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.

http://www.ftportfolios.com/Commentary/EconomicResearch/2015/8/24/this-correction-is-technical,-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.  (http://www.nytimes.com/2015/08/16/technology/inside-amazon-wrestling-big-ideas-in-a-bruising-workplace.html?_r=0)  In a nutshell, the Times interviewed “over 100 current and former Amazon employees” (http://www.nytimes.com/2015/08/18/technology/amazon-bezos-workplace-management-practices.html?action=click&contentCollection=Business%20Day&module=RelatedCoverage&region=Marginalia&pgtype=article) 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 Amazon.com 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:  http://whattheythink.com/articles/74712-paper-industry-how-life-unfolds/?utm_source=WhatTheyThink+Newsletters&utm_campaign=82d9b44ddd-2015_07_21_Daily&utm_medium=email&utm_term=0_0e715f456d-82d9b44ddd-322089481  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.

Don’t Forget Your Existing Customers

July 21st, 2015

I recently experienced a situation that is a case study in how not to treat existing customers.  I got sick of my cable bill going up every month with no change to my service.  Ads are everywhere touting bundles that cost significantly less than what I currently paid for my service.  I called my existing company.  I was very upfront with the customer service rep, saying, “I don’t want to switch because it costs me time and money.  You don’t have to give me the promotional price, but you’ve got to come down some.  I can get better service from a competitor for half the cost I’m paying you.  What can you do?”  She instantly launched into her script.  I was firm but polite, “Please don’t give me the script – just tell me can you do anything?  If not, I’m going to get a competitor’s price.”  She said the only way to cut my price was to reduce my service.  Wonderful answer.

I went online and got a competitive price.  It turned out I could save a lot more than I thought, almost 40% per month and get better service.  Before I followed through with switching, I again tried my existing cable company.  I told the new CSR the same thing I told the first one: I can get a much lower price.  You don’t have to match but you’ve got to come close.  She too launched into a script.  I told her not to bother – I was switching.  My seven years of being a loyal, overcharged customer are coming to an end next week.

In a cubicle somewhere, a brilliant MBA has calculated how the cable company can maximize its revenue.  He’s probably calculated switching costs and how many existing customers will leave if the company continually raises prices on them.  At the same time, management is rewarded for new subscriber additions so they discount for new customers.  I say all the time that numbers don’t lie.  But there has to be a context to the numbers.  What the brilliant MBA and management team are doing is maximizing short term revenue.  Especially in a day and age where we can cut the cord for cable, cable companies better be looking at Plan B.  Maybe they are and they don’t care if they irritate all of their customers because they know they’re going to lose them soon anyway.

We all love new business from new customers and we should.  But forgetting our existing customers or treating them poorly will result in bad outcomes.  Remember your existing customers – they got you where you are.  Treat them with respect.

Price vs. Value: There’s a BIG Difference

July 15th, 2015

I heard an interesting statement in a meeting last week.  “Most people know what they paid for something but very few know what they got.”  I started to think about that statement in light of our technological advances over the last 20 years.  The internet has created a wealth of price competition.  It’s easy to Google a product and get literally thousands of prices for that product.  Obviously, it is easy to determine price for most products.  It is far more challenging to define the true cost and value of that same product.

We have a recent situation where we lost a substantial order on price.  Our customer has come back saying the new labels aren’t working in the end use application.  It is a high speed application and the line was constantly jamming and the operator has to continually reset the line.  The customer audaciously asked us to match the competitive price so they could have a product that actually works.  The Seinfeld in me wanted to say, “Sure. We’ll match it but our labels won’t work either.”

In this situation, which is far too common in every industry, someone in purchasing found a lower price for a product.  He assigned no value to what it cost to use the product.  More than likely, his performance evaluation is very skewed towards hard dollar costs savings, not productivity.  Even if his evaluation is tied to productivity, he will blame the vendor for bad product.  Clearly, the value of the labels they are currently buying is well below the price they’re paying.  The few percentage points saved on the purchase of the product are more than absorbed in lost productivity.  It’s tough to put a dollar figure on that productivity.  It’s easy to see the price paid for the product.  We default towards easy.  As I’ve written in the past, as vendors, we default towards easy too and match prices like lemmings.  Remember, many lemmings die when they jump off the cliff in search of a better habitat.

In the price transparent world we now live in, the phrase “Caveat Emptor” is more important than ever.  Buyers, beware of just shopping on price.  Make sure you understand the value of what you’re paying.

 

You Better Have More Than Just a Product

July 7th, 2015

 

A lot has been written about how technology companies tie goods and services together to leverage the value of their customers and create a competitive advantage.  I recently received an Apple Watch as a gift.  I didn’t have an I phone, so the gift forced me to convert my phone from Samsung.  It gets better.  After much contemplation, I finally capitulated and set my nine year old son’s IPod up on the Apple cloud service.  My son  can text me now.  Today was the first day of texting.    Important communication now happens because he can text me:  my Apple watch buzzed in a meeting today with a text from my son, “What should I have for lunch?”  What he doesn’t know is I can now track his every move with his IPod.  Keep that secret for me, please.

Score one for Apple.  Its innovative watch created a huge competitive advantage in my household.  Apple has a great set of products and services that work well together.  Once you’re in their network, it’s hard to get out.  I submit that those of us in non-tech businesses also have competitive advantages we can use.  We don’t do it quite as well as tech companies.  We’ve got a lot of assets that can be leveraged to create a competitive advantage and tie our customers closer to us.  For example, we have physical plants that can be used for distributing more than our products.  Think about how much more valuable you are to your customers if you do more than just supply them with a product – you supply them with a service that helps them in another aspect of your business.  Think about how much more tied to you those customers become if you do more than just sell them something – you provide a service that they can use in addition to buying your product.  General Electric and other large industrial companies figured this out well before tech companies.  They financed equipment purchases for their customers.  More traditional industries have more traditional corporate structures that can create silos.  Tear down those silos and figure out if one of your internal departments can help your customers.  If you don’t, Apple (or someone else) will.

Invest in Relationships and Read the Declaration of Independence

July 1st, 2015

In an era of constant connectivity, it is a sad irony that we’re less connected than ever.  We rarely spend meaningful time with key customers, supplier partners, or anyone else.  We’re all “too busy” to spend a day or two with people critical to our business’s success.  That’s a big mistake.  Email and phone calls are great for communication but they’re not the best relationship tools.  There’s something to be said for spending time with people outside of the office environment, whether it’s the golf course, dinner, spa, or whatever activity you (or they) enjoy.  You get to know each other more intimately.  Through that deeper understanding of each other, trust develops.

This will probably shock a lot of you but  it’s OK to have fun in business.  We’ve become so focused on saving money and so afraid to look successful, I think we often forget that.  It’s OK to treat your team and your customers to a nice dinner.  It’s a good thing to say thank you and let you know you value their contributions.  Not enough of that happens in our world today.  A little gratitude goes a long way.   As we enter the second half of the year (time does fly), make it a priority to spend quality time with your customers and suppliers.  If you’re too busy for them, you’re probably spending a lot of time doing unimportant things.

Have a safe and enjoyable July 4th.  Do yourself (and me) a favor and read the Declaration of Independence.  Fifty six people signed the Declaration of Independence.  They are great examples of the power of relationships.

A link to the Declaration of Independence is below.

http://www.archives.gov/exhibits/charters/declaration_transcript.html

Customer Service Stinks Everywhere and It’s Our Fault

June 23rd, 2015

I’ve complained many times about how bad customer service is everywhere in the US.  It doesn’t matter where you are or what industry you’re in.  In general, customer service is pathetic.  We’ve supposedly moved to a service economy which makes this trend all the more frightening.  I’d rather deal with an app than many supposed customer service professionals.  Several factors have caused the decline in service.  Unfortunately, they all relate to us.

First, “You get what you pay for.”  We all want Wal-Mart prices with Neiman Marcus service.  The math doesn’t work.  A company can’t be the low cost and high service provider; those strategies don’t mix well.  It is acceptable (and encouraged) to drive miles out of your way to save a few pennies on gas.  With the consumers’ mindset focused on saving money, they won’t pay a premium for better service.  That’s a problem.  Second, and closely related, companies do a poor job of training people.  I was recently at a restaurant (a chain) and asked for my entree to be slightly modified.  The waitress said I couldn’t order my entree that way.  I ordered something else.  When the manager came by to ask the perfunctory, “How is everything?”, I told her I wasn’t eating what I wanted.  I explained to her what had happened and she said, “We could have absolutely done that for you.  I apologize.”  The waitress returned and also apologized and said somewhat sarcastically, “I wasn’t told that in my seven minutes of training.”  The “You get what you pay for” goes both ways.  If companies don’t train their employees, their service levels will be poor.  Third, and most importantly, service is poor because we are timid.  We all hear the comment from customers, “I can buy X from your competitor for Y% less.”  We immediately match the price we’re told.  We forget the customer calling us for a reason.  Something we do BETTER than that supposed competitor caused them to use their most valuable asset, their time, to call us.  We capitulate and match.  We then don’t have the financial resources to continue to compete with service so we start going down the path of lowering costs.  That leads to worse, worse training, and ultimately, delivering worse service.  And so the pattern continues.

Start fighting back.  Stop being the problem and start being the solution.  Don’t accept mediocre service.  Train your employees.  Training is an investment, not a cost.  Most importantly, have pride in what you do.  If what you do deserves a premium, get it.  Don’t be afraid.  If what you do doesn’t deserve a premium, find something new to do or start doing what you do in a different way.  (Special thanks to my wife for inspiring this blog!)