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Reinvention: Today's Business Imperative

Business management strategies that involve significant change are given all sorts of catchy, intelligent names that hide the corporate mayhem that might result. "Restructuring" and "reengineering" are infamous examples. Some have argued that the phrase "slash and burn" more accurately reflects what happens when these methodologies are put into practice. Reinvention, however, is a completely different animal. Keith Krumbeck, president and CEO of Spectrum Pool Services in Missoula, Montana, contends, "Businesses that don't reinvent themselves on a regular basis are destined for failure."

The More Things Change

Reinvention is a paradigm for successfully doing business--which is comprised of four critical parts that are all subject to change: your market, customers, competition and, of course, your company. Shifts in any of these categories are bound to affect your bottom line, and unless you're on top of things, may cost you a lot of money--if not your entire business. "A company that operates with a reinvention paradigm," asserts small business expert Kent Burnes, "is one that maintains a fluid relationship between all elements of its operation and the changing needs of the marketplace."

For example, shopping malls have become a fixture in American commerce. Need to make a purchase when you get home from work? Chances are, you still have at least an hour to get to the mall. Seventy percent of retail sales are made between 4 and 10 p.m. Forty years ago, however, retail establishments operated with a vastly different set of assumptions. In the 1950s, weekdays were when husbands worked, kids went to school and wives had time to shop. Ten in the morning to three in the afternoon were prime shopping hours. Since then, retailers have had to reinvent how they think about doing business. They no longer cater to housewives only, but to busier men and women with jobs, commutes and kids.

Where There Is Smoke

Making constructive changes in how a company is run doesn't just happen. Careful research and monitoring of alterations in the business climate are central to the reinvention paradigm. Don't wait to see the six-month financial status report and then think about what needs to change. Instead, watch for indicators that show where your business is beginning to veer off course. "When you see that returned goods have increased by two percent, then you have a major red flag on your hands," asserts Burnes.

The Key To Reinvention

Contrary to what some may assert, research doesn't require an expensive consulting monolith. Key areas to investigate are your market, competition, customers and your own company. A few phone calls to the right people combined with employees who know what to look for can go a long way.

Local economic development departments, real estate agencies and Web pages are all excellent sources for information on market changes within your industry, as are trade associations. If you don't already belong, join one.

There are a number of ways to find out what your customers think. Place a survey form near the cash register. Call former customers and find out why they no longer frequent your business. You may want to invite 12 customers for lunch one day, call it a focus group and then ask what they think about how you do business. After all, when push comes to shove, your customers make or break your business.

Are you competing against a national chain discounter? Buy one share of stock so you can get a copy of its annual financial report. If shareholder meetings are in your area, attend them to find out more specifics.

Another option is to look in phone books for companies that are in your industry but located in other states. Give them a call and ask to speak to the owner. Find out what they've done that works, and what suggestions they might have on how to deal with the challenges you face. You'd be surprised how easy it is to make connections with industry peers outside your service area.

Being alert to the factors shaping your company's destiny requires getting good information from within your organization. If your first warning sign that it's time to change how you do business is declining sales, you're probably not paying close enough attention to what is going on. Encourage your employees to keep their eyes open. A large department store, for example, may look healthy on an accounting spreadsheet. But sales clerks are in a position to notice changes that may be weeks or even months from showing up on paper. If, for example, they observe that pedestrians who used to hesitate near the entrance and then enter now continue walking, you know something needs to change.

The Possibilities Are Endless

As you commit to strategically understanding your company and its context, you may find that any number of specific components within the business need to be reinvented. This can range from completely shifting the products sold, to buying a wireless telephone headset that allows you to continue working while answering calls.

You may find that a popular product in which you specialize no longer stands out from the competition. Remember, all products follow the same life cycle stages--development, introduction, exploitation, saturation and decline. Eventually, when demand drops, the product may be virtually given away because of the number of companies that hopped on the bandwagon at some point.

If you reinvent a product by unpacking, repacking, assembling, disassembling or redisplaying it, then you may have something that stands out. "Dishwashing detergents are a great example of this," notes Burnes. "'Klean Soap' becomes 'new and improved Lemon/Palmolive Klean' with a revamped look and new advertising message. Subtle changes like this can make a big difference to the bottom line."

Offering added value to what you sell is another way to compete more effectively. Say you sell alpine skis at your sporting goods store, and traditionally hold a 50-percent-off sale at the end of the winter season to clear out old merchandise. If $300 skis are discounted to $150, this communicates something to customers about the actual value of your merchandise.

Instead, how about offering added value? Rather than selling the skis for $150, sweeten the deal by keeping the original price and throwing in a $100 anorak

that cost you $50. Now the customer gets high quality skis and part of a new outfit for the exceptional value of $300. You make $100 more than you would have on a similar sale the year before. You also show customers that your skis are worth the price for which they are originally sold.

It did not take much investigation for a small grocery store in Jackson, California, to realize its need for reinvention. After the 18,000-square-foot establishment had the good pleasure of receiving as a new neighbor an 80,000-square-foot Albertson's grocery store only 50 yards away, the owners realized that it would take more than specialization and superior customer service to stay in business. They opted for an entirely new product line and now operate the Play It Again Sports catalog store, renting out their loading bay to a trucking service operation. "The moral is that if you can manage a business well, it doesn't matter whether you sell iceberg lettuce or baseball bats--you can make a go of it," concludes Burnes.

 

Diving Profits Can Be Good News

What's the first thought that comes to mind when hearing the phrase "elevator systems"? If you're thinking about wrinkled fingertips, the smell of chlorinated water or the rigor of early morning practice, then you probably know the story about Spectrum Pool Products based in Missoula, Montana.

"We started out in Philadelphia in 1972 as an elevator installation and maintenance company," says Spectrum's president and CEO, Keith Krumbeck. But the company's destiny was reshaped a few years later when an opportunity arose to develop a swimming pool lift for disabled persons at the University of Pennsylvania. "The water-powered lift we engineered was a first," he proudly recalls.

Shortly thereafter, Krumbeck sold the elevator business and moved his growing swimming pool lift enterprise to Montana. The unexpected bankruptcy of a key Spectrum--licensed manufacturer in 1984 inspired another bold transition. "This company that held our license owed us a fortune," notes Krumbeck. "We decided to pick up the pieces and begin doing our own manufacturing. Four years later we were the industry leader."

In 1990 Spectrum began manufacturing more than just lifts. The firm developed an entire product line of equipment for large commercial pools--including dive stands, guard chairs and starting blocks. "Our decision to make this move came as a result of knowing our company and our market," Krumbeck says. "Our tooling and assembly machinery is designed to build highly technical lifts. The step to manufacturing traditional deck equipment wasn't difficult to take."

Today, Spectrum Pool Products has its own direct order catalog--an industry first. The company has also begun building lifts and equipment for use in hydrotherapy programs, a branch of sports medicine. "If you don't reinvent your company every year, you're destined to fail," asserts Krumbeck. "It may look like we're going in several different directions at once, but all of our reinventions have come only after careful analysis. When we see the opportunity to become a major player in a given market segment, we are willing to take the risk and move in that direction."

 

M-Cubed Info Shifting Your Niche in a Changing Marketplace

"What we had was going nowhere in the long run," recalls Peter Jones, CFO for M-Cubed Information Systems in Wilmington, Delaware. In 1990, this high-tech computer consulting group generated nearly $750,000 in revenue. Two years later, that amount dropped to $200,000. "We just couldn't find the clients willing to pay as much money for our services as before," admits Jones.

To put the company's situation in historical perspective, when M-Cubed opened for business in 1985, the world of corporate data-processing was dominated by huge, multimillion-dollar mainframe computers. Companies operated data-processing departments staffed by technological wizards who wrote specialized programs and maintained equipment at salaries of $75,000-plus a year. Consulting outfits such as M-Cubed operated as hired guns who built specialized modules that attached to the mainframe and performed any number of data-processing functions.

"With the advent of the personal desktop computer in the late 80s, however, all this began to change very rapidly," recalls Jones. "The gods of data-processing and their mainframes were going the way of the dinosaur."

As IBM's stock fell, Microsoft's stock rose. Technology that cost $20 million in 1980 cost $100,000 in 1990. These shifts in technology completely reoriented the way offices were organized and forced M-Cubed to rethink the way it did business. Neil Jones and Tyrone Austin, CEO and chairman of the company, respectively, saw a need for people who could help companies organize, integrate and advise on new technologies as they emerged. "The writing was on the wall," says Peter Jones. "We needed to shift from being a company that focused on building application modules to one that could help businesses make total decisions about their computers."

Peter Jones, who joined M-Cubed in 1994, was a friend of Austin's from business school and had watched the company struggle through this transition period. "The decision that Neil and Tyrone made to reinvent the business had serious financial consequences for both of them," says Jones. "But they did the right thing."

This process also imbued Jones with added wisdom. "If you see that the customers you are losing represent a fundamental change in the marketplace, don't waste any time," he counsels. "If you're servicing a customer base that isn't growing, don't hesitate to fire them so you can focus on customers who will be with you long term. There are only so many hours in a day. It is crucial to understand your market."

Today, M-Cubed is a $20 million a year company with its sights set on growing annual revenues to $100 million within five years. With the price of computers continuing to drop and new technology being introduced every 18 months, business prospects are good. "The opportunities are promising," notes Jones. "We've taken risks to think big in the past, and so far this has served us well."

 

Gary HirshbergNever Say Die: Survival by Perseverance

Imagine a yogurt farm in bucolic New Hampshire nestled on a hilltop, surrounded by green pastures and Jersey cows, and accessed by a quaint dirt road. Now imagine that farm in February: its dirt road transformed into an ugly morass of ice, snow and mud. "Just getting in and out of there was hard enough, not to mention trying to operate the farm as a profitable dairy," remembers Gary Hirshberg, CEO and co-founder of Stonyfield Farm, now in Londonderry, New Hampshire.

During its first seven years, Stonyfield Farm was a two-man operation--Hirshberg and his business partner Samuel Kaymen did everything from milking to marketing. But despite their hard work and long hours, yogurt sales were not getting off the ground. "Ninety-nine out of 100 companies would have put the cows permanently out to pasture," says Hirshberg. "But we refused to say die."

The road to success for this environmentally focused yogurt and ice cream manufacturer was paved with diligence, ingenuity and more than a few miracles. "Our mission has always been the same," Hirshberg explains. "We just came up with creative ways to keep Stonyfield going when things were tough."

This creativity amounts to the reinvention of traditional business protocol. At one point, Hirshberg and Kaymen asked a fruit supplier to wait two years before collecting $250,000 of debt--the supplier consented. Employees agreed not to cash paychecks. Lawyers worked pro bono for six months at a stretch. The landlord at their new facility decided to forgo a three-month deposit.

Until finally, an SBA loan that marked Stonyfield's turnaround was procured. The loan guarantee that SBA extended convinced one bank to give Stonyfield the funds to develop modern facilities at a commercially viable site in Londonderry. "Financial support from the SBA, the commitment of employees, investors and suppliers, and our willingness to do things differently are the reasons we're still in business," contends Hirshberg.

 


Excerpted with permission from Small Business Success, Volume XII, produced by Pacific Bell Directory in partnership with the U.S. Small Business Administration.