"To Expand or Not to Expand?"
[Column #49, 1/99]
The decision whether or not to grow your company is a tough one. I know because I’ve spent the last two years grappling over this very issue. I have to laugh because when I started the company nearly 25 years ago (with two employees, four machines, and 10,000 square feet of space), I put a lot less thought into it! If I had spent half this much time examining all the pros and cons, I’m sure I would never have gone through with it.
I had no intention of expanding, and frankly was very leery of it, until we recognized a huge-and growing-need for our services in the southern states. With the population exploding in the southeastern sector of the United States, the printing world has enjoyed equally rapid growth. With printing, comes binding, so we began researching available trade bindery options in these areas (Virginia, North Carolina, South Carolina), and found a real need for postpress services, especially perfect binding, mechanical binding, and die cutting. The prospect of expansion became more interesting.
In addition, I realized that if you’re not green and growing, you’re red and rotting; with three straight years of flat sales under my belt, I felt we had to do something or we may start losing some key people. With no room for growth and no opportunity for advancement or promotions, key people have a tendency to leave.
Of course, the next question was, how on earth would all of this work? We certainly couldn’t build another complete postpress facility down there-but we could offer some key services through a satellite location using the mother ship as a backup and for more extensive specialty finishing jobs. Not only would our current customers in the South enjoy a more local connection, new customers could take advantage of all our services. With our own trucks down there, we could also control those endless freight objections with reduced trucking costs.
Sounds simple enough, right? Think again. It’s been crazy! If you’re thinking of expansion, there are several issues to consider-primarily costs (and that’s a biggy), distance, personnel, and logistics.
Cost is a huge issue. Beyond certain basic things like leasing or buying a building, equipment, and startup costs, there are many hidden costs. The preliminary time necessary to research demand, possible locations, and other logistics can be staggering. Who knows how much lost time is never recovered when you put your best employees on a mission like this (which could turn into nothing)? In addition, there are travel costs, marketing expenses (after all, why go to all the trouble if no one even knows you’re there?), insurance issues, and the like. My best advice is to do your homework and solicit the help of a seasoned financial advisor.
Figuring out how to manage another facility hundreds of miles away is complicated. Beyond issues like obtaining the trucks and the drivers (a local truck will pick up jobs and do some pooling if necessary, sending work back to Baltimore when needed), and wading through all the red tape, we need to consider how all of this will affect our business here. Obviously, it is critical to maintain and run our jobs here on time and with the same quality standards we always use, while we also ensure the jobs in the satellite location are completed according to those same standards. Making sure all the work gets done no matter what the season and with the usual impossible deadlines is essential. It is really just a matter of implementing a system, however, and requires living through the first few months of glitches and making the necessary changes along the way. It is imperative to put experienced people in charge. Only seasoned veterans with plenty of knowledge, assertiveness, and management skills can make it happen. We’re sending down James McLemore, a top-notch perfect binding operator, and although he’ll be sorely missed up here (especially during annual report season), it is essential to the success of our satellite location.
Personnel issues, as usual, are a bear. Staffing is tough enough to do in one location, let alone two! Be sure to study all the employment policies for the state you are planning to move into and remember that regardless of the existing wage laws, employee wages and benefits must be comparable to the current company standards. On the upside, many states (especially Down South) have educational programs whereby local colleges work with participating companies to offer special training for students. Not only is this a great way to train and obtain good long-term employees, some of their wages are recoverable from the state as part of the program. In addition, be sure to check out the unemployment rate and whether the state is a “Right to Work” state. One sticky issue we’ve encountered (and I’d love to hear advice from readers on how to handle this)-what happens when employees…good, seasoned machine operators and managers, from current and potential customers come knocking at your door for work in the new facility?
The whole expansion process is mind boggling. Every time I turn around, a new question arises. The logistics will take time. If you would have spoken with me about expansion possibilities a few years ago, I would have laughed out loud. The market, however, has changed. In the words of Robert Tunney, General Manager for our new High Point, North Carolina, facility, “Shorter runs and quicker turnaround times have created a demand for satellite facilities that can handle the work locally and get it out the door faster-precious time is saved and freight charges are reduced. Our new 20,000 square foot facility will house a 24-pocket Muller Martini perfect binder, folding equipment with remoistenable gluing capability, mechanical binding equipment for Wire-O, plastic coil, comb, and spiral wire, and 40" die-cutting equipment with pocket folder conversion. And for customers with large jobs and specialty finishing needs, all of our services are still at their fingertips. We’re hopeful this is only the first step in servicing our customers everywhere and more satellite locations will follow.”
I don’t profess to be an authority on expansion issues. I only wanted to share our experiences thus far. I make no bones about saying this whole thing makes me extremely nervous (but life was getting too boring anyway). I would, however, love to be able to get some sleep again.