Al Bell saw the future for Moochie & Co,. and it looked quite promising. It was 2008 and the pet supply retailer was about to close a transaction with a private equity firm that would have made available significant growth capital.
And then suddenly, the opportunity was gone.
“Due to the stock market and economic conditions, they walked away,” says Bell, the 102-employee company’s CEO. “They put us in a difficult situation with our lender.”
At the time, Bell was part-owner of the business. He owned 35 percent, a partner owned 35 percent and seven other investors owned the remaining 30 percent. Bell knew his business had growth potential, so he made a bold move to basically go it alone. He felt it was the best path to realize the potential he saw.
“I’m a strong believer in the company and our niche in retail and the growth of the pet industry,” Bell says. “That led me to essentially acquire full ownership of the company, renegotiate our store leases and really focus on cutting expenses.”
Expense reduction was critical. Bell wanted to take things back to square one and be a whole lot more careful about how money was being spent.
“Instead of accepting the historical expense model as a given, we built our expense structure from the ground up and really challenged and explored every expense,” Bell says. “We also asked the entire organization to accept the challenge and bring forward their best ideas, and we acted upon the better ones.”
When looking at expenses, you need to separate fixed costs from variable costs.
“We looked at every variable expense and we said, ‘Is there a way to control that?’” Bell says. “In our case, we’re looking at the percentage of revenue spent on a given expense at a particular store. So if utilities were excessive at a given store, you went in and tried to discover why that was and if there were opportunities to reduce it.”
You also need to get your employees involved to make any initiative effective.
“I very clearly set out specific objectives for the company, one of which was expense reduction,” Bell says. “It was a detailed review of the full-year profit and loss statement on a unit-by-unit basis and then a line-by-line basis. You begin to decide what are truly variable expenses that can be attacked as compared to fixed expenses that you have to accept.”
Bell did not hold back when explaining the importance of this investigation into expenses.
“One of the rallying cries I shared with the group is, ‘You may have bigger jobs at some point in your life, but you’ll never have a more important job than you have right now. We’re talking about the survival and potential success of a small company of which you are an integral part,’” Bell says. “I believe the team really embraced the opportunity to play a vital role.”
The result of Bell’s effort was a new business model that everyone at Moochie & Co. strongly believed in.
“We started with very modest revenue increase expectations and then examined every expense line carefully,” Bell says. “As the leader of the business, it fell to me to make the difficult decisions.”
The tough choice was two stores in Detroit had unacceptable occupancy costs and needed to be closed. But that proved to be only a bump in the road as the company soon was in a position to begin growing again as the economy began to recover.
The company had gone from 10 stores to eight, but it now has 12 stores and 20 Mini-Moochies at pet boarding resorts and veterinary clinics.
“Our major expenses have been brought down to affordable levels, and we have a culture within the company of challenging every expense and trying to reduce every dollar spent,” Bell says.
How to reach: Moochie & Co., (877) 666-2443 or www.moochieandco.com
Find your leaders
Al Bell wanted to reduce expenses at Moochie & Co., so he needed to find out who was ready to march with him on his quest.
“I’ve always believed in management that you need to articulate the goals, share as much information as is reasonably possible and then listen and be receptive to suggestions,” says Bell, CEO at the pet supply retailer. “It is a process that allows you to really learn who is with you and who is not.”
When you are open about a plan and forthcoming with details, you’ll be able to see who is buying in to the plan and who isn’t interested.
“Be brief, be clear and be consistent,” Bell says of your communication strategy. “You ask a lot of questions and give encouraging responses when people contribute.”
When you’re having a meeting, give people a clear sense about what it’s going to be about.
“We actually prepared and promoted the meeting for two months prior and gave people topics and an agenda and really tried to set the tone that it was going to be participatory and not a monologue,” Bell says.
In January 1877, Cornelius Vanderbilt passed away. The richest man in America at the time, the shipping and railroad magnate’s estate was worth around $105 million — at least $150 billion in today’s dollars. “Commodore” Vanderbilt, as he was known, remains the second-wealthiest American in history. He may even have been the world’s first self-made billionaire.
His secret? It’s simple; he saved on expenditures.
“I have never had any advantage of anybody in running steamships,” Vanderbilt declared in 1869, “but if I could not run a steamship alongside another man and do it as well as he for 20 percent less than it cost him, I would leave the ship.”
Regimented cost-management may not sound exciting in today’s high-speed, whiz-bang world, where innovation and the next new thing tend to garner more attention than the basics. But running a tight ship remains a viable core strategy for many businesses, large and small.
Take Southwest, Geico and Wal-Mart. They’ve based their entire strategy on a low-cost/low-price basis. Why? Because when it comes to air travel, insurance and household goods, price really matters to the target customer. As long as the target customer doesn’t feel she’s giving up much in terms of the experience, she’ll patronize these businesses for the savings—and the lower the prices, the more compelling the value in her eyes.
Businesses like these often aggravate competitors, because their low prices force competitors to justify their own fees. Customers start wondering what benefit they get from paying a higher price. If the higher-priced competitor can’t answer that question persuasively, it won’t be a competitor for long.
But to consistently sell at low prices, a successful business must remain the low-cost operator in its segment; otherwise the low prices become unsustainable. How can you maintain a lower price than your competitors if your costs are as high as theirs?
Low-cost producer status can’t be attained or maintained through minor nips and tucks. To the contrary, it requires a constant, rigorous seriousness of purpose. Examine your entire operation for creating and delivering your products or services to your customers. Look step by step, function by function, and ask yourself if your customers get more value out of each element than it costs you to include it. Distinguish between expenses that drive near-term revenue and those with more distant payoffs. How confident are you that these investments will ever pay off at all?
At Branders, after we took ourselves through this exercise three years ago, we eliminated what had been our largest single division: our Order Management Specialists, or OMS. It wasn’t that our OMS employees weren’t performing their jobs well. What we realized was that the job they were doing was not one our customers valued enough to cover its cost. When we eliminated the OMS role, our customers never missed it.
Warren Buffett’s longtime partner, Charlie Munger, once suggested that the key to success is to, “Take a simple idea and take it seriously.” Transforming your business into the low-cost producer among your competitors is about as simple as ideas come. But it is exceedingly powerful.
And if you’re not trying to offer your customers low prices? Then take out the unnecessary costs and reinvest the extra profits in faster growth — or simply bank it. No business ever failed because it was run as a tight ship. And more than a few have flourished.
Jerry McLaughlin is CEO of Branders.com, the world’s largest and lowest-priced online promotional products company. He can be reached at JerryMcLaughlin@branders.com.