Spotlight on Growth
Among the customers who’ve managed to find it, Shannon Luminous Materials Inc. has an envious track record of closing sales.
A hands-off approach to advertising and marketing hasn’t dissuaded companies such as Disneyland, yellow-pages publisher R.R. Donnelley and fishing-lure maker Luhr-Jenson since engineer Richard F. Cruce bought the company 15 years ago.
It has put a damper on growth, though. Sales at the Santa Ana maker of black lights and fluorescent and phosphorescent (glow-in-the-dark) materials have hovered under $260,000 for years. When inflation is taken into account, sales are actually down.
“Once a customer lands in his lap, he does an excellent job of taking care of them,” said consultant William P. Minnig of the California Manufacturing Technology Center’s Anaheim office. “But I’m only being a little facetious when I say you really have to go out of your way to find them.”
Even though the company makes a sale to a substantial 20% of the potential customers who call, the number of calls is stagnant at about 100 a month. And 95% of those are generated from a single source, the Thomas Register, an industrial buyers guide.
Despite profit margins “other companies would kill for,” according to the consultant, sales levels remain too low to generate enough cash to pay for an advertising and marketing campaign that would attract more customers. That’s hampered Cruce’s efforts to increase sales tenfold in two years.
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Cruce, a low-key veteran of major chemical and engineering companies, said his company also struggles to handle the diversity of its markets: Use of its products ranges from the black-light portions of Disneyland’s Splash Mountain ride to invisible markings used by printers and night club doormen to special dyes used to paint fishing lures and to find cracks in jet engine blades. The nature of the products means repeat sales are infrequent.
“It’s hard to live on a $100 sale every five years,” said Cruce, who tested the entrepreneurial waters with little luck before buying Shannon for $140,000.
After meeting with Cruce and reviewing the four-person operation, Minnig came up with a three-phase plan to steer the company on a path to much-needed growth.
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Two things could help or hurt as it heads down that path, said Minnig: the impressive array of markets--Cruce has identified at least 20 and is listed under 70 categories in the Thomas Register--and the size of the company. Being small means Shannon can be more nimble, said Minnig, an engineer who specializes in manufacturing sales and marketing. “You have to be a guerrilla fighter when you are a little guy.”
First, though, Cruce needs to boost his short-term capital, Minnig said. That will give him the money he needs to pay for the second phase: market research aimed at key customers in target markets. As sales continue to improve cash flow, Minnig would like to see the company jazz up its packaging and consider acquiring a small competitor with a complementary product line. (A small acquisition two years ago failed to energize sales.)
Increasing sales is the fastest way for a small company like Shannon to improve capital levels, the consultant said. He doesn’t recommend the company try to wring more sales from existing customers. Industry buying patterns--one-shot or infrequent buys are the norm--make that impractical. Instead, he’d like to see the company increase the number of deals it closes.
That shouldn’t be tough if the company becomes more aggressive, Minnig said. That could simply mean making a follow-up call once a catalog is sent, something the company doesn’t do enough of, Cruce acknowledged.
Minnig would also like to see Cruce become more efficient by implementing basic marketing strategies using computer and fax technology.
The consultant encouraged Cruce to get moving on a stalled effort to upgrade and network the company’s two computers. Delays in choosing software also need to come to an end, he said. As the only person handling sales, Cruce needs the help of contact management software and an automatic fax program, Minnig said. Cruce should be able to immediately fax his four-page catalog to anyone who calls, and have his computers set up to alert him when it’s time to follow up.
“Just a 5% increase in [the number of] sales could increase his gross profit incredibly,” said Minnig. “I’m sure he can do that by just calling and asking for the order.” Low overhead means additional sales will quickly fall to the bottom line.
Minnig also suggested the company get badly needed market information from the 100 or so potential customers who call in an average month.
“I find a lot of small businesses don’t realize that part of the unspoken agreement is, ‘I will give you prices without expecting more right now, but you have to give me something back,’ ” Minnig said. That something is simple but vital market information, he said. For Shannon, it would include input on how its prices stack up against the competition, who its competitors are, what the company does well and where it falls down on the job.
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Tacking the questions on to the bottom of a fax form is a low-cost way to get started, Minnig said. “You shouldn’t be afraid to ask one or two real simple, closed-end questions that they check yes or no,” he said. The consultant suggested Cruce come up with half a dozen such questions and rotate them on the fax form. Within a few months he’ll have “great information he wouldn’t have otherwise.”
The bare-bones black-and-white photocopies that serve as a catalog also should be put on the computer, cleaned up design-wise and split in two, the consultant said. One version should be aimed at industrial users. The second should target commercial users, including entertainment companies.
Minnig estimated it will cost the company about $15,000 for the first-phase changes, including upgrading the computers and “all of the kind of set-up stuff to get him ready to face the world.” The next phase will cost about the same, he said.
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Money had already been allocated for the upgrade, said Cruce, and portions of the revamp are complete, but “it’s a complex problem” and software concerns have slowed progress. He hadn’t decided whether to use an outside computer consultant recommended by Minnig.
Once the company has stockpiled a marketing war chest, it will be ready to launch the second phase of its growth plan: hard-core market research and a laser approach to selling to key players in a few important markets.
To do that, Cruce will need help, said Minnig. He recommended the company hire a marketing student from a local college on a part-time basis. “He needs someone young who has some enthusiasm and an open mind to knock on doors,” Minnig said.
A senior student’s knowledge of marketing principles would be a good fit with Cruce’s extensive market and technical knowledge, he said. Together they could prioritize the company’s markets and customers, create a market research plan--the only way to find out about competitors’ weaknesses is to talk to people, said Minnig--then build a sales strategy based on the information the student gathers. The company should expect to spend about $5,000 on each of its top three markets, he said.
“So there is no magic wand,” Minnig said. “You have 20 marketplaces and not a lot of money; the best thing to do is go find out why people are or are not buying from you and how to change that. You can’t start with 20 markets; you have to start with one or two.”
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Armed with market research, Cruce can overcome the competitive disadvantage of being the little guy and can pounce on his competitors’ weaknesses in product line or inventory, Minnig said. “Being a little guy, he can dodge and weave and find niches” to exploit.
Sounds good to Cruce, although, he joked, “I’m hoping there will be a more profound secret on achieving the tenfold increase in sales [than] something mundane like hard work.”
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
This Week’s Company Make-Over
Name: Shannon Luminous Materials Inc.
Headquarters: Santa Ana
Type of business: Makes and sells ultraviolet lamps; sells fluorescent and phosphorescent materials.
Status: Private corporation
Co-owner: Richard F. Cruce
Founded: Cruce bought in 1983.
Start-up financing: $140,000 in savings
1997 sales: $260,000
Employees: 3
Customers/clients: Walt Disney, R.R. Donnelley, Luhr-Jenson
Main Business Problem
Flat sales, lack of marketing
Goal
Increase sales tenfold in two years.
Recommendations
Increase short-term capital by boosting monthly sales 5%.
Upgrade and network computers, buy contact manager software and set up automatic fax system.
Add market research questions to fax forms.
Hire a marketing student from a local college.
Target one or two clients in the top three or four of the company’s 20 markets.
Consider an acquisition to expand limited product line.
Meet the Consultant
William P. Minnig is a consultant engineer specializing in sales and marketing at the nonprofit California Manufacturing Technology Center’s Anaheim office. He spent a decade working for international engineering companies in China and South Korea.
