Nailing new profits
FSB helps a pallet recycling company win more business by changing its image, securing large clients, and broadcasting its services to potential customers.
(FSB Magazine) Hammond, Ind. -- Humble in design and crude in construction, the pallet is more vital than ever to local and global commerce. Nearly everything rides into the economy on one: sacks of mail, gallons of paint, kegs of beer. Pallets travel around the world, from factory to port to the loading docks of the local shopping center. For many old pallets the end of the road is a boneyard in Hammond, Ind. There, laborers break them down, rebuild them, and return them to the stream of commerce.
Scott Pickens, 44, owns that boneyard. CLM Services (no website; telephone: 219-932-5308), his company, recycles more than a million pallets a year for scores of customers in and around Chicago. He bought the business about two years ago, after a stint as a co-owner of a trucking company in Detroit. At the time it seemed like a good deal: $750,000 for the 7.3-acre property and the company, which looked solid if stagnant, with $1.4 million in annual revenues and a net loss of $96,000 in 2005. CLM's former owner was getting out after 33 years in the pallet business. All the place needed, Pickens figured, was a young man's zeal.
He was wrong. Recycled pallets are at the rock bottom of the supply chain. Customers are fickle and slow to pay. Margins are splinter-thin. In 2006, his first year as owner, Pickens managed to boost revenues to $1.5 million and trim the net loss to $15,000. This year things are tight: Pickens says he hasn't taken a paycheck in months.
Wringing money from the company would be easier, he concedes, if he didn't provide CLM's 17 workers basic health insurance, a benefit they had never had. The employees pay a deductible for medical and prescription drug coverage that costs Pickens $7,000 a month. But he is committed to continuing the plan. "I won't run a sweatshop," Pickens says. Actually, that's just what the place resembles in the brutal summer heat when FSB's makeover team arrives. Inside CLM's two ramshackle production sheds, temperatures can top 100 degrees. (In winter, bitter winds rake through the open-sided buildings.) New doors aren't an option.
Pickens can't get another bank loan. To purchase the business he maxed out his credit, borrowing $550,000, secured by the property and receivables. "I'd shut down if I didn't feel so responsible for my employees," he says. "Some of them started fresh from high school in the 1960s. This is the only way they know how to make a living."
To survive, Pickens must boost cash flow, streamline production, and cut costs. He made a heartfelt plea to FSB: "I need help. I can't fail these people."
Get a closer look at CLM Services
We agreed, and recruited three top business experts to assist him. On this muggy day they assemble around a well-worn conference table in Pickens's cramped office to sift through his options. Lois Scott, 46, is tiny and intense. A former Wall Street investment banker, she is president of Scott Balice Strategies, a financial consultancy in Chicago. Ron Daly, 60, from Olympia Fields, Ill., is a former president of R.R. Donnelley Print Solutions and now an adjunct professor of strategy and leadership at Chicago's Loyola University. Douglas B. Warren, 49, a former banker, is president of Mainsail Finance Group, a financial consultancy in Lake Bluff, Ill.
Pulling in new business on a tight budget
At first Pickens seems overwhelmed by the firepower gathered around the table, but Warren puts him at ease by pointing out that he once wrote a business plan for an aspiring hot-dog-stand owner.
Pickens starts the meeting by saying that his most urgent issue is finding motivated salespeople to reel in new customers. Selling used pallets is unglamorous. Most of corporate America buys new pallets. CLM's typical customer is a small manufacturer or wholesaler, whose harried owners have no time for salespeople making cold calls. And even if he could find somebody eager to tackle the business, Pickens says he'd have trouble covering the base salary such a rep would expect. "Everyone wants an office, computer, and weekly pay of $1,000," he says. "I don't have the budget for that."
Scott shows a bit of impatience. "So, you have problems," she says. "Deal with them and move on. Who runs the shop when you're out?" Pickens says every thing operates smoothly under the watch of the company's foreman, Juan Aceves Jr., 44, who has been with CLM since 1981. Aceves's father, brother, and cousin all work there. Like many of Pickens's employees, they are legal immigrants from Mexico.
"Forget about hiring salespeople," Scott says. She tells Pickens he has to be the company's top salesman. "You believe in your product's quality and your dedicated workforce. Potential customers recognize integrity when they see it. Every hour that you spend in the office hurts the business." Use your best customers to find new ones, she continues. Ask your top ten customers for three referrals; that's 30 possible new accounts. "And remember to thank customers with gifts for every new client they refer to you," she says.
Securing a crucial client
Pickens then tells the group about a critical opportunity. An executive for Cleveland-based paint giant Sherwin-Williams has called Pickens and wants to meet the following week. His company is thinking of hiring CLM for a three-month trial. The deal could pump $20,000 a month into CLM.
"How are you preparing for the meeting?" Daly asks. Pickens says he plans to listen carefully to the Sherwin-Williams reps. Daly shakes his head. "Not enough, man," he says. "Big companies run on statistics and data. You've got to make a professional presentation. You say you make quality pallets - sturdier than your competitors'? Give me stats!" Daly tells Pickens to create a binder of charts and graphs showing CLM's strengths: speed, reliability, its safety record, its delivery schedule. Pickens offers a tidbit that pleases Daly: CLM shipped about 250,000 pallets in 2006 and only 20 - far less than 1% - were returned as defective. Scott and Warren nod.
The Sherwin-Williams meeting is the most vital item on CLM's agenda, the trio tell Pickens. Get endorsements from customers for the pitch, Daly advises. Hang a banner over the entrance to welcome Sherwin-Williams, Warren suggests. Introduce the foreman and other key employees to the reps, Scott says. That will let them see that many generations of one family work there. Their loyalty to CLM is impressive, she adds, and it stresses that his is a family-owned, socially responsible company.
Changing the subject, Scott asks about the competition - how can CLM set itself apart in this commodity business? Pickens explains that he is not the only pallet supplier who is struggling. One of his competitors is trying to compensate for slow business by moonlighting at a second job.
"Kill him before he dies of natural causes," Daly says. "Steal his customers," Scott adds. "If you don't know who they are, follow his trucks."
Pickens says his business already stands out. For example, he provides same-day pallet delivery to customers who forget to place orders. That's an opening, says Warren: "Define CLM as a service business that saves the day for the manager who has to get that shipment out the door. That's valuable."
"Clean up the yard," Daly adds. "It's nasty out there." Indeed, the place looks like a windblown industrial graveyard, with a grimy tide of discarded coffee cups, fast-food wrappers, and yellowed newspaper pages beating against the stacks of pallets. That won't do for a client such as Sherwin-Williams, which is known for its spotless retail stores staffed by clean-cut employees in crisp khakis and red polo shirts sporting the company logo. Try to mirror the best practices of a major potential customer, Warren advises Pickens. "It shows you understand them," Daly adds. "How about polo shirts with your logo?" Scott offers hopefully. "One for you and one for Juan?"
Easing the cash crunch
Finance is the next thing on the agenda. Scott nods approvingly when she hears that Pickens's $550,000 business loan has a fixed interest rate of 5.75%. The $5,454 monthly payment would be manageable if customers paid their bills on time, Pickens explains. Some delay for months. Last year CLM offered a 2% discount on invoices paid within ten days. Customers still didn't pay on time but factored the discount into their checks anyway. "We gave away $70,000," Pickens says.
All three experts urge him to analyze his customer list to identify the slow payers. Eliminate the most bothersome ones or add a surcharge when you give estimates, Scott advises. Use discounts to reward only those that pay promptly.
To ease the monthly cash crunch, move all production into one shed and lease or sell the other. "You're not using all your assets," Daly scolds Pickens. "Squeeze every penny out of the place."
Weeks later Pickens reports that he has followed the experts' advice and used statistics to demonstrate CLM's capabilities to Sherwin-Williams. He also brought his foreman to the meeting to emphasize the company's long history. Sherwin-Williams signed up for the three-month trial and after only three weeks was so pleased with CLM that it gave Pickens its pallet work indefinitely. With Sherwin-Williams on his client roster, Pickens expects to reel in more corporate business. These days Pickens's parking lot is full of spiffy new trucks bearing the rainbow-colored logo of Sherwin-Williams. Foreman Aceves and his crew are racing to unload and repair the thousands of paint pallets that roll into the yard each day. "I think we've turned the corner," says Pickens. We'll stay in touch and tell you how things turn out for CLM. 
