Making the most of your sticky business

Bob Cronin of the Open Approach asks whether you are investing enough in making your employees and customers ‘stick’

Pressure-sensitive, cut-and-stack, shrink sleeve, packaging, product identification. Whatever your business, you likely spend a large percentage of gross annual revenues on the adhesive properties of your products. You review suppliers, evaluate environmental and recyclability issues, and test formulations. And you are likely look to at Labels & Labeling to introduce you to new possibilities to achieve greater manufacturing success. Indeed, glues and adhesive substrates are key to what you produce, and they deserve every bit of attention and cost you wish to expend.

But what about the ‘stickiness’of your customers and employees? What expenses are you dedicating to ensure their adhesion to your business? What programs and opportunities have you established that specifically address these constituencies and their needs?  You can market yourself by products, services, equipment, and capabilities. You can boast about your competitive advantages and your cutting-edge digital press or unique die-cutting ability. But it all boils down to your people. This is how you are really judged in the marketplace.

Every credible M&A transaction centers on an examination of customers and employees. And no discussion about company preparation – on either the selling or buying side – would be complete without addressing these crucial resources.

Though less tangible than the xxx-per-minute output device, the human element remains the essential factor in the ongoing health – and growth – of every business. In today’s electronically driven world, this can be easy to forget. You may think your neighbor’s next-generation systems platform will automatically give them a higher value. Or that more equipment will be more attractive to prospective investors. But the truth remains: Nothing drives prosperity in the label industry more than your customers and employees. And thus, any wise acquirer is going to review both of these, just as thoroughly as they do your financial data and value proposition.

The sticky customer

When you put your company up for sale, every acquirer will ask for information on your accounts. Reviewing your customer list, length of relationships, and retention rate/account turnover can tell an acquirer about how you are viewed by the client and the marketplace at large. It can indicate where you stand competitively and how you compare to similar properties. Your top 10 customer list and historical performance can also help give them a picture of the value of the business based on the ability to secure and retain customers and the cash flow they generate.

Surprisingly, very few selling companies have this information readily available. In fact, many times, this information is relegated to the chief financial Rottweiler or company auditor. Yet, understanding your best customers is something that really needs to be done by everyone in a customer-facing position – sales team, customer service reps, etc. And it’s not just a matter of determining who they are, it’s about finding out what it is about your company that keeps them onboard. In order to create new sticky customers, you really should understand what you’re doing right – or wrong. From there, you can apply that same thinking as you develop new relationships.

Many companies neglect their long-time loyals or top 10, focusing efforts on winning new ‘whales’ or trying to fight the never-ending bidding wars. True, in today’s marketplace, we are all confronted by the issue of price. And it’s an important topic to confront. Never do you hear you are not charging enough, but often you hear that you are charging too high, or not competitive. You’ll hear this from every type of client, with the intimation being that they might change suppliers. But change equals risk, and the reality is that conversion to a new label provider can be extremely painful to the customer – and not likely the path they want to take. Their negotiation with you may simply be a strategy to keep you competitive and keep their management teams assured they are spending wisely.

At the same time, there are dozens of prospects that you have been calling on for years that have never done business with you – even though you know you can price more competitively than their current supplier. Truly, price is not the end-all, be-all. This may be the reason we hear for not getting a particular project or landing a particular client. But that’s simply because it’s the easiest answer to give –by the client and by the sales rep. Price may be an issue, and sometimes concessions may be necessary. Overall, however, there are at least 10 other factors that weigh heavier on the typical purchasing decision.

As you view your customer list, you likely have a group of companies that have been with you a long time. In many ways, their success has been the basis of yours. Somehow you have aligned your goals with theirs, and that alignment creates the value that transforms a relationship from ‘vendor’ to ‘partner.’ You do not treat them simply as ‘revenues,’ and in turn they do not judge you simply on ‘price.’

So what is it that you bring them? Perhaps it’s a full solution. Perhaps it’s the ease of dealing with you. Perhaps it’s the knowledge you have of their unique business or the appreciation you show them for their work. Whatever it is, it’s the adhesive you need to be formulating for use in all your customer development and retention strategies – efforts that should be every bit as tangible and meaningful as other operational activities.

The sticky employee

Likewise, your employees are not simply with your company ‘because they are getting paid.’ People invest a good portion of their waking life at work and choose to be at their respective workplaces for varying reasons. Sure, a paycheck is important, but the most valuable employees are those that are connected – ‘sticky’ to your company – by means other than the mighty dollar.

Employee tenure is another big consideration in the acquisition process. Immediately, it can speak to your company’s experience, and thus to the ability to integrate new offerings. It can prove or disprove the respect for (and effectiveness of) your management team. It can tell a potential buyer about your culture and how easy or difficult your people may be to assimilate into an existing portfolio holding or strategic enterprise. It can also signal to a potential acquirer whether the people who are closest to your mission and opportunities believe in the company, or not. And finally, if there is a lot of turnover, it may indicate a weak competitive position. If you are on the buying side, you should be thinking through these things as well. An uncooperative or challenging employee pool can quickly derail an otherwise valuable transaction.

Too many businesses today chug along without any measurable loyalty effort. And again, too many entrepreneurs don’t know what their employee retention curve looks like without asking human resources to run a report.

Just like for customers, businesses must be cognizant of what they can do to keep employees ‘sticky.’ If you have a great retention record, evaluate what it is that you are doing to keep talented employees around. If you don’t, waste no time in adopting a workable initiative.

Whether it means opening up advancement opportunities, implementing ‘lunch and learns,’ assigning an employee of the month parking space, or simply making sure to express appreciation, every company should be making conscious efforts to build, inspire, and harvest the loyalty of its many talented staffers.

Listen to office chatter. Watch how employees treat customers and vice versa. Talk to your staff. Your success in recruitment can provide a gauge for your efforts as well. Part of any prospective acquisition will be a site visit. While an acquirer may not explicitly say it, they will be watching your people and dynamics and taking these into consideration. And if you are on the buying side, make sure you are analyzing these things as well.

Preparing for a merger, acquisition, or sale is not just a process that spans equipment and financial performance. It’s one that requires an explicit focus on human assets – customers and employees alike. The value of customer and employee loyalty cannot be underestimated. Their loyalty will be key in estimating your company’s value.

This article was published in L&L issue 3, 2012