June 25, 2017


















CHAPTER THREE

               A 41-YEAR, LIPA-JOURNEY WITH FRIENDS; YOURS IN 1-2 YEARS

We’re all in this together! What I have learned from turning around or renewing distribution businesses for 41 years is summarized in this book and supported by LIPA Management Journey-ware most completely from Waypoint Analytics (Company link). Although I immodestly cast myself as the protagonist in this story, it would not have been possible to pass on to you in a formulaic basis without key mentors and supporters at each, big, enlightened step of the way.   

 

STEP ONE: THE KID’S SUCCESS STORY FALLS FLAT IN 1979

 

In the fall of ’79, I was a 29-year-old, chief-operating-executive of a ten-profit-center, distribution chain with about 280 employees. I had volunteered to conduct a workshop at my channel association’s annual convention. The topic was “The Small Order Problem”. The teaching tool was a Harvard Business School (HBS) case study – Paper Distributors, Inc. E: The Small Order Problem” – that outlined a challenge I had faced and solved in ’76. (I had gotten one of my HBS professors to research, write and publish the case by the Spring of ’78.)

 

A surprising 150 executives were in attendance. I did an opening 20-minute overview which was followed by: 30-minute, breakout, discussion groups; 10-minutes of group recaps; and then some summary points by me with two big closing question responses.

1.    100% of the participants raised their hands to confess: “YES” (my company has accumulated a lot of permanently small customers who give us small orders that cost more to fulfill than the GM$s in the orders). “We are bleeding by a thousand nicks.”

2.    But, 0% raised their hands when asked: “How many of you will go back and do anything about this big, profit-drain problem?” When I asked “why”, one voice immediately thundered out: “My sales force won’t stand for it”. Other heads nodded along with a wave of affirmative mumbling.

 

No one came up afterwards to ask about any specifics. I wondered later how many in the audience (averaging at least an ancient 45 years old) may have, instead, left with these questions about me and my message:

1.    Who is this new kid from outside our industry?

2.    Who is his irresponsible Boss who let him get away with these reckless experiments?

3.    This company of his is “new” (the terms - “industry consolidator” and “roll-up”- hadn’t been yet coined and that is what we had done from scratch over the previous 10 years).

4.    How do we know that he isn’t making it up or got lucky temporarily?

5.    His ideas certainly can’t work in the long run, can they?

 

And, what (unspoken) success assumptions were closing their minds to my new, cost-to-service math discoveries? We can guess. And, how many of those assumptions are still shooting down customer-profitability experiments at distributorships today? (See Chapter Four for the exhaustive checklist analysis.)

 

WHY WAS I A DISTRIBUTION-CHANNEL FREAK BACK THEN?

 

In retrospect, I was a compounded freak-of-nature within my distribution channel. I would not have been doing radical things in ’76 or pitching them in ’79 or writing this book now, if not for my fabulous parents and my first business mentor (another HBS, MBA, new-to-distribution, entrepreneur) Hal Kroeger of St. Louis, MO.

 

As the oldest of three boys, my parents (who are still active and learning) invested their-all into making sure that we had the best and broadest education in and out of the classroom. When you bump into all of my learning-how-to-learn stuff in this book  ̶  mastery; wheel of learning; failing forward to successful innovation; published praising statements; systems thinking; etc.  ̶ blame my Dad and our “can-do” family culture for planting all of those seeds. He was not only a first-rate, career-scientist, President Reagan appointee and business professor, but a fine athlete and coach who got his boys involved in every sport possible. We mastered so many things enjoyably and mindfully that we just can’t stop. Besides being a co-conspirator and supporter, Mom also worked tirelessly on socializing and civilizing “the boys” who were a bit rough on the furniture.

 

My first business mentor, Hal Kroeger of St. Louis, MO, inspired me (when I first met him at age 15) to want to go directly to Harvard Business School for an MBA after college and do something entrepreneurial. He, at the time, was a 25-year-old HBS grad, who had moved to St. Louis in ’65 to run a specialty paint company on which he had done a “boot-strap buyout” (pre-LBO term). He subsequently sold the paint company and started buying paper distribution companies to build up a chain called Distribix, which he sold well in ’89.  

 

And, Hal gave me my first, summer-intern job in ’72 between college and HBS. He loaned me the money for most of my HBS education on the provision that I would return to St. Louis in June ’74 to work full time and expense the loan off my salary over a few years. As my classmates took off for Wall Street and global consulting firms, I took the road very-less traveled to become the assistant branch manager of the Peoria Paper Co. The Peoria profit center – one of five at the time – was the ultimate turnaround challenge. But, I also was the entrepreneur’s protégé.  

 

What happens when two young MBA’s – uninfluenced by traditional industry thinking – buy struggling companies with a lot of debt? They: get focused; work hard; aren’t blinded by industry conventions to ask “dumb” questions; and try new stuff. Debt-service necessity is the mother of invention.

 

Hal gave me enormous latitude and support in all of my experiments to both turn around distribution companies and establish formal management systems within our burgeoning chain. The experience I got with him in six years from doing countless experiments in an increasing number of labs (one experiment per profit center at all times) was exceptional. It was the base I needed to start my own consulting practice at 29 to find and do my own deals. And, I did leave behind three big binders of detailed, how-to memos that were collectively known as: “The Corporate Culture Collection”. I’ve been a culture innovator and manager ever since.

 

While at Distribix we collaborated with two of my HBS professors – Ben Shapiro and Jim Heskett. They wrote 5 case studies on Distribix challenges. Ben wrote four on “sales management” challenges: Paper Distributors, Inc. A-D. And, Heskett’s group wrote “The Small Order Problem” case E. (All five are now out of print).

 

Since then, Jim Heskett went on to write six, exceptional, management books all related to “high-performance, service-culture management” starring the “service profit chain” and “customer retention economics”. I adapted all of his wisdom with great success in my distribution turnaround opportunities. The influences of these two, great teachers are also threads through this book and my video clips especially on the topics of sales management (Shapiro) and service excellence/culture (Heskett).

 

JAN. ’80: TIME TO STRIKE OUT ON MY OWN

 

With Hal’s thanks and support, I left Distribix to start my consulting practice in January ’80 as a viewing post to find my own distribution, acquisition-turnaround deals. My next great helping hand came from Richard Clark (’25-’09), an all-around, magnanimous fellow. In ’83, he sold me the business that he had founded in 1950 in San Diego, Clark Security Products, for one big personal note. What a turnaround we engineered from ’83 to ’86! Then, my brother, Marshall, took the reins in ’89 and continued to open up new distribution centers across the country until he sold the company to Anixter in December, 2010.

 

In the Clark turnaround, I invented what I have since named: “Nichonomics; “Service Excellence”, and the “High-Performance, Service Culture”. My successful experiments with Clark Security still heavily inform all that I preach and the tools that are in the Waypoint Analytics LIPA service.

 

ENTER LIPA-MANAGEMENT, JOURNEY-WARE AS A WEB SERVICE:

 

Much happened between my Clark turnaround days and early August ‘08 when I got an email from a stranger named Randy Maclean. Randy turned out to be a seriously-good and seasoned, serial, software entrepreneur who had founded Waypoint Analytics to target distributors with a web service to provide LIPA data and tools. Fortunately for me, his first two distributor prospects told him to get in touch with some guy named “Bruce Merrifield” to help with envisioning what to do beyond customer and item profitability ranking reports. (One the two distributor principals had attended my ’79 workshop!).

 

Randy and I have collaborated ever since. And, it has been non-stop – learning, fun and great results – for Waypoint clients. Because LIPA opens up an entire new world of insights, we have had the challenge of teaching new solutions that initially seemed quite overwhelming. We decided to try to build a learning community of most progressive distributors that has evolved from a simple prototype into the burgeoning, semi-annual, “Advanced Profit Improvement Conference(Conference link). This LIPA-enabled movement would not be where it is without the contributions of other key collaborators: Jonathan Byrnes, Brent Grover, Tom Gale and always, Diane Maclean.

 

Randy, early on, tried to sell me on writing “the book” on all-things LIPA. In the Spring of ’10, I replied that I thought a general, non-distributor-specific book was forthcoming from a chap named Jonathan Byrnes. I had been following Jonathan’s columns for HBS’s e-newsletter on the net-profitability of customers and products for years. His book, “Islands of Profit in a Sea of Red Ink” (Book info at Amazon) was to be published in October ’10. If you haven’t read this book, don’t walk, run to Amazon and buy it now. (You can read my “most helpful” review there and add another vote for the review being helpful to you.J )

 

Since “Islands...” release, APIC has sold a lot of books for Jonathan. I’ve enjoyed getting to know him through lunches in Boston and our visits at APIC, for which he has served as a keynote speaker a number of times. The APIC community is indebted to him for articulating so well the what, why and how’s of the big, net-profit, cross-subsidies that exist amongst customer and items.

 

Another early, important collaborator in the APIC-movement is an old friend, Brent Grover along with his excellent team at Evergreen Consulting. Brent and I first collaborated from ’76 to ’79 as committee members of the “Young Executives Forum” for the National Paper Trade Association. Brent was one of the breakout discussion leaders in the “small order” workshop in ’79. Brent then took those case ideas to make them his own and achieved new levels of results for his family’s paper distribution company. After selling the company for family estate purposes in ’99, Brent and I have collaborated on the distribution consulting circuit. He and his company are core sponsors and contributors to APICs, and he’s our deep resource on “strategic pricing” which is touched on later in this book.

 

A third pillar for the APIC movement is Tom Gale, publisher and owner of Modern Distribution Management (www.mdm.com). Tom and I have been friends (at several levels) and collaborators for years. If you are not a subscriber to MDM and get their steady news feed on all-things going on (why and how) in independent distribution channels, then – as an experiment – subscribe to and plug into this service for one year for a huge ROI. I could not have gotten many of my ideas to the distribution industry without Tom’s help and editing.

 

Anyone who has attended an APIC conference raves about every scrumptious detail of these events and what an incredible economic value it is. The force of nature behind these well-executed events is Diane Maclean, Randy’s wife and co-founder of Waypoint. Fortunately for us, she was – in a previous career – a big-time, meticulous, event planner. The APIC movement would simply not be close to where it is with the trajectory that it has without Diane’s pragmatic, effective organizational contributions.

 

JOIN A COMMUNITY OF POWER USERS

 

And, finally a big tip of the hat to the early power-users of LIPA tools, strategies and tactics. There are a good dozen distributors (with more each month) who have already achieved 10-bagger results with LIPA insights and tools. While doing so, they have also been the idea-generators and co-creators of many of the new – plays, tools, refinements and case studies – in LIPA-World. This group of executives generously tells others about LIPA and APIC and sit on APIC panels. I thank them without naming them to honor Waypoint’s confidentiality principles.

 

You might ask: “Why would the Power Users want to share the secrets of their booming next-level successes? Won’t their competitors copy them?” I think their main sentiments are:

1.    Nichonomics plus Supply-chain-math selling solutions eliminates channel waste that everyone gets to share. It’s a free lunch and a total, economic-pie-expander for everyone. We would be delighted to see more independent distributors succeed like we have.

2.    Our competitors? In theory, they could benefit too. But, most won’t wake up in time and any that do will have to find their own alternative niches to the ones we have already dominated. For our target niches, it is game over. We, as the first movers, have locked up the biggest, best accounts.

   

SUMMARY QUESTIONS/THOUGHTS:

 

·        If your company is a first-mover with LIPA MANAGEMENT in your markets, what are your odds of (assuming good execution abilities) turning your company from a bottom 90% company into a top 1-2% performing company?

·        The McDonald brothers (Richard and Maurice) spent years perfecting their lunch-only, French-fried automation restaurant in San Bernardino. Ray Kroc opened his first clone in a few months in 1956 in Des Plaines, IL. By ’62 Hamburger U was transforming newbies to the restaurant industry into Ace McD’s franchisees. This type of codified, systematic wisdom is now rapidly accumulating within LIPA Management Journey-Ware. With this total support, how fast can you transform your company on to an entire new trajectory?

·        The following chapters will outline this French-fried LIPA Management wisdom!