Fast Growth in a Slow Economy: 5 Case Studies
Special Report: Proven strategies to spark sales when no one is much interested in buying.
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At this point, most entrepreneurs would probably prefer to forget 2008, 2009, and a big chunk of 2010. And who could blame them? Those years were, after all, some of the toughest economic times the nation had seen in decades. Yet the five business owners profiled in the pages that follow managed to turn a deep recession into their best years yet. How? By acting quickly. And boldly. And by exchanging tired, old ideas for bright, new ones.
And keep this in mind: If their strategies worked in a down economy, imagine how powerful they might be now, as things finally seem to be turning around.
1. Drop your worst customers
Paul Heffington lives by a new rule: Pay up, or you're fired.
The CEO of Allen Printing in Nashville is talking about his customers, and he learned his lesson the hard way in 2010, shortly after the 85-year-old business filed for Chapter 11 bankruptcy.
Buffeted by the lousy economy and the rise of digital printing, Allen Printing hired turnaround specialist Steve Curnutte, who issued his customary advice: Get rid of debt, raise cash, and fire your worst customers. The first two made perfect sense. But Heffington hadn't thought much about the third. Then he looked at his financials and found that about a quarter of Allen Printing's 45 clients were more than 90 days past due and owed more than $200,000.
That spurred the company to launch an aggressive phone campaign, in which it told the late payers to settle up or face late fees now and higher prices in the future. Those who complained were told to take their business elsewhere. The company wound up shedding about 15 clients, some of them longtime customers. But it collected about 80 percent of what it was owed, by either working out payment plans or acquiring the assets of the late payers. "It's a very painful and difficult thing to do," says Curnutte, whose firm, Tortola Partners, acquired a stake in Allen Printing. "But after you do it, it's liberating."
With the lousy clients off the books, the company was able to focus on serving its core customers—the ones who paid on time. It offered 5 percent discounts on jobs that could easily be done by a rival shop, a move designed to give clients an incentive to stay with Allen Printing. It worked: The company's top 30 accounts spent about 20 percent more with Allen Printing in 2011. Beating the competition on price also helped the company land another eight solid customers.
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Heffington also renegotiated prices with his vendors—asking for breaks because of the tough economy or discounts for pre-paying. All of them agreed. "It is amazing how much you can get accomplished just by asking for it," says Heffington. The company's 64 employees, meantime, agreed to a temporary 10 percent pay cut (their pay was restored within 12 months).
Thanks to all those changes, sales hit $5.7 million in 2011, up from $4.1 million the previous year, Heffington says. Profit margins on most sales doubled. With some cash on hand, Allen acquired two small, local printers—both of which were delinquent customers who owed Allen Printing a total of $50,000. "We said, 'Either figure it out how to pay us, or let us take over your accounts,' " says Heffington. Those accounts wound up bringing in $250,000 in new revenue.
In addition to a stronger financial position, the changes have led to a wholesale change at Allen Printing. For years, Heffington and his colleagues were so fearful of losing customers that they let customers fall behind in paying. Now, he and his team have no problem being bold. In fact, Heffington recently confronted a past-due client and struck another deal to acquire its accounts. The deal is expected to add another $1 million to Allen Printing's top line.
Action Plan
Define your ideal customer. Is it the one who provides the best margins? Pays on time? Is the most pleasant to deal with?
Raise prices. That will weed out the problem clients. If they balk, graciously tell them to take their business elsewhere.
Reward your favorites. Discounts and other perks can entice your best clients to do even more business with you.
2. Get help from those who know you best: your customers
Tim Barrett knew he should have felt fortunate. His business—Barrett Distribution Centers, a Franklin, Massachusetts, provider of outsourced warehousing and distribution services—had been spared much of the pain of the recession. In 2009 and 2010, as countless companies struggled to survive, Barrett was expecting the same 15 percent annual growth rate it had enjoyed for years.
But Barrett was worried. He felt as though his company had dodged a bullet. Driving that concern was a sense that after 17 years of working at the family-owned business, he felt oddly disconnected from his customers, no longer confident that he understood what they really needed or what they truly thought of Barrett's service. This was doubly unsettling, because Barrett, the company's COO, always considered the company to be customer centric. He and his brother, Arthur, the company's president, were fans of Net Promoter and paid close attention to what clients said about their services. But the Net Promoter surveys were getting stale. They asked the same 10 questions year after year, and the number of people responding to the surveys was dropping. "We needed more insight," Tim Barrett says.
So Barrett Distribution hired an outside company to survey its customers. The Brookeside Group, based in Acton, Massachusetts, created a detailed e-mail survey designed to predict customers' future buying behavior and assess the quality of their interactions with the business. "So many companies get information through internal reflection and don't go to the client and just ask," says Bryan Solar, head of strategic partnerships at Brookeside. "If anyone should be deciding your strategy, it's them."
