Prior to 2008, the focus was generally on growth opportunities. Business was good, credit was loose, and most organizations were just trying to keep pace with new orders. Boom times were upon us, and life was good.
When the bottom dropped, everyone recalibrated. Suddenly focusing on the bottom line became very much in vogue. If it wasn’t making money, it wasn’t a top priority. The New Normal was upon us, and strategy would never be the same.
Or will it?
What’s to prevent another boom in the label and narrow web sector from taking you away from your focus on the bottom line?
What have you truly changed about your methodology for setting priorities that you wouldn’t drop in a heartbeat if boom times ensue?
I am referring to the model you follow for your decision-making, and I think it’s the greatest single lesson that should be learned from the recession of 2008.
What do I mean by a decision-making model? For an example, look at the value-based investment model of Warren Buffet. Berkshire-Hathaway’s approach has always been to buy companies that are undervalued, a great brand and a good long-term bet.
It’s how Buffet makes his decisions – an ironclad model that’s the foundation of his empire.
Now think about your approach to strategy. Can you say you wake up every day, knowing the basis for your decisions? If you do, you’re probably either on your way to being, or currently are, a profitable owner.
If you’re not, you ride the economic tide and keep your fingers crossed. And really, that’s no way to live.
Getting to The Bottom Line
My name is Rock LaManna, and I am a lifetime member of the printing industry. When I say lifetime, I mean I’ve grown up in the industry and I someday will retire from it; a lifelong passion that I inherited from my father, Carlo LaManna.
My father helped build Vomela Specialty Company from the 1950s through the 90s, eventually selling his share and retiring. His succession plan involved a merger and acquisition with a private-equity firm that included me. I was also retained as part of the executive team.
I enjoyed a successful run at Vomela, and then moved on to forge my own path. Along the journey, I’ve owned my own companies, sold them, and helped other printing owners do the same. As my website says, “I’ve been there, owned, sold, merged, acquired, grown, innovated, pioneered, rebuilt and done that.”
I tell you this both as a means of introducing myself as a regular columnist for L&NW, but also to help you understand that the thoughts I shared at the introduction of this column are based on years of experience.
I have ridden the swells of economic good and bad. I have worked next to some of the smartest strategists in the business, as well as some of the worst. I have seen what it takes to succeed, and I want to pass that knowledge on to you, every issue, in my column.
I call it “The Bottom Line” because in many ways, that’s what your entire strategic approach usually boils down to: What’s the bottom line?
Until 2008, people weren’t quite as focused on the bottom line, or any of their financials, as they should have been. That’s primarily because they didn’t understand the difference between quantitative data and qualitative strategy.
Two Concepts Label and narrow web Printers Need to Know
When people read the title for this column, they may automatically assume it’s all about boring financials. CPA fodder.
Remember, I am the former owner of a printing business. I had business metrics to analyze, but I also had to think strategically. Like you, I had to apply those financials to my operation.
Enter the concept of quantitative data and qualitative strategy. These are the yin and the yang of management, and should be the foundation for your strategic decision-making.
In a nutshell, here’s the approach:
Quantitative Data: A business owner needs to analyze the quantitative data that tells the story of his or her operation. I’m talking about laser-focused financial data, the stuff that reveals tremendous insight into your company’s health.
This isn’t a generic report your accountant compiles at the end of the month. This is audited information, which you generate not to answer more questions, but to find answers.
Qualitative Strategy: Once you have the quantitative data in hand, the qualitative stuff – think big picture strategy and vision – becomes clearer.
With a solid cash-flow analysis, for example, you can determine how much you need to scale back to keep your bank happy as you weather difficult financial times.
Run the correct financial ratios, and you’ll also see what aspects of your business need to be improved as you approach a strategic merger and acquisition.
The reason so many businesses get frustrated with their business plan is because they have too many ideas, and not enough discipline to stay on course. If you understand your numbers, however, all that can change. You can see exactly where you need to step, and how is the smartest way to get there.
In the end, that leads to smarter decision-making. I like to think of it this way: Do you ever notice how much time people spend making strategic plans, and then wind up junking the plan when they hit a crisis?
They do this because they have to cut to “the bottom line” and figure out what’s truly important. So why shouldn’t that be a daily part of your decision-making? Doesn’t it make more sense to start with the financials first?
Will You Listen to Your Financials?
Yes, you say. Of course we should start with the financials. You may even bang your fist down on the desk at your next staff meeting and instruct everyone to follow your charge to the bottom line.
Here’s the problem. Your numbers will speak to you, but will you listen to what they have to say?
Many leaders (especially those in unsuccessful companies) don’t. And here’s why:
• Lack of understanding. CEOs tend to be visionaries or great managers. Not many of them are trained in the financial arena. Yet this is one of the most critical skills in the operation of your business.
• Difficult to establish system. If a CEO doesn’t understand what numerics to track, he or she is going to have even more problems trying to build a system around effectively tracking key financials.
• Leads to tough decisions. When you cut to the bottom line, you may have to make some difficult decisions. Do you cut staff? Abandon a pet project? Sell the business? Financials force you to make the big calls, and some people don’t want the pressure.
• Points out weaknesses. Understanding your financials will also expose your organization’s weaknesses, and ultimately, that’s going to reflect back on the owner. Do you have a thick enough skin to work through some of these issues?
I write this not to scare you, but to help you realize that there is no sugarcoating when it comes to your financials. You can’t fluff and puff your way out of a problem when the numbers are staring you right in the face.
I had a client who was in this boat. We had performed a complete financial analysis, and really pinpointed what was lacking in his operation and his approach.
That was the good news. The bad news is that he wouldn’t respond to what his numbers were telling him. Instead of listening to the fact that his cash flow was hurting, he thought he could grow his way out of a jam by buying a new press.
The strategy is destined to backfire. With unmanageable debt ratios, it’s just a matter of time before the bank pulls the rug out from under him. That’s the thing about really listening to your financials: If you ignore them, it’s going to hurt you in the long run.
So it’s up to you. If you understand the value of cutting to the bottom line, you may find you need to take a step back before you take the quantum leap forward. Do you have the wherewithal to pull it off?
I hope you do. In the months to come, I hope you’ll read this column as a source for what you need to do to build a solid bottom line of data for future strategies.
I’m excited that Steve Katz and the team at L&NW have given me the opportunity to share some insight with you. Look forward to Rock-solid financial-to-strategy thinking – right here, every month.
Rock LaManna, President and CEO of LaManna Alliance, helps printing owners and CEOs use their company financials to prioritize and choose the proper strategic path. He can be reached by email at firstname.lastname@example.org.