Always Remember the Core

September 30th, 2015

A summary of the dinner conversation at the Gale household last night:

“Dad, what music was popular when you were my age?  What did you like to listen to?”

“Let me think.  I liked U2 and Bruce Springsteen.  Michael Jackson was really popular.  So was his sister, Janet.  I liked Toto too.”

“What about the Rolling Rocks?”

“Rolling Rocks?”

“You know – the guy that Jimmy Fallon impersonates.”

“Oh, you mean the Rolling Stones and Mick Jagger.”

“Yeah – whatever.  Rocks, Stones – aren’t they the same?”  (I almost digressed into talking about the beer that was popular in my younger days but I didn’t think that would endear me to my wife.)

“Well, I like the Rolling Stones but I don’t think I listened to them much when I was your age.”

Curiosity got the better of me so I started looking at songs that were popular when I was around 10 years old.  One of the biggest hits was “99 Luftballoons” by Nena.  The song still gets some play on oldies stations now (ugh).  Yes, I sing along and despite a year of college German, I still mumble through the German lyrics.  I don’t think Nena had another hit song after her mega hit.  The Rolling Stones just finished a North American Tour – 53 years after the band started.  Wow.

I’ve written about short term and long term thinking before and the need to balance them in order to be successful in business (and life).  But our light-hearted dinner conversation got me thinking about something else.  The Rolling Stones have had members come and go (unfortunately in some cases) but the core band has stayed the same.  Mick Jagger still struts and belts out lyrics.  Keith Richards still strums that guitar.  Charlie Watts is still keeping the beat on the drums.  People still pay to see them perform.  Sure, part of that is people trying to relive their youth but they’re also cultivating new generations of fans.  The Stones continue to prosper because they figured out that their core competency and advantage is touring.  They maintained a strong relationship with their core fan base and have added fans along the way.  They haven’t released a studio album since 2005.  They know what works and stick to it.

Every business has a core competency.  Focus on yours and with a little luck, your business might still be going strong after 52 years.

Don’t Fear the Pessimists

September 22nd, 2015

In case you missed it, the Federal Open Market Committee (FOMC) did not raise interest rates last week, saying, “ Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.”  (  As the financial markets continue to gyrate, more and more talking heads tell us to be concerned about a recession or, even worse, deflation.  Fear not, neither is happening in the US anytime soon.  (A small mathematical note:  the talking heads love to talk about the large daily point drops in the Dow Jones Industrial Average.  There have been some large point drops lately.  Not one of the large recent fluctuations comes close to being in the top 20 of daily percentage losses in the index’s history.  (  Remember: there are lies, damn lies, and statistics.)

Look around.  I’ve been in five US different cities in the last two weeks and four of the five had at least one construction crane in the air.  We recently signed a “take it or leave it” lease for a new location (more news coming soon).  If we didn’t sign, there were at least three potential tenants lined up after us.  Most importantly, check out the unemployment rate.  Yes, the government adjusts the formula and creates incentives for people to drop out of the workforce.  Yes, the cash economy continues to grow, keeping people from getting jobs in which they pay taxes.  But talk to anyone hiring on any level and they will tell you it’s tough to find people.  There are unfilled jobs everywhere.  Wage inflation doesn’t start with a minimum wage increase or raising salaries for entry level jobs.  It starts when employers raise wages to protect their valuable employees from someone else.  That’s coming soon.

Is China a concern?  Yes.  But maybe there’s a silver lining.  Maybe, just maybe, people will realize planned economies don’t work.  (Are you listening Bernie Sanders?)  Wasn’t Japan supposed to take over the world 30 years ago?  Even just a few years ago, remember the BRIC (Brazil, Russia, India, China) mania?  Three out of four have major problems.  But talk to people who do business in Europe.  The economy there is improving.  The US is doing fine.  Could things be better?  Of course – things can always be better.  And they will get better.

It’s important to live in reality.  But as the old saw goes, people view the glass as half full or half empty.  Technically, both groups are correct.  But I’d rather count on the people whom view the glass as half full than a group of pessimists every day.  The choice is yours.


Don’t Let the Tail (Technology) Wag the Dog (Your Business)

September 14th, 2015

Everyone loves technology and every business prides itself on keeping up with the latest technology.  Implementing technology is great but it’s got to be factored into your overall business and you must adjust how your business operates in order to take full advantage of technology.

We invited some friends over for a last minute get together.  That required me to go to the grocery store and buy a vegetable tray.  Apparently having a vegetable tray would make us appear to be good hosts and provide a healthy alternative to the cocktails and cheese plate.  I brought the vegetable tray home.  When I opened it, it smelled terrible.  So we had to subside on cocktails and cheese and crackers.  No one complained.  The vegetable tray wasn’t cheap so I decided to take it back.  I went to the service counter at the store.  Because the item was over $5, I needed to present an original receipt to get my money back in the manner in which I paid.  Otherwise, I would have to fill out a form and get a store credit.  I used their new technology – I had the receipt emailed (my apologies to my friends in the receipt paper business) so I didn’t have a paper receipt.  I showed the clerk the email of my receipt.  She was polite but firm, “Sir, I need the original receipt.  It’s our policy.”  I really wasn’t in the mood for a circular argument so I took the store credit.  Had I gone to return the item the night before after a few of those cocktails, it might have been a different story!  Fortunately, we frequently shop at the store, although the bad veggie tray is making us rethink our choice.

I have an idea of how this happened.  Someone in corporate did a mind-numbing analysis of how much money the chain would save if it offered electronic receipts, not to mention the “green” aspect they could promote.  I can already here the committee saying, “It’s a no-brainer to switch to e-receipts.”  No one asked the question about how it impacts their policies.  Even worse, no one has asked the question about how to use the technology they already have.  I have a loyalty card – they know more about what I buy than I do.  Why not use that information to handle returns?  Technology can’t get used in a vacuum.  Too often, we let great salespeople sell us on features of a product or we let our IT departments build things because they can.  Someone has to take a step back and look at the overall picture.  It’s easy to look at spreadsheets and make decisions.  I am firmly in the camp that numbers don’t lie.  But numbers don’t tell the entire story either.  Make sure you understand what a seemingly positive change created by using technology will have on your business.


Embrace Volatility

September 8th, 2015

One of the lasting impacts of the economic downturn is the volatility we face in managing our businesses.  We’ve seen volatility in financial markets recently and it causes us concern.  Seeing those big negative numbers makes us weary.  Remember – volatility creates opportunity.  It isn’t easy, but you should use volatility to your advantage.

Think about the increase in volatility in your business.  One of the appealing things about being in a consumable business is it’s pretty predictable.  People need labels and they need them consistently.  I used to think that.  The data used to support that.  Since the great recession, however, that’s changed. No longer are orders consistent.   I’ve written a lot about the lack of predictability in our business.  Our bookings and corresponding sales vary dramatically day to day.  We have daily fluctuations of plus or minus 75% from our average daily bookings.  The average booking number is going in the right direction (up) but the variance has increased dramatically over the last few years.   The gray hairs appearing on my head are a direct result of these fluctuations.  (It has nothing to do with age.)  It’s not easy to manage fluctuations like that.  But it is necessary.  We’ve had to rethink how we handle surges in orders.  Giving customers longer lead times isn’t the right answer.

The recent volatility in financial markets probably made you rethink your 401k allocations.  While that’s important, it’s probably not as important as rethinking your business.  Spend some time thinking about how you can help your customers deal with fluctuations in their businesses.  Just as investment managers sell products that (supposedly) reduce volatility, you can do things that reduce volatility in your customers’ lives.  They’ll be appreciative and might even pay for them.

Raising Interest Rates Isn’t the Issue

August 31st, 2015

In addition to the issues with China, one of the factors cited by experts as to why financial markets have been volatile is the possibility the Federal Reserve will raise interest rates in September.  For the most part, the pundits like to pontificate that raising interest rates will lead to a decrease in investment which will ultimately slow the economy down.  Let’s do a little math lesson:

Let’s say I want to buy a piece of equipment that requires me to borrow $1,000,000.  For simplicity’s sake, let’s assume my friendly banker charges me 5% interest.  (Tricia – if you read this, that’s way too high!).  My interest cost is $50,000 a year (assuming no amortization).  Let’s assume the Federal reserve raises rates 0.25% (the rumored amount).  That increases my interest rate to 5.25%.  I will now pay $52,500 in interest, a whopping $2,500 more than I would have paid.  $2,500 is $2,500.  But I’m not making an investment decision of $1MM based on twenty five hundred bucks!  My point is, a slight increase in interest rates is going to have zero impact on business investment.  Might a rise in rates prevent people from buying homes?  I think it might prevent them from buying homes they can’t afford in the first place.  I don’t think that’s a bad thing.

I talk to a lot of business owners on a regular basis.  There are two big reasons investment is still lower in this stage of an economic cycle.  First, the great recession scared people.  A lot of people got very hurt and are still skittish.  There is still a lot of capacity in many industries – I wrote about the paper industry rationalizing capacity last week.  Many industries need to do the same (including labels).  Secondly, the regulatory burden on businesses gets worse virtually every day.  This isn’t a political issue; it’s a way of life issue.  The US is headed down the path to becoming Europe: slow growth and a lot of bureaucrats running around telling us what we can and can’t do.  Businesses fear the unknown.  The current regulatory environment creates unknowns.  I don’t know what my regulatory burden will be on an investment right now.  That’s why businesses aren’t investing.  Increased regulation puts a much bigger cost on business than interest rates.  Monetary policy can’t compensate for poor regulatory policy.  If we continue down this path, get ready for stagflation.



The World Is Ending.  Again.  Or Maybe Not.

August 25th, 2015

As I write this, stocks are poised to rebound this morning after closing down quite significantly over the last few days.  While the rebound won’t get the market back to recent levels, it’s a start.  I have borrowed some analysis provided by First Trust that came out yesterday.  Brian Wesbury is an economist I follow closely.  Here’s what he had to say and a link to the full commentary is provided as well.

Shorts get power from fear and confusion, and nothing creates fear like the belief that market declines are being caused by some fundamental problem.

We don’t see any serious fundamental problems.

1 – Private sector jobs have increased for 65 consecutive months. There is unambiguous improvement in housing and construction taking place. Auto sales are near record highs, and rising. Yes, it’s Plow Horse growth, but profits, outside of energy, continue to grow. Using total profits, or forward-PE ratios, which include the drop in energy profits paints a distorted picture.

2 – Since the crisis of 2008, pundits have convinced themselves that the bull market in stocks is because the Fed, and Quantitative Easing, have created a “sugar high.” By definition, taking away the sugar is painful. But, there is no “proof” that QE is responsible for record high corporate profits. M2 (the money supply Milton Friedman told us to watch) has continued to grow at about a moderate 6% per year.

3 – Even though tapering didn’t end the world, now they say rate hikes will. But, seriously, is there anyone out there who thinks a 0.375% federal funds rate will stop the iPhone7 from being introduced? There are still massive amounts of excess reserves in the system, and paying banks even 1% for those reserves (instead of 0.25%) is not going to cause the money supply to shrink.

3 – Yes, China is slowing. So what? Exports to China make up 0.7% of US GDP.

4 – The very same people who three months ago were saying the Chinese yuan would be the new reserve currency, now say Chinese devaluation is calamity. Which should we fear, a rising or falling yuan? Answer, neither.

5 – Corrections are about moving capital from weak hands to strong hands and are always scary, especially when the pundits argue loudly that the correction is due to fundamental factors.,-not-fundamental

As I’ve written in the past, the stock market is not the economy and the economy is not the stock market.  Don’t panic. You can’t control the market.  Don’t let it control you.  More pertinently to most of the readers of this blog, Verso announced a major reduction in paper capacity last week.  If demand isn’t increasing, eventually supply rationalizes itself.  I have a feeling Verso’s actions are going to have a bigger impact on most of our lives than the stock market swoons.  Focus on what you can control.  Don’t panic.

It’s Still Called Work

August 19th, 2015

If you’ve been on another planet, you might have missed the New York Times’ expose on Amazon’s culture.  (  In a nutshell, the Times interviewed “over 100 current and former Amazon employees” ( who talked about the hard charging, unforgiving culture of success Amazon has created.  Amazon has over 180,000 employees.  The article relies on the  statements of 0.056% (my decimal place is correct) of Amazon’s current employee base to portray Amazon as a ruthless place to work.

In the same article, a quotation from Amazon’s founder, Jeff Bezos, is provided.  The article states, “You can work long, hard or smart, but at you can’t choose two out of three,” Mr. Bezos wrote in his 1997 letter to shareholders, when the company sold only books, and which still serves as a manifesto. He added that when he interviewed potential hires, he warned them, “It’s not easy to work here.”  Note that the line is from 1997.  Mr. Bezos made no secret of his company’s culture.  Presumably, potential employees had an opportunity to investigate the culture and chose to work at Amazon.  With over 180,000 employees, some people presumably want to be part of Amazon’s culture.  Some of the stories make Amazon sound more like a prison camp than a company.  A friend of mine in the label business likes to say to his employees, “This isn’t label prison.  You’re free to leave anytime you want.”  Last I checked, Amazon isn’t a prison either.  In a big company, there are certainly going to be some bad actors.  I’m sure there are some Amazon managers/employees who do take things too far.  I’m not condoning their behavior.  But I don’t think there’s anything wrong with a hard-charging corporate culture.

I’ve been thinking a lot lately (or obsessing according to my wife) about what has changed in the United States over the last several years.  We used to admire success.  We used to be proud of success.  Now, our culture looks for ways to be critical of success and find ways to tear successful people down.  Is Amazon perfect?  Heck no.  Is any company perfect?  Of course not.  I know a story that provides the quotation, “Nearly every person I worked with, I saw cry at their desk,” sells newspapers (or digital downloads) but come on.  I’ve cried at my desk (business and personal reasons) and I’ve seen a lot of our employees cry.  Yes, I’ve made a few cry.  But I think more have made me cry.  Crying doesn’t make I.D. Images a bad place.  I’m glad people care and are comfortable showing their emotions.

Work is still work.  No one and no company is perfect.  But let’s not look for ways to tear down success.  And if there are any Amazon employees (or ex employees) that want to work at a place where it’s OK to cry, send me your resume.

15 Months To Go…

August 11th, 2015

I have a feeling the 2016 Presidential race is going to provide a lot of fodder for the blog over the next 15 months.  Of course, that assumes I don’t go crazy first.  Living in a swing state and about 20 miles away from the site of the Republican National Convention might drive me nuts.  We’re already being inundated with commercials and phone calls.  Funny how well that Do Not Call list works when it comes to politicians.  Thankfully, our nine year old is adept at giving his opinions.    He’s voting for his favorite Minecraft You Tube guy.  (If you don’t know what that means, go ask a kid under 12.)

I had dinner last night with a friend that is pretty active in politics.  He made an astute observation.  He watched the debate and told me, “I started counting how many times one of the candidates said ‘I’ with the hope of comparing it to the number of ‘We’s’.  After the first 2 candidates spoke, I lost track – the ‘I’s’ won hands down.”  Most business leaders speak in terms of “we”, especially when talking about success.  The very best use “I” when something goes wrong, taking the blame.  Our esteemed politicians use “I” for everything good that happens and shirk responsibility if something goes wrong or turn into a babbling buffoon when questioned about a policy or something they said in the past (See Trump, Donald).  If a CEO talked like one a politician, the board or activist shareholders wouldn’t waste any time removing him or her.  Yes, that’s what voters can do with politicians.  But there isn’t a choice.  Whether it’s a Republican or Democrat, they all sound the same – it’s all about them.  It sounds like they all use the same consultants coaching them.

So if you get a call from a pollster, do me a favor.  Tell the annoying person that calls that you’ll vote for the first candidate that says it’s all about the people.  In business, it’s all about the customer.  Politicians could learn a thing or two from the business world.  In the meantime, if you see me rocking back and forth and babbling to myself, you know the presidential race has gotten to me.  Just cover me up, pat me on the head, and tell me it will end soon.

Hotels: Taking Lessons from the Airlines in Bad Service

August 5th, 2015

I travel frequently.  Like a lot of frequent travelers, I try to stay loyal to certain brands.  It gets harder and harder to stay loyal when companies continually act like their customers don’t matter.  Lately, the major hotel chains have taken lessons in how to irritate their customers from the airline industry.  Many major hotel chains now have 24 hour, 72 hour, or 1 week cancellation policies.  That’s really not friendly to a business traveler whose plans change frequently.

I have some type of elite status (not the lowest tier) with 3 of the major hotel chains. (Funny, when I was younger, I thought that was cool.  Now, I think it’s sad that I’m elite with 3 hotel chains especially when elite status doesn’t really do much for you anymore.  I want to cry.)  They have all made it more difficult to modify or cancel reservations.  What they are missing is technology is the great equalizer.  Non chain hotels now have online booking just like the major chains.  I am traveling to  a smaller destination on business in a few weeks.  I looked at the chain’s websites and got rates that seemed high plus a 72 hour cancellation notice.  I searched for hotels near the location I’m going to.  I found a few hotels and one of the people I’m meeting with made a recommendation.  He told me the hotel is nicer than any of the chains.  It’s also less expensive and has a much better cancellation policy (6 PM on the night of arrival) for someone whose itinerary might change.

When technology was expensive, it was a competitive advantage for big companies.  They had the resources to leverage technology while smaller firms did not.  That’s changing.  Technology is the great equalizer.  Today, a small company has access to the same technological platforms big companies have.  In the end, service still matters.  The airlines have improved their profitability after years of capital destruction by feeing their customers to death.  That works when you have a competitive advantage or, in the airlines case, routes with monopolies.  Most businesses don’t have that competitive advantage.  Treat your customers well or someone else will.

Are Price Increases Looming?  Pay Attention to the Direct Thermal Paper Market

July 28th, 2015

In the last week or so, two major suppliers of direct thermal receipt paper (and other direct thermal grades), Appvion and Koehler, have announced price increases 5 – 7%, effective in late summer/early fall.  According to Appvion, “The increase is due to strong demand and increases in input costs, and applies to domestic and international customers.”   While it remains to be seen if the increases will stick, the timing of the announcements leads me to believe the companies’ management teams have confidence they can get increases through.  Most commodities are declining right now, as fears of a major slowdown in China escalate.  Given the current commodity environment, it takes a little chutzpah to announce an increase.  I applaud your leadership.

You better believe every paper mill (and chemical supplier and laminate supplier and label converter) is following this increase very closely (and you should too).  No offense to my friends in the receipt paper business but lately, they’ve been at the bottom of the food chain.  Demand has declined (emailed receipts don’t help!) and it is truly a global market where supply can be moved around very easily.  When supply exceeds demand, prices fall.  It’s not that complicated.  As I’ve written in the past, paper suppliers have gotten smart and fought that trend with consolidation, reducing supply.  The industry is also starting a pretty creative advertising campaign which you can read about here:  I give the industry credit for working on both sides of the supply and demand equation.  Paper is always going to be needed.  But if new markets for paper products don’t develop and the stigma of paper being bad for the environment isn’t erased soon, we will continue to see demand declines outpace supply declines.  Note I am referring to paper in general, not specific markets.  Believe it or not, there are segments of the paper industry that are growing.

If I were a betting man (I do enjoy taking some risks but I’m wise enough to know Las Vegas wasn’t built because people win.), I’d be surprised if the direct thermal suppliers get their fully announced increase.  They might get a little.  If the economy continues with slow growth as it is now, don’t be surprised if this emboldens others.  The last major increase in the pressure sensitive industry was in June 2011.  That’s 4 years ago.  Despite what the government says, a lot of our costs have gone up since then.  I’d bet money we will see at least one increase by this time next year.*

*Unless China is revealed to be a house of cards.  If that is the case, all bets are off and gather all the cash you can.