Hot Commodity

When high quality and great service are the market norm, all that's left is to sell on price. Or so the folks at Booklet Binding thought -- until they figured out how they could really make money

What bothered Tom Patrevito more than anything, day in and day out, was the line outside his office door. "It drove me crazy," admits the vice-president of Booklet Binding Inc. No, these were not disgruntled customers looking to whine about the flimsiness of the job the bindery had done on their user's manual. And they weren't manufacturers' reps trying to convince Patrevito that he ought to spring for the latest in high-speed cutting machines. They weren't even paparazzi momentarily misled by his passing resemblance to Garth Brooks.

Actually, these folks worked at Booklet Binding, which is based in Broadview, Ill. As salespeople, they reported to Patrevito, who also functions as sales manager. But no sooner would a salesperson slip inside Patrevito's office than the same tedious dialogue would begin. "Everybody had a customer that needed a special break on pricing," Patrevito recalls. And each demand came accompanied by the same threat: meet this price, or we walk to one of your dozens of competitors tomorrow. "Our customers would say, 'This is what the competition is quoting us,' so we had to lower the price to get the work," says Al Autin, a salesperson. "We felt caught in the middle."

Thomas A. Patrevito and his partner, John Z. Kosowski, the company's president, were feeling the squeeze themselves. The two had started the bindery business in 1976 with what they perceived as a decided advantage: "We were businessmen in an industry made up of craftsmen," says Kosowski. Spending their $20,000 in start-up capital on the most modern and cleverly financed machinery around, the pair picked up customers by offering the kind of service that their rivals -- umpteenth-generation family businesses -- never considered. "They were very forward-looking," says William Mead, a former salesperson. "They sold quality, they sold service, and they developed a solid reputation for both." It paid off. By 1984 the company had reached annual sales of about $2 million, and it grew briskly throughout that decade. From 1990 to 1991, sales rose about 20%, from $5.9 million to $7.2 million. "We were building something, and we expected a big paycheck," Patrevito says.

By January 1993, when the two sat down to review 1992 year-end numbers, they could take pride that the business had grown another 30%, bringing revenues to $9.5 million. As for profits -- well, the good news was that there were some. Just as there had been the year before. In fact, profits were exactly as they had been the year before. That was the bad news. "Our bottom line was not moving at all," confesses Patrevito.

There were other troublesome numbers, too, though they weren't tracked in any financial reports. First was the mosh pit outside Patrevito's door, making him wonder whether a yellow-pages ad might be as cost-effective as his sales force. Then there was the fact that he and Kosowski were working much harder, for no obvious reward. "It wasn't worth the effort and risk and investment it was taking to generate the profit," says Patrevito.

Staring at the numbers, both agreed the time could be right to grab the tool that was being used to tune up much bigger corporate clunkers. Like executives at Sears Roebuck and General Electric, they were going to downsize. Patrevito worked out the numbers: what if we raised prices 15% and laid off one-third of our workforce? They would cut 60 employees, most of them in long-run, low-margin areas like stitching and folding. "We could work less and make more," he says. But Kosowski felt uneasy; he had channeled his energies into entrepreneurship since he had bought a fast-food joint at age 17. Wasn't there some way, he wondered, they could wring better productivity out of their sales force? He knew their machines were operating at nearly top capacity. Maybe, he tossed out, we should try some sales training.

Patrevito reminded him that training had never done much good before. But still, "we didn't want to do anything rash," he says. Besides, a sales trainer could help the two decide who deserved to be part of Booklet Binding in its next incarnation.

When they interviewed Mark N. Landiak for the job, he just asked questions. "What kind of relationship do you have with your customers?" the 37-year-old president of Corporate Dynamics Inc., based in nearby Naperville, Ill., wanted to know. "What results are you hoping to get out of training? What do you think your real business issues are?" He challenged every assumption they had -- about their competitors and their markets, their employees and their services. "What he did was make me tell myself what I needed to hear," says Patrevito, 43.

Now, almost three years later -- with the company expecting to hit about $23 million in sales in 1996 and with profit margins up about 50% -- Patrevito remembers well the realization that struck him even before he and Kosowski had figured out how to cope with it.

In talking it out, the owners of Booklet Binding came face-to-face with a disturbing truth: they had lost sight of why they were in business. They really didn't know how to make money anymore.

What's startling about what happened to Patrevito and Kosowski is not so much the insight they gained or even the path they took in steering the business toward more profitable growth. It's how easily they could have begun dismantling the business without ever identifying the forces that were undermining their efforts. "If you've tried all the options you know, you finally come to believe that 'this is all the business there is. There isn't any more," explains Kosowski, 50.

It makes sense; besides, for Patrevito and Kosowski to believe anything else would be to call their company-building skills into question. "Somebody has to show you that what's happening is a natural occurrence and that you didn't do anything wrong," says Max Carey, founder and chief executive of Corporate Resource Development, an Atlanta consulting firm. "It's an unstoppable and predictable dynamic. There shouldn't be guilt associated with it."

The inevitable "it" to which Carey refers is a phenomenon that hits nearly every business eventually -- these days faster than ever. And even if company builders manage to glimpse its form, they can reflexively make exactly the wrong move, surrendering even further profit or, as in the case of Booklet Binding, unnecessarily diminishing their goals for the business. The beast is called commoditization.