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The Stimson Group Newsletter
Aug 2008
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Vol 2 Issue 8
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Greetings,
I hope your summer is going well. I know mine has. Besides this newsletter, I also try to make time to update my website. This month I have added to the Customer list to reflect some recent projects and, there are now two pages of customer endorsements and testimonials. Thank-you to all my clients and their staffs for welcoming me into their businesses. I have also posted a column recently published in Live Design magazine.
In this issue, we start surveys back up by polling some standard business practices. The Best Practices series continues by explaining how a good exit strategy will bolster your business. And, we have reader feedback from last month's very popular Do The Math article.
Enjoy,
Tom (TR) Stimson, CTS
My Direct Email
Website
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R&S Monthly Business Trends Survey
This month we're looking at the ways AV Companies do business on a day to day basis and we're including Integration Dealers as well. Who answers the phone? Who leads your projects? When do you have meetings?
Take the August 2008 Survey now.
There was no July survey, but if you are hankering for some data, here's a list of past survey results available at our website:
June 2008 - R&S Purchasing Trends Forecast for Second Half of 2008
May 2008 - Is HDTV here yet? When will it be the norm?
April 2008 - YTD Results, How is the economy affecting your forecasts?
March 2008 - Technology Tools, How important is staying current?
February 2008 - Marketing and Advertising, What works and what do you do?
January 2008 - Sub-rentals, wholesalers, and supplier relationships
December 2007 - Email, network security, and IT outsourcing
November 2007 - Review of 2007 and outlook for 2008
October 2007 - Rate major manufacturers on their sell-ability
September 2007 - Sales, Service, or Technology - Which one?
August 2007 - What Are Your Busiest Months?
March 2007 - Business and Technology Trends 2007
February 2007 - Producer Survey
December 2006 - Rental Management Software Usage
Download these reports.
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 Show-Off Your Digs
I would like to feature some of our readers' office and warehouse design accomplishments. If you have recently moved into a new space, remodeled, or found a great warehouse, workspace, or storage solution then you should show-off a little. Please send me some photos
that highlight a cool warehouse innovation, storage trick, conference
room, or lobby/reception area. In a special section on my website, I
will share those photos with our readers and give you due credit. To see an example, check out this page.
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Best Practices Series: Thinking Exit Strategy
If you think the goal of most entrepreneurs is to one day sell their company and live on a boat (or island, cabin, Argentina, ranch - add your own...), you are generally right. However, many would-be entrepreneurs get caught up in running their companies and lose sight of the goal - and their businesses suffer for it. Why is this topic part of the Best Practices series? Because a good exit strategy is a business best practice. Knowing HOW and WHEN you intend to divest is the first element of forming an effective overall business strategy. One of the most common mistakes made by entreprenuers and business partnerships is forgetting the end game.
A well-designed exit is nothing to fear and certainly not to be avoided. In fact, the basic needs of a good departure go hand in hand with a well-run business. And an exit doesn't have to be immediate. The best exit strategies start years in advance. There are a number of paths to an exit and any number of combinations of those ways: selling to another company with our without a contract for the owner to stay on; employee buyout with financing or owner-financed; family buy-out with guaranteed income to the owner; merger with complementary company; equity sale of assets only; ...the list goes on. What you have in mind will affect how you prioritize the following "buy factors".
Let's look at some of the key elements of a "buyable" AV business: 1. Effective management team in place, 2. Solid financials, 3. Up to date infrastructure, 4. Positive Brand Identity, 5. Customer contracts, 6. Unique business strategy in your market. Companies that work towards these goals will find themselves in position to be consistently profitable and continually growing. Whether you hope to sell your company one day or leave it to your heirs, the better you look in these areas, the more options you'll have for a graceful and profitable exit.
Management Team
If your company cannot run without you, then it will be worth less when you are not there. At the very least, you need a management team who can either work for a new boss or better yet, can run things on their own. If the idea of having more or better managers sounds too costly, then perhaps your firm is not large enough to be considered an acquisition candidate? If you feel threatened by competing leadership in your company, then you reduce your exit options.
Solid Financials
Showing a consistent profit for a number of years is very important, but there are lots of ways to show a profit that aren't necessarily the results of good business choices. When evaluating a company for purchase, the buyer will ask the question "Could I make money from this operation?" To answer this they look at the Profit and Loss Statement, Statement of Cash Flows, and the Balance Sheet. Very often they will re-cast those financials according to how they would run the company. How many managers could they hire if they got rid of the fat owner's salary? Or is the owner too costly to replace? Could the company add capital purchases and still show a profit? Could those purchases be financed from cash flows or can cash flows support new loans? Would a different depreciation schedule work better? Are there assets that could be sold? Most buyers plan on a little restructuring to suit their needs (and exit their strategy). Companies that are constrained by long leases, big loans, high salaries, or poor cash flow are less attractive even if they appear profitable.
Infrastructure
A buyer will calculate what infrastructure is needed and whether they can afford to add it if they buy the firm. Companies who have not maintained their computer hardware and software, have a limited office and warehouse structure, or simply do not have enough rental or demo inventory to support an effective strategy will be less appealing to some buyers. Long leases can be a good or bad thing depending on the market and the suitability of the space. Having a difficult-to-duplicate core competency would be very attractive. Perhaps you have a highly developed e-commerce site that is unique to your segment or industry or have a very customized warehouse that saves time and money?
Brand Identity
Does your company brand stand for anything? If a buyer started asking around about your firm - current and past customers, employees, suppliers, and trade press - what would they learn? What does your website, logo, and building reflect about your company? Can the positive aspects be enhanced and can the negatives be overcome? Even a company with a negative image has worth - if they are well-known. Many turnarounds come from new owners salvaging a familiar name. It takes years to build brand recognition, but a reputation can come overnight.
Customers
Have a pool of longtime customers is nice and a positive reflection on the company, but past business doesn't guarantee future business. Buyers like contracts that generate recurring orders. Contracts are bankable, track records are not. A buyer (or their banker) will want to talk to your key clients and find out why they aren't engaged in a contractural relationship. Project by project relationships may be the norm for the industry, making contracts even more valuable.
Strategy
Sellers often confuse strategy with tactics. Strategy is your unique approach towards your market. Tactics are what you do to support that strategy. It is not unusual for several companies in the same market to all have the same approach and similar tactics. Each will try to differentiate themselves but too often by doing the same thing as their competition. Buyers are often looking for a different approach altogether. Unique strategies tend to reflect special skills, expertise, or intellectual property. The byproduct of a great strategy is growth. Buyers are looking for a consistent growth pattern that suggests that the strategy still has some life left in it. Inconsistent growth - the good years and bad years cycle - suggests either a lack of strategy or poor execution.
Finally, it must be said that some buyers are looking for companies that are really bad at all of the above. These are called bargains: a poorly run company in a growing industry might represent a lot of potential. What it doesn't mean for the owner is a lucrative exit.
When all is said and done, just surviving in business is a huge accomplishment - even without all these "buy factors" in play. Perhaps your departure is not in the near future; paying attention to these elements will in small but enduring ways, improve your business today. Keep your eyes on the prize.
Comments? Email me.
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Reader Feedback
Last month's Best Practices article was about "doing the math" when setting service pricing. This elicited more than the usual number of emails. Here are some of our readers' thoughts:
Tom,Thank you for your perfectly on target thoughts on setting rates. I found the column absolutely insightful on how we audio-visual rental people can do such stupid things. I am the "big fish" in a small market, but even here I have tiny competitors who give "free delivery and setup". We have the reputation (earned after 25 years) of being the best, but not the least expensive. I'm happy with that market position. When the job is critical, we get the call and we can charge enough to make a good profit. Math (which I hate) is a great equalizer in that those who don't understand how it works will fail the test. You can't make up for pricing your equipment and services too low, by thinking you will make it up in volume. Again, I always enjoy your e-mails and look forward to the next one. Best Regards,Fred GaultGault & Associates, Inc.Thanks for the insight. I just wish this info was presented to me afew years ago.I'm a lighting director with rental equipment which services the pressjunket movie critic circuit. Last year and around the writer's strike my5-ton lighting truck started started costing me around $850. A month, justdelivering my equipment 24 miles round trip was awful as fuel prices climbedI felt my client would not accept a delivery increase, so I started losingmoney on my delivery's and could not charge more for my rentals because wealready had established rental rates for this type of job.So my 1984 Ford gas guzzler went to market and just sold. Then a businessassociate of mine was interested in making a small insert stage so half ofmy equipment is on the stage and the other half is stored at the locationwhere we do most of the press junkets, and the bits an pieces are still inmy driveway.Now any shuttling of my equipment is being done with my astro mini van.As I reassess, 2008 & 2009 should bring a profit and rebuild myconfidence, then maybe just a sprinter van will work best for me.In this tightening economy for me , it was just scale down, regroup, and notjust think it will work itself out.Thanks again,Kevin Mulvey Lightshaper*******
Tom,
Your costs analysis of delivery charges was captivating as I did the exact calculation two weeks ago. With rising fuel prices we needed to know true cost of delivery. I took a little different route than you but ened up in about the same place. I figured the cost per mile on our Sprinter van. I factored in one driver/tech. Here is my formula.
 So we now know it costs us $1.94 per mile to operate our van. We price our delivery charges by zone (Seattle, Suburbs, next county) plus $0.10 per mile fuel charge. A typical delivery to a suburb is 12 miles. So with two round trips (assuming it is mid day traffic) our cost is $93.12. Our charge for that is $50 plus 4.80 fuel. We just lost $43.12. I want to charge $93.12 for that delivery but I would lose the business to a competitor who charges just $40 for same delivery. So I am between rock and hard place. We will raise fuel charge to $0.20 per mile. And we have a minimum rental for delivery. We will not deliver a single screen so the customer can use his projector.
Now that raises another issue I would love to see you address; the proliferation of the "projector support package."
Richard McLeland-Wieser
Presentation Rentals
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If you have some thoughts you would like to share, please call or email.
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 About Thomas R. Stimson, MBA, CTS
Tom
Stimson is celebrating over twenty-five years in the communications
technology industry. As a Consultant, Tom helps companies build
smoother operations, focus sales, and increase profit through strategic planning, process improvement, and market research. For more
information visit the website.
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