Posted by Menachem Lubinsky on May 3, 2010 under Recession | 
By Menachem Lubinsky
In the past few days, there seemed to be a significant surge in the number of high-profile mergers and acquisitions, raising the question of how much of an effect the recession had on these developments. To be sure, M & A’s occur during more stable economic periods as well, but a closer look suggests that the current economic climate is having a direct effect on the mergers and acquisitions now in the news.
The on-again off-again proposed merger between Continental and United, two of America’s largest airline carriers, may be a good example of a recession related deal. Surging fuel prices, a decline in business travel and mounting debt forced Continental to look for a way to stabilize the company. On the other hand, the acquisition of Palm by Hewlett-Packard probably would have occurred in a more stable economic climate as well. Palm had simply lost its competitive edge to a new generation of smart phones, namely Blackberry.
While most of us focus on the “big-name” mergers and acquisitions, economists say that they have increased dramatically amongst mid-sized and even smaller firms during the past few months. Typically a merger affords both companies the opportunity to create a new entity that is more efficient, cost-effective and ultimately profitable. The same is true for an acquisition when a floundering company is acquired by a healthier entity.
There is most definitely a connection between some of the mergers taking place nowadays and the recession. In 2008, after the housing crash and the collapse of many of the nation’s largest financial institutions, there was no discussion of mergers for such icons as Lehman. It was simply curtains for those companies. For the banks that failed, the FDIC made sure that they were taken over by other banks.
The story is quite different for businesses that managed to stay afloat during the recession, albeit in a weakened state. Many accumulated debt in the belief that the turnaround was just around the corner. They were betting that the recession would be short-lived and that they would soon revert back to profitability. But that did not happen and worse, some economists were predicting permanent changes in consumer habits that all but sealed the fate of many troubled businesses.
I recently tried to convince two food importers that it would be in their best interest to merge. One business was fairly successful with a staff of a half dozen people but was not growing. The other was a husband and wife team working out of their basement that found it hard to keep up with their business. While the husband traveled to secure new products, the wife managed the home front. The couple felt that it was time to move out of the basement and consider renting space and hiring a clerical person.
Upon closer examination, it seemed that both companies were not only importing some of the same lines; they pitched the same accounts. But here’s where egos got in the way. The couple could not fathom an arrangement where they would give up their independence. The other company was convinced that the couple would simply “steal” their accounts and then go on their own again.
It is some of these human aspects of companies that often prevent mergers that make sense from happening. This is true in even the large mergers when two well-paid CEO’s with huge egos bud heads in negotiations for a merger. Even the question of who ultimately becomes the CEO of the merged company can become the impediment to a deal. Sometimes it becomes a focal point in the negotiations, especially when a Board of Directors feels that the acquired company has the better CEO. In the Continental-United deal, the new entity will go under the United name but the Continental CEO will preside over the newly merged company.
Tapping into some of the best personnel in each of the merging companies is one of the major advantages of a merger. Many merged companies not only capitalized on the large pool of talent that often comes along with a merger, they actually found the right team to take them on the road to profitability and beyond.
The recession forced many companies to look at their long-term prospects of success. While many believe that they could weather the storm on their own, others began looking for strategic partners to help them devise long-term solutions. This may seem like a process that needs to take place periodically in the life of a business, but it is far more urgent in a recession since the prospects of raising capital are not that clear. What is clear is that signs of recovery not withstanding, there is a growing trend towards mergers and acquisitions and that many are directly related to the recession.
Posted by Menachem Lubinsky on April 26, 2010 under Kosher Companies, Recession |
By Menachem Lubinsky
New York…The recession continues to have a significant impact on kosher food sales despite a perception that kosher food is “recession-proof,” Kosher Today has learned. In dozens of interviews with industry officials, it became clear that the buying habits of kosher consumers was markedly different this past Passover than it was just two or three years ago. “People are being squeezed on all sides” said a Boro Park retailer, “and they are more price conscious than ever.” He said that he observed that more customers were buying from lists rather than just impulse buying or walking up and down the aisles and picking up items. In nearby Flatbush where Pomegranate has set a new standard in shopping for kosher foods, there were many customers who now shop in multiple stores. A kosher blogger wrote: “I have learned to buy items at Pomegranate that cost about the same everywhere (i.e. many dairy products) and to save by buying at places like COSTCO, Paperific and the Kolel store.” The retailers say they are constantly reminded by customers of a breadwinner that has lost their job. Stores that recorded double-digit growth in 2008, said they only did 2% – 3% better on sales during Passover 2010 than they did in 2009. The same seemed to be true in kosher wines where many customers shunned the more expensive wines they routinely bought in 2008. The number of people relying on help from such charities as Met Council on Jewish Poverty, Tomchei Shabbos and Keren Aniyim as well as similar organizations in cities outside of New York also increased significantly.
Despite this disturbing development for the kosher food industry, sources say, the industry as a whole seems to have weathered the “pockets of downturns” well. They pointed to making up some of the slack with volume. “Natural growth has always helped the industry even in a down economy,” said one kosher food manufacturer. New items also continue to drive sales as younger kosher customers continue to show a strong desire to try new and interesting foods. While there is talk of a recovery, in the kosher food industry the recession still continues to take its toll.
Posted by Menachem Lubinsky on April 13, 2010 under Marketing, Out of the Box |
By Menachem Lubinsky
It occurred to me that some businesses may actually be making a choice of sales over marketing. They believe that marketing may be too abstract, certainly when compared to sales that have a more immediate result. Hire a salesman, the reasoning goes, and you will soon count the successful “hits.” Invest in marketing and you may end up throwing “bad” money after “bad” money. This is particularly true when a company works with limited funds.
A food company client looking to boost sales was engaged in just such an exercise. The president of the company was being pulled from both sides. A senior marketing consultant opined that his company would be far better off investing in long term branding and marketing while a fiscal advisor retorted that he “always had time to risk money in marketing.”
Continue reading “Marketing and Sales: Perfect Together” on Lubicom’s Marketing Blog.
Posted by Menachem Lubinsky on March 24, 2010 under Recession |
By Menachem Lubinsky
A column I wrote in this space several weeks ago generated an unprecedented response. The subject was the competition between younger and older people for the same scarce jobs. Much of the feedback that I received revolved around personal experiences of people who felt that they were unfairly victimized because of their age. Several were young people who wondered how you can get a job that calls for experience without getting the experience. There seemed to be a common thread that related to the hardships many families face as a result of the recession, ranging from layoffs to business failures.
Many of the people seemed to find the answer in a “second” income. Americans have long become accustomed to the concept of two incomes in a family but increasingly more spouses have pitched in with some kind of income producing venture that helps the family bottom line. Without getting into the social implications for society, I heard of a number of stories that may be worth sharing.
David, a 31-year old father of three, lost his job as a production manager for a trade publication. After six months of job-hunting, he was still not any closer to a job. A job counselor advised him to take some courses in sales with the idea that there were many sales jobs available. It turned out that the compensation for most of the offers was based on commission with little or no fixed salaries.
Eve, David’s stay-at-home wife had started to dabble in a home-based graphics business focusing on a specific industry. She called the money her business made “spending money” and had little time to either plan or actually expand the business. It was at this point that David came up with what he called “an insane idea” to try to build up his wife’s business. He had after all invested the time in the sales training. That was eight months ago. David indeed developed the business, is no longer looking for a job, and the couple is now seriously considering a move to a nearby office building and hiring a clerical person.
Joe, a manager in a small machinery parts business, was having increased difficulty in paying bills. At 30, his two children were in pre-school and the cost of tuition alone was “choking” him. His wife worked part-time at the office of a local dentist but he was increasingly worried about his job. His boss had already notified the staff that sales were off by about 20%. That’s when an idea hit him. Perhaps he could work out some arrangement with his boss to sell the parts on-line. Thankfully, his boss dismissed the idea and agreed to share in the profits provided that Joe made the investment. He did, and left his job devoting his energy to his new successful business.
For many people, a “second income” means taking on another job. A local yeshiva recently hired a Jr. Accountant for Sundays to do journal entries and prepare reports for the accountants. A restaurant hired a mashgiach (kosher supervisor) to replace their full-time mashgiach during weekends.
The challenges of producing enough income for a household are ever-present but so much greater in a recession. It requires a bit of creativity and “out-of-the-box” thinking like David and Joe, whose answers were right in front of their noses. I recently read about a company that sells amenity kits to hotels and corporations on the West Coast. The gist of the story in an in-flight magazine was that the company had gone “green” and was selling the hotels products that were environmentally sound. There was one line in the article that caught my eye. It spoke about the nephew of the boss who had been laid off from a computer consulting job and decided to expand the business to the Central states with great success.
Al, a self-employed real estate broker had fallen on hard times. At 57, he was having difficulty finding a full-time job and his wife who had worked most of her life suffered from crippling arthritis. Here briefly is his story, in his own words: “I was at the point where I was ready to accept the fact that I would have to rely on benefits just to get by when I took stock of my experience. I realized that I knew many building managers and owners and that they would occasionally ask me for a good repairman. I hired two handymen that were looking for work and started to call and visit all my contacts. In the last four months, I have been averaging $30,000 a month in repairs, enough to pay my bills. I still, here and there, make some money on brokerage.”
A second income, whether for self or a spouse, is obviously not for everyone. Many people’s life circumstances prevent them from even considering a second income, but for those who can entertain the idea, it is a good way to beat the recession. There are many people whose careers were launched in a down economic climate because they had an idea that worked out.
Posted by Menachem Lubinsky on March 22, 2010 under Marketing |
By Menachem Lubinsky
Ever so often a new term emerges in marketing that becomes an operative concept in the field. There was a time when “spin” dominated the marketing profession, although it was often thought of in a derogatory way. Putting a spin on something was not necessarily thought of positively. Spin was looked at my many as a defensive measure and not as a positive marketing concept.
Now ”optics “ is the new boy on the marketing block. It is being used to describe the appearance for something. Talmudic students should have no difficulty in recognizing the new term. The chazal teach us that appearance can be every bit as problematic as the real thing. We are not permitted to drink almond milk in the same setting as meat because of “maaris ayin,” which essentially is optics, or the way that it would appear to the naked eye. Since almond milk looks every bit like cow’s milk, the casual observer would deduce that the person consuming the milk was mixing milk and meat.
Continue reading The New “Optics” in Marketing on Lubicom’s Marketing Blog.
Posted by Menachem Lubinsky on March 9, 2010 under Out of the Box |
By Menachem Lubinsky
Marketers have long suggested that the most coveted position in marketing is to be the leader. “Being the leader,” said a noted professor in marketing, “is like being the first man on the moon.” Some leaders were so ensconced in their leadership role that a whole generation used them as the generic term. For example, Scotch Tape or Xerox.
Imagine what it is like to wake up one morning to find out that you have been dethroned from a pedestal of power and prestige. There was a time when Kodak was king, not only in selling the lion’s share of cameras but also virtually dominating the film business. Another brand, Polaroid was the leader when it came to instant photos.
Continue reading “How to Stay the Leader” on Lubicom’s Marketing Blog.
Posted by Menachem Lubinsky on February 28, 2010 under Out of the Box |
By Menachem Lubinsky
Leafing through a local weekly newspaper, I noticed an ad that read: “It’s 2010; Do You Know Where Your Marketing Is?” It went on to offer “free consulting” on brand image, but appeared to be more of a design firm’s quest for customers to redesign their logos and corporate image in general. On occasion, people turn to me for advice on a professional that could help with them with their marketing, which actually led me to write this column.
Continue reading “Who’s Who in Marketing?” on Lubicom’s Marketing Blog.
Posted by Menachem Lubinsky on February 21, 2010 under Recession |
By Menachem Lubinsky
I have to admit that I was considering stopping to write this column, not because the recession is over, but because there were so many signs that a recovery might be on the way. The unemployment figures seemed to go down somewhat despite the loss of thousands of jobs. Retailers were more optimistic than they have been in the last two years. Small businesses were beginning to rebound and some were finally benefiting from competitors that had downsized or closed altogether…
Continue Reading “Eye on the Recession: Where Oh Where Are the Banks?” on Lubicom’s Marketing Blog
Posted by Menachem Lubinsky on February 9, 2010 under Out of the Box, Quality Control |
By Menachem Lubinsky
The recent Toyota debacle is already becoming a textbook case for marketers on how not to handle a crisis. Surging gas pedals and faulty brakes are not necessarily what are preoccupying the marketers. They are obsessed with how the company handled the crisis and there is a great deal to learn from their mistakes, but I chose to focus on the pedals and brakes.
There is sufficient evidence that the company knew about some of the problems with the gas pedals and with the brakes. In fact, sources say, that Toyota officials were told months earlier of safety issues with the gas pedals.
The Japanese appear to have a history of sweeping such problems under the rug. Sources say that they often simply delay in the hope that either the problem will go away or some solution will surface in time as opposed to American companies that know that delay will not augur well for them in the long run.
Ironically Toyota had always positioned itself as a model of quality and reliability. It almost single-handedly took on the American auto manufacturers and possibly contributed to the decline of the auto industry in this country. Toyota’s problems had an immediate impact on Ford which took advantage of the silenced Toyota showrooms to make some instant profits, something that had failed them in recent years.
There is an important lesson here that perhaps takes precedent over the crisis management issues that we will no doubt discuss in the weeks ahead. There is no excuse for an inferior product, and certainly if it also involves health and safety. The consumer can forgive many flaws in a company but not when it produces a product that is not up to standard.
Nearly a year ago, a young man asked for my marketing advice on a new food product that he promised would be a “big hit.” It was a dietetic product that seemed to mimic the “real thing,” as he put it. He invested considerably into the packaging and on the surface I agreed that the product might be a winner.
The initial launch seemed to go well as the product made it into many stores including several supermarkets. But soon the problems began. Although the shelf life was approximately 6-7 weeks, customers complained of spoilage well before the date. Several stores called to say that a few of the customers complained of severe stomach cramps after they had eaten the product.
It wasn’t until two weeks had passed that the entrepreneur reached out to me for advice on how to handle the crisis. It seems that at least three of the stores had cancelled orders and worse, a Letter to the Editor appeared about the spoilage issue. I advised him to issue an instant product recall and to quickly deal with the quality issue, with an analysis by a lab and a review by a food technologist that I had recommended. The culprits were found and the product was reformulated. While the taste was slightly off from the original, it still was superior to a competing product. But it was too little too late. The stores would not give him another chance. Despite large ads of the reformulation, customers abandoned the product in droves and the venture died a slow death.
Of course, the ideal scenario would have been if the product were properly tested in the first place. The entrepreneur admitted that he had tried to save the cost of the additional testing. He also agreed that he thought that the initial complaints of the spoilage were isolated and not a reflection on the product.
There can be no compromise when it comes to quality, either in a product or service. Investing in marketing is naturally a good thing but not if it comes at the expense of product perfection. There are indications that the Toyota pedal issue may in the end turn out to be a software issue. Early on, Toyota said that it was not a problem for cars manufactured and sold in Japan because those parts appeared to be working well. All not very comforting to the average consumer in the US.
Too often a manufacturer will attempt to cut corners when it comes to quality, feeling that the consumer would accept the product as being more than adequate. It was perhaps the beginning of the problems with China when that country was more bent on churning out volume at cheap prices than to deal with quality issues. It too was caught with its severe shortcomings in quality.
I suspect that Toyota will get it right in time, but its road back to respectability and reliability will be long and arduous. The first lesson that we can all learn from the Toyota fiasco is that there is no replacement for quality; quality that is tested and retested, to avoid what one of the world’s largest auto manufacturer went through.
Posted by Menachem Lubinsky on February 1, 2010 under Out of the Box, Recession |
By Menachem Lubinsky
Hal and Rob were partners in a New England fishing supply store for over 30 years. Like many businesses in the region in the ‘90’s and the early 2000’s, the business experienced extraordinary growth. In addition to expanding their showroom and warehouse, the two ventured into catalogue and on-line sales realizing unprecedented profits. Hal’s oldest son Bruce joined the business in 2005 while Rob’s 22-year old son Jeremy came on board in 2008.
The arrival of the younger generation should have been a welcome development for the business, but it was not. The recession had significantly cut into the recreational fishing business, a mainstay of their livelihood and for the first time in years, sales and profits were slipping. In addition to a slump in tourism and fishing, the business faced serious competition from many on-line supply businesses. Hal and Rob knew that the hour of reckoning was close. To be sure, there were choices but closing the business did not appear to be one of them.
Bruce and Jeremy had actually forged a good working relationship and while their dads were trying to figure out their next step, the sons of the owners were concocting their own plan. They feared the worst in that their fathers would want to protect their life-savings and either sell the business at below value or shut the doors altogether. For the two of them, coming up with some kind of plan to save the business was survival.
Hal and Rob meanwhile had come to the conclusion that their only hope of survival was to significantly downsize the business while Bruce and Jeremy were actually planning to raise capital to further expand the business with an outlet in a large nearby mall. But the elder owners prevailed, at least for the moment. They had hired a consultant to help them make significant cuts. But where to cut was the big question and the cause for some friction between the age-old partners.
Their dilemma is not peculiar to their business. As the recession continues, many businesses that survived are still downsizing by making cuts in such areas as marketing, human resources, and capital investment. Often the question is not whether to make the cuts but which cuts. Even now, as signs of a recovery seem to be emerging, many companies that had downsized earlier are choosing to be prudent and to stay that way, at least until there is evidence of a real recovery.
Bruce and Hal’s consultant forced them to prepare two lists of potential cuts. One that they labeled A which were those that did not impact the business as much while those on the B list more directly affected the business. On the A list was a reduction in the warehouse space, elimination of one sales counter and one sales clerk, ending the sponsorship of the local Independence Day parade, and cutting out the production of the catalogue (while leaving it on-line). On the B list (in addition to everything that was on A) were such items as selling the warehouse in favor of renting smaller space, cutting back the hours of a fishing instructor who had helped train amateur fishing buffs, and slashing the advertising budget in half. Hal noted: “If we made all these cuts, our business would look like it was 1985).
While to an outsider the cuts that Bruce and Hal were considering do not appear to be that deep, the two felt otherwise, as Hal pointed out. Part of the problem in many businesses when it comes to making cuts is that ownership is emotionally tied to many aspects of the business even if they no longer make sense in a down economy.
I, of course, try my best to keep the marketing budget intact, not so much because I believe that it is the engine that drives most business, but because it takes so much more to return to a former position of strength. But many businessmen find it hard to connect the dots between the expense of marketing and profits. I often spend a good part of a consulting session doing just that.
When it becomes obvious that a business could only survive by downsizing, it can often be accomplished by retaining an outside consultant who has no emotional connection to the business and certainly would not let ego get in the way. The consultant can help a business overcome painful decisions while still keeping the basic infrastructure intact. In many instances, a business can benefit by combining jobs and rehiring talent that will not only compensate for the losses of the exited employees but serve as a significant upgrade.
When Hal’s health failed and Bruce decided to spend more time at his summer home, the “boys” took over and ultimately implemented their plan of opening a satellite store in the local mall with one exception: They closed the main store and warehouse and leased smaller warehouse space. The business is now extremely profitable once again. A cut here and a cut there and pretty soon you have a healthy business, particularly in a recession.
