makes you feel good, in most cases, that’s going to lead you down a path to success.
What’s the best advice anyone ever gave you?
My first job after college was in accounting with Deloitte & Touche. When I was working there, my uncle, who was in sales, said to me, “Whatever you do, don’t cook the books.” When you think about it, you can apply that to almost anything.