Hyding Out

Leadership By Example: See Joe LaValla, CEO of Integrity Graphics

Joseph E. La Valla, president of Integrity Graphics, Inc., regularly holds company meetings on a monthly basis, but the one starting off the new year is the one that his 80 employees may remember for quite some time.

"I guarantee two things," Joe told the troops in a series of department meetings. "First, the recession will end. I don't know when but it will eventually end. Second, we will be profitable."

Joe then called for assistance from his employees to dig deeper for cost saving measures. The folks responded, perhaps motivated in part by Joe's assertion that every $50,000 in operational cost savings from things like material handling and T&E equates to one saved job, given that the average annual compensation at Integrity is around $50,000.

Recessionary cost alignment can sometimes cause a company to lose its stride, but my visit to Integrity on Tuesday clearly indicated a vibrant workplace. The building grounds looked great. The staff had a kick to their steps. Joe donned an air of confidence that comes from over 20 years of founding, growing, merging, and successfully reinventing Integrity Graphics into a leading graphic communications company.

While others are stuck in "hunker down"-mode, Integrity is carefully marching ahead:

•     Joe recently upgraded the crucial CFO position by bringing in a banker from a local lending institution;
•     Joe is cautiously evaluating merger and acquisition opportunities to build the business and has asked NAPL for introductions to potential candidates; and
•     Joe is planning to attend his first NAPL Top Management Conference in Tucson, AZ, March 15-18 to gain insights from progressive-minded owners like himself.

Here are 5 things that other NAPL members learn from Joe La Valla's leadership at Integrity:

1. Be proactive with direct communications to all employees about where you stand.
2. Harness the input and ideas of the staff.
3. Take advantage of the weak job market to upgrade key positions such as CFO.
4. Engage with owners such as yourself.
5. Consider M&A a core strategy for growth regardless of the economy or the banking climate.

Turning Negatives into Positives: Check out Dave Flach of NAPL member-client Bassett Printing

Your father passes away suddenly. You have never owned or managed a printing company before, even though you worked there in sales and your dad gifted you 5% a few years back. The Executor of his Estate tells you there is pressure from some family members watching carefully from the distance. The company you are now charged with running is faced with old equipment, an aging work force, an archaic building in a remote small town, and a chronic lack of leadership. The local bank is "concerned", suppliers are tight, and no new financing is on the horizon.

Oh, and the economy is tanking and the printing industry is being redefined.

Pretty gloomy, huh?

Not to David M. Flach, Jr, seen here on the right with NAPL VP Mike Philie.

 

Dave is the self-proclaimed "catalyst" for Bassett Printing. He has faced these obstacles and remains steadfast in his determination to transform Bassett Printing from old line company into a modern graphic communications leader.

Most notably, Dave has turned the negatives into positives, which is a lesson learned for others in the same boat. Dave sees older but well maintained equipment as a reason to specialize in manufacturing of Point of Purchase displays, a niche in which run speed and make ready time is not a handicap. An aging work force is also an exceptionally loyal and experienced group of reliable employees. A big old building is seen as a fully paid-for asset with room for adding kiting and fulfillment services.

Dave has utilized consultants from NAPL to support his turnaround. NAPL VP Mike Philie has been serving as Interim GM of Bassett, NAPL VP Ray Prince provided a much needed Operational Assessment, and I've been working on ownership and debt restructuring issues.

Much work remains in Dave's quest to transform Bassett Printing. But during these trying times as the recession takes its toll, it is worth pointing to Dave Flach of Bassett Printing as an example of an individual who is turning negatives into positives.

M&A Value is in Customer RELATIONSHIPS, not Customer LIST

M&A participants -- and their CPA and lawyer advisors -- often use the phrase "customer LIST" to mean general intangible assets; however, in the print and graphic communications industry, general intangible asset value is driven by "customer RELATIONSHIPS" linked with captivating capabilities. The actual "customer LIST" is not the key factor in valuation of general intangibles, contrary to the loose jargon used by some folks.

A good example of weak customer relationships in the context of general intangible valuation came up today. NAPL's member-client in this case is a sheet-fed offset printing company using old equipment and running out of a middle-of-no-where plant. The annual sales have stagnated around $3.0 million. There are a couple of not-so-great sales people and a lot of house accounts. Owners are not involved in sales. There are no capabilities such as database management or digital asset management that add "technology hooks" to lock in customers. There are no creative services, mailing services, or fulfillment services to facilitate customer retention. The management lacks customer interaction, and the sales people and CSRs are weak at understanding their customers.  In this example, the customer relationships are very poor; therefore, the value of these general intangibles is going to be somewhere between the value of a customer LIST and the value of general intangibles fueled by strong customer relationships linked with captivating capabiliites.

To build the value of the general intangibles in this case, we recommend conducting an NAPL eKG customer diagnostic survey to learn more about the customer base; moreover, we recommend proactive outreach by management to connect with the customers individually to learn about their needs/wants in the context of providing solutions, even if the company's output is limited to sheet fed printing.

Please note that general intangible value can be significant without captivating capabiliites; but, if the customers are doing business limited to "ink on paper" printing, then there needs to be demonstrated value in the customer RELATIONSHIPS in order to achieve good value for the general intangible asset. What do we mean by customer RELATIONSHIPS? Ask my NAPL colleague Mike Philie, he can pick up where I leave off on this topic.

How to Bring up Bad Financials in Early M&A Talks

This scenario is playing itself out all across the print and graphic communications industry: a financially struggling owner puts on a happy face to engage an acquisition-minded owner over a lunch meeting. Both sides stick with high level dialogue about their businesses. But the owner with mounting debts is thinking, "good meeting, but I didn't let on how lousy my financials are.....the guy will probably walk away if I show him those numbers. What do I do?"

Here's my recommendation to the financially-challenged owner on HOW to bring up bad financials in early M&A talks [as adapted from a real e mail this week to an NAPL client-member]:

I suggest a conversation with the potential suitor in which you refer to the NAPL industry trends analysis which shows 10% of the industry are leaders, 70% are treading water, and 20% are heading for transition from ownership as not remaining viable businesses. You can explain that your business is somewhere between the 70% and the 20%, meaning, we are not in good shape financially and we are “hanging in there but barely”. I would definitely put that reality out for their consideration. Then I would mention positives such as your customer base. I would say that you are open to a creative way in which you can join forces to maximize opportunities, and seek their expression of interest in hearing more about a strategic relationship. Leave it at that. Then call me. I will then help guide you on presenting this opportunity based on how the combination will help their company strategically and financially.

Manage Your Printing Company from the Board Room -- Not just from the Press Room

Very few privately owned print and graphic communications companies conduct regular board meetings, perhaps no more than 10%. But this is a missed opportunity for owners and key managers to step back in a structured forum and review “how are we doing”, “where are we heading”, “what can we do better”.

Board meetings are an excellent vehicle to get owners and key managers on the same page as to critical decisions affecting the business.This does not replace regular management or operational meetings and a board meeting is not the same thing as chatting over lunch at a restaurant!  Typical agenda items can include planning for seasonal ups and downs, exploring merger and acquisition opportunities, consideration of capital expenditures, setting compensation and performance objectives for partners, and any major decisions that go beyond day to day matters.

The board meeting should run 2-3 hours and one person must be charged with keeping things on track. An action plan and notes must come out of the session.

NAPL can set up your board team if you don’t already have one and we can facilitate the first few meetings to get you going. If interested, e mail me to request a PDF of an article on this topic..