Business Development Articles Industry Alert Hot Shots Photo Gallery Message Boards Visit Our Advertisers: 3M Commercial Graphics CADlink Technology Clarke Systems Estimate Software International Sign Assoc. JetUSA Matrix Payment Systems SGIA Specialty Graphics Imaging Assoc Supply 55, Inc.

Do you remember Mel Gibson as "Mad Max" in "Beyond Thunderdome"? The movie's post-apocalyptic world had a gladiator-esque arena where conflicts were resolved. Max goes to the Underworld, where he befriends a convict who was imprisoned for trying to feed his kids. The rules of matches in the Thunderdome, as chanted by onlookers crowding the arena, are simple and singular: "Two men enter, one man leaves." It may be time to rent this movie again.

If you thought last year was tough, you may want to adjust your perspective. There are plenty of people who would happily take last year's revenue numbers (at least for the first half of the year) instead of this year's. A "good quarter" in 2009 is staying even with last year and some people would be thankful to be only 20 percent down from last year. All industries are affected and each company has its own set of challenges. There are new rules now, but they are all driven by rule number one. Rule number one: Throw out the rule book.

The market is making strategic and tactical adjustments on a daily basis. Are you? Are companies making adjustments in the way they work with you? The way products are made, ordered, paid for and used is changing. Nothing is free anymore and everyone is watching every dime.

If you're a coffee drinker, do you find yourself sacrificing your morning Starbucks run more often? Many people are giving up these little pleasures and are erring toward the conservative. It is cool to be minimalistic. It is only natural that companies will make the same adjustments. There are plenty of examples. Here are a few:

• The new server you want for the office:
  • Last Year: New premium brand running Windows Server, etc. ($7,800)
  • This Year: No-name, custom-built machine running Linux ($1,800)
• Sending out samples to potential new clients:
  • Last year: You sent it by ground shipping for free to the prospect.
  • This Year: You're happy to send them a free sample on their UPA account.
• Replacement piezo heads for your inkjet printer:
  • Last Year: $250
  • This Year: $600
• The little black and white company sign for your trade show booth:
  • Last Year: Free without asking.
  • The Year: $30 and you have to order it.

These minor adjustments should have been made years ago. After all, who needs a $30 sign that they take down the minute their booth shows up? However, these examples pale in comparison to some of the difficult conversations happening in our industry every day. At a recent trade show in Fort Worth, Texas, all you had to do was grab a cup of coffee in the exhibitor's lounge to hear them for yourself. You didn't have to eavesdrop as the conversations are often direct and well above 65 decibels.

JIM: "I hear you are adding a new distributorship in my back yard?"
TOM: "Yes I am. You have not sold a unit in over 90 days, Jim. We are down 60 percent from last year on hardware sales."
JIM: "Really? But we had an understanding - an agreement. I am pushing the platform really hard with my customers. We sold two units last month. Then the financing backed away because the customer recently bought a second car. Are you kidding me? Is that my fault, Tom? Do I deserve to take a hit for that?"
TOM: "Jim, I hear you, but all the rules are out the window. We need to find new channels, new vertical market experts and more coverage. We need to be the one guy in direct-to-garment that wins. We have a great product and have engineers to pay for. The pressure is on me and my team. Everything is shifting. This is just the beginning of change."

Market Blur: The inability to identify threats and opportunities using traditional assumptions due to dramatic changes in the market.

Enter "Market Blur"
So what is driving all this behavior? Why are so many people looking over their shoulders at trade shows?

Maybe it is "change," a word that has been used a lot lately. From politics to earnings statements, change is in air. Our industry is dealing with more than its fair share. But change has become almost meaningless from overuse. As business owners and directors we need to pinpoint the issues that we face, define their impact and take action.

At the recent National Sporting Goods Association management conference, there was a workshop that really got to the meat of the issues that faces us all. The session, "Finding Clarity in a Blurred Market," was presented by the NPD Group, a nationally-accredited market research services firm.

During the workshop, I quickly realized that almost all markets and sectors of the economy are dealing with "market blur." This happens when what we believe to be true about the market has changed. We are less able to identify threats and opportunities using traditional assumptions. This creates a blur effect that signals a need for a new model; one that will help us see new opportunities and threats more clearly.

The printing industry (both digital and analog) is clearly working through this process. There are enormous shifts in sales tactics, channel strategies and direct sales models. These changes will reset how our industry looks. You can already see it.

One afternoon last week, a distributor was having a conversation with one of its consumables vendors.
ALVIN: "Hey Chris. How are you doing? Are you calling me to tell me that you are going to start taking my biggest accounts direct too?"
CHRIS: "Wow. Good morning. Sounds like you are not having a nice day so far."
ALVIN: "No I am not. I just found out that company X is going to start selling paper and hardware directly to our customers. They don't even make the hardware! They are telling me they can't afford 26 points of margin on such large accounts. Can you believe this?"
CHRIS: "Well, I don't know how they are doing, but I am hearing that throughout the industry. I think you will only see more of that in the next few quarters. Not from us though. We are going direct, but we are doing it in other markets that do not touch our mutual business."
ALVIN: "Not yet. All you manufacturers are making me nervous. Financing is a nightmare. People are pulling way back and I am starting to wonder if I am a dead man walkin'."
CHRIS: "Well you can relax about us. No plans to mess with your accounts sir, none at all."
ALVIN: "Well ok. Let's go to lunch. Man what a world. Now I find myself worried about my suppliers staying loyal to me and my guys in the field."

This conversation is a classic example of "market blur" and its effect on management. The lack of clarity in the marketplace is making many of us ask these types of questions:

• What happens if all the manufacturers start going direct and bypassing historical dealer channels?
• Will all the trade shows survive? Which is strongest? Where should I buy a booth?
• This customer has slipped to 45 days. Now it is 60 days. What should I do?
• How can we eliminate $10K in marketing costs without reducing our sales?

This is not unique to our industry. Many economists will quietly tell you that America is 33 percent over capacity. In other words, we have 33 percent too many restaurants, 33 percent too many automotive dealerships and 33 percent too many grocery stores.

Most Americans understand overcapacity. Chrysler and General Motors just reduced their collective dealerships by almost 2,000, roughly 33 percent of total dealerships. That is the first of many examples of "right-sizing" you will see in our economy over the next few quarters and it could go on for years.

So what does this mean to our industry? Do garment decorators really need two trade shows in Long Beach and two other shows in Fort Worth every year? Do we have 33 percent overcapacity in screen printing? Do 33 percent of the digital printing distributors need to shut their doors? Are there too many direct-to-garment vendors out there? I am sure we can find arguments for both sides. But one thing is certain, we are going to find out the answer very soon.

Digital Darwinism: The ability of digital printing technologies to maximize their customers' cash flows through rapid inventory rotation and the reduction of decorated stock.

Digital Darwinism
Darwin's Theory of Evolution has been applied to business situations many times. Forces apply their will through the natural selection of small, inherited variations that increase the individual business' ability to survive and compete.

If 33 percent of everything is going to be gone, what does that mean for our market? In our version of the Thunderdome, perhaps it is: "Three men enter, two men leave." We are in for the ultimate in Digital Darwinism. With one-third the demand gone, consumers of equipment will be looking to determine the winner before they hop on board. We have already seen the demise of one major direct-to-garment platform.

How do you prepare for it? How do you ensure your survival?

• Find new revenue streams now! Add some new services. Target your competition's accounts and let them know you are there "just in case anything ever happens."
• Be nimble. Make quick decisions when they are obvious.
• Find ways to reduce your cost-of-goods. Right now it is critical to squeeze costs out of your supply chain. This can be anything. Employee mileage reimbursements may be more expensive than buying a used company vehicle. Maybe you buy a van that can then be used to pick up supplies, eliminating delivery fees. You should review all your costs. Nothing should be taken for granted.
• Get paid! Keep your credit tight and implement late fees when it is justified. Remember, the pushy get paid.
• If you need to let people go, then do it and move on. Don't let it be a slow bleed. Don't cut everyone's salary by 10 percent. It is better to keep salaries stable and reduce the head count. You limit the "hang over" factor and the employees who are still in the organization can move on with life instead of grunting at their checks.
• Buyers should think twice before buying once. Quality, history and reliability will be all the rage in the new market. Accountability will be a critical feature on every smart buyer's list. Sellers better be ready.
• Deal with real data. Know your profit/loss. Review customer revenue histories. If you identify growing customers, you can increase the value of your sales time and help them increase their success.
• Review your revenue channels and determine which ones are growing and which are shrinking. This will maximize your time by highlighting the sweet spots.
• Rethink your marketing investments. Are you tired of the same old ads, festivals, trade shows and sponsorships? Seek a new revenue stream by finding a new market with limited competition. Leverage digital media.
• Stay organized, action-oriented and don't sit and wait for it.

Our advice is simple: Don't focus on the unknown. Work on the things you know you can impact the most. By reducing expenses and focusing on growth areas, you are fighting not only the "good" fight, but the "right" fight as well.

Chris Bernat is a Partner at Vapor Apparel/Source Substrates and has written about mass customization for a variety of industry publications. He previously served as Director of Sales for Sawgrass Technologies, after serving as both the Business Manager of the Sublimation Division and Large-Format Product Manager. He is a Clemson University graduate and lives in Charleston, South Carolina. chrisb@sourcesubstrates.com

This article appeared in the SGIA Journal, 3rd Quarter 2009 Issue and is reprinted with permission. Copyright 2009 Specialty Graphic Imaging Association (www.sgia.org). All Rights Reserved.