TrendTracker_DWM_January/February2011

Volume 12, Issue 1 - January/February 2011

Trend Tracker

Be Proactive, Not Passive
by Michael Collins

With the New Year opening, it’s a great time to look toward new strategies and new innovations and be reminded of some key principles.

Evaluating Potential Acquisitions
One area where we see companies exhibit too passive an attitude toward innovation is in their evaluation of acquisition targets. For most companies, the rule of thumb in analyzing a company they may wish to acquire is “play it safe.” That is a sensible strategy in many facets of running a business. The kind of playing it safe that we’re seeing, though, stems from a set of beliefs that can hinder progress. When we are presenting a company for sale, potential buyers often turn down the opportunity because the target company’s products “wouldn’t be a fit with our dealer network.” In pressing them to see if there is any way to overcome that challenge, we are often left with the impression that the company hasn’t actually spoken to anyone in its dealer network about the products and is saying no “just to be safe.”

"By involving customers in the analysis of an acquisition target, we are given the opportunity to have a higher level, strategic conversation with our customers. That can only lead to the creation of new business opportunities and a better working relationship."

It is a big mistake to handle an acquisition inquiry in this way. The obvious reason why is that perhaps they are wrong and the dealers would like to have access to the product. There are other benefits of involving your customers in an acquisition inquiry (without, of course, revealing the name of the target company). First, it lets your customers know that you are keeping abreast of opportunities in the marketplace. It also conveys an impression of financial strength, since your company is considering an acquisition. Finally, the result of the inquiry may be that, indeed, the product is not a fit for them. It is easy to picture, however, that conversation ending with a comment from the customer along the lines of “What I really need is …” By involving customers in the analysis of an acquisition target, we are given the opportunity to have a higher-level, strategic conversation with our customers. That can only lead to the creation of new business opportunities and a better working relationship.

Meeting Customers’ Needs
On the topic of interactions with customers, we continue to recommend a basic blocking and tackling approach in this market. The companies that are succeeding right now are not selling products that are radically different from others or bringing them to market in some creative new way. They have simply done a better job of determining their customers’ needs and finding ways to meet them. Most importantly, they’ve determined which needs command their customers’ greatest willingness to pay for goods. Recent examples would include companies that have developed blast-resistant products for special applications.

There are some fundamental mistakes companies make that fall under the category of the basics. We were surprised recently to hear of a company that failed to assign special sales coverage to a number of key customers when their long-time contact at the company departed. Several of these customers left in the ensuing months because they weren’t made to feel they were very important. They took several million dollars per year in sales with them, leaving the company in the unenviable position of having to replace that revenue in a tough market.

We would repeat a challenge made in past articles—that every manufacturer needs to engage with their customers on a deeper, more meaningful level starting right now. Whether it is involving them in the analysis of an acquisition or just talking about ways to win more of their business, everyone should make a commitment today to take their relationships and conversations with customers to the next level in the year ahead.

Michael Collins is vice president of the building products group at Jordan, Knauff & Company, an investment banking firm that specializes in the door and window industry. He may be reached at mcollins@jordanknauff.com. His opinions are solely his own and not necessarily those of this magazine.