Too much of a good thing?

Every business needs to grow. Growth is desirable because bigger means economies of scale, larger profits, more jobs and more satisfied customers. But it’s a tight market. The printing industry is plagued by overcapacity and structural change created by technology. Add to that the woes of the retail sector, upon which many in printing depend heavily.

Undisciplined efforts to grow can damage the business. Printers can grow but they need to do it with rigour. In a declining market, it can be a case of too much, too soon when the company isn’t ready. In those cases, there are a few courses of action open to the business owner – many of these have been tried, with varying levels of success, by Australian printing companies over the past decade.

The business owner – impatient and desperate to expand quickly – might launch new products and services. The company might expand into new and unfamiliar markets. It might make massive investments in expensive equipment, or it might hire a lot of employees, perhaps too many. Worse still, the owners might decide to make an acquisition or an initial public offering, creating a mountain of debt.

Sound familiar? Unfortunately, the risks are clear of what can happen when you pursue growth by biting of more than you can chew. The odds of problems escalate when the managers don’t have the skills, capital or experience.

Boom and bust

In the ’90s, the focus was on acquisitions and building new business models with companies desperate for first-mover advantage, forging ahead quickly even when they had incomplete information. Intel chief Andy Grove summed it up: “There are two kinds of companies, the quick and the dead.”

The result was the dotcom boom. There were many examples of companies that grew too fast. Some case studies are notorious: online grocer Webvan, the poster child of Silicon Valley start-ups, raised $372m in its IPO, expanded from the San Francisco Bay area into other American cities and paced a $1 billion order for high-tech warehouses. The problem with Webvan was that its margins were as thin as a toothpick and people just weren’t interested in buying groceries online. The company could not attract enough customers to pay for its spending, and it closed in 2001, putting 2,000 people out of work.

Another example was online fashion store Boo.com. It promoted itself as a global company but the infrastructure was not there. Founded in 1998, it tried to build a state-of-the-art logistics business and online shopfront. It had a cutting-edge site with 3D photographs and technology that allowed customers to zoom in on different parts of a product. They could dress mannequins in different outfits. But there was one problem: it was a time when dial-up internet usage was the norm. The site was well beyond the capacity of most users’ computers. Boo.com couldn’t attract enough visitors and it destroyed $160m before liquidation in 2000.

Car crash

A more recent example of a company growing too quickly came to a head when one of the world’s leading car makers had to recall eight million cars in 2010 due to brake defects. Toyota had expanded too fast, said engin-eering experts. It could not produce enough engineers to meet the demand, test cars and car parts, gather information from customer complaints and act on them quickly enough.

The more successful Toyota became, the less time it had to focus on its traditional values of quality. Up until becoming number one, Toyota’s strategy was one of incremental improvements, making vehicles for a market segment that just wanted something that was affordable, reliable and durable. When Toyota surpassed General Motors, it became intoxicated on growth. Toyota had all the systems in place to become the number one manufacturer, it just couldn’t handle the position. 

Those are the horror stories. But there are plenty of ways to grow with rigour.

One way is to cut costs while ensuring volumes are still strong, ensuring more money is coming in and less is going out. A recent example was Bambra Press, which over the past decade, has reduced seven presses to just one perfector. The Melbourne-based offset and digital house recently installed a 12-colour Heidelberg XL 75 to replace a pair of late-model Speedmasters. Offset volumes and turnover have remained constant. It was cost effective because it saved on labour while maintaining workflow.

But in a tight market, how can a printer grow without cutting costs? Tim Gullifer, national growth leader at Deloitte Private, says printers have three options: acquisition, diversification or identifying a profitable niche.

Acquisition is about buying market share when the company is cashed up. “It’s about buying competitors who are capital poor and who don’t have the available capital to increase their market share,” says Gullifer. “It also gives you access to under-utilised plant and equipment.”

Diversification is about finding new revenue streams but keeping the core of the business intact. Some printers, for example, could go into design. They could develop marketing strategies for clients, create new distribution channels, become a mailing house, or develop a new product line that is similar to the existing one. “What you have to do is go along the food chain and see what there is,” says Gullifer.

Finding a niche, he says, is about targeting a particular sector and focusing just on that. You make sure you do it better than any competitor. Some, for example, might just focus on supermarkets, others might target tourism and hospitality. “Where there is a pretty good supply of overcapacity, there has to be someone out there with an edge and that edge has to be articulated. You pick a niche, you drill into it and mine it as much as you can.”

But he says printers should not rest on their laurels once they have found a niche. To grow, they need to use it as base for expansion. A printer specialising in website design, for example, might start rolling out QR codes. A printer producing drink coasters might look at expanding into napkins. “You have to look at the food chain and ask how you can retool your plant and equipment to provide additional services,” he says.

Niches are not necessarily too small. The small boutique print shops opening up can still thrive, he says, provided that niche is profitable. “You would want a niche that is growing,” adds Gullifer.

Bright ideas

But John Bright, managing director of the Bright Print Group, rejects niche as a proposition. “We don’t believe in the whole niche story,” he says.

“The market is contracting and if we wanted to pigeonhole ourselves in some niche market, it’s fair to say that niche market will contract as well. You need to be able to look at all markets and avenues and put all kinds of products on the table to give your customers more choices.

“We need to be generating revenue at a certain level and if the market is shrinking, we have to find products to raise the revenue to run this business,” says Bright.

He says the company has grown through acquisition and good sales staff. In August 2011, Bright Print Group expanded outside of Sydney and bought NCP, or Newcastle Camera Print. This followed buyouts back in 2004, when it acquired Riverstone Printing, and in 2001, when it bought Bloxham and Chambers. Asked if he planned any more acquisitions, Bright said: “At the moment, we will get this one bedded down first and try to pay the bank as much as we can and then, we will look around. Who knows what tomorrow will bring.”

He said hiring top line sales staff was also a growth engine. “You don’t need to buy another company to get more sales. If you have a good name in the marketplace and people want to work for you, it’s not too hard to get a good salesperson on board and have them bring more sales in.”

But some make a good living and grow their market by targeting good niches. Shane Smith, owner of Park Douglas in Mildura, has spent 25 years developing a unique and profitable one: drink coasters. There aren’t that many printers in that space. He pretty much has it sewn up.

Park Douglas produces 20 million coasters a year sent to pubs and clubs around Australia. Smith says the company does not deal with the big brewers, who already have their own coasters. “We specialise in the niche market of clubs and pubs,” says Smith.

He says marketing is done purely by word of mouth. “It’s about building up a clientele and reputation, it’s about knowing your limitations, your strong points, your weak points and working off that,’’ he says. “We stick to what we’re good at.”

Queensland-based Platypus Graphics chose the diversification route, expanding into a different market. Managing director Tom Lusch said the company had always been in packaging. But it remains a commercial printer as well, and in the past that side of the business had a greater focus. A few years ago, it changed tack and decided to grow beyond its focus on high-end packaging and go into the food and beverage sector. It was a smart move: that sector is always expanding because it is an essential, rather than discretionary, product. Food and beverages is a growing market when a lot of commercial work is contracting. The line also includes cosmetics.

“Once upon a time, we would have 80% commercial. Now we’re 30% commercial,” Lusch says. “We haven’t lost ground with commercial, we have the same turnover with the dollar figure but what we have done is grown quite a lot in packaging.”

He says the strategy, which anticipated the downturn in the printing industry, was what the company was all about. While expansion is a tough call in this market, it is a must-do – that’s what running a company is all about, says Lusch. “You can’t really run a business and say you’re not going to grow.”

Small and nimble

Kwik Kopy storeowner Mike Beuermann runs the Moonee Ponds franchise. Selected as the Kwik Kopy Australia Franchise of the Year in 2011, Beuermann says diversification is the only way to grow.

“I made a conscious decision a few years ago. The big trade printers were getting more desperate for work and they were encroaching on what would have been the traditional heartland of franchise operators, so I diversified our product offering,” he says.

The Moonee Ponds outlet now offers extra services like website building, QR codes, guerrilla marketing, direct mail and variable data.

“I have become diversified and what I say to my customers is that I am a full-service marketing and print business. I do jobs that are too hard for the average person to do and it’s those jobs that create growth opportunities and create lifetime loyal customers.”

The result: his profitability is among the top five Kwik Kopy outlets.

Beuermann rejects suggestions that franchise print shops are “lifestyle businesses” for their operators. “I think anybody who says running a small business is a lifestyle decision is kidding themselves.”

“If they are serious about running a business that is growing, profitable and successful, it requires a 120% commitment. If you were previously employed as a senior manager and worked from 8 to 6, if you own your own business and if you want to be successful, if you are fair dinkum, you are there from 6.30 in the morning until 7 at night. That’s a minimum and you’re spending half a day over the weekend on it too.”

Show me the money

But in the end, successful growth strategies come down to one thing: capital.

PageSet managing director John Della says the only reason his company has been able to grow is because of ] close ties with its bank. That helps protect the cashflow required for hiring and investment.

“We have a phenomenal relationship with our bank,” Della says. “Our bank has been exceptionally supportive with our growth and clearly that’s the key for anyone’s success. Without the support of the banks, half the print industry could be undone easily.

“The other part of the formula is a loyal and successful relationship with our key suppliers. We have been with those key suppliers for nearly 20 years.”

He says that it’s been tough with many retail clients in serious trouble. While his business grew 20%, his regular business dropped by the same amount.

“It’s been a brutal year, 12 months of a really tough slog so being cashed up certainly helps,” he says.

As a result, his company hired more people and invested heavily in state-of-the-art machinery. When the recovery comes, PageSet will hit the ground running.

Growth needs banks. Companies can also grow by working closely with custom-ers, getting close to them and coming up with solutions to their problems.

“The key to growth is a good relationship with the bank,” he says. “But you also need to have the confidence to understand your business model and your customers, what their needs are and making sure you’re talking to them as you strategically plan your growth. We do a lot of work with our customers.”  


 

How to get smaller

How does a printer manage contraction? Many businesses opt for downsizing and reducing staff numbers. That’s always a big risk because recoveries happen quicker than most anticipate. If a business has reduced its skilled workforce, it will struggle when the recovery comes.

Kevin Dwyer, who runs manage-ment consultancy Change Factory, says the first thing business owners should do is look at reducing the product line. It means identifying the less profitable items and stopping their production. It might also mean ramping up production of top-selling lines although the company might also have to increase its sales teams. It would also mean shutting down the less cost-efficient pieces of machinery.

Instead of sacking people, he recommends putting them on permanent part time.

The print industry, he says, should be looking at restaurants and the hospitality industry as a model. “They for example work out whether they get trade on Monday, and allocate staff numbers around that,” he says.

“Some restaurants might trade for lunch and dinner, others might just open for dinner while others are there for only breakfast and lunch. Printers could do the same. So what I might do is have me and my side kick in the office on Monday to Wednesday only and I might have some people in for six hours during the peak on Friday.”

It’s very much a case of planning carefully, he says.

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