Monitor your customers
Systematically monitoring, investigating and discussing your customers’ business health and results is the most important thing you can do in deciding if the economic storm is going to hit you and, if it does, how you will get through it.
Buell and his team are tracking their top 20 pharmaceutical and consumer packaged goods companies as well as their top 20 retailers.
“If I picked a major consumer packaged goods company or a major pharmaceutical company or a major grocery retailer and I looked at their press releases and they’re quarterly earnings calls, they would be telling all shareholders and me what was most important to the future of their business,” he says.
“I don’t have to look at everything about a major grocery retailer. I’m going to listen to their quarterly earnings report and their press releases because I know they are going to tell the outside world the most important things. I don’t have to figure that out. They’ve figured that out already.”
While you want to pay special attention to your top 20 customers, don’t be shortsighted with whom you consider your top 20 customers by simply focusing on who can help you right now.
“It’s the best customers we have that are growing, that value our service and (we) can truly help their business, and then indirectly help our business again in 2009, 2010 and 2011,” he says. “That’s another good way to think about not just one year.
“It is the larger company that can continue to step up and invest in their business and, in turn, invest in our business. Secondly, it’s the high-growth businesses. There’s medium-sized companies that this economy fits their product or their positioning that can be great partners moving forward not only this year but in to the next two or three years.”
Aside from tracking public information to find out how your customers and clients are doing, you have to talk to your customers.
Buell took it upon himself to personally talk to between 15 and 20 CEOs of Catalina’s customers. While pleasantries are always nice, you should be direct and ask your customers about their business in all regards: past, present and future.
“Typically, (what) we were doing was asking them about their performance in 2007, actual performance in ’08 and, with varying degrees of specificity, their outlooks for 2009 and contrasting those three years,” he says. “Because we knew that ’07 was generally very good for everybody, and ’08 … in the businesses we deal with, in the first half of 2008, they did well, and in the second half, they did less well. That positioned them well to go into 2009, but with a high, high degree of uncertainty of what was going to happen.”
Asking the right questions will help you find out how the company is really doing and how it will impact your company.
“One thing I would ask them is, ‘In ’09, are you planning to grow at all?’” he says. “I’m going to learn from that, ‘Yes.’ The second question is, ‘Single digits or low single digits or mid single digits?’ It’s not going to be big double digits. They could tell me they aren’t growing at all, which would tell me they’re flat. They could tell me, ‘In fact, we’re going to work hard to try to get back to where we were last year.’ That means they’re down. I think there are three possible answers that I could learn overall to ‘Where’s your business outlook for ’09?’”
You can also ask the company if it thinks it is experiencing a 12-month problem for 2009, or does the company think its problems will extend into 2010.
“I would ask them (if) they are cutting things in ’09 and intentionally shoving them out into ’10 and ’11,” he says. “Whether it’s hiring new people, introducing new products, making new equipment investments, I would try to find out, are they pushing things out?”
Once you get those answers, then you can act on them.
“If somebody is growing, I want to make sure that I’m with them, helping them grow,” he says. “If there is somebody that is flat or slightly down, I need to be sensitive. That’s a guy that could potentially cut programs in 2009 and affect my top line. That’s exactly why I’m asking the question. Every question I ask will translate to whether or not my volume is going to change, my margins are going to change or my expenses are going to change.”
While asking the right questions will give you some information, some companies, especially private ones, will hold back information, so you should proceed with caution.
“In general, talking to private companies, I know I’m going to get less information. That’s by definition,” he says. “No. 2, the information they give me, they are going to sincerely try to be helpful because if they are helpful to me, I’m going to be more helpful to them. So, I believe in a positive approach. No. 3, I think if anything, they would probably not provide the greatest level of details about how well they’re doing, or how poorly they’re doing no matter which direction they were going. So, I’d be cautious about that.
“I don’t think they would lie, I don’t think they would misrepresent. … I think I need to be sensitive — they may buffer out good performance or poor performance. I may not know exactly how severe or how successful it is.”
