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Libey Incorporated
Economic Outlook
Secrets of the Catalog Master
Vol. MMVIII No. 5
July 2008
July 2008
Cherry Hill, New Jersey
Des Moines, Iowa
Donald R.
Libey, Editor
101 Questions You May Want to Ask
by Donald R. Libey
I sat for an hour or so and wrote down all the questions I ask when advising CEOs and boards on organization, strategy, performance, growth and enhancing profitability. Here they are, in no particular order. You might want to select a few and ask yourself and several people in your company for the answers. The results may surprise or delight you. Regardless, it stimulates thought and communication, and that is always positive.
1. Who really runs this business and why? That’s a fascinating question. More often than not, I get a variety of answers from different people throughout the company. The owner or CEO too often doesn’t really understand the perceptions of employees. Until everyone believes the same thing, there is confusion and jockeying for position. The “Why?” part is particularly interesting: Is it for money, power, love or some other motivation. Why does everyone come to work every day?
2. Where are we in serious trouble? Ask ten people and you will get ten different answers. But, ask fifty people and you will probably get the same ten different answers. My experience is that most companies have about ten areas in which they are in serious trouble. It may a rapidly declining twelve month customer count, theft from the warehouse, an order entry system that doesn’t handle product bundles, buyers not following up on rebuys, deficient management talent, or five other perceived ‘serious’ problems. Once identified, these commonly believed problems can then be investigated rationally for verification and prioritized for resolution. Hint: Most often the top five are people problems and systems problems.
3. What changes and advances in our products and markets are we not keeping up with? You have to get out of your pre-conceived comfort zone about your relevance to the market from time to time. More important, you have to hear what others in your company believe and why. But, most important, you have to hear what others in your company are hearing from your customers and what those customers are saying. And then you actually have to do something about it.
4. What is the primary problem with our operating system? Ask enough internal system users and internal system builders and you will discover a variety of ‘Number One’s.” Now, ask whether those problems are causing shortfalls in customer satisfaction, company profits, or both. Once you have an understanding, solve the one problem that is causing the largest drain on customer satisfaction and company profits. Then, tackle the remaining problems based on the most beneficial cause and effect resolutions. You can’t fix everything; fix the Big Problem first. Just make sure you can accurately define what the real, number one Big Problem really is.
5. Do we have positive or negative leadership? Glasses are either half full or half empty. Leaders either trust colleagues or suspect colleagues. Leadership is either by example or by mandate. Leaders’ decisions are either more often right or more often wrong. Opinions and ideas are either asked for or not asked for. Leaders either encourage or discourage. Leaders either lead from vision and understanding or from ego and fear. Leaders are either moving ahead or standing still or falling behind. What have we got here? Honestly. From the point of view of others.
6. How clean are the warehouse and the office? Take a walk and look around. Spotless, highly organized companies are almost always more successful. Dirty, unorganized companies are almost always unsuccessful. I don’t know whether you can call it the Law of Order, but it seems to be almost always true. When the bathrooms are spotless, so are the financial statements. Over the years, I have noticed a direct correlation between the overall cleanliness and organization of the warehouse and office and the cleanliness and organization of the owner/CEOs office. About 60 to 70 percent of the companies I visit need to be cleaned up. Those companies tend to have problems with ‘dead’ inventory, as well.
7. Is our policy on education requirements for employees relevant? Is the company interested in hiring MBAs or rainmakers that can get the job done?
8. Who cares about the ‘Mission Statement? ’Have we, as a company and a leadership team, reached that wonderfully liberating point where we are free from the banality of ‘Mission Statement’ management. Get rid of the silly framed parchment proclamations and teach everyone the following: “Sell more stuff to more people any way we can!”
9. Is anyone looking at Amazon for a clue? Let’s face it—nobody puts it together like Amazon. Why not just learn from their success and adopt things that they do so well to your business? Everyone is searching for a model; it exists and it works! Copy it!
10. Who is the problem, and why won’t I get rid of it? Every owner/CEO tells me about problem managers who are delaying growth or performance because of their skills or personalities. From some, I have been listening to this litany of woe for years and the problem people are still there. If you have people who are roadblocks to your success, you need to get them out of the company. Move past the problem. Too many owners/CEOS are trying to be ‘nice.’ Fair is good. Kind is good. Compassionate is good. Even demanding is good. Nice is a real problem. (Note: When the owner/CEO is the problem, you’re on your own here.)
11. What is the real threat to the business? At night, we often run through the Tortures of the Damned and try to think of every possible threat to our future success. That is the ideal training exercise for advanced paranoia. What is worth knowing, however, is just exactly what is the primary threat to the business. When you can focus on one thing, and that one thing is the thing, the solutions tend to appear quicker. This is what I call “Tiller Management.” The owner/CEO needs to have a steady hand on the tiller to move the rudder in the right direction to steer the business around the threats. As with a ship, it is piloting. You must know where the rocks and shoals are and which one is imminent. You pilot around the threat and look for the next one.
12. If I suddenly need $4 million, where will I get it? Insert whatever amount of money you might require, but reflect on what you have been reading for a number of months. Lines of credit for major (and minor) direct marketers have been either revoked or not renewed. This has created serious liquidity problems, especially with payments for imports. What would you do if you are faced with a sudden need for money? The plan for this need is one of the key strategic financial foundation pillars and is another of the owner/CEO ‘Tiller Management’ requirements. It also needs to be solidly and contractually provided for well in advance of any potential need for the money.
13. What does the industry think about our company? This is a two-part question. First, what does the SIC industry you are in think about your company? For business-to-business dental supply merchants, that means the dental community. The second part is what the direct marketing vendor industry thinks about your company. This includes paper merchants, printers, list brokers and managers, creative service vendors, consultants, etc. You may find your SIC industry thinks about you in competitive terms, as well as ethical, positioning, customer service, growth, market share and other specific ways. You will find that your vendor industry thinks about you in somewhat different ways, including openness, honesty, intelligence, stubbornness, vision, payment speed, talent, relevance, etc. There is no doubt that you need both perspectives. Often.
14. Do we beneficially participate in the industry? Specifically, are you supporting productive and successful groups that fight for your SIC industry and for your direct marketing industry. As a cataloger, are you supporting the American Catalog Mailers Association (ACMA), the only trade association specifically concerned with catalog issues? One of the biggest shortcomings of the direct marketing industry—for decades—has been the unwillingness of individual catalog companies to part with a small amount of their earnings to support trade efforts to assure they would survive into the future. Do we have our head in the sand, or are we just cheap?
15. What should we stop doing? Take stock of all the things you are doing and ask which of those initiatives are promising, successful, stalled and failing. Focus on the stalled and failing and investigate and then honestly ask yourself, “Can these be fixed?” Of the initiatives that either can’t be fixed or are too expensive to fix, or that may never return any financial benefit, decide which one(s) to stop doing. Sometimes stopping is more difficult than starting, but it is the mark of a pragmatic leader who is a good steward of limited resources. Plus, if it doesn’t work, why are you doing it in the first place?
16. What should we do more of? In the same manner as above, evaluate those things that you do well and that you would benefit from doing more of. This may entail more circulation to a successful market, more product development in a growing product area, more allocation of resources to a successful channel, more productivity improvements in supply chain management, more focus on a specific customer demographic that has been profitable, or any other positive successes you are enjoying. If you train yourself to these two ‘yin and yang’ evaluations of what isn’t working and what is, you will find that, over time, you make better intuitive decisions.
17. What part of the grill needs more charcoal? If you think of the company as a grill and what you are doing as grilling the world’s best steak, where—in your estimation—do you need to add charcoal in order to increase the heat? Is the supply chain manager slowing down? Has marketing found it easier just to let Abacus do the circulation plan? Have the merchandisers been buying smarter and are the quantities reflective of a proper open-to-buy system? Is order entry and customer service consistently ahead of the curve? Has the CFO begun to have too many unanswered questions? A delicious, juicy, well-grilled steak is all about the proper and controlled application of heat. How good of a cook are you?
18. What is our ‘Density Profile?’ Density is many things. Maybe thinking about your Density Profile will sharpen the vision focus. Density is products per page in the catalogs and on the website. Changes in product density can have significant changes on performance, positive and negative. Density is people, as well. There are those (like me) who say average sales per employee should be well north of $375,000 per year. Density is also knowledge. All employees have a skills and knowledge density; in some it is higher and in some it is lower. Your job is to increase skill and knowledge density to the extent possible. Density is customer depth. How deep do you go in the overall and the specific sub-customer universes that you service? Then, how deep is your customer density in each customer company that you sell to? Density is product density. How dense is your product breadth and your product depth? Are you offering only the top sellers, or are you offering every product in the range? Density is channel depth. How well are you using multiple channels to increase the channel density, both in organic and paid search, and in adword, affiliate, RSS, social networking, mobile, as well as catalog, email, telemarketing, collaterals, inserts, and other channels? Management density is a measurement of the quantity and quality of rainmakers. When you are talent dense, it’s always raining; when you’re not, it’s always a drought. There are lots of different ‘densities.’ When you evaluate them and look at the results honestly, you will often have a new perspective on what is and what could be.
19. When is the last time we had an original idea? Are we innovating or are we just repeating what we know? Have we tried new ideas? Are new ideas coming from anybody, or are they the province of only the owner/CEO? Do we try new ideas suggested by people from outside the business—maybe even customers? Do we have at least one Really Big New Idea that works at least every two years?
20. Who do we rely on for good advice? There are times when good advice—the unvarnished truth—is needed (actually, this is something that is needed regularly). Where does it come from? Trusted advisors? Family? Old friends? Reliable professionals? Is there a real board of directors who offers advice and keeps feet to the fire? Are they knowledgeable and experienced with maturity and gravitas? Or, like the doctor-fool, do we self-advise and self-medicate ourselves?
21. Are we an old business or a new business? This has nothing to do with time. Rather, it has to do with relevance. Are the products we sell the new products of the marketplace, or are our products ‘evergreens’ or commodities? Is our market a new market (like alternative energy production), or are we selling to a marketplace that is slowly shrinking and exhausting (like machine shops)? Is our distribution model old or new (decentralized versus centralized)? Is our talent pool innovative and leading edge in our market, or is it ‘old-school’ thinking and execution? Do we look old or new (creative, facilities, image, even décor)? This is the haunting question that makes you question whether time has left you behind and in the past.
22. What is our most valuable asset? We don’t think about this enough. Worse, we almost never ask whether our strategic initiatives are in synch with our most valuable asset. If it is proprietary products, are those products being merchandized properly? If it is the mass of the customer base, is the company finding ways to amplify the volume that mass purchases? If it is the old chestnut, “People,” then why do we micro-manage them and have such poor internal communication? Only when the value of the assets of a business is understood—and in hierarchy—can the management of capital, goods and people be synchronized to obtain the maximum benefit from those assets.
23. Will our distribution model be cost-effective over the next five years? If you look at where your products come from, where they are warehoused, and where they go when they are sold, does it make future economic sense with $4-7 diesel fuel, total reliance on expensive over-the-road trucking, and centralized inventory? Is there a different configuration that will be financially more effective in five years?
24. Are we seriously looking at ‘Cloud Computing’ as an alternative to our rising data costs? When all of your computing is done on remote, hosted servers and you have no computer infrastructure to support, will there be a financial and operational benefit? It appears a large part of the business universe will migrate to the ‘clouds.’ Will you?
25. If we were to revolutionize the packing component of our fulfillment, what would we do to be on the absolute, lowest cost, leading edge? If you look at a simple process like shipping books, nobody does it as well as Amazon. They have one-size-fits-all cartons and they use air bags as the dunnage. When was the last time you did a full-blown innovative and revolutionary review of your future packing potentials?
26. Why are we pushing so much paper around? If you look at most companies, in 2008 with all of the electronic technology available, there are still filing cabinets full of purchase orders and other records. Why is this? Why has your company not adopted efficiencies in the purchasing process, such as the proven VendorNet, to eliminate process bottlenecks and paper records? Why are we not doing total file-sharing and eliminating all paper communication?
27. Why are we not 100% EDI? If every one of our suppliers required us to be 100% EDI capable, what would we do? Why are we not the one demanding that our suppliers be 100% EDI capable? Why are we writing checks, sending purchase orders, confirming shipment receipts, and all the other 19th Century processes?
28. How do we justify not being 100% bar code capable? It’s 2008 and bar code technology has been proven now for about 30 years. How can we optimally function and optimally drive profitability without this basic, minimum technology throughout our operations?
29. Who is responsible for Big Pictures? Somebody has to keep an eye on the stuff that comes out of left field that blindsides you and knocks you to your knees. Who is that? And whoever it is, does that person have the capability to do that type of discrete, futurist, analytic, cause and effect thinking? Is the company visionary doing this job, or is it the company ostrich?
30. Is there one person who completely and thoroughly understands all of our processes?If there is such a person, and only one such person, you are at serious risk. Most companies that have been around for awhile and have inbred systems and processes usually have one person who is the ‘go-to’ person for all things. If that person leaves, nobody knows how things really work any longer. You need understudies and a variety of people who have broad understanding of the systems and processes. It is easier to trust the one, long-time ‘loyal’ employee who is the all-wise and all-knowing Oz. If you choose to go that route, make sure you never upset that person and that you always pay the person well. The other side of the Oz coin is really ugly.
31. When is the last time we took a walking tour of the grounds? Does the facility look nice? Is it pleasant to come to work? Are there a lot of weeds growing around the grounds? Is the parking area maintained well? Do you have a quiet place outside for a summer lunch? Do you look like a successful company? Are the windows clean? Do the doors have handprints and grime? Is the lobby bright, clean and up-to-date, or do you still have a sliding window and two old plastic chairs for waiting?
32. What are we going to do about the cost of health insurance? Yes, what are you going to do about the cost of health insurance? It is not sustainable.
33. Given the increasingly fragile nature of security, are we totally backed up and can we operate in weather, terrorist, or systems emergencies? Let’s be straightforward: This is several hundred percent more important today than it was in 1995. Choose three different emergency scenarios—one from terrorism, one from extreme weather, and one from cyber sabotage—and describe how effectively you will continue operating. Or, have you given this any thought and preparation?
34. Are we organized right? Over the past year, I have advised on six reorganizations. All of them went from a horizontal configuration back to a vertical configuration. It seems the 1980-1990s ‘push decisions down to the lowest level’ style of organization is being re-thought. It also seems, once again, people want to know what is expected of them and where the boundaries are. Today’s half-and-half employee (half career, half family) is more interested in doing what is expected than in making decisions about what needs to be done. The one common element of successful organization that I have observed in successful companies over the past thirty plus years is: Simplify, Simplify, Simplify.
35. Why do we fly as much as we do? Does it make sense to begin setting up serious teleconferencing capabilities that our suppliers and customers can easily tap into? Can we learn to be as effective with teleconferencing as we are in person at least 50 percent of the time? The other part of this question is that we may soon have no other viable alternative. It would appear that the aviation industry may be a 70 year old failed experiment having no utility, no convenience, no satisfaction, no profitability, and no investment potential.
36. What is our primary strategy for growth? There are only 5 primary strategies for growth: 1) more products; 2) more customers; 3) more markets; 4) international expansion; and 5) acquisitions. Yes, better customer service, analytics, fulfillment, etc. are also growth factors, but they are minor and should be a part of any good company’s strategies. The primary five, however, are the ‘Big Ones.’ What is your strategy? Is the management team in agreement? Are you staffed and organized to achieve that growth through that strategy? Have you thought about this? Do you have a strategy? Is it logical for your company, your SIC, your customer base, your size, your financial capacity, your capabilities, your strengths?
37. Given our primary strategy for growth, where do the catalog and the online channels line up? You are always concerned about allocation of advertising dollars. Until you have an answer to Question 36, you can’t have an answer to this question. Which channel will give you the fastest, most cost-effective and profitable growth possible while fulfilling your primary growth strategy? This is that wondrous and elusive state of being in-synch with your future.
38. What is our end-game? I ask you this question, in one form or another, every year I do the Co-Op keynote. The end-game is the exit strategy. There are only 6 possible end-games: 1) sell to a strategic buyer, usually a competitor; 2) sell to a financial buyer, usually a private equity group; 3) sell or give to a family member; 4) sell to the employees; 5) liquidate; and 6) die in possession. At some point, after you weary of your nonsense answer of “How can you know, things change?”, you must give this serious thought and reach a logical conclusion. Every action from this day on is dependent upon the answer to this question. Every strategic growth initiative is dependent upon the answer to this question. Until you have dealt with your own mortality, you cannot deal with the end-game question, and the business will not have a clear, steady and logical path. Equally concerning, you will not maximize your potential exit valuation and ‘harvest event.’
39. What is our ‘Weakest Link?’ You know the ‘weakest link’ analogy. Somewhere in your company there is a process, person, product, system, technology, or trend that is your weakest link. What is it and what are you doing about it?
40. On a scale of 1 low to 4 high, how much customer input is there in our business—really? Now, please don’t blow smoke here, talk in platitudes, or be delusional like most companies. What are the real, visible, working, effective and proven, repetitive information-gathering methods that put customer intelligence and preferences at the center of your business? If you don’t score a 4, you have a problem.
41. What is our chosen road? Do we take the Low Road of bending our ever-changing, never trusted vendors for another 2 percent, or do we take the High Road of asking our long time, mutually dedicated vendors to share in our success by being Trusted Advisors? Are we short term takers or are we long term partners? If you are not benefiting from the best efforts of world-class, involved partners, you are probably on the wrong road, the road built in the 19th Century.
42. Do we have any fun? Is the primary background noise at your company laughter? One of my favorite due-diligence exercises is to go to a company I am trying to buy and to quietly sit in my car in the visitor’s parking area about an hour before business hours and look at the faces and the body language of individuals and groups arriving for work. By the amount of before work laughter and smiling, I can get a really good idea of the morale of the potential acquisition. If the company isn’t fun, it doesn’t have fun employees and the ideas are usually below par. If it isn’t fun, it is a direct reflection of the owner/CEO’s personality.
43. What are our merchandising strengths? Merchandising capabilities are: 1) product selection; 2) supply chain management (sourcing, buying, inventory control); 3) creative content; and 4) analytics. Where are you strong and where are you weak? If you have merchandisers who select products well and pick winners, do you have buyers who can source well and keep supplies on hand? If you have great copywriters and creative elements, do you also have skilled analysts who can tell you everything you need to know about merchandise performance? Rank your merchandising capabilities 1 through 4 and then ask yourself if that ranking is in synch with your needs. Hint: if product selection isn’t your #1 strength, you have a problem already. Second hint: if merchandizing analytics isn’t your #1 strength, you have a problem already. See the problem?
44. What are our marketing strengths? Marketing capabilities are: 1) marketing analytics and database expertise; 2) circulation/contact planning and execution; 3) print advertising and online advertising production; and 4) prospecting and new customer acquisition strategy and execution. Where are you strong and where are you weak? Do you have analytic as well as production talent? Is circulation and new customer acquisition an internal strength or are you relying on third parties? Rank your marketing capabilities1 through 4 and then ask yourself if that ranking is in synch with your needs.
45. What is the primary thing that got us to where we are today? What is responsible for wherever you are? Be careful because this is a two headed question. Depending on where you are, whatever got you there may be positive or it may be negative. If you are wildly successful and obscenely profitable, it may be because of great proprietary products. If you are about to go under, it may be because of under-capitalization. At some point, however, you have to answer this truthfully in order to understand the future options and potentials (or lack thereof).
46. When was the last time I personally talked with 25 customers? We all know it is one of the most instructive and beneficial things we can do, but few of us ever do it. The number 25 is unimportant; it may be 100 customers, or 200. The right answer is how many it takes to understand what they perceive, what they want, and what they think they are getting. It also gives you excellent perspectives on your competitors. If you do this at least quarterly, you have a reasonable chance of knowing what is going on with the customer base.
47. What percentage of sales are we losing to ‘Net Gants?’ These small, web only operators are zeroing in on your best selling products and charging a lot less and offering free shipping. What percentage of your customer base is buying and defecting? If you don’t know, how can you counter the trend? The only way to find this out is to talk to customers and to ask them (see #46 above).
48. For our company, what is the truth: in-house analytic systems are better or third party, outsourced analytic systems are better? You must have accurate and relevant database, product merchandising, and marketing analyses. Should you bring it all in-house or should you outsource it? It’s 2008 and most companies are still trying to answer this question. Why?
49. Do we do nice things for our employees? I’m not talking about a turkey for Christmas. I’m talking about the Larry Quadracci concept of ‘nice.’ QuadGraphics, early on in their legendary development, tried to give young people an opportunity to marry, have a family and own a home. They felt they were creating a bond with the employee. So, they gave them a no interest loan for a down payment on a home payable over their years with the company. They also wanted their people to have the opportunity to attend college. So, they set up a diploma program in partnership with a local Wisconsin college and taught a degree program in printing technology. The graduates then went on to be the teachers to the next groups of students. Nobody remembers a turkey; everybody remembers their first home and their chance to earn a degree. The right question is not “What does it cost?” but “What is it worth?”
50. Who is controlling the changes in our market? If your competitors are positively changing their positioning and moving your customers further away from you, they are controlling you and the market. If you are changing the positioning and moving your competition’s customers closer to you, then you are controlling them and the market. Which one are you doing? There is only one right answer.
51. Can’t we get it all done in 8 hours a day? The job—for most people—is not life. Forty hours of concentrated work a week is sufficient time to get any job done well. If it takes you 60 hours, or 80 hours, you are either massively inefficient, unorganized, showing off, or a masochist. The old “Type A” excuse is so 1980s. Performance improves when life is enjoyed.
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