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WHAT PROFITABLE PRINTERS KNOW

May 1, 2000 12:00 AM


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Want to exceed industry average profits? You must plan strategically, hire wisely and spend cautiously. With an average profit margin of just three to four percent, today's printer has to exercise good business sense. Luck will only get you so far in contending with shrinking turnaround times, shorter runs, customer consolidation and new technologies.

Granted, some printers do get lucky-they find a momentarily expanding niche, or are awarded a multimillion dollar account because they lowballed competitors. Unfortunately, such triumphs are inevitably temporary, because there is no real strategy to sustain. So what's the secret to showing consistent profits?

Sales drives production When economists at the National Assn. for Printing Leadership's (NAPL)(Paramus, NJ) Printing Economic Research Center finished analyzing more than 10 years of data collected on the habits of established, profitable printers, they uncovered a distinction that could easily have been dismissed as trivial. That is, these businesses tended to define themselves not by their equipment-e.g., large commercial sheetfed printer-but rather the solutions they provided for their clients. "At some point, they recognized that their business was satisfying their clients' commercial needs profitably," explains Andrew Paparozzi, NAPL chief economist, and co-writer of the resulting study, "Long-Run Growth Leaders." (See "Leaders reveal the hows of success," p. 44.)

Growth leaders define their business in terms of their relationship with their customers-for instance, "we offer value-added solutions for our customer base" or "we strive to be a communications resource to our clients." This isn't just "business talk," however. It defines the company dynamically by its capability to provide solutions, rather than statically limiting the business to the equipment it owns. It also recognizes how a printer's success is directly related to the success of its customers. "When you're a manufacturer, you have the possibility of being production-driven," acknowledges Don Secrest, president of Webtrend, a $30 million commercial printing business in Vista, CA, one that has placed four times in american printer's 50 Fastest Growing Printers competition. "It's just a habit. You've got production driving sales rather sales driving production. I go out into the marketplace and make sure we're 100 percent sales focused."

Planned growth & loss Profitable printers are seldom surprised by the turns of their business-they plan for disaster. "Many of them are planning to lose sales, because they know that long-term relationships can end sometimes-because of mergers, changes in buying partners," notes Bob Rosen, CEO of R.H. Rosen Associates, Inc., a New York City and San Francisco-based graphic arts consulting firm. "They plan for it and create a budget, and determine how to replace lost sales." Companies that struggle to turn a profit often lack a strategic plan, or have one sitting on the shelves unused, observes Rosen. Profit leaders typically apply their plans, and update them throughout the year to reflect unpredictable changes in business, such as the sudden introduction of a new technology or the announcement of two customers consolidating.

John Berthelsen, president of long-run growth leader Suttle Press Inc., a $12 million full-service printing company in Waunakee, WI, has seen his company through the purchase of a new facility, its first four-color press and a move to waterless ink, all in the same year. Just one of these events could dent a printer's annual revenue, but in 1993, Suttle broke even. "That's the worst year we've ever had," Berthelsen notes, adding that Suttle's strategic plan proved crucial to keeping the printer afloat.

"We knew it would be a tight year and that we'd be drastically increasing our overhead expenses with the new building. We knew we were going into a new process and had to establish ourselves," explains Berthelsen. He attributes Suttle's continued growth and success to its dedication to strategic planning, a practice which it began in 1985 to help control the company's rapid expansion. By mapping out a detailed plan for the upcoming year, Berthelsen and his management team are able to keep the company's momentum going, and anticipate setbacks-financial or otherwise-rather than be caught offguard.

Buyer beware As often as profitable printers are courted by equipment salespeople and pressured by clients to get the "latest and greatest," they've learned to take a cautious, practical approach to equipment expenditures. They first determine if there is a solid, reliable client base to support the work-and payments-of the new equipment.

"We look at what customers would like us to do, and we look at whether we can make any money at it," notes Berthelsen. When digital printing first debuted, Suttle's customers asked if the printer would invest in the technology-it respectfully declined. "While we felt the technology was great and there was a market for it, we just didn't feel we could get into it and do it profitably at that stage in the game," says Berthelsen. When Suttle decided to go into half-web printing, it was only after it found customers who had a long-term demand for the work.

"It's really neat putting in all of this new equipment, but unless you can keep it busy and get the right kind of people to sell it, you can be busy going out of business," says Webtrend's Secrest. "I want every piece of equipment out on the floor running, and if it's not running, something's wrong. We made a wrong decision, we're not selling for it or it's not priced right -we need to take a look at what we're doing and make the adjustment quickly." Secrest adds that he gets customer buy-in for work before he purchases an expensive piece of equipment, because unless the machine is kept busy 60 to 70 percent of the time, he must contend with underworked employees while trying to make payments on an underutilized press.

Don't play bidding games Sometimes it's a necessary evil, but winning a client through bidding establishes your relationship only on the cost, rather than the quality of your work. Many printers rationalize that they can raise their prices on the second job to make up for the loss on the first, but often there is no second job. The customer simply puts it up for bid, because he or she has no loyalty. If you just want to keep your machines busy, and don't really need the work, a project won on bid can be a short-term profitmaker. If you keep your presses constantly busy with work brought in at or below cost, however, not only will you be losing money, but you also will be missing opportunities with prospects who buy on reputation of quality or service.

"I think too many printers are cutting their margins so low that it's putting them out of business and into financial cash flow problems," observes Arnold Greebel, vice president of AJ Images Inc. (Roselle, NJ). Last year, the printer, which specializes in corporate and federal contract work and direct corporate work, reported a two-year sales growth of 95 percent. Although AJ Images will sometimes bid for work, it prefers to build relationships based on its guaranteed on-time delivery. "We don't charge overtime, put in any extras or hassle clients," Greebel says. "Because clients know we can turn a job on a dime, they keep coming back."

Suttle Press also prefers to build relationships on value-added services and quality. "We've walked away from customers who said, 'We're going to take every project and put it out for five bids, and whoever's the lowest is going to get it,' even on reprints," says Berthelsen. "We don't feel it's going to be a long-term win/win situation for either side." His is a strategy born of confidence, but one that proves patience is more profitable than impulse selling.

Strength in the middle Successful companies are often personified by their CEOs. But behind the scenes you'll generally find a strong management infrastructure that takes the leader's vision and puts it to work. "One thing that really distinguishes [profitable] firms is the strength of their management, and not just their CEOs and top management, but what we call 'strength in the middle,'" says Paparozzi. "They have developed very strong middle management-supervisors, foremen and the like-who are able to ensure that the process is shared throughout the organization."

Particularly in large printing businesses, middle management is crucial to communicating company strategy to the rank-and-file, overseeing production and ensuring follow-through. Profit leaders recognize this and reward their management staff accordingly. "We pay a very high wage to our management team, but I'm ok with that," notes Secrest, who oversees Webtrend's 20 managers and 10 supervisors. "When I go home for the day, I'm not worrying about whether a press is running at night or if a job is being mailed accurately. I sell on confidence. I know when the job comes in here, it's going to be attended to, printed on the right paper, it's going to look good and be in the mail on time."

Invaluable resource Profit leaders consider their employees one of their greatest resources. Of course, any company will claim that, but leaders go to great lengths to reward and retain employees, without necessarily sending them on retreats to Cancun or buying every salesleader a new Jaguar.

Webtrend invests in the education of its employees. Much of its workforce is drawn from the San Bernardino area, which has a large Hispanic population. The printer offers English classes to those employees who haven't yet mastered the language, and Spanish classes to English speakers who would like to communicate better with their Spanish-speaking coworkers. Webtrend also makes a point of promoting from within, so employees will never feel locked in their position but instead see the company as a long-term place of employment.

Respect and consideration for employees also boosts morale-and determines whether a company will be able to survive busy production times. "Before I take on a big job with a tight deadline and commit to it, I go to my staff," says Greebel of AJ Images. "We discuss the job with the press and bindery people, and ask if they can meet the schedule. They always come back and say 'yes.' They always beat the schedule." Greebel notes that he's seen his pressmen stay in the shop until 1 a.m., only to return six hours later for another day of work. He attributes such dedication to AJ's family atmosphere and its understanding that the company can not make its turnaround times without committed, content employees.

Avoid overstaffing H.R. Margolis Co. (Bala Cynwyd, PA) an accounting and consulting firm for the graphic arts industry, has been compiling profit ratios for Printing Industries of America, Inc. (PIA) (Alexandria, VA) since 1960. Year after year, the company has found that the percentage of profits unsuccessful printers spend on labor versus successful printers remains higher-and it isn't because they pay their employees more.

"A lot of printers staff their shops so they can produce efficiently at their peak sales levels," notes partner Stuart Margolis. "Then they keep the staff at that level, even when they go into a valley." These printers do not want to fire any employees because skilled labor is so scarce. Since competition remains fierce during slow months, however, sales drop, and the overstaffed printer loses money. Profitable printers staff for a lower level of sales, and outsource, hire temporary help or pay overtime to keep production up during the busy months. Profitable printers invest heavily in their full-time workers who sometimes have to pick up the slack and guide temporary help during particularly busy sales months.

Recover, adapt and profit When some of Mercury Print Production's (Rochester, NY) biggest customers decided they'd rather stamp their literature on CDs than print it in books, one might expect the printer's reaction to be despair or panic. "Instead of getting upset about it, we decided to go after it," says President John Place. The $22 million printer opened up a sister company, Electronic Media Solutions (EMS), to perform warehousing, distribution, mailing and burning of CDs. "The CDs are coming into play and taking a chunk out of printing," acknowledges Place, "but with a CD, you have to print an insert and instructions." In fact, Place expects EMS' venture into CD burning to actually drum up more print work for Mercury.

Even if you can't afford to add services to head off lost revenue, you can determine the best way to cut your losses, learn from the experience and use it to profit in the future. In this instance, keeping a close eye on a customer's business, asking their salespeople what direction their company is going in, and keeping in tune with their industry's ups and downs could save you from being dropped by a client. If you notice a customer's business changing, sit down with them and ask where they see your relationship, and how you might help them in their new endeavors.

think long-term All successful printers have started out small, suffered flat sales years and wrangled with the same issues as those less profitable. "When you look at profit leaders' performance, you'll see many periods where their numbers were not as healthy as they'd like them to be," notes Paparozzi. These companies, however, decided that rather than passively suffer, they had to take action. They realized that something was changing in their market or niche, and unless they made a strategic decision, they could face steadily declining profits.

"They looked at their environment and took a hit to their numbers," Paparozzi continues. "They made the investment and changed the direction of their company. They were willing to take a short-term hit for a long-term gain."

Similarly, those printing companies struggling to make a profit should take a long-term view on new equipment, customers and markets. It's tempting to believe motivational speakers who promise a quick path to financial success. It's just as easy to give in to the cynics who take a pessimistic view of the profitability of printing, but neither of these mindsets bring about effective action. "George Bush was wrong. It is never going to be a kinder, gentler world," quips Rosen. "You have three choices: You can complain, you can suffer quietly or you can do something to become a truly profitable company."

When a printing company survives 50 years, it's considered quite an achievement. But when it's been in business for more than two centuries and has managed to turn a nice profit-that's not only unheard of, but worthy of recognition.

Intelligencer Printing Co. is the 1999 inductee into the National Assn. for Printing Leadership (NAPL) William K. Marrinan Hall of Fame. The honor recognizes Intelligencer as the "best managed printing company in North America." As a base requirement, all Hall of Fame winners must have won at least five NAPL Management Plus Awards, yearly honors that distinguish companies with superior financial performance, marketing and sales, business planning and other factors. The awards are co-sponsored by american printer, Compass Capital Partners and MAN Roland. Intelligencer has won five gold awards and one silver in the past six years.

The Lancaster, PA, commercial printer has been in business, in one form or another, since 1794. It started out humbly enough as a town newspaper, The Lancaster Journal, which offered its printing services to the community. In 1796, the newspaper's owners, the Dickson brothers, began printing another journal, the Lancaster Intelligencer; the two publications eventually merged in 1839. Printing remained a secondary priority until the 1930s, when operations expanded with the commercial offset lithography industry. Flash forward to 2000, and this on-the-side printing business has grown to 240 employees with $45 million in annual sales.

Loyal Employees The printer credits much of this success to its employees. President and CEO Steve Brody notes that 20 percent of Intelligencer's employees have been with the company for 25 years or more. Excellent pay and benefits have helped keep retention high. Upper and middle management are especially crucial to Intelligencer's rise.

Last year, Brody formed a "vision committee" of all of his key managers, which meets monthly to discuss company issues. "Our industry is full of challenges right now," he says. "The perspective and intelligence of my staff is helping our company meet those demands."

The company also prides itself on 24 x 7 customer service. Clients can call with problems or questions through a designated 888 number.

Intelligencer prefers to be at the forefront of technology. The printer produces 90 percent of its projects digitally, an initiative that was three years in the making. It also has been implementing printCafe/Hagen Systems, Inc.'s (Eden Prairie, MN) OA architecture throughout its 100,000-sq.-ft. facility, a project started in October 1999. A weighty task, implementation has required the installation of wiring, hardware and software. Although the project is not yet finished, Intelligencer expects "big benefits" from the MIS system.

On the production end, the printer has been replacing its sheetfed presses with new MAN Roland 700s including CIP3 linkage to its prepress function. It has also replaced the ink fountains on its Heidelberg web presses to enable the same CIP3 linkage. Intelligencer expects a 25 percent reduction in costs with the conversions (See "Intelligencer joins CIP3 effort," March 2000, p. 11.).

Intelligencer is an example of a true survivor in the printing industry, having seen two centuries of change in its business, the industry and technology. Observes NAPL president Gregg Van Wert, "Not surprisingly, since it won top honors, Intelligencer Printing represents what Management Plus is all about-sound management practices, especially as they are applied to the many technological, service and human-resource issues in our industry."

We'll be profiling NAPL Management Plus Awards Gold winners in a future issue of american printer. For more information about or an application for NAPL's Management Plus program, call (800) 642-6275.

For 10 years, the Printing Economic Research Center at the National Assn. of Printing Leadership (NAPL) (Paramus, NJ) has been surveying 500 American printing companies on their monthly sales growth and profitability. From these businesses, 25 printers emerged who exhibited consistent profit growth from year to year. They were also able to substantiate their success. "That is the criterion we used: a company had to convince us that their numbers weren't an accident, and therefore that type of performance was likely to continue, regardless of how their environment changed," explains Andrew Paparozzi, chief economist and co-author of the study, "Long-Run Growth Leaders."

Among the findings: Long-run growth leaders experienced average sales growth of 14.8 percent from 1990 to 1998-a figure triple the industry average of 4.7 percent. Their pre-tax profitability averaged 7.7 percent per year, compared to 3.8 percent for the rest of the industry (see chart, p. 42). Also, size, equipment configuration and location were not determining factors of a printer's financial success.

The NAPL found that one common element among growth leaders is their adherence to the same basic four-step process in developing their businesses. Although their application of the process varied, all of the 25 leaders incorporated these steps in making business decisions: 1. Build a knowledge base. Company leaders keep themselves informed from sources within and outside the graphic arts industry. 2. Mold the knowledge base. Leaders use the resulting information to help satisfy their customers' communication requirements. 3. Execute the action plan. After leaders outline a plan, they execute it, only upon winning support from all employees. 4. Learn from experiences. Growth leaders continuously benchmark against themselves to determine how far and quickly their business has progressed. Results from the "Long-Run Growth Leaders" study are available in a series of booklets from the NAPL. For more information, call the association at (800) 642-6275. NAPL members can also download the booklets as pdf files at http://www.napl.org.