Saturday, December 20, 2014

Congratulations to Woody Pastorius and the team at on the sale to Meredith Corporation

DES MOINES, Iowa and NEW YORK, Nov. 17, 2014 /PRNewswire/ -- Meredith Corporation (NYSE: MDP;, the leading media and marketing company serving American women, announced today that it has agreed to purchase, further extending Meredith's reach to millennial women and the Company's presence in the $53 billion American wedding marketplace., one of the top five wedding websites in the U.S., provides couples with the complete wedding planning product suite. With free planning tools, inspiration-focused content and a search experience designed to connect couples with local, national and international wedding professionals and venues, empowers couples to create a wedding that perfectly encompasses their unique style and budget.  The site offers advertisers exposure and connection to motivated millennial consumers at a pivotal life stage.  
The purchase of follows Meredith's recently announced agreement with Martha Stewart Living Omnimedia (NYSE: MSO), which includes the operations of the popular Martha Stewart Weddings magazine and website. Martha Stewart Weddings is a leading bridal magazine on newsstands and also a top digital wedding destination. 
The combination creates one of the largest audiences in the wedding media marketplace.  It gives Meredith access to millennial consumers at the earliest stages of family formation, complementing existing Meredith brands such as Fitness, American Baby, Parents and Allrecipes.  It further solidifies Meredith's position as the nation's leading media company focused on home and family. 
"With its access to younger consumers at such an important time in their lives, strong local sales model, and digital expertise, is a valuable addition to our portfolio," said Meredith National Media Group President Tom Harty.  "We believe we can further grow's consumer audience, while at the same time developing the next generation of consumers for Meredith brands and creating new sales and marketing opportunities for our clients."
There are over 2 million weddings in the United States annually, according to the National Center for Health Statistics.  Three-quarters of couples use online resources to plan their weddings, and spending on weddings totaled more than $53 billion in 2013. 
"We continue to strengthen our focus on the most important milestones in the lives of our consumers, specifically marriage, home ownership and raising a family," said Meredith Chairman and CEO Steve Lacy.  "This acquisition augments our initiatives in the digital space, and is consistent with our Total Shareholder Return strategy to pursue investments that scale our business and increase shareholder value."
Said President and CEO Woody Pastorius, " is designed to meet the ever-evolving needs of the millennial couple, and through customized content and marketing programs we have successfully created a digital environment that connects this audience with relevant local and national providers. Meredith is the perfect home for us, and we are delighted to join with them to grow the brand." is the latest in a series of acquisitions, launches and alliances for Meredith's National Media Group.  Last month, Meredith announced a 10-year licensing agreement with Martha Stewart Living Omnimedia (NYSE: MSO) to acquire the rights to Martha Stewart Living, Martha Stewart Weddings and  In November 2013, Meredith launched the award-winning Allrecipes magazine, which followed the acquisition of in March 2012.  
Additionally, over the last three years, Meredith has acquired the Eating Well, Family Fun, Every Day with Rachael Ray, Parenting and Baby Talk brands.  In spring of 2015, Meredith plans to launch Parents Latina, an English-language magazine with a ratebase of 700,000 targeting millennial Hispanic moms.
Meredith has also been executing a strategy to expand its broadcast television footprint.  In the last year Meredith's Local Media Group has completed or announced the acquisition of television stations in Phoenix, St. Louis, Mobile-Pensacola and Springfield (Mass).
"We continue to look for strategic acquisitions, partnerships and investment opportunities like these to expand our reach and create additional shareholder value," said Meredith Chief Development Officer John Zieser. 
The acquisition of will not have a material effect on Meredith's fiscal 2015 second quarter financial performance.  Meredith will provide more detail when it reports its fiscal 2015 second quarter results in January 2015.
Meredith Corporation (NYSE: MDP; has been committed to service journalism for more than 110 years.  Today, Meredith uses multiple distribution platforms – including broadcast television, print, digital, mobile, tablets and video – to provide consumers with content they desire and to deliver the messages of its advertising and marketing partners.
Meredith's National Media Group reaches an audience of over 200 million monthly, including 100 million unduplicated women and 60 percent of American millennial women.  Meredith is the leader in creating content across media platforms in key consumer interest areas such as food, home, parenthood and health through well-known brands such as Better Homes and Gardens, Parents and Allrecipes.  The National Media Group features robust brand licensing activities, including over 3,000 SKUs of branded products at 4,000 Walmart stores across the U.S.  Meredith Xcelerated Marketing is a leader at developing and delivering custom content and customer relationship marketing programs for many of the world's top brands.
Meredith's Local Media Group includes 17 owned or operated television stations reaching more than 10 percent of U.S. households.  Meredith's portfolio is concentrated in large, fast-growing markets, with seven stations in the nation's Top 25 – including Atlanta, Phoenix and Portland – and 14 in Top 60 markets.
Meredith's balanced portfolio consistently generates substantial free cash flow, and Meredith is committed to growing Total Shareholder Return through dividend payments, share repurchases and strategic business investments.  Meredith's current annualized dividend of $1.73 per share yields approximately 4 percent.  Meredith has paid a dividend for 67 straight years and increased it for 21 consecutive years.

Thursday, December 11, 2014

Congratulations to Mike McCurdie and the team at SafeBuilt on the recapitalization with Riverside Co.

Riverside Co . said it invested in SAFEbuilt LLC, which provides community development services for local governments and public entities, primarily those looking to privatize public services.
Established in 1992 and based in Loveland, Colo., SAFEbuilt offers services such as building department programs, planning and zoning, code enforcement and other administrative functions. Its affiliate company, Meritage Systems, provides workflow and operational support software for municipal building departments, Riverside said in a news release.
The Cleveland firm, which didn't disclose the terms of the transaction in the release, said the investment was made from its microcap fund.
The latest such vehicle, Riverside Micro-Cap Fund III LP, closed with $350 million in July and targets U.S. companies generating up to $5 million in annual earnings before interest, taxes, depreciation and amortization.

Commercial finance firm MidCap Financial LLC provided financing for the transaction. Riverside was advised by law firm Jones Day.
Brad Resnick, a Riverside vice president based in New York, said the SAFEbuilt investment was made on the thesis that local or municipal governments are increasingly turning to private companies for staffing assistance."Flexibility is a big reason," he said. "Another is that demand, especially for smaller communities, fluctuates pretty dramatically between the peak and trough seasons. If the governments are using all in-house staff, it can pose a challenge to efficient staffing, as they may have idle staff in [the] slow season."
SAFEbuilt works with more than 200 partner communities throughout the U.S.
Mr. Resnick said the company has expanded in geographic clusters, allowing swift and efficient deployment of manpower as it "can pull resources from neighboring communities if necessary to level the workload over a series of clients."
Riverside said it would work with SAFEbuilt's management team to enhance the company's sales and marketing approach, allowing for faster expansion in new and existing regions as well as deeper client relationships through both acquisitions and organic growth.
Without giving specifics to the geographies that SAFEbuillt is targeting for expansion, Mr. Resnick said the company is interested in markets where there is a higher level of growth and construction activity as well as stricter enforcement of building codes.
"Those markets with stricter codes are in general more receptive and can benefit more from our service," he said. "It is a focus of the community to make sure that the buildings and the code requirements be enforced, and it may affect resources involved in and around the permitting process of a particular community or municipality."
Riverside invests in business services, consumer brands, education and training, energy, health care and software and information technology. For buyout opportunities, it invests in companies valued at up to $250 million.

Friday, November 14, 2014

Execution- Failure to Launch: Reasons Company Strategies Don't Succeed

[Editor's Note: Almost 2/3 of all strategies fail to reach expectations. Why do so many business strategies fail? Below are some key reasons. Knowing the barriers in your organization to successful planning and execution is the first step. Clients that follow our recommendations have significantly outperformed the competition. We like to say, "A good plan, well executed, beats a great plan, poorly executed, every time." Contact us if you would like more information.
For another article on the importance of execution, see Harvard Business Review article The Execution Trap: The most brilliant strategy in the world won't do you any good if you can't deliver               -DPM ]

  Execution- Failure to Launch: Reasons Company Strategies Don't Succeed  
1. No clear definition of success  
Fuzzy goals lead to fuzzy outcomes. While it seems obvious, many organizations simply don't articulate the specific goal of a business strategy. If the goal of your customer intimacy strategy is to form deeper customer relationships, that's fuzzy. If the goal is to increase customer retention by 10 percent and increase annual revenue per customer by $10,000 and net profit by $1,000, that's clear. Here, deeper customer relationships may be the mechanism to achieve the goal.

2. Too many goals  
When everything is a priority, nothing gets accomplished. Many so-called strategic plans have too many goals, objectives, success drivers, strategies, initiatives and so on. Worse, it's not clear how these various appendages are linked. Is it any surprise these plans sit on shelves and collect dust? Choose to do fewer things much better.
3. Metrics and Alignment - Either no metrics or vague metrics 
Many plans are simply a brainstormed list of things to get done by unspecified people at indeterminate times. A plan with specifics outlines who will do what by when. It takes into account the sequencing and timing of tasks, activities and resources. Make certain that the goals of everyone in the organization are aligned to the few key objectives.
4. Visibility - Progress isn't measured and managed 
Ever notice how plans placed in the spotlight flourish while those left in the dark shrivel? Any plan worth executing is worth tracking. A monthly meeting with a tight agenda can quickly determine what actions have been taken; what progress has been made; what will be accomplished over the next month and by whom, and what, if any, challenges have emerged. This builds commitment, accountability and confidence in the process.
5. You lack the right people 
Some of those nice people who work for you may not be the right people to get the job done. That statement makes you uncomfortable, doesn't it? Many have been loyal, are committed to the culture, and may be friends and family. However, If you are truly committed to winning, or achieving success - however you define it - then at some point you have to take a long, hard, honest look at the capabilities of your people. Point them in the right direction, support them, develop them - give them a fair chance to succeed. But if they can't get it done, then your responsibility is to get people who can.
6. Flexibility - Failure to update the plan to stay real  
Reserve the right to do what makes sense. Plans are based on assumptions that can change over time. If they do change, then the plan may need to change. A quarterly "recalibration" meeting is a good forum to test your assumptions and determine which, if any, have changed. The meeting may result in either a re-validation or redesign of the plan. It ensures the plan stays real and relevant.
7. Reaction to Failure - Failure is met with indifference or an inquisition 
Is your team serious about its definition of success? Your response to failure sends a clear message about your commitment to winning. Just as importantly, it sends a message about your credibility. Do you ignore a failed initiative and move on to the next big thing (which conveys that you really weren't that committed and you shouldn't be taken seriously)? Do you look for scapegoats (which communicates that you don't take personal responsibility and can't be trusted)? Or do you first look in the mirror, take responsibility, then publicly commit to getting it right, and effectively engage your people to make it happen? Your choice speaks volumes about who you are as a leader.

Where does your organization stand? Mead Consulting Group's process begins with the identification of the barriers and obstacles to successful planning and execution. These "barriers" develop in ALL companies over time. In fact, some of the very things that help a company succeed at early levels will prevent them from succeeding at the next level. The key is to address these barriers so that the path is uncluttered.

Monday, September 29, 2014

Congratulations to Vane Clayton and the team at KPA Services on the sale to CIVC Partners

 CIVC Partners Completes the Acquisition of KPA Services

CHICAGO, IL--(Marketwired - Sep 29, 2014) - CIVC Partners, L.P., a Chicago-based middle market private equity firm focused on investments in the business services and financial services industries, is pleased to announce the acquisition of KPA Services, LLC ("KPA" or the "Company") in partnership with management.
KPA provides environmental, health, & safety ("EHS") compliance and human resource management ("HR") solutions to over 5,000 automotive, truck and equipment dealerships, and service companies. KPA's EHS solution combines onsite inspections by its risk management consultants with a proprietary SaaS platform to improve clients' ability to comply with federal and state regulations as well as lower workers' compensation expense. KPA's HR solution offers a proprietary SaaS platform focused on human resource management and compliance for the automotive dealership sector. KPA's solutions have been embraced by leading auto dealers including eight of the ten largest dealer groups and endorsed by 26 state dealer associations. For additional information on KPA, visit
The company's CEO, Vane Clayton, said, "We are thrilled to be partnering with a CIVC team that enthusiastically supports our vision for KPA. CIVC's deep knowledge of the automotive dealership and compliance sectors will enable them to be a true value-added partner as we successfully execute our growth strategy."
Scott Schwartz, a Partner at CIVC, added that, "KPA is the market leading platform in its sector with over twenty-five years of experience delivering high quality compliance solutions to its clients. We are excited to partner with Vane and his team to support the company in expanding its service offering, entering new industry verticals, and pursuing strategic acquisitions."
The acquisition of KPA builds on CIVC's investment experience within the automotive services and environmental compliance sectors. Prior investments have included GWC Warranty (administrator of vehicle service contracts), Innovative Aftermarket Systems (provider of vehicle protection products and software solutions for auto dealers), Honor Finance (auto lender), and Thermo Fluids (provider of environmental services to automotive service centers).
Ropes & Gray LLP served as legal advisor to CIVC. The Presidio Group, LLC served as financial advisor and Cooley LLP served as legal advisor to KPA. 

Read more:

Tuesday, August 5, 2014

VCA to Acquire Camp Bow Wow Chain

 Congratulations to Heidi Ganahl and the team at Camp Bow Wow on the announced sale to VCA.

VCA to Acquire Camp Bow Wow Chain

Camp Bow Wow founder and Chief Executive Heidi Ganahl shelved plans for a day-care business for dogs after her husband died in a plane crash 20 years ago.
Now, after leaving a career in pharmaceutical sales, creating two startups that sputtered and spending most of a million-dollar insurance settlement, Ms. Ganahl has reminted herself a millionaire. She has agreed to sell Camp Bow Wow to VCA Inc. and join the Los Angeles pet health-care company to plot Camp Bow Wow's expansion.

VCA, which has a stock market value of $3.3 billion, operates more than 600 animal hospitals and provides diagnostic services to others. Terms of the transaction weren't disclosed. Franchisers such as Camp Bow Wow often are bought for single-digit multiples of the yearly fees they receive from franchisees. Camp Bow Wow collected about $4 million in such fees last year.

As part of the deal, Ms. Ganahl plans to hire a president to run Camp Bow Wow's day-to-day operations, while she, as chief executive, focuses on strategy. Camp Bow Wow's core business offers day care for dogs at franchise-owned facilities, starting at about $25 a day, as well as overnight boarding for between $40 and $60 a night.

Full article

Tuesday, July 15, 2014

Don't miss another opportunity to sell during the upturn

[Editor's note:  In April 2009, we published this article. Many business owners had missed the window of opportunity to sell during the 2003 -2007 window when selling price multiples were at all-time highs. In 2014-15, we again have market dynamics that mirror 2006-7 - selling price multiples are again at high levels. It is a sellers' market with far more buyers than sellers. How long will this cycle last? . Many economists expect the next downturn as early as 2017. No one knows for sure. However, there is one thing for sure - if you missed the favorable opportunity to sell once, do not let it happen again.       -DPM]

Dan McCallin, former owner and CEO of Commerce City-based Timberline Steel recently made an interesting statement about his company: "We missed the selling boom of the late 1990's and were determined that we would not miss another opportunity to sell during the next upcycle. We decided to take the steps so that we were prepared." While Dan originally made that statement during the recession of 2002, and later sold the business in early 2006, it could certainly apply today. 

The full exit sales process may take several years.  With credit markets tight, the economy in recession, and bad news seemingly everywhere, it may seem counter-intuitive to be writing about preparing your company to be ready to sell during the next economic upturn. While some business owners may believe they can pull the string when they are ready, the truth is, for many business owners, it may be exit sales cycle may take several years to execute. Professionals will tell you that in order to sell at highest value, the process includes 1-2 years to get ready, 1 year for the transaction, and then you may have to spend another 3+ years with the company after the sale.

Much of the preparation can be accomplished during the down cycle. Companies can focus on making fundamental improvements to their business during the downturn that will help them emerge faster and healthier than their competitors.
1.    Focus on customer net profitability
2.    Upgrade management
3.    Cleanup business processes
4.    Develop a strategic growth and execution plan
5.    Position the company for the upturn
6.    Never waste the opportunity of a good downturn

Customer net profitability.
The tendency during a downturn is to cling to any customers and revenue no matter the profitability level. A common comment is that "at least they absorb overhead." The notion of unprofitable business absorbing overhead may be one of the greatest false beliefs in business. In many cases, overhead that has been viewed as fixed is really a cost that can be minimized or shed. Carrying unprofitable business will be a continuing cash drain that may inhibit your business' ability to grow as the economy improves.

Upgrade management.

There is a great supply of good talent now available in the marketplace. In many cases this may be talent that would not be available in better times. Take advantage of the opportunity to improve. Similarly, this is a great opportunity to review all of your employees and weed out those with below average performance, poor potential, or unrealized potential. Our clients use a simple tool to rank all employees in terms of potential and performance - the results make it very clear which ones have been a drag on the company.

Cleanup business processes. During boom times, many companies claim they are too busy to scrutinize business processes to make improvements and to streamline in order to increase throughput. That "excuse" typically does not apply during the downturn.

Develop a strategic growth and execution plan. You need a plan not only to help you survive the downturn, but also that will allow you to be agile enough to take advantage of opportunities in the recovering marketplace. There may be market segments that will be slow to come back; some may never come back the same way. Other market segments, however, may present huge new opportunities. Your organization needs to develop a plan and be prepared to execute.

Position your company for the upturn.

The most significant competitive gains are made during a downturn. Companies that are prepared and well-positioned can accelerate very quickly as he markets healthy. Competitors that are under stress during the downturn will actually be under greater stress as the economy improves. Cash demands can be low when demand is low. Cash needs, however, will increase as the economy improves. Companies will need cash to hire more people, invest in inventory and equipment, etc. 

Never waste the opportunity of a good downturn

During downturns, companies have the opportunity to examine everything, reduce unnecessary expenses, trim those under-performers, examine unprofitable business, streamline business processes, etc. 

Take a lesson from the Boy Scouts: Be prepared.

These steps can add value to your business - even during a downturn. When the economy improves, your business can accelerate faster and be well- positioned. The market for selling a business will be ripe in late 2010 and 2011. Those businesses that are ready will find a hungry group of buyers and investors who have been sitting on their hands during the recession.
What's the old saying - "Miss your chance once, it's a shame; Miss twice, shame on you!"

If you have not yet prepared your company ready for sale, we can help. The Mead Consulting Group has been helping companies prepare to maximize value for exit for many years. We have helped over 50 client companies successfully sell outright or recapitalize their business to take "chips off the table." See what some clients have said about their experience with Mead Consulting.

Friday, July 4, 2014

Bio-Techne Acquires Novus Biologicals for $60M

  • MINNEAPOLIS, July 2, 2014  Bio-Techne said Wednesday it closed on its $60 million cash acquisition of Novus Biologicals, a deal designed to expand the buyer’s antibody business while complementing its operations in developing and manufacturing purified proteins.
    Novus maintains portfolios of both outsourced and in-house developed antibodies and other reagents among its offerings of more than 250,000 products, delivered via its own digital commerce platform. That’s more than 10 times the 24,000 products in Bio-Techne’s portfolio, which during the 2013 fiscal year accounted for about $311 million in net sales.
    Novus is the second company to be acquired in less than a month by Bio-Techne. On June 17, Bio-Techne shelled out $300 million for ProteinSimple, whose Western blot products are among its offerings of systems and consumables designed to simplify protein analysis workflows.
    Bio-Techne said the Novus deal will enable it to access antibodies for potential inclusion in new assays and kits, as well as for instruments the acquiring company said it intends to bring to market after it completes the deal.
    Bio-Techne also said it expects to draw upon Novus' digital marketing capability and management team as it expands its offerings—notably cytokines and growth factors, antibodies, immunoassays and biologically active small molecule compounds, all sold to biomedical researchers and clinical research laboratories.
    Bio-Techne is the common brand name under which Techne brought its R&D Systems, BiosPacific, Tocris Biosciences, Boston Biochem and Bionostics products earlier this year. The company is headquartered in Minneapolis and has more than 1,000 employees worldwide.
    "This acquisition is consistent with our mission to expand our products offering and ensure that our customers are being served in the most complete fashion with the best quality reagents," Bio-Techne President and CEO Charles R. Kummeth said in a statement.
    Added Novus’ CEO Karen Padgett: “The combined business will represent a unique one-stop-shop for our world-wide customers."
    Bio-Techne said it will retain Padgett and another Novus executive, Dave Eansor, who serves as svp, corporate development.
    Mainsail Partners, a growth equity firm based in San Francisco, has been the sole investor in Novus since 2008.

MINNEAPOLIS, July 2, 2014 /PRNewswire/ -- Techne Corporation (NASDAQ: TECH) (d/b/a Bio-Techne) announced today that it has acquired Novus Biologicals for $60 million in cash. The transaction was financed with cash on hand.
Novus Biologicals is a Littleton, Colorado-based supplier of a large portfolio of both outsourced and in-house developed antibodies and other reagents for life science research. Their collection of greater than 250,000 high-quality products delivered through an innovative digital commerce platform provides customers a unique, one-stop shopping experience.
Bio-Techne is a leading developer and manufacturer of purified proteins -- notably cytokines and growth factors, antibodies, immunoassays and biologically active small molecule compounds which are sold to biomedical researchers and clinical research laboratories. Novus Biologicals is an excellent complement to the expanding Bio-Techne portfolio of products and its addition is consistent with Bio-Techne's overall goal of providing customers the most comprehensive product line for their research needs. More specifically, Novus adds strength to Bio-Techne's antibody business and provides access to a wide range of high quality antibody content for potential inclusion in new assays and kits, as well as for use with instruments Bio-Techne intends to offer following completion of a pending acquisition transaction. In addition, Bio-Techne expects to leverage Novus' excellent digital marketing capability and their strong management team.
Charles R. Kummeth, President and Chief Executive Officer of Bio-Techne, commented, "This acquisition is consistent with our mission to expand our products offering and ensure that our customers are being served in the most complete fashion with the best quality reagents. Over the years the R&D Systems brand has developed a strong reputation for quality reagents for life science research through its protein, antibody and immunoassay product lines. We appreciate the fact that customers' reagent needs change and Bio-Techne wants their first choice to be a Bio-Techne branded product when selecting a supplier of reagents for their experimentation. Therefore, an expansion of our antibody portfolio was a logical step in our long term strategic business plan. We are eager to adopt the digital commercial platforms that Novus Biologicals has perfected over the years to accelerate the growth of our overall business."
Novus Biologicals Chief Executive Officer, Karen Padgett, commented, "We are delighted to partner with Bio-Techne since we see this as a strategically good fit. Both Novus Biologicals and Bio-Techne have a desire to improve life science research by providing customers with the widest array of technical solutions and tools. The combined business will represent a unique one-stop-shop for our world-wide customers."
The Novus Biologicals leadership team, Karen Padgett, and Dave Eansor will remain in place. Mainsail Partners, a growth equity firm based in San Francisco, has been the sole investor in Novus Biologicals since 2008.

For full article in Wall St Journal

Wednesday, June 25, 2014

Improving Your Business: One Profitable Customer at a Time Part 2 - A process to improve profitability

[Editor's note: During the downturn that started in late 2007, most companies did an excellent job of reducing expenses and improving cash flow. However, we have observed in the last 18 months a disturbing trend. In the drive to improve the top line, companies are beginning to lose focus on the importance of "profitable growth." We decided to run a series on profitable customer growth. In Part 1 we outlined how a few customers can drive net profitability. This is Part 2 - a process to improve profitability. We hope you find it useful. -DPM]
  Improving Your Business: One Profitable Customer at a Time
  Part 2 - A process to improve profitability
Many managers seem to rely on intuition to determine if a customer is profitable or not. Sometimes the intuition is correct and sometimes it is not. Besides one's intuition not being correct, relying on intuition to determine customer profitability confuses the organization. Why? One's intuition varies greatly depending upon position in the organization and how the relationship is viewed. For example, for the sales vice president trying to make a sales goal, that unprofitable customer can be very attractive. For the technical director who must provide support to that same customer, the relationship appears very unappealing. There must be a process for assessing customer profitability and it needs to be used consistently throughout the organization. Here are some suggestions:

Define your core strengths 
Customer profitability centers on what a company does well and then matches these strengths with a customer group which values them. BMW is known for its ability to design and produce high quality cars with great road handling characteristics. As an organization, it understands this strength and seeks to cater to customers who seek cars that have excellent handling characteristics.

Take a hard look at your organization. What does it do exceptionally well? What differentiates it in the market? Ask this question of people throughout the organization. The responses may differ based upon who you talk to but you should hear some consistency about the core strengths of the business. Expand your analysis beyond internal perceptions; ask your better customers why they buy from your company. This is the first step in identifying where your organization needs to focus its efforts.

Study and Determine the characteristics of profitable and unprofitable customers.
Take the top 10% - your most profitable customers. Do these customers have similar characteristics (e.g., technical requirements, order size, etc.)? What types of products and services do they purchase? Are these customers more profitable because they are more loyal (sales and marketing expenses are less)? How do the characteristics of this customer group align with your company's strengths? You will likely see an alignment if you look closely enough.

We have worked with a company in the software industry with a long history of profitable growth. Its projects are typically long-term in nature and management takes customer selection very seriously. The company's disciplined customization and project management process includes a great deal of client collaboration. At the heart of the process is developing a good understanding of project objectives and the customer's customer. Key to the company's long success has been selecting clients whose approach fits the process and are good candidates for repeat business. The company avoids single project clients shopping solely based on price, since this approach does not fit well with their collaborative process.

After you have looked at your top customer group, repeat the process with less profitable customers. What are the common characteristics of these customers? They are likely very different than those more profitable customers.

Establish guidelines for evaluating customers.                                                          

 If you wish to move beyond simply talking about customer profitability, you must establish guidelines for evaluating customers. Guidelines could include:
  • order size (orders in quantities the company is set up to handle)
  • product mix (customer is not just cherry picking to get the lowest priced products or services. This is important if you offer loss leader products)
  • technical support requirements (can the customer be effectively served?)
  • growth potential (does this customer have the potential to grow?)
  • how long will you let a customer receive special treatment on "potential" alone
As you can see from the above list, it is a combination of financial measures, buying practices and long-term potential. Do not worry about developing the "perfect" measure. The most important thing is to develop consistent parameters that make sense for your business. If you apply these criteria consistently, you will see a clear segmentation between your best and worst customer relationships.
Taking Action - One Customer at a Time
Now that you have defined the profile and characteristics of profitable customer relationships, begin putting the evaluation process into action. One of the first places to start is with prospective customers. Focus your energies and sales efforts on prospects consistent with your evaluation criteria. Prospects that do not fit most of your evaluation criteria are not likely to develop into long-term profitable customers. Make sure your sales team has a clear understanding of the types of prospects you are targeting.

As you attempt to improve profitability, focus on your top quartile relationships as these customers often represent one of your best growth opportunities. Map out clear strategies for retaining and growing these relationships. Learn more about your customers' businesses and how they serve their customers. This collaboration can uncover new opportunities and help you forge stronger relationships. As you eliminate the unprofitable relationships, this frees up time and other resources for your more profitable customers. This is an important principle of executing a successful fewer and deeper strategy.
Don't fire unprofitable customers. Modify the unprofitable behavior.
What can you do about unprofitable relationships? Be aggressive about changing those unprofitable relationships. Make certain the sales team understands that the customer must become more profitable within a given time.

Don't just fire customers, however. Often, it is we, the sellers,  who have encouraged or permitted "unprofitable behavior." These customers may offer profit potential - particularly if they fit many of your evaluation criteria. Look for differences in how you are serving these customers versus your more profitable segment.
You may be overlooking product or service opportunities that could enhance profitability, or you may be making inaccurate assumptions about client needs. One client's management team believed it was obligated to supply certain customers with unprofitable commodity products in order to sell more profitable, high margin product lines. Interviews with customers revealed otherwise. There were many alternatives for procuring commodity products and customers were primarily interested in the more innovative, higher value product lines. A subsequent change in product mix has boosted profitability significantly.
If a path to profitability cannot be found, use pricing as a way out of a relationship. Be sure to provide recommendations for alternative vendors. You never know when an unattractive customer can change and become desirable.

Many successful middle-market companies take pride in their premium, high touch service levels. Each customer usually receives the same products, services, and delivery regardless of profitability. This approach, combined with the size or buying practices of some customers, makes some relationships appear hopeless. If there is no clear path to profitability under your current product and services umbrella, consider offering alternative services for these customers. This may be a particularly viable alternative if you have a large segment of unprofitable customers with similar needs. Depending on your business, alternative services may entail different methods of selling (e.g. inside sales vs. more costly face-to-face), a different scope of service or different pricing structures. These changes can completely change the profitability picture for these customer relationships.

The Mead Consulting Group has been helping clients identify and improve customer net profitability and execute strategies that drive profitable growth. For a free consultation, contact me at or (303)660-8135

Tuesday, June 3, 2014

A few good customers can drive your growth

[Editor's note: During the downturn that started in late 2007, most companies did an excellent job of reducing expenses and improving cash flow. However, we have observed in the last 18 months a disturbing trend. In the drive to improve the top line, companies are beginning to lose focus on the importance of "profitable growth." We decided to run a series on profitable customer growth. We hope you find it useful. -DPM]
Improving Your Business: One Profitable Customer at a Time
Part 1 - A Few good customers can drive your growth
Over the last few years there has been increased focus on the strategy of "fewer and deeper" as a strategy for growth. The logic of this strategy is straightforward-focus your resources on a fewer number of customers with whom you can have a deeper relationship and this will cause increased growth. Please note that we are not advocating extreme customer concentration, as this leads to excessive risk and can be a discounter of value when a business looks to sell. In this series of articles, we will address how to improve business results dramatically by gaining a deeper understanding of most profitable customers.
Selecting the Right Customers
In most businesses, a relatively small number of customers generate the bulk of the revenue (typically 20% of customers generate as much as 80% of revenue). One recent client derived 98% of their revenue from only 25% of their customers. This client assumed that the remaining 75% of the clients represent high margin business and thus, a greater share of profitability. Unfortunately, for this client and many similar companies, this usually is not the case. According to this study of retail banking performed by KPMG, 140 to 170% of profits can come from 20% of customers while 80% of losses can be attributed to only 20% of customers.
Research completed over the past fifteen years by The Mead Consulting Group, with data from over 1900 companies ranging from $4 Million to over $5 Billion in revenue, shows a similar pattern. The Table below illustrates an extreme example. In one company as few as 2% of the customers generated 800% of the profits, while the losses are generated by fewer than 10% of the customers. The balance of the 88% of the customers, remaining in this example, is about breakeven.
# Customers
% of
Total Customers
Net Profits
% of Net Profits (Loss)
Tier 1
Tier 2
Tier 3
Below, we will address the costs of unprofitable customer relationships and suggest strategies you can put in place in your business to improve profitability and begin to implement a "fewer and deeper" strategy for growth.
The Cost of Unprofitable Customers
There are several reasons why managers pursue unprofitable customers. One of the biggest we have found is the passion that many middle-market company managers and business owners have for selling. These managers often place a premium on attracting new customers and generating top line revenue growth. This passion for the top line may be rooted in a fear of not having enough customers should there be a business downturn. This approach can lead companies in a wrong and unprofitable direction. If managers do not focus efforts on the right (profitable) customers, the same passion that was a driver in building the business can become a downright anchor, dragging down profitability.
An in-depth analysis of one client company revealed net profit would be two and a half times higher without 65% of its customers! This client provided a striking example of the cost of unprofitable customers. This manufacturing company provided excellent service and, as a result, continued to expand its number of customers over the years. Each year they added customers and seldom, if ever, lost a customer. Unfortunately, 65% of their customers made up a paltry 5% of total revenue. To make matters worse, these small customers were the most frequent buyers of the company's most unprofitable product lines. A detailed analysis revealed the company's net profit would be two and half times higher without 65% of its customers! We did not advocate "firing" these customers but rather provided a procedd to improve profitability which we will cover in the next article in this series.
Some of the failure to focus on more profitable customers comes from inadequate accounting. Companies, large and small, struggle with how to measure customer net profitability accurately. In many companies, management may know how much gross profit they are generating from each customer. The problem often occurs in the costs that occur after gross margin. The resources it takes to sell, administer, and service customers makes the issue of real profitability more complicated. For example, consider the customer with a relatively small level of sales but a healthy gross margin in both percentage and absolute terms. This customer buys frequently (lots of invoices), has high service requirements (always orders at the last minute and expects overnight delivery), and stretches payment terms to 120 days. This may not be a truly profitable customer. On the other extreme, it could be a large customer who purchases a significant volume and has a gross margin that is relatively lower as a percentage of revenue. This customer purchases in larger quantities (fewer invoices), has reasonable service demands (does not order at the last minute), and pays in a reasonable amount of time. Which one is the more profitable and more desirable customer? This is a question that is too infrequently asked in many companies because such "below-the-line" costs are not known.
Opportunity cost - time with marginal customers versus time with high potential customers. Even if you are confident that you can accurately determine customer profitability, there is an additional factor to consider - opportunity cost. What is the opportunity cost of having a salesperson travel to see a marginal customer versus spending time with top priority customers and prospects? Costs such as these make the bottom quartile of your customer base even less profitable than you may realize. These relationships not only result in poor customer profitability, but can also be a detriment to other existing and prospective customer relationships. Executing a "fewer and deeper" strategy requires you to focus your resources on relationships that matter.

Next - Part 2 - A Process to Improve Profitability