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Libey Incorporated
Economic Outlook
Secrets of the Catalog Master
Vol. MMVIII No. 5
July 2008
(Continued--page 2)
52. Do we require perfection or do we get stuff done? There are those companies who use the quest for perfection as a justification for procrastination. Management just doesn’t want to risk failure, so it demands preparation, re-preparation, perfecting, re-perfecting until the original objective goes away and there is no risk. Some owners/CEOs tell me their company is “conservative” while others tell me it is “risk aversive.” What I usually find is these companies are afraid of exposing themselves as being afraid of taking risk at all.
53. Has any outside thinking or influence been imported to our company? Look back five years and name the people who came from outside the company, industry, SIC focus, or mold and actually introduced some fresh thinking that proved to be beneficial to the growth and profitability of the company. How many of those people are there? Should there be more?
54. Does our CFO have way too much power? CFOs are interesting organisms. Some, like beneficial digestive bacteria keep us regular and smooth. Others create severe financial and operational gastroenteritis. Good CFOs offer options; bad CFOs offer absolutes. Some—the really dangerous ones—make sure all management decision DNA threads spiral through their mitochondrial structure. CFOs who manage financial performance, risk and investment potential are absolutely invaluable and absolutely essential, but CFOs who attempt to manage all corporate strategy are a problem. Of interest is the general finding that Chief Marketing Officers, Chief Merchandising Officers, and Chief Operations Officers usually do not attempt this level of problematic control. When it is found, it is usually the CFO or the Chief IT Officer. Where are you? See Question #1.
55. Are we preparing for European-like environmental and ‘Green’ regulations? Have you looked at the regulations Brussels has placed on European direct marketers relative to environmental standards? If not, you may want to in order to understand not only what is coming but what is possible in an uncontrolled big government era where free market capitalism is not the priority.
56. If our business is based on quality and high customer regard, do our operating policies reflect that foundation? This is a complex question and one that requires you to take a look at difficult things that you really don’t want to deal with. Are our employees allowed to come to work looking sloppy, or do we have some old-fashioned standards of dress? Do we behave to each other internally as we would want to behave to our customers? With politeness? With concern for problems? With understanding? Does our management team have a double standard? Are we phony or genuine? Do we accept untruths with each other and with customers? Do we respond to customer and quality problems by asking, “How many customers are affected?” or “How many times does this happen?”
57. Are we overdue for a creative make-over? If you look at some of the icons of the catalog industry, especially business-to-business, they have looked like they now look for twenty years or, in some cases, more. Every business must change, must be refreshed, must maintain contemporaneity, and must reflect their customers’ migration of interest and sophistication. All too often, catalog companies that are out of synch with creative appeal are also out of synch with product appeal or customer service appeal. A static creative look is one of the clues to a company that has dozed off; however, it is the only visual clue.
58. Are we highly skilled at detail, or are we highly skilled at shooting from the hip? There are a small handful of very successful direct marketing businesses that manage high volumes of successful projects and get them right due to expertise in detail. Make no mistake: it’s all about details. The majority of companies operate somewhere in between, and in the lower half of the curve, it’s all Wild West, ridin’ and shootin’. Take $1,000 and manage all the details well and you will have $2,000 quickly. Take $1,000 and shoot from the hip, and you will have $500 quickly . . . then $100 . . . then nothing.
59. How’s our lighting? There are two parts to this question. The first is obvious: is the level of light in the office and warehouse adequate and does it encourage productivity? Have you done lumen level testing? Changing light levels can improve performance. If you can update to energy efficient lights and improve productivity, why not do it? The second part is lighting as a philosophy. Do we allow intellectual light? Do we allow the light of joy? Do we allow the light of fresh ideas and thought? Until we are physically
and intellectually ‘well lit’ we are operating in the dark.
60. Do we really need to grow? Okay, we’re doing $15 million and taking out $1.5 million net every year after good reinvestment. Why grow? Why not just keep doing that? Why should we get big and have lots of employees and problems, as well as a lot more risk? Why play on the merry-go-round? Whenever I ask this question privately or publically, I hear the cries of, “Heresy! Heresy! Burn him!” Maybe it is heretical. Maybe we actually do have to grow or perish. But, I have to tell you, I observe a lot of very happy people who have $15 million dollar businesses and are taking out a very nice living and enjoying their lives. Is the Growth Imperative something we are taught to assure that the free market wheels keep turning, or is it an immutable law of business physics? It really doesn’t matter as long as you have looked at the question, asked it of yourself truthfully, answered honestly, and have accepted the answer. What I do not agree with is that there is only one answer for all companies: grow or perish.
61. How much ‘shrink’ do we have? Shrink is nothing more than a euphemism for stealing. The amount of shrink is always secondary to the fact that you have employees who steal. Why do you have employees who steal? How do they get hired? The solution is self-evident.
62. Are we good enough to be a brand? There is so much talk about branding today, but most direct marketers are not manufacturers and only resell products. But, there are some that private label, and there are some (very few) who are so good at this that have become a ‘brand’ of their own (Northern Safety, as an example). Most companies talk about becoming a brand, but they don’t quite know what that means or how to go about making it happen. Where are you? What do you believe about brands and about attempting to make the transition from reseller to a brand? Does it require having proprietary products, or is it possible to brand service, attitude, price, or other positioning elements?
63. Do we have effective merchandising forecasting systems? Today, merchandisers and buyers use sophisticated sales and buying forecasting software, as well as ‘open to buy’ systems for greater control and efficiency in the overall product cycles. These are seamlessly integrated into the operating, order entry, warehousing and inventory control modules to produce highly accurate inventory level projections and buying cycle analyses for merchandisers and buyers to use to improve performance, margins, inventory turns, supply chain performance and to lower costs. The end result is reduced out-of-stocks, improved inventory efficiency, higher customer satisfaction, and higher earnings. Additionally, good merchandising forecasting systems allow less experienced or fewer merchandisers to perform at a higher level and remove the bulk of the ‘flying by the seat of the pants’ from the equation. Open to buy systems truly hold the buyers’ feet to the fire and add accountability to the buying process. While expensive, my experience is the return on investment for these systems is less than one year.
64. Is there anyone who actually looks at the orders on a daily basis and has a feel for what the customers are buying? In the ‘old days’ the owner went through the mail and looked at all the orders. The result was an intuitive understanding of the flow of the business. This tactile connection with the orders and—by extension—with the customers has been largely lost through automation and ecommerce. The more we know, the farther away from the customer and the products we get. So, how do we get an intimate understanding of what and how the customer is ordering on a daily basis? Lose this and you lose a part of the company’s soul.
65. Why don’t we do public relations? A new phenomenon exists. Online news and other articles discussing products or services have links to the source for those products. I read about an indictment of a caviar merchant for smuggling recently and there was a competitor’s comment about the illegality of smuggling paddlefish roe. The legal competitor remarked that their caviar was fully inspected by all of the government agencies and there was a link to their paddlefish roe product page. I bought. That is the very powerful cause and effect of good public relations. Earlier this year, I wrote about tracking my last dozen Amazon purchases of books and found that nine had come from mentions in the online New York Times. I read . . . I click . . . I purchase. Good PR. What are you doing? List the top SIC controlled circulation publications in your industry and start having mentions, product reviews, and imbedded links in articles placed by competent PR professionals. My guess is that this will become a very important ‘new’ old channel.
66. Is our photography any good? I’ve been doing a series of in-depth catalog critiques this year in the U.S. and in Europe. I can only report to you that the catalog photography in the U.S. is way behind what the European catalogs are doing. Our business-to-business catalog creative world is still using about 70 percent manufacturer supplied photography. Most of it is fine for manufacturers’ lines, but it has nothing to do with the creative conventions and demands of catalogs. We have remained where we were in the 1990s in photography. Photos are intentionally done for right pages, for left pages, for unity spreads, for upper right hero shots, for lighting effects, and for hundreds of other specific demands. We are still trying to fit one shot into all creative possibilities, and it looks like it. Somewhere out there in the ether is my 30-page monograph on “Catalog Photography.” It might be worth reading.
67. When did we last look at what we pay telephone sales reps? I’m not talking about the hourly rate or annual COLAs; I’m talking about incentive pay for making more sales. There have emerged two schools of thought recently. Some believe in incentive and commission payment plans. Others are beginning to question whether they make sense, work or not, or are too divisive. Some are paying a higher salary rather than a combination of hourly and commission rates. When did you last really get into this issue and seek the opinions of your sales people as well as your managers?
68. What does our returns processing area look like? You can tell a lot about a company by looking at the returns processing portion of the warehouse, especially at the end of the day. If there are no returns to be processed, either there are no returns or they have all been processed. Both are good. If, on the other hand, there are packages stacked fifty high and spilling all over the place, there is a problem. There are benchmarks for the whole discipline of returns management. Where are you? The more interesting question is what do your customers think about your returns management process?
69. Is our circulation planning up-to-the-minute or is it a reflection of past years? Are you doing your circulation planning, allocation of advertising budget, matchback analyses, and other analytics based on statistical knowledge and skill of 2008 or are you using the same methodologies used in the 1990s or earlier? Is the most skilled, highest experience, circulation specialist in your company doing the planning, or is it an entry-level person? Have you asked your Trusted Advisor, your broker, to add to the professional input, or have you just abdicated the whole thing to some Abacus-like “black box” because it’s easier?
70. Are we selling to the federal, state and local governments? If not, why not? Given the current occupants of the Congress and the White House, it’s basically free money. Talk to Mark Amtower, Mr. Government Direct Marketing.
71. Do we have an effective image management system integrated with the catalog and web production systems? Is the product information and image archive automated and is it a world-class system is the real question. When you use something like Stibo STEP and have it integrated into a powerful operating system, your catalog and web pages can be automatically built and you save a great deal of time and expense in managing the creative and product information loading process.
72. What are we doing to avoid ossification? Ossification is the gradual stiffening of the joints, a slow ‘turning to bone’ within the skeletal framework. Companies tend to ossify also. You have to work very hard to avoid the process—exercise regularly, take walks, eat healthy foods, get plenty of rest, avoid ‘more of the same’ thinking. If you visit ten companies, five are awake and five are asleep; of those sleeping, two are napping, but three have fallen into deep sleep and their ‘corporate body’ is beginning to get cold and stiff. How is your company doing?
73. What is the value of our ‘soft assets?’ You—and your banker—know the value of your inventory. Your Accounts Receivable is accurate to within pennies. Your facility and land (if you own) carry a stated book value. All these are necessary when you have an active Line of Credit. But, when the bank fails to renew your LOC, are you prepared to demonstrate additional sources of value, such as the value of your customer list? How do you value that? Who is the expert value appraiser of customer lists in the industry? Do you have a current value opinion of soft assets, such as the customer file, trademarks, patents, etc. in your files and are they updated every year?
74. What are the three things about this business that I believe in above all else? At some point, you have to get down to the passionate, core beliefs and you have to evaluate them against everything else. If they continue to ring true, you are fortunate. Keep going on your present course. But, if one or more are shaky, you must re-examine your core beliefs because perhaps you need to change. This is among the most difficult questions to face for the simple reason that your rock-solid beliefs can be challenged and found wanting. But, to recognize that is the greatest gift and opportunity of all.
75. Have I surrounded myself with people who agree with me or with people who are smarter than I am? No further comment is really required.
76. During the last year, did we make at least three great discoveries, giant leaps, competitive triumphs, or huge improvements? The race usually goes to the bold, the steady, the innovative, the daring and the swift. Are these objectives a regular part of your company’s accomplishments, or are you plodders? There is one winner each year at the Kentucky Derby, about fifteen other thoroughbreds in the race, and around 890,000 other horses trying to get there just once. Are you a thoroughbred winner or an also ran, or are you not in the race?
77. Have I developed the type of trust, respect and rapport with my counterparts in the industry so that I get to hear about and see the best opportunities first? Over my career, I have seen how the good deals get done at the conferences, the twice-a-year gathering of the Business Direct Group, at the MeritDirect Co-Op, and a few other highly regarded meetings of the “Catalog Guild.” At each of these events, a few people who are universally respected are approached with ‘exploratory options’ first. These are people so well-regarded that they are always the first choice to buy someone’s company, or to employ a rainmaker making a change, or to be offered a great proprietary product line. They are usually the first person to be offered an investment opportunity, as well. Where do you stand in the reception line?
78. Are we good at hiring? If you listed all of the people at your company that have been there for two years or more, how many of them would you have hired if you knew then what you know now? If there are 100 employees on that list and you would only have hired 23, you have a 23 percent hiring success rate—a 77 percent hiring failure rate. How can you hire better people or learn to spot better potential?
79. Do our employees—at all levels—talk to each other? Are you growing internal communication or is everyone sending everyone else emails? Are people asking face-to-face questions and solving problems in person, or are you all e-hermits?
80. How do we reach decisions? I have observed only four methods of reaching decisions in direct marketing companies: 1) they don’t (generally involves endless study, analysis and meetings); 2) by owner’s directives; 3) by collegial agreement; and 4) by default due to necessity. The first method is driven by fear; the second by the need for control; the third by the need for love and harmony; and the fourth by ennui and randomness. If there is an ideal method for decision making, it begins with customer needs; followed by thorough, careful, but rapid investigation; followed by logical, open discussion and debate; followed by majority support. Decision making is a learned skill. Owners often assume the responsibility early in the history of the company due to financial limitations, but as the company grows owners must learn to broaden the decision making skill to include all senior managers and others as appropriate. One begins to think about this question by looking at the four decision making methods above and being honest about where the company is now.
81. How much cash reserve do we have? How long can the business operate? Notice that those two questions go hand-in-hand and are linear. If the cash reserves are high, the business can operate longer. There is a ratio that measures this and is a part of Ratio Analysis, a very useful form of financial and operating metrics that examine on a monthly basis some twenty plus business ratios and provide a profile of business health.
82. How much do we know about the future of our SIC focus? A company that sells metal-working tools must have as complete an understanding as possible about the metal-based SIC industries it sells to. There should be a ‘supplier group’ that gets together with senior management and talks about what they see coming in the primary and sub-industries. I have always set up these small group discussions to be private so that I obtained as much SIC understanding as possible before the competitors were aware of the future changes. This is “Rudder Management” and belongs to the owner/CEO. This is time very well spent.
83. What is our market share? It always amazes me that most companies don’t know and have to estimate how much share they own of the market. Only three pieces of information as required and would seem to be quite basic to a direct marketing business: 1) what is the total market size (in numbers of businesses and in total expenditures); 2) what percentage of #1 does multichannel direct marketing have; and 3) what percentage of #2 does our company have? The most important part of this question, however, is the follow-up question: Do we have more or less market share than we did last year? If you really think about it, this is all that we do—we either gain or lose market share. Why is that that we can’t answer this fundamental question precisely?
84. What are we doing about paper prices? As I look back over four decades, I see three constants: 1) postage increases; 2) paper increases; 3) shipping increases. To some degree, paper and shipping can be partially controlled by either negotiation, or smarter buying. How much emphasis have you placed on elevating paper buying to a specialty discipline within your catalog business? How much do you know about the international paper market and the alternatives that you have in buying paper? What do you understand about paper prices in five years and have you done the break-even models?
85. What is my definition of success? As I write this, I just got off the phone with a former client who had a nice $15 million business I tried to sell five years ago. They wanted around $10 million and I brought them a deal for $11 million. Since they were able to get $1 million more than they wanted, they concluded the business was worth even more and decided to hold on to it until they could get $15 million. My advice was that $11 million was more than they wanted, and how much more did they need, anyway? Plus, if the economy did what it appeared it might, would they ever get that much again? They kept the business. Now, five years later and a different economic cycle, after three years of losses the bank line of credit has been called, business is off by 30 percent and they are looking at liquidation. The Point: every business has its season and every business has its definition of success. It is always best to know what the definition of success is and how much that is worth. The very last thing you want to say is, “We should have sold it then.”
86. How much of our earnings is influenced by our location? In re-stating financials for a California business I was selling, it was discovered that there was a 30 percent fixed-cost savings to be had if the business was moved from California to Nevada or Idaho. The cost of doing business in California is simply higher than almost anywhere else. In evaluating a stationery printing company located on Long Island, I discovered that the shop union wages were unsustainable and that, if the business was moved to Nebraska, earnings would increase by nearly 50 percent. The ‘stew’ of land values, local wages, taxes, regulations, shipping costs (in and out), and a dozen other ‘location variables’ can have a profound influence on your earnings. Sometimes, the savings realized by moving to a low-cost location are greater than the costs of doing so. As an example, there are new warehouse/office facilities in secondary Midwest cities with excellent work force availability and low overall costs that will be given to businesses free if they will relocate to those cities. And these are nice places to live, to boot! Have you done the analyses to see what your business could gain by a new location?
87. Are we a multichannel marketing company or an SIC-focused company? This is a question that is always at the back of most owner/CEOs minds. Do we sell safety products to the manufacturing, construction and food preparation markets or are we a multichannel marketing company that can sell anything to anyone? The resulting discussion is interesting and it tends to describe how the company thinks. There is no right answer, only open-minded exploration of alternatives. Do you do that?
88. On my senior management team, who is the thinker, who is the analytic, who is the dreamer, who is the pragmatist, and who is the sheep? Chances are they are all there. Have you figured out who is who? Each of these requires a different management approach, a different communication method, a different accountability requirement, a different type of motivation. You cannot use a ‘one-size-fits-all’ style of management. And—by the way—what are you?
89. Is our SIC industry fragmented or consolidated? Some SIC industries are attractive due to universe size, margins, scalability, average order value, trends, and dozens of other fundamental and technical reasons. These tend to be consolidated by strategic and financial buyers. Other SIC industries are not particularly attractive for whatever reason. These tend to remain fragmented, often ‘Mom and Pop’ businesses. Where is your company’s SIC focus? What do you see occurring? How are you positioned to take advantage of that future trend?
90. Which of the Five Cardinal Financial Elements are our strengths and which are our weaknesses? The ‘Five Cardinal Financial Elements’ are: 1) sales; 2) gross profit margin; 3) advertising expense; 4) operations expense; 5) fulfillment expense. You can do a 1 low to 4 high ranking, or you can do a positive/negative ranking, or you can use strong/weak . . . but use something to understand this basic evaluation and then begin doing something about the results. When you get it down to only five variables, the thing gets easier to understand. Hint: I have never seen a business with all “4”s, with all positives, or with all strengths.
91. If by tomorrow at 5 p.m. I had to find $5,000 of savings, where would I go to get it? I would recommend that you look much deeper wherever you find the $5,000. There may be 10 times that amount to be saved there. It is an interesting phenomenon (actually a little like panning for gold): wherever you find $5,000 in dribbles (or as the gold miner calls it, ‘color’, you’re more likely to find a rich vein of value. When I ‘plug leaks’ in profitability at companies, I don’t look for $1 million leaks; I look for $5,000 leaks and then start digging.
92. If I could have one person on my board, who would that be? You either have a formal board or an informal board or no board. There is someone you believe could help you more than anyone else. Have you asked that person? Why not?
93. What is that makes this business more meaningful than just selling widgets? Answer that question and you will uncover the reason you do this. Once you know why you do this, you can begin to align the physical, intellectual and financial forces that provide balance and bring success to the endeavor. That process approaches a much higher purpose and begins to describe an examined life of value where success is almost always assured. To master this level of purpose, you really have to understand Warren Buffet.
94. What is my definition of “Big Money?” The answer to this question is very revealing. An incredibly astute and able CEO/financial genius who owned a number of large businesses took me to lunch during an interview for a position I was hoping to get (and did). After a lot of interesting conversation about many topics, not all business, he asked me when coffee was served, “What is Big Money to you?” I thought about it and answered “A quarter of a million dollars.” He replied, “Interesting” and that was the last he ever mentioned it. But, over the next 5 years, regardless of my budgets, salary level, stock options, equity position, or anything having to do with my personal and business financial decision making, he always knew I thought in $250,000 increments. He had me pegged for risk and reward. I’ve never forgotten that lesson and I have never forgotten to ask that question over coffee to every person I have ever interviewed since. Do you know where your senior managers live on the Big Money question? How about yourself?
95. What is our ratio of catalog and online sales in each of the last ten years? This is the big trend question. It doesn’t require anything more than a medium-sized Post-It Note and ten annual financial statements. List ten years down the left side, then put catalog sales and online sales to the right of each year. What does this tell you? Every decision relative to channel allocation of advertising begins with this little piece of paper.
96. How does it smell in here? Whenever I visit a company, the first place I go is the Mens Room (as you have read many times). Everything I need to know is likely going to be in evidence there. The second thing I do is smell the air. Great companies have a pleasant, fresh scent about them, sort of a ‘freshly bathed, clean and soapy smell.’ Distressed companies almost always have a malodorous miasma about them, a bit ‘locker-roomish.’ Am I right?
97. How much time, attention and opportunity are we giving the ‘bright-up-and-comers’ on the teams? We spend so much time with senior managers that sometimes we fail to notice properly the people doing most of the heavy lifting. Among the middle management and the entry-level managers, who have shown themselves to be bright and promising? What are you doing to encourage their development and to make sure they don’t get discouraged and leave? This is all about listening and encouraging and communicating, and you can’t always rely on your senior managers to do it. You have to find a way to know who is doing a great job and give them opportunities to do more, yet, not micro-manage them.
98. Can I turn this business off in my head? If you don’t, you will go nuts. You cannot live, eat and breathe the business constantly, year-round. And your senior managers can’t either. You have to get away, have to turn off the email, have to turn off the cell, have to stop thinking about the day-to-day and spend adequate time looking at water, sunlight, forests, mountains, or whatever and ‘dream.’ The most troubled businesses I have seen are those run by owners and CEOs who cannot escape and, therefore, grow morose, gray and worn; their batteries are exhausted and so is the business. Don’t let this happen to you.
99. Why don’t we use more of the 256 known types of direct marketing merchandising offers? Every time I review merchandising performance I ask this question. Long ago, I isolated 256 types of offers used by direct marketers, yet everybody uses basically two or three. There is the retail price. There is the discount. There is the ‘Do This-Get That’ offer. Why can’t we be creative and elevate the art and science of offers to a high art form?
100. What has been my greatest accomplishment for the business and for my life? When you look at these two accomplishments, you learn a great deal about a company and a person. Often, they are linked. In both cases they get to the essence of things, or truth. And truth is the greatest need in evaluating and improving all businesses. It begins with owners/CEOs and it goes through the entire company like a bolt of lightning.
101. Which 10 of the above 100 questions do I believe are the most significant for my company now and in the future? You have to start somewhere when you are on a quest.
And now, in the interest of always giving more than promised, here is a bonus question:
102. What if I gave this to everyone? Hummm? Your call.
Go Forth and Multiply
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