If Henry Ford had conducted a Voice of The Customer or Voice of The Market Survey in say 1893, adminstered to customers and potential customers in the personal transportation market, what do you think the Executive Summary would have said? It isn't too hard to imagine that it might have included mention of requests for faster, more comfortable horses that would consume less food and whose horseshoes would last longer, with perhaps a wish for horses that would transport bigger loads over longer distances.
What kind of business growth and profits might the then-29 year old entrepreneur have created if he'd responded to those customer wishes? In today's uncertain manufacturing economy, our imaginations must not fail us, just as Henry Ford's didn't fail him 116 years ago.
One of my business heroes is Dr W. Edwards Deming, who famously helped the Ford Motor Company turn multi-billion dollar losses of the late 1970's and early 1980's into massive profits by the mid 1980's. Following are a couple of Dr. Deming's quotes that I believe are incredibly relevant to small and medium sized manufacturers struggling for growth today:
"Did customers ask for the electric light? No. They never asked for it, the producer produced it. No one asked for a car, nor a telephone. No one asked for a copy machine or a fax machine."
"Innovation does not come from the customers. Innovation comes from the producer, from people who are responsible for themselves and have only themselves to satisfy."
What's the take away? If you believe that innovation is the key to business growth in the manufacturing sector, and that understanding history is the key to defining your future, then look within and around you for innovation, but don't expect it to be requested from the markets and by the customers you serve.
If Dr. Deming was with us today, he might say something like "Did customers ask for the iPod? No. They never asked for it, the producer produced it. No one asked for the internet, nor the Kindle. No one asked for a Post-it or Goretex dental floss"
Inquiring and informed minds might be wondering, "OK, but by what method shall I innovate? Show me the system for growth. How does the Deming cycle help me one bit with innovation?" These are just about the best questions for small and medium sized manufacturers to be asking right now. I'll explore answers in a future post.
Alistair Stewart
Manufacturing prophet with a passion for manufacturing profits.
Showing posts with label manufacturing Growth. Show all posts
Showing posts with label manufacturing Growth. Show all posts
Sunday, February 15, 2009
Manufacturing Business Valuation: Preparing for Owner Liquidity Events
The economic downturn has been especially painful for Chicagoland's manufacturing business owners who had anticipated or planned liquidity events in the next 1-3 years. If that's you, what's to do? Well, after sorting through your emotions, it may be time to confront the brutal facts and get back in the rational game of manufacturing profits.
If you own a manufacturing business with revenues of between $5m and $100m, you may have last experienced EBITDA of $ 0.5m-$15m for the fiscal year that ended some time in 2007. It is likely both numbers were down for the fiscal year ending in 2008, and you may perceive the forseeable outlook to be bleak. So you've been talking to a few Investment Banks, some of whom courted you pretty hard, and maybe you came to trust two or three of them. You're seriously considering delaying your liquidity event 'until things pick up'. You could be waiting a while. At 56 or 61 or 67 years of age, what are your options, without resorting to seller financing?
Well, you could just accept the belief that significant value has been irreparably destroyed, and be prepared to trade it for immediacy. You lose money.
You could convince yourself that modern medical advances really will extend your lifespan, and hunker down for a little bit longer than you'd previously been prepared to. You convince yourself you won't lose time.
Or, (drumroll) you could work smarter on growing your manufacturing business, and its profits
What kind of smarter work do I mean? Well, the Investment Banks and potential investors/buyers are looking for a few things, and prominent among these is a strong and credible EBITDA trend. A positive EBITDA growth trend, and a credible management system (one that will withstand the scrutiny of due dilgence) for sustaining future growth are key to increasing the value-at-sale.
Let's make the assumption that Dr. W. Edwards Deming was right, and that it has always been your job to answer two questions for the firm:
I'm going to make an informed guess here, and say that virtually no small and medium-sized manufacturing businesses in Chicago currently use world-class systems for growth, although many have implemented world-class quality systems (ISO/TS/AS, etc). A large number have also undertaken continuous improvement initiatives (Lean, Six Sigma, Theory of Constraints, etc), with varying degrees of success. As an aside, those of you who are the exceptions, and are successfully using world-class systems for business growth, please email me and tell me about your growth systems - I'm eager to learn!
So, if I was a manufacturing business owner considering a liquidity event, I just might conclude that if I spent the next six months using one of the proven systems for business growth, and I focused outside the factory (new customers, new markets, new products, patents, and the like), I could likely get my liquidity event back on track to giving me the sales proceeds I'd been counting on for many years. Doesn't that very reasonable investment of time and effort seem like a better alternative to fear, paralysis and, utimately, disappointment?
Alistair Stewart
Manufacturing prophet with a passion for Manufacturing Profits
If you own a manufacturing business with revenues of between $5m and $100m, you may have last experienced EBITDA of $ 0.5m-$15m for the fiscal year that ended some time in 2007. It is likely both numbers were down for the fiscal year ending in 2008, and you may perceive the forseeable outlook to be bleak. So you've been talking to a few Investment Banks, some of whom courted you pretty hard, and maybe you came to trust two or three of them. You're seriously considering delaying your liquidity event 'until things pick up'. You could be waiting a while. At 56 or 61 or 67 years of age, what are your options, without resorting to seller financing?
Well, you could just accept the belief that significant value has been irreparably destroyed, and be prepared to trade it for immediacy. You lose money.
You could convince yourself that modern medical advances really will extend your lifespan, and hunker down for a little bit longer than you'd previously been prepared to. You convince yourself you won't lose time.
Or, (drumroll) you could work smarter on growing your manufacturing business, and its profits
What kind of smarter work do I mean? Well, the Investment Banks and potential investors/buyers are looking for a few things, and prominent among these is a strong and credible EBITDA trend. A positive EBITDA growth trend, and a credible management system (one that will withstand the scrutiny of due dilgence) for sustaining future growth are key to increasing the value-at-sale.
Let's make the assumption that Dr. W. Edwards Deming was right, and that it has always been your job to answer two questions for the firm:
- Where do we hope to be five years from now?
- By what method will we get there?
I'm going to make an informed guess here, and say that virtually no small and medium-sized manufacturing businesses in Chicago currently use world-class systems for growth, although many have implemented world-class quality systems (ISO/TS/AS, etc). A large number have also undertaken continuous improvement initiatives (Lean, Six Sigma, Theory of Constraints, etc), with varying degrees of success. As an aside, those of you who are the exceptions, and are successfully using world-class systems for business growth, please email me and tell me about your growth systems - I'm eager to learn!
So, if I was a manufacturing business owner considering a liquidity event, I just might conclude that if I spent the next six months using one of the proven systems for business growth, and I focused outside the factory (new customers, new markets, new products, patents, and the like), I could likely get my liquidity event back on track to giving me the sales proceeds I'd been counting on for many years. Doesn't that very reasonable investment of time and effort seem like a better alternative to fear, paralysis and, utimately, disappointment?
Alistair Stewart
Manufacturing prophet with a passion for Manufacturing Profits
Manufacturing Business Growth: is there any hope?
Last Tuesday, Bill Testa (Vice President and Economic Advisor at the Federal Reserve Bank of Chicago) showed some interesting data on Current Developments in Manufacturing Activity at the annual meeting of Chicago Manufacturing Center's Board of Directors. In all the doom-and-gloom numbers was one interesting and unheralded number that speaks to the opportunity for manufacturing profits for Greater ChicagoLand's 12,500 small and medium sized manufacturers.
Bill's data showed that all manufacturing capacity is at 70% untilization. Knock out the sectoral peaks and valleys (petroleum and coal products sector at 88%, and iron and steel at 41%), and what are the implications? Well, let's assume that when a manufacturer is at 85% or higher capacity utilization, the company faces profitable growth challenges that require the application of Lean, Theory of Constraints, and other continuous improvement approaches to overcome.
There's about 15% of capacity available (on average, in sectors that matter in Chicago) for instant exploitation, which when sold right, creates gross margins that pretty much all fall to the bottom line as pure profit, or EBITDA. The sales guys will immediately cry that they need marketing support to sell that capacity, and that's true (but it isn't all they need). Do your own math, but anyway you run the numbers, you're going to come up with some nice EBITDA growth.
What should small and medium-sized manufacturers do first and right away to make money from that 15% available capacity? Industrial manufacturers have relatively modest marketing skills, so why not make an intense, highly focused, effort to create more effective marketing messages, and reinvigorate the sales guys with new hope and confidence? How many industrial manufacturers have marketing messages that clearly explain what's in it for the customer by choosing to buy their products? Very few. Time after time I see Chicago Manufacturers' expensive websites, catalogs, glossy trifolds and all manner of other marketing collateral pieces that are all about feeds, speeds, specifications, technical data, and features, all presented in visually unappealing, dense and hard-to-read tables, charts, and graphs. Almost none of them tell me what customer problem they're solving, and how much customer value is created.
Chicago Manufacturing Center's first call to action for the small and medium-sized manufacturers in ChicagoLand who seek top line growth and higher profits in the hardest economic outlook we'll ever see? Spend the next ten work days improving your marketing message to answer the most basic customer question: "What's in it for me?" If you're a ChicagoLand manufacturer, create customer pull by specifying the numeric benefit advantage received, enjoyed and experienced when customers purchase your products.
Here are some ideas to stimulate your thinking about how to do that:
Bill's data showed that all manufacturing capacity is at 70% untilization. Knock out the sectoral peaks and valleys (petroleum and coal products sector at 88%, and iron and steel at 41%), and what are the implications? Well, let's assume that when a manufacturer is at 85% or higher capacity utilization, the company faces profitable growth challenges that require the application of Lean, Theory of Constraints, and other continuous improvement approaches to overcome.
There's about 15% of capacity available (on average, in sectors that matter in Chicago) for instant exploitation, which when sold right, creates gross margins that pretty much all fall to the bottom line as pure profit, or EBITDA. The sales guys will immediately cry that they need marketing support to sell that capacity, and that's true (but it isn't all they need). Do your own math, but anyway you run the numbers, you're going to come up with some nice EBITDA growth.
What should small and medium-sized manufacturers do first and right away to make money from that 15% available capacity? Industrial manufacturers have relatively modest marketing skills, so why not make an intense, highly focused, effort to create more effective marketing messages, and reinvigorate the sales guys with new hope and confidence? How many industrial manufacturers have marketing messages that clearly explain what's in it for the customer by choosing to buy their products? Very few. Time after time I see Chicago Manufacturers' expensive websites, catalogs, glossy trifolds and all manner of other marketing collateral pieces that are all about feeds, speeds, specifications, technical data, and features, all presented in visually unappealing, dense and hard-to-read tables, charts, and graphs. Almost none of them tell me what customer problem they're solving, and how much customer value is created.
Chicago Manufacturing Center's first call to action for the small and medium-sized manufacturers in ChicagoLand who seek top line growth and higher profits in the hardest economic outlook we'll ever see? Spend the next ten work days improving your marketing message to answer the most basic customer question: "What's in it for me?" If you're a ChicagoLand manufacturer, create customer pull by specifying the numeric benefit advantage received, enjoyed and experienced when customers purchase your products.
Here are some ideas to stimulate your thinking about how to do that:
- translate your equipment's feeds and speeds into $$$ value for your customers (their profitable output per hour, their shorter lead times, their improved on-time delivery performance - everything your equipment will do to put money in your customer's pocket)
- convert the tolerances held by the capital equipment you make into the $$$ value received by customers when their scrap or rework is reduced or eliminated when they use your equipment
- turn your exotic alloy specifications into the $$$ value created by increasing the planned service intervals after your product is installed at the customer.
Next time I'll talk about the two other marketing message questions any manufacturer seeking to profitably grow their top line must answer - before their competition does.
Alistair Stewart
Manufacturing prophet with a passion for Manufacturing Profits
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