Value Added: Reinvention In A Downturn
By Thomas Heath
Great American companies are under stress and cutting dividends. General Motors is openly discussing bankruptcy. Another General, this one Electric, slashed its dividend. Venerable Goldman Sachs has morphed into a commercial bank and took government bailout money. Remember the legendary Lehman Brothers? Bear Stearns? Wachovia? They were once so reliable, their stocks were the reliable investment choice of widows and orphans.
More of the names I grew up with might not survive the year. It's stunning. But this column is about one successful reinvention.
Global Printing, tucked in a quiet corner of Alexandria, was facing the abyss seven years ago when the millions of catalogs and manuals it prints began migrating to the Web.
Historically, printing was a safe, local business that made a good living for its owner. Printing companies tend to be local because paper is relatively costly to distribute. Presses, too, are expensive, so would-be competitors are usually few. The key is to run the presses nonstop.
Global's owner Jonathan Budington sums it up this way: "We're like an airline in that we own huge fixed assets. Planes and printers both sell time on their machines."
"A lot of guys got rich on printing back in the early 90s," Budington said.
With big clients like MCI, Booz Allen and the American Red Cross, Global was profitable but didn't grow. Founded in 1978, Global reliably made about 15 percent profit before tax.
When the Internet disrupted the traditional business model, Budington transformed Global from an old-line manufacturer into a state-of-the-art consulting service. Instead of just printing, Global helps clients assemble data, target customers and deliver it to them efficiently. It still makes money the old-fashioned way, by running its presses around the clock. But the company has a new life in consulting.
Global is worth around $5 million, and Budington owns all of it except for the factory. And he is in the process of buying that from the former owner.
Budington showed initiative from the get go. He started in customer service at Global Printing in 1991. Back then, the business brought in about $3 million in revenue. After three months on the job, he asked founder Jerry Dreo if he could run the satellite office in Tysons Corner, where Budington had heard through the company grapevine that a long-time manager was leaving. (I cannot imagine walking into the executive editor's office after three months at The Washington Post and asking for a transfer to, gee, how about London?)
"I told him I would really like a shot at that. I was relentless."
Budington knew that his contract was filled with incentives based on growth and profit. Global's Tysons office had been billing its clients $15,000 a month. Budington grew the business to $100,000 a month within two years.
Eventually, Dreo brought him back to Alexandria and named him director of operations (Budington invented the job description himself). The year was 1995, and companywide revenue was at $4.5 million. Budington immediately opened a new office on K Street in the District to grab more clients.
By 2000, revenue was up to $6.5 million a year and the company borrowed $3 million for new machinery so it could expand into higher quality color printing. The money was borrowed under an Industrial Revenue Bond that was guaranteed by the city of Alexandria. The IRB interest rate was about 6.5 percent, which was good for that time period.
Then something happened.
Budington noticed customers were taking longer to pay their bills. Bills paid in 45 days now took 60. By the first quarter of 2001, it stretched to 70. Then it dawned on Budington: his customers, many of whom were technology startups, were failing. The tech bubble had burst and the 2001-2002 recession had begun.
Revenue at Global crashed. By the third quarter of 2001, revenues had dropped from $6.5 million to $3.9 million. Global lost $1.4 million over a 16-month period. Wachovia Bank started making noises about the debt on the new color presses.
"Things were getting ugly," said Budington, who was one of the top five executives at the company. "Technology was starting to make things obsolete. Let's say you were printing a lot of instructions manuals internally. Suddenly, those instructions manuals were available online."
Sensing that the print business was changing, he suggested to Dreo that the old days were gone and that they needed to invent new revenue streams from their clients.
Budington became chief executive, bought 20 percent of the company and the reinvention began.
"I said we need a plan, and it can't wait for the recession to end. We have to restructure the company and build a new business model."
Dreo and Budington borrowed money and cashed out their 401(k)s to cover payroll. They slashed expenses. A seven-person accounting department dropped to two.
"We looked at clients and instead of focusing on printing, let's look at what services go along with everything we were producing. In the old days, we would print and the client would distribute. We changed the model. Instead of a manufacturing bent, we started a service model."
Rather than leave its printed material on a client's loading docks, Global offered to deliver it to the client's employees or whatever the final destination. That could mean anything from packaging welcome kits for a client's employees to mailing the material to a company's targeted customers. Instead of just printing a catalogue, Global now packages it with forms, wallet cards, identification badges and anything else an employee or a conference attendee needs. That is known as the "fulfullment business."
Global bought a mailing company in 2003 for $1 million. It started collecting client data. It hired data programmers and started a business making Web pages. All in, the consulting side of sales is responsible for the vast majority of Global's growth.
"When we tie all this together, I can make money on the printing, I can make money on the data, I can make money on the fulfillment, and I can make money on the mailing and on Web developments," Budington said.
Global started growing again, from $3.9 million in revenues in 2002 to $12 million last year. As the profits rolled in, Budington used his share to buy up stock in the company.
The company is hustling to maintain revenue during the current downturn. Business is flat, and Budington is using the recession to buy some competitors at a cheap price. Global employs about 70 people, who make anywhere from $30,000 to $250,000 a year, and all of whom have health insurance.
His labor costs are a quarter of revenues or more than $3 million a year. Materials like paper and ink are 20 percent of revenue. Sales expenses are 13 percent. Dreo still owns the building, so Global pays him rent. The company's insurance, leases on digital equipment and other costs leave an operating margin of around 10 percent of revenue, before taxes.
That's over $1 million this year. In past years, Budington used his share of the cash flow to buy up company stock. Now that he owns it all, the profit goes into new equipment and business expansion.
He is sniffing around at real estate opportunities and the outdoor sign business. One investor offered him $8 million in stock for the company, but he would have to stay around and manage it for awhile -- and cut costs. No deal.
As I left his office a couple of weeks ago, he handed me a business card. The card has the name, Global Thinking. That, said Budington, is where the future lies.
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