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5 Reasons Printers Stay Poor
Copyright Thomas P. Crouser, November 20, 1995
Crouser & Associates - Helping Printers Prosper Since 1985
Had the opportunity to keynote the New Jersey Association of Quick Printers
Northeast Regional Printing Expo last Saturday. Here s some of the highlights
of the speech.
5 Reasons Printers Stay Poor - We don t understand that we are a
Family-Based, Life-Style Business Engaged In Monopolistic Competition.
Family Based - the assets which create this business come from the family,
not from selling stock on wall street. Our family s savings, our family s
future, our family s time, our family s patience. Whether or not you work on
a daily basis with your spouse or children, the leader of the business is in
charge of the family business and he or she must be accountable to obtain a
good return on investment. And, by the way, if you haven t recently thanked
your spouse then do it now. Cowabonga dudess, I couldn t have done it
Life Style - There is not a pot of gold at the end of the rainbow. The way to
get the most for a printing business is to sell it to someone who is not in
the printing business. We regularly ignore the ending value of the business
in retirement planning. And, if we get a lot, then that s a happy surprise.
But, we don t count on it. This is a Life Style business. We must take the
money and time now, not later. It doesn t come later. If you have a problem
with respect to money or time, then fix it. Fix it now. You are in charge.
Don t deny your family the time and money they deserve because you won t
confront the challenges of the business.
Monopolistic Competition - Most people don t know what the battleground looks
like, therefore they don t succeed. They have bought into the misconceptions
of the law of supply and demand. They say as price goes up, volume goes down.
Therefore, you have to sell for less in order to succeed. This is not only
not true, it is not even what the economic theory says.
There are supply and demand THEORIES, not theory. Each theory relates to the
KIND of competition inwhich we are engaged. PERFECT COMPETITION is the one
where the price has a direct relationship to the volume (and even that is
imperfect). We use wheat as an example. It assumes the product is the same
(homogeneous), all buyers and all sellers know all prices as they occur
(perfect information such as a stock market ticker tape), and no scarcity.
Well, not all printers can print well, buyers and sellers don t know of all
prices and there is plenty of scarcity when a customer needs the job printed
by tomorrow afternoon.
There are other conditions as well, such as MONOPOLY and OLIGOPOLY. Monopoly
is like the power company. There is only one supplier. Well, it is
interesting, but certainly doesn t describe our battleground. OLIGOPOLY is
where there are only a few folks fighting over the entire market (do you
realize there are only three multinational corporations controlling the
entire Turkey market!). The example used here is automobiles as there are
only a relative few providers. Certainly this condition does not exist in the
Well what does describe printing? MONOPOLISTIC COMPETITION does. It is
characterized by some entry barriers but there is a relative EASE OF ENTRY
and exit into the market (if you want to get into the printing business,
there are many vendors waiting to help you with equipment and supplies on an
easy payment plan). It is also characterized by SIMILAR COSTS. Right, I know
everyone says they are different. But, what price advantage do you get really
over the next guy in buying equipment? How about paper? Do you have such a
price advantage, or is most people in the same market paying roughly the same
amount? How about rent? How about labor? There may be some slight advantages,
but not many. Face it, our costs are similar to our competitors. In
addition, our PRODUCT IS SIMILAR while not exactly the same.
The reason this lack of information keeps printers poor is WE ASSUME WE ARE
DEALING WITH A DIRECT PRICE VOLUME RELATIONSHIP WHEN WE ARE NOT. We don t
usually understand the battleground.
In Monopolistic Competition, there are ONLY THREE SHORT TERM STRATEGIES one
can use to compete. They are:
- 1. Price - Price makes a difference, but it is not a direct correlation. If
you are going to compete on price, you had better be the low cost producer.
Don t over spend on equipment and personnel not essential to your customers
and then expect the customer to pay for it. That s not going to happen.
- 2. Product - While printing is printing (done right), you can not buy MY
printing from the guy down the street. Along with my printing, comes me and I
add value because I can help you solve your problems. Note: problem solving
can rarely be done in your shop. Problem solving is done in the customer s
office. There are other ways to differentiate your product from your
competitor. You can do it through the equipment you purchase, but be sure
your customer is willing to pay for the equipment you buy. The best
differentiation in the printing industry is on people. Customers buy printing
from printers who know what they are doing. You re people are your greatest
- 3. Sales Activities - Sales activities occur outside of your shop, generally
through advertising and/or sales calls. Sales activities have nothing to do
with responding to the customer who comes through the door. Sales activities
are getting the customer to come through the door or call you in the first
It is the COMBINATION of PRICE, PRODUCT and SALES ACTIVITIES which is your
price strategy. There are good strategies and bad.
High or Low Price, Adequate to Excellent Product and NO SALES ACTIVITIES is a
strategy for disaster. Lowering the price from High to Low without a change
in sales activities simply reduces the total dollars you take in without
reducing your costs. It is not the high or low price which is important.
High or Low Price, Adequate to Excellent Product and A HECK OF A SALES EFFORT
is the strategy for success.
REASON ONE: Printers are poor for they do not understand they are engaged in
MONOPOLISTIC COMPETITION and do not know how to compete in this arena.
REASON TWO is printers think the price has to do with profitability. It does
not. No study to my knowledge has ever claimed this. Build a $500,000 box of
overhead and labor and fill it with $300,000 of printing, and you will lose
money. You will lose a lot of money,. Fill it, through sales activities, with
$500,000 in sales and you will make money. Fill it with $600,000 in sales and
you will make lots of money. And you are in charge of the box you build. If
it is not working now, fix it. You are the leader of your company.
REASON THREE is we stubbornly refuse to learn the truth about WORKING CAPITAL
and use it to our advantage. As people die of mostly of pneumonia even though
they have other diseases; businesses die when they run out of working
capital. Find all of the assets in your business on your balance sheet. See
what the CURRENT ASSETS are. If you don t see them on your balance sheet,
then tell your accountant you want a CLASSIFIED Balance Sheet. If you don t
have an accountant, get one. If you have one who doesn t know what I am
talking about, then get another one. Once you find the Current Assets, then
divide that by your CURRENT LIABILITIES. That, too, should be showing
automatically on your balance sheet. Here you are dividing the amount of cash
you will have during the next year by the amount of cash you have already
obligated yourself to pay during the next year. GET THE RATIO TO 2.0 to 1 and
keep it there. Businesses die for lack of working capital. It is more
important than profitability. It is more important than equipment. DON T
SPEND YOUR WORKING CAPITAL FOR EQUIPMENT.
REASON FOUR is WE DON T JUSTIFY EQUIPMENT, we desire it. Buying equipment is
an investment decision. WE MUST COMPARE ALTERNATIVES in order to see what is
the best investment. As such, we must compare all alternatives at the same
time, usually once or twice per year. The operating budget tells us how much
cash we are spinning off. If we are not building cash, stop and fix it. Do
not go forward. If we are building cash, then we look at working capital. Do
we have a 2.0 to 1 ratio. If so, we can spend the amount of money which is
above the 2.0 on equipment or whatever we want. If we don t have a 2.0 ratio,
then stop here. Do not go forward until your current ratio is 2.0 or better.
Then we put into play a couple of other factors. Retirement savings.
Educational savings for the kids. Additional income for the owners so they
can buy the bigger house. And equipment. That s what is competing for the
money being spun off by the business. Each of us must decide what is most
important and prioritize. We prioritize based on what will be the best
investment and there are mathematical ways to do that.
To justify one piece of equipment at a time is to lust after it and your
justification is no more than investing in a dog at the dog track.
THE FIFTH AND FINAL REASON printers stay poor, in my opinion, is that WE HAVE
TOO MUCH MANAGEMENT and NOT ENOUGH LEADERSHIP. Too many printers try to build
a perpetual motion machine which allows them to earn lots of money without
doing real work. We look for a silver bullet incentive plan which will make
our slovenly employees do their best without us having to actually supervise
and lead anyone. We look for that specific price which will allow us to
maximize our income without having to really sell anything to anyone. The
silver bullet isn t there. You can t manage people into battle, you must lead
them. That leader is you. Never give in on a worthy cause.
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Crouser & Associates Performance Group program includes two on-site evaluations
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meetings along with participation in a meeting with non-competing printers. Join others who have decided
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Friday, January 05, 1996 11:52:27 AM