If you ask Doug Taylor what it’s like putting on a fireworks show, he would tell you that it’s like taking the Rolling Stones on tour. There are potentially hundreds of people involved in the background and a single show can require five or six tractor trailers, a few straight trucks and more than a week to set up, using 15 to 20 people a day.
“This should all be background for our customers,” says Taylor, president and CEO of Zambelli Fireworks. “All we want our customers and the spectators to see is 15 to 20 minutes of a fantastic display, just like the Rolling Stones really only want their spectators to see them up on stage for that hour-and-a-half concert.”
Zambelli Fireworks is one of the best-known names in the fireworks industry. The company employs 50 people year-round, increasing its employment to roughly 1,500 people around the Fourth of July. Zambelli launches 2,300 firework shows across 32 states each year with nearly 600 of them being around Independence Day.
The company puts on shows for municipalities, Major League and Minor League Baseball, the NFL, MLS, professional lacrosse, amusement parks, festivals, weddings and private parties. Productions can range in cost from $3,500 to more than $500,000.
“Our company has one of the best names in the industry,” Taylor says. “We have that, but if we don’t keep working on that every day, we’re not going to have it at some point. We have to continue to earn our reputation and that level of trust with our customers.”
That reputation, the ability to put on a fantastic show and customer service focus has been challenged recently due to three major issues that have put added pressure on Zambelli. The company has had to overcome delivery disruptions from China, the challenge of the U.S. economy, the impact of increasing raw material costs and labor problems in the Chinese market, which is the source of 95 percent of the product in the U.S.
“With those combinations we’ve seen product costs go up somewhere in the range of 45 percent in the last five years,” Taylor says.
Here is how Taylor continues to put on a great show by dealing with unexpected challenges through close relationships with vendors and customers.
Expect the unexpected
There are about 14,000 fireworks shows shot on the Fourth of July in the U.S. every year. So in 2008 when China shut down two of the four ports from where fireworks are shipped, it created a 25 to 30 percent decrease in the capacity of delivery.
“An awful lot of companies didn’t get deliveries that year and there were a significant number of shows that did not end up being shot,” Taylor says. “We ended up getting most of our deliveries that year, and with a large inventory, we survived it.”
Typically, smaller companies get in a couple of containers of product each year. They use up 90 percent of it and then order more for next year. Zambelli tends to carry over a year’s worth of inventory each year.
“That way we have a lot more cushion than smaller companies can afford to have,” he says. “That certainly helps us in a time like 2008 where the shipping was such a problem, but it doesn’t mean we had the exact inventory we wanted.”
With China controlling 95 percent of the fireworks used around the world, there really wasn’t a good alternative for Zambelli to get product from.
“You can get product out of Europe from Spain and Italy, which is extraordinary product, but it’s three to five times as expensive as what you get out of China,” Taylor says. “So that’s not a good solution. We did go out and find some pockets of product because we moved very early.
“Ultimately, we had to design our shows differently based on the product that we had available within our existing inventory.”
To help combat the issue of product availability, Zambelli put a focus on communicating with its producers in China.
“We worked for years to make sure we treated our vendors as partners and that they treated us the same way,” he says. “Because of that relationship, we began to hear early that there were going to be problems. Vendor relationships are very important — making them a partner versus just a vendor.”
Aside from problems abroad in China, Zambelli faced challenges here at home due to the poor economy. A number of the company’s customers had to rethink whether they could do a fireworks show similar to what they had done in previous years or at all.
“We saw a number of cities that had to decide where they were going to spend their money,” Taylor says.
One city in Ohio was in a position where it had to lay off more than 50 employees and as much as the leaders wanted to have a fireworks show, it was politically inappropriate to lay off staff and then spend $20,000 on a fireworks show.
“We had some communities that canceled their fireworks and a number of communities that reduced the size of their fireworks,” he says.
Zambelli has been shooting shows for some customers for more than 30 years. Maintaining those kinds of customers goes back to having a good relationship.
“We didn’t want them to begin to think about talking to somebody else, because there is always a competitor that will do it cheaper,” he says. “We worked with them and gave them as good a deal as we could possibly give them. These were customers that we had for a long time, and that’s the kind of relationships that we like to maintain.”
One of the other interesting changes that occurred during this time was that if a city couldn’t afford to pay for a show anymore, it found an outside group to take it on. Zambelli has begun helping customers find ways to afford a fireworks show if they don’t have the funds necessary.
“That’s a new role for our company and for firework companies in general,” he says. “We’re working with certain larger corporations and trying to find places where they feel it would be a good investment for their brand to go in and support a community. We’ve had to change our marketing role to where we are marketing more directly to sponsors.”
The solution to this problem again comes back to building relationships and forming partnerships.
“If you look at the crux of what a true partnership is, there are going to be ups and downs,” Taylor says. “The sooner that you can anticipate what’s going to happen, the better positioned you are to adjust to it. You have to have an open line of communication with a customer or partner.
“Keeping those lines of communication open allow you to be aware of any issues. Having that communication … helps make sure we are hearing what’s important to them.”
Improve your relationships
Due to the issues with product delivery, the economy in the U.S., the challenges of increased costs of raw materials and labor problems in China, Zambelli’s ties to its vendors and customers have had to be stronger than ever.
“Many of our customers make a decision through a purchasing agent, and they’re trained to find the best deal,” Taylor says. “The easiest way for them to find the best deal is if they said, ‘We have a $10,000 budget.’ If one company offered them 900 shells and another company offered them 925 shells, they’re going to the 925-shell company, even though they don’t fully understand how that count was come by.”
That’s one point where Zambelli will work with its customers to explain it is offering a complete event, not just a number of shells.
“We’re selling the level of trust you can have in Zambelli Fireworks because of what we’ve done for years and what we’ve done for you as a customer,” Taylor says. “We’re selling you some of the highest quality product out there. We’re selling you a safety record, which is as good as anybody’s. We’re selling an entire package. We’re not selling a count of fireworks on a page.”
This level of selling has been somewhat of a transition for the Zambelli sales force, because not only has it become more competitive over the last five years, but the Zambelli sales team has had to learn to sell a turnkey package and not let people make decisions based purely on a shell count.
“It’s been an education process to not only educate our salespeople, but for them to turn around and educate our customers so they can make better decisions,” he says. “The more understanding customers have about each decision they make and why those decisions are important, the more likely they are to hire us.
“We have to develop a level of trust with our customers that they know we’re going to deliver that fantastic show. We’re focused on maintaining and improving a high level of service to our customers and maintaining our reputation.”
How to reach: Zambelli Fireworks, (800) 245-0397 or www.zambellifireworks.com
Be prepared for unexpected challenges.
Form strong partnerships with your vendors.
Find ways to improve relationships with customers.
The Taylor File
President and CEO
Born: Port Arthur, Texas
Education: Attended North Carolina State University where he received a BS degree in science education and in zoology. He also received a MBA from Indiana University in Bloomington.
What was your very first job? What did that experience teach you?
The first job I had where I was working for someone else was mowing lawns at the age of 12 or 13. The first job I viewed as a real job was working in high school at a hardware store. What I learned there more than anything was the value of customer service.
When did you get into fireworks?
The first idea I ever envisioned of being involved with a fireworks company was in early 2007. I started work as the president and CEO of Zambelli in late May 2007.
What do you like most about fireworks?
It’s a fascinating industry, and it’s related to what I said about taking the Rolling Stones on the road. It is the entertainment business and although there are all kinds of technical and regulatory issues we deal with, at the end of the day if the spectators and the customer are happy with the result, then we entertained them.
Do you have a favorite Zambelli show?
At the Kentucky Derby Festival, we have two sets of barges that are each 600 feet long in the river and in the middle is a bridge that we shoot off of 3,200 feet of bridge. We’re able to fill the sky where people miles up and down the river are watching the show. The magnitude of that is incredibly impressive. On one side it’s the emotion and importance of the event to the community, and the other end is just the artistry and magnitude of what can be done.
What is the best business advice you’ve ever received?
My father taught me that the thing that you can’t give up is that level of trust that people have to have in you.
When Terry Lundgren was first approached by Macy’s in 1993, the retail company was bankrupt. Lundgren, who was chairman and CEO of Neiman Marcus at the time, was asked to come to New York to help turn around the company.
However, Lundgren had little interest in joining an insolvent company, especially since he had a good thing going at Neiman Marcus in Dallas.
With Lundgren’s ties to Neiman Marcus and his previous ties to Federated Department Stores as a former president and CEO of Bullocks Wilshire, executives at Federated persuaded Lundgren to come back with the idea of buying Macy’s.
“I thought that sounded pretty interesting, because I saw the synergy and the idea of the Macy’s brand being spread through the Federated stores,” Lundgren says. “It took six months to convince me, and then six months after that, we bought Macy’s.”
Today, Lundgren has built Macy’s Inc. into one of the biggest and strongest department stores in the country. The retail giant accounts for a third or more of the business for the brands that Macy’s is associated with. However, if you rewind just seven years, Macy’s wasn’t even big enough to advertise during its own Thanksgiving Day Parade.
“The No. 3 most-watched television program in America is the Macy’s Thanksgiving Day Parade after the Super Bowl and the Academy Awards,” says Lundgren, Macy’s chairman, president and CEO. “Fifty-eight million people watch the Macy’s Thanksgiving Day Parade every year. It was a spectacular event, and I couldn’t advertise on it, because we weren’t national.”
Lundgren watched the telecast as advertisements from Target Brands Inc. and JCPenney Co. Inc. aired on the parade, but none from Macy’s.
“I said, ‘We’ve got to fix this. We’ve got to think about how we get that Macy’s brand out there,’” Lundgren says.
Through well-planned and well-timed acquisitions and a strategy that brought Macy’s closer to its customers, Lundgren began to turn Macy’s into a force to be reckoned with, and the goal of advertising on the company’s own parade was beginning to look like reality.
“We had a lot of interesting turns in our industry and our company that really represent a lot of what happened in the industry over the last several years,” he says.
In October 2012, Lundgren spoke at an ACG Cincinnati luncheon event about the journey he and Macy’s has been on and what it took to build Macy’s into the powerhouse it has become.
After Federated Department Stores bought Macy’s in 1994, Lundgren became the president in 1997 and then the CEO in 2003. At that point, Macy’s was a $14 billion company with multiple brands and 250 stores.
Lundgren began to test the waters of expanding the Macy’s brand by combining it with other Federated stores.
“Business didn’t go up and it didn’t go down; it just became a non-event,” he says. “It surprised most of us, but we knew it wasn’t a negative.”
During the time of this testing, a prized department store came up for sale — Marshall Field’s in Chicago. Marshall Field’s had a stranglehold on the Chicago market and was powerful in the Minneapolis and Detroit markets as well.
“Those were three markets where we didn’t have any representation,” Lundgren says. “This was a natural opportunity for us to fill in the geography and have key stores in these very important markets.”
Lundgren negotiated to buy Marshall Field’s against one of his largest competitors at the time, The May Co., which was also looking to go national. Lundgren felt confident he had submitted a bid that was in the ballpark, but May Co. ended up offering several hundred million dollars beyond what Marshall Field’s was worth.
Although Macy’s lost to May Co. for the Marshall Field’s stores, Lundgren didn’t lose sleep, because he knew that it would have been wrong to overpay for the stores. He had seen that scenario before.
“We walked away, and that was probably the best decision that the board and my team made because everything changed and the credibility that I developed with my board from that point forward was a game-changer, because I had been CEO only for a year,” he says. “That process turned out to be really positive for all of us.”
One year later, in 2005, The May Co. was in trouble — it had paid too much for Marshall Field’s. The board fired its CEO and Lundgren went in to talk with May Co.’s lead director.
“We did a deal and got great talent merged in with our company,” Lundgren says. “Still today, some of my top leaders are from that May Co. acquisition. It was all good timing, and of course, we got Marshall Field’s through that.”
Now Lundgren had to make sure the company saved some money. It went from 11 operating divisions down to seven, taking out $1 billion of operating expense.
It sold Lord & Taylor for $1.2 billion, which May Co. owned, but was not consistent with what it was trying to do. David’s Bridal business was sold for $800 million. It closed or sold 80 department stores that overlapped and sold the credit card business to Citi Group for about $5 billion.
“That was a very big deal — this now was paying for the acquisition in a very significant way,” Lundgren says. “We were quickly getting our balance sheet in order as we were moving forward with these changes.”
Part of those changes was spending a year researching whether they could change the store names to the Macy’s brand.
“What would that feel like?” he says. “If you asked somebody, ‘Would you like to change the name from your favorite store called Lazarus or not?’ They’re going to say, ‘No, don’t touch my store.’ But if you just do it and you treat the store right and treat the people right and put in the right merchandise, people will generally respond to that, and that’s what happened.”
When it came time to make the national announcement that the department stores would take on the Macy’s name, Lundgren went to Chicago to announce it.
“In one day, we changed 400 department stores to the Macy’s brand,” he says. “We went from 250 stores in 2004 to 800 in a two-year time frame. We finally were a national organization and could advertise on the Macy’s Thanksgiving Day Parade for the first time in 2006.”
With Macy’s becoming a national brand, Federated decided it needed to align with its new direction. In 2007, Federated Department Stores became Macy’s Inc.
“Eight hundred of our 836 stores were called Macy’s and 36 were called Bloomingdale’s,” Lundgren says. “Calling the company Macy’s Inc. made more sense when people were thinking about who to invest in.”
Get close to the customer
Following the name change, Macy’s was on the move. However, the financial collapse in 2008 caused customers to cut down on shopping.
“They literally put their credit cards away and stopped shopping,” Lundgren says. “We knew we had to do something, and I wanted to do something anyway, but this was a really good time for change.”
Macy’s got rid of three operating divisions in the Midwest from seven and replaced them with a new idea.
“The idea of having a division that’s based in Cincinnati, Atlanta or San Francisco was to be closer to the customer,” Lundgren says. “The problem was we had gotten so big now that each division was looking after 100 or 200 stores, and they were in three, four or five states. They weren’t close to the customer. We had lost that connection.”
Macy’s took the three divisions that it eliminated and replaced them with 20 small satellite groups called districts. The districts had approximately 20 people acting as merchants and planners in each of these areas that would supervise 10 to 11 stores.
“They are in these stores every day, they are talking to our customers and sales associates and they are guiding us for what we should buy for Cincinnati or Columbus, Ohio, or Detroit and Chicago,” he says. “They are the ones who are influencing size, color, types of fabric and the brands that we need to carry.”
Becoming more in tune with the local communities forced Macy’s to do a lot of communication.
“It’s a missed point by a lot of big companies,” he says. “Lots of face time with me and my executive team is important. People want to follow your lead. They want to do what you want them to do, but you have to be clear and consistent.
“You can’t have a list of 28 things. You have to be clear, simple, direct, and you’ve got to say it over and over and over again. If you do that, people will respond.”
Having that local focus made all the difference in the world. It worked so well that even in 2009, when the recession was still clearly under way, those stores were outperforming the rest of the country because of the responsiveness to the local city.
“It didn’t take long for us to say, ‘We’re going all the way,’” Lundgren says. “We eliminated the other divisions and replaced them with 69 of these district teams around the country and had one buying office.”
Creating one buyer in New York City for all of Macy’s rather than the previous seven was a crucial move.
“Most of our suppliers are right up the street on Seventh Avenue in New York City,” he says. “One buyer goes to the Ralph Lauren showroom and says, ‘I’m ready to place my order.’ And they are standing at attention because instead of one of seven buyers, they better hope we like the line, because we’re a third of their business.
“We’re a third or 40 percent of everybody else’s business — Estee Lauder, Coach, you name it — Macy’s is the largest customer for almost everyone that we do business with.”
That consolidation has turned Macy’s into the only store you can buy certain brands because of the power it has with the one purchase mentality.
“The combination of that with the localization of the stores has really made all the difference in the world,” he says. “That was all rolled out in 2009.”
Macy’s executed on that strategy in 2010 and had one of the best years in the history of the company.
“We picked up more than $1 billion in same-store sales that year,” Lundgren says. “The year 2011 was significantly better than 2010. We picked up another $1.2 billion in same store sales. In 2012, we are off to a great start.”
Macy’s Inc. had fiscal 2011 sales of $26.4 billion across its more than 800 Macy’s department stores, 37 Bloomingdale’s stores, seven Bloomingdale’s Outlet stores, bloomingdales.com and macys.com. The company employs 175,000 people.
“I really relate it to that structure — the name change and allowing us to have a national presence but to act locally, and then the strategy, which we have executed the last couple of years,” Lundgren says.
- Look for the opportunities to build your business.
- Make strategic moves that position your company for growth.
- Understand what makes your business more effective for customers.
How to reach: Macy’s Inc., (513) 579-7000 or www.macys.com
Having employees who tolerate stupidity is literally Phil Libin’s worst nightmare.
“I’ll wake up from a dream in which somewhere, someone at Evernote is working on something right now and they don’t understand why they are doing it — they think it’s stupid. ‘It doesn’t make any sense. It’s dumb. I’m just doing it because somebody told me,’” says Libin, CEO of Evernote Corp., the company responsible for popular Evernote and Skitch applications.
“As soon as you have someone who is doing some work and they don’t understand why they are doing it, then you’re not a start-up anymore. You’re something worse.”
Considering the noteworthy changes that Evernote has gone through over the last two years, it’s no surprise that culture is ingrained in Libin’s mind. Since launching the Evernote product public in 2008, Evernote’s apps have gained fast traction with users who rely on them to organize personal data and information on mobile devices and platforms.
Since 2010, the company has tripled revenue annually while increasing head count from 30 to 250 employees. It also plans to reach a level of 500 employees by the end of 2013.
Taking notes yet?
While Evernote’s success is undeniable, Libin’s permanent challenge is creating what he calls a “100-year start-up” — i.e., maintaining the entrepreneurial culture that makes Evernote great while continuing to grow.
“I want everyone at Evernote, no matter how big we get, to understand why it is that they’re doing something and to see the impact of their work,” Libin says. “If we can maintain that, then we have a good shot of scaling the company in the future.”
Here’s how Libin keeps the entrepreneurial spirit alive at Evernote.
Like many Silicon Valley companies, Evernote offers employees a number of unique perks, including unlimited vacation time and catered lunches. Yet Libin knows enhancing employee productivity isn’t just about add-ons; it’s about removing the obstacles that inhibit people’s success.
“All of our benefits and our office life are structured around this idea that people who are here want to do excellent work, and it’s our job to eliminate any obstacles that get in the way of that,” Libin says. “Whenever we find things that impede people’s natural desire to be productive, we ask if we can eliminate that.”
Libin and his leadership team actively look for ways to make people’s jobs easier on a day-to-day basis, especially when it involves enhancing productivity. It’s why Libin played an active role in designing the company’s new 90,000-square-foot Redwood City, Calif. headquarters, which employees moved into last summer to incorporate features that improve workflow, such as an open work plan to facilitate open communication.
“It’s the first time that we’ve been in a space that we’ve actually designed,” Libin says. “Our previous two offices have been little start-up things — whatever we could afford at the time. This is the first time we’ve had a chance to think about our surroundings a little bit.
“There are a lot of small things. A lot of times you need something from IT. You need a power cord or an adapter or a keyboard or a mouse or a network cable … so you have to track down an IT person and ask them for it, and then they go into the supply closet and get it. Now you’ve tied up two people: the person who wants it and the IT person. It’s a small waste of time, but it’s a waste of time.”
Evernote solved this problem by stocking a vending machine in the cafeteria full of equipment such as headsets, power cords, mics and keyboards, which employees can freely access by swiping a card.
“You decide when you want something, you can go down and get it, but now it takes one person two minutes to do what two people took 20 minutes to do,” Libin says. “So there’s a lot of stuff like that, where it’s something that’s not a huge thing in itself, but it adds up.”
Ideas to improve a culture don’t need to be radical to make an impact on productivity. Removing a small obstacle can actually have huge benefits, especially if it affects a lot of people.
For example, Evernote’s open work plan makes talking on the phone the biggest source of noise for employees throughout the office. So instead of having everyone work around that, Libin and his team decided to do away with desk phones entirely. If someone needs to make a call, they are encouraged to use one of the company’s numerous conference rooms or meeting spaces.
“We find an obstacle and we try to get rid of it,” Libin says. “You can find 100 things like this and it adds up to a culture where people feel like they are trusted and respected. We don’t have to explain to people that you’re only allowed to take one mouse every six months. We don’t have a policy. Take as many as you want.”
Bring on the best
Evernote isn’t Libin’s first time leading a start-up business. Before founding the company in 2007, his career as a successful engineer led him to serve as president and CEO of the software companies Corestreet Ltd. and Engine 5, respectively. In both cases, Libin found that his programming background played a direct role in his leadership style — and not in a good way.
“At my first company, I had this weird idea about people who work for me,” he says. “I thought, well, I can do their job better than they can, but I’m too important. I don’t have enough time.
“So I’d walk around and look at some programmer writing database code, and I would think to myself, I’m a programmer, too. I could write that better than he could, but I don’t have time so we can let him do it. And I’d look at a sales guy working and I’d think, well I could sell the product better, but I don’t have time so let him do it. I’d listen to the receptionist and I would think my phone voice is so much nicer than hers. But I don’t have time to answer the phone so let her do it.”
What Libin realized is that this superior mentality is self-fulfilling, breeding a culture where leaders are always second-guessing and micromanaging their people and where talented people don’t want to work. But if you’re trying to build a 100-year company, this kind of thinking just won’t fly.
“A lot of people instinctively are afraid of hiring people better than them,” Libin says. “So they tend to surround themselves with people who are mediocre. That’s the thing that kills a lot of companies.”
Finding and keeping the right is critical in fulfilling the vision of a 100-year start-up, which is why Libin encourages his direct reports and managers to follow the “hire better than you” philosophy for any position,
“I have to hire people who are so good that they can wind up running the company, and that’s true all the way down the ranks,” Libin says.
“Really embracing that philosophy is the only way I think you can scale and manage and really reduce stress, because anything I’m worried about, I know that there’s a person who’s much smarter than I am in that function, who’s also worried about it but actually in charge of dealing with it.”
Evernote may have a start-up culture, but the company has also come a long way from its start-up roots. In addition to its employees on five floors of its Redwood City office, Libin now leads an organization with offices in Austin, Texas, to Tokyo, Zurich, Moscow and Beijing.
“As we grow to be a bigger company, we’re not 10 nerds anymore,” Libin says. “We have designers. We have marketing people. We have people from all sorts of demographics. We are really broadened, and that broadens the products that we want to work on.”
It also broadens the scope of any given project, which can create a disconnect between a company’s departments, offices or teams.
“Very often in companies, and especially a big company, if you ask an average employee at the company, they kind of feel, ‘Well, I’m doing a job, the five or 10 people that I’m working with and I understand what they’re doing — they’re doing a good job,’” Libin says. “‘But those other guys two floors above me, I have no idea what they do. They’re probably just dumb.’”
One way that Evernote avoids communication and innovation breakdown is through cross-training. Taking a lesson from a friend who is a submarine officer, Libin implemented Evernote’s Officer Training Program, which mimics the idea of officers who must be trained in many different roles.
Each week, employees who sign up for the program are assigned to several random meetings outside of their department where they are encouraged to act as full participants. While the company is currently tweaking the program for simpler execution, the idea is that both the trainee and the group will benefit from the exchange.
“So if you are in IT and you sit in a marketing meeting, you see that the marketing guys do a lot of work, and they have difficult questions and problems,” he says. “It also works the other way, having a person in the room who hasn’t mastered the jargon. You wind up having to speak differently. You wind up having to think about things that you may not have thought about if you’ve been doing this job for 10 years.”
Other ways that Evernote promotes connectivity are using remote-controlled Anybots for telecommunication and video walls and “windows” to connect Evernote’s domestic and international offices. Set up near the coffee machines, the video walls are synced up to mirror Evernote’s different offices at the same time of day.
“When it’s 9 a.m. here and you’re getting coffee, you’re going to see 9 a.m. in Tokyo as somebody is getting coffee,” Libin says. “The point is you can connect with people. You can see who is there. You can see what they are wearing. You can have this ambient feeling because you know that you’re not the only person there. There are people all over the world working at Evernote that are also getting coffee.”
Experimenting with cultural perks, programs and policies should be an ongoing process, and leaders need to be willing to try and fail.
“The basic idea is we want people to be able to connect in as many different ways as possible,” he says. “When I’m traveling out of the office, and I connect to the Anybots, and I drive it around, and point the laser pointer at people, and yell at them to get back to work, everyone loves it.
“There’s no silver bullet. You say the core value is communication, and then you just find ways to make it a really magical experience.” ?
How to reach: Evernote Corp., www.evernote.com
The Libin file
Born: St. Petersburg, Russia
Education: Boston University
Why there’s never been a better time to be in business: I don’t think it’s ever been a better time to have a company, to be in business. This is the best time in the history of the world actually to be trying to build something because it’s much of a meritocracy than it’s ever been. If you build something great and you really focus on building something great then you get massive leverage in everything else because of app stores, smartphones and social media. If you make something great, then everyone is going to know about it. And everyone is going to be able to get it. … All I really want is to make great stuff. And that’s what all the people who work for me want, and it’s enough. It’s enough now to just make great stuff.
Why stress helps: As a CEO, it’s good to have a balanced diet of stress. You stress out about the product. You stress out about the finances. You stress out about improving about the office space. It’s good to have multiple completely different things to worry about and sort of balance those things.
Libin's best business mantra: I think the most important phrase is ‘simple is hard.’ That says a lot of stuff. In all ways it’s better to be simple than complicated, in terms of your product, your benefits, everything you do. You’re much better off being simple; and it’s the hardest thing to do. Always strive for simplicity, but also realize that it’s far harder to make something simple than to make something complicated.
On paper, Oleg Firer literally embodies the American dream. Moving to Brooklyn, N.Y., from the Soviet Union at the age of 12, he entered into business without a college degree and rose quickly to become the VP of a publicly traded company by his late 20s.
In 2002, Firer taught himself the payment-processing business — which would become his career — from the ground up and eventually partnered with private equity group Star Capital to start his own payments business in 2007.
With the help of his partners, Firer executed a roll-up strategy that included eight acquisitions between 2008 and 2010, combining the entities into a one payment-processing company — Unified Payments LLC. Today, Unified Payments has grown to approximately 50 employees and $59.5 million in revenue. And with a three-year growth rate of 23,646.3 percent, it soon shot to No. 1 on the 2012 Inc. 500 list of the fastest-growing companies.
“M&A is my background,” says Firer, co-founder and executive chairman, Unified Payments, which now processes about $10 billion worth of transactions for 100,000 merchants a year. “I like to find the diamonds in the rough and make them into diamonds. And that’s what we’ve done.”
Firer’s leadership has been critical in helping the company overcome challenges of integrating eight companies while managing fast growth and staying innovative in a competitive industry.
Smart Business spoke with the Firer to find out the keys to his M&A success and keeping Unified Payments on top.
SB: How did you choose which companies to target as part of the acquisition and roll-up strategy?
OF: The companies that we acquired had something unique about them. Being established is one thing — but they all had some sort of issues. We did a lot of distressed equity buys where they were either overleveraged or they were growing too fast and they couldn’t keep up with it or they had shareholder feuds or so on. Obviously, we looked at dozens of companies and we identified the eight companies that we liked the most, and we executed.
We also invested in human capital. Each one of these eight companies — besides having potential to grow and having a sales engine — had human capital behind them that we believed in. We don’t have eight different divisional presidents. We consolidated, and there were three people that I believed were the strong sales leaders to take this business to the next level. We bet on them. So it was not just acquiring for the core assets and growth opportunity; it was also acquiring them for human capital that knows this industry.
SB: What was your timeline for the acquisition strategy?
OF: The first acquisition that we did was the most expensive and the biggest. We executed the first acquisition in 2008 as a platform buy to do the add-ons that we did at later points. When we did the platform buy, it had a lot of human capital already behind it. Most of it needed to be restructured.
We bet on the sales leadership, but operationally, we had to break down a lot of departments in order to make this a success. That took awhile. And obviously, from the add-ons that we did, we moved some people around, and we hired some new people.
SB: When did you start integrating the businesses?
OF: We didn’t wait for the eight to complete. From the first platform buy, we started right away working on operations, restructuring the operations and making the operations stable. No matter what size of payment-processing provider that you are, you still need a core engine. For us, it was building an engine that’s scalable and having the outsourced pieces that we need in place to have 24/7 support and so on. It took a year to really build proper structure, and then when we started executing on acquisitions, it was about integrating them in the structure.
SB: When you are completing multiple acquisitions, how do you integrate them into your company in a way that doesn’t overwhelm your business infrastructure?
OF: It was easier with the add-ons because when you have an add-on, you strip away (general and administrative expenses) G&A and you integrate the asset into the engine if you see any new human capital that is an asset to the company. Then the rest we would strip down.
So the core support functions like customer support and technical support we would keep in the core engine. If tomorrow I’m presented with an opportunity to buy a payment-processing provider, I would let all the customer support and technical support resources go because I already have them in my core.
It’s like a puzzle. You see the missing pieces and you want to fill those pieces. Identifying the missing pieces and bringing those pieces in became easier after the first acquisition because we see that we’re lacking in a niche vertical. So now we know that the next acquisition that we do is going to be a new vertical. It has to have something special.
SB: How has the recession impacted the growth of your business?
OF: After we acquired the eight different companies, we consolidated, created this engine and decided to keep them in an organic growth strategy. We have been growing for the past two years organically from redoing these engines that we acquired.
This industry is very competitive. And with the recession the biggest thing that keeps me awake at night is that there are more businesses that go out of business. So it’s losing merchants and keeping up with attrition and the churn and providing outstanding service to the merchants that process with you — and providing them with innovative products so that they don’t go to the competition.
SB: How can you manage risk when you have customers who are struggling?
OF: It’s pretty much keeping your ear to the ground and working with partnerships. ... When MasterCard launched a PayPass program, which is a ‘contactless’ card, we were the first organization to launch it for them in New York because we understand what it takes to roll out technologies. By working with the industry’s innovative associations, such as Visa, MasterCard and Discover, and working with technological partners that we have, it makes us stand up to the competition.
SB: How do you make sure that you’re not growing too quickly?
OF: You want to have gradual growth. Pulling in the reins on a monthly basis and slowing down the growth is really the most challenging. Once you let marketing loose, it’s hard to pull in some marketing areas. Growing too fast can permanently damage the company. So it’s about growing methodically, managing within the budget.
With us, there is an acquisition cost to every merchant that we bring in. So if I want to pull in the reins, I just shrink the budget for that month. It’s growing at the pace where the business can afford to fund marketing and then fund G&A.
SB: Any lessons learned the hard way?
OF: If you’re a business leader and you’re an operator, choose the right capital partner that believes in you and that will give you an ability to take this to the next level. I had to go to a few capital partners, and it was challenging to find a capital partner midtransaction. Adding another capital partner during a transaction was even more challenging. So the challenge I had was going through several capital partners; when you’re already committed, you can’t go back.
Get a firm commitment and make sure that the partner that you choose believes in the overall picture and not just a piece of it. Believing in just a piece of it could cause you to run into to problems later in the game.
SB: What are the main lessons have you learned from your M&A experience?
OF: Everything takes longer and it costs more. So you need to be very conservative in your estimates and be very conservative in your projections. Be very cognizant of time. Underpromise and overdeliver — that’s my model.
SB: What advice would you have for another business executing an acquisition?
OF: I had to go through a lot of companies to really believe in the eight that we did. And I mostly believed in them because of the people. It all starts at the top. If you have the right people at the top, if you have the right business leaders, it becomes very easy to do a transaction. If you don’t have the right leadership and business leaders that you rely on, everything else can crumble.
And then, obviously, it’s always challenging to find good people for any business. But if you find somebody that you believe in and that has the track record, don’t let the person go. ?
How to reach: Unified Payments LLC, (877) 621-9110 or www.unifiedpayments.com
The Firer File
Co-founder and executive chairman
Unified Payments LLC
Born: Soviet Union
Education: New York Technical College
Management style: There are two styles to me. First of all, I have an open door policy. I speak to every employee in the company and everybody has direct access to me. I meet with my employees all the time. And I don’t consider them employees; I consider them partners because we have a common goal, and we need to work toward it. And I think outside the box. There’s no strategy that I would not look at. There’s no opportunity that I would not look at.
What you do for fun?
Jet skiing, boating
Who have you never met but would you like to have dinner with?
Warren Buffet, to get an insight on what it takes to be the most successful investor of the 20th century and understand what it takes to spot the hidden jewel in the companies he invests in.
What would you be doing if not your current job?
I would be a politician.
How do you regroup on a tough day?
I spend time with my kids.
What destination would you still like to visit?
What’s next for Unified Payments?
Every month and every day we raise the bar because of the fact we have to grow, and I’m not satisfied with the growth that we have. So we still want to grow a bit more. We still have some internal restructuring that I’m working on, and as I execute a little bit more organic growth and do a little bit more acquisition, one day who knows? I might exit. So it’s making the business big enough to be palatable to somebody smarter than I am.
For Dan Roitman, much of business is science.
Since founding specialty Internet retailer Stroll LLC in his University of Maryland dorm room 13 years ago, Roitman’s career has consisted of an ongoing series of hypotheses, experiments, data analysis, adjusting of hypotheses and formulation of theories.
Roitman’s scientific approach to business-building has developed a highly entrepreneurial culture at Stroll, in which team members are encouraged to share ideas, innovate and test their assumptions. It’s a mentality that has helped the company sustain a period of rapid growth — 80 percent in 2008 and 50 percent in 2009, followed by a year-over-year 100 percent growth margin from 2010 to 2011. In 2012, the company surpassed $80 million in annual revenue for the first time.
But maintaining a forward-thinking mindset throughout the entire organization isn’t something that just happens. It requires CEO Roitman to hire, train and empower his people to achieve the desired results. It’s something that was driven home to Roitman during the recession, when he had to suspend the growth of the company for a year due to a lack of additional financing from Stroll’s bank.
“That was my biggest concern, because we had always been a growth company,” Roitman says. “Then, due to circumstances beyond our control, we had to put a specific order volume cap on the business.
“It really became more about communicating that this is the challenge, everybody knew what was going on in that environment, you had a lot of economic hardship, you heard a lot about layoffs that were going on elsewhere. I have to imagine everyone was happy that we were doing well, but frustrated that we couldn’t do better.”
Through it all, Roitman has had to focus on motivating his employees, maintaining a sense of transparency, while still encouraging open thought, experimentation and the scientific mentality that had made Stroll a success in the first place.
Embrace best practices
It’s easy to say you embrace best practices as an organization. Actually discovering, selecting and implementing best practices from another entity are another ballgame. Even if you are able to discover and select an outside idea that you think will help your business, there is a good chance you wouldn’t implement it — at least, not in the form in which you discovered it.
“I once heard a speaker talk about the idea of cloning best practices and how most people don’t have a so-called cloning gene,” Roitman says. “If I told you, right now, the secret to making a million dollars in 90 days and if you followed my instructions exactly, you’d make a million dollars; most people wouldn’t be able to follow it exactly. They’d start to think about how to improve upon what you’re telling them.
“Sam Walton would go into any competitor’s store, and even if it was a really shoddy store, he’d find something they were doing better than he was doing. Through that process, through a million little optimizations, he became a formidable competitor and then an industry leader.
“So if someone is doing something better than you are, you should at least recognize that they are and be willing to try it in your business as well.”
But it is a double-edged sword when it comes to adding new policies and processes to your organization. You don’t want to corrupt the external idea, because it was successful elsewhere for a reason, and that is why you want to on-board it at your company. But you also want to give your people an opportunity to think of ways they can improve upon the idea or alter it so it better fits your company’s specific situation.
For Roitman, that is where the need for a culture that utilizes a testing-based, scientific approach becomes critical. His team members at Stroll can propose new ideas and changes to existing ideas, but they have to back the proposals up with supporting data.
“If you have a constant, iterative testing philosophy, the barrier to testing is very low,” Roitman says. “So if somebody is doing something on, say, the marketing side, you ask yourself about the probability of something similar working in your business. What is the probability of this one idea being more successful than another?
“Ultimately, you have finite resources for your various departments, so you do have to have a mechanism for prioritizing — some kind of filter for what you believe the contribution or change will be.”
Roitman ran into a best-practices testing scenario when he and his leadership team noticed marketers in his company’s space were having success with video marketing initiatives. Through testing and quantification of the results that Roitman’s team believed Stroll could expect, the company was able to implement its own video marketing initiatives.
“Since then, we have won two major awards for our video marketing,” Roitman says. “That is an example of us taking a best practice from outside and utilizing it in a way that betters an area of our company.
“In another area, we’ve also brought in an industry expert to advise us on our shipping costs. It led to us having a 30 percent reduction in our shipping costs (in 2011), and we should have another 30 percent reduction (in 2012).
“We didn’t directly adopt a best practice from somewhere else in that case, but the insight from the industry expert that we brought in allowed us to take things to the next level in that area, and it’s information we wouldn’t have gotten any other way.”
Learn from mistakes
Another aspect of having a culture that is focused on experimentation and learning by doing is a willingness to accept mistakes and failure as part of the process. That is, as long as the failure is part of the process and not a part of employee underperformance.
With entrepreneurship as a key building block of Roitman’s culture at Stroll, often he is willing to take new products to market, and let the market determine whether the idea was good or not.
“Obviously, it depends on what level you’re talking about making mistakes,” Roitman says. “But if you inherently have a testing culture, you know you’re going to have failures, and it’s simply going to be a part of the experimentation process.
“But there are failures of concepts or improvements, and there is failure of performance, which is an entirely different category. The performance category isn’t just a matter of experimentation. It’s a matter of setting up support structures so that people don’t set themselves up for failure. You have to work with them to define goals up front that are realistic and all the general management concepts around that.
“Once you’ve defined the goals, you need to check in with your people to make sure they are on track and setting up workable project plans.”
If you’re working with your people to set achievable goals and realistic project plans, it becomes much easier for you and your leadership team to separate a bad idea from a bad performance.
“It’s all in the mechanics around your execution, which you need to have in your processes,” Roitman says. “If someone just isn’t performing, there is an issue there. But if it’s an idea itself that is failing, but everyone thought it was worthwhile to pursue and a reasonable move to make at the outset, there is no problem in that case. And you have to cultivate that mentality within all layers of management.”
To help guard against large-scale mistakes that could have wide-ranging implications for your company, Roitman says you should put platforms in place that allow you to test new ideas on a smaller level, then scale the successful ideas to larger projects involving more people.
It is a tactic that allows you to commit fewer resources to a project initially, while still getting a sense for whether the idea will work — which is a critical factor as many companies are still struggling with resource management in the wake of the recession.
“That can definitely be something you’re doing; we’ve done that ourselves,” Roitman says. “For instance, in our call center, we’ve rolled out a small-scale test in one area, see how that does, then roll it out on a larger scale.
“In some other areas, we’ve broken down into teams across different areas of the company and tried different things in each area. That allows us to gain some insight into how we can work with different needs and different management methodologies.”
As you go through these processes, you have to keep in mind that your role as the leader is to serve as the traffic cop who ensures that the right type and right amount of resources find their way to the right areas of the organization, into the hands that can best use the resources to produce the ideas and product that turn the highest profit.
“Everything is interrelated,” Roitman says. “Departmental activities roll up to the company at large. So my job is to make sure the plan we have communicated is clearly on track, everybody knows the most important things we have to focus on, and there are no other distractions. We have a lot of ideas flying around, which is a good thing, but we still have to maintain focus. As far as the direction you are going, you have to define what is in and what is out — you have to define both.”
How to reach: Stroll LLC, (215) 701-3300 or www.stroll.com
The Roitman file
founder and CEO
Education: International business and German degrees, University of Maryland
First job: Unofficially, I mowed lawns and shoveled snow. Officially, I had an internship with the Department of Defense after my first year of college.
What is the best business lesson you’ve learned?
The earlier you can establish the elements of a strong culture, the higher the probability of success of the organization. It starts out with just getting revenue and having a business in the first place, but after that, you need to have a vision and clear goals around that vision, and the right people on board with the proper motivation. Having the right operating conditions helps that immensely.
What traits or skills are essential for a business leader?
One thing that we really focus on in our organization is transparency. After that, you need to be able to develop a really strong vision that influences the organization years into the future. People have to know what they’re doing and why they’re doing it.
What is your definition of success?
Success comes at a couple of different levels. On a micro level, it’s accomplishing something meaningful within the organization. On a macro level, one of the greatest forms is giving back to the community and creating jobs. As we all know, our economy needs sustainable, productive jobs today.
Don Lowe used to run a simple business.
“We had a small offset machine, we printed black ink on white paper, and sometimes we would bind it for our customers,” he says. “It was that way for many years.”
Franchise Services Inc., which operates printing and marketing services franchises such as Sir Speedy, Signal Graphics and PIP, did one thing and did it well. For decades, it was enough to grow and remain profitable.
But as the 1990s advanced and gave way to the new century, technology started to evolve at an increasingly rapid pace, and Franchise Services quickly found itself at a crossroads: adapt or risk the long-term welfare of the business.
“The digital world changed our world completely,” says Lowe, the CEO of Franchise Services. “Our role is now to look at new technology and ask ourselves if it’s a threat or an opportunity. If it’s a threat, we decide what to do with it. If it’s an opportunity, we exploit it. It keeps us very busy, but it’s also very good for us.”
Lowe has needed to add new technology and new services to fill the expanding needs of his franchisees’ customer base — which comprises primarily companies with fewer than 50 employees. Facing their own battles for survival in an economic climate where nothing is a sure thing, the businesses in Lowe’s customer base need services beyond printing. They also need full-service marketing support with a heavy emphasis on creating and maintaining a strong Internet presence.
“That is why, over the recent years, we have moved from a print-centric model to one that focuses on both print and marketing services,” Lowe says. “We’ve needed to expand the products and services we offer to our customers. If you think about small business owners, they’re always pressed for time; they often can’t even spend time on building the business because they’re already wrapped up in managing what already exists. So they need help on multiple fronts, and our job is to provide that help.”
Providing that help has required Lowe and his team to listen to franchisees and their customers, and gain an accurate read on the best ways to serve customers in a challenging and ever-changing climate.
Know the game
The biggest game-changer for Franchise Services came in the proliferation of Internet-based communication throughout the ’90s. In the span of about a decade, the primary conveyance for the written word migrated from paper stock to computer screens. Items that were normally sent through the mail over the span of days could now arrive in your email inbox in a matter of seconds. Internally, filing cabinets gave way to servers as a means of storing data.
“A number of the products we were producing for customers moved to the Web,” Lowe says. “Customers could use the Internet to distribute price lists on a daily basis, and even some training manuals migrated to the Internet.
“If you think about it, even business cards, letterhead and envelopes, all that business declined from where it was in the ’80s and into the ’90s, because we don’t send letters anymore, we send emails. That was the first indicator that we needed to start finding some products and services to backfill some of the products and services that were losing traction.”
But to find new areas of growth, Lowe and his corporate leadership team had to get plugged in to what their customers needed in a print and marketing services company. For Lowe, that meant studying trends, and frequent conversations with franchise owners across Franchise Services’ spectrum of brands.
“You have to understand specifically what the customers’ needs and wants are,” Lowe says. “Everything starts with the customer. If you don’t understand the customer requirements, you won’t be able to fulfill them. So you need to listen twice as intently as you speak, so you can determine what those needs and wants are.”
You can look to macro-level observations in industry publications to get a read on the next big technology that could affect your industry. But to understand how your business is changing on a granular level, you have to make trips to the front lines. Sometimes, the change that satisfies the most customers in the shortest amount of time is decidedly low-tech and relatively inexpensive to implement.
When Lowe and his team speak with franchisees, they aim to find ways to better connect their services to customers, with an overall goal of improving the customer experience.
“For example, today we provide mailing services at most of our locations, and that is a direct result of understanding that 65 or 70 percent of what we print ultimately ends up in the mail,” Lowe says.
“So why don’t we go that last mile, provide mailing services to our customers, and even take the printed pieces in the envelopes and take them to the post office? That is an example of why you spend a lot of time figuring out what is happening in the market.”
In addition to frequent dialogue with franchisees, Lowe and his team also gather information from customer focus groups designed to provide feedback regarding whether Franchise Services is meeting their needs, and in turn, the needs of the market in general.
“The thing we always try to remember is we don’t produce anything at the corporate level,” Lowe says. “All of our services are delivered at the franchise-network level. So we have to maintain consistent contact with everyone involved in those relationships, both the franchisees and the customers. There cannot be an ivory tower anymore. If you’re not staying in touch with the customer, you’re not staying in touch with the business.”
Become a change agent
To change with the evolving needs of the market, you need to first construct an organization that is capable of visualizing change and realizing the need for change. At Franchise Services, Lowe developed a change-focused organization by hiring people who aren’t afraid of venturing into unknown territory while at the same time being creative enough to devise new solutions to meet ever-changing customer needs.
“It’s a big reason why you hire first for cultural fit, then worry about the skill set needed to complete the job,” Lowe says. “If the person you hired can’t fit the organization, or if the chemistry just isn’t right, it’s not going to work.
“You might be able to make it work for a short period of time, but you can’t build a company with that type of hiring policy. A lot of people know that Jim Collins wrote the book ‘Good to Great,’ where he talks about the need to have the right people in the right seats on the bus, and it’s true. It’s not necessarily just about having good people. It’s also about having the right mix of people, otherwise the organization is going to fail in the long run.”
If you can find employees who are open to and willing to facilitate change, it then falls on you as the leader of the company to provide an environment where they feel the freedom and flexibility to try new ideas and implement new innovations.
Lowe facilitates an environment that embraces change by developing a strong sense of trust throughout the corporate ranks and extending to the company’s more than 500 franchised locations. He develops and reinforces the trust factor by ensuring that communication remains transparent throughout the organization.
You and your people need high ethical and moral standards, which set the basis for the amount of trust that you can develop between management and employees,” Lowe says. “It’s also important that everyone understands what the goals are. We don’t have a large staff, so it is important that everyone is aligned with the goals, both on a corporate and franchise level.
“So we talk to our franchisees about their goals and aspirations for their business, and their results, and through that, we develop a team spirit. That helps to drive enthusiasm and gets people ready to show up for work and get busy doing what you get paid to do.”
Lowe’s willingness to change and adapt, and find people willing to do the same, has helped maintain Franchise Services as a strong presence in its industry. The company’s franchised locations generated $448 million in sales during 2011.
“There are certain skills that are required in this business, but beyond that, it quite frankly comes down to attitude,” he says. “The people that work well in our environment take instruction, but they certainly also understand the importance of dealing with and satisfying the customers. A lot of what we do comes down to how you adapt to customers and serve their needs, as is the case in just about every industry. A smiling face and a soft voice goes a long way in our business, every bit as much as the professional skills they need to have in order to get their job done at a high level.”
How to reach: Franchise Services Inc., (800) 854-3321 or www.franserv.com
The Lowe file
Franchise Services Inc.
Born: Shelbyville, Tenn. I grew up in Hopkinsville, Ky.
History: I’ve been in business since I was 12 years old, when I was a paperboy. I’m 71 now, so I’ve been in business for almost 60 years. I’ve been a shareholder of this company for the last 40 years.
What is the best business lesson you’ve learned?
Hire good people, keep them informed and trust them. Beyond that, set the bar high for achievement, and make sure they understand your culture and promote it.
What traits or skills are essential for a business leader?
Vision would certainly be high on the list. You also need integrity, because people need to follow your lead, and it is very difficult to follow someone you don’t respect. And if your organization doesn’t agree with your vision, you won’t have a fair chance to be successful. Also, working hard is still a great trait in this country. If you work hard, it will put you in good places.
What is your definition of success?
It’s the opportunity to do what I want to do, when I want to do it and with the people who are important to me, and to get our franchise people to do important, meaningful things to help them sustain their businesses.
Throughout its history, vanpooling has been very good to Ann Fandozzi’s company.
For more than 35 years, VPSI Inc. — which is now branded as vRide — has grown and profited from running vanpools for commuters who want an alternative way to negotiate rush-hour traffic. After becoming the company’s CEO this past June, Fandozzi likely could have continued focusing solely on vRide’s vanpooling expertise with no ill effects to the company’s bottom line.
But Fandozzi saw more. She saw vRide’s potential to grow outward from its staple business, with a goal of becoming a comprehensive commuter solutions company. So Fandozzi challenged her company to expand and employ its expertise in new ways.
“My vision, and something that is palatable for us, is really broadening what we do,” Fandozzi says. “There really isn’t any type of commuter solutions company that does what we do, so that made it kind of exciting.
“When you think about it, we are really at an all-time peak of forces coming together, be it congestion in cities, be it gas prices, be it people’s time worth more of a premium than ever before. All of those forces coming together is something that allows us to come in and really offer a unique solution for commuters.”
To make her vision a reality, Fandozzi has needed to develop and implement a methodical approach that helps vRide — which generated $75 million in 2011 revenue — identify its target customers and create new ways to serve them by employing internal resources in the most effective way possible.
“If you have a commute of, say, 45 minutes or longer, you might come to us because of our vanpooling reputation,” she says. “But as we grow, we’ll be able to offer you a multitude of different solutions. We can certainly still put you in a vanpool, but we might also be able to put you in a carpool if you have a smaller group. No matter the service offering, the goal is commuter focus.”
Form a vision
To expand your company into new areas, you need a reachable vision, guidelines for achieving that vision, building blocks that will help you turn the vision into a reality and metrics that will help you measure your performance in relation to the guidelines and building blocks.
“Your vision has to be both broad and targeted,” Fandozzi says. “It has to be broad enough to capture the various value streams that the business model can deliver but focused enough that you’re not trying to be all things to all people.
“When we thought about broadening our company from a vanpool company to a commuter solutions company, our vision was significantly broader, but it was also very targeted from the sense that we are going to go after commuters and focus on solving their needs.”
To formulate an achievable vision for vRide, Fandozzi and her leadership team had to connect with the needs and pain points of current and potential customers. It required vRide’s representatives to gather customer data and conduct market research with an eye toward finding the holes in the marketplace that vRide could capably fill.
“A lot of it really has to do with delving deep into the customer’s world,” Fandozzi says. “In order to know where you want to go, you really have to take a step back and see what needs there are from a customer standpoint, areas that being underserved, and those are where the juiciest opportunities will usually present themselves. You go where the needs exist and where potential customers are being underserved.
“In our case, we’ve been looking at traffic congestion, people who are becoming frustrated with commute times, the state of the economy and gas prices, and people wanting more money in their pockets,” Fandozzi says. “We know those are the pain points, and from there, we dig a little deeper and get a read on whether we can expect those factors to increase or decrease over time.”
With traffic congestion and high gas prices remaining as fixtures of day-to-day life, Fandozzi’s team felt comfortable building a vision around how to address those needs. Then, she moved her company into the implementation phase.
“You don’t need to know every step of the 100 steps you’re going to take to get from here to there, but in general, you need to have a pretty good plan for how that vision can be achieved,” she says. “For us, a big fundamental building block has been the Web and mobile technology.”
Under Fandozzi’s leadership, vRide has taken steps to create a mobile-device app that can give would-be commuters instant access to potential solutions provided by the company.
“It’s the nature of addressing consumers who are on the go,” Fandozzi says. “You need an on-the-go solution. You need to automate instantaneous answers for consumers. For 35 years as a vanpooling company, that is a competency we didn’t have. So then the question becomes, ‘How do you scale to add those competencies?’”
It was a question of whether vRide needed to add new resources and competencies, or find new ways to utilize what was already in-house. Through rounds of organization analysis, Fandozzi’s team realized the company had a great deal of physical infrastructure already constructed, meaning scalability would be a mixture of the old and new.
It was a matter of creating new technology platforms and plugging them into what already existed in terms of vans, people and facilities.
“Currently, we have more than 5,000 vans, and there is a set of solutions that works really well there,” Fandozzi says. “So the question to the leadership team is, how do those get scaled? Anything from the way the vehicles get serviced and delivered, and anything or everything in between. That is why it really becomes a function of having those building blocks and being very honest with your assessment of whether you have them in-house, versus the items you need to bring in.”
Develop a marketing plan
With a vision and implementation plan in place, you need to get potential customers interested in your organization’s new direction. That is where a comprehensive marketing campaign comes in.
Fandozzi divides vRide’s marketing campaign into various phases focused on educating consumers and driving traffic. Once those phases are fully implemented, marketing can become an effective tool to spur further growth.
“You need to develop a phased marketing strategy that is appropriate for where you are in your development cycle,” Fandozzi says. “For us, we are kind of in a heavy learning mode right now, because we are still in the process of putting our fundamental building blocks in place.
“The next phase is once those building blocks are in place, you want to take what you’ve learned and use it to educate consumers. Then, once everything is place, you can expand your marketing efforts as you grow.
“For instance, we could then say that every man and woman in America who commutes more than 45 minutes to work is our target consumer,” Fandozzi says. “But that is a different kind of marketing effort from where we are now.
“The trick is in knowing what phase you are in at that moment but planning for the next one as you are in the current one.”
Developing a successful marketing effort around your vision often requires a combination of developing internal expertise and utilizing outside resources. Your internal marketing experts have an intimate knowledge of your business and your customer base. Third-party marketing firms will bring an outside perspective, along with data gathering and research capabilities that your company may not possess.
However, Fandozzi says external consultants should not drive your marketing philosophy. Though third-party firms bring useful skills and resources to the table, you and your team know your business the best.
“You want the latest and greatest, but you want it centrally managed with internal resources,” Fandozzi says.
“That is why you assign and train a leader who is centrally responsible for your marketing vision, because that is the person who is going to really understand where you’re going as a company, what building blocks are in place and what phase of marketing you’re going to need to be in for each phase of growth — are you in a heavy learning mode, or a heavy execution mode, and so forth.
“Those are the people who will be in charge of bringing in experts along the way to help them execute on each of those facets.”
If you make a misstep in your marketing, learn from it quickly and correct it — and have those systems in place from the outset.
“You’re testing along the way, fully preparing to fail,” Fandozzi says. “One of the things we do here is we like to learn fast-forward. You want to do something quickly and you want to learn from it quickly. Failure is OK if you learn from it, but you want to do it and correct it quickly. You are trying to fast-forward the entire process so that you develop definite answers on what you can move forward with.”
How to reach: vRide, (248) 597-3500 or www.vride.com
The Fandozzi file
More from Fandozzi on self-assessing as a business: There are several modes of self-assessment. One is having some conversations about just looking in the mirror with the leadership team and saying, ‘Hey, this is where we need to go and this is where we are.’ Another is bringing in experts, because sometimes you need a fresh set of eyes since you are just so close to the business, and it’s tough to see. One of the hallmarks of good leadership is knowing when to ask for help, and looking at experts instead of thinking that you have all the answers.
The third method is looking around at adjacent industries and seeing how they’ve been able to solve similar problems, to also free up your thinking. So, you may be stuck, but they’re going to bring in an expert and give you an expert solution along the lines of how you’re already thinking.
Fandozzi on hiring and retaining top talent: That is always the silver bullet to a business, having the right people. It comes from a multitude of sources. First and foremost, it comes from having the right screening techniques in place to make sure that as we’re bringing in people, they’re the right people. There is a lot of ownership on the part of the leader to make sure the vision is exceptionally clear, that people aren’t hunting in the dark and hoping they find the right answer.
There is a lot of personal ownership, for example, in order to develop and work with my people, I overinvest. People tend to underestimate how much investment this takes, but overinvesting on tools, resources — making sure we’ve put the right metrics in place. Then, it’s taking a step back and seeing if they can do it. It’s guaranteed you are going to make mistakes along the way, but you want those mistakes to be smaller-sized, and you want the wins to be bigger, and you want to course-correct as you go.
Jim Litten has a saying that sums up his approach to operating F.C. Tucker Co. Inc.: “We are a success today, but nothing is guaranteed for tomorrow unless we have our game face on.”
But it’s not the only line of attack that helped him guide the largest Indianapolis-area residential real estate agency through a real estate market that dropped 32 percent between 2007 and 2009.
“Look at most businesses; if their business was off 32 percent, that would require monumental change to everything they do,” says Litten, president of F.C. Tucker. “Do you quit matching on the 401(k)? Do you put a hiring freeze on? Do you evaluate every single expense line that you have? We went through all those different processes, and as we saw the market continue to contract, we continued to cut. If we saw the market dropped 10 percent, we cut 10 percent.”
While cutbacks were necessary, it was disheartening for Litten to make them and to see his family of agents suffer as a result. Nevertheless, he knew he had another job on hand — to keep up the spirits of his employees.
“As a CEO of a company, you have to be realistic about what’s going on, but you can’t be pessimistic,” he says. “In a sales-driven organization, there has to be a cheerleader that keeps the organization moving forward.”
Litten’s 40-year career in real estate sales has taught him that he needs to keep his associates focused when facing challenges. He says that means not backing off and staying engaged.
“And it’s letting the agents know that we were in it with them,” he says. “The downturn wasn’t something that was their problem; it was all of ours.”
Here’s how Litten leads 1,500 agents across Indiana to stay engaged, focused and on top, with more than $2 billion in annual sales.
Empower, but don’t micromanage
Many leaders understand the value of empowerment. You give your employees more responsibility, they have more control of their position, and they start looking for solutions rather than making excuses.
With empowerment, however, comes the ability to delegate. It doesn’t work if the leader is a control freak. Litten says that he doesn’t micromanage the company’s business units or their leaders. When someone is hired to run a unit, the first thing he tells that person is that he expects him or her to run the operation as if it were his or her own. That doesn’t mean that Litten is unwilling to answer questions or offer guidance.
“But if I have to come out and micromanage it for you, I’ve got the wrong person in the seat,’” Litten says.
While empowerment means more authority for employees, it also means more responsibility — and being accountable. Leaders need to have quarterly reviews with each of the division heads and branch managers and review metrics to evaluate where they are, where the market share is and the growth they’ve experienced in the position. Litten also discusses every agent in the office with their managers to see how they are doing and find out where they may need help.
He says that one of the best indexes of performance is productivity, and if your managers keep an eye on individual productivity, they will be able to manage more effectively where it is needed most.
“You may get fooled by some who can sing a pretty good song,” Litten says. “But the reality of it is just productivity. When I look at the offices, are they doing comparable to what they did the prior year? If not, why not?”
In a smaller office, if there are just a few big producers and they are having an off year, it can impact the entire office. A leader who is tuned in to what is going on will be aware of why that office’s sales are off, and instead of thinking it may be a leadership issue in that office, will be aware that agents are simply having an off year.
“You’ve got to know what is going on in your business,” Litten says. “If levels of management just go through the motions, those days are numbered for them because you can’t do it anymore. You’ve got to know what is going on, what the trends are, what the strategic issues facing you are and how you are going to deal with them.”
Communicate, but don’t hover
While it may seem to be at odds with the practice of empowerment, staying in frequent touch with employees is vital to a company’s success. However, the leader needs to draw a fine line, because if it appears he or she is hovering, employees will not feel truly empowered.
Litten says that coaching is critical. Spend time with associates not only to help them but to simply check in and see what is going on with them. If you fail to do so, it may send a message that you don’t really care enough about them to ask or that you are making assumptions about their situation.
“The worst thing that you can do is to assume that somebody is OK,” Litten says. “You have to touch them regularly. Often, unless you are checking in with them, you really don’t know if there is something going on attitudinally on which you need to work with them or just be a good listener to them and let them come in and vent.”
Your leadership team, and thus the company as a whole, needs to understand what the fuel is that runs the engine. In the case of F.C. Tucker, that fuel is the agents, which is why Litten says it is critical to be plugged in to their needs.
In any business, employers try to retain their top performers. Litten says doing so is even more critical in real estate, as the top performers are usually independent contractors with the option to go elsewhere. Litten uses a sports analogy to make his point.
“Imagine the Indianapolis Colts having a stable of superstar players, with virtually no contracts with them, and those players have the ability to take their talents to any team in the NFL,” he says. “As an owner of the team and coach of the team, you would make sure that you bring value to them every day in what you do and the systems that you put in place, the platform and the tools of differentiation that you give them.
“In our case, if an agent doesn’t like what management is doing, he or she can pick up and move across the street in a New York minute. You don’t want that. Our only real asset is our sales force.”
Use tools to be proactive
Businesses today have to be proactive, says Litten. If they just react to what’s happening around them, it can be fatal.
“And never, ever, ever, ever be satisfied with the status quo,” he says. “One of two things happen in life: you grow or you die. The same thing happens in business. You either grow or you die.”
Business is continually evolving, and if a business tries to rest on its laurels, it will find itself left in the dust, because there is always someone behind you looking to take your market from you.
“Certainly it would be nice to be able to sit back and catch your breath, but business today is just so competitive that if you back off, you become vulnerable.”
To help agents stay on top of trends, changes and sales techniques, F.C. Tucker Co. established Tucker University to offer tools of differentiation for the agents who are interfacing with the consumer and keep the management team’s skills at a game-day level. Tucker University recently started a new sales training class. During classes, Litten usually talks to agents about the company culture, its values and its belief system. He also tells them that the only things they can really control are their attitudes and their activities.
He says that if you can control those two things, you are going to get your share of the market that you are operating in. But if your activity level isn’t top-notch and your attitude is bad — whether it’s because of the economy or worrying about what will happen if the mortgage interest deduction goes away — you will find yourself struggling.
“And if you play the best you can play by being on top of your game every day, you’re going to win,” Litten says. “If you don’t, shame on you; you are going to lose.” ?
How to reach: F.C. Tucker Co. Inc., (888) 588-2537 or talktotucker.com
The Litten file
F.C. Tucker Co. Inc.
Born: Dayton, Ohio. I was raised in a small town called Martin’s Ferry. It’s on the Ohio River by Wheeling, W.Va.
Education: I went to Ohio University on a football scholarship. I studied physical education and was going to be a football coach. When I tell people that, they look at me and say, ‘You’re doing what now?’
What was your first job?
When I was 15, I delivered groceries for a small grocery store in Bridgeport, Ohio. When I became 16, I could drive, so I could go further on the route. I was very blessed. My dad was a salesman for an oil company, and he had a tremendous work ethic. Every morning by 7:30, he had his suit and tie on and was out making calls to steel mills. I also think athletics instilled a discipline in me so that if I were going to get ahead, there were no shortcuts.
Whom do you admire in business?
I have friends in the Realty Alliance. There is a man named Ron Peltier who is president of HomeServices of America, a Berkshire Hathaway company. Ron and I have been friends for 25 years. He’s a good businessman and an exceptionally good person. I have a friend who is a U.S. senator from Georgia, Johnny Isaacson. He used to run a real estate company in Atlanta. I have tremendous respect for Johnny. He is a very, very bright and a very compassionate individual.
What is the best business advice you ever received?
Our office used to be in the OneAmerica Tower (formerly AUL Tower) in Indianapolis. When we bought the company, we were on the 25th floor. My mother and father came up to visit, and my dad was always scared of heights. He walked into my office and looked down. It was shortly after we bought the company. We were sort of all starry-eyed about it, and he looked at me and he said, ‘Son, be nice to everybody on the way up because on the way down, you're going to need friends.’ He was holding on to the side of my desk and looking out the window at the time. My father was just a wise, wise man and just a very good person.
What is your definition of business success?
To be respected by the people who you serve and to be respected by your competitors. You go about doing things the right way, and you treat people the way they are supposed to be treated.
Mark Carr was operating Christian Brothers Automotive in Houston when a Chevy Suburban driven by a woman from Michigan gasped its way in to the repair shop. It was giving off the telltale knock, knock, knock that even novice mechanics know means the engine is dying.
But what infuriated Carr was not the sad shape of the rusted-out vehicle but the fact that the woman had just paid $750 for repairs at another shop, and the engine was still clunking. He smelled a fresh rip-off for the unlucky victim.
“Her husband was disabled, and she was on disability,” Carr says. “She was trying to take care of her husband and was crying. She said, ‘I just paid $750 to get my transmission fixed and the car’s making the same noise that it did before.’ So I patted her on the hand and said, ‘Come on; let me take a look at it.’”
His diagnosis was on target. She needed a new engine.
“But this guy took $750 that this poor woman didn't have to fix a transmission instead,” Carr says. “I got in the car and I drove down to the guy and I said, ‘You know what? The guy who sticks a gun in your ribs in an alley is more honest than you are because at least you know he is stealing from you. I don’t know how you get up in the morning and look yourself in the eye in the mirror. You disgust me. I am going to tell everyone that I know not to come here. I don’t know what you are going to do for this woman because I can’t control that, but you should refund her money.’”
The man just stood there, not knowing what to do with Carr.
“And I left,” he says. “But that is how I stuck up for her. That’s not the only time that I have done that for my customers.”
Did she get her money back?
“I don’t know if he gave it to her or not,” he says. “But I hope he did; I hope I shamed him enough to give the money back. How would you like somebody doing that to your mother, and there was nobody to stand up for her?”
The incident is a reflection of the simple but powerful mission Carr has for his company — love your neighbor as yourself. With Christian Brothers Automotive, Carr’s goal is to distinguish his company in a field in which a number of lesser shops have often taken their lumps for poor customer service.
“A lot of times, you get a customer who walks in the door, and he thinks that you are a crook,” he says. “He may even say it before you even touch his car. It was a challenge for me to change that person’s mind, to show that that wasn't true.”
In 1997, the company began selling franchises that promoted family values. Today, there are 750 employees and 109 franchises in 14 states, and 25 more are in the planning stages.
“I did start out with a partner, and I bought him out about two years into it, so that is where the ‘Christian Brothers’ came in, using my Bible study,” he says about one of the most frequently asked questions.
Here’s how Carr, president and CEO, set Christian Brothers apart from other companies in a field that is often viewed suspiciously and how he generated $160 million in revenue in 2012.
Walk in another’s shoes
Not every company is founded upon what you might call a divine “nudge,” and other types of inspiration have led entrepreneurs to found enterprises. But no matter where the inspiration comes from, if that nudge becomes the heart of your company — and if you believe the company will only continue through a strong connection to that inspiration, superior customer service and a spirit dedicated to strengthening the community — you will be successful, Carr says.
He founded Christian Brothers Automotive in 1982 with the help of fellow church members, after he spent months praying about how he should change his life. One of the first steps he took to stand out above the rest was to take inventory of market perceptions of the industry.
“I sat down and I made a list of 20 reasons why people hate to get their car repaired,” he says. “I went through every one, checked off all 20 on that list and said I can solve every one of those.
His first goal was to be a light in the community. To do that, establish your operation as fair and reliable, he says. When you make honesty and integrity the foundation of your business, word gets around. Word-of-mouth is everything, and it spreads rapidly, be it positive or negative.
“People are talking about us, which makes me proud in a good way,” Carr says. “It’s all about, ‘Love your neighbor as yourself.’ That is our motto. Whatever race, color, creed, country — no matter where you’re from, everybody wants that.”
Another “image lifter” was a new design scheme. Carr created a positive culture shock when he installed an upscale home-charm décor that includes hardwood floors, leather couches, artwork and decorative lighting in the waiting rooms. The scheme was a hit among women, who had a negative perception of dingy auto shops and the possibility of questionable practices.
Don’t skimp on training
Training is a large part of jobs today, and few organizations can afford to skimp on educating their carefully selected employees. In service-related businesses such as car repair, a business often comes out ahead if it starts with a manager or executive who doesn’t have skills in the service field but instead is strong in business operations, Carr says.
“We do not want any of our franchisees knowing anything about cars,” he says. “If they know about cars, they can be in the running, but 90 percent of the time, we turn them down. We turn down by probably a 2-to-1 ratio.”
Instead, for his company’s franchises, Carr looks for businesspeople who know how to manage people and manage money. To get around their lack of knowledge of the industry, Christian Brothers hires all the employees for the new franchisee because that person doesn’t know what to look for. Then, after about a year, that person will have a better understanding of what to look for, says Carr.
Because no amount of training can address every possible task or situation for a new manager or executive, the education process has to be as thorough as possible.
“We go through extensive training with these people,” Carr says. “I actually have an exact replica of what my store looks like inside my office. It’s got the lobby and all the point-of-sale software so they are in the environment that they’re going to walk into. It is exactly the same — the waiting room, the counters, the whole thing.”
Carr has employees play the roles of customers during training sessions, both good customers as well as mean ones.
“We banter with the trainees to see how they are going to handle that particular situation,” he says. “We are in a lousy business. People are already walking in thinking we are crooks if they are a first-time customer. You just try to deal with it the best you can. If we screw up the car, you say that you were wrong, you take it back in, you fix it.”
Build an image of a cheerful giver
Companies that have become a better corporate citizen in the community are not likely to abandon those efforts, as the good will they achieve can’t be bought at any price. That good will can be especially beneficial in an industry segment that has taken its licks over the years.
And while Carr says a company can offer any number of promotions, those that have staying power in a consumer’s mind are optimal.
“I have a tremendous heart for single moms,” he says. “We hold a nationwide day for free oil changes for single moms. We served over 1,000 people last year. We hope to make it double what it was last year.”
Such events build the image and the brand of your company, but it can’t just be the event. Your core values of honesty and integrity have to be woven into the event or it may come across the wrong way and damage your image more than it will help it.
“It is not to get business,” Carr says. “It’s just to show who we are as a company and who I am as the leader of this company.”
Hosting philanthropic events making contributions and donations to the community result in positive feelings about the company not just from the community but from the employees, as well. Carr says Christian Brothers give away 10 percent of what it grosses across the entire company, donating to charities and other organizations.
“On the 30th of the month, when I call the controller and ask how much money do we have in the account to give, that’s the day I am the happiest,” Carr says. “I love it. I just love it.
“If you give from your heart, He blesses you 100-fold, and that’s what He has done with me.”
How to reach: Christian Brothers Automotive Corp., (281) 870-8900 or www.cbac.com
The Carr File
President and CEO
Christian Brothers Automotive Corp.
Born: Syracuse, N.Y.
Education: I barely made it out of high school. There were 32 kids in my class and I graduated in the top 30. I skinned out, although I did get accepted at three of the top art schools in the Northeast.
What was your first job?
I had a paper route when I was about 10. I used to clean toilets in a bar before I went to school in the morning, and I was a garbage collector on the back of a truck because I refused to collect unemployment. I also delivered fuel oil in upstate New York in 20 degrees below zero weather.
Whom do you admire in business?
Herb Kelleher of Southwest Airlines is one of the smartest businesspeople that I read about. The guy is so smart. All his planes are the same. The maintenance is low. He treats people well. It’s not flying first class, but they treat you well. The customer service, everybody’s got a smile. Nobody likes to fly anyway, but I just think that his whole philosophy, his whole concept of business and his making it so practical in the industry – he’s the only one out there that’s profitable. I also admire Lee Iacocca. He took something that was a mess and turned it into something that was good. I think that is why I like what I do. I’m trying to take something that is really crummy and make it into something decent. And it works so far.
What is the best business advice you have ever received?
My dad said to me, ‘Mark, credit is everything. Pay your bills, pay your employees and pay yourself last.’ I think that’s been really good advice. The credit has gotten us where we are – never defaulting on any loans. He was right. I have paid myself last, and not very much. There wasn't much left. But it took care of the employees.
What is your definition of business success?
It’s not size. It’s getting to a point where you don’t have to worry about paying your bills, you don’t have to look over your shoulder to worry that something is going to come up that you did dishonestly. You really enjoy getting up in the morning and going to the office. And if it is one employee or 1,000, it doesn’t really matter. Just because you are bigger doesn't mean you are more profitable – if you make $1 million a year and your expenses are $999,999, you didn't make any money.
During the first four years of his now decade-long stint at the helm of Tenet Healthcare Corp., Trevor Fetter spent a lot of time putting out fires. The company was embroiled in a couple of delicate litigation issues left over from its previous regime, and those cases drained the newly appointed CEO’s energy and focus.
Unfortunately, the legal entanglements left Fetter with little time to address a significant problem that had begun to affect both his company and the health care industry at large: a long-term growth slump that began in 2003 and persists to this day.
“From 2003 to 2006, I was focused most intensely on fighting fires and resolving legacy problems,” Fetter says. “But you could see the early signs of the slowing of growth in our industry around the beginning of 2003.”
The slowdown was largely being driven by a conscious initiative of employers and insurance companies to reverse the tide of ballooning health care costs. Companies were beginning to shift a portion of the health care costs they had traditionally borne onto their employees by increasing out-of-pocket payments such as co-pays and deductibles.
“Behind the scenes, employers’ HR departments were fixated on the percentage of total health care costs being borne by the company versus the employee,” Fetter says. “They were trying to move it from, say, an 80-20 ratio to a 70-30 ratio. And that made a big difference in the take-home pay of employees across American industry.”
It also started to make a dent in the revenue of companies such as Tenet, which owns and operates 49 hospitals and about 100 outpatient centers in 11 states and generated $9.58 billion in revenue in its most recent fiscal year.
“That and other factors have resulted in a prolonged reduction in the growth rate for our industry,” Fetter says. “And if that weren’t enough, when the recession came along in 2008, the suppression of growth expanded, and it has persisted. So our big challenge over the past few years has been how to overcome these pressures against growth.”
Tenet has faced that challenge by launching a handful of initiatives that, taken as a whole, have transformed the company into an innovator and a model for a more sustainable way to deliver health care services in the coming decades.
React to shifts
The first of these new programs, kicked off in 2007 and was dubbed the Target Growth Initiative. The program’s goal was to revise the Tenet hospitals’ menu of services to better fit the changing demographics of their communities, thus making them more competitive in their markets.
“What we did was to deconstruct our hospitals and look at them as a collection of service lines within a fiscal infrastructure,” Fetter says. “When you look at a hospital that way, you realize that some of the services you’re providing to the community are in a permanent state of decline, generally fueled by demographic trends.”
As an example, Fetter cites a hospital serving an aging community. In that type of market, the demand for maternity services will naturally decrease while the demand for cardiac services will naturally rise.
Tenet’s Target Growth Initiative enabled it to get out in front of these types of trends by investing more in service lines for which the demand was growing, even though that often came at the expense of cutting service lines for which the demand was shrinking.
“An example of this was at one of our hospitals in Los Angeles where they needed more space for operating rooms and equipment related to treating cardiac disease, while they had excess capacity for maternity and obstetrics,” Fetter says. “Another factor we had to consider is that in Los Angeles it takes forever to get permission to change a physical facility. It’s very difficult and very expensive.”
Tenet’s leaders also realized that there were competing hospitals nearby that had large, established maternity and obstetrics departments. So the company solved the puzzle by shutting down its maternity services at the Los Angeles hospital and using the freed-up space and resources to expand its cardiology capabilities.
“We repurposed those facilities to satisfy the need of the growing cardiology business,” Fetter says. “A change like that can make a huge difference if, for example, someone is having a heart attack. It might shorten their ambulance ride by 10 to 15 minutes. That can make a real difference in saving lives.”
Another program launched by Tenet in 2008, the Medicare Performance Initiative, is aimed at motivating physicians to standardize their treatment methods to cut costs, increase efficiency and improve patient outcomes.
Fetter and his team put together this initiative to address a number of inefficiencies they had observed both at Tenet’s hospitals and at other health care providers’ facilities: wide variations in the treatment of patients with the same condition, physicians ordering duplicate tests, overuse of supplies, keeping patients hospitalized longer than necessary and keeping patients on medication longer than necessary.
“Basically this initiative, which is ongoing and permanent, is a massive exercise in collecting data in order to show physicians that there’s tremendous variation in the ways they treat one person versus another who have the same medical condition,” Fetter says.
“In our business, lower cost usually equals better quality. Getting somebody out of the hospital sooner is better than leaving them in longer. You get them active again; you get them out of an environment where there are other sick people. The same goes for excessive amounts of tests and medications and everything else.”
The result at Tenet’s hospitals has been a gradual standardization of physicians’ patterns of care and treatment and the emergence of a set of best medical practices.
“What we are trying to do is to look at those variations, and where the variations do not help patients or help the cost of care, we are addressing them,” Fetter says.
With a system as large as Tenet’s — the company estimates that its hospitals and treatment centers amass 4 million patient encounters a year — the resulting standardization and efficiencies have produced a bounty of positive results for Tenet.
“We’ve had some staggering results,” Fetter says. “From 2009 to 2011, we saved $145 million. And we project that over a six-year period, going all the way through 2015, the cumulative savings will be about $375 million. So we’re talking about a tremendous amount of money.”
Go inside out
Among the other initiatives Tenet has launched in recent years, the company in 2008 formed a subsidiary, Conifer Health Solutions, to offer revenue-cycle services and patient communications to other hospitals and health care providers.
“Conifer represents a significant part of how we’ve dealt with our growth challenge,” Fetter says. “The idea for this came from the recognition that our company — and our headquarters in particular — was basically a service center serving 50 hospitals across the United States with a variety of services, and there was no reason we couldn’t provide those services to hospitals other than ours — and that this could be a vibrant business for us.”
The Conifer subsidiary has indeed proven to be a vibrant business for Tenet. Bolstered by several acquisitions, the fast-growing unit now serves almost 400 health care entities across the United States.
“Sitting here today, we have built the leading company in our industry that serves hospitals in the revenue cycle,” Fetter says. “This company that we started out of Tenet is on track to do more than $150 million a quarter in revenue, and it’s growing very rapidly.”
A lesson to be drawn from Tenet’s Conifer venture is that business leaders would be wise to keep their eyes peeled for opportunities to convert an in-house service into an outside revenue generator.
“The idea for taking these services outside of our company really germinated here within the leadership of our company,” Fetter says. “I’d had some prior experience doing something similar to this, and we decided to take it outside in a serious way at the beginning of 2008.
“So I’d advise other CEOs to examine the skills you have within your company and ask yourself if those skills can be used as a stand-alone line of business. That’s a concept that could work well in a lot of different markets.”
Ultimately, Fetter attributes his company’s emergence as an innovator in its field to his leadership team’s laser-like focus on Tenet’s customers’ needs and wants.
“It’s imperative to understand your overall business environment from the customers’ perspective,” Fetter says. “There’s no point of view more valuable than your customers’ point of view.”
To reach that point, Tenet’s leaders had to accept that the company’s customers were dissatisfied with both the high prices and the low quality of the services they were receiving and then put together an action plan to deal with that blunt realization.
“Our strategy for addressing that was to institute major improvements in quality and to attack our costs aggressively so that we could provide a cost and quality advantage relative to our competitors,” Fetter says. “That’s applicable in any business. You have to understand the customers’ point of view, understand what your competitive advantages and disadvantages are, and design strategies in order to build competitive advantage.” ?
How to reach: Tenet Healthcare Corp., (469) 893-2000 or www.tenethealth.com
The Fetter File
President and CEO
Tenet Healthcare Corp.
Born: San Diego, Calif.
Education: MBA, Harvard University; bachelor’s degree in economics, Stanford University
Looking back at your years in school, can you identify a business leadership lesson you learned there that you use today?
The most important thing that applied to business and to my work is fact-based analysis — the importance of seeking the facts and trying to make decisions based at least partially on factual analysis. In the end, it doesn’t mean that every decision can be reduced to something analytical and quantitative, but you ought to have the best possible fact-based information you can get before you make an important decision.
What was your first job, and what business lessons did you learn from it?
My first job out of college was as an analyst in an investment banking firm inNew York. Among the lessons I learned, and this sometimes drives some of my colleagues crazy, is the importance of making a great presentation and having it be accurate and delivering it on time. When you’re in a customer service business, presenting your ideas in a coherent, persuasive and high-quality way is really important.
Do you have a main business philosophy that you use to guide you?
I think it’s embodied in the values we have at Tenet, which are very transparent: The patient comes first; having integrity in everything we do; and the fact that we don’t mind being measured. We are eager to provide quality data to every legitimate organization that wants to measure it. We welcome that degree of examination and transparency.
What’s the best advice anyone ever gave you?
One pithy bit of advice came from a gentleman early in my career, a wise investment banker whose name I can’t remember. He said, “A perfectly good way to answer to a question is, ‘I don’t know, but I’ll find out.’ ”