***Ascent Partners: How to avoid being trampled by the elephant in the room***

Many see the elephant in the room, but don’t know what to do about it. Last week, I wrote about how the real elephant in the room in our industry is that most commercial printers are running unsustainable business models: they are marginally profitable and there is no rational reason that will see them improve. From the feedback I’ve received this week, many acknowledge this is the case, but don’t have the solutions as to what to do about it … read more.

Feedback on last week’s article came from lawyers, commercial printers and suppliers. All acknowledged the premise that the rapid decline of numbers in our industry will continue, and that many commercial printers are running unsustainable businesses. 

It’s an issue that won’t go away and we ignore it at our peril.

As a specialist business sales agent and consultant to the industry I get to see many profit and loss statements, and the trend is worrying. The 80 / 20 rule is no longer the case, it’s more like the 90 / 10 rule now, where 10 per cent of the industry is making what most objective financial commentators or economists would classify as a good return on their investment.

You may argue that I only see the bad ones, but that’s not the case. There are still some gems out there where businesses are growing and making good money. However, it’s a rare occurrence that those businesses are “me too” commercial printers.

The major reason I see for the decline is a combination of issues: the age of the proprietors, the rapidly changing business environment and the new business models / technology that in some instances are category killers.

A.    Ageing proprietors – most are over 55, and are traditional offset printers, unwilling to change their business models, and unwilling to invest in new technology. They come from a trade background, and most are not marketing savvy. And they are very tired.

B.    Rapidly changing business environment – we’ve just been through the GFC (although many would correctly argue that we are still very much in it), and we also have new media entering the market competing with print, our share is diminishing.

C.     New business models / technology – how can the traditional commercial printer hope to compete in the web-to-print market, print management model, digital colour, wide format, or social media?

 So it’s the combination of these three things that work against the commercial printers.

Back to the solution. As I said last week, the first step is acknowledgement of the problem – acknowledge that there is an elephant in the room. Just a simple look at the equipment values on used equipment dealer’s web sites, what you owe on that equipment, a look at the Year to Date Profit and loss statement, and a look at your top 10 customers should be enough for you spot the elephant.

Then get your crystal ball out and ask yourself where will I be in 12 months’ time? What will my equipment be worth, how much will I owe on it then? What will my P&L and customer list look like?

For many, I think this exercise should be done with an external party, such as ourselves, your accountant or a trusted adviser. We / they can add some objectivity, because in my experience many have highly inflated views of what the business is worth and are unable to sufficiently explain why they are so confident the business will turn around.

Next, understand you are not alone. As I described above there are many other commercial printers in the same boat.

Here’s the difficult bit. It’s time to do something about it. It’s time to search for the solution which  in many instances is sure to get you out of your comfort zone and consider all the possibilities. Here are some:

•    Talk to your competitors and discuss how you could work together to build a more sustainable business model. I’m not talking about illegal activities like price fixing, but more about joint ventures, collaborations, sharing of resources, improving machinery utilisation. A quick glance of the trade press will show many are doing just that.
•    Sell machinery, work for another printer and sell them your client base – for many the real asset they have is their client list. There is no shortage of buyers who want to engage proprietors, and take over their sales. Some will even let you continue to trade under your own name. What’s wrong with earning $100,000 and getting paid for your client list as well?. Not a bad exit strategy for many. Sure, chances are they won’t want your machinery and all of your staff, but for many this will be far and away the best financial outcome. The issue many proprietors have with this model is that they “can’t work for others”. That’s fine, but understand, for the majority, they make that choice at the detriment of their future  financial position
•    Change for being a manufacturer to a marketer – you know the prices that are being quoted out there, and you see your margins falling. Why not focus on really servicing the customers – attaining, maintaining and growing them, and outsource some or all of the manufacturing. Maybe you just do design and digital print, and sub out the longer run A3 and all A2 work. Maybe you just keep the part that you know you have a good chance to make a stable return on
•    Focus on the niches – “me too” is generally unsustainable if you don’t have a real competitive advantage – “we’re good quality printers” is not a competitive advantage.
•    Form alliances to get more share of the customer. Share of customer is often better than market share
•    Update technology to be best in class – here your aim is to be the lowest cost manufacturer 
•    Sell the business now– Yes for many the sell now option will deliver the best financial outcome. Because the fact is a “no change” policy for most of the commercial printers out there is a “watch the equity in my business deteriorate” model.

Obviously there are numerous other permutations and combinations of these examples. There are also many other opportunities out there on the outskirts of our industry.

I know many of these won’t be palatable for most commercial printers. For many they saw their future as being able to exit for a good dollar and retire gracefully.  The fact is there is an elephant in the room, he eats a lot and won’t go way.