When these companies started developing products themselves, EFI’s services weren’t needed anymore. Revenue dipped from $588.5 million in 2000 down to $350.2 million in 2002. And while EFI, a digital imaging and print management solutions company, was still profitable, Gecht knew he needed to change its game plan to increase revenue and maintain profitability.
He initially brought in outside consulting companies to help identify problems and offer solutions, but just a short time into that process, he discovered that the existing managers knew the better questions to ask.
He engaged his management team in in-depth self-review, lengthy discussions and evaluations. And they met with customers to find out where they thought the company’s strengths and weaknesses were. “The key thing is to be brutally honest with yourself and figure out where you’re strong and where you’re weak,” says Gecht.
The company also surveyed employees to get their thoughts.
“Though we encourage open dialogue always, we made the survey anonymous to ensure that we’d receive the most candid responses,” says Gecht.
At the end of these sessions, they decided to change their business strategy and then look toward acquisitions to diversify and strengthen EFI. While changing a company’s DNA doesn’t happen overnight, it does start with one step.
Avoiding the commodity trap
Gecht’s team first decided to become more of the Lexus or Mercedes of the industry.
“We didn’t try to compete too much on price,” Gecht says. “We said, ‘You know what? We’ll leave the price battle to some other people. We’re going to stay higher-end in our value and appeal to people that want better systems and are willing to pay a little bit more.” EFI was very upfront with customers about its prices, most of whom were knowledgeable professionals not needing as much prodding as the average consumer.
“Our message is, we’re not the cheapest solution out there,” Gecht says. “If you want something that costs less, you can certainly find it somewhere else. We are here to give you the best technology for your business to make you successful. If that’s what you’re looking for, we can show you why our product is better.”
Competing on quality meant Gecht had to ensure that his products were, indeed, the best. He focused the company on innovation by partially tying each vice president’s bonus plan to innovation so they would drive it down the ranks. “It’s not only just in engineering,” Gecht says. “There’s a lot of innovation happening in every single department. If you make it part of the routine and the culture and communication, it happens by itself. We call it the voice from the top.”
To measure quarterly progress, Gecht and his team tracked one metric gross margin.
Driving innovation also involves a financial commitment, so EFI invested about 30 percent of its revenue in research and development so it could remain competitive and received heavy criticism for doing so. “We’re a technology company,” Gecht says. “We bring the best technology to the market. That’s the strategy we have. We’re always going to be the best in what we do. We need to have the brightest and best people around here.”
Gecht assured employees that as long as they performed well, they didn’t need to worry about losing their jobs.
“We didn’t want to go to the easy solution of, ‘Let’s just fire a bunch of people, and then the numbers are going to look good and we’re going to feel good in achieving numbers,’” Gecht says. “It’s not really going to help our customers or long-term viability.”
Instead, he tightened expenses in other areas and turned to employees to generate ideas. They came up with everything from eliminating aspects of paperwork to having team members check in with customers periodically. A nonexecutive team of people chose the best two ideas every quarter, and the employees who submitted them received prizes, which changed quarterly and ranged from iPods to dinner for two at a nice restaurant.
Building with acquisitions
With EFI’s business plan tweaked to emphasize quality over quantity, Gecht then started looking at acquisitions both to grow the company and to diversify it more. “Innovation is our cornerstone as a technology company,” says Gecht. “It’s our ability to out-innovate the competition that keeps EFI in the position of industry leader. That said, we are also constantly looking outside our core competencies at acquisitions that support our objective of providing best-in-breed solutions to the professional print market.”
Studying the industry and having dialogue with customers helps Gecht know what areas he needs to improve through acquisitions, but acquisitions hadn’t been part of the company’s DNA. To make up for that, he hired an acquisition specialist and a team of people in 2001 that excelled on the integration side of the equation to lead EFI’s efforts. “The price for the acquisition is a small factor in the end,” Gecht says. “There’s a lot of things you need to think about ahead of time. There is a reason why the statistics show that most acquisitions fail.”
The first aspect Gecht looks at is cultural fit to ensure that the people at the potential acquisition would mesh well as part of EFI. He then looks at leadership both in the people and products. “We want to make sure that either we’re acquiring some technology that has leadership or people that have leadership in the industry or reputation that we can build on that will add to the leadership of the company,” Gecht says. “We don’t want to buy something that won’t be as strong as EFI, that will drag down our reputation and relationship with customers.”
While it’s important to investigate the products’ strength, it’s equally crucial to look at the people, but many leaders think of them as afterthoughts. “The people part is a very important part of the equation because when you buy a company with 100 people, essentially you’re deciding to hire 100 people to be part of your team.”
To make sure those people have that ability to innovate, he spends a lot of time asking them questions about their products and customers and about where they get ideas. He also talks to the company’s customers to see how it treats them.
Then the simple but most important question is, “Do you want to be part of us?” If the answer is, “No,” then he moves on, but if the answer is, “Yes,” then he sets to work making it happen.
When the deal closes, the work doesn’t end. The new piece now needs to be integrated. While smaller acquisitions typically require shorter integration periods, large ones need tending to for a while.
In early 2005, EFI made a $280 million acquisition, which management has successfully spent the past two years working to integrate instead of chasing more acquisitions. Success requires communication and sometimes difficult decisions.
Often, Gecht needs to move EFI management to the new company or vice versa. During one deal, the products overlapped, so his team decided to kill its own product and proceed full steam ahead with the acquired one. “Sit in the room and talk about the facts,” he says. “Don’t be biased. Think about it, and after awhile, you get used to doing it. You don’t think what it means to you you think what it means to the customers. “It’s all coming down to, you just focus on looking at the company from the eyes of the customer. What do they like to see? Do they like to see Product A or Product B? Do they like to see Person A running this group or Person B? Why is it good for them? If you get yourself trained like that, it gets easier and easier.”
The next step is sitting down with management from both sides of the acquisition and collectively brainstorming where the company should be in one year and two years, and then challenging them. “If you come in and say, ‘Within 60 days, we want to A, B and C,’ you will get resistance,” Gecht says. “If you say, ‘Let’s think about where we want to be in a year and two years,’ and everybody draws nice ideas because it looks very far off, then we’ll say, ‘OK, we’ll do it faster.’ They’ll say, ‘OK, at the end of the day, if that’s where we want to be, why not do it faster?’”
If something was outlined for a year, he’d ask them to do it 60 to 90 days. If it needed two years, he challenged them to do it in a year. Quickly integrating also helps eliminate unnecessary confusion for customers, who often get the runaround during transition times. “If you move faster on integration, it’s actually working better,” Gecht says. “In many cases, there is a temptation not to touch or not to change the name or not to integrate or not to have a unified sales force, and while it’s an easy solution and doesn’t offend anybody, after awhile. there is a ‘they’ and ‘us’ environment and inefficiencies.”
Throughout major changes, it’s important to get buy-in from people. While having both sides of management work together to create a plan helps with the executive ranks, leaders can’t overlook customers and employees. “If you’re winning the hearts of customers and you’re winning the hearts of employees, you’re going to win the acquisition,” Gecht says.
To help reassure customers, Gecht visits them and also sends communication explaining how service will either remain the same or get even better and outlining the benefits that EFI brings.
During transitions, EFI team members are at the new company weekly to answer questions and help employees adjust, but those employees also need to hear information from the top. Communicating with employees often requires a different style and needs to have genuine substance the meat and potatoes of the meal instead of just the salad. “A lot of people, they don’t care to hear too much about big statements and mission statements and high-level strategy,” Gecht says. “They want to know what it means for the company, for them, for their perspective, for the customer’s perspective.”
He emphasizes being honest and answering all questions. Whenever he communicates with employees, he takes questions both from the floor and from prior submissions that allow people to ask questions anonymously if they feel uncomfortable asking in person. He also responds to e-mails personally, even if it’s to say, “The better person to answer this is so-and-so talk to them.” “You’re hiring great people, and you ask them to work hard and deliver results and stay with the company,” Gecht says. “Our commitment to them is that we’ll take them seriously.”
After the transition period ends, Gecht’s team does a post-mortem to see where it moved too slowly, too fast and just right. They use their conclusions during the next one to help ensure further success.
Gecht’s strategy has paid off in recent years, as EFI posted revenue of $563.7 million in 2006, an increase of nearly 61 percent over 2002. Gecht recognizes that EFI has improved a lot, but it still has to do the small things to keep growing. “There’s no one big huge idea that changed the company,” Gecht says. “It’s all a combination of many good ideas that made us slightly better and slightly better, and we ended up becoming a lot better company with all those marginal improvements. ... As long as you make smaller progress every day, you’re going to make big progress at some point. “Even when things are going very well, never be complacent. Know that you can always do better. Keep a critical eye and constantly challenge yourself and your employees to improve your business. Stay hands-on and close to the battlefield, talking frequently with your customers, investors, engineers, salespeople and marketing.”
HOW TO REACH: Electronics for Imaging Inc., (650) 357-3500 or www.efi.com