Tuesday, April 22, 2014

Could You Put You Out Of Business?

A couple of weeks ago Forbes ran an article that got me thinking. The title was, “How Would You Put You Out of Business?” You can read it HERE

This short article has five questions every business needs to consider and certainly pertains to the distributor community. But, I believe there are more business threatening “what ifs” to consider.

Business Model Attacks:
1) What if technology somehow sneaks up on you? By the end of this year 50% of all distributors will have some kind of mobile app for their customers. While I believe a lot of these will not provide an immediate threat, I wonder what will happen over the long haul.

2) What if somebody else has better analytics than you? Case in point, the last recession caught quite a few distributors by surprise. Oh, they might have known something was coming, but most did not understand the depth or duration of the recession. Most lacked the analytics needed to predict the drop and equally damaging, most lagged behind on the upswing in business at the end of the recession. Distributors with the best analytics came out ahead of the game.

3) What if other distributors are more profitable than you? Distribution is becoming a game of resources. Distributors with fatter bottom lines, can afford to invest in people, systems, inventory and other areas which give them an advantage in the market. We regularly preach the merits of a pricing process like David Bauders’ Strategic Pricing Associates (SPA.) Our own research indicates distributors with the SPA process in place typically drive two points better in the gross margin game. What if you had that money to invest?

4) What if distributors from other lines of trade suddenly showed up in your market? Across most areas of distribution, we hear plans to expand into new technologies. Electrical distributors, Power Transmission distributors and Fluid Power guys are pushing their way into the Automation space. Safety products have become a battle ground for not only Safety Distributors but for nearly everyone calling on industrial, institutional or construction business. What happens if your market is suddenly overwhelmed by hungry hordes of new distributors?

1) What would happen if a major customer filed Chapter 11 with you holding $100,000 in receivables? Would this put you out of business? Probably not, but it would/could put you into a financial pinch.

2) What would happen if your top supplier decided to go with another distributor? This happens every day. Typically, we get something like 90-day notice. How long would it take you to build a contingency plan and introduce a new supply partner?

3) What would happen if your top salesperson has a change of heart? Do you have the proper agreements in place such as Nondisclosure, Non-Solicitation, and Non-Compete? Does your state honor such agreements?

4) What if your top seller meets a peach truck head on or is struck down by ill health? Do you know who they call on? Do you know the projects they are involved in today?

1) What if you find yourself ready to retire and there is nobody in place to take over? Many of today’s entrepreneurial distributors are finding themselves pushing against retirement. Some are looking around and discovering nobody in their organization is poised to take over. Many times the second in command is the same age as the founder. What happens when we reach those “golden year” numbers?

2) What if your son or daughter wants to be in the business but lack some of the basic skills required to really take over? It’s not easy to be the boss’s kid. In many instances opportunities for coaching and mentoring turn into lectures from the parental unit; after all, we are human. At the same time, these young future leaders need help and guidance. How are you handling the situation?

3) What happens if you find yourself without a real plan for the future? Conversations with hundreds of distribution leaders indicates most don’t really have a well laid out plan for the future. The world around us is changing. Failure to position ourselves for the future, something like 2020 could turn into a catastrophic issue.

Why we aren’t thinking about these things?
Times are good. We’re up to our necks in activities. Stephen Covey in his 7 Habits book spoke of the four quadrants of activities. For those of you who haven’t seen them, Mr. Covey breaks activities into four basic groups:

• Urgent and Important
• Not Urgent and Important
• Urgent and Unimportant
• Not Urgent and Unimportant

Strategically worthwhile activities fall into the “Not Urgent and VERY Important” category. Let's think about this for just a moment.  Every time we walk into the office, we face a world of people pulling for our time. Urgent but strategically unimportant things like phone calls, emails and broken down delivery trucks stand in the way of very important tasks.  Think about it, are you putting out fires while somebody else is plotting your demise?  

Take heed, plan for a day without the urgent. Decide how you could put yourself out of business.

1 comment:

Desiree Grace, Anamet Electrical said...

Frank brings up many good points, especially the value of taking time to look at "important, yet not urgent" issues in our business. I'd make the argument that most of his points apply to manufacturing as well as distribution. We are facing most of the same issues: succession, non-traditional competitors going after our customers and technology changes.