What is Something  Worth if it Doesn’t Work?

August 23rd, 2016

I spoke with a customer last week that had a fairly demanding label application problem to solve.  We trialed several different materials and came up with a few that worked.  After he told us which ones worked, we provided pricing.  He replied, “The products that work are outside of the price point for this project.”  That statement still perplexes me, over a week later.  I’ve had several George Constanza moments, thinking of the perfect comeback well after the conversation ended.  Some comments I wish I had thought of during our conversation:

“Would you guarantee you’ll pay me your target price after I send you a product that doesn’t work?”

“How about you just send us money and we send you nothing?”

“So you’d be OK with a product that doesn’t work as long as it’s at the target price point?  Got it.”

Given the nature of the application, the price difference for labels that work versus the other products was minuscule in the grand scheme of the product.  The labels make up a very small fraction of the overall packaging cost and even less if the entire product cost is considered in the analysis.  Someone had established a target price point based on other label applications this particular company had.  In their analysis, they neglected to factor in the additional requirements they demanded for the labels.  These requirements, which they designed, were only met by higher performing (read: more expensive) products.  Those of us that sell “stickers” for a living crack up when people complain about prices.  Many labels cost fractions of pennies.  Even in this application, the price of the label was less than 3 cents!  The retail price of the product is hundreds of dollars per unit.    Factoring out the retailers’ gross profit and distribution costs, my guess is the high-performance label represented less than 0.03% of their total cost.  Not 3%, three thousands of one percent!

I am certainly biased, but when I think about the performance demands required of labels, it’s a pretty good value proposition for the customer.  Obviously, we’ve got some work to do to promote that value proposition.  Remember, labels make the total package!  If they don’t work, that package (product) is worth a lot less than you think.

The (Retail) Times They Are a Changin’

August 16th, 2016

Macy’s reported earnings last week and also announced plans to close 100 of their 728 stores.  Their CEO, Terry Lundgren, appeared on TV and provided the following statistic:

The United States has 7.3 square feet of retail space per person, while France and Japan both have 1.7 square feet, and the U.K. has 1.3 square feet. (More from his interview can be found here: http://www.cnbc.com/2016/08/11/macys-finally-starts-addressing-the-overstored-retail-landscape.html)

I always thought shopping was a national pastime in the US.  The US has a much more geographically dispersed and diverse population than any of the countries used in the comparison, necessitating more retail space, but we have over 4 times the retail space per person of other major countries!  4 times!  Think about the impact that amount of space has on the economy.  From builders to utilities to maintenance personnel to advertising – we might not have 4 times the employment of those countries in support services to retail but I’m quite confident this dramatic difference in the amount of retail space also leads to a dramatic increase in employment to support our shopping addiction.  Just think about the impact on little old labels and packaging.  All those shelves need to be stocked.  Having 4 times the space means a lot more labels and packaging.  I’ve seen studies about packaging use per person across countries.  One thesis is the rest of the world will converge with the US.  Maybe the thesis should be the US will converge to the rest of the world.  That’s a scary thought.   Think about the impact of Macy’s closing 100, or 14%, of their stores.  They probably won’t lose 14% of sales, as some will shift to other stores.  As of July 30, Macy’s carried $5.3 Billion in inventory.  Inventory is probably not going down 14% with the store closings but 10% is still a $500 million inventory reduction.  That’s a lot of labels and packaging that won’t be needed.

Certainly, some of the packaging and labels will be replaced by online shopping but I think something bigger is occurring.  I’m old enough to remember when most stores weren’t open on Sundays.  Shopping wasn’t quite the national obsession it became in the US.  I don’t think the US consumer is dead but I think the consumer’s attitude is changing.  Experiences and interactions are more valued than another sweater or a new pair of shoes.  With this change, there will be significant changes in the economic landscape.  Position yourself to mitigate the risks or take advantage of the opportunities.

 

Wages Might Be Stagnant But Compensation Isn’t

August 9th, 2016

I don’t think a day goes by where I don’t read something or hear someone talk about how wages for American workers have remained flat or even declined on a real basis for years.  Some reports say real wages (wages adjusted for inflation) peaked in 1979; others use various dates from the 1990s and 2000s, usually depending on their political affiliation/agenda.  Regardless of what time period is used, it is accepted as fact that wages have remained stagnant for the average American worker for a long time.  While that might be true, I think it’s the wrong statistic to be used.  Most Americans get health insurance through their employers.  Most employers pay part of that health insurance cost.  An employee costs a company much more than just his or her salary; it’s all the benefits, taxes, and compliance requirements associated with employing that person.

We just went through our health insurance renewal.  As I’ve written numerous times, it is one of my least favorite things to do as a manager, business owner, and human being.  No one is happy.  Employees complain because inevitably health care benefits get a little less robust every year and costs go up.  Similarly, my costs as a business owner go up and it feels like employees blame me.   Renewal time is never fun.  I went back and looked at data from the last few years.  Since 2012, our company’s health care rates per employee have increased approximate 90%.  For you non-mathematicians, that’s about a 17% annual increase.  (Wasn’t Obamacare supposed to slow the increase in healthcare costs?  It hasn’t for our company.)

We have given raises since 2012.  Counting increases in wages and bonuses, our average wage increase per employee is 19%, or a little over 4% a year.  If I do a weighted average of the company’s contribution for health care plus wage increases, the average compensation for our employees over this time period has increased 40% or about 9% a year.  Unfortunately, employees don’t see much of that in their paychecks, as most of the increase in total compensation is going towards increased healthcare costs.  But I see it on the P&L every month.  I would also like to point out this rudimentary analysis does not include the costs of other benefits we offer and the increases in employment taxes that has occurred over this time period.

The money to pay for healthcare has to come from somewhere.  Some has come from our employees; a majority has come from the company.  Even though our compensation costs have gone up significantly,  employees don’t feel like they’re getting paid 25% more.  We have not had a price increase in this time period, putting pressure on margins.  Is there any wonder why everyone feels like they’re not gaining ground from a financial perspective?  Everyone is running faster but it feels like we’re staying in the same place.

The Presidential Candidates are Now Official  

August 2nd, 2016

Over the last two weeks, the major political parties held their conventions and officially nominated their candidates.  The Democrats picked an inexperienced candidate that thinks very highly of himself.  The Republicans picked an establishment candidate that has dutifully waited in line for the opportunity to be president.  Oops.  I had a flashback to Obama-McCain 2008.  Reverse what I just wrote about the major party candidates.  Unless you’ve been living on another planet, you know who’s running and what their flaws are.  Are these candidates the best we have to offer as a country?  It makes me want to cry.

I honestly don’t know whom I’m going to vote for.  There’s a possibility I won’t vote for either major party candidate.  I have talked to a friend of mine about being my write-in candidate.  His political experience consists of running his industry association and being president of a social club.  He would certainly represent my views better than either major party candidate would.  Imagine if a swing state (such as Ohio) drafts a write-in candidate that wins the popular vote, leaving the major party candidates without an electoral college majority.  Before you say that’s impossible, did anyone really think Donald Trump would be representing the Republican Party in the 2016 election?  Be honest.  The possibility of this presidential election being decided by the House of Representatives is slim, but it would not shock me if that occurred.

The good news about the great ol’ US of A is despite a political quagmire, the economy chugs along.  While recently released GDP numbers were disappointing (yet again), the economy is growing, albeit slowly.  Neither major party candidate has put the economy front and center in her/his campaign, despite it being front and center on most Americans’ minds.  My prediction: the candidate that recognizes Americans are not happy with anemic growth and articulates a reasonably economic growth strategy will be our next president.  In the meantime, it ought to be a hoot listening to billionaires campaign for a Democrat and offer rides to people to polling places.  (See Buffett, Warren. http://www.ketv.com/news/warren-buffett-launches-drive2vote-website/41005172  I thought offering favors in return for votes was illegal but I guess rules don’t apply when you say, “I’m with her.”)  I’m also excited to see a campaign event with political heavy weights Charlie Sheen, Dennis Rodman, and Mike Tyson appearing for Trump.  Saturday Night Live is going to be epic!

Technology Can’t Replace Effort in Marketing and Sales

July 26th, 2016

The impact technology has had on the marketing and sales process (Doesn’t marketing come before sales?) is staggering.  From list gathering to automated email marketing to documenting every interaction in the sales process, there is a technology solution available to help generate leads, target prospects, and sell your products or services.  Taking the view that increasing sales is a numbers game, many companies send out thousands of emails and then employ an army of telemarketers to follow up with phone calls.  Last week, I received a voicemail from one of those telemarketers that went something like this:

“Hi Brian, this is Brandon from XYZ. I’ve sent you a few emails and I’m surprised you haven’t called me back.  XYZ has had helped companies in your industry with our leading database management software.  I’ll try you again later this week but feel free to call me at …”

I did not recall seeing Brandon’s emails and I didn’t call him back.  True to his word, he called me back.  I was in the office and spoke with him.  I was ready for this call.  After an introduction and reference to his emails, Brandon went into his pitch.  “Brian, we’ve helped companies like yours manage the increasingly complex FDA regulatory compliance requirements that exist today.”  He went on for about a minute before I stopped him.

“Brandon, do you know what our business does?”

“I.D. Images is a leading company in the life sciences space.”

“Really, Brandon?  Tell me what that means.”

“Uh, you do imaging for life sciences?”

“Brandon, you should get your money back from whomever you bought your list from.  Or, at the very least, surf the web for a minute or two before you call people.  That’s not what we do and please stop calling me.”  He or no one at his company used any thought whatsoever while conducting this lead generation exercise.   They bought a list and started calling.  Technology is a tool, just like printed lists were a tool twenty five years ago.  Instead of a phone book or an industry directory, people buy electronic lists of potential customers.  There’s nothing magical about electronic data.  In fact, it’s probably less accurate than old lists were simply because there’s more of it.  Putting a little effort in your marketing and sales process goes a long way.  Rule #1: Know whom you’re talking to.  It’s not that hard.

An Open Letter to Job Growth Naysayers

July 20th, 2016

Dear People Who Think There are No Good Jobs Available (this includes pundits, government officials, economists),

I own and operate a manufacturing firm.  We have approximately 190 employees scattered across seven locations throughout the country.  We are hiring for many positions in several of our locations.  (If you are interested in a position, check out our website, www.idimages.com and send a resume to hiring@idimages.com.)  This letter will focus on manufacturing positions in our Brunswick, OH, facility.  These are considered skilled (press operator) and unskilled positions (material handler).  Brunswick is located approximately 20 miles from downtown Cleveland, a labor market that has supposedly been left behind in the recovery we’ve had since the great recession.  We have had employees celebrate their 10, 15, and even 20 year anniversaries with us.  If you count time employed by companies we have acquired, we have employees whose tenure exceeds 30 years.  I believe this is evidence that these positions can develop into rewarding careers.

From June 13, 2016, until July 16, 2016, a period of a little over one month, our HR team reported the following data for manufacturing positions in our Brunswick facility:

 

Scheduled interviews: 56

No show for scheduled interview: 22 (39% of total scheduled to be interviewed)

Failed test (math test and/or attention to detail): 13 (23%)

Rejected after interview: 8 (14%)

Failed pre-employment screen (offered job but failed drug test or background check): 2 (4%)

Offered job but turned us down: 3 (5%)

Hired: 8 (14%)

Remaining open positions: 4

 

It shocked me, as I hope it shocks you, that over 62% of applicants failed to show up for an interview (I’m quite confident many of them put the interview on their unemployment applications despite not showing up.) or failed a simple math and/or attention to detail test.   Passing our math test requires the math skills of a sixth grader.  As an employer, I’m willing to invest in training people, but I don’t think we are equipped to teach basic math.  I would also like to point out that 13 of the 21 applicants that showed up and passed the initial screening tests were offered jobs.  Basically, if you show up and can do basic math, there’s a good chance we’ll hire you.

In my conversations with people in various industries and various locations, I have come to realize our experience is not unique.  Virtually everyone I talk to agrees with me that is a challenge to hire people.  Yet, the conventional wisdom persists that there are no “good” jobs available.  I am definitely biased, but we do have good jobs available!

The economist in me says the solution to this problem will be twofold: wage inflation and automation.  Wage inflation is going to occur because we (this is a collective we – all employers) will have to attract people who are already employed in order to fill our positions given our inability to meet our needs.  The simplest way to hire people who already have jobs is to pay them more.  Automation will follow.  As the cost of labor increases, machines become relatively less expensive.

In the meantime, stop being so negative.  If you know someone who cannot find a job, they either aren’t looking hard enough or they lack basic skills.

Sincerely,

A Business Owner

Xerox interested in RR Donnelley? 

July 12th, 2016

Bloomberg reported that Xerox is in talks to merge with RR Donnelley.  This potential merger would be a combination of both entire companies with a potential spinoff after the merger.  Both companies had previously announced plans to split up each of their respective businesses later this year – Xerox into two separate entities and RR Donnelley into three.  If this merger happens, the splits would not occur.  I know it’s confusing, but the  strategic premise is pretty simple:  As I’ve written many times, unless you have a strong and defensible niche, the appropriate strategy for your business is to get bigger and get more wallet share from your customers.  Xerox customers buy more than copiers and document management services.  RR Donnelley customers buy more than print and marketing services.

When I have discussions about business strategy with a wise, more experienced friend, he says this consolidation wave reminds him of the 1970s, when conglomerates were all the rage.  He reminds me that most of those failed.  I believe transactions in the print/marketing services/packaging industries don’t fall in that trap.  In many companies, the same buyer controls spend in those categories (or those buyers report to the same person).  There is a convergence of strategy and technology occurring in the world.  For a nerdy example related to my world, not even twenty years ago it was a challenge for flexography to match offset colors.  A prickly brand manager could see the difference in colors in marketing collateral and their product labels. Twenty years ago, the internet was in its infancy and no one talked about a “consistent brand message” across numerous platforms.   Now, it’s a given that print colors will match across websites (including mobile!), packaging, printed marketing collateral, and everything else you can imagine.

We will continue to see consolidation.  Make sure your business and you personally are prepared.  Talk to your customers about what else they need from you.  Don’t be afraid!

 

It Bears Repeating: Following Up is THE Key to Sales Success

July 5th, 2016

I attended a conference last week with several other manufacturers and  several distributors.  During a session with only manufacturers present, the speaker asked what we, the manufacturers, thought were the biggest complaints distributors had about us.  Answers were yelled out: “Price,” “Lead times,” “Lack of flexibility,” “Freight charges,” and more.  The speaker played the room quite well.  He’d respond to each one, “Price is number 3 on the list.”  “Lead times are number 2.”  “But no one has named the number one frustration your distributors have with you.”  Finally, someone said, “Follow up.”  Bells started ringing, confetti dropped from the sky, and a new car appeared from behind the curtain!  Not really, but that was the answer.  (He did give the person who answered correctly a book.)  He told us lack of follow up is by far the most common complaint customers have with their vendors across all industries.  I can attest to that.   Our biggest frustration as a manufacturer is going through hoops to get samples/quotes done and never hearing back from our distributor partner.

We all spend tons and tons of money finding new customers, developing new products, and improving our operations.  Yet a simple follow up, probably less costly than most initiatives we embark upon, will have the biggest impact on our businesses.  It’s not that hard if we make it a priority.  Too often, sales and customer service personnel spend their time putting out fires instead of proactively talking to customers.

As we move into the second half of a year that has gone way too fast, schedule fifteen minutes a day to follow up with your customers.  Check in on opportunities.  Make sure they got the sample you sent.  Thank them for a recent order.  After all, following up is simply a way of saying, “You’re important to me.”  Make your customers feel important!

We’ve Officially Entered Bizzaro World!

June 28th, 2016

In Superman and other DC comic books, an opposite world exists called Bizzaro World.  I think we’ve officially entered that world.  In the last two weeks, a Cleveland sports team won a championship.  After experts predicted Great Britain would stay in the EU, the British people voted to exit and then promptly searched Google trying to understand what the EU is.  In the US, the presumptive Republican party nominee commented about how Brexit is a victory for nationalism and people taking their countries back. The presumptive Democratic presidential nominee expressed concerns about national security.  What happens next is anyone’s guess!

I submit these seemingly unrelated events have a common theme running through them.  We’ll start with the Cleveland sports team.  They were counted out when they were down 3 to 1.  As I wrote last week, one individual who led by example, LeBron James, changed the course of the series.  (Yes, he had help.  But even a novice basketball fan could see the Cavs relied more on individual performances for success vs. Golden State’s team approach.)  The pundits said James and his cronies were no match for the “team” basketball played by the Golden State Warriors.

Despite being told over and over by their political and business leaders (and US political and business leaders) that staying in the EU was the best course of action, British citizens voted the way they thought was best for them as individuals.  The EU and globalization might be good for British society but has it helped the individual steel worker?  Try explaining the positives of trade to a guy whose mill just shut down. That his kids’ toys cost less doesn’t really matter when he doesn’t have a job.  It is telling that the industrialized areas of England voted overwhelmingly for Brexit while Londoners voted overwhelmingly to stay in the EU.  Don’t underestimate the power of a determined individual.

Those same dynamics have brought us what is going to be the craziest presidential election ever.  The Republican “team” completely underestimated Donald Trump’s abilities to captivate primary voters.  This time last year, the big question being asked was who was Jeb Bush going to pick as his running mate.  Oops.  Hillary Clinton, the Democratic nominee, had a much more challenging contest with Bernie Sanders than anyone envisioned.  She is now searching for a message that appeals to Sanders’ socialist leaning voters and works against Trump’s individualistic/nationalistic message.  That’s not going to be easy.

We are in a world that will test the power of the individual vs. the advantages of cooperation/collectivism.  Voters in all countries are starting to realize that their elected officials have ceded power and control to unelected bureaucrats.  That’s not how the system is supposed to work.  Western civilization has been built by individuals and has protected individual freedoms.  People think that has been lost over the last several years, resulting in the Brexit vote and the Trump candidacy.  All of this creates uncertainty which businesses hate but it also creates opportunities.  Focus on the opportunities.  For example, create individualized experiences for your customers.  As the Brits said during the dark days of World War II and continue to say today, “Keep calm and carry on!”

Focus on Tomorrow, Not Yesterday

June 21st, 2016

I have a very close friend I’ll call Michael.  Michael and I grew up together.  We’re both avid sports fans, especially of Cleveland teams.  Anyone not from Mars knows being a Cleveland sports fan has been painful for the last 52 years.  The Cleveland Cavaliers helped assuage that pain Sunday night with a thrilling come from behind victory in the NBA Finals over the vaunted Golden State Warriors.

Over the course of the playoffs, Michael and I had many conversations.  After the Cavs cruised to the Eastern Conference championship, he told me, “We’re on a roll.  Cavs in six.”  I was shocked by his optimism.  Cleveland fans are normally not an optimistic bunch.  We have many years of futility to support our pessimistic nature.

The Cavs got blown out the first two games of the series.  Michael’s tone changed.  He left me a voicemail, which I still have.  “Stick a fork in them.  They’re getting swept.  It’s a complete embarrassment and I don’t know what’s worse: getting blown out or having our hearts broken.”  Note the language change from “we” to “they.”  “We” were going to win.  “They” were embarrassing us, the dedicated fans.

The Cavs had a resounding victory in game 3, prompting a slightly better attitude from my buddy.  He said, “At least we’re not getting swept but we need to win game 4 to stand a chance.”  That didn’t happen.  Golden State rebounded and took game 4, creating what seemed to be an insurmountable 3 games to 1 lead in a best of 7 series.  “It’s over.  They blew any opportunity they had,” he told me.  No team had ever come back from a 3 to 1 deficit in the NBA Finals to win the series.  I agreed with him – the series was over.

Against the odds, the Cavs won game 5 at Golden State, creating a glimmer of hope.  Game 6 was back in Cleveland.  The Cavs pulled it off with a strong fourth quarter, setting up an improbable game 7.  Somehow, someway (OK, the will of LeBron James and some clutch shooting by Kyrie Irving and JR Smith.), the Cavs pulled it off and won the title.  I texted Michael, writing, “I’m speechless.  I can’t believe it.”  His response, “How about saying, we’re WORLD CHAMPIONS!”  Back to “we” again!

Throughout the first two games of the  NBA Finals, many national sportswriters opined about how the Cavs would need to be dismantled.  Many opined about Golden State being the best team ever and how they stacked up against other sports’ dynasties.  Once the Cavs won game 6, many opined about how Golden State had everything to lose.  The roller coaster ride was quite intense.  Throughout all this hoopla, the Cavs’ leadership, coach Tyronn Lue and franchise player, LeBron James, stayed calm and focused on the next day.  When the team was down 3 games to 1, they didn’t talk about game 7.  They focused on the task at hand.

One of the reasons I like sports is the life lessons they provide.   We live in a here and now world that over emphasizes short term results.  Our emotions often take control, clouding our judgment.  We’re quick to make summary judgments based on a current situation.  We need to take a lesson from the Cavs’ leadership: focus on tomorrow, not yesterday.  Nothing will change what happened yesterday.  Our attitudes can impact what happens tomorrow.