Selling a Dead Horse: Putting the Blame for Failure Where It Really Belongs

I’ve come to the conclusion that some good will come of this current economic recession. Whereas in good times, when even mediocre or marginal businesses seem to hang on, it is times like these that really test the mettle and business acumen of business owners—something that needs to be tested every so often.

Quite candidly, I do not feel terribly sorry for business owners, specifically printers, who have already closed their doors or who will close them in the next few months. Unfortunately, too many of them will be all too quick to point the finger of blame for their failure at President Obama, former President Bush, Wall Street, AIG, or toxic mortgages.

Printing businesses that fail in the next 12-24 months will do so for the same reasons that businesses have always failed—failure to make hard decisions when only hard decisions will do. Having analyzed printing businesses for more than 30 years and published dozens of key industry reports, I am more convinced than ever that failure is far more self-induced than the result of external pressures.

Failure is not forced upon us, rather it is an option that we choose. We choose it just as we choose to select one entrée over another on a menu. However, instead of reading a restaurant menu from which to make our selections, we have the options of scanning the results of various industry reports and studies. These studies offer up, as they always have, clear choices that can be made to not only avoid failure but to achieve “profit leader” status in our industry.

I’m Closing My Doors

A couple of weeks ago a printer wrote me expressing dismay over the fact that he had purchased a copy of “Print Shop for Sale” a few weeks before, only to receive three weeks later a special email promotion offering him an 18% discount on the book. He bemoaned the fact that he had paid full price and now it was on sale.

My response via email was to ask him how he would have handled the same situation in his own printing business. I asked him what he would do if one of his customers called him complaining about paying full price for a job that now appeared to be on sale.

I told this printer that I would be happy to handle the adjustment in any manner he thought was fair. Just let me know. Two days later, I received a follow up email from the printer telling me, “It was just my initial response. I do that when things are going so @#%& as they have been. I don’t expect anything. I’ve just decided to close. No use in selling a dead horse.”

I dashed off a quick email asking him to call me when he had a chance and maybe I could provide him some advice as well as convince him to reconsider his decision. He may call today, but this column needs to get off to the editors so I can’t offer you a “and it all ended happily thereafter” conclusion.

Upon Closer Examination

I know that if I had the opportunity to talk to Dave (a fictional name), we both would have discovered that many of his problems probably dated back long before the crash in the housing market, long before most of us knew what AIG even did, and before we had the slightest hint that Bear Stearns was in trouble.

Had we looked at his operation a bit more closely, say five years ago, we would have discovered that instead of reinvesting in his business, Dave was withdrawing far too much in salary. He was totally oblivious to the fact that by taking so much money out and, as a consequence of not reinvesting in the business, he had set his company on course for ultimate failure.

If we looked back four or five years ago, we would probably have found that even when times were relatively good in his marketplace, his total owner’s compensation of 7.6% was already approaching the bottom 25th percentile for the industry. Based on that fact alone, we could have told Dave that an owner’s compensation that low already meant he was effectively producing no “excess earnings” which are the heart and soul of valuing a business. Without excess earnings, a business is worth little more than the depreciated value of his equipment package. In Dave’s case, that was almost zero since he had made little if any attempt to modernize or improve productivity.