Thursday, September 17, 2015

Why Those Big Carrots Are Often Rotten...

Recently (last year) I engaged in a discussion with a client about their desire to sell to a large retail chain. We had a spirited debate and calculated the impact a year's worth of sales might have on their business. After some chalkboard math and rampant skewed assumptions, we determined that the company would grow revenue 300% year-over-year and carry a net operating profit forward on that line of sales of roughly 4%. The volume, no question, was impressive. The effort, and the qualifications to make it happen, were dramatically more intense than what the client envisioned. Fast forward 1 year and the client has abandoned the large retail chain. Why? It was simply too much for them to handle as a small company. The NOP they targeted at 4% was actually 1.5% and the volume they hoped for was 40% of projected. Overall, their business did grow revenue, however, it cost them plenty elsewhere. What happened?

The first thing the client admitted to was that they were not adequately staffed to support the sales. Staff were scrambling to accommodate additional work but were buried in regulatory requirements that they were unfamiliar with and had to learn, as well as left their existing duties on simmer with an occasional stir. Staff were overwhelmed, and a rapid hiring process delivered unqualified folks that did not represent the culture or values the company had built itself on.

Client saw existing business suffering a loss in sales, and inventory positions were damaged greatly. As this remarkable opportunity began to unfold, internally they began to implode. Sales teams were not meeting goals elsewhere as they had no product to ship, and the large volume retailer spawned a backlash from existing clients as they now had to compete on an even greater level of price slashes and inventory position. Overall, the company was struggling to maintain both business segments simultaneously. This also created a division, and resentment, by the sales staff working on legacy clients vs. those on the mass market side.

Cash was swallowed up by the demand for inventory by the retailer. All the investment dollars the company had squirreled away quickly evaporated into low margin sales and drove the business into an anemic cash mode. Payroll was difficult to meet, and A/P began to drag out, creating issues with vendors and damaging their otherwise stellar reputation.

So all of this sounds really crappy, right? What seemed so great turned into a gold plated turd overnight, and the company licked it's wounds for a few months before recovering enough to be able to regain the trust of their existing market. Yes, it did not turn out the way they hoped, however, it did have a silver lining. Within a few months of launching the ill-fated campaign the company received interest from a competitor in selling their market share to them. The competitor feared that this new mass market strategy would kill their business, and rather than fight it, they opened conversations on merging their business into the other for very agreeable terms. It also attracted an investment partner. This was great, but not the best part of the story. Through the process and difficulties uprising from this endeavor, they recommitted themselves to the principles that made them great in the first place. They circled back to innovation in market vs. revenue, and as a result doubled their head count and grew sales 4x. It a took a planned departure from their original strategy to solidify their focus, but they were better for it in the end.

The moral of the story is that if you want to swim in the ocean with the big fish, you better have a safe escape plan. Be prepared, know when to cut bait, and make sure to remember where you came from.

Friday, September 4, 2015

The Maker Profile by Wallace MacGregor

"The Maker. Our newest fascination with a leather clad bearded hipster wallet making craftopian. After liberal arts college dropout Micah traveled through Costa Rica on a gluten free expedition, he spent a few weeks on his cousin Brenda's couch in PDX researching airport carpets and the affects on travelers of sub-saharan African heritage. Micah said it was important work and he was being commissioned by grant monies generated from a government research fund for sons of left-handed longshoreman. Micah had a drive to craft the best wallet known to man. He sought sustainable materials and holistic sewing contractors and vegan-only designers and publicly decreed it so. He built tri-folds and bi-folds and upside down folds and a line for women, too. He branded it perfectly flawed and set out to PR the world to its knees and succeeded. Micah had built an elaborate structure of subs and contractors and held a few well-paid in quinoa and kale chip employees that were fiercely loyal and would fight Donald Trump's hair at the drop of a hat. Micah revered the sewing needle and would spew forth repugnant core-bonded thread knowledge at his later-night tapas parties with craft cocktails served in mason jars and stirred with a hatchet recently stained with sap from a doug fir. His friends were engrossed in Micah's splendor and the local magazines lust for more Micah, even so far as to censor Bernie Sanders' latest speech to a paragraph of obscurity. The beat lived on for 3 years of snowballing leather dust and a pop-up shop fell from the sky to turn into a retail phenomenon on the Alberta corridor where the line-ups for frozen dairy began to look like a crowd at a passé sporting event. All this next to Micah where his Honduran grown cotton fair trade sans child labor crew neck ($69) hung vibrantly from vintage rusted pipes repurposed from the school where his mom's cousin's uncle Jim went to school. Every turn told a story of triumph and the message became more than the product and soon a new Micah appeared with fairer trade cotton from a land where Nat Geo might have written about and it became too hip not to be bearded and so Micah sold out to his employees in what was known as the right thing to do always."

-Wallace MacGregor, 2015