Borders: Was Bigger Better?

What happened to Borders? It is a classic American business tale of rags to bankruptcy in little more than a generation. Their classic marketing plan, “Let’s Get Big,” made it happen. Here are some of the key details concerning it US operations.

Brothers Tom and Louis Borders founded their first bookstore in Ann Arbor, Michigan, in 1971. With its book wholesaler sister company, Borders primarily serviced more independent book stores than its own book stores until 1989 when company management decided to expand. It did and it got bought.

Kmart had owned the mall-based book chain Waldenbooks since 1984 when it bought Borders in 1992. But not long after, Kmart faced management and stockholder problems with its acquisition, not to mention fierce competition from rival Barnes & Noble. So Kmart spun off Borders and by 2003 the new Borders Group had grown to 1249 stores using the Borders and Waldenbooks names, worldwide.

In 2004, Borders reached an agreement with Seattle's Best Coffee to operate cafés in its domestic superstores. In 2007, Borders installed digital video monitors in select stores and in 2009, it offered customers a free WiFi network.

Borders went international in 1997 with expansion into Asia and the UK. However, by the end of 2009, all of Borders directly owned overseas locations had been sold or closed. Only the franchise stores in Dubai, Malaysia and Oman remain open.

The company showed its last profit in 2006. On February 16, 2011, Borders announced that it had filed for Chapter 11 bankruptcy protection and that it would be closing up to 275 of its 642 bookstores. All of the stores to be closed would be superstores. Borders listed $1.275 billion in assets and $1.293 billion in debts in its filing. It employs approximately 19,500.

It can be argued that Borders failed to respond correctly as the retail book selling industry has evolved. It is also true that as book sales have been in decline, books and other media have become more available online.

But the real deal is perhaps more like consummate book buyer and college professor June Sullivan told me, outside of the closing Borders in Union City, California, “They began specializing in best sellers, put in easy chairs, and offer coffee and free Internet. So now they’re like a public library where you pay to buy used books.”

A similar fate happened to Circuit City, whose core business included knowledgeable sales people, but its corporate management decided to replace them with wage-and-hour clerks to cut overhead. As the retail electronics industry evolved, the competition, Best Buy, clobbered Circuit City.

From my point of view as a management consultant, Borders’ failure reflects the faulty business plan of “Let’s get big.” One can do that as long as one is true to the core business that made it successful in the first place and resists growth, even though the money looks good. Bigger isn’t always better.

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originally published on Blogcritics as Borders: Was Bigger Better? February 20, 2011

I Talked to the Spouse

Sometimes we management consultants get caught up in the jargon of our profession – you know, the words that only another person in the same field uses that have special meaning only to them. Some consultants assume that our clients understand us as our peers do, so words like “strategic” or “implementation” and an entire lexicon from Six-Sigma get tossed about loftily, as if our clients are paying us for our vocabulary. Of course the more money we charge, the loftier that vocabulary can become. That is before we get to statistics and graphic analysis, always the life of the party.

Many consultants lose sight of the fact that our clients are looking to us to help them do something they do not know how to do and how to do everything else better. In running their businesses, just about the last thing our clients want is for us to give them large packs of paper to read after their day is done. In addition, there is so much written material available, it is almost too much. The job of a consultant is not to help his client read more stuff.

In preparing to update this website, I conducted an inventory of my clients over the past five years to see what leaped off the page at me. Doing a customer inventory is one of the practices I use with my clients when I am looking for more business. It helps define who I should be looking for so I can save both time and resources. Specifically, I was looking for what the clients with whom I had the most success had in common. What I found was so simple that it surprised me and I can sum it up in five simple words.

I talked to the spouse.

To be sure I talked to family members in addition, but the discovery is certainly consistent with the studies having to do with small businesses in this country. Here is the short version of those party favors having to do with US business. According to statistics reported by the University of Southern Maine's Institute for Family-Owned Business: “Some 35% of Fortune 500 companies are family-controlled. Family businesses account for 50% of U.S. gross domestic product. They generate 60% of the country's employment and 78% of all new job creation.” Unfortunately, “only one in three family businesses succeeds in making it from the first to the second generation.”

There are lots of reasons for that phenomenon, but I am willing to bet that communications – specifically that between the family members from one generation to the next – has something to do with it. But I will save that for another article at another time. I want to stick with my “talked to the spouse” theory. Sometimes, it’s a tough job, but someone has got to do it. Let me share a couple of examples.

One client neglected to tell his wife that he had called me in to help him get his business in shape. The business had grown from a hobby and generated over $2-million a year when I showed up. I tried to get my client to arrange a meeting among him, me, his wife and anyone else who might have a stake in the outcome of the consulting project. The client kept hedging.

“She doesn’t have anything to do with my business [decision],” he insisted. But I insisted harder and the client relented. The next morning I showed up at the business site early, hoping to be there ahead of my client so I could better make my case as to what I thought we should do. My client was waiting for me – not a good sign. Then I noticed the tears in his eyes, definitely not a good sign. As I learned, he had gone home to tell his wife about the meeting the outside consultant wanted to facilitate. She hit the proverbial ceiling and the name calling began. It turned out that she had been paying the bills for the client’s former hobby and had not agreed to have anyone come in to help, especially at the hourly rate I had to charge for it. Harsh words turned for the worse, pushed turned into shoves and at the point of my discovery, my client was on his way to court and a restraining order.

The company I worked for could not understand why I could not get a working agreement [a contract for services] signed.

On another occasion, I started a consulting project’s opening conference one morning with my husband and wife team client, my company’s business analysts and project consultant and I to have the meeting get shaky from the got-go. It was another tear jerker. The clients kept interrupting each other to tell us how their crummy business was tearing their marriage apart and that they thought they just wanted to sell out and that they no longer saw any point in having consultants in to help. Oh, I talked to the spouses, alright.

I stood up abruptly and said, “Knock it off, both of you, right now! Who do you think I am? A marriage counselor?” Actually, in that case, I was. I stuck out my hand to the husband to shake his hand.

“Stand up.” He did. “You are the President of a multi-million dollar, international company that has been in business almost 10 years, right?” He shook my hand and nodded affirmatively. “Then act like it! And you,” I said as I turned to Mrs. Client, “What did you do before you got sucked into this company disaster?” She told me she was a Registered Nurse. “Good. That’s what you are going back to after we are done with this project.”

Sure, it stunned both clients and my company colleagues. You can imagine their faces and, if you can’t, let’s just say there were jaws that bounced off the floor. But, as I say, I talked to the spouses. It turned out that the clients had been victims of embezzlement and Mrs. Client came in to take care of the books because of the trust issues involved. My team and I prevailed, by the way, and so far as I know the clients and company lived more happily after the project concluded.

I have lots of other tales I could tell you that emphasize the importance of consultants talking to spouses, parents and siblings involved in any business, whether they admit to being in the decision making process or not. For one thing, each one is impacted by business decisions one way or another. For another, valuable information can be obtained from sources that are not familiar with the day-to-day activities in a company. Besides those considerations, a consulting project can be killed before it starts if family members are not taken into account from the beginning of an engagement.

Family businesses face a lot of problems, the family itself being a potential one. The reason is that family members all have names, as opposed to position titles, which can be difficult for them to comprehend. Another issue has to do with boundaries. At what point do people cease to be family members and become employees? Is it at home, on their way to the business or at the door? And there are a host of other issues, which I will get to another time.

Let me wrap up here by noting that effective communication is the key to business success, whether the topics of communication are statistical data, like opinion survey results and balance sheets, or they are people issue, like promotion decisions or embezzlement. Large corporations governance looks after the interests of the company’s stock holders just as family businesses operations looks after the interests of the company’s stake holders. Family business owners must expect that for a consulting engagement to be successful, the professional consultant they retain is going to talk to their spouse.

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originally published on tmackorg.com

Who's In Charge Here?

Whether you are a sole proprietor running a small company of family and friends or the president of a company that employs thousands of people, there is something called “depth of management.” It is similar to the military “chain of command” and can be diagramed in an organization chart. Research has shown that a supervisor is required for every three to five people performing a unit task. If there are three to five supervisors, they need a supervisor and so forth. The larger a company gets, the structure is more about managing the flow of information than the activities of employees, but supervision is supervision whether it is peoplework or paperwork.

A common problem for all is how they answer the question, “Who is in charge here?” An owner’s offspring is put in charge, a worker is promoted to supervisor, and a principal hires a friend or outsider. Negative repercussions can result unless those people who are put in charge of other people understand what being a supervisor is about. It is not about being “the boss.” Boss is not a job title or a position. Supervisor is a job title and the position is about getting a job done.

A supervisor is a person who is responsible for the work being accomplished by one or more employees.

The supervisor must have the ability to handle the function to which they are assigned and the ability to control and direct those employees whom they supervise, or subordinates. The capacity of supervisory personnel is largely dependent upon their personality, background, education, and work experience. Good supervisor are open-minded and alert to new ideas, allowing them to be flexible in handling varying situations that must be faced daily.

Successful supervisors display three main qualities: stability, decisiveness and understanding.

Emotional stability is essential. Good supervisors must be able to control their tempers under all conditions, especially when the going gets tough. They must follow an orderly, well-planned procedure that is flexible enough to permit changes when necessary. Decisions must be handled positively and quickly because shaky and uncertain decisions will cost the respect of both subordinates and other supervisors. Subordinates who are made to feel that they are understood enjoy working under their supervisor's steady and dependable direction.

The qualifications for supervisors include impartiality, leadership, confidence and balance.

Supervisors must be impartial and impersonal, not allowing their personal likes and dislikes to influence their decisions. Good supervisors are leaders rather than drivers. Subordinates take pride in their work when they feel it is worthwhile. Supervisors must be able to train subordinates in their tasks and be able to instill a feeling of confidence in their abilities. A good supervisor also knows when to praise a subordinate for work well done as well as to correct a subordinate privately for unsatisfactory performance.

The responsibilities of supervisors share core attributes regardless of their company size.

· Accepting and understanding all duties delegated to them.
· Developing recommendations to modify tasks assigned to subordinates.
· Establishing coordination and discipline among subordinates.
· Evaluating the performance of subordinates.
· Training subordinates at all levels and developing selected individuals to become assistants and to assume the supervisor's duties when the need arises.
· Simplifying all activities to necessary essentials by eliminating marginal work and non-productive effort.
· Maintaining operating records of the quality and quantity of work performed.
· Planning, and rescheduling work to obtain improved workflow and increased production.
· Performing the operations within approved standards by attending to all assigned duties and acting on matters as they arise.
· Observing and practicing all policies.

The authority of a supervisor includes responsibility, jurisdiction, and morale.

Regardless of the delegation of duties to subordinates, supervisors remain personally responsible for the proper performance of all duties assigned to the position and to the organizational unit they supervise. Under no circumstances should the authority of any supervisor be destroyed by the direct issuance of instructions to personnel under that supervisor's jurisdiction by other supervisory personnel, regardless of the organizational rank of the latter.

The supervisor must have exclusive jurisdiction and authority over all personnel, equipment, and facilities for which they are responsible. Supervisors are entitled to the full cooperation of their own supervisor in the event that an employee is judged unsatisfactory and must be transferred or terminated.

All supervisory personnel are expected to develop and maintain a high standard of morale and production in addition to being fully familiar with all company policies. Each supervisor may make recommendations concerning subordinate employees. However, only a functional manager has the authority to hire, promote, demote, discipline, or terminate any employee within the functional section.

Supervisors share some core administrative and general duties regardless of company size.

· Achieving a well-organized, smooth running unit by making competent selections, providing sufficient training, and closely supervising assigned personnel.
· Securing effective, productive use of all personnel, equipment, and supplies in their unit.
· Building and maintaining employee morale.
· Operating their unit within established guidelines and budgets.
· Maintaining productivity and improving methods and procedures whenever possible.
· Providing proper maintenance, control, and proper use of all equipment, including a preventative maintenance program when applicable.
· Ensuring strict adherence to safety rules and practices at all times.
· Reducing potential hazards in the work place.
· Reducing wasteful use of resources.

Proper supervision is the prime activity for top management. Its agenda is to operate an organization productively and smoothly. Supervision is the way companies obtain the necessary coordination, cooperation, and communication required to succeed. Supervisors must always put emphasis on the details of doing a job, not just on accomplishing the end result. That is what being in charge means.

Management Lessons [No Charge]

The job of many business consultants, in addition to invoicing their clients and collecting, is to appear to write management lessons for a substantial hourly rate. But I have rebelled against the practice and offer the following management lessons to you at no charge. Use them and prosper.

Lesson One

An eagle was sitting on a tree resting, doing nothing. A small rabbit saw the eagle and asked him, "Can I also sit on my ass like you and do nothing?"

The eagle answered: "Sure, why not."

So, the rabbit sat on the ground below the eagle, and rested. All of a sudden, a fox appeared, jumped on the rabbit and ate it.

Management Lesson:

To be sitting on your ass and doing nothing, you must be sitting very high up.

Lesson Two

A turkey was chatting with a bull. "I would love to be able to get to the top of that tree," sighed the turkey, "but I haven't got the energy."

"Well, why don't you nibble on some of my manure droppings?" replied the
bull. "They're packed with nutrients."

The turkey pecked at a lump of manure, found it actually gave him enough strength to reach the lowest branch of the tree. The next day, after eating some more dung, he reached the second branch. Finally after a fourth night, he was proudly perched at the top of the tree.

Soon thereafter he was promptly spotted by a farmer, who shot the turkey out of the tree.

Management Lesson:

Bull Shit might get you to the top, but it won't keep you there.

Lesson Three

A little bird was flying south for the winter. It was so cold the bird froze and fell to the ground in a large field. While it was lying there, a cow came by and dropped some dung on it. As the frozen bird lay there in the pile of cow dung, it began to realize how warm the dung was, actually thawing him out.

He lay there all warm and happy, and soon began to sing for joy. A passing cat heard the bird singing and came to investigate. Following the sound, the cat discovered the bird under the pile of cow dung, promptly dug him out and ate him.

Management Lessons:

(1) Not everyone who shits on you is your enemy.

(2) Not everyone who gets you out of shit is your friend.

(3) And when you're in deep shit, it's best to keep your mouth shut.

I hope this helps. Seasons Greetings.

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Edited from an unattributed source as much management consulting dicta, only I admit it.

Just Stuck in It

As a business management consultant, I would describe a lot of what I see in business families are people stuck in stupid. They are not stupid; they're just stuck in it. The primary reason they are stuck is their lack of flexibility, which inhibits change. Change, incidentally, is why people hire consultants in the first place.

I ask people "What do you do for a living?" Generally, they explain about some functionality or process they perform. I repeat the question until they to stop. "You make decisions," I say. Then I ask, “If someone is stuck in stupid, what kind of decision could they expect to make?”

Learning to ask questions is the first step out of the stickiness. For example, let’s say our Company is expanding its’ scope of work and over the next 6 months it wants to add 50% to its’ gross revenue.

The questions that need to be answered are:

· Does the Company have the qualifications to expand? [That should not be a problem if the company is currently performing in these areas.]

· Does the Company have sufficient capital or credit to expand? [A projection showing a Cash Flow would provide insight into what the cash requirements would be with the expansion.]

· Does the company have the staffing required to make such a move?

· Are additional employees required, are they available, how much training will they require, and what are the costs?

· How much competition does the company have and will the expansion enhance or hurt the Company’s position in the community?

Another issue with being stuck is what I call breathing your own ether. By ether I mean the things that business owners say to other people and to themselves like, “We’re doing just fine.” “I don’t need to write it down. I’ve got it all in my head.” And my personal favorite, “I’m an idea person.” [So are children in a playground.]

The best ether I heard recently came from a client who told me, with a straight face, that his spouse was working in the company without any pay or job title or job description. “It is saving us a lot of money because I don’t have to hire someone else.” Actually, the spouse does have a job title – Owner’s Wife. One thing is certain: the compensation plan sucks.

Let’s ask some more questions:

· Doesn’t such a situation have the net effect of putting all of their eggs in one basket?

· Is the spouse qualified to perform the duties of her functional position, like book keeper or sales manager?

· Have the owner and spouse established clear boundaries? [At what point do their business and personal lives begin and end?]

The fact is that few people ever want to admit that they do not know what they don’t know. The tendency is to claim that they have been so busy working that they haven’t been able to take the necessary time to make that discovery. Unfortunately, there is ether.

Three choices are available in these situations.

· Keep doing what you are doing.

· Stop what you are doing and go back to school.

· Hire a competent business consultant to help you.

There are sub-sections of those three choices, but I am trying to keep this short and to the point. Part of the stickiness is not admitting that some outside advice might be helpful. A person’s ego saying “I can do this better” is what starts business ventures. The same ego saying "I don’t need anyone telling me what to do” is the glue that keeps business people stuck in stupid.

Margin of Error

How do we calculate a price for something?

More often than not business calculates the price of its products or services by some method of Mark-Up. It is a common practice that relies on the assumption that if you take the costs of labor and material and “bump them up” by some percentage, you will make the profit you want. However, Mark-Up pricing leaves “money on the table” and in some cases may result in what we will call a negative profit.

The reason for that is the assumption itself. Even though labor and material are considered Direct Costs, they are pretty much fixed. From an accounting point of view they are, anyway, but in life we know that commodities the prices for steel, petroleum, and transportation change, although they tend to go up more often than down. Our pricing has to absorb those differences as they occur.

We also know that the cost of labor is more than just the wage paid to an employee, which is the major part. Burdened wages include other costs, like SUTA, FUTA, FICA and paid vacation time. They also have to be absorbed by our pricing. Therefore, we have to look at pricing as changes occur and not assume that Mark-Up automatically recovers such costs.

My purpose is to introduce Gross Margin Pricing which prevents leaving “money on the table” by recovering all of our costs however they may change. In order to make it make sense, I am going to us a napkin on the table to illustrate the point. My theory is based on my experience which says that if it can’t be done of the back of a napkin, then it is too complicated.

Let’s look at the difference between Mark–Up and Gross Margin pricing. The following example shows the significance. To demonstrate, let’s assume a $7.00 product cost and look at the difference.

an analogue PowerPoint

MARK – UP

30% Mark-Up pricing simply multiplies costs by 1.3: $7.00 X 130% = $9.10 revenue (price).

Revenue minus cost equals gross margin: $9.10 minus $7.00 = $2.10 or 23% gross, or profit.

GROSS MARGIN

This pricing system divides the cost by the reciprocal (100% - 30% = 70%) of the desired gross margin, the profit percentage you want.

Cost divided by the reciprocal of profit equals price: $7.00/0.7 = $10.00 revenue (price).

Using MARK–UP pricing rather than GROSS MARGIN pricing produces a suggested selling price that is 7% less than the correct selling price. Just to keep the numbers simple, on a sales volume of $1M that would be like leaving $70,000 on the table. It must be a big table.

You can make my napkin presentation into a PowerPoint presentation

The Mark-Up theory of pricing is the way the model worked from after WWII into the late part of the century. It worked because the other components of pricing remained less variable than they are today. There are lot more add-on costs today than there were for business in the 50’s and 60’s. However, Mark-Up pricing is inflexible and does not absorb all of the costs, which in turn erodes profit.

This goes to a quick discussion of how often should prices be calculated. Rather than say, “That depends,” which would be a cop-out, the answer is “regularly.” Every time something impacts costs, prices need to be considered and changes made accordingly. For example, in the aftermath of Hurricane Katrina, transportation costs skyrocketed to almost five times what they cost before, all of which had to be passed on to consumers.

I have a spreadsheet I use called “The Electronic Deal Napkin.” The idea came from working with people who did their calculations on paper napkins with a pen, instead of on a computer. The fundamentals are the same. By the way, a pen is a hand-held, friction-driven, fluid-medium, analogue, scribing-devise. It is now updated.

How does one price things? Don’t multiply, divide by the reciprocal. It works every time.

Why Pre-Paid Legal

Pre-Paid Legal Services Inc. (NYSE symbol: PPD) is one of the first companies in the United States organized solely to design, underwrite and market legal plans. PPD covers many personal, non-work related legal issues. The plan provides an employee, their spouse and qualified dependents assistance with personal legal issues including:

· Unlimited telephone consultations
· Free phone calls or letters from attorneys
· A free Will
· Contract and document reviews
· Motor vehicle legal representation
· Lawsuit defense
· IRS tax audits, discounts on divorce and post divorce related matters
· Real estate transactions
· Identity theft protection and restoration plans

80% of Europeans have some form of legal insurance. The idea is favored by many people in situations where they need a lawyer and find the cost prohibitive. Legal insurance is comparable to medical insurance by people paying a monthly premium for access to legal representation when they need it. It also eliminates the stress of having to find someone in desperate times.

From a business point of view, a prepaid legal services plan is cost effective for small business owners who need collection letters. Since collection letters can cost upward of $150 a piece, the monthly premium is significantly less. A well-chosen prepaid legal services plan can benefit a consumer with a known legal need.

One clever use of a pre-paid plan was by a real estate agent. He found a plan that covered the preparation of a deed for a real estate transfer. He would have his clients sign up for the plan, and they would then obtain the deed through the plan's attorney. The cost of the plan was significantly less than the attorney would otherwise charge for the deed. On top of that, the real estate agent received a commission on each plan sold.

The clients typically cancelled the policies after the first year.

The product PPD offers that is important to business professionals is Identity Theft Shield. At no charge, PPD will send in an Identity Theft Expert to help create a plan to safeguard non-public information. PPD provides the training and necessary written policy, forms and documents that demonstrate Good Faith measures to comply with FACTA, GLB, HIPAA and other laws. The documents provide proof that handlers of sensitive information have attended the mandatory employee training now required by the Federal Trade Commission.

PPD's program is not bulletproof insurance against lawsuits, penalties, fines or damage awards, but provides evidence that companies are doing their best to protect the sensitive employee and customer data they have.

As an income opportunity based on the idea of an exponential expansion system, it has great emotional appeal to a growing number of people distressed in our economy. Multi-Level Marketing (MLM) or Network Marketing opportunities, such as PPD, Usana, Amway and Herbalife, appeal to a desperate need for new or additional income for millions of households. However, such systems promising financial salvation are not for everyone.