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The Million-Dollar Heart Attack

Elizabeth Walker Partner, Marketing Masters, Marketing Masters Recent Posts

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August 13, 2009

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US industrial capacity is hovering around 68%, and we're still waiting to see consumers back to buying goods and services to turn the economy back on.

None of which seemed to phase a client of ours I'll call Pete as I sat in his office last week. Pete runs a small manufacturing concern founded by his Dad about 20 years ago, and he was mighty excited when we met to discuss some new software for his sales force. "I found a million dollars in the last three months," he told me.

Pete's company does business all over North America, and a large proportion of his business comes from the mid west, which has been hit hard in the past year. He makes component parts for manufacturing equipment, and we both expected a minimum of 30% less revenue compared to a year ago.

"It was worse than we expected," he said. "We were down 46% in February, and I had a huge cash call to meet. I was on the road for about three months straight. I guess that's why I ended up in the hospital."

"So what happened?" I asked. "You sure don't sound like a person who's almost died and lost his company!"

Here's Pete's story. Like many an entrepreneur who has had a wake-up call, Pete knew he had to re-examine his priorities. "You know for years I avoided really looking at how our business was run," he said. "We were really busy, orders were coming in, and I thought I had to deal with the paying customers and let pretty much everything else take care of itself. Lying in that hospital room, I saw that I had been sending a signal to my employees: the boss doesn't care about this, so I don't have to."

Pete realized that if he was going to focus on revenue creation, he had to have an expert handling the plant. He found a very senior (and well-paid) plant manager with 20 years of proven experience. Here's what Pete found when he and Bob, the new manager, looked at the business.

Maintenance contracts on a piece of equipment that hadn't been in service for six months. Bills for a cell phone that had been lost a year ago. Employees who had "special deals" on which days they worked. Raw material purchases that looked great on paper, but were based on unreasonable quantities that tied up storage space and cash. About $400,000 worth of salaries and benefits for people who were not needed for the current workload. Missed deadlines and unhappy customers.

"We installed a new software program to manage better," Pete said. "In the first three months, we cut our costs by close to $1,000,000, and we can ramp back up the moment people start buying again. It’s awesome. But what really blew me away was we found eight thousand customer records for people who had bought from us that we had never followed up with. If we could close 20% of them we could double our business in the next twelve months."

Here’s what Pete tells me he has learned:

1. His job is to bring the business in the door, and that won’t change. But his hand has to be on the tiller in every aspect of the business – after all, his name is on the building.

2. He can’t work on the business, and in the business, so he has to delegate. From now on, he’ll do a better job of vetting and hiring key employees, and he won’t be afraid to pay them what they are worth.

3. He won’t leave money lying on the table, whether through lax internal controls, or by neglecting to communicate to customers. That means investing in technology to manage every process in the company.

At lunch last week, Pete told me this month’s sales are up too. “I’m more relaxed, everything is under control, and I’m getting orders in the door,” he said.