While government regulations and prices for energy and raw materials influence manufacturing competitiveness, having a talented, innovative workforce was deemed the most critical factor in a country’s ability to compete in manufacturing, according to the 2013 Global Manufacturing Competitiveness Index by Deloitte.
Unfortunately, the U.S. is lagging behind other high-wage nations such as Germany and Japan when it comes to innovation in its manufacturing sector. And we’ll continue to lose ground if executives wait for colleges to churn out science, technology, engineering and mathematics graduates.
“We can’t wait for someone else to fix it. The talent issue needs to be addressed today,” says Jennifer McNelly, president of The Manufacturing Institute, a non-profit affiliate of the National Association of Manufacturers.
Experts may not agree about the existence of the so-called skills gap, but they unilaterally concur that manufacturing executives can jump-start innovation without breaking the bank by tapping into widely available brain trusts.
Collaboration is the secret sauce of innovation, John Zegers says. The director of the Georgia Center of Innovation for Manufacturing, Georgia Department of Economic Development, says creativity doesn’t evolve from one person — it comes from inviting different perspectives.
“Whether you’re trying to solve a problem on the manufacturing floor or develop a new product, it’s critically important to garner feedback from everyone who touches the product,” he says.
Historically, manufacturers have expected engineers to be their innovative spark plugs, but the notion of the lone innovator is fading amid the shortage of engineering talent. Today, 90 percent of managers view the manufacturing workforce as full partners in solving problems, improving processes and satisfying customers, according to the 2012 Manpower Manufacturing Workforce Survey.
Moreover, cross-functional teams comprised of accountants to shipping clerks are using their detail orientation and intimate knowledge of supply chain processes to streamline procedures and create new efficiencies.
“Involvement creates ownership and ownership inspires creativity since employees feel empowered to make changes,” Zegers says. “Plus, the cost of marshaling existing resources toward a problem is negligible.”
At the same time, garnering input from people in dissimilar roles broadens a team’s perspective and buoys critical thinking by injecting a dose of cultural and ethnic diversity. Of 321 companies surveyed by Forbes, 85 percent agreed or strongly agreed that diversity is key to driving innovation in the workplace.
While many organizations want the benefits of high-stakes innovation, their culture won’t support it. Executives who resist outside-the-box ideas or penalize failure may unconsciously stifle creativity. If you champion the efforts of cross-functional teams by removing the barriers to innovation and sponsoring a culture that shuns the status quo and rewards risk-taking, the seeds of creativity will sprout and bloom, but only under the right conditions.
Close skill gaps through training and education
Manufacturing executives frequently bemoan the dearth of workers capable of mastering today’s increasingly hi-tech, team-based roles, yet the answer to the problem could be right under their noses.
About 20 percent of all American jobs are now in the STEM fields, with half of those open to workers who don’t have a four-year college degree, according to a new analysis by the Brookings Institution, who refers to these workers as the second STEM economy. Second STEM workers come from high schools, community colleges and vocational schools and are critical to the implementation of new ideas since they advise researchers on feasibility of design options, cost estimates and other practical aspects of technological development.
Manufacturers bear some responsibility for their predicament according to Manpower, since most companies are not recruiting for manufacturing talent as if they were knowledge workers and are not managing them as a knowledge workforce either.
Specifically, they’re neither developing their current employees nor building a pipeline of technically proficient talent to meet near-term hiring needs.
“There are plenty of 40-year-olds working in the industry who were trained in a different way,” says Rick Jarman, president and CEO of The National Center for Manufacturing Sciences. “The talent is there, they just need retraining and development.”
Investing in daylong seminars that use simulation to teach lean manufacturing concepts, kaizen events, overall equipment effectiveness, value stream mapping and so forth can yield big dividends, Jarman says. Workers who understand modern manufacturing concepts may enhance a company’s penchant for innovation.
Plus, ingenuity is a teachable skill. Employees can learn the fundamentals of the innovation process and start generating money-saving, useful ideas after attending a short, four-hour training course. Plus, upgrading your current staff is less risky and time-consuming than developing novices.
Since manufacturing will see a 50 percent increase in the number of mature workers over the next decade, companies should consider this workforce segment as they assess their near-to-medium-term talent acquisition strategies. Innovative organizations are pairing mature workers with technically savvy new hires to facilitate knowledge transfer and mentoring.
Indeed, some industry veterans have the ability and desire to learn advanced technical skills like computer numerical control, machine tools, computer-aided design and manufacturing programs or even robotics, if given the chance. High-potentials are being offered tuition assistance because having a technically competent workforce is critical to innovation.
“Manufacturers can’t capitalize on groundbreaking technology or invest in computer-aided machinery if they don’t have someone to operate it,” McNelly says. “This is just one example of how the skills gap can impact innovation throughout an entire industry.”
Employers can close debilitating talent shortages in as little as three to six months by raising their expectations and requesting certified workers from local community colleges. McNelly cites a pilot program in Northeast Ohio as an example of successful educational alliance. Community colleges provide NAM-Endorsed certified training to students to prepare them for advanced manufacturing careers.
“Just showing up is no longer enough,” McNelly says. “Employers need certified employees to thrive in a manufacturing environment that’s grounded in teamwork.”
Enticing high school students is a long-term solution to looming talent shortages in manufacturing. To succeed, executives need to change students’ perception of the industry.
Offer them apprenticeships and invite students to tour plants so they can see that there’s more to a manufacturing career than standing on your feet all day, says McNelly.
“Show them a distinct career path and the technical aspects of the job, or else bright students with a flair for innovation will pursue opportunities in other industries,” she says.
Cross boundaries to expand your brain trust
Augmenting the creative efforts of a modest staff by crowdsourcing ideas and suggestions from customers and stakeholders is a new approach gaining attention. According to Newsweek, Unilever established an open innovation unit to work with outside partners in 2009, which increased the share of external ideas that are adopted by the company’s business units from 25 percent to 60 percent. Even Starbucks is asking stakeholders to help develop ideas to reduce waste.
While it’s possible to solicit ideas via social media and traditional focus groups, many companies are using online discussion boards to engage outsiders in stimulating conversations with executives and engineers. The back-and-forth banter encourages participation and helps flesh-out creative ideas in real time.
If a shortage of engineering expertise and technical know-how is stifling R&D, one technique is to borrow the requisite expertise by tapping the brain trust at your local college or university.
“Many colleges and universities will gladly provide research, access to labs, professors and engineering students to local manufacturers,” Zegers says. “They can help you develop cutting edge technology or solve problems without adding to staff. They can even help defray development costs by connecting manufacturers with grants or matching funds from state and local governments.”
Collaborative R&D is another way to leverage external expertise and technology in the quest to develop cutting edge products and efficient manufacturing processes.
“Manufacturers can reach the end game faster by pooling intellectual capital and sharing the investment and the return with partners who have complementary talents,” Jarman says.
If you don’t have the wherewithal to source partners and manage large-scale projects, you can still enjoy the benefits of collaborative R&D, by engaging an intermediary.
The National Center for Manufacturing Sciences provides neutral, third-party collaborative project oversight. Or, seek out industry programs that form strong multi-disciplinary teams by matching willing partners with experts from universities, government labs and external funding sources. Collaborating with engineers from the U.S. Department of Commerce’s Manufacturing Extension Partnership or other public/private partnerships is yet another option.
The opportunities to innovate are endless, even for small manufacturers, if executives go out of their way to broaden their talent circles.
“There are more than 300,000 manufacturers in the U.S. and endless opportunities to collaborate,” Jarman says. “Some of the most creative ideas are coming from small and mid-size manufacturers who have crossed boundaries and barriers to pursue talent-driven innovation.”
How to reach: National Association of Manufacturers, www.nam.org; The National Center for Manufacturing Sciences, www.ncms.org; The Georgia Center of Innovation for Manufacturing, manufacturing.georgiainnovation.org
It’s been more than 10 years since Al Bhakta and his partners opened their first Genghis Grill. The shaky launch in 2002 of the build-your-own Mongolian stir-fry restaurant chain, however, seems like just yesterday to Bhakta.
“It was a Tuesday, and we didn’t serve a single customer all night,” says Bhakta, who is the firm’s CEO. “We had personally guaranteed the lease and our SBA [U.S. Small Business Administration] loan, so everything we owned was riding on the success of that first restaurant.”
What Bhakta and his franchisee partners may have lacked in restaurant experience was more than made up for in enthusiasm. They waited tables and put their tips toward expenses, went without paychecks for 18 months, and tried a host of ill-fated promotions to entice new customers.
When desperation set in, Bhakta courageously created a cocktail named “naked,” and discounted the provocative drink in a last-ditch effort to get customers through the door and hooked on the food.
His shotgun marketing approach paid off. Customers fell in love with the restaurant’s unique, interactive dining experience, where they could customize their entree by picking and choosing ingredients.
Bhakta does concede, however, that he may have ruffled a few feathers when he left “naked” advertising fliers on parishioners’ cars at a local church.
“Ultimately, it was a bold marketing move that saved us,” Bhakta says. “You don’t want to step over the line, but my advice is to be a brave marketeer, especially when you’re starting out.”
After his minor brush with disaster, Bhakta went on to become a capable shepherd of the Genghis Grill brand. Today, it’s the largest build-your-own stir-fry chain in the U.S. with 107 locations in 23 states and annual revenues of more than $123 million.
Promote your brand
As the brand took off, Bhakta and his partners, the Chalak Group, purchased the entire company from the original franchisor in 2004 and set their sights on expansion. Since 57 percent of restaurants fail within the first three years due to lack of capital, Bhakta needed to shorten the path to profitability to ensure the success of new franchisees.
Moreover, a shortage of operating capital inevitably leads to cuts in the marketing budget, which is the second reason why restaurants fail. It takes time and money to create brand awareness and a loyal following, especially in virgin markets.
“Initially, there was no science behind it, we just watched every penny,” Bhakta says. “What grew out of that habit was a culture of frugality and the knowledge that unit economics is critical to survival, especially for a start-up operation.”
Entrepreneurs need to understand the levers that impact unit economics, and figure out ways to create structural advantages to shift them in their favor, Bhakta says.
For example, he reduced initial development costs from about $1 million to $450,000 — nearly 40 percent — by negotiating new contracts with vendors, scrutinizing operating costs on a weekly basis, and in some cases, changing the chain’s all-you-can-eat format to a single-bowl concept. The move helped Bhakta lower his prices, which bolstered the company’s brand by creating a higher value proposition for the consumer.
During the process, however, he learned that not all expenses are created equal. When he made the mistake of locating some restaurants in out-of-the-way Class B and C properties, the old adage “location, location, location” came into play.
“We needed street visibility, signage and parking to attract customers, so I learned the hard way not to skimp on real estate,” he says. “Having the right location reduces your marketing costs, so it pays for itself. My advice is to know the drivers of unit costs so you know the right places to economize.”
Keep your brand fresh
The addition of Kahn’s Rewards, a customer loyalty program, as well as a creative use of social media promotions propelled Genghis Grill to double-digit growth in 2009 and 2010. Company-wide, the brand has more than one million fans in its Kahn’s Reward database and 100,000 followers on Facebook and Twitter. So when some stores reported declining sales for the first time in 2012, Bhakta took a thorough look under the hood in the quest for answers.
Typically, a shift in momentum indicates the need for a brand makeover. Companies that fail to detect changes in customer preferences and sentiment may not survive in a world where consumers are bombarded with choices and information. In fact, experts maintain that successful companies of all sizes should revamp their image periodically.
To assess the current state of the Genghis Grill dining experience and brand, Bhakta surveyed staff, franchisees and 32,000 customers from across the country. The results were surprising.
“We really pride ourselves on changing with the times, so we were surprised to discover that 50 percent of the things we were doing didn’t matter to our customers,” Bhakta says. “In retrospect, I see that we should have been reviewing customer feedback and data all along instead of finding ourselves behind the curve.”
Specifically, Genghis Grill had lost ground with females and young families. In fact, the customer base had slowly and silently become 70 percent male. While guys liked the open food bar and all-you-can-eat concept, women wanted efficient service, and they were turned off by the sticky serving utensils on the buffet line.
Like many CEOs, Bhakta faced the challenge of altering his brand to attract new customers and rekindle lost relationships without alienating the chain’s loyal male following.
“You need to add things, not subtract them, to retain your current customers and add new ones when you go through the rebranding process,” Bhakta says. “Otherwise, you’ll trade one group for another and end up in the same place.”
Bhakta assembled a feasibility committee and charged the members with looking at everything from signage to menus and restaurant decor in an effort to revitalize the company’s fading image. The team recommended adding chef-prepared dishes to the menu, an upgraded contemporary look and feel that would appeal to females, and new uniforms so employees would convey the restaurant’s theme and casual atmosphere.
“The reality of what was happening was reflected in our database,” Bhakta says. “Customers are like compasses; if you watch their direction, they will help you find true north.”
To make sure he stays ahead of the curve, Bhakta implemented customer surveys via the web and mobile phones. In addition, he now uses a real-time business intelligence tool to make sense of the information collected and to capture demographics for future marketing purposes.
The solution helps him monitor the health of his restaurant’s brand by providing real-time alerts when customers report a negative experience, automated report cards on each location’s status, a coupon verification system and staff performance rankings.
“Our ability to identify our core customer and demographic has grown with the implementation of our loyalty program and tools,” Bhakta says. “The demographic and behavioral information we have on our loyalty members helps with real estate, growth and branding decisions throughout the country.”
Bhakta vetted the committee’s list of suggested changes with the staff and franchisees before piloting new menu items, cleanliness guidelines and buffet protocols in restaurants located throughout the greater Washington, D.C., area.
“Any time you go through a rebranding initiative or consider major changes, you need to get everyone involved,” Bhakta says. “Our success hinges on support from our franchisees, and it takes time to test and prove new concepts. Even if you don’t have franchisees, executives can’t implement change by shoving their ideas down everyone’s throats.”
Bhakta strategically selected Washington, D.C., for the beta test, since those restaurants are fully owned and managed by franchisees and are located outside the company’s stronghold state of Texas, where many restaurants are co-owned and run by the corporation.
Passing what franchisees perceived as a difficult test helped Bhakta garner buy-in for the proposed changes from franchisees throughout the country.
“We needed unbiased feedback and testimonials from the D.C. area franchisees to convince everyone that we were on the right track,” Bhakta says. “Executive endorsements aren’t enough; you need others to carry the torch.”
Since loyal customers visit a Genghis Grill an average of 2.2 times per month, Bhakta tested the proposed changes for six to eight weeks and monitored customer feedback before inching forward with the rebranding initiative.
“There’s no cut-and-dry answer to the timing issue,” he says. “Obviously, you can’t stay in limbo forever, but you need time to incubate ideas and simmer changes before you roll them out. The rebranding process has taught us to be patient.”
Going slowly helps consumers connect with a new brand, and it gives companies time to tweak their delivery system to match their promises. Ultimately, your customers will determine the merits of your rebranding initiative through first-hand experience.
“If we don’t garner feedback that is current and relevant to our operations, we will fail to deliver on expectations to our fans,” Bhakta says. “Executives need to identify their audience, find the best way to communicate with them and repeatedly test and tweak their marketing and branding programs to develop a steady clientele.”
How to contact: Genghis Grill, (888) 436-4447 or www.genghisgrill.com
The Bhakta File
Name: Al Bhakta
Company: Genghis Grill Franchise Concepts LP
Born: Pecos, Texas
Education: Bachelor’s degree in business with a minor in information systems management from the University of Texas, Dallas.
What was your first job and what did you learn? When I was 12, my brother-in-law paid me $2 an hour to stock shelves in his new convenience store. Seeing the long hours and effort he put in helped me appreciate the hard work it takes to build a business. I learned what it takes to be successful at an early age.
Who do you admire most in business and why? The person I most admire is Herb Kelleher, co-founder of Southwest Airlines. He’s a legend in Dallas who’s known for his charisma, humbleness and his ability to relate to customers and employees. He’s done more than build a company; he’s built a legacy.
What is your definition of business success? I think you’ve achieved success when others believe in your vision and are willing to invest in your concept. You have to do a lot of things right to garner the trust of strangers.
What was the best business advice you ever received? One of our investors told me, you’ll lose the support of talented people unless you strive for a win-win when you negotiate with vendors, employees and customers. You have to give up something to get something even if that means growing more slowly. That advice has helped me negotiate beneficial deals because they work for both parties.
Promote your brand.
Use data and feedback to keep your brand fresh.
Reduce rebranding risk by piloting changes.
You need operating cash to grow your business, but securing a traditional commercial loan isn’t always easy for small and midsize business owners. Fortunately, Small Business Administration (SBA) loans are a worthwhile financing option. An SBA loan typically offers longer terms, more competitive interest rates and, best of all, bankers can be more lenient because the government guarantees up to 75 percent of the loan amount.
“An SBA loan is a sensible option for businesses that experienced a decline in sales and profits during the recession,” says Santiago “Chico” Perez, SBA sales manager for California Bank & Trust. “Bankers can consider your financial projections, along with historical data, when evaluating your loan application.”
Smart Business spoke with Perez about the growth opportunities through an SBA loan.
When should business owners consider an SBA loan, and how do these loans differ?
New ventures traditionally have a hard time securing working capital, but you may get $100,000 to $5 million through a SBA loan, as long as you’ve run a similar enterprise and propose a viable business strategy. You also can use SBA funding to purchase another company or procure equipment or inventory to fulfill a new contract.
Generally, SBA loans can offer more favorable terms. For example, you only need 10 percent down to purchase real estate, and you can roll fees into the loan balance. SBA loans feature higher loan-to-value ratios, longer repayment periods and no balloon payments. Companies often qualify for higher loan amounts because they can amortize the purchase of buildings over 25 years or equipment over the remaining economic life, and need less cash flow to service the debt. Owners also can use funds to buy raw materials, finished goods or equipment to expand into new markets.
How does the SBA’s underwriting criteria differ from traditional commercial loans?
Bankers will review standard requirements such as financial statements and credit reports, but some criteria differ:
- Projections. Bankers consider future sales and historical data when evaluating loan applications. Ensure your projections are realistic and correlate with current financials and forecasts. For example, earnings won’t automatically double with a larger facility or new equipment. Instead, explain how the equipment lowers operating costs or how you’ll use the extra space to add a new production line. Substantiate claims with copies of customer agreements and contracts.
- Resumes. Tout your management team’s industry experience and track record.
- Ownership. Owners with more than a 20 percent stake must submit signed personal financial statements and tax returns.
- Down payment. Lenders must determine the source of a borrower’s down payment, even if the funds are in an escrow account.
- Collateral. The need for collateral hinges on the loan purpose and program so review underwriting criteria at SBA.gov, and state both in your proposal.
- Tax returns. Owners must supply three years of tax returns, financial statements and balance sheets to qualify.
Does the SBA offer other support to small business owners?
The SBA provides myriad tools and support to help owners create a loan proposal and navigate the underwriting process. Small Business Development Centers offer free assistance with financial, marketing, production and feasibility studies, and many centers engage local experts.
The SBA also provides mentorships, free counseling and business plan expertise through the national nonprofit SCORE.
What else can owners do to successfully navigate the lending process?
Loan approval hinges on an accurate, thorough proposal, so take your time and seek expert advice. Bankers want to hear the story behind your numbers; be ready to explain how you overcame adversity and how you’ll use the SBA loan to take your business to the next level. Help your banker understand your customers by including links to your company’s website, LinkedIn page or Facebook page in your proposal. Finally, you can accelerate the process by selecting an approved Preferred Lender who can approve loans without submitting the entire package to the SBA.
Santiago “Chico” Perez is SBA sales manager at California Bank & Trust. Reach him at firstname.lastname@example.org.
Website: California Bank & Trust is an SBA Preferred Lender. Learn more at www.calbanktrust.com/smallbusiness/loans/small-business-loans.html.
Insights Banking & Finance is brought to you by California Bank & Trust
Don’t look now, but family fun has become a prime export for the U.S. thanks to the global expansion efforts of Mike Magusiak, president and CEO of CEC Entertainment Inc., the parent company of Chuck E. Cheese’s.
Facing a 12-year decline in the domestic birth rate and diminishing sales in the arcade, food and entertainment industry, Magusiak has redoubled his efforts to find new markets with a booming birth rate, burgeoning middle class and a penchant for family-oriented fun.
“When I look long term, I see no reason why we can’t have twice the number of stores internationally than domestically,” Magusiak says. “There are lots of places where the population is growing and people like spending quality time with family. Those markets are ripe for a concept like Chuck E. Cheese’s.”
That’s a pretty bold statement, when you consider that the rodent-mascotted chain, which generated revenues of $803.5 million in 2012, currently has 566 sites and only 18 are located outside Canada or U.S. territories.
After a rather slow start, Magusiak and the company are picking up steam. Together, in 2012, they’ve signed seven new development agreements for 42 stores in Mexico, Peru, the Philippines, Trinidad, Bahrain, Saudi Arabia and United Arab Emirates.
Although the international marketplace offers tremendous opportunities for growth, Magusiak says that a number of challenges must be properly understood and mastered before rapid expansion is wise.
“First, you need a differentiated product,” Magusiak says. “It would be very difficult to succeed if we were just selling pizza. Fifty percent of our revenue comes from food and 50 percent from entertainment. It’s our over-all experience that sets us apart.”
Once he’s surveyed the marketplace and verified that his brand will stand out, Magusiak relies on the following three-pronged strategy to identify and develop prime global opportunities.
Assess tangible and intangible assets
Magusiak says selecting an ideal global location isn’t rocket science but it does require an in-depth assessment of a region’s tangible and intangible characteristics.
For starters, he reviews GDP growth, birthrates and income data, but surprisingly, population density is a better predictor of success than discretionary income. Historically, Chuck E. Cheese’s stores in affluent areas haven’t fared as well as those located in lower income areas with high-density levels.
“We offer customers a great value, so we need sales volume to make our model work,” Magusiak says. “And because margins tend to be lower overseas, our international locations need even more volume than our domestic locations to turn a profit.”
Magusiak honed his location hunting formula by examining the profiles of top producing domestic stores like the one located in Bell, Calif. The store is adjacent to East Los Angeles, a largely Hispanic community that happens to be the most populous unincorporated region in California.
As a result, his initial forays into the global marketplace were focused on Latin American locales with similar demographics; however, the general population must also pass Magusiak’s cultural scrutiny.
“Our executive team visits the area and talks with prospective franchisees and guests to assess the cultural fit,” Magusiak says. “I’ve personally traveled to more than 150 locations including Abu Dhabi and the Philippines to gauge the local appetite for family-oriented entertainment.”
He says it’s easy to adjust menus, game distribution and pricing options to appease customers once they visit a store, but sustained growth hinges on cultural similarities, especially for a unique brick and mortar operation like Chuck E. Cheese’s.
“It’s not a ‘build it and they will come’ model; our guests have to like what we offer and what we represent,” Magusiak says. “You have to get out there and talk to people to see if your values match before committing to an overseas location.”
Find competent, passionate partners
A country’s populace isn’t the only place where Magusiak looks for compatible values; it’s a must-have requirement for Chuck E. Cheese’s franchisees. Successful candidates need business acumen, local market expertise, sufficient capital and what he calls a passion for the food and entertainment business.
“We don’t want absentee owners,” Magusiak says. “We’re looking for franchisees who are willing to immerse themselves in the business and interact with guests, because it’s their hands-on involvement that creates mutual success.”
Although 514 U.S. locations are company-owned, local ownership has been a critical component of Chuck E. Cheese’s early global success. In fact, every international franchise has been profitable from the outset.
Prospective franchisees are screened by staff and then interviewed by the executive team. Those passing muster then spend time in a U.S. store to get a feel for the guest experience and the basic operating model.
“We spend a lot of time with prospective franchisees, and we turn down a lot of people, but our slow and cautious approach has helped us avoid false starts,” Magusiak says. “Actually, many of our franchisees have been so successful they’ve asked to purchase additional development rights.”
In addition to turning a profit, Magusiak expects franchisees to boost the local appeal of Chuck E. Cheese’s brand by suggesting advantageous modifications to the company’s menu and operating procedures. For example, the franchisee in Monterrey, Mexico, added piñata rooms, and in Santiago, Chile, the chicken wings are spicier than those served in U.S. restaurants to satisfy the taste buds of local residents.
To ensure that modifications don’t stray too far from the company’s core values and brand, alteration requests are reviewed and approved by the company’s executive team.
“We don’t want to change what’s sacred about Chuck E. Cheese’s,” Magusiak says. “But if you hire smart, passionate people with good judgment, you need to listen to them.”
For instance, targeting teens instead of children isn’t an option, and it’s not OK to remove pizza from the menu. But Magusiak had no problem shutting down a salad bar in a Chilean store after sales records showed that locals weren’t embracing the concept.
“Customization is less important if you’re selling products over the Internet,” Magusiak says. “But it’s vital when you’re selling an experience and our franchise model has been instrumental in helping us develop a local approach and a solid business plan.”
Walk before you run
Magusiak honed his expansion strategy for three to four years while using his existing staff to identify and develop selected global opportunities. While some executives might question his speed, his methodical approach was designed to protect the company’s bottom line, iron out the kinks in the franchisee selection and assimilation process, and ensure the success of early adopters.
“We didn’t try to force things,” he says. “We wanted to remain profitable by expanding our model based on demand and by adding resources as necessary. Now that we’ve built out our infrastructure, we’re in a perfect position to jumpstart global expansion.”
To keep costs low, early franchisees were trained in U.S. locations. For example, the Peru franchisee spent time in Bakersfield, Calif., learning the nuances of Chuck E. Cheese’s guest service model before transferring the concept overseas. In addition, Magusiak insists that locations are profitable before granting additional rights to global franchisees.
“Going slow helps us tweak game distribution, token pricing and the details that contribute to a store’s profitability,” Magusiak says. “Plus, we can fund infrastructure investments as we go, which helps us try new things without incurring substantial risk.”
Once the company got solid footing, Magusiak hired an experienced globe-trotting Sherpa to identify new locations and a salesperson to recruit franchisees. He also hastened the franchisee assimilation process by adding a regional trainer.
Proof of Chuck E. Cheese’s concept, a proven track record and the addition of resources are behind the company’s recent surge in global expansion.
“You have to be patient,” Magusiak says. “We’re not just selling food. You have to make sure your brand aligns with the local culture when you’re selling quality family time and memories.”
How to reach: Chuck E. Cheese’s (972) 258-8507 or www.chuckecheese.com
Identify global expansion opportunities by evaluating a region’s tangible and intangible assets.
Look for aligned values when selecting business partners.
Be patient, test and achieve profitability before aggressive global expansion.
The Magusiak File
President and CEO
CEC Entertainment Inc.
Birthplace: Warren, Ohio
Education: He received a bachelor’s degree in accounting from the University of Southern Mississippi and a master’s degree in business with an emphasis in finance from the University of Texas at San Antonio. He’s also a CPA.
What was your first job and what did you learn from it?
I worked as an auditor for Holiday Inn in Memphis, Tenn., after graduating from college. It was there that I got my first exposure to international business, because I traveled all over the world auditing various subsidiaries.
Who do you admire most in business and why?
I admire Dick Frank, who served as chairman and CEO of CEC Entertainment Inc. from March 1986 to December 2008. He was not only a great person, but from a business perspective, he was a great simplifier. He was bombarded by opportunities, demands and challenges all day long, but he had a way of filtering everything down into a few simple priorities. He would often say that the key to business success is keeping guests happy or pursuing the right opportunities. He definitely had a knack for keeping everyone focused on what was important.
What is your definition of business success?
First of all, I’m not sure that you ever get there because success is a never-ending journey. But over time, seeing people grow is not only rewarding it’s the hallmark of a high-quality organization that’s financially successful. It’s all linked together; you can’t have financial success unless you have successful people.
What was the best business advice you ever received?
You can’t go from good to great if you get spread too thin. Focus on what you do best, execute and your company will be successful.
Marcia Taylor isn’t your run of the mill CEO. She’s a soft-spoken matriarch, who transformed Bennett International Group, LLC, from a small, five-truck contract carrier into a $266 million logistics and freight services powerhouse.
Taylor attributes her early success to fostering a family-oriented culture and deliberately sidestepping head-to-head battles with conventional competitors.
“We grew organically by adding services to meet the unique needs of our customers,” Taylor says. “We were positioned outside the mainstream, so we were used to competing against just four to five firms.”
Riding the coattails of customers helped the company expand beyond long haul trucking into lucrative new segments like warehousing, logistics and vehicle transport.
Over time, Bennett International built a stable of disparate companies and service lines with random reporting lines, while earning a reputation for being one of Atlanta’s best employers. In fact, the company has been recognized as one of the top workplaces in the area by The Atlanta Journal-Constitution.
But the Great Recession illuminated the shortcomings of Bennett International’s unorthodox structure as domestic revenues sagged and the management team struggled to win new contracts, especially in burgeoning international and government segments.
“I think we became a bit complacent before the recession because things were going well and we were making money,” Taylor says. “In hindsight, I can see that we weren’t as efficient as we needed to be and our management structure prevented us from offering clients bundled services or a single point of contact, which were essential to winning bids and new contracts.”
Realigning a family-owned company is never easy. Here’s how Taylor got Bennett International back on track without sacrificing key staff or its family-oriented culture.
Prioritize people over profits
Taylor wanted to avoid draconian staff cuts and the potential loss of institutional knowledge that could impede Bennett International’s ability to rebound when the economy improved. Plus, she didn’t want to violate the trust of long-term employees or tarnish the firm’s vaunted employment brand, so she reduced ancillary expenses, watched cash flow like a hawk, and asked everyone to make small sacrifices.
“I’ve always believed that if you treat people right and give customers great service, the profits will come,” Taylor says. “Our goal was to come out of the recession in a better place and we achieved our mission because our employees were willing to pitch in which helped us avoid massive layoffs.”
Taylor asked employees to take off one day per month without pay, while the management team worked on reorganization and hunted for new sources of revenue. The camaraderie was so strong, that financially secure employees helped out their cash-strapped co-workers by volunteering to take off additional days without pay.
“Our employees supported our long-term strategy because we didn’t make hasty decisions and kept them in the loop throughout the realignment process,” Taylor says. “CEOs can reduce fear during times of crisis by being candid about their motives, prioritizing the needs of their customers and employees, and avoiding cuts that might hinder growth and profits down the road.”
So far, it seems that Taylor’s penchant for delayed profit gratification is paying off. Bennett International is projecting revenues of $275 million in 2013 and Taylor says the organization can sustain 20 percent annual growth for the foreseeable future without increasing overhead thanks to its increased efficiencies.
Exploit synergistic opportunities
Given her intimate knowledge of logistics, it’s not surprising that Taylor took a methodical approach to Bennett International’s realignment initiative. Her management team pinpointed the needs of current and prospective clients and redefined the firm’s core services, while looking for ways to streamline and consolidate its vast slate of offerings.
They also looked for ways to extend their capabilities by leveraging the firm’s prized fleet of owner-operator truckers, who have primary relationships with Bennett International and a vested interest in the company’s success. In turn, Taylor earns the loyalty of owner-operators by treating them like family, which is smart, given the current and projected shortage of transportation professionals.
“We looked for synergistic opportunities to combine several services under a single umbrella and leverage our existing assets and owner-operators so we could up sell current customers and attract new clients by offering them a package of services,” Taylor says. “Second, we wanted to be more efficient by leveraging our existing technology and consolidating back office tasks without inconveniencing our existing clients.”
The goals served as the linchpin for the reorganization initiative and a rallying point when the team disagreed or veered off course. In the end, they were able to segue from a company with a host of competing fiefdoms into an integrated firm with several divisions. Plus, realignment created opportunities to consolidate billing and accounting systems and eliminate redundant processes that increased overhead while adding little value.
For example, the team created an international logistics division by bundling project cargo, cold chain and other services that had been housed under different entities giving the firm expanded capabilities in full spectrum logistics planning and support. They also created Bennett International Transport and Bennett Distribution Services to enable rapid expansion into key segments of the international marketplace.
Early realignment efforts spawned new contracts from clients with international needs and the U.S. General Services Administration, and validated the efficacy of the team’s strategy.
While some CEOs might hammer out a major reorganization plan in a few hours or days, Taylor’s team worked on the initial blueprint for nearly six months.
They often argued behind closed doors but eventually reached consensus by listening to each other and staying true to their goals and the company’s values.
“I think it’s healthy to disagree but you need ground rules so the discussion is respectful and fruitful,” Taylor says. “We’d take a break when we reached an impasse. I’ve always thought that sleeping on a problem is a great way to break a stalemate.”
Match the right people to the right jobs
Once the new divisions were created, Taylor faced the difficult task of realigning the company’s senior management team with its new structure. Taylor took stock of each person’s strengths and performance before asking them to take on new roles. The fact that the senior management team includes outsiders and her two sons added to the complexity of her mission.
“I believe in putting people into roles that give them an opportunity to grow and maximize their strengths and talents,” Taylor says. “The decision to realign employees is difficult, but it gets easier if you put them into positions where they have the best chance to succeed.”
Taylor referenced the needs of clients and the company’s history of exceptional customer service to bolster support for her management realignment strategy. She’s an advocate of values-based decision making and says that her business decisions support the company’s mission and core values. She also uses data to make tough calls but says executives make the best decisions by balancing data with intangible factors and thinking about what’s fair.
“I think if you have a lot of passion for your ideas and convey a clear vision people will accept change,” Taylor says. “It may take time, but if the logic is there and your decisions don’t conflict with your values, people will eventually come around to your way of thinking.”
Taylor takes her time when making difficult decisions but defends her sluggishness by saying that she’d rather be slow and accurate then have regrets, especially when her decisions directly impact the financial health of the company and its nationwide team of more than 3,000 contractors, agents and employees.
While Taylor acknowledges that she and her children don’t always see eye to eye, she says they’ve found success as a family-operated company by fostering open communications and supporting each other through thick and thin.
“We’ve learned some valuable lessons from this experience, and we don’t plan to repeat our mistakes,” Taylor says. “By leveraging our excellent reputation, repositioning for growth, and remaining true to our customers and what we do best, I believe our company and our extended family will continue to do well for the foreseeable future.”
How to reach: Bennett International Group, LLC, (800)866-5500 or www.bennettig.com
The Taylor File
Name: Marcia G. Taylor
Company: Bennett International Group, LLC
Birthplace: Clifford, Ill.
Education: High school graduate
What was your very first job? I was an apprentice pharmacist in a small, solely-owned compounding pharmacy in Mt. Vernon, Ill. There were only four of us on the staff so I learned the benefits a family-oriented culture at an early age. The pharmacist would extend credit to customers who couldn’t afford their medications so I also learned the importance of ethics and the value of prioritizing people over profits. Profit is important but it’s not the primary goal. If you treat people right and give them great service, you’ll have loyal customers, plenty of referrals and profits will follow.
Who do you admire most and why? I admire Margaret Thatcher for sticking to her guns when she felt something was right. Although our styles differ, I appreciate the way she went about things. She was a tough lady who accomplished a great deal because she wasn’t afraid to take a stand and voice her opinion on difficult issues.
What is your definition of business success? When your employees and customers are happy you greatly increase your chances of success. Set high standards, focus on being the best instead of the biggest, and success will follow.
What was the best business advice you ever received? Don’t rush to judgment or make rash decisions. Step back and think things through. And when you’re facing a tough decision, rely on integrity as well as facts and think about what’s fair. I’ve found that by practicing values-based decision making, I make the right call most of the time. Plus,it’s hard to undo the damage when a leader makes unethical choices.
What’s the secret to working with family?
Set ground rules and then hash things out behind closed doors. Always speak with a unified voice when addressing the staff and don’t take things personally. Businesses come and go but you can’t replace family.
- Garner support for your reorganization plan by prioritizing people over profits
- Create operating efficiencies and new revenue streams by exploiting synergistic opportunities
- Execute your plan by matching the right people to the right jobs
Dave Penrod and his management team at Belk had an order as tall as a homemade lemonade: change the company manta from “If it ain’t broke, don’t fix it” to “Modern. Southern. Style.”
“Our customers viewed us as old fashioned and one-dimensional, so we decided that it was time to modernize our approach to the business while retaining our traditional Southern values,” says Penrod, who oversees 100 stores in the heart of the South — Georgia, Florida, Alabama and South Carolina as chairman of Belk’s Southern Division.
Belk has had just three CEOs since its founding in 1888 — that is until 2010, when the heretofore low-key department store chain launched a makeover with the goal of reaching annual revenues of $6 billion within five years.
Historically, Belk has catered to shoppers who patronize its 301 brick and mortar stores located in small- to mid-size cities throughout the Southern U.S. But recently, it’s been ceding sales to savvy city slickers like Macy’s and Nordstrom, who use the Internet and mobile apps to infiltrate rural markets. Admittedly, the company has fallen behind in the e-commerce and social media arena, and many of its stores could use a facelift.
The company wants to leverage its strength, which is appealing to the tastes, culture and buying habits of Southern shoppers, while improving in lagging areas.
To that end, management adopted a new logo and the new tagline. The company is investing $270 million in store improvements, $210 million in information technology, $53 million in e-commerce and $4.5 million for a new e-commerce fulfillment center in Jonesville, S.C.
Penrod is charged with implementing the company’s strategic plan in his division, and as every executive knows, change is difficult — especially for tenured employees. In fact, a survey of 3,199 global executives by consulting giant McKinsey found that only one change transformation in three succeeds. Here is Penrod’s approach to instilling change and yet keeping Southern values at Belk.
Penrod is creating line-of-sight between the company’s objectives and his employees’ daily activities as part of his plan to achieve long-term structural and cultural transformation. Now, workers can see how going the extra mile to satisfy a customer can propel Belk’s sales and profits.
“The way we communicate our brand to consumers is by being friendly and hospitable because that reflects traditional Southern values,” he says. “We need to go out of our way to smile and greet shoppers the minute they enter the store so they experience our Southern hospitality.”
And since employees often need a compelling story to change their behaviors, Penrod is using a structured communications program to breathe life into Belk’s new brand and encourage his team’s evolution.
Employees in Penrod’s division review results from the day before and set daily goals during a 10-minute morning huddle with their manager. The short sessions reinforce change and build mindshare toward the company’s strategy.
“You can’t broadcast a list of goals and think that everyone gets it,” Penrod says. “You need frequent reminders to create a shared vision and buy-in for your strategy.”
He’s also increasing his team’s chances of success by building their skills and capabilities.
After only 75 percent of customers said they were satisfied with their shopping experience in a recent survey, Belk launched a new customer service training program for its 23,000 associates. But Penrod took training and development to the next level in his division, by launching a formal succession planning regimen and development program for high-potential employees.
The program boosts morale and productivity by giving employees a career path and improves retention by providing new hires with the necessary skills to execute Belk’s strategic plan. Plus, promoting from within helps preserve the company’s unique Southern culture.
Finally, Penrod’s fostering accountability and continuous improvement through the introduction of monthly performance reviews. Employees receive feedback and share ideas during one-on-one sessions with their area manager. Although the sessions take a fair amount of time, Penrod says they’re jumpstarting productivity and fostering innovation.
Since every employee looks at organizational change from the stand point of how he or she will be personally affected and self-preservation can take precedent, Penrod is allaying their concerns by offering them knowledge and opportunities.
“Failing to invest in your people is shortsighted because they drive customer satisfaction,” he says. “We came out of the recession with a renewed commitment to development and innovation and now, it’s paying off.”
Support your local community
Belk plans to continue it’s commitment of giving 2.5 percent of annual pretax income back to the communities it serves and for good reason. The $19 million in donated last year not only exhibits Southern values it distinguishes Belk from impersonal e-tailers.
Plus, employees can spread the company’s “Southern State of Mind” philosophy while rubbing elbows with members of the community as they paint classrooms, build bookcases, beautify school grounds and install educational murals as part of the company’s 125th birthday celebration.
“We call ourselves community partners but what does that mean?” Penrod says. “It’s the way we support local education and healthcare, but it’s also the way we treat our customers and our associates.”
For example, Belk had just acquired the Proffitt's and McRae's chain from Saks Fifth Avenue in 2005 when Hurricane Katrina hit Biloxi, Miss. Penrod says the company could have taken the insurance money and closed the store, but instead, they raised $1 million for local employees and continued to pay them until they got back on their feet.
CEO Tim Belk called the company’s decision to stay in Biloxi a defining moment as other companies abandoned the devastated region.
“Unlike other companies, we don’t measure the return from our donations, we do it because we believe that supporting the communities we serve is the right thing to do,” Penrod says. “Community support exemplifies our Southern culture and values, it’s an intangible asset that can’ be measured.”
Cater to customers
Belk store sizes are tailored toward the needs of the local markets they serve. Stores range in size from 40,000 to 300,000 square feet of space, with an average size of approximately 92,000 square feet.
While management is introducing new lines of private label fashions by designer Cynthia Rowley and Carolina Panthers quarterback, Cam Newton, the merchandise selection in each store addresses the preferences of local customers.
Customized merchandizing is one reason why Belk is surpassing the competition in a key measurement for brick and mortar retailers. The 11 retailers tracked by Thomson Reuters posted just 1.1 percent growth at stores open more than a year in March. In contrast, Belk has had 12 consecutive quarters of comparable store sales growth and its comparable sales growth rate for fiscal 2013 was 6.3 percent.
“We use demographics like income, age and population size to adjust the assortment of merchandise in each store,” Penrod says. “But we refine that data based on our knowledge of the local community and by listening to our customers. Our growth in same store sales reflects our connection to the community”
For instance, the stores in South Florida offer a slightly different selection of merchandise when the snow birds arrive from Northern states. And some stores extend Southern hospitality to local shoppers by hosting evening parties that include refreshments, a fashion show and music by a local disc jockey.
Like many companies, Belk uses formal pulse surveys to gauge overall customer satisfaction. But customers can weigh-in at any time by completing an online survey or “Tell Us What You Think” card, and their feedback serves as a call to action for executives like Penrod.
“We adhere to something called the sunset rule,” he says. “When a customer expresses a concern, it’s referred to an executive and must be resolved by the end of that business day.”
But Belk’s management team doesn’t stop there; they use customer feedback to review underlying business practices and initiate adjustments to faulty policies and procedures.
For instance, the company is committed to giving shoppers the seamless omnichannel experience they crave, that reaches across stores, belk.com, mobile devices and social media.
It wasn’t until 2008 that Belk’s online offerings expanded beyond home goods and wedding registries to include clothing and other merchandise. Furthermore, the company estimates that only about 25 percent of online sales come from outside Belk’s sixteen-state footprint and customers can’t order a product online and pick it up in a local store — at least not yet.
The initial phase of improvements includes a new systems platform and functionality enhancements to make shopping online at belk.com easier and it’s developing a mobile app so customers can shop on-the-go from their favorite device.
Employees are charged with promoting the company’s improved website since multichannel shoppers spent 15 percent to 30 percent more than those who visit brick and mortar stores according to surveys by IDC’s Global Retail Insights research unit.
Although the firm didn’t embrace the social media craze until 2010 it now has a blog, a solid presence on Twitter and 789,988 “likes” on Facebook.
While net sales for the 53-week period ended Feb. 2, 2013 increased 7 percent to $3.96 billion, the company is banking on the growth of Internet sales and it’s Southern charm to reach $6 billion by 2015.
“When I visit our stores with members of the Belk family and talk to customers and associates, I get a true sense of what Southern means,” says Penrod. “As a guy who’s originally from Michigan, I’ve learned a whole lot about Southern style and hospitality.”
The Penrod File
Name: Dave Penrod
Title: Chairman, Southern Division
Education: Bachelor’s degree in business management, Oakland University in Rochester, Mich.
What was your very first job? I was a caddy at a local golf course, where I learned a lot about human nature. Golf is a game where honesty, integrity and sportsmanship are paramount because it’s not monitored by referees, so it’s easy to cheat. I observed that some people are inherently honest and some people aren’t. What I learned as a caddy prepared me for life as well as my career.
Who do you admire most and why? I admire politicians like Hillary Clinton and John McCain because they’re truly business people who have to build consensus and balance disparate points of view to get anything done. It’s not easy to do that and I admire anyone who can overcome tremendous obstacles, relentlessly pursue a resolution and foster a spirit of collaboration.
What is your definition of business success? Sales and profits are important but you can’t achieve them by yourself. Your success as a manager hinges on the growth and development of your people. When they flourish and grow, the financial metrics take care of themselves.
What are the keys to leading organizational change? You’ll get some connectivity at a high level, but to truly inspire change, you need to take your message down to the individual level. Give your employees the opportunity to shape the direction of the organization by sharing feedback, especially from customers. Some folks won’t agree with your plan but most of them will engage if you employ a regimented communications strategy that is supported by performance management, training and career development.
Will Gruver pursued the American dream after earning a degree in economics from Northwestern University — but it didn’t take long for the Minnesota native to realize that working at a bank in Chicago’s famous Loop District couldn’t satisfy his entrepreneurial yearning or heartfelt need to enrich the lives of others.
So in 2002 he threw caution to the windy city and moved to the Dallas suburb of Celina where he launched USP&E Global. His goal was to design, build and operate fuel-efficient and renewable power stations, primarily in emerging markets.
Gruver says his decision to risk it all was truly a no-brainer, because the U.S. economy was growing at a snail’s pace while overseas markets were booming. And given the choice, he’d rather be sorry, than safe.
“The barriers to entrance have never been lower while the financial and humanitarian rewards have never been greater,” he says. “There are unbelievable opportunities in out of the way places for anyone willing to take a risk.”
On the surface, it seems like Gruver’s chancy decision might yield big dividends. After all, the International Energy Agency expects global energy demand to increase by one-third by 2035, with nearly 60 percent of the demand coming from countries with a burgeoning middle class like China, India and the Middle East.
But outsiders who try to navigate the business landscape in developing nations are often stymied by language and cultural differences and bureaucratic red tape. Small firms like USP&E also face stiff competition from energy, engineering and infrastructure giants like Siemens, which plans to expand its reach in emerging markets over the next five years.
Gruver would need to leverage the expertise of experienced globe trotting partners and employees to realize his dream of bringing power, jobs and hope to people in underdeveloped countries.
People in struggling countries are often wary of outsiders and for good reason. Consider the impoverished West African nation of Sierra Leone where slavery and the sale of so-called blood diamonds to outsiders during the 1990s fueled a brutal civil war and now only those who can afford generators have access to electricity.
Gruver, who employs a faith-based approach to leadership, believes that creating communities and jobs isn’t a consequence of doing business — it’s a reason to be in emerging markets and a moral obligation. Moreover, he scoffs at strangers who suggest that he should hasten his company’s growth by offering officials in underdeveloped countries financial incentives to secure permits or minimize red tape.
Instead, he follows his moral compass by hiring local people to operate and maintain a power station once construction is complete. He says that providing training and jobs creates trickle-down good will, and an environment of mutual respect, that leads to new opportunities. He cites his firm’s ability to secure multiple contracts in Sierra Leone, which is experiencing annual GDP growth of 35.9 percent, as an example.
He pays local workers well once a week and gives each employee a bag of rice to supplement their family’s meals.
“You build trust by keeping your word, and by giving people jobs and a career path,” Gruver says. “Hope was lost in Sierra Leone when we arrived two years ago. It’s remarkable how just a little bit of reliable growth can make a difference. We’re not only giving these people jobs and electricity — we’re giving them hope.”
Leverage strategic partnerships
How difficult is the business climate in Sierra Leone? The country’s overall ease of doing business ranks 140th out of 185 economies according to data compiled by The World Bank. Worse yet, it ranks 173th in dealing with construction permits and 176th in getting electricity, which means Gruver needs strategic alliances to achieve his philanthropic and economic mission.
“It’s very difficult to break into a foreign country without leveraging the established trust of companies that know the ins and outs of the local business and have tenured relationships,” he says.
In addition, having relationships with highly regarded and diverse companies such as Caterpillar, General Electric, Hyundai and Ernst & Young Africa helps USP&E overtake entrenched local competitors by offering clients turnkey power solutions. And the company’s nimble size and vast network helps it customize its deliverables and pounce on prospective opportunities.
“Some competitors just sell power plant support or construction or they only work in Venezuela because they don’t have the alliances to compete on a bigger stage,” Gruver says. “We can offer everything from design to construction and ongoing support for our plants by leveraging the abilities and products of our strategic partners.”
When USP&E couldn’t find a local printer to deliver documents to a prospective client in Johannesburg, South Africa, E&Y stepped in and its actions helped the fledgling power company close the deal. Other relationships have lead to inaugural deals in France and Spain.
“We’re not a huge company so we look for mutually beneficial relationships that extend our capabilities,” he says. “We expect to generate revenues of around $50 million this year and that’s largely due to our strategic partnerships which have never been stronger.”
Hire diverse and passionate people
Companies encounter unfamiliar technical and cultural challenges when they venture beyond the U.S. border. Having a diverse, multi-cultural staff with global business experience is critical in an environment where local knowledge plays a critical economic role. This is especially true in emerging markets, where decision makers are interested in knowing whether companies are interested in them as people or just want their dollars.
There’s no shortage of opportunities for globally experienced engineers and energy-savvy technicians — especially in Texas. So how has a mid-size company with fairly limited resources managed to hire 110 movers and shakers over the last three years?
“We promote our mission because it attracts like-minded people who want to work for more than a paycheck,” Gruver says.
Indeed, what people want most is the chance to make a difference according to Alexander Hiam, the Massachusetts-based author of “Business Innovation for Dummies.” Although a great salary doesn’t hurt, professionals are flocking to disruptive, world-changing organizations where they can feel good about what they do.
Interviews at USP&E usually start with a rudimentary question and answer exchange, but the conversation quickly turns toward the company’s overseas exploits. At that point, candidates who are merely interested in collecting a paycheck usually exit, while those who are passionate about the company’s mission are hooked on the idea of traveling the world and meeting buyers, sellers, and facility managers on multiple continents with different languages, cultures and customs.
And since engaged employees are generally more productive than their less motivated counterparts, the passion factor allows Gruver to boost the return on his fairly small staff. His experience is validated by more than 29 studies that link employee engagement to better service, sales, profits and shareholder returns.
“I lead an awesome team of executives, directors, engineers, project managers and technicians,” Gruver says. “They can have any job they want but they work for USP&E because they’re passionate about helping people.”
Harness the power of the Internet
USP&E doesn’t pay for advertising on Google or Yahoo, and it doesn’t have a commercial sales team. Yet, the company manages to garner five to 15 legitimate leads per day through the strategic deployment of some 80 websites.
Gruver studied web development in college — and refers to himself as a technophile — so he knows a thing or two about search engine optimization. Invariably, USP&E comes up near the top of the page when a prospective client searches the Internet for power engineering solutions or providers because the company owns the rights to a variety of keyword-rich domain names.
A strategic domain name can increase a website’s ranking especially if the domain matches the search query. The tactic is especially effective for small companies that don’t have a large advertising budget or well-known brand, since it snares prospective clients who search on keywords or phrases instead of a company name, and having a strong web presence may even attract investors.
“Executives often think that they have to pay for strategic Internet placement but that’s simply not true,” Gruver says. “Managing search engine optimization is so important to growing companies that it needs to be a top priority for executives right after cash flow.”
Speaking of cash flow, it’s still a daily priority for Gruver given the company’s age and rapid growth. He’s learned to say no to unnecessary frills and how to streamline operations by investing in mission critical areas that yield the best return. He credits his mentors with telling him the truth about frivolous spending instead of what he wants to hear while teaching him the virtues of risk taking and pushing boundaries.
“It’s amazing how just one disruptive idea can change the fortunes of so many people,” Gruver says. “We’re not just creating jobs — we’re creating hope — and that’s a wonderful thing.”
How to reach: U.S. Power & Environment Global, (469) 726-4780 or www.uspowerco.com
The Gruver File
Name: Will Gruver
Title: CEO and founder
Company: USP&E Global
Born: Minneapolis, Minn.
Education: Bachelor’s degree in communications and economics, Northwestern University.
What was your first job?
My first job was a youth pastor, but I started my first company when I was just 10. It was a landscaping business which I built up and sold to my partner after I finished high school.
Who do you most admire in the business world and why?
Entrepreneurs, especially those who head-up small businesses, because they’re the risk-takers who are pushing the boundaries and making a difference in this world. It’s the developing nations that offer the greatest growth and philanthropic opportunities, but it takes courage, passion and a forward-thinking strategy to pursue those opportunities.
What’s the best advice you’ve ever received?
Practice work-life balance. It’s easy to become entrenched in your business and overlook family and friends. I’m more motivated and productive on a daily basis because I have balance in my life.
What’s the key to success in emerging markets?
There’s so much corruption that’s it’s critical to build trust. You won’t muster repeat business unless you take the time to become a valued and trusted supplier.
What’s your definition of business success?
It may sound like a cliché, but helping other people. It’s easy to make money; the hard part is making a difference. There are unbelievable opportunities in this world for anyone willing to take a risk. For a company to thrive there has to be a reason for it to exist. Profits are important but it’s how you get there that counts.
Awards: Finalist, 2012 Entrepreneur of the Year, Ernst & Young
Recipient, Dallas Business Journal’s “40 Under 40”Award
Finalist, INC. 500, fastest-growing private companies in the U.S.
Dallas 100 Entrepreneur Award, USP&E placed seventh out of the 100 fastest-growing privately held companies in the Dallas area
Business leaders today don’t need to be big data gurus to discover new ways to boost revenue and earnings as long as they understand the basic fundamentals of data analysis and have a few minutes to spare. Analyzing your financial statements can reveal a bounty of insightful trends and potential moneymaking opportunities that warrant and inspire a journey into the details.
Executives tend to discount the strategic value of traditional accounting reports like financial statements because they recap prior activity. But when complemented by operational measures, balanced scorecards and strategic performance measurement systems, valuable results may be found.
A dive into financial statements can create a competitive advantage by helping executives proactively identify trends and even predict future demand for products and services, says Kristy Towry, associate professor of accounting for the Goizueta Business School at Emory University.
“Consultants have traditionally used accounting data to make agile, first-mover decisions that are crucial to advancing and sustaining growth,” says Jeff Thomson, CMA, president and CEO of the Institute of Management Accountants. “Executives can follow suit as long as they know where to look and understand how to analyze data.”
Explore your income statement
Even if revenue is growing, a dive into your income statements and its supporting data can help you capitalize on emerging opportunities or head off a looming sales decline.
Which products and services are selling and which ones aren’t? Are customers responding to social media outreach or specific promotions? Are they opting for lower-price items with fewer frills or are they willing to splurge on luxury models? And what do these trends mean for the future?
A review of sales records may reveal an opportunity to sell more products and services to existing customers or shift your product mix without increasing overhead. A review of operational data may highlight areas of excess capacity that can be used to generate additional sales and profits.
“Segmenting your customer base by key demographics and tracking their activity and behaviors can illuminate opportunities to grab additional market share through upselling or by offering current customers discounts for purchasing greater quantities,” Thomson says.
Simply repositioning a product or putting it on the front page of your website can boost sales and profits without raising costs, says Alan Reinstein, professor of accounting at Wayne State University. In fact, storing raw materials and products for an extended period of time can tie up cash and erode profit margins.
“Grocery stores put milk near the back of the store because it forces customers to stroll past higher margin products,” he says. “It doesn’t cost them a dime to evaluate sales data or use the results to craft or validate the efficacy of a product-positioning strategy.”
Since a rise in customer satisfaction increases retention and generally precedes a growth in sales, using a balanced scorecard or dashboard to track revenue, sales activity and customer sentiment can help business leaders interpret the needs of the marketplace and make advantageous moves.
Robert Kaplan and David Norton of the Harvard Business School originated the balanced scorecard to give managers and executives a more poised view of organizational performance by adding strategic, nonfinancial performance measures to traditional financial metrics. A holistic view of the organization allows executives to synthesize multiple data streams and accurately predict future performance, Towry says.
“I’m an advocate of the balanced scorecard because it helps business leaders change course or adjust their strategy on the fly by aggregating financial data and other key metrics and compares them to the goals in their business plan,” she says.
Unearthing moneymaking gems is often just a case of exploring your company’s financial statements
Activity-based analysis and costing is a way for managers to assess the performance of assets on their balance sheet and which products and customers are generating the most revenue and profits. The process also helps managers determine where improvements in quality, efficiency and productivity will yield the best return.
“Comparing costs with activities is common among certified management accountants because it helps management identify key cost drivers and potential savings by allocating direct and indirect costs to every stage in the order, manufacturing and distribution process,” Thomson says.
The analytical methodology often highlights opportunities to increase profit margins by outsourcing distribution or ancillary services to less costly external providers or automating manual manufacturing processes, or it may disclose an opportunity to increase cash flow by offering quick-pay discounts or incentives to major customers.
If reducing costs isn’t an option, business owners may be able to raise prices and margins for a particular product by using a formula to calculate elasticity of demand, which measures how the demand for goods and services varies with changes in price.
Generally speaking, the greater the number of substitute products available, the greater the elasticity will be. Naturally, very high price elasticity means that customers are sensitive to price changes, while very low price elasticity means you can raise the price of a top-selling product without effecting demand.
From a trend perspective, a sudden rise in price elasticity may portend an upcoming decline in sales unless executives initiate discounts or take steps to develop and launch new products.
Business owners often decide to eliminate unprofitable divisions or product lines after conducting an activity-based analysis, but they should proceed with caution, Towry says.
“Executives assume that eliminating unprofitable segments will increase profits, but the fixed expenses don’t go away,” she says. “They may end up launching a fatal cash crunch or death spiral once the revenue from that discontinued segment is no longer offsetting those fixed expenses.”
By using the financial data from your accounting system and applying alternative costing models, you’ll be able to determine how much overhead is being covered by the sales of each product and whether it makes sense to discontinue a particular segment or service.
Dare to compare
Comparing key ratios and data from your accounting system to similar companies in your industry can highlight opportunities to lower costs, increase efficiencies and improve your company’s bottom line.
Industry associations often provide benchmark data, and sites like Valuation Resources.com aggregate and provide information, research and analysis for more than 400 industries.
Start by breaking down your company’s accounting and operational data into standard industry measures, such as sales per square foot, same store sales growth or something as simple as the number of gallons of water used per car wash. Then compare your results to the standard for your industry to see where you have a competitive advantage or need to improve.
Major deviations from industry norms should invoke questions and a search for solutions, Reinstein says.
For example, a competitor may have lower selling, general and administrative expenses because they use e-commerce or distributors to push products instead of salespeople. Or they may be experts at using their point-of-sale system to increase loyalty and market share by offering customers incentives or rewards for making additional purchases.
“It’s critical to dive into the details and not ignore the trends, because a svelte, nimble company with ample cash reserves can force a sluggish competitor out of business in a heartbeat in a tepid economic environment,” Reinstein says.
Cash is king
While profits are important, cash is the key to survival for any growing company.
A cash-flow analysis tracks the movement of money in and out of your business by looking at operating, investment and financing activities. It also provides business owners with an accurate picture of their company’s profitability by using noncash items and expenses to adjust profit figures.
Another useful way to spot trends and analyze financial statements is by performing either a horizontal or vertical analysis, which compares numbers from one period to the next. The analytical methodology may point to favorable or unfavorable changes in cash flow that could spell trouble unless they’re corrected.
You’re probably in good shape if your cash is growing, and it accounts for 10 to 20 percent of your assets. If it’s not, then you need to figure out where it’s going. Is it costing you more to manufacture the same products, or have competitive pressures forced you to reduce prices during the last year?
Vertical analysis lets you compare each component of your financial statements over time to determine if and where significant changes have occurred. You may need to focus on collections or stop extending credit to major customers if receivables are growing too quickly, or you may need to reduce inventory if the payments on your short-term line of credit are chewing up cash and affecting your company’s liquidity.
Managing fixed expenses is critical for growing companies, Towry says. Otherwise, a blip in the economy can lead to an insurmountable cash shortage. Don’t just look at expenses when reviewing your financial statements. Break down fixed and variable costs and apply varying revenue forecasts to see how changing circumstances affect your cash position.
“Companies that overinvest in equipment, building leases or inventory can’t manage those costs down when the economy heads south,” Towry says. “Business owners need a cash budget and an awareness of cash in relation to profits because there’s no magic bullet for a major cash crisis.” ?
How to reach: Goizueta Business School at Emory University,
www.goizueta.emory.edu; Harvard Business School, www.hbs.edu; Wayne State University, www.wayne.edu; Institute of Management Accountants, www.imanet.org
When all is said and done, companies are generally satisfied with their new software, but their experiences are hardly a ringing endorsement for enterprise resource planning (ERP) endeavors. Among the 246 firms that completed an ERP installation within the past year, implementation exceeded budget 56 percent of the time and only 46 percent were completed on schedule or earlier, according to data from Panorama Consulting Solutions.
“The scope and complexity of ERP implementations makes forecasting treacherous,” says Zinovy Radovilsky, Ph.D., interim chair and professor of management for the College of Business and Economics at California State University, East Bay. “While cost overruns can’t be eliminated, they can be managed with the right tools and tactics.”
Smart Business spoke with Radovilsky about avoiding delays and budget overruns when tackling ERP projects.
Why do ERP projects often exceed budget?
An inexperienced project manager and a lack of historical data for enterprise-level software initiatives often result in inadequate cost estimates for items like these:
• Employee training — The most underestimated expense, since employees have to learn a brand new system.
• Integration and testing — Connecting ERP to other software programs is costly.
• Customization — Increases initial programming and configuration costs, as well as the price tag for future upgrades and fixes.
• Data conversion — Including the cost of migrating existing data to the new system.
• Data warehousing upgrades — Often needed to support daily operations post-ERP.
• Consulting fees — When something goes wrong, consulting costs run wild.
Don’t underestimate the impact of large-scale implementations on productivity. Activate one module or function at a time instead of taking a big bang approach, and offer short doses of virtual training and online tools to keep productivity high while employees get up to speed. When people can’t do their jobs the old way and haven’t yet mastered the new way, they panic, and the business goes into spasms.
What are some simple steps to keep ERP projects on budget?
First, select a qualified project manager who has extensive experience with ERP implementation and updates. Next, incorporate risk management into the budgeting process by considering every possible problem and starting with a rough order of magnitude (ROM) budget followed by a more accurate, and typically higher cost, budget estimate and finally, a definitive estimate.
Involve key managers and stakeholders in the budgeting process to ensure the estimates aren’t biased. Then, update the budget as the project progresses, using an earned value (EV) analysis approach that compares cost data to a baseline, to track your performance. Prevent misfires and crashes by conducting comprehensive load testing — using testing software and real users — before the system goes live. Finally, resist the urge to customize every little feature. Instead, choose an ERP system that supports your current business processes or use the standard functionality.
How can executives ensure the financial performance of ERP projects?
Keep employees energized by communicating a clear vision for where the system will be after the initial phase and at various intervals down the road by sharing project updates. Be realistic in setting goals and estimating how much change your organization can absorb, because a major software initiative requires stamina and commitment.
Use a software tool to collect actual data, and then periodically review project milestones, budgets, resource allocation and time/materials bookings to spot opportunities to boost ROI or reduce costs. A software tool is the only way to know exactly where you are in the project, how much time and money you’ve spent, and to forecast the cost and timeline for the entire project.
Remember, you can’t eliminate cost overruns, but they can be managed with the right tools and leadership.
Zinovy Radovilsky, Ph.D., is interim chair and a professor of management in the College of Business and Economics at California State University, East Bay. Reach him at (510) 885-3307 or email@example.com.
Website: Learn more about the College of Business and Economics at California State University, East Bay.
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Abraham Lincoln may have been the first lawyer to recognize the pitfalls of litigation but certainly not the last. He noted that: “The nominal winner is often a real loser — in fees, expenses and waste of time.”
Fortunately, today’s executives have an alternative way to resolve disputes that doesn’t put your fate in the hands of a judge or jury.
“Not only is mediation less expensive than litigation, the parties are in control of the outcome and they can be completely creative in finding a solution,” says Jennifer E. Acheson, partner and insurance and bad faith expert at Ropers Majeski Kohn & Bentley PC.
Smart Business spoke with Acheson about the benefits of mediation.
What is mediation and how is it different from arbitration and litigation?
Mediation is a type of alternative dispute resolution, where a neutral or trained mediator helps conflicting parties resolve issues, ideally before a lawsuit is filed. Mediation differs from arbitration and litigation in that it’s not a sworn evidentiary hearing or trial, and the mediator doesn’t rule on the merits of the case or take sides. The parties still have the opportunity to air their grievances during caucuses with the mediator and there’s more leeway in offering testimony.
What are some common business situations where a mediator might be used?
Mediation can be used to settle a variety of disputes including:
• Employee disputes with other employees.
• Employee disputes/grievances with management.
• Sexual harassment complaints.
• Hostile workplace issues.
• Discrimination complaints.
• Americans with Disabilities Act compliance issues.
• Business partner disputes.
• Contract disputes.
How do you select an appropriate mediator, who pays for mediation and how much do mediators charge?
The actual cost of mediation varies with the complexity of the case; however, the parties split the charges and avoid the cost of pre-trial maneuvering, court reporter fees or similar expenses. Mediation is a bargain when you consider that lawsuits cost small businesses $105.4 billion in 2008, according to the U.S. Chamber of Commerce. Since the process of being heard is often the overture to resolution, look for a mediator who is a close and patient listener.
Is mediation confidential?
Yes, anything said during the course of mediation is inadmissible in court, and the communication among participants is confidential. In fact, the mediator needs permission to disclose information revealed during individual caucuses with the other party. This protection even extends to the settlement agreement, unless the parties agree to waive confidentiality. In contrast, trials are normally open to the public.
What happens if the parties can’t agree?
Unlike arbitration or trials, which have a mandatory and possibly binding decision, the mediator doesn’t have the power to force the parties to reach an agreement. The process is voluntary and either party can withdraw at any time. If the parties can’t resolve their issues in one session, with the parties’ permission, the mediator can continue the process until the dispute is resolved.
Is an agreement made at mediation enforceable?
A mediation agreement is enforceable as long as the authorized parties agree on a deal and sign the memorandum. If a party refuses to comply, the parties can appoint the mediator as an arbitrator for the sole purpose of rendering an award that complies with the agreement, as long as the dispute hasn’t gone to litigation. If the matter is already in litigation, a motion for enforcement can be brought under the civil code. This makes mediation an enforceable and cost-effective alternative to litigation.
Jennifer E. Acheson is a partner, insurance, and bad faith expert at Ropers Majeski Kohn & Bentley PC. Reach her at (650) 780-1750 or firstname.lastname@example.org.
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