Better Business: 'Making Lemonade' in a Tough Economy
March 2009 Issue
What leads to steadily increasing sales in today's turbulent economy? Phil Kohler, president and CEO of Image Orthopedic Lab, Santa Ana, California, has found answers that work for his company-and may work for yours. For Kohler and his partner, Rick Lamirande, COO, these are the keys to success:
- Building an executive team with complementary skills, avoiding duplication of efforts and expertise.
- Targeted marketing: the "rifle approach" as opposed to the "shotgun approach."
- Having a business plan-and following it.
- Being alert to the market's needs and demands-including changing trends-and meeting them.
- Applying the principles of a proven management guru to provide quality products with continual improvement of production processes-in this case, W. Edwards Deming, PhD, father of Total Quality Management (TQM).
Image Orthopedic's annual sales are about $2.5 million, with sales up 1.8 percent so far this year, despite the economic downturn, according to Kohler.
The firm employs about 40 individuals, 35 of whom are involved in the production and shipping processes. The company provides traditional orthotic and shoe fabrication for physicians, mainly podiatrists, as well as O&P companies. Image receives about 100-125 orders a day from accounts in all 50 states, with an average turnaround time of three days. "We ship 52 percent of our in-house orders every day, plus or minus 16 percent," Kohler says.
Kohler clarifies that the company does not provide other labs or medical accounts with supplies. The majority of orders-between 85 and 90 percent-are for either custom foot orthotics or customized sandals and other shoes, according to Lamirande. However, the lab also provides non-custom devices, including those for some high-volume accounts that are exclusively non-custom. All non-custom devices are manufactured in the lab; the company does not purchase and resell prefabricated devices. Image fabricates a few AFOs and other devices as well.
Lamirande points out that outsourcing orthotic needs to a company like Image saves physicians and O&P companies money, time, and hassle versus doing it themselves on what is, for many of them, a lower-profit item. "As far as expertise, quality, performance, and cost-effectiveness, it's better to make 100 at a time rather than one at a time," he says. "Foot orthotics are what we do, and we've done so many for so long that we're really good at it."
Image also has a walk-in center for patients. The center has proven to be strategically valuable to physicians in the area as well as to various O&P facilities. "It saves the doctors time, energy, money, and effort as opposed to shipping the orthotic back and forth," Kohler says. "They can just tell the patient to go down to the lab and tell Rick what they want."
However, the company does not directly solicit patient business in competition with doctors, and for good reason. A few years ago, Lamirande thought it might be effective to market directly to the public through cable television, newspapers, and magazines. Though business increased, physician referral sources were irked, and the increased business covered only the increased cost of advertising. "We were busier, but not making any more profit," Lamirande says. The company dropped that initiative.
Business owners should ask themselves the following question: Does a marketing strategy or any other change/initiative actually increase your profit, after a reasonable amount of time to prove itself, as measured against the additional costs and time spent implementing it?
Building the Executive Team
When Kohler and Lamirande formed Image Orthopedic, they knew that avoiding duplication of efforts and expertise among the executive team would be a cornerstone of building a successful business. Says Kohler, "One of the failures that we see in this industry and in others is, for instance, when two orthotists get together and basically say, like the old song, 'I've got a nickel, have you got a dime? Let's get together and get a little wine.' And what they have is a duplication of expertise. They may be fantastic pedorthists or orthotists, but they have limited background and skills when it comes to general business practices.
"The reverse is also true," Kohler continues. "You'll get guys who say, 'We've got this opportunity to get into this market; you're a businessman, and I'm a marketing guy, so let's go out and sell, sell, sell-make this really happen. When we get a bunch of orders, then we'll figure out how we're going to turn the production over to somebody.' By then it's too late. The doctors require fast turnaround time, so everybody has to start out on the same page, on the same day, on the same step, and marching to the same drumbeat.
"My partner, Rick, is the clinical liaison with all of the accounts. He runs the lab; I run the business. We don't conflict; we confer."
The next step was to attract a qualified marketing director. Mark Gullickson, a former executive at Mars Incorporated and a "Fortune 500-type expert," as Kohler describes him, fit the bill. Gullickson does not receive a salary, but owns a small percentage of the business. His expertise has helped Image to market to larger institutions. Although Image provides services to podiatric practices and O&P company offices, "We wanted to be more attractive to larger entities, such as Kaiser Permanente," Kohler explains. Image became an authorized lab for Kaiser, which sends between ten and 15 patients a day to Image from its various Orange County offices. "It's a fantastic business," Kohler says, "and we attained that because we have no duplication of expertise. We have a marketing pro representing us at a higher level than a traditional sales force." The Image executive team also includes a chief medical officer, Wes Kobayashi, DPM.
|Image Orthopedic's heel-post production area. Photograph courtesy of Image Orthopedic Lab.|
Kohler attributes much of the company's growth to the successful implementation of Gullickson's targeted marketing strategies. "We are very, very focused. We call it 'rifle-shot' technique versus 'shotgun,'" Kohler says. "We eliminate potential problem accounts by paying for the research necessary to evaluate companies before we approach them. With the thousands of [potential accounts] out there, you want the cream-the guys at the top who are obtaining the business, who are familiar with market trends and techniques, and who will be consistent users of our lab. Once you try to be everything to everybody, you start picking up the bottom feeders-and those generally require a lot of service and want to pay the lowest price. When you put low price and high service together, you run into problems."
In evaluating potential accounts, Kohler says Image is looking for companies with "X amount of employees, Y amount of doctors, Z amount of annual revenue, and a certain number of offices. We prefer multiple locations. You really separate out the producers when you fill in those components and focus on the companies who are doing the business. It's the 80/20 principle [the Pareto principle, which states that for many events, about 80 percent of the effects come from 20 percent of the causes-often applied to business; e.g., 80 percent of your sales come from 20 percent of your clients]." Kohler adds, "It's just as easy to work with the big guys as the little guys, so you might as well go after the big guys."
Have a Business Plan
One of the most important, but often overlooked, aspects to starting and running a successful business is having a business plan. "As a former consultant, I know people often don't have them," Kohler says. "They fall back on 'Well, Johnny knows what he's doing, and Jimmy knows what he's doing, so let's start making hay.' Well, the rows don't get planted correctly, and the corn grows off to one side, and the fields get cut down too soon, and they run into a series of problems because there is no plan.
"The business plan has to be a living, working, breathing document that people can refer to," Kohler continues. The plan can and should change to meet changing conditions," he adds. "Without a business plan, it becomes management by personality. It turns into 'he said, she said.' Staff members become confused and don't know who to talk to."
Recognizing, Capitalizing on Market Trends
Another key to success is recognizing and capitalizing on emerging trends and meeting customer demand. For instance, orthotics in flip-flops may sound like an oxymoron, but they have been a business boon for Image.
Explains Lamirande, "Typically, doctors prescribe orthotics to be worn in tennis shoes; however, that's not real life-people generally have at least ten to twelve different pairs of shoes." Especially in laid-back southern California, where "it's summer every day," Lamirande notes, people typically wear flip-flops and other types of sandals. "It's been a relatively new phenomenon that people, especially women, have decided it's okay to wear flip-flops everywhere, anytime. And practically nothing is worse for your feet than flip-flops!"
Footwear experts have two choices, Lamirande continues: Tell people not to wear them, or provide an environment that will at least protect their feet as much as possible. Human nature being what it is, most people will wear the styles they want, despite risk factors. "So we customize flip-flops with orthotics and customize some fashion sandals as well."
When people come in for a doctor-recommended orthotic for tennis shoes, they see the array of fashion sandals available in the walk-in center and often purchase them for customization as well. The lab can also customize high heels and other stylish shoes. Some customers even come directly to the lab for customization of their purchases from upscale department stores before they wear them, Lamirande notes.
Seeing the Positive Side
A likely factor in Image's success is a buoyant entrepreneurial spirit, seeing opportunities in what, for many people, would otherwise be a devastating blow. The company that previously employed Kohler and Lamirande was failing due to the owner's extravagant lifestyle. As a result, the two men were cut loose, but rather than agonizing over joblessness, they began their own business, combining confidence, optimism, and complementary expertise with a well-thought-out business plan.
Total Quality Management (TQM)
|Sandal production area. Photograph courtesy of Image Orthopedic lab.|
The foundation of Image Orthopedic's business plan is based on the Total Quality Management (TQM) principles and philosophy developed by W. Edwards Deming, PhD. Deming was an American statistician, professor, author, lecturer, and consultant who is noted for improving production in the United States during World War II. He is even more famed for his work in Japan, where he taught top management how to improve product design, quality, service, and sales.
Kohler is a passionate advocate of Deming's, who, among other concepts, is noted for his 14 key management and business transformation principles and the "Seven Deadly Diseases" of business.
For Kohler, one of the most important of Deming's 14 points is number 8: "Drive out fear, so that everyone may work effectively for the company."
Says Kohler, "People naturally fear failure-and in many cases, fear change-especially at work. Once the fear-switch is flipped, it can lead to a cavalcade of misdirected thoughts: 'If I try this and it doesn't work, my coworkers could laugh at me...my supervisors could find out...my boss would soon learn...I could lose my job...my spouse will be furious...I won't be able to find another job...my kids will be embarrassed at school...I won't be able to pay the rent, etc." These fear-based thoughts-we've all had them-race through the brain and inhibit improvement." Kohler notes that leadership can come into play here: the company, including employees from all departments, can develop "what-if" scenarios and conduct small, low-cost pilot projects and experiments to test the waters before making a larger commitment.
Companies often fail to successfully implement most management philosophies, including Deming's, because they give up too soon-within 6, 12, or 18 months, Kohler points out. "Some merely wait for the current management style to fail and then go with whatever the new management style du jour may be."
According to Kohler, some business owners opt out of trying new management principles and strategies for a number of reasons:
- We've never done it like that here, and we never will."
- "It's my way or the highway."
- "I want everyone to stay until the job is done, but I have to leave now to take my kid to soccer practice."
- "That's fine for Wall Street, but that won't work on Main Street."
- "We didn't study that in business school!"
"Many also fail [with Deming's methods] when they attempt to 'cherry-pick' from the 14 points and create their own style," Kohler adds.
Lamirande shares Kohler's enthusiasm about Deming's principles. He notes the friendly, cooperative, productive attitude in the workplace. For instance, when problems arise, all work together creatively to find a solution. "Everyone takes pride in having solved the problem as a team," Lamirande says.
To sum up Image Orthopedic's recipe for success: Mix together complementary executive expertise and quality products and add in continuously improving processes, targeted marketing, a solid business plan, and the ability to recognize and capitalize on emerging trends and customer demand, all while following proven, sound management principles-and you can make lemonade even out of the lemon that is today's downward-trending economy.
Miki Fairley is a contributing editor for The O&P EDGE and a freelance writer based in southwest Colorado. She can be contacted via e-mail at firstname.lastname@example.org
For more information on Deming's concepts and principles, visit http://deming.org and in his books, including The New Economics for Industry, Government, and Education (1993), Out of the Crisis (1986), and Quality, Productivity, and Competitive Position (1982).