Complete Story
01/18/2018
Secret Sauce for Success
Source: PIASC's Weekly Update, January 15, 2018
The most successful firms in our industry are characterized by a tight grasp on two basic principles:
- Sell as much as you can for as much as you can get.
- Only invest in the plant and equipment that you can put to full use immediately
The first principle, “sell as much as you can,” means a total focus on fully utilizing the plant and equipment you already have. While there are 168 hours in a 24/7 week, the reality of needed maintenance and the unpredictability of customer demands in a custom manufacture, “I need it right now,” environment probably means that the practical upper limit on full utilization is two full shifts with overtime as needed including the occasional sixth day.
“For as much you can get” means acceptance of the reality that your firm doesn’t decide prices, the buyers do. Whether we like it or not, they will not pay more for work than the value that it would create for them, nor more than the price they perceive it could be obtained from an acceptable alternative supplier. Thus, our pricing system must be focused externally on value to customer and our competitive positioning, not on “getting our costs.” An internally focused pricing system will lead us to prices that the customer won’t pay (zero sales) or prices that are less than they might have paid (money left on the table). The mark of success in this arena is a “hit ratio” (percentage of quotes that turn into orders) in excess of 60%.
The second principle, “only invest in the plant and equipment that you can put to full use immediately,” means that the “build it and they will come” urge must be resisted as underutilized capital investments (the new six color press with only one shift’s work) are an unnecessary drain on profits and more importantly, cash. When sales growth or new technology seems to require a significant investment, a better solution is to farm the work out at the beginning. This will provide a risk-free period to learn about new markets and/or technology, making your ultimate decision to invest safer and better informed.
An additional advantage of openness to “buy-outs” is an expanded capability for becoming a single source vendor for your key clients. This positioning can protect you from competition, expand your knowledge of their business plans and needs, as well as possibly opening the door to new capabilities.
You've Got the Sauce...
If you’re committed to the Secret Sauce for Success, you have to cook it—you need a structure to make it a reality. You must build an organization that can support your goals. By this, we mean that if you want to grow substantially, you can’t do it by trying to make your staff take on more than they are capable of taking on. Growth means both complexity, and increased transaction volume. These require both more people and better managers. The lack of either of these can severely limit the ability to grow and it means in today’s employee market, you can’t always hire the people that will work for the least money. After all, you do get what you pay for.
This is hugely important, and understood by only a few people. You must understand the financial needs of growth—whatever investments in new equipment do occur, they can’t be done solely with “other people’s money.” A willingness on the part of ownership to reinvest profits rather than take them out as income is critical to being able to grow. It’s about trading off future income for future value.
Finally, your organization must be market focused. In order to understand what “market price is” you need to understand what your market is. Equipment decisions all need to be based on what your markets want to buy from you and customer service functions need to understand the needs and value points that your markets insist on. There is no future in being just another “general commercial printer.”
