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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.

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."

Solar advised the Barrett brothers to survey half their customers in early 2011 and save the other half for later that year. Gathering information in manageable chunks is key, he told them, because most people expect you to act on the information they just gave you.

About 30 percent of Barrett's customers wound up completing the 12-minute survey, which asked 56 questions about how well Barrett was doing its job. Six weeks later, Brookeside produced an hourlong presentation on the results, which it delivered to the Barretts and their customer service teams.

The findings were surprising. Some clients, for example, did not know the company had operations in Memphis and in Northern and Southern California—a serious problem, because many actually needed warehouse operations in those regions. The brothers also discovered lots of little things that led to small but significant changes. One client expressed frustration that he had to explicitly ask for inventory reports. Now, reports are sent automatically every week. Another complained that account managers were not detailed enough in e-mail exchanges. So the company trained employees on improving their communication skills.

One customer, Vibram FiveFingers, a maker of athletic shoes, indicated in the survey that it needed help in two areas: handling product returns and creating an electronic ordering system for large retailers. Barrett came back with detailed plans for both. "They really took the survey results to heart, and they were able to help us figure out our path," says Michael Martin, a Vibram vice president. The volume of business from Vibram wound up quadrupling.

The process cost just $30,000. Last year, Barrett logged revenue of $28 million, compared with $16 million in 2010. To be sure, not all of that is the direct result of the survey. But Tim Barrett gives the process a lot of credit. "We found out where we really stood with a customer," he says, "and what they wanted us to change."

Action Plan

Make listening routine. Inform clients that once a month, once a quarter, or once a year, you will ask them to weigh in on your performance.

Be honest. Give people an idea of how long the survey will take. Fewer questions means more responses but less valuable data.

Be specific. And general. Open-ended questions let customers share ideas or concerns. Specific ones let you make measurable comparisons.  

3. Act locally. Not globally

For years, M.P. Mueller, president of the Austin ad agency Door Number 3, had a very specific dream customer in mind: It was the national account, the big brand, that would bring credibility—and new business—to the 15-person firm. The company went to great lengths to land those accounts. And it had seen some successes, including the Dallas Cowboys. But there were also episodes like its 2009 bid to get the attention of Saucony shoes. Door Number 3 went all out, creating a spoof issue of Sports Illustrated that was packed with articles explaining the firm's vision for the brand. It printed 100 copies and paid someone to create and staff a newsstand in the lobby of Saucony's Boston headquarters.

The result: Mueller never heard a word from Saucony.

With more firms bidding on fewer jobs, that experience was growing increasingly common, and Mueller recognized that she needed a new approach. She looked at her firm's most successful and satisfying accounts and noticed a couple of things: First, they were solid relationships. And second, almost all of them were located in or around Austin.

So, in 2010, she made a change: No more Hail Marys aimed at snagging prestige accounts. Door Number 3 would focus on becoming the go-to ad shop for clients in its hometown. Now, 80 percent of the company's clients are in Austin, up from 15 percent a year ago. Among those accounts: Cirrus Logic, a local maker of audio chips; American Bank; and the Austin Film Festival. "We booked three times the amount of work last year that we did in 2010," says Mueller.

Some of these accounts may be smaller than the national accounts the firm once coveted, but Door Number 3 makes up the difference in the amount of time it saves. Bidding on national accounts generally meant days spent preparing proposals and presentations. Staff members often had to travel out of state. And there were far more people involved in campaigns—that meant more opinions, more meetings, more phone calls. With large clients, says Mueller, "There's the expectation to do quite a bit more for less, and they made it clear that there was a line of companies willing to do the work."

Today, most of Door Number 3's accounts come through referrals and word of mouth. And the firm is no longer competing against dozens of agencies on a national account or sending proposals to big companies it doesn't really know. "We're seeing a higher return on our marketing dollars," Mueller says.

Action Plan

Be a joiner. Get active with local businesses and charitable organizations.

Speak up. Find local speaking opportunities and share your business expertise.

Be an expert. Exploit staff members' knowledge of local issues to wow accounts.

4. Treat everyone you know (and even everyone you don't) as a potential employee

When the economy began to crater in 2008, Tom Koulopoulos had no illusions: He knew that the advisory and research services offered by his Andover, Massachusetts, consulting firm, Delphi Group, would be the first thing many of his customers would cut. He also knew that Delphi could ill afford to waste time and money bidding on requests for proposal, or RFPs, it had low odds of winning. So Koulopoulos decided to try something new: He began using his network of contacts—many of them experts in their fields—as de facto partners in those bids.

Koulopoulos first tested this model when he bid on a contract from the city of Anaheim, California, to help develop new permitting procedures for utilities. Delphi's record in process consulting, Koulopoulos thought, would be attractive to the city. But he lacked expertise in city planning or public works. He knew someone who had it, though: Nathaniel Palmer, a former Delphi employee who had since built his own consulting practice. Palmer in turn knew Michael zur Muehlen, an expert in process consulting who had helped create one of the largest academic centers focused on process, at the Stevens Institute of Technology in Hoboken, New Jersey.

Koulopoulos asked the two to help Delphi prepare the response to the RFP, in exchange for a share of the contract's value—if they won. It turned out to be a smart gamble: The team won the contract and has since received several more with the city. "There is no way we would have otherwise gotten it," Koulopoulos says.

He hasn't looked back. Tapping his networks, both online and off, has helped Koulopoulos win more work on larger multiyear consulting projects, some of them in new industries, such as energy and health care. Thanks to the outside talent, he says, Delphi can pull together proposals that once took two weeks in two or three days. The practice has turned a 15-person consulting shop into a 115-person powerhouse. In 2011, Delphi recorded revenue of $10 million—twice what it logged in 2010—and half of it was won by these kinds of virtual teams. "We're banking on this to be the growth engine for the company going forward," Koulopoulos says.

Working with strangers, of course, carries a certain amount of risk. Koulopoulos tries to mitigate that by carefully vetting would-be partners. He also asked his attorney to draw up specific contracts that carefully outlined expectations in areas like the handling of intellectual property. Delphi typically sets up its contracts to include a 10 percent to 15 percent finder's fee to those who bring in the work; a similar amount for whoever pulls together the response to the RFP; and a split of the project fee based on the standard daily rate of each consultant.

Koulopoulos has developed a reputation among many in his network as a reliable source of work. "When he picks up the phone, he's not wasting my time," says Michael Cunningham, a Marlborough, Massachusetts, software consultant who has worked on several projects with Delphi. Koulopoulos, for his part, has become such a believer in the model that he wrote a book about it—Cloud Surfing, which will be published by BiblioMotion this month. "We're becoming hyperconnected," Koulopoulos says. "And it's creating a whole new set of business models that were unimaginable two to three years ago."

Action Plan

Start with those you know best. Fewer degrees of separation usually means better results. Carefully vet all people, no matter who refers them.

Create some ground rules. Spell out issues such as how you are going to communicate and who will keep the client informed.

Get a lawyer involved. Get partners to agree about issues like intellectual property—in writing.

5. Get small to get big. (In other words, it's all about the niches)

Two years ago, Medisys Health Communications was in big trouble. The 12-year-old biotech-consulting firm hadn't won a significant contract in months. Revenue, which hit $5 million in 2008, was down to $1.4 million in 2010. It wasn't hard to see why: The sagging economy meant a lot fewer RFPs from major pharmaceutical firms—and a lot more competition from rivals, especially large ones that could offer a wider array of services. With no relief in sight, founder and CEO Anna Walz had no choice but to lay off 12 of her 18 employees.

So when she was invited by one of her clients, Johnson & Johnson, to attend a weeklong program for female CEOs at Dartmouth College's Tuck School of Business, Walz jumped at the chance. Perhaps the event would provide the inspiration she needed to rescue her business.

She spent hours with Tuck professors analyzing Medisys's financials. She learned she had few options; filing for bankruptcy was one of them. Then a professor suggested she read Blue Ocean Strategy, by W. Chan Kim and Renée Mauborgne. The authors argue that companies in highly competitive markets can grow only by finding and owning uninhabited niches, and Walz devoured it. "I got whipped into making a decision and taking a risk," she says.

She called her office in High Bridge, New Jersey, where her six employees were bleary eyed after spending hours putting together a response to an RFP from a major drug company. Walz told them to stop what they were doing. Medisys, she said, was shifting gears. Rather than being a one-stop shop offering marketing, advertising, and medical promotions, it was going to become a niche player. "For a lot of us, it came as a shock," says Scott Buell, the company's vice president of sales and marketing. "But it was obvious our strategy needed to change."

Over the next few weeks, Walz and her husband, John, the business's chief financial officer, hammered out a business plan. Their decision: to drop nearly everything the company had done for years and focus on something it had been providing to clients for free—consulting services that helped disparate groups within large drug companies collaborate effectively. The idea is to get scientists, marketers, and health economists to figure out how to tell the story of a drug—before the marketing or advertising begins.

It turned out to be a smart move. So far, no one else provides the kind of service that Medisys does, says Paul W. Tebbey, senior director of global marketing at Baxter Healthcare, which now works with Medisys before going to its advertising and marketing people. "They're at the forefront of this area," he says. Indeed, rather than competing with the larger consulting firms and ad agencies, Medisys collaborates with them. Revenue doubled in 2011 to $2.7 million.

Action Plan

Think small. In today's economy, depth often trumps breadth.

Analyze your expertise. Find the thing you offer that no one else does, and stop trying to be all things to all people.

Treat rivals as potential partners. Tell them about your newfound focus—and try to work as a consultant or subcontractor.




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