6 Facing forces beyond your control
Some of the most stressful times in business happen when our companies are at the mercy of much larger forces, such as cultural, economic, or cultural shifts we can’t control. These shifts can include soaring interest rates, a diet trend, a fashion trend, a natural disaster, a frozen credit environment, a precipitous drop in consumer spending, or any change that makes it hard to find predictability. Sometimes customers and suppliers make big decisions or big mistakes that impact us, and even though we have done everything right and have remained true to our values, our company still suffers. Finding our way through this situation can be challenging and stressful.
In this chapter, entrepreneurs tell their stories about what happens when the trend is your friend and then it’s not. Lisa tells the story of the low-carb diet trend that was a one-two punch to her company. Margot shares the effect that the dress-for-success fashion trend had on Birkenstock. Carol and Gary describe what happened when another company’s decisions had serious consequences within their own businesses. And Joe tells the tale of a series of disasters that struck him all at the same time. At the end of the chapter, our practical tips give suggestions about how to get through tough times that you have absolutely no control over.
You Can Do Anything, But You Can’t Do Everything
LISA
At Vermont Bread Company, one of the trends that caught us by surprise was that our customers began to rapidly consolidate. When we started selling natural and organic bread, there were a lot of independent stores, small supermarkets, and natural product chains. Over the years we steadily increased our capacity and followed a nice, smooth growth curve. Then, over the course of about a decade, the chains rapidly merged and became a handful of large supermarket retailers and one natural product chain. In a very short time we went from having a solid, multilegged stool of revenues to having only a very limited number of customers. Our size, relative to the size of these customers, became out of balance.
We needed to figure out how to increase our size in relation to these companies’. We needed a new idea. We noticed that supermarkets were using more upscale advertising and presentations, yet they continued to offer only what we called squishy white bread as their private-label products (the supermarket-brand bread). We thought it would be a good idea to develop a line of denser and higher quality breads that the supermarkets could put their names on. We called it a premium private label. It would be a small line but important for stores.
We were right: it was a good idea. But it didn’t remain a small line. It grew to represent a significant amount of weekly volume at a premium price. Then a new low-carb diet craze hit. It was a tough time to be in a high-carb business, selling bread or pasta. Sales of flour-based products plunged. Within two years our industry’s largest companies—the maker of Ronzoni pasta and the maker of Wonder Bread—had filed for Chapter 11 bankruptcy protection. When the larger bread companies saw that we were doing well with our premium private label, they decided to try to take this business away from us by offering something similar and being competitive on price. We believed our quality was higher, but we could not compete on price. Over a twelve-month period we would eventually lose most of our new business to these larger companies.
The first customer that decided to go with our large competitor was the only customer of significant size I had ever lost. At the time, this customer was an important leg of our multi-legged stool of revenue. The news hit me like a punch in the gut. Immediately I pulled up the spreadsheet and looked at each week for the next two years. I erased the customer’s sales line and ingredient costs. And then I started sweating because that change tipped us from profitability into the red. I went outside and walked around the building, hoping the fresh air might clear my head. I let myself feel the anger and frustration. I acknowledged the unfairness: we had built up business with this customer by trying a new idea, and now that it was successful, we lost the customer’s business on price, not quality. I yelled and swore and kicked rocks as far as I could and yelled some more.
When I got back into my office, I looked at the spreadsheet again. Then I picked up the phone and called my bankers to tell them what had happened. I also told them I was updating the plan and would have something to present to them at the end of the week. Now I had a deadline! Next, I called in the key managers who would be involved in finding a solution. Together we brainstormed what changes we could make to bring us back into the black. We started to voice the real fear: that the rest of our private-label business would also be at risk once the marketplace knew that one customer had made the change. Luckily, we had two months left on the contract, so we had time to figure out what we would do. I spent sleepless nights worrying about what would happen if we lost more customers and how I could remain positive with our staff so we could work together to solve the problem. Over the next few weeks we found ways to cut expenses, open a new geographic territory for our branded products, and put off some new projects.
Getting through a crisis is about taking the next right step. Looking at everything that needs to get done at once can paralyze you, and you won’t be able to do anything. A friend just sent me some feedback about the tips that are included in this book. He reminded me that you need to focus on the next right thing that matters most. You can do anything, but you can’t do everything. When the low-carb trend hit, we knew that to keep our company healthy, sustainable, and focused on our core values, we had to get it back to profitability and ensure positive cash flow. Even as our business shrank for the first time in our history, we focused on these two goals and kept the blinders on. Eventually we found the path through the crisis—one loaf at a time.
The Trend Is Your Friend and Then It’s Not
MARGOT
Many factors in our business were out of our control. The biggest one was the currency market. When I started importing Birkenstock sandals, this wasn’t a problem because the value of the dollar against the German mark was fixed. Placing an order, we knew that the currency value would still be the same three months later when we received the merchandise and had to pay our bill. This was dependable. We could calculate our selling price and be sure of our margins.
A few years later, this security vanished overnight. For reasons that had to do with the world economy, the dollar was allowed to “float” against foreign currencies. It was traded like a commodity, and it fluctuated a lot between the time we ordered and the time we resold. Of course, we could not change our prices to the retailers: the consumer catalogs had been printed long before. We simply had to eat the difference, which could be as high as 20 percent. Sometimes we were lucky and the pendulum swung in our favor, but it was still a crazy situation. Talk about living with ambiguity! It was very unnerving, yet we learned how to adjust. We bought German mark futures in order to minimize risk—not a very stable solution, but what is stable in this world? The best we could do was to take a deep breath and go on with our work.
Fashion trends also affected our business and were out of our control. This is particularly important if you are dealing with apparel. When I started with Birkenstock, our sandals were totally unknown. Over time we gained a little foothold as people found out about us. Luckily, they were the right people: a large generation of baby boomers who were looking to change the world, were not interested in conforming, and wanted to look different from their parents. Birkenstock became their choice of footwear to express these values.
For almost eighteen years we grew as fast as we could manage and thought no end was in sight. If you don’t have people to serve the customers, then you can’t have any more customers, so we hired consultants, did strategic planning, and trained additional personnel for the growth that was coming our way. We kept busy, planning for the ongoing boom.
Quite suddenly, the landscape changed. “Dress for success” became the new motto, and making money was in. People were not wearing their Birks on the streets anymore. We had hired too many folks. We thought of asking people to volunteer to be laid off but decided against it because we were afraid we would lose our most valuable workers. We had to let people go, and it was terrible. It was agonizing trying to choose who would go and who could stay. I felt responsible for abandoning them in a cold world. A year or two later we would be able to rehire some of these people, which would make me feel a lot better, but I didn’t know that then.
What helped us? Something that we held in our hearts the whole time: we knew we were not just a fashion trend. We had a solid foundation in our product and its benefits. At the time, a lot of people in the industry predicted this would be the end of the Birkenstock craze. The companies that had produced copies stopped making them and, though this was helpful in the long run, first they had to get rid of their inventory at sellout prices. We struggled for quite a while before we could turn our ship around. Luckily, the people who had gotten used to comfort didn’t want to give it up. Maybe they didn’t wear the shoes to the office anymore, but they kept a pair under their desk and started to spread the word.
The whole episode taught me again that security doesn’t exist. Situations can change overnight. Then again, many things you fear might happen, won’t. For instance, I was afraid of bad press about our layoffs, but the local paper didn’t print a word about them. Our reputation for being a good values-based company did not get damaged. I was grateful for that and promised myself once more to start worrying only after something bad happened and not before! Afterward, you can think about solutions to your problems, and that is far more productive than fretting about something that might never come about.
Another lesson I learned was not to suffer quietly within. I am an introspective type, and I didn’t quite know how to open up and share my burden with the rest of the group. My longtime employee, Mary Jones, was my conscience in those days, and she pointed out that people would weather the crisis much better if they knew what was going on. I certainly agreed in principle, but due to my introverted makeup, it wasn’t easy for me to get from theory to practice. With the help of a consultant, I managed to get up enough courage to share.
My first step was to have daily stand-up meetings with everybody in sales and marketing. We shared the ups and downs of what was happening. It was very unifying, and we kept it up for years. Later, the people in finance, IT, and operations wanted to participate in the meetings, too. By then the company had grown much bigger, and we could no longer get together every day. We settled on meeting every Friday at 11:30, just before lunch. Everyone was welcome to participate. Each department briefly shared what was happening within the company and out in the field. It widened people’s perspectives and allowed us to see how we all fit together.
Though some good outcomes emerged from the shift in trends, dealing with the changes was still difficult. And when I look back, I would say what I found most helpful during that time was to take a wider perspective and ask some basic questions:
What is changing?
What seems to be emerging?
What remains the same?
What can we do to stem the tide?
In our case, what stayed the same was the basic shape of our sandals—we would not change that. What we could and did change was our marketing focus. We started to talk to the people who needed our shoes for medical reasons, were in standing occupations, and so on. We stopped saying we were “cool” and instead emphasized the health benefits. That gained us new loyal customers.
When Quality, Price, History, and Good Relationships Are Not Enough
CAROL, PUTNEY PASTA
When something is out of your control, when you are powerless to act against a changing business trend, it can be one of the hardest moments in running a business. The beginning of the end for my company happened when we lost our largest account. This story could have been told in the “Wrestling with Goliath” chapter, but I think it is interesting to focus on the fact that the reason we lost the account had to do with something that was completely out of our control: where we were located geographically.
For many years we serviced a West Coast-based private-label retail customer whose leaders loved our products, were aligned with our core values, appreciated our quality, and worked with us to increase the number of items we supplied them. Their orders grew every month. They paid their bills on time and were very pleasant to deal with. The company eventually represented 40 percent of our total business, and because of its growth we outgrew our original factory and had to move into a new plant, causing us to take on additional debt. When this company decided to expand to the East Coast, all of the east coast suppliers, including me, were ecstatic. I called Lisa Lorimer to say she should say yes to being the baked-goods supplier even if the company opened only a few stores. I told her that if she ever trusted me on anything, she should trust me on this. She had her doubts when the company had only three stores, but to this day she will call me and say, “Have I thanked you lately for that recommendation?” because this company eventually became her largest customer.
That expansion seemed to be such good news, but it triggered overall changes within the organization that wound up derailing our company. The customer’s new East Coast team decided to source the bulk of their suppliers in the East. When the new West Coast buyers saw what folks on the East Coast were doing, they decided to do the same thing. They found new producers that were closer to their own stores out west. We understood their reasoning—they wanted to have shorter lead times so they could reduce their costs and be more responsive to the market—but it was painful for us because we were no longer their supplier. Suddenly our largest customer was gone. The company bought all the items we had ingredients and labels for, working with us for a smooth transition, but in a matter of a few short months my company’s revenue was reduced by 40 percent. Our quality was terrific and consistent, our price was competitive, we had strong relationships with many people in the customer’s organization, but that wasn’t enough. Their decision was based solely on something that was out of our control—our geographic location.
It’s true that we would have been better off if we’d had the multilegged stool mentioned earlier, but the point of this story is that sometimes there is nothing you can do about a decision being made within the industry, and you could lose your biggest customer because of it. If you want to know how this story ends, it is continued in chapter 9. Suffice it to say, it was the beginning of the end for Putney Pasta.
When Everything That Could Go Wrong Does Go Wrong
JOE, CREATIVE MACHINES
During the time my business was having serious financial problems because of our unsound business model, we were visited by a series of other problems that were completely out of our control. Two years before, we had installed a ten-thousand-kilowatt solar array to reduce our carbon footprint. We were the first private for-profit business in Tucson to do so, and suddenly, when energy prices soared, the media took notice of it. A news crew from the local television station climbed up on our roof and did a story about us. One week later I drove into work and saw that half our solar array had been stolen in the middle of the night. Everyone from the police to the insurance agency was mystified. Removing the panels was a lot of work, and they don’t have much resale value. The television news crew promptly climbed back on the roof and did a follow-up story. The missing panels would cost about $40,000 to replace. Insurance paid for this eventually, but at the time the theft was a real blow.
A week or so later our drains stopped working. I walked outside our shop and saw a huge pit where the septic tank had been. That explained why the drains didn’t work, but I didn’t know why our septic tank would cave in all of a sudden. In general, when something breaks I try to replace it with something better—sort of how a broken bone heals with a thicker portion. I thought this would be a good time to connect to the county sewer line that ran just outside our property. I hired a contractor and rented a Porta Potti for a month. “After all,” I thought, “how long could it possibly take to do the job?” I began the process of permitting, getting an easement, and so on, but the county was switching from one method of permitting to another and had added new requirements. There was also a hefty connection fee. Still, it seemed like the right thing to do. Looming in the back of my mind was the fact that the board of directors of our local art museum was planning to hold their annual meeting at our shop in three months’ time. Surely the job would be finished by then.
As weeks went by without our receiving a permit, I started getting nervous. More weeks went by. I explained to our contractor, “These are wealthy patrons of the arts. They’ll be dressed in suits and a lot of alcohol will be served. I can’t ask them to use a Porta Potti.” But the matter was out of his hands. I would have worried more, except that I was busy dealing with other problems: replacing the stolen solar array, borrowing money to stay afloat, retooling our business model, dealing with a slew of bad warranty issues, and trying to fill the shoes of an outstanding employee who had left. I didn’t have time to worry about a bathroom for the board of directors. As soon as one problem was solved, another arose: our compressor broke down, one of our buildings flooded, our laser cutter quit working, and so on. It felt like we were being visited by a series of biblical plagues.
Through it all, my employees commiserated and watched closely how I responded, and I told anyone who was listening that it is easy to pretend you know what you are doing when you are successful but that true greatness comes from how you handle adversity. I had trouble sleeping; it became the worst year of my life. Still, I never considered giving up. I didn’t consider failure an option. I had been working at the business too long for that. And I really believed that how I handled adversity was more important than how I had handled success in the past or would handle success in the future.
None of these grand thoughts helped push the county to approve our permit for the sewer hookup. The date for the big directors’ meeting and party loomed closer. Finally my contractor, who was an earthy sort of guy, came up with a solution. He would simply dig a pit with his backhoe in the location where the sewer pipe had broken off, install a temporary sewage container, cover the pit with plywood and dirt, and no one would be the wiser. The board members would still essentially be using a Porta Potti but it would all look like a standard toilet so it would seem civilized. No one would have to know.
The party was a great success. The board members played with all our exhibits and art pieces; they shot our tennis ball cannon; they had a lot to drink. Years later, influential people in Tucson still come up to me and say how much they enjoyed that party. I smile when I think of our secret solution to the septic tank problem.
Somehow, being able to solve that problem marked the beginning of the turnaround. We got the solar array replaced. We bought a better compressor. We fixed our warranty issues. My employees came together as a team and became stronger than when we had depended so much on that one outstanding employee. I changed our business model. It took a lot of hard work with no end in sight, but the event I’ll remember most of all was the septic tank cave-in and the weird solution of digging a pit so everything could appear normal until it actually became normal.
Dealing with a Foreclosure with a Ball and a Racquet
GARY, STONYFIELD FARM
My best advice about dealing with crises is to first be sure that you are taking care of yourself. This means sleeping and eating well and being sure that you are getting away from your work. For instance, I have learned that I can’t make good decisions unless I exercise. Even in the midst of a deep financial or personnel crisis, I often take a walk, jump on a bike, head off to the woods to ski, or play tennis. Often the right answer comes to me when I put the problem away and my heart is pumping. I cannot remember a single instance when I didn’t have better judgment after exercising than I had before stepping away for a break.
I learned this lesson in the early, fragile days of our business. We had exceeded the capacity of our little hilltop farm and had begun producing our yogurts at a friend’s dairy in western Massachusetts. Late one night, we were told by his banker that a foreclosure of the dairy was imminent. Early the next morning, the bank pulled the plug, and we found ourselves with no production facility, no cash, and the need to absorb the failed firm’s huge debts. Panicked, we began to make all kinds of crazy plans and started the phone calls to follow them up. By 10 that evening, we had crafted a completely convoluted scheme to take over the dairy’s obligations. As soon as I could secure the cash, we could restart operations. But something wasn’t sitting right with me. In fact, I was feeling a bit ill. So I called a friend, and we went out to hit some tennis balls at a nearby club. (The club offered free court time at 10:00 p.m. on weekdays.)
The right path came to me, partly because I had stepped away from the war room and partly, I am sure, because I got my heart pumping and my endorphins kicking in. As my friend and I began to warm up in that empty, semidark, cavernous place, I felt a lump welling up inside. As I hit the balls harder and harder, that lump became a steady stream of tears. Each time I whacked a fuzzy ball, another sob burst out. I still have no idea if my opponent ever realized what was happening to me that night, but through this cathartic release of tension, I shed something else besides tears. I abandoned the completely crazy scheme we’d hatched in favor of something much more sane: “getting out of Dodge.”
The next morning, we walked away from the failed dairy and its bank and headed off on our own. Thirteen months later, after dragging ourselves through a nightmarish period of trying to keep up with demand at our original little dairy farm, we opened our brand-new Yogurt Works. We became profitable and have grown and existed happily ever since. It all began on that tennis court with the clarity that for me comes only from burning some calories, getting out of my head, and letting my juices flow.
What We Learned
For most of us who ran established values-driven businesses, economic and cultural trends worked in our favor as we developed new products, grew into wider markets, and hired more staff. We were able to focus on people, the planet, and profits and the trend was our friend. But inevitably, trends shift, and many of the old ways won’t work any more. The economy might slow down, funding for new projects can get put on hold, fashions can move from casual to dress-for-success, or a new diet craze can sweep the country. Decisions by customers and suppliers can impact your business even when you think you have done everything right. Below are some ideas for dealing with the tough stuff that is out of your control.
Face it squarely. Ignoring a changing trend or burying your head in the sand won’t help. Try to see the new trend as quickly and clearly as possible. If you wake up at 3:00 a.m. because of worries about employees, cash, or a big screw-up that might have legal implications, wait until morning. When the sun rises, you’ll be able to take a deep breath and see your problem in a new light so that you can face it and put one foot in front of the other.
Remember, this too shall pass. It is easy to think that whatever is happening now will always be happening. It won’t. We can’t ignore the first tip, but it is important to remember the trend will eventually shift again. You will figure out how to deal with the natural disaster or the customer decision that put you in a tailspin.
Go back to the basics. When dealing with a crisis, it helps to stick with pragmatics. You might ask yourself how you can you tighten your belt, eliminate expenses, drive new sales in new channels, collect cash sooner, negotiate better terms with your suppliers, increase your efficiencies, or term out your debt with longer amortizations.
Convene the advisory board. Now is the time to schedule an extra advisory board meeting. Get that A-team assembled to help you think in new ways.
Do the research. Try to see what is happening as clearly as possible. For example, the low-carb diet craze put big bread and pasta companies into bankruptcy. But anyone buying the diet books and doing the research would have seen that a focus on whole grains would fit into these new diets.
Ask yourself questions. When things feel out of control, ask yourself,
What changes can I make to find a niche in the landscape of this changing economy?
What products or services will my customers need that are similar to what I offer now?
How can I increase my cash flow during this time?
What would make my company more profitable right now?
How can I change the delivery of what our company offers?
What creative and funny guerrilla marketing campaign could we run? For instance, during the recent economic downturn, the owner of a painting contracting firm came up with the campaign “Will Work for Food,” in which she combined her commitment to supporting the local food bank with a play on the difficult economic times. What can work in your business?
What can I do to take care of myself? Gary liked hitting a tennis ball as hard as he could. What works for you?
Consciously Make Space Away from the Work (Even If You Are at Work)
Start with just fifteen minutes: turn off the phone and the computer, close the door, and imagine a big trunk outside the office door where you put all your thoughts about the business—they will still be there when you are done. Every time a thought comes into your head, imagine it floating out and landing in the trunk. Then consciously relax each part of your body. Tell yourself to relax your toes, then the bottoms of your feet, then your ankles—do this all the way up to your brain. In your business you focus on profit, planet, and people—remember, one of those people is you.
PRACTICAL TIP
Do What Matters
You can do anything, but you can’t do everything. Looking at everything that needs to be done at once can paralyze you. Focus on the next action that matters most—getting through a crisis is about taking the next right step.