Why Did We Go Out of Business?

In an economy steeped in an epic decline, too many printers have closed their doors. But where does the blame fall? On the printers? The economy? We take an inside look at what to do when the lights go out.

By Michael J. Pallerino

It’s not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.” – Charles Darwin

It’s not the kind of reflection you enjoy asking someone to make. But for Chip Chebuhar, the answers are in the reflection. Asked if there was a defining moment when the company that many pegged him to some day lead hit an inescapable tailspin, his explanation is honest and to the point. That his answer could be a template for any number of printers that have disappeared into oblivion during this economic nightmare and ever-evolving printing landscape is where the real fascination – and tragedy – lies.

Padgett Printing was a family-owned business that had operated in the Dallas area for more than 100 years. A highly respected industry leader, Padgett often was lauded as an example of how a conventional printer could successfully make the transition to marketing service provider and a value-added services leader. While many firms struggled to survive with burdens such as being over-leveraged, Padgett learned how to manage debt through refinancing loans and renegotiating leases with the assistance of its working capital lender.

The company played the game at the highest level on a rapidly increasing competitive landscape that saw more and more competition from non-traditional sources in alternative media. But in an industry looking for leaders to build that bridge to the future, Padgett seemed poised to be a frontrunner. They were the first north Texas printer to install a digital press in 1999. They added mailing in 2001. They started developing customer websites in 2005.

It all changed in 2006, when, as Chebuhar recalls, the executive team contemplated investing in a very expensive press. To say that Chebuhar disagreed with the decision would be the mother of all understatements. “I couldn’t have been more outspoken,” he recalls. “We did not have the resources or revenues lined up to take such a leap of faith.”

In 2007, the Padgett executive team, sans the endorsement of its vice president of sales, pulled the trigger on the new piece of equipment. The decision was the beginning of the end. Who could have known the economy would skid, and coupled with an increased cost of capital, would take Padgett down the path of no recovery?

After more than a century of unprecedented service in the Dallas market, Padgett Printing closed its doors for good earlier this year. “We were at a crossroads at the time,” says Chebuhar, who today is president of The Fowler Group, a full-service, award-winning design and marketing agency in Arlington, Texas. “We were at a point where we could have continued down a path of innovative growth and opportunities. My recommendation was to be more of a marketing service provider. But the rest of the team was more comfortable with heavy iron. There are times I still think that if we would have turned left instead of right Padgett might still be in business today.”

Padgett’s story mirrors the crossroads that many printers – any company, really – struggles with these days. How do you stop your company from becoming another statistic? How do you change your mindset? Can you? Is it possible to find, train and retain the right people to transform your business?

While the steps seem simple enough in theory, the implementation and resources to do so can be difficult. For companies like Padgett, and the scores of others whom have shuttered their doors in alarming numbers over the past few years, the biggest question is, “What can you do to survive?”

Chris Tierney has spent the better part of the past 21 years providing financial, operational and strategic analysis to domestic and international companies that operate both in and out of bankruptcy. “No business is fail-proof,” says Tierney, managing director of Hays Financial Consulting. “Sometimes economic or industry factors happen that you can’t control.”

Tierney says that it’s the decisions you make outside of what you can’t control that are critical to sustainability. “There are plenty of things you can do to help weather the storm. Focus on cash. Accounting is great for taxes, but it isn’t reality. Cash pays the bills. Look forward and plan ahead. Too many companies are reactive and don’t project the future well – even 30 days out. Hire good people and incent them to be successful. If they’re successful; you’re successful. Control your expenses, even in good times. Too many businesses get cocky when times are good. This brings you down when times change. It’s important not to over extend yourself. Pushing the envelope is great, but stepping over the edge more often than not gets people in trouble.”

It is possible to fail in many ways…while to succeed is possible only in one way.”– Aristotle

Tim Clegg started a business in the late ’80s selling audio and lighted promotional products out of his apartment in Houston. One of his many patents was a flashing button that people could wear – a novelty item that eventually would attract the attention of big businesses such as McDonald’s and movie studios eager to land the latest marketing sizzle for their media junkets. He went on to form Clegg Industries, which eventually evolved into Americhip in 2001.

You have heard about Americhip’s most recent patent. Called Video in Print – VIP for short – it is the company’s latest attempt to invent print products – anything from children’s pop-up books, to musical greeting cards, to scent-stripped ad inserts that employ all five senses to convey a message. Americhip calls it “multisensorized.” In its current incarnation, VIP has lilliputian lithium batteries that can run about 90 minutes’ worth of video and be recharged with a mini USB plug. That means the device allows for information to be updated with a simple download off a PC. Future versions look to be thinner and feature WiFi.

As Kevin Clegg, Tim’s brother and Americhip’s president, once said: “People still like to shave something to hold in their hands. They like words. Print is not dead. Boring, just-lay-there print may be dead, but exciting, interactive print is just getting started.”

Today, Americhip has offices on four continents and a manufacturing arm in China. It has become one of the country’s leaders in the design, development and manufacture of video, audio and lighted microchip products, and dimensional print for publishing, packaging, direct mail, shopper marketing, premiums and specialty gift cards. “I think this is a great lesson for all printers,” says Robert Winsor, Ph.D., a longtime Loyola Marymount University marketing and business law professor who has consulted with Americhip in the past. “Tim showed a lot of vision. He gave an entirely new life to the market.”

So if a company is incapable of re-inventing the wheel, so to speak, are they doomed to failure? Is there a secret formula to success? “I wish I had a great answer to this one because I could save a lot of hard working people their businesses and their careers,” Winsor says. “I guess the only simple piece of advice is to really understand your customer. Understand what alternative choices customers are willing to consider.”

“There are no failures – just experiences and your reactions to them.” – Tom Krause

There is a story Dr. Joe Webb, affectionately known as Dr. Joe, likes to tell about an article he read in a trade publication in 2010. The piece was written by a graphic arts equipment CEO who doubted that the iPad could usher in a new era for media. In the story, which Webb described as healthy skepticism, the CEO wrote:

“The idea that everyone will have an electronic device through which they access journalistic content is intriguing from a theoretical standpoint, but unproven from a practical one. Compatibility, formatting commonality and reliable distribution are significant hurdles.”

Webb says that each of these seismic media shifts required the purchase of a device. To work in harmony, the older devices co-existed with new technologies. Today’s computer and communication devices, he implores, are marvels of both speed and efficiency, allowing people to access information from virtually anywhere and at any time.

When Webb, a noted consultant, forecaster and commentator, and director of WhatTheyThink.com’s Economics and Research Center, first read the story, his immediate thoughts drifted toward the telephone competing against the telegraph, radio versus newspapers, television versus radio, and the Internet versus all traditional media.

The truth is that the economy always is reinventing itself, even when the economy seems to be slow. Webb believes that print will become a craft again amid this economic reinvention. “These next years will present great opportunities as well as great risks that require wise navigation,” he says. “Print’s role, and more importantly, the role of the evolving print business, will be explored by our entrepreneurs, as well as by our clients and competitors, in their strategic planning and in the daily decisions they make.”

Webb says there is no single right answer in a dynamic marketplace, but that all answers require an urge to act creatively and proactively. “Technological forces are shaping media markets in ways that could not always be foreseen in terms of their timing, but could be foreseen in terms of their impacts. Over this past decade, there has been no excuse for being blindsided by the impacts of digital media on print. Yet, we know that there were businesses that acted that way.”

So what of the notion that “print is dead?” “Somehow, the common wisdom of many in the printing industry seems to be that when the economy gets better, printing will get better, and may even return to what it once was,” Webb says. “That’s not likely with companies like Apple in the economy. The opportunities ahead will be quite different than we expect.”

Still, for reasons Webb cannot fathom, the “print is not dead” mantra keeps wanting to stick. “We just can’t seem to stop ourselves from blurting it out,” he says. “The new market for print doesn’t need an explanation of ‘not dead.’ The decision-makers are making decisions today, with today’s requirements, and they’re planning for a future that will certainly be more digital in nature. ‘Not dead’ is just talking to ourselves, affirming that by getting out of bed in the morning we’re somehow qualified for the competition of the day ahead. Continually talking about not being dead takes time away from discussion of results, new ideas, ROI and media integration.”

Greg Charleston, senior managing director of turnaround experts’ Conway MacKenzie, says pronouncing something “dead” or a “failure” is that knee-jerk action that reveals itself in times of grave challenge. “For many reasons, the printing industry has been in a steady state of decline and likely will remain in decline until at least 2013,” he says. “In a declining industry, there will be many businesses that fail. There is very little way around that cold hard fact. Survival in this economic environment is as much about attitude as anything else. Having a determination to survive and willingness to do what it takes will make the difference.”