Fast Growth in a Slow Economy: 5 Case Studies
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.
http://www.inc.com/magazine/201204/jennifer-alsever/fast-growth-in-a-slow-economy-5-case-studies.html
