The world of reverse logistics can be divided into three distinct parts,. there are retailers, manufacturers, and service providers(3PLs, Liquidators, Repair Companies, Recyclers). Retailers and manufacturers are always trying to figure out how to deal with returns in a way that minimizes processing costs and maximize recovery values.
Service providers are trying to figure out how to get retailers and manufacturers to use their services. There are hundreds of companies fighting for their share of the reverse logistics pie. However, there are only a hand full of large companies that have revenues between $1 billion + and $300 million. Size really drops off after that. Hundreds have revenues between $10 million and $100 million and many more very small companies that live for the day they have revenues of $10 million.
After working with service providers of all sizes since 2008, we have found that most of the small and mid sized companies have the same issues and make the same mistakes that hinder their ability to break through their revenue ceiling and enable them to consistently grow. These companies has a history of fluctuating revenues. They find themselves flatlined, say at $20 million in revenues. One year they hit one home run and they grow to $23 million, followed by a drop the next year when they struggle to hit $15 million.
These service providers make three critical mistakes that stunt their growth and prevents consistent, predictable, profitable growth. These three mistakes start at the top, with the CEO. It is not about what they do. It is about what they don’t do. These CEO’s suffer from:
- A lack of strategic planning and direction
- A lack of qualified talent
- A lack of true commitment
Strategic Planning & Direction
Out of the all the mid and small size service providers we have worked with, none of them had a strategic plan and by definition, no strategic direction. You could ask any of these CEO’s how much they paid for that load, or how much they make off that customer and they could tell you off the top of their head to the penny. Ask them what their revenue goal for the next three years is going to be and they would say something like “We should do about $20 million this year and hopefully grow 10% the year after that.” In other words, they don’t have a clue.
Hope is not a strategy. Running a business without a clear, well developed strategic plan is like going on vacation with your family and as you drive down the road you ask your spouse where they want to go. You would never do that but running a business without a plan is doing the same thing.
Many of these companies had great opportunities they had to pass on, or were disqualified for, because they did not anticipate and plan properly. When given the opportunity, they discovered they did not have the manpower and/or infrastructure for the job. Planning helps everyone think through where they are going and what they will need to get there.
When you ask the CEO about his business and where they would like to see it go over the next few years, many will say “I’d like to double in sales and reduce processing costs by 15% next year.” When you ask them what they are doing to achieve these goals, however, they normally say something close to “We are going to try harder.” If you do the same thing over and over again, you will get the same results…. no growth.
A big difference between the large, successful, growing service providers and those stuck in a rut is that the large companies see getting the best sales and operations executives as an investment, not an expense. These companies understand that if you have four sales people and you want to double your revenue, you have to hire more talent. They also realize that you get what you pay for. They don’t try to go on the cheap.
One client wanted to double sales over the next twelve months. For all practical purposes, the CEO was really the lead sales guy and the “VP of Sales” was really just another assistant. When asked what a good sales executive cost, we told him he would have to pay a base of $100,000 to $125,000. He said he thought he could get a good person for $60,000. He hired a friend of a friend, with no experience, and tried to train them over the next year. As you would expect, not only did they not hit their growth goal, but revenues dropped and the new guy got fired. Profits fell more than sales because the CEO was spending too much time trying to train the new guy and sell services that he took his eye off of a lot of other important things that made a big difference on the bottom line.
To develop a company that achieves their growth goal year after year, the CEO must be committed to the strategic plan, the strategic planning process, and to their team. For many CEOs this is perhaps the hardest of the three big mistakes to correct. Old habits die hard. Many CEO started their company from nothing and live by the motto “If you want something done right, you have to do it yourself.” The problem is that as a business grows, no one can do it all themselves.
Talented executives must be given the freedom to do their job. It doesn’t do any good to bring in top talent if they have to get approval for everything. They must be given the freedom to fail. Top CEOs learn how to monitor their activities and strike a balance between blind trust and over control.
Similarly, the CEO must be the champion of the strategic plan and the ongoing execution of the plan. This doesn’t mean they do it alone. The CEO is like the conductor of an orchestra. They keep the beat, follow the music, and direct the players. The beat is the culture and pace of the company. The music is the strategic plan and the P&L. The players are the executives working for the CEO.
Commitment is a big issue for many CEOs. It is easy to get distracted or go back to doing things the old way when trouble hits. You can’t let this happen. Being committed doesn’t mean that you never change the music or the players. It mean you are going to adjust the plan and the players as needed to achieve the overall goals.
Every CEO can build their company into an organization with a great culture that delivers consistent, predictable, profitable growth. The only difference between the large, successful, service providers and all their smaller competitors is leadership. Those CEOs avoid the big three mistakes that could stunt their growth. They plan to hit specific goals, they invest in people and equipment as needed, and they keep the team focused on where they are all going. You can too.
If you would like more information on how Greve-Davis can help your company achieve it’s maximum potential, click here to contact us or call 412-759-4356.