It is easy to hear the success stories of businesses that have gone to the moon, but most of these business owners have lived through tough times as well. Just read a book on Edison’s life and you will see the # of failures he had before his great invention.
Recently a business owner closed his doors, but shared his lessons learned with “What They Think”, an organization focused on sharing lessons with the printing industry. Below is an interview and details. Any business owner dealing with this economy can take some valuable lessons from this.
The Rise and Fall of Mallard Press
By Cary Sherburne
Published: October 12, 2009
The recent closure of Mallard Press caught our eye. While I don’t know Bob Gay or the company personally, a review of its web site revealed a company that appeared to be on the right track and making the right investments for the future. Bob Gay was kind enough to speak frankly with us about the factors that led to the demise of the company. Perhaps there are lessons here for others in the industry who may be teetering on the edge or worried about the future. Mallard Press was an independently owned and operated commercial printing business that had been in operation in the Chicago area for 30 years. At its peak, it brought in revenues of over $5 million. Here’s what Bob had to say. In Part One of the article, he discusses what happened; in Part Two, we move to what perhaps should have happened.
WTT: Bob, what would you say was the major contributing factor that led to closing the business?
BG: My biggest problem was that I had taken on too much debt. I had made investments that were required to take my business where I wanted it to go, and I had about three and a half years to the finish line. We were doing fine until about December of 2007, which was our first bad month, with sales off 18%. I remember seeing those numbers as if it were yesterday.
WTT: What were some of those investments?
BG: We had invested in Canon color and black & white digital to the tune of $10,000 to $15,000 per month. We were into Komori for about $14,000 per month. And the KBA press, which is a marvelous press and probably the most versatile printing press in the world, bar none, was an $11,000-per-month investment. That is a lot of debt service for a company with $5 million in revenues. We were building to grow, but any downtick in revenues was painful because of that debt service.
WTT: When you saw the December 2007 results, what actions did you take?
BG: We did make some adjustments to the business, and as a result were able to go through the spring of 2008 fairly strong, although the June through September period was below average, down 15-20%. It gets tough to recover from four months of consecutive losses.
WTT: To what did you attribute the revenue decline?
BG: To a change in customer buying habits. We did an analysis of our client base. We were not losing clients; they were just spending less, due to the economy and possibly to more use of electronic media.
WTT: So what did you do next?
BG: We then looked at increasing our client base through acquisitions. AGS, a die cutting operation, was basically closing its doors and we made a deal with them that would keep their company together, because the services they offered were services we were outsourcing anyway. There was also another company that was closing its doors and we purchased some of their assets as well. This was about $2 million in business and we took 10 of their 18 employees on board. As a result of all of that, we had a terrific December.
WTT: Then what happened as the new year began?
BG: From January through now, everything tailed off. Sales were down 27%. We again looked at our customer base, and it was the same Top Ten customers, but their sales volumes were down. We even had some loyal print brokers that were getting less work for the same reason—their customers were also dialing down.
WTT: I am sure all of this must have led to some painful decisions.
BG: Absolutely. We made some first quarter adjustments to get things in line, but I knew that it wasn’t going to be enough. After the second quarter, I really needed to make some deep cuts. This was extremely painful, because people who had done nothing wrong were losing their jobs. The remaining staff took pay cuts to keep their jobs.
WTT: In hindsight, would you have made staff cuts earlier?
BG: Yes, but I was slow to do so because it is just not in my nature. These people worked hard, and I was optimistic that the services we provided would help bring the business back. This is how we had always survived before—because of our diversification. If one area was not performing, the other two areas could pick up the slack. But with the decrease in sales and additional 10 employees, I increased payroll by $400,000 but only increased sales by 1.5%. I was operating as a man in business, not a businessman. A businessman would have made the cuts sooner, but the man in business had hoped it would come back.
WTT: What else did you do to try to salvage the situation?
BG: We went to the equipment finance companies, Wells Fargo, GE and IKON Financial, and working with them was tremendous; they were all on board to help us. We were able to negotiate six months interest only payments to help us weather the storm and work to get our sales up. We also went to our landlord to see what they would be willing to do. We let them know that others were participating and we weren’t just coming to them for help. They were a bit reluctant to help and I basically had to sell my soul a little to get their cooperation. They gave us six months at half rent, but the negotiations gave them the full right to kick us out if they didn’t think I was going to perform after these six months.
WTT: I take it that resulted in the crowning blow, then.
BG: About three-quarters of the way through the process, we provided the landlord with a financial statement per the agreement. It was a bad June and we were not making any headway. They performed their fiduciary responsibility to their shareholders by exercising their right to evict. We looked around for other spaces and looked to our lender for some additional support. Even though we eliminated 12 employees and took some other steps that brought us back to break-even, our lender decided not to extend our line of credit or to provide us with the funding to move the business to a different location.
WTT: Why was that? Presumably you had been doing business with them for a long time.
BG: Yes, but their position was that we were maxed out on our line of credit with no good outlook for being able to pay it all back, and they were simply not in a position to lend us the $100,000 or more it would have cost us to move. This was on a Friday afternoon, and rather abruptly, the next Monday, per the request of the bank, the company went into receivership in order to pay down the line of credit and the other creditors as well as take control of all receivables. That obviously brought the business to a screeching halt.
WTT: Why do you think the banks took that position after working with you for so long?
BG: I have probably always been the exception when they have discussions in their board room. I can just hear the discussions: “They are out of factor, but Bob has a passion for the business and we believe in what he is doing. He has built a unique company that has advantages over standard printing companies, and he will be a survivor. He has done it before.” To be honest with you, in 2008, I was swinging back and forth between being three to five months behind in rent. I never thought 2009 sales would still just not materialize. Clients are simply buying differently, and I don’t know if those levels are going to continue to decline or whether they are even going to continue to use print in many cases.
WTT: What about all of the government talk about bailing out small businesses, stimulus, TARP and all of that? Did you try for any of that money?
BG: Sure did. I asked about an SBA loan that could spread the short-term debt over a longer term with a lower interest rate and I couldn’t even get that. Now 38 people are without jobs. So much for economic stimulus.
Read the second half of this interview