Richard Rasmussen looks at why print businesses should to consider different business models during their transition periods.
So, you’ve been running your print business for 20 years, you’re now between 55 and 65 years old and you’re thinking you want to get out in two to five years. Sound familiar? You’re not alone.
What should you be doing in that transition period? One of the things you should consider, if you want to optimise your business value is to change your business model.
Here are some questions you may wish to contemplate:
- Will my business as it is now, continuing to trade as it is, be worth more or less in two to five years’ time?
Now I know this question does need a bit of crystal balling, but it’s worth the exercise. The answer will normally be a function of your views on:
- Your future profitability
- Your future sales
- Your future equipment value
- Your people – who stays and who goes?
- Your customers – more or less? Higher dollar value or less?
- Your will to keep motivated
- Your business model and whether it is in decline or on the rise.
As I’ve covered the first five of these points in previous tips, this article will focus on the last two.
Will the market change in the next few years to make your business more or less attractive? The answer to this question needs you to realistically look at what the trends are in your particular niche of the industry. What market forces will impact your niche? Will it be digital, big printers, print management firms or other media such as the web?
A good way to think of this is cast your mind back to the early nineties when there were typesetting businesses. Remember them? Or back when there were forms printers; will your niche suffer the same fate?
The answers to these questions need some serious thought because what I see, in the vast majority of instances, is that printers would be better off changing the way they do business in their transition years (the years before exit). Unfortunately many are on the slippery slope, hoping in vain that things will improve, that all of a sudden their traditional business model will become back in vogue. A touch of realism and objectivity is urgently required.
Let me provide an example - commercial printers with, say, between $1,000,000 and $5,000,000, probably doing colour work at the lower, and a two-colour A3 press, at the top a five or six colour A2 press or two. What will happen to this style of printer in the next three to five years? Will there be more or less work provided to them? If your answer is ’10 per cent less work.’ what do you think they, as a group, need to do differently to hold to, or improve sales and margins? Can they do that by staying ‘as is’?
Also, in their transition years many proprietors in all sectors lack the drive to make things happen; they simply run out steam and ideas. And with that the business stagnates, sales fall and value drops. If you’ve lost your mojo now, what chance is there of getting it back by staying ‘as is.’?
The amount of printers out there that have run out of puff is staggering. And it’s not surprising. Printing is a hard, competitive game. If you’ve been doing it 30 to 40 years it takes its toll. Obviously, here we also need to consider the any health issues. Pushing yourself or doing the ‘macho’ male thing to the detriment of your health is not a good option. So consider options that can accommodate health issues.
So, it’s really important to consider what is likely to happen to you and your business in this transition period.
I think that most printers need to consider running their business differently in the transition period.
The start point should be to review your present operation:
- What is it worth now?
- Is the business sustainable, capable of growing and providing an adequate return?
- What will it be worth if you leave it as is in three years?
- What will you owe on the business in three years?
- What will you be able to draw from the business over those three years?
Now, think of what you could change in the way you do business and run some ‘what-if’ scenarios. Be realistic with the options you develop – for example most proprietors will not be willing to take a punt on reinvesting in new or different equipment in their twilight and transition years.
In most instances, there should be a focus on getting the most out of their existing customers. Look back at what the trends have been with your customers in the past three years, as that will probably give you an insight as to what may happen in the next three years. Look at their purchase levels, purchase frequency and what style of customers you have lost and won. Is order values increasing or decreasing? Will that trend continue? If so, does your business model set up to handle that trend?
Also look for strategies that reduce liabilities, improve efficiencies and make the business look more attractive.
Here are some options to help you build different business models:
- Doing deals other printers, where they take their clients across to you and sell off their machinery. Maybe sharing of facilities, working with them on ‘earn outs’ based on client retention.
- As above but vice versa.
- Working with other manufactures and service providers to obtain more share of your existing customers – i.e. working with larger printers, printers with green credentials, printers that offer other services.
- Working on strategies to build moats around customers, and make them as easy as possible to transfer customers to another entity.
- Outsourcing more work, disposing of older technology equipment. Not replacing staff when they retire. Using contractors.
- Building profits – above and below the GP line.
- Easing back, let others do the heavy lifting.
- Downsizing to enable you to have higher utilisation rates on your equipment
- Not renewing property lease – work out of another printer’s premise.
- Resource sharing – i.e. equipment, people, IP, logistics, premises, deliveries, purchasing etc.
A combination of some of the above may also provide the best alternative. This is not meant to be an exhaustive list, so certainly consider other options.
In the 30-plus print related business sales we have been involved in there have been some great examples of how changing a business model can work very well for a vendor. Many achieved a far better outcome than continuing to trade, head in the sand, ‘as is’ and then selling when the business is looking ugly.
Sometimes it takes someone from outside your business to work you through these scenarios and get a degree of objectivity to your thought processes.
But as with tip number one – start early, engage people who can add value and objectivity to your thought process.
Ascent Partners is dedicated to providing professional advice to the industry in business appraisals, transition plans, and acting as sales agents to sell print related businesses – see www.ascentpartners.com.au or phone Richard Rasmussen on 0402 021 101.