Customer crash Featured

9:48am EDT July 22, 2002
The owners of Mathews Printing bought into the old sales idiom that it’s cheaper to sell more to existing customers than to develop new ones. That strategy almost cost them the company. Here’s the company’s hard lesson in customer diversification and how it recovered.

Paul Mathews, president of family-owned Mathews Printing, almost hates to admit it, but the fact is, he never saw it coming.

He’s not talking about the back-to-back fires that virtually shut down the business for five months. Or the slow response by the insurance company to settle the damage claim. Or even the substantial loss of customers as a result.

Rather, Mathews, 46, is referring to what happened when he and two of his brothers decided to aggressively target their remaining customers for more work to quickly make up for lost time, instead of going after new customers. The strategy worked wonders, he says, right up to the moment in early 1997 when the company suddenly lost two customers — and 10 percent of its revenue.

The loss was enough to put Mathews Printing into the red over the course of its next fiscal year. All things considered, though, it may have been the best thing to happen to the 30-year-old business. After all, the company was in serious need of overhauling its sales and operations strategies anyhow.

The sudden loss, therefore, became the company’s much-needed catalyst for change. And the Mathews family accepted the challenge, taking steps that brought the company back to what appears to be a full recovery.

“I knew we were going to pull it off because we had no choice,” Mathews says.

Here’s what happened.

Putting existing customers first

Paul Mathews’ mother, Mary Ann Mathews, started the company in 1969 as a quick-print operation and built it into a full-service printer that now can print full-color brochures, direct mail, bound books and other office communications. Paul and his brothers took over five years ago, facing two fires along the way.

After the second fire in the early 1990s, Paul Mathews says, rebuilding proved costly, especially since it took a long time for the insurance company to settle its claims. That meant tapping its own cash to rebuild its facilities and sales.

“During that time, cash was very tight, because we were down for so long and customers had started to go elsewhere,” Mathews says. “As we recovered from the fire, we didn’t have the capital we needed to recruit and keep good sales people. In fact, we lost three very good people [during the shutdown].”

That’s when Paul and his brothers, Brian and Bob, decided to focus on what Paul calls a classic strategy — leverage existing accounts to increase sales.

“It worked wonderfully,” Paul Mathews says. “We could become more efficient producing their work because we got to know their needs, and we were making money. All was well and good at Mathews Printing.”

That is, until January 1997, when one of the company’s larger customers suddenly went out of business and liquidated its assets. While Mathews Printing got its money, it lost 5 percent of its revenue and, perhaps more important, a steady stream of work.

Paul Mathews’ reaction? “It was, ‘Holy cow, 5 percent of sales disappearing in one month.’ When one spends several years building accounts with existing customers, one doesn’t replace them overnight. It takes about a year to develop such a regular customer.”

Still, he and his brothers stuck with their original strategy.

That lasted until March of that year, when a customer that represented about $100,000 worth of business annually for Mathews faced a change in management. The company decided to shop around its printing needs and left Mathews’ sheet-fed printing presses for a larger web press. That loss, coupled with the first one, added up to more than 10 percent of the printing company’s business.

“I tend to be a very optimistic person, and, faced with a challenge, I tend to figure a way out,” says Paul Mathews. “But when the second event occurred, I was just plain old numb. We then laid off some people and looked at every penny 200 times.

“We became reluctant to invest our precious cash into new technologies so that we could stay afloat. Suddenly we had to retrench.”

That June, the company’s fiscal year ended with “a little money,” but by the next fiscal year, Mathews Printing “lost a lot of money,” Mathews says. “For all intents and purposes, it was lost sales from those accounts.”

New sales strategy

Even before the major loss, Mathews and his brothers finally faced the fact that they were in a crisis.

“At first, we didn’t want to believe it,” he says.

So what made him a believer?

“The checkbook balance. It’s when you start to think about using your line of credit to cover losses.”

Mathews admits that overcoming such devastation took lots of time and effort over the next year, but it’s an effort that has carried the company back into the black and, ultimately, set it on a stronger long-term growth track. To get there, his steps included:

1. Scrapping the existing-customer-only strategy. Mathews realizes now that such a strategy by itself wasn’t prudent, since it ignored the prospect of adding new customers. That left him vulnerable to losses when even a small number of customers went elsewhere.

“To this day, I believe fervently that it’s a good strategy, but just not as a mutually exclusive strategy, and we made it a mutually exclusive strategy,” Mathews says.

Larry Lewis, president of sales consulting firm Total Development Inc. in the North Hills, likens the strategy to fishing for marlins. They take a long time — and an extreme amount of effort — to catch, and when you do, the fish will “feed your family for a month,” he says. On the other end of the spectrum is the snapper, which is plentiful and easy to catch, albeit a bit messy. In between is the sailfish, which is large but not as large or difficult to catch as the marlin.

“The moral is you have to have a balance between little fish, medium-sized fish and big fish,” Lewis says. “It’s an issue of having a balance of customers. If you only have 10 accounts, it’s not a good strategy to just expand the business you have. But if you have 1,000 accounts, you shouldn’t have a problem.”

2. Developing a disciplined outbound sales program. Mathews says the program took roughly 10 months to implement and included him and his brothers aggressively seeking new customers whose average printing requirements totaled roughly $1,500 per order. That’s up substantially from the old days, when the average order was about $80, he says.

“It was time consuming, but it was something we should have had in place for years,” Mathews says.

3. Putting the Mathews brothers in the forefront to sell. “That made a huge difference in getting new customers,” says Paul Mathews. “Customers now can go right to the owners, and I try to have more contact now on a day-to-day basis and try to manage the sales process.”

4. Seeking outside advice. One of the smartest things Mathews says he did was to seek advice from a number of printing trade organizations and, finally, a paid sales consultant from Washington, D.C. The consultant cost the company a “couple thousand dollars,” but Mathews says the price was small compared to the results.

“The one thing about consultants is they rarely come in and enlighten me with new information,” Mathews says. “But they usually help me come to grips with what I already know. He helped me to rethink the marketing of Mathews Printing.”

5. Turning over operational control to other employees. To make the sales effort work, Mathews had to turn over day-to-day control of the operational side of the business, including cash management, production schedules, production planning, etc., to other employees

“Initially, I wasn’t comfortable letting it go because it was change,” Mathews says. “It was too easy to keep doing it myself. And I didn’t think other employees could do it as well. But they did. And sometimes they did it better.”

As part of that transition, Mathews hired an experienced production manager who “lent a degree of maturity and experience that I think we lacked,” he says.

Mathews acknowledges that this sales strategy will run its course as the company grows, so he already is planning to add more sales people and further refine the strategy over the next year. He’s working on making the order processing effort more efficient.

The result, says Mathews, is that Mathews Printing is on target to be ahead for fiscal 2000, with sales already 15 percent ahead of the previous year’s.

Did Paul Mathews learn his lesson? He says he has, and then some.

“The markets do change, and we have to remain a nimble and alert company,” he says. “And while we may have our setbacks in the future, we want to make sure we’re strong enough to respond.”

How to reach: Mathews Printing, (412)201-1147

Daniel Bates (dbates@sbnnet.com) is editor of SBN.