Being Smart Means Nothing Anymore

By Larry Teren

Danny called the other day after he saw my name on his cellphone’s missed calls list.

Danny: “So, you need a painter?”

Me: “Ha, ha. What else you doing?”

I had tried calling him a few days earlier to see what was shaking. Like everyone else nowadays I felt there was no need to leave a voice mail as he’d eventually notice the missed call. Anyway, I also knew Danny had nothing good to say which is why he waited a few days to return the call.

Danny: “Not much. Finished painting the house myself. Getting it ready for sale this summer. Now that the kids are out , we don’t need so much space and gotta get out of here and into a smaller one in a suburb that has lower property taxes.”

Me: “Yeah, good luck.”                         

Twice, Danny had been a client. Once for close to twenty years, the other- for a year and a half. In the earlier venture, Danny had taken a ma and pa clothing store of a specific type of apparel and shifted it into a mega mail order business after his parents retired. I was the system architect that changed the simple distribution accounting software into one that handled several hundred orders a day. Regardless of how well and efficient the system was put together, the key to the success and exponential growth of his business was due to one simple, yet gut-wrenching decision Danny had to make. He had to be willing to give up total control of the operation. He couldn’t both micro- and macro-manage. The hardest part of that equation was the willingness to let someone else handle the accounts payable and eventually the general ledger- the complete books. This allowed Danny to concentrate on what he new better than anyone else- how to design a mail-order catalog and get repeat buyers.

The concept worked well from the late 1980s to the middle 2000’s. People were still buying from catalogs. Then the paradigm started to shift in a big way to the Internet. As more and more users of his apparel were getting comfortable with typing their credit card information onto a computer screen and clicking away, Danny needed to evaluate how to get that business and still make a profit.

The jump into the Internet started okay because he found that by having a website provided a means to letting the visitor get the specific information they needed with little hassle. He was able to slowly reduce the number of in-house customer service personnel. Mail-order customers too often pestered customer service people for information that was not apparent on a printed page. The Internet user was more savvy.

That savvy began to shoot the business revenue down as website visitors figured out it was much easier to also check out other sites selling the same product and comparison shop. It was one thing to have a fixed cost for printing a certain number of catalogs along with the postage fees in order to determine projected break-even points. But, with the Internet, now Danny’s company had to compete with guys working out of their basement for search engine positioning. The search engine owners didn’t care about promised volume of business. They merely auctioned off search position availability to the highest bidder for any given moment. The cost to make a profit on one sale was becoming higher than the anticipated cost per sale from a mass catalog mailing.

Danny saw the handwriting on the wall and about three and a half years ago asked me to confidentially assist in preparing the company for sale. I helped him do the due diligence and within a few months he found a venture capital group that liked the results of my data facts. Danny cut a deal where he stayed on for a full year contract. I also was given work to do by the new owners in a transitional period to see if the results of the ongoing operations were comparing favorably to the previous regime’s efforts.

By the time the year was up, the new owners had moved the computer system to a new server in California and had closed down the local operation. It ended up that they really were only interested in the value of some equipment and the customer base which had proved to be loyal, repeat customers. They were also training those loyal customers to get used to a new branding name so that there was no longer any evidence that Danny’s effort of twenty years ever existed.

Danny was lucky in that his contract with the new owners was set up as an employee and not as a contractor. When they did not renew his contract at the end of the year, he was able to collect unemployment. He didn’t even have to stand in line at an unemployment office to register or wait for the mail to come to collect his checks and report if he had tried to look for a job. In the new computer age, the registering was done over the Internet and the unemployment checks were electronically deposited into his checking account. As for proving he was not working but trying to find a job, the case workers were too busy with an overload of paperwork to process so it never became an issue.

He was not bringing home the type of money he used to when he ran a two hundred employee company that included a small factory and warehouse. His wife, though, was working and he was at least getting something and now was able to relax for a bit. When I would talk to him on the phone, he kept reassuring me that he would eventually go back into business but was waiting for the right time.

A year and a half later Danny felt that the business climate was again right to get back into the arena. He hired only one full-time person who was both computer savvy and able to do the order processing. Danny asked me to install similar software that he had previously used but this time to add scripting that would automate much of the connectivity to other data sources. This included importing the website sales transactions off the ecommerce package to the traditional server hosted order processing system. Everything was done with cost containment in mind.

It was a good try but the second venture lasted a little over a year. The cost to get good search engine placement along with a very pro-customer return policy was too much for a product with a very low retail price. So, Danny was back to sitting at home mulling over what he would do next.

Me: “So what are your plans? Gonna sit on the sidelines again for awhile?”

Danny: “Look, I got enough money put away to last another ten to twelve years. So what? When I’m in my early sixties, there’ll be nothing left and what am I gonna do then? Yeah, I’ll get into some business again but I’ll wait until I can find something that the government mandates. You know- where people gotta spend money to be compliant with some environmental law.”

So, another client bites the dust. Hey, if you know anyone who needs their house painted, I got just the guy for you. He promises me a commission. Well, it’s better than nothing.

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