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Case Study: Lundberg Farms Responds to Reader Comments

November 29, 2012 by Leave a Comment

Tim Schultz: Jim Wilson/The New York Times Tim Schultz: “I certainly don’t eat any less rice than I used to.”

Case Study

What would you do with this business?

Last week, we published a case study about Lundberg Family Farms, a fourth-generation family farm that is located north of Sacramento. Founded in 1937 by Albert Lundberg, the company has 225 employees and grows rice — 70 percent of it organic — on a total of 17,000 acres.

In September, as the case study explained, Consumer Reports released the results of independent lab tests that found inorganic arsenic, a carcinogen, in a variety of rice and rice products. This came on the heels of a Dartmouth study, released in February, that showed inorganic arsenic in brown rice syrup. The entire rice industry has been affected, and Lundberg was flooded with calls and e-mails from customers concerned about the health implications. Although the government regulates the amount of inorganic arsenic in drinking water, there are no standards for food.

The company decided the best strategy was to be open and transparent with customers. The farm’s leaders immersed themselves in research about arsenic and inorganic arsenic, hired scientists and worked with researchers at agencies like the Food and Drug Administration and the USA Rice Federation to try to determine where the arsenic was coming from and how to lower its levels. Much of the information, along with a video addressing the issue, was posted on the farm’s Web site.

So far the company’s sales remain on target, but Tim Schultz, a third-generation Lundberg (by marriage), said the problem of inorganic arsenic looms large and its ultimate effect on business remains unknown. The only way forward, he said, is to continue sharing information and conducting research into mitigation strategies. He discussed the family’s approach and responded to reader comments in a brief interview.

Did you learn anything from the reader comments?

One thing we learned about was European Union safety data for arsenic. We will definitely be doing some research into that. It might be something we could use as another data point for consumers to help them understand what the arsenic levels mean.

Someone suggested we conduct some of our own health studies. That was an interesting idea, but we think it would be challenging to match or exceed the kind of scientific research places like the F.D.A. or Codex do on a national and international scale. They’ve got such incredible scientific resources at their disposal and there are a lot of really talented people working on this. It’s hard for me to imagine we would be able to come close to matching anything they could do. We’re just trying to stay connected and find out what they are finding out. We get updated regularly.

Are there any reader questions you want to answer?

A few readers suggested we might be farming polluted ground. A challenge for us is that according to the 1984 U.S. Geological Survey, the average level of naturally occurring arsenic in U.S. soil is 7 parts per million or 7,000 parts per billion. It can be anywhere from .1 parts per million, which is 100 parts per billion, to 97 parts per million, which is 97,000 parts per billion. What this says to me is that arsenic is naturally occurring, and it’s not something we’ve done to the ground. I don’t dispute that we haven’t treated the environment particularly well as a society. However there is a lot of naturally occurring arsenic in the soil, and my guess is that it’s been there for millennia.

There was some criticism from readers but far more support for your openness. Have you done anything or continued to do anything to expand that approach?

We have continued to update our site with new information. We also attend any forums we hear about, where information is presented by arsenic specialists and rice researchers. A reader suggested we let people sign up for e-mail alerts when there is new information to share, and we are looking into how to do that now.

Has the family learned anything further about what you might do about the arsenic?

The biggest opportunity for mitigation we see at the moment is looking to reduce uptake of arsenic in the soil by the rice. Some varieties of rice seem to take up less and it appears basmati is that way. So we want to find out what is different in the basmati plant from, let’s say, the medium grain rice.

Have family members altered their levels of rice consumption?

We haven’t. I certainly don’t eat any less rice than I used to. A reader suggested we show a video of four generations of our family and that we eat rice and we’re fine. But many of the other comments said we shouldn’t think of this as a public relations problem, and I take that very seriously. We want to handle this as responsibly as we can, and that means not just putting up pretty pictures of our family eating rice.

Article source: http://boss.blogs.nytimes.com/2012/11/28/lundberg-farms-responds-to-reader-comments/?partner=rss&emc=rss

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Case Study: Following Up on a Restaurant’s Unconventional Strategy

August 30, 2012 by Leave a Comment

Lucy Cardenas and Bill Coker made the unconventional decision to build a second location right next to their first.Jeffrey D. Allred for The New York Times Lucy Cardenas and Bill Coker made the unconventional decision to build a second location right next to their first.

Case Study

What would you do with this business?

A year ago, we told you about a dilemma facing Red Iguana, a family-owned Mexican restaurant in Salt Lake City. Its owners, Lucy Cardenas and Bill Coker, were facing a two-pronged problem with their first location. First, a happy problem: their restaurant had gotten so popular after appearing on the Food Network’s “Diners, Drive-ins and Dives” that customers regularly had to wait an hour to be seated. At the same time, the city was about to build a light rail line down the middle of the restaurant’s street, a project that had the potential to force the business to close for several weeks.

To ease the customer wait and protect themselves from downtime, there was little doubt that Red Iguana’s owners needed a second location. But the way they decided to expand was somewhat surprising. Ms. Cardenas and Mr. Coker decided to open a second location with the same name and menu just two blocks from their first, a plan that went against conventional wisdom and was rejected by most of the experts we consulted at the time of our original article.

But the strategy quickly found success. During its first full year, 2010, the new restaurant had revenue of $2.1 million. Still, that was only a little more than half of the original restaurant’s annual take of $3.9 million, which itself was down from $4.2 million in 2009. So, would the new location be able to build on its early success (without cannibalizing the original business)? And what would happen when the construction project shut down the first location?

We recently checked in with Mr. Coker, and the new location seems to have built on its strong start. The original location is on track to bring in $4.2 million during 2012, he said, which would match its income from the height of its popularity in 2009 (when it was the only restaurant). And the new location should pull in about $3.2 million, he said.

“What we’ve seen is that there are a substantial number of our clientele who prefer location No. 2 to No. 1 because when the patio is open, there are more seats, and we have a counter and indoor waiting area and valet parking in the evenings,” Mr. Coker said. “It’s more spacious and quieter than the original, and some people prefer that atmosphere. Others prefer the original. It’s actually turned out to be to our advantage that it’s not a cookie-cutter of the original; we’re able to accommodate two different types of clients. Also in terms of operational ease, it’s a tremendous advantage to our kitchen managers to be able to stabilize food flow by running two blocks to the other restaurant.”

Almost as important, the second location saved the company from what could have been major economic damage caused by construction of the rail line. As a member of a community board advising the city on the construction, Mr. Coker negotiated a deal whereby the street in front of the original Red Iguana would be rebuilt last, so that the construction company could concentrate all of its efforts on the site — thereby turning a three-to-five week job into a weeklong project.

And then, to best use the week during which the original restaurant would be closed, Ms. Cardenas and Mr. Coker  — after employing announcement cards, banners, Facebook and Twitter to point their customers to the new restaurant — laid out a seven-day plan to renovate the original location using restaurant workers as labor.

At 9 p.m. on July 8, when the original location turned on its “closed” sign, the city began tearing up the street, and Red Iguana’s staff started dismantling their restaurant. Directed by paid trade contractors, a third of the staff from the original location (including a professional painter and plumber) took part in a $250,000 renovation. Working 24 hours a day, alternating crews of from 30 to 50 people moved the restaurant’s furnishings outside into a circus tent set up for the occasion; laid an epoxy floor; installed $25,000 of stainless steel equipment in the kitchen; and repaved the parking lot.

“Normally I don’t think a restaurant could pull off a $250,000 renovation in seven days, but that’s the kind of experience I have from the entertainment business, coordinating multiple crews simultaneously,” said Mr. Coker, who in the early 1980s had worked as an assistant director and production manager on a series of Burt Reynolds buddy comedies, including “The Cannonball Run.”

At the new restaurant, the owners added 28 outdoor seats, increased staff with another third of the employees from the first location (the final third took vacation), and began offering valet parking at lunch and dinner every day.

And on Monday July 16, one week after it closed, the original location reopened. According to Mr. Coker, even without the seven days of income, the first location took in $282,000 in July, barely $300 less than in July 2011.

Article source: http://boss.blogs.nytimes.com/2012/08/28/a-restaurant-makes-the-most-of-being-forced-to-close/?partner=rss&emc=rss

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Case Study: Starting Over After a Cyberattack Shuts Down the Business

August 30, 2012 by Leave a Comment

Case Study

What would you do with this business?

Peter Justen: Daniel Rosenbaum for The New York Times Peter Justen: ” I had known him for more than 15 years.”

Last week we wrote about the situation faced by Peter Justen, chief executive of MyBizHomepage, after the company’s former chief technology officer set in motion a series of crippling cyberattacks against the company’s Web site.

Once valued by its investors at $100 million, MyBizHomepage was founded in 2006 by Mr. Justen as a way to help small-business owners access financial metrics that can help them run their companies. But then, apparently angered by Mr. Justen’s decision not to sell the company, the chief technology officer tried to start a competing company. When Mr. Justen found out, he fired the officer along with two co-conspirators. And that’s when the cyberattacks began. They rendered the site all but useless, and Mr. Justen struggled with what to do next.

In February 2009, Mr. Justen and his board concluded that they would have to take the site offline, which would effectively close the business and saddle board members like Joe Silbaugh, who had invested more than $1 million, with a devastating loss. “We essentially had no choice because we no longer had a product,” Mr. Justen said. “We also decided to be up front about the decision and explain what happened along with an apology. When bad things happen you can hide under the rug and hope it goes away or you can go public with it and take the teeth out of the tiger. Some people were understanding while others were not.”

The decision did not please the company’s vendors, some of whom quickly filed suit over unpaid bills. But many of the company’s channel partners, who helped distribute the product, decided to stay on. “They told me they liked our product, and they were going to stick with us,” Mr. Justen said. “In tough times, you really get to see who your friends really are.”

Ignoring advice from his lawyers, Mr. Justen, who also had invested heavily in the company, decided not to declare corporate bankruptcy because he did not want to give anyone the opportunity to purchase the company’s intellectual property. He also turned down multiple offers to leave the company and take salaried employment. Rather, he asked his original investors to support him in rebuilding the company from scratch. “We held a shareholder meeting and I told them I would kill myself in trying to restore the company to what it should have been,” said Mr. Justen, who also liquidated his 401(k) and his children’s college funds and invested the money in the company. “Fortunately, they gave me that chance.”

Mr. Justen spent the next two years rebuilding the company, which is now called Five Plus. It features an online subscription software package that synchronizes with a company’s QuickBooks software and presents an easy-to-digest version of critical financial figures such as accounts payable, accounts receivable, cost of goods sold and cash on hand. The new software also embraces social media technology, enabling users to connect with each other and to compare their financial results with those of their industry peers.

While the new business is up and running, Mr. Justen said he and the business remain under cyberattack. In one instance, he was forced to fend off a denial-of-service attack against the new site that attempted to redirect his customers to a site where fraud claims against Mr. Justen and the company’s investors (including Mr. Justen’s 87-year-old mother and deceased father) had been posted. Mr. Justen said he continues to work with the United States Secret Service in attempting to track down the former chief technology officer.

After this case study was published last week, the unnamed former employee contacted The New York Times and identified himself as James Bird. He denied that he had been on the lam and offered an address in Santa Monica, Calif., where he said he is living. While asserting that Mr. Justen owes him $25,000, Mr. Bird acknowledged that he had in fact hacked the MyBizHomepage site.

Mr. Justen discussed the experience — and responded to reader comments — in a brief interview that has been condensed and edited.

You have said that you discovered after the attacks that Mr. Bird had been living off the grid — no driver’s license, not paying taxes. Didn’t you have to have his Social Security number to pay him?

Yes, we paid him as a contractor and did have a Social Security number for him. But what are you going to do with it? He doesn’t use it for anything we could track him with. He doesn’t have credit cards or bank accounts. He paid cash for everything, including his car.

Why didn’t you run a background check on him before hiring?

I had known him for more than 15 years. I was like a mentor to him. He came over to our house for dinner six times a month and played with my kids. He was a very talented software engineer and I highly trusted him.

Why was he upset after the sale of the company didn’t go through? What was in it for him?

He had stock options in the company that would vest over different triggers or events, like a sale. He was in line to make a substantial amount of money.

Were you surprised that two of your senior officers went along with Mr. Bird?

Yes, I was quite surprised. One of them had worked for me for three years as a trusted financial adviser. I think they just got caught up in the drama of it all. I terminated all three individuals on the same day.

Do you think Mr. Bird had help in sabotaging the company?

Yes, I think all three of them worked together. Jim did the technical stuff and the other guys did the rest. They went to our clients and told them they were starting a new company and that Peter’s company had failed. They would even pull up the site, which Jim would then crash, as proof.

What lessons do you draw from this experience?

I realize I made many mistakes and I have learned a number of things from this experience. Inspect what you expect and trust but verify come to mind. A big lesson I learned was to separate business from personal. I let my personal emotions cloud my better business judgment.

What do you say to the readers who asked why you didn’t conduct a security audit on the system?

When you’re a start-up, you have to make some tough calls about where to spend your money. You throw nickels around like they’re manhole covers. At the time, there didn’t seem to be any reason for us to spend $70,000 to verify something that didn’t seem to be a risk. Jim was a cyber security expert. Our software was rock solid against attacks from the outside. I just never expected someone I trusted so much and had known for so long to do what he did from the inside. That’s why with our new system, no one else has all the keys to the kingdom and we keep multiple copies of our backup code in different locations. We’ve taken as much precaution as is humanly possible to make sure this doesn’t happen again.

What did you do to protect your customers once you knew the system had been hacked?

The customer information was never a target. As part of our design, we never collected any personal data on our customers like bank account information. That was part of our design. All we collected was data like company revenues and receivables. But it wasn’t connected to any personally identifiable information.

Were you surprised by the reactions of readers?

I’ll admit that I thought some of the comments must have come from people who have never stepped foot in the arena and tried to start a company — people who never shed blood, sweat and tears trying to build something. But when you hear from customers who tell you that what you built helped save their company, that’s what makes it all worthwhile.

Article source: http://boss.blogs.nytimes.com/2012/08/29/starting-over-after-a-cyberattack-shuts-down-the-business/?partner=rss&emc=rss

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Case Study: How Glassybaby Is Trying to Win Over New Yorkers

October 5, 2011 by Leave a Comment

Courtesy of Glassybaby.Lee Rhodes: “Our choice is to leave New York or build a hot shop.”

Case Study

What would you do with this business?

Last week, we published a case study about the challenges facing Glassybaby, a Seattle-based business that was opening a shop in New York. The 97-employee company makes hand-blown glass votives in a variety of colors and has donated hundreds of thousands of dollars from sales to charities helping cancer patients. The founder, Lee Rhodes, a cancer survivor, says the idea originated with a glass vessel her then husband made for her, which she says gave her a soothing, peaceful feeling.

Glassybaby was operating three successful stores in Seattle, increasing online sales (Jeffrey Bezos, founder of Amazon, is an investor) and managing a glass-blowing studio when Ms. Rhodes decided to open a retail shop on Hudson Street in Greenwich Village. But not all has gone as planned. Foot traffic at the store has been lower than expected, and sales have been disappointing.

The company’s senior managers have worked to increase exposure in New York. A dozen New York restaurants now feature Glassybaby lighting, including Rouge Tomate, an Upper East Side place that recently ordered 50 red votives for its tables, and Marea on Central Park South. Glassybaby has also reached out to form partnerships with local nonprofit organizations. One partner is Memorial Sloan-Kettering Cancer Center. Money is donated to a Glassybaby fund whenever a Glassybaby item called bff is sold online or in stores. The money, $20,000 so far, is used to help Sloan-Kettering patients with care-related expenses like transportation that are not covered by insurance. When Ms. Rhodes spoke at a Gilda’s Club event where she received an award for her work supporting cancer patients, the tables featured Glassybaby centerpieces.

Many of the readers who responded to the case study said they thought the price was too high for a glass candleholder and that Ms. Rhodes should expand her product line. This is, in fact, Ms. Rhodes said, precisely what people have been telling her from the time she started the business. And yet, sales have increased every year. And while there are less expensive, mass-produced alternatives to a Glassybaby product, Ms. Rhodes said, her handmade products require four glass blowers and a 24-hour process to make one glass, which is why she maintains that the price has to stay between $40 and $44.

Courtesy of Glassybaby.In a Glassybaby glass-blowing studio.

To give New York customers a better feel for the glass votives and the company, she has decided to move the store to a location with more foot traffic and to combine it with a fully functional glass-blowing studio where artists will make the votives onsite. The location has not yet been set. “Once people see them being made, and see them lit,” Ms. Rhodes said, “they seem to understand the business better.”

Q: Isn’t it expensive to set up a glass-blowing studio in New York?

Ms. Rhodes: I feel like our choice is to leave New York or build a hot shop. People need to see the product being made. That’s what helped us succeed in Seattle. If we’re going to ask them to buy something that will be close to their heart, we need to give them the experience. It will also significantly cut down shipping costs.

Q: What other changes are you planning to address the needs of New York customers?

Ms. Rhodes: We are planning a same-day delivery service called “Fresh from the Oven,” so people don’t have to carry the product home. We are also creating a beautiful box, so when customers give them as gifts, the wrapping is lovely.

Q: What advice does Jeff Bezos give you?

Ms. Rhodes: He tells us to go for it and to go big.

Q: Looking back, what would you have done differently in New York?

Ms. Rhodes:I would have taken the risk and gone for it — we’re selling an emotional product — we needed to do more than open up a storefront. We didn’t help New York understand the culture and experience of owning our handmade product.

Q: Are New York customers different than Seattle customers?

Ms. Rhodes: When New Yorkers hear the story of the company and see a Glassybaby with a candle glowing in it, they have the same reaction — they connect with the idea and the product.

Q: Is the business growing over all?

Ms. Rhodes: Sales in the New York store continue to grow slowly, but over all we’re growing quickly both online and in retail. We just added two new ovens to our Seattle glass-blowing studio in August. Now we can make 500 Glassybaby a day instead of 300 to keep up with the demand. We’re selling more than we ever have, so we’re giving away more money too.

Q: It took four years to become profitable. Why did you stick with it?

Ms. Rhodes: I know how these little candleholders affected me when I had cancer, and we get calls all the time from people who collect Glassybaby to symbolize life events, or a cancer patient who is buying them for her friends who supported her during her illness. The experience makes it more than just a $40 item. I believe it soothes and comforts people.

Q: Have you ever regretted opening a store 2,500 miles from home?

Ms. Rhodes: Absolutely not! I have no doubt the product will resonate and touch more New Yorkers once they see it lit and understand that they are handmade. I just wish I had really gone for it the first time.

Article source: http://feeds.nytimes.com/click.phdo?i=d6d23addb86396f0b24394cf02c18604

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Case Study: Glassybaby, Born in Seattle, Works to Find a Fit in Manhattan

September 29, 2011 by Leave a Comment

THE CHALLENGE Make the New York store profitable. Thinking it was ready to expand beyond Seattle, Glassybaby opened a store on Hudson Street in the West Village in the fall of 2009.

THE BACKGROUND In 1998 Ms. Rhodes, the mother of three young children, was fighting a rare form of lung cancer. One evening, her husband at the time came home with a small glass cup he had created in an art class that Ms. Rhodes had encouraged him to take. “We weren’t sure what to do with it at first, but when we put a candle in the cup and lit it, the effect was so peaceful and so healing,” Ms. Rhodes said. Her husband made more of the soothing little votives for her and soon friends were asking for them, too.

Spending time at the hospital receiving chemotherapy alongside other patients, Ms. Rhodes was struck by the struggles some encountered finding transportation to their appointments or paying for child care. When Ms. Rhodes’s cancer went into remission, she started the business of making and selling the votives she calls Glassybaby. To help patients like those she had met, Ms. Rhodes set a goal of donating 10 percent of all revenue to charity, primarily for cancer care that is not covered by insurance.

The first Glassybaby store and glass-blowing studio opened in 2003 and became profitable after four years. Along with selling the votives, the company rents them out for parties or lends them to serve as charity-event centerpieces. Today, Glassybaby sells 459 different colors of the $44 hand-blown glass containers.

In the last few years, the company has been on a steep trajectory. In 2009, sales increased 25 percent, and Glassybaby caught the eye of Jeffrey Bezos, the founder of Amazon.com — also located in Seattle — who bought 20 percent of the company. In 2010, Glassybaby sales increased 50 percent. Ms. Rhodes says she has given away more than $600,000 to charity.

With the success of Glassybaby in Seattle and the infusion of cash from Mr. Bezos, Ms. Rhodes decided in 2009 to expand to a new location. She quickly concluded that the country’s biggest market offered the best opportunity — despite the inevitable competition of other specialty stores.

In Manhattan, Ms. Rhodes believed she would be able to sell to millions of apartment dwellers in homes ranging from small studio apartments all the way up to multimillion-dollar condos. The city also had strong philanthropic traditions, so there would be plenty of nonprofit partners to work with, and she felt the story of her work as a cancer survivor creating something to help others would resonate.

The final factor in the expansion was the poor economy. At the time, Ms. Rhodes said, few other retailers were expanding into the city. She said she believed that New Yorkers still liked discovering new things — but there were not as many new things happening because of the recession.

The Glassybaby shop opened in the West Village in the fall of 2009. Last year, the store had $290,000 in revenue, but with rent of $9,000 a month, along with salaries and other expenses, it lost money.

Ms. Rhodes acknowledged some missteps. She said she believed that an attractive display of Glassybabys would draw people into the store and that, at $44 each, the price was right for an impulse buy, but the West Village location got far fewer passers-by than she had expected. “We didn’t pay to have a foot-traffic study done of the store location,” she said, “and that was a big mistake.”

She also realized too late that people wouldn’t be inclined to buy a dozen Glassybabys, the way they do in Seattle, because they would have to carry them home. “In Seattle, everyone had cars so we never thought about it,” Ms. Rhodes said.

Article source: http://feeds.nytimes.com/click.phdo?i=a5d7a4ed2d0b3d970a0716d9eb418dab

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Case Study: A Bicycle Shop Struggles to Get a Loan

June 2, 2011 by Leave a Comment

THE CHALLENGE Obtaining a $1 million loan to refinance the mortgage on the bike store, pay down credit card debt and obtain working capital.

THE BACKGROUND Kopp’s Cycle operates out of a small storefront on a quiet side street in downtown Princeton. Behind the counter is a repair studio that is lined with old wooden bins and is just big enough for three mechanics. Mr. Kuhn still sits at the workbench he used when he was a child working for his father, though the shop has moved several times in the intervening years. In the summer, there is room for two or three mechanics on the porch out back.

Kopp’s moved to its current location in 1989, when Mr. Kuhn and his sister bought the business from their mother. (Mr. Kuhn bought out his sibling’s interest in 1999.) In 2004, he bought the building for $801,000 with an adjustable-rate loan for $775,000, guaranteed by the Small Business Administration. By 2007, though, the rate had risen about three percentage points, to 10.75 percent. Moreover, Mr. Kuhn had grown tired of the paperwork that dogs an S.B.A. borrower. “I just didn’t want to dedicate hours of time putting together annual statements for them,” he said.

So Mr. Kuhn refinanced with Washington Mutual (“I sent them a copy of our tax return, and that’s all they wanted,” he said), signing on to a seven-year loan for $825,000, with interest fixed at 6.18 percent.

The loan is amortized on a 25-year schedule, however, so when it comes due in fall 2014, Mr. Kuhn will have to make a balloon payment of $775,000. (Balloon payments, typically refinanced at term’s end, are common in commercial real estate loans.) At the time of the loan, the store and its lot, the loan’s collateral, were appraised at $1.3 million.

In the intervening years, Kopp’s business has been battered. The effects of the recession have been intensified by online competition. Mr. Kuhn started noticing customers coming in with products bought elsewhere that they had browsed in his store.

“People come in with their smartphone and scan a bar code on a product that I have in my showroom, and what comes up on the phone is the three closest places and their price and then also what it is on Amazon,” he said. Revenue fell from a high of $485,000 in 2008 to $393,000 the next year. Mr. Kuhn kept himself afloat by borrowing on his credit card, mostly for personal expenses but also to buy inventory.

To rebuild sales, Mr. Kuhn cut prices on accessories, which — typical for a bike store — have provided most of his profits, Mr. Kuhn said. This lifted revenue to $473,000 in 2010, but profits fell sharply — Mr. Kuhn said his margin was just 1 percent last year, compared with 10 or 15 percent in 2008.

This has not greatly concerned him, he said: “When I get the books done at the end of the year, if I break even — if I don’t show any loss, and I show a little profit — as long as my guys are getting paid, all my bills are getting paid, and I’m getting paid, then I’m O.K.”

Mr. Kuhn adjusts his salary as necessary to keep the profit small. Also, he and his wife personally own the building and rent it to the store at a rate that exceeds their mortgage payment.

But the 12 percent interest rate on $100,000 of credit card debt has grated on him, as did the prospect of the balloon payment now three and a half years away. The solution, as he saw it, was a new 25-year loan that would consolidate the credit card debt with the $800,000 outstanding on the property and add $100,000 for working capital. He anticipated that the property’s value had risen to $1.5 million, enough to support a $1 million loan.

Article source: http://feeds.nytimes.com/click.phdo?i=c1ca37c2a41c9efaccef2eee3c2cbca6

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Case Study: Can Chasing Small Customers Lead to Larger Profits?

April 27, 2011 by Leave a Comment

THE CHALLENGE To become profitable, Big D must determine whether to cater to customers with large printing orders or small.

THE BACKGROUND Mr. Robbins, a former full-time musician who still plays in a band, was nostalgic for the multicolor tour shirts of his youth, which he described as “works of art.” He said he was appalled by the one-color shirts sold at today’s shows. He was also disappointed by the quality of shirts created by some of Austin’s many screen printers and said he could do better.

With that goal, Mr. Robbins and his partner, who worked for Capitol Records, invested a total of $225,000 to open Big D. The division of labor was clear. “I was a natural-born customer-service geek, and he was a natural-born salesman,” said Mr. Robbins, who resolved to take care of the customers his partner brought in. “We wanted to be one of the big boys.”

As his partner traveled the country trying to win accounts, Mr. Robbins ran the shop, frequently declining business from potential customers who requested small orders. Mr. Robbins, 44, who has a background in ad agency account management, said that turning away business kept him up nights. He wanted every call to end with a sale.

By the end of its first year, Big D had grabbed a few big accounts — local video game and record companies that placed orders for 5,000 to 15,000 shirts. But when the shop was not cranking out large orders, it sat idle. Mr. Robbins said his partner feared that small orders would prevent Big D from handling bigger jobs should they come in. But given his ad agency experience, Mr. Robbins said he was used to demanding clients and short deadlines. “With effective scheduling, you can pretty much accommodate any customer,” he said. Following the lead of his competitors, he charged more per shirt for the smaller orders he did take.

THE OPTIONS At first, Mr. Robbins and his partner agreed on strategy. With their industry contacts, they said they believed they could land accounts from major bands. Focusing on high-volume orders made sense to them in part because Big D’s suppliers offered a price break on large quantity T-shirt orders.

But the partners did not realize that most bands were locked in to long-term contracts for their tour shirts. Given that, Mr. Robbins started to wonder about the strategy of chasing down high-volume clients, particularly when he had so many smaller prospects knocking on his door. But, he said, his partner saw no point in accepting orders for one or two shirts. His partner continued to believe big orders were crucial to profitability and that he could best win those accounts by conducting in-office presentations for corporate prospects across the country.

THE DECISION After a year in business, Mr. Robbins threw an anniversary party in April 2008 to thank his employees for their dedication. His partner, however, opposed the modest celebration because its cost meant the difference between breaking even and showing a loss on Big D’s first-year sales. This disagreement highlighted the increasing tension between the partners’ growth philosophies.

Determined to accept smaller orders, Mr. Robbins bought out his partner around the time of the party. The split was amicable, Mr. Robbins said, with his former partner breaking even on the sale and returning to the music business. And then the economy crashed. “Almost overnight, companies tightened their belts,” Mr. Robbins said.

At that point, he decided that no order was too small. He would find a way to take all business, even an order for a single T-shirt. He knew there would not be a lot of competition from the other local screen printers for the small orders. “I noticed they weren’t in a huge hurry to fit them in,” he said.

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