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.
You may think you know exactly what commoditization looks like: increasing volumes, decreasing margins. But there are other, subtler signs (see "Are You Selling a Commodity . . . Yet?" below), and spotting them is only the beginning. As Patrevito points out, Booklet Binding offered its customers state-of-the-art equipment and further distinguished itself from competitors by hiring salespeople, a move most binderies still disdain. "We've been here since 1941, so I guess people know who we are," sniffs Peter Broustis, president of Bee Bindery Inc., in Chicago. Beyond that, Patrevito and Kosowski were always looking for ways to help customers, typically small printers, make smarter business decisions. Want to save $5,000 on packaging? they'd ask. Try using big, telescopic cartons instead of individual boxes.
That kind of informal advice may have been as valuable to their customers as the fact that Booklet Binding could perfect-bind a book as thin as one-sixteenth of an inch, meaning that a scrawny annual report could be spared unsightly staples. But until dissolving profits forced them to look hard, the company's owners settled for thinking they knew what mattered most to customers. It never occurred to them that the surest grip any company can have on its customers may originate outside the specific products or services it touts. In most modern-day markets, where laser-fast competition breeds spontaneous commoditization, "expertise is the better mousetrap," claims Carey, who studies differentiation strategies. "Rather than see you because of what you sell, customers see you because of what you know."
If that sounds abstract, imagine that Booklet Binding had been in the business of selling an obvious commodity from day one -- eggs, say.
In order to pitch the spherical product on anything other than price, a salesperson would have to get beyond the egg's universally appreciated properties. Will you be making an omelette, baking a cake, or throwing one against the wall? It may turn out that fast turnaround matters, or that minimizing breakage is important. "With any commodity, you've got to move the discussion toward how the customer is going to use it, and therefore toward what the important attributes would be," advises Jim Morrissey, president of Market Share Catalysts, a sales consulting firm in Wayland, Mass. "The value added is not in the product anymore; it's in the relationship between the sales rep and the customer."
Booklet Binding wasn't selling eggs, but it may as well have been. After years of scrambling to build capability and gain marketplace recognition, the owners found themselves with less profit than they'd wanted -- though the figure was on the high end of the industry's typical 2% to 5% pretax net -- and with no prospects for upping it. "My competitors all do the same thing to the product," says Patrevito.
As for price -- well, every industry breeds start-ups that are happy to eat profits, hoping to fatten their market share. Three years ago, when Denver Worker and his brothers Dean and Dale started 3-D Binding Inc., in Orland Park, Ill., they undercut Booklet Binding by 20%. "We're just three guys who own our own equipment, and we're trying to make a living for ourselves," says Worker, who had been a shift supervisor at Booklet. Isn't everyone? "The simple things -- some folding, some gluing -- everybody can do," says Jack Rickard, president of Rickard Circular Folding, a Chicago bindery. "The market for those sorts of things works like it does for grain or corn." In other words: throw your bid into the hopper and hope it gets the nod. "I'd give customers the quote, and then I'd ask, 'How does the price look?" recalls Bill Chalifoux, a salesperson at Booklet Binding. "If it looked OK, great. If not, I'd ask, 'Where do we have to be?"
That kind of price jockeying left preserving profit up to the owners of Booklet Binding, who did so by finding what Kosowski refers to as "little tricks" to trim costs. They hired managers with little experience. They hired machine operators with no previous job experience at all. By the time they hired Landiak, in April 1993, their inventory of magical moves was depleted; there was nothing imaginative about cutting bodies. "I was just tired of it all," says Patrevito.
But the energetic Landiak, who has trained himself to sleep just five hours a night, saw a company caught up in what he -- among others -- regards as the biggest challenge facing nearly every business, from cellular-phone makers to chopstick suppliers: the struggle to offer customers a consistent reason to buy from this business in an economy in which no tangible advantage can last. As Carey explains, "If management doesn't take a proactive role in establishing a strategy that is viable for the sales staff, then the sales staff will be desperate and at their door, begging for help" -- as it was, in fact, at Booklet Binding. In The Discipline of Market Leaders, a popular 1995 business book, authors Michael Treacy and Fred Wiersema argue that now more than ever, every company must "find the unique value that it alone can deliver to a chosen market" and identify exactly how it will deliver "continually improving value" to customers.
In the absence of staking out such defensible territory, a company like Booklet Binding gets pushed into a wide-open field where there are so many competitors -- popping up on so many fronts -- that it can't possibly safeguard its profitability. The management at Booklet Binding was lucky; because of the heavy capital investment required and the industry's dirty-shirt aura, the competitive market shift wasn't lightning fast. But fiercer competitors inevitably pop up. Frank Puisis, a former certified public accountant, bought a competing bindery with a partner five years ago. "The old binderies are all ke-klunk, ke-klunk, ke-klunk," says Puisis. "Successful businesses differentiate themselves."
Not that it's always obvious how to do that. Without thinking, managers usually reach for one of two solutions: they add services -- "Tell you what, we'll include 24-hour turnaround for the same price" -- that only erode margins further; or they decide to shrink the business, as Kosowski and Patrevito did. But as they fleshed out their plans to cut to the bone, the pair found that "being downsizers really isn't our nature. We'd rather take the company higher," says Patrevito.
To consistently win profitable business, Booklet Binding would have to surround its commoditized service with enough value to make it seem to be worth more. How might it do that? By, as Landiak puts it, "uncomplicating the world for its customers, by showing them how to increase revenue or decrease cost or how to retain their own customer base." In an economy in which euphemistic concepts like downsizing and reengineering had all led to one ailment -- corporate anorexia -- there had to be added value in giving customers the help they no longer had in-house. Hence the chopstick maker offers marketing tips to its restaurant customers; the cellular-phone distributor teaches customers to use the gadget more effectively as a business tool. "If customers perceive that you have a high level of expertise, and it can help them, you're worth more to them," says Landiak.
Yes, said Patrevito. Right, said Kosowski. Then Landiak laid out his plan for how they might make Booklet Binding that kind of company. No, they didn't expect it to be cheap. Or quick. But what they heard struck Patrevito as "totally overwhelming," he says. "I wasn't sure I wanted to commit myself to that kind of sweeping culture change." Kosowski's reaction: there's got to be another way.
Worst of all, perhaps, was this: what Landiak was proposing was something they had already tried.* * *
Make no mistake: Patrevito and Kosowski believed in sales training. Hadn't they routinely dispatched their employees to Dale Carnegie seminars? "It kind of boosted my confidence level," reports salesperson Tom Bromann.
And they were only too familiar with the "canned programs," as Patrevito calls them, that successfully motivated employees -- briefly, anyway. It was the sort of step that most companies took, grateful that a Zig Ziglar or a Tom Hopkins had swaggered into town just as fourth-quarter numbers were looking soft. People heard funny stories, and they came back pumped up. So what did you learn? came the question. "I am . . . a selling machine!" an employee would roar back.
Landiak argued, however, that managers like Kosowski and Patrevito too often confused short-term motivation with serious training, which would be key in making the kind of transformation Booklet Binding needed to accomplish. Landiak was even willing to base part of his fee on results. "We knew deep down in our hearts that it was the right thing," Patrevito says. "We just needed to be pushed off the edge."
Specifically, Landiak and Patrevito decided on a series of topics that Landiak would cover in 20 weekly sessions attended by the 12 inside and outside salespeople. The goal of that program, which began in June 1993, was "to take them out of the price mind-set to one of selling based on what the customer feels is an added value," Landiak says. For each session, Landiak drew up an outline, to which each salesperson added notes and individualized "action steps," all of it stuffed inside what the trainer dubbed a Success Strategies Binder. Topics included precall planning, preparing a presentation, following up, selling value, and coping with objections to price.
There were plenty of objections to the new program -- even before it started.
After Patrevito and Kosowski introduced Landiak to the company's administrative personnel at a dinner at the nearby La Perla restaurant that June, "nobody was looking forward to it at all," says salesperson Phil Moreno. Adds salesperson Tom Ashcraft, one of the program's loudest early opponents, "We felt that we were doing fine without it." Antitraining sentiment only grew when Landiak began to study the existing sales process by having his own employees trail Booklet Binding salesfolk. Pam Prendivoj, an estimator and inside salesperson, was dismayed when one of Landiak's assistants eavesdropped on her phone calls with customers. "I was wondering what they were really evaluating," she says.
Patrevito could feel the negativism at weekly Monday morning sales meetings. Look, he told employees, we're making an investment in you that you could not afford yourself. "I expect -- no, I demand -- your cooperation," he added. He also held individual sessions. "Do you realize what a gold mine this could be for you?" he'd implore.
Nobody did, at first. A couple of months passed before a few of Landiak's techniques began yielding results. "The illustration of what kind of real income you could put into your pocket helped," says Larry Bralich, a salesperson who also serves as vice-president of imaging and mailing. Salesperson Scott McParland used a simple Landiak suggestion -- faxing an agenda to a customer before a meeting -- and "it went far better than it would have otherwise," he contends. "I was in charge." That was exactly the point. "Nothing can teach you how to be motivated or have instincts or go after orders," says Ashcraft, "but training can give you a lot of tools."
First among those tools was an account profile, a document that would enable the company to analyze what "share of customer" it was getting, as Landiak termed it. The goal was not only to get a snapshot of the business the customer did with Booklet Binding but also to learn more about the customers' overall business so that the salesperson could offer more insight. To get answers to their questions -- What are your gross sales? How much did we do for you this year and last year? Which other binderies do you use? -- the salespeople probably would have to talk to someone higher in the company than their usual purchasing-agent contact. But not every customer was receptive to providing information. McParland, who sells to small printing shops, asked one of his $10,000-a-year accounts to help him fill out the profile. "Scott," the printer said dismissively, "you know me. You fill it out." "After that, I learned to ask a little bit at a time," McParland says.
Just collecting such information gave the sales team a new perspective: some customers were so focused on price, they weren't worth the effort. Patrevito invited one longtime customer to lunch to tell him that Booklet Binding wouldn't be bidding on his business. "Are you telling me you're firing me?" the man said, shocked. "I've never had a vendor do that."
The tools the salespeople acquired helped them regain the feeling that they were in control. There was a calendar log, enabling them to preplan with customers. "This is the saddle-stitching job we did last year at this time," the salesperson would say, scanning the document. "Will we be doing it again this year?" "It says, 'I thought about you before I came in the door." Landiak notes. There was the "red-alert" program, designed to attract business during every bindery's seasonally slow period, from May through early July: salespeople would offer printers a discount to commit to a job well in advance. Along the way, as the sales team helped him identify problems, Landiak created other new processes: an estimate-history form to count how many quotes a given customer had asked for; a pending-project log, so that salespeople could alert others in the company to a job, even if it wasn't coming live for months.
To boost accountability, each salesperson also drew up an annual business plan, which included specific goals, such as increasing business with a specific customer by 50%, and personal goals, such as buying a house. Patrevito's own vow was to master Italian. "My attempts have been earnest, but my results rather feeble," he says in fluent English. On a quarterly basis, salespeople were expected to sit down with their customers and fill out a report card on Booklet Binding's performance. It would ask, Are you finding the information I send you -- on building a marketing plan, or customer service -- helpful? What are our plans for next year? "What you're doing is identifying the customers with the most potential, and understanding their businesses extraordinarily well," says Landiak. "Then you're making sure that they understand that you understand."
Week by week, prodded by the individualized "action steps" they were supposed to take, salespeople like Bill Chalifoux started retraining themselves and their customers. Instead of just making a bid and hoping for the best, Chalifoux would listen to the customer describe a job. Then he would draft a letter recounting the details, "to show I listened" -- reminding them, say, of his idea to switch to a smaller box to cut down on postage -- without mentioning a price. Then he'd talk with them to make sure both parties understood each other. Then came a second letter, which included a price at the bottom. "We've earned their confidence, which is worth something," Chalifoux explains. His colleague Al Autin stopped talking about the bindery at his first meeting with a customer. "I listen, then I tell them, 'I'll go back and put together a program based on your needs," he says. No longer does he get bogged down answering the kind of routine questions that make Booklet Binding sound like every other bindery: How many pockets on your stitcher? How quick a turnaround could you give me on 10,000 16-pagers?
By October 1994, when the classes were through, most members of the sales crew were better prepared and better organized. Some were even penetrating higher levels of authority within their customers' ranks. But those kinds of conversations meant fielding harder questions about specific capabilities. "We said we were experts, but we weren't," admits Patrevito. Maybe, he thought, we could get plant workers to teach the salespeople about the bindery's different disciplines: the folding foreman could lecture on folding; the plant manager could sermonize on saddle stitching. But there seemed to be too many snags: How would they make the time to do it? What if the workers weren't good teachers?
No, it wouldn't work. Somehow, the salespeople would have to turn themselves into experts.* * *
"I barbecued him," brags Larry Bralich, displaying a hint of sadistic pleasure. "He got on a topic I knew -- postal regulations -- and said things I knew were way wrong." Next to him, Bill Chalifoux, who has just been described in terms normally reserved for poultry, ducks none of the shame. "Other people I could fool," he says. "I couldn't fool Larry."
Chalifoux, like every other salesperson, had been assigned a topic area -- in his case, fulfillment, mailing, and personalization -- and had been given eight weeks to become an expert in it. To demonstrate his mastery, he had to deliver a two-hour presentation, complete with handouts, in front of his peers, including the company's experts. "I felt bad after I did it," says Bralich of the way he turned the heat up on his colleague. Not half as bad, probably, as Tom Ashcraft felt after his presentation on folding. When Phil Moreno had asked a question, Ashcraft snapped, "Why do you need to know that?" Later he viewed his performance on videotape while in bed, cringing. "That was all the critique I needed," he says.
In thinking about how to build expertise into his sales team, Patrevito had mumbled something that proved to be wiser than he realized: "The best way to learn is to teach somebody else." So he and Landiak drew up a list of different aspects of the "finishing" business, the industry term for the functions Booklet Binding performs: saddle stitching, perfect binding, mailing, cutting, customer service, scheduling, estimating, and so on. Landiak created a general outline for each one -- What is paper folding, and how is it done? What's the configuration of rollers on a folding machine? What type of folding do we do better than anybody? -- and Patrevito assigned the topics to individuals and groups, starting in the spring of 1994.
The salespeople's research culminated in the two-hour stint in front of their peers, including in-house experts on the topic. Karin Hoffman, one of the company's first employees, was part of a group that created a takeoff on Reader's Digest, teaching about customer service under such familiar headings as Laughter, the Best Medicine, and Points to Ponder. A group studying estimating came up with a Jeopardy-style game in which the first prize consisted of steak knives -- a detail borrowed from Glengarry Glen Ross, David Mamet's scathing 1984 play about real estate salesmen. "It was genius inspired by bourbon," says estimator Bob Krueger.
After hearing their presentations critiqued -- Ashcraft says he "learned to say, 'I don't know the answer, but I'll get back to you' -- the salespeople offered 90-minute versions of their seminars to the company's 45-member administrative staff. Those presentations began in late fall 1994 and ended early in 1995. "It's nice that we were able to do it in front of people we knew, but there's a downside to that," says William Mead, who left the company last May. "Your best friends can be your worst enemies."
Bralich argues, however, that the "Sales Qualification System," as Landiak tagged it, actually brought people closer. Booklet Binding's compensation plan, he points out, promotes isolationism, because salespeople are paid totally on commission, which consists of a straight 5% on sales. "You go through the presentations, and you learn about each other's personalities," says Bralich. "It has made us a much stronger group."
The resultant expertise has also brought Booklet Binding's salespeople closer to customers -- literally. Several have been invited to customer sites to give presentations on various topics. Chalifoux met with the sales staff of a small commercial printer to lecture on mailing. Autin made a sales call with a customer to help explain personalization, which involves the ink-jet spraying of any individualized information -- in this case, phone numbers -- on a direct-mail piece. "That's the best," Autin says proudly, "when your customer thinks enough of you to share his customer with you." Similarly, Moreno prepared some literature for a customer's sales call. And McParland made a presentation about fulfillment at a customer site.
Such coziness gives back more than warm feelings. "We're getting higher margins more frequently," says estimator Prendivoj. Booklet Binding, she reports, is also getting more "quote action": two years ago the company rendered fewer than 1,500 quotes a month. Now that number is up to 2,000. And a higher percentage of those quotes -- more than 20%, compared with 15% two years ago -- are turning into actual jobs, she says. "I'm getting jobs where they don't even ask for quotes," McParland claims.
In 1995, with sales at about $20 million, Booklet Binding posted pretax margins that were roughly double the industry norm, which Patrevito places from 2% to 5%. The biggest reason, Kosowski says, was that salespeople were successfully making customers aware of Booklet Binding's fattest-margin work: the hand assembly of kits, ink-jet personalization, fulfillment, and so on. Team Services, the division that houses those higher-end functions, has grown from $800,000 in 1993 to $8 million in 1995, according to Bralich. "When there's a crack in the door, our salesperson now opens it," says Kosowski. "Salespeople used to be afraid of what was on the other side. The training has changed that."
Not that the training is over. This year the company's salespeople will have to make still more presentations. This time, using outlines from Landiak, they'll cover some of the topics they learned in those classes about a year and a half ago: selling value over price, reintroducing Booklet Binding to customers. "We have to reinforce those strategies," says Patrevito. He's also busy taking the information the salespeople collected for their two-hour presentations and having it transferred onto a disk, a tool they can use to further demonstrate their mastery to customers. Not that he's had much time to attend to that; there are always people waiting to see him.
But wait -- aren't those loiterers supposed to be gone by now? Wasn't that the whole point of the training? "It's OK," Patrevito says, ducking into his office. "Now they're here to tell me good things."
ARE YOU SELLING A COMMODITY . . . YET?
Time was, a company knew it was selling a commodity when its top line moved in one direction while its bottom line moved in another. Now it may be too late by then. "It's almost instantaneous," warns consultant Max Carey. "You've got to watch for it carefully." The first clues -- in any industry -- consist of indications that a company is losing control in its transactions with buyers. Some signs:
1. Customers start keeping their distance. If you are getting fewer face-to-face meetings with your customers, it means they see you as just another bid. Instead of mailing in your best shot, Carey advises, tell them, "We'd love to quote your business, but we don't know enough. We'd rather give you no solution than an incomplete solution." No matter what happens -- with luck, it will lead to a wider-ranging interaction -- you'll find out where you stand.
2. Customers unbundle your services. So you've set forth a price that includes follow-up maintenance, 24-hour delivery, and a per-unit cost. Well, the customer says, how much for the item without the quick delivery? Why couldn't we maintain it ourselves? "What they are trying to do is reduce the illusion of the sale. They want to strip it down and see what you really think the product is worth," says Carey. "It puts you in a no-win situation, and it's another way of keeping the transaction at arm's length."
3. Salespeople have to battle constant price objections. Tom Patrevito, vice-president of Booklet Binding Inc., interpreted the constant heat his sales staff was getting as a sign that "we were pushing the marketplace to its limit in pricing." But as Mark N. Landiak, the consultant who worked with the bindery, pointed out, Booklet Binding didn't effectively communicate any strengths but pricing. "If your salespeople are down to asking, 'What's it going to take to get your business today?' then they've basically said they don't have any worth," says Landiak. "It's not the customers' job to care about your margins. And they won't."