Benjamin Moore is a widely recognized brand name and their paints adorn many households. If you are a family business or know anyone in a family business, this is a must read (actually there’s a lot of great insights for any business).
Jack is a fourth generation family, great grandson of legendary founder Benjamin Moore and former member of his family’s board of directors. Terry was a long-time advisor to the company prior to its sale to Warren Buffett.
I met Jack when he was speaking at an event designed to help family businesses. Along with consultant Terry Phinney, they were sharing the Benjamin Moore story and providing family businesses with insights on how to overcome the typical pitfalls that the second and third generation often experience.
1. What is the number one thing you are doing right now to foster hope when you are out speaking to organizations?
Terry: I have been focusing on the need to broaden communication or outreach throughout the company. When leaders start hiding, people shut down and disengage. As a leader, you need to talk about – “where are we, where we are going and what you (the employee) can personally do to help” . That is what successful leaders are doing in today’s environment.
Jack: In your initial piece you talk about leaders motivating through hope or fear – to me there’s a third element, which is trust. A fundamental value of good communication is building and maintaining trust between leadership and employees.
2. Where do you feel companies should be still investing and where do you think they should be cutting back?
Terry: I feel companies should still be investing in their employees, like Toyota and Honda are doing in quality and customer value enhancement. Adding value to your customers and making them more successful is key to building a symbiotic relationship. Other areas are building or adding technology that will differentiate you in the market. This could also include a new business model, and improving internal operations. I would not cut back on marketing, new product development, R & D. Your pipeline will be dead if you cut back. If you want a future, then you have to keep your product pipeline going. If you need to cut back, it doesn’t mean you need to stop customer or product training, for example. You can do it inexpensively, but you need to keep doing it and keep it going.
Jack: Customer value enhancement was something we did at the paint company, though we were not operating under duress. We redefined ourselves into a consumer products manufacturer, not a supplier to retail dealers. We aligned our objectives with our stores’ objectives. What a transformation that caused in our performance! There’s a lot that a company can do to be positioned to take advantage of the upturn in the economy when it finally comes. Companies can extract considerable value in strategic positioning moves with investing significant resources too soon. If you wait for the top of the curve to re-land it’s too late.
Terry: Things will get better, businesses need to shore up their pipeline and not cut R & D. Many companies are frozen, clutching to their business and cash. But just doing cost cutting does nothing but add to the fear factor. By investing in process engineering and people, North American companies can be more successful. They have a lot more cost reduction they could do with products, manufacturing and delivery. As a company if you do this, you will be well positioned coming out of this recession. Getting into a positive cash position, right away, is essential, but it’s not enough. Companies need innovation to succeed. You can’t pull the trigger right away to innovate . As bad as the economy is now, Japanese companies are still focusing on building better cars through better batteries, better styling and higher mileage engines – they haven’t stopped making improvements. Companies can be resilient by balancing cost cutting with added research. For example, companies like Johnson Controls and 3M have the right balance. A lot of large US companies are missing this balance and they will pay for it later.
Jack: Risk aversion is a problem by the time you get to the 2nd and 3rd generation in a business. The appetite for risk is reduced – kids and grandkids are trying to hang on and that is very dangerous.
Terry: Founders are intuitive and nimble and see things sooner than the 2nd or 3rd generation. They’re always thinking of contingency plans. The 2nd and 3rd generation have a base and are afraid of losing the base versus growing their way out of.
Jack: We become imprisoned by our success.
Terry: I can think of one mid-sized manufacturing company, family owned, where this was very true. They came out of the entrepreneurial phase and the later generation focused on just hanging on to what they had. Over time this was a disaster and the company paid for it.
Jack: There’s a story today in the Washington Post about Ritz Camera. They started in Atlantic City with a guy taking pictures on the boardwalk. Fast forward 70 years and they’re a successful photo store where you drop off film and they give you prints. Enter the digital era and that all changes. Now they’re forced with selling or liquidating. In the mid Atlantic they had a fine name as the retailer for cameras. It’s a sad story; they’re a camera company that didn’t fully realize the impact of digital.
3. What three things do you think are most important during tough economic times?
Terry: Right now I am working with clients to narrow their focus on what things can drive the business. You need to focus on three or four vs. seven or eight – that way you will get a lot more traction. You need to be relentless in improving what you can internally and externally with the customers. You need to constantly ask how you can add value to your employees and customers. A lot of people slow down and stop in tough times – ask yourself these questions and go back to the important things. Maintaining traction is almost more important than redefining where you are going, in today’s environment.
Jack: Getting somewhere close to a neutral cash flow as quickly as you can is critical.
Terry: That’s true, financial stability is at the top of the list. With a current client we’re doubling cash flow so they have more flexibility to ride out the storm and be a success coming out of it.
Jack: Hope and fear and trust come into play, if people are worried about getting laid off lets get there as fast as we can. Once the knife is dropped you can reposition and go from there, you don’t have that guillotine hanging over your head. Or maybe you didn’t get it and the leader can say “now we are where our income is meeting our expenses so we can move forward”.
4. What would be your number one advice to business leaders?
Terry: Staying calm and being consistent in your activities is the most important thing – consistency is most important thing as a leader. Trust will evaporate really quickly without consistency. This would include telling people “times are tough, we’re taking measures to improve it”. If you have to pull the trigger and downsize, don’t be inconsistent in how you do it; that leads to better productivity. People look to their leaders in times of stress; if you’re all over the map they draw their own conclusions.
5. According to the conference board of Canada less than 25% of companies have a strategy and plan in this slow economy. Why do you think so few companies do?
Terry: I’m not sure why so few do. (I push them to have a strategy.) What I do know is scenario planning is a process that would help most companies- being honest about what the options are for the business is critical to being successful.
Jack: Scenario planning gives you practice on planning what might happen; it gives you a good planning muscle. When the reality comes, it never looks exactly like the scenarios you planned for, but you can more quickly grab from here and there and cobble together a solution. You can pull it together real fast because you have practiced. Once the real scenario has arrived, you know what to do.
How do you feel government could help improve the current economic state?
Terry: In North America we need to lower the cost of doing business -particularly taxes and logistics, and also utilities -This is really true for service and manufacturing industries – we are pricing ourselves out of the market in terms of our ability to add value to customers and markets. We need to shrink the size of government; this is the largest contributor to rising costs as we move forward.
6. Where do you feel the economy will be a year from now?
Terry: I think GDP will increase 1 to 2%, we’ll be out of the recession but it will be 2-3 years before we see full growth. A year from now things will be stable and moving ahead.
Jack: I heard a talk from a very well informed banking and real estate finance source. The flow of credit to business is the chock point. We haven’t processed what’s happened in commercial real estate. It will be 2-3 years or more before the economy has regained and we have a healthy stock market.
7. What do you think North American businesses need to do to thrive in a commodity global market?
Terry: You can’t be a commodity or have that mentality. The solution is reinvention and differentiation through new products or technology. Adding value to customers is critical. You need to be perceived as an Idea Company – that is the part of the value that people get from you versus a commodity.
Jack: In the paint business, we worked hard to stay in the innovative side of commoditization.
Terry: Part of that was service – color changes, advice on paints and applications, referrals to contractors – those are all part of the value proposition that the dealers offered. You can’t get those at Home Depot.
Jack: Price point and social economics play into it, that’s where we gained market share. When I do a talk and ask who here uses Benjamin Moore paint, usually two thirds to three quarters of the audience uses our paint. Often times, it’s a male dominated audience and I tell those who don’t raise their hands. We dominate the upper end of the do-it-yourself market. We have a niche that is well defended and retailers who offer the customer care that our customers value.
Terry: They believed in the power of the brand due to superior paint. Once we figured out the supply chain was too costly, an operational tune up needed to happen.
Jack: That was one hell of a tune up. The emergence of big boxes in ’90 threatened our retailers – actually it affirmed our niche – DIYer’s can’t stand big box stores and contractors don’t like that it’s so impersonal. They find the staff have no idea how to use the product, there’s no value add. The vast majority of our retailers knew they could compete with Home Depot.
I’d like to finish up by telling a story. I met a gentleman at a seminar last year in October that shared with me his story about his company and I think it is really relevant for today. It was the late 20’s just after the stock market crashed and a national watch retailer found himself stuck with an excess of luxury watches. After all, in the great depression who wants to buy a gold watch? Luxury items simply weren’t selling. Somehow he got the idea to approach large companies to offer gold watches to their executives who were taking early retirement. This concept is where the tradition began that is still alive today – giving employees a gold watch upon retirement.
This idea was so successful that the company decided to get into the the employee recognition business. They are a family held business, and 80 years later are among the Forbes top 400 privately-held companies. Just as the hard times of the Great Depression forced companies to innovate, there are opportunities today as well for those who are willing to innovate.
Thanks Terry and Jack for providing such valuable information. I’m sure many businesses will take your advise to heart and look for ways to innovate within their organization.