4 Pincers for Crushing Your Competition
Chances are good that your business is competing against rivals for every dollar it brings in. The good news is that you can beat the competition and get joy from doing it.
That's my conclusion after learning how Chicago-based Berlin Packaging, a distributor of plastic, glass and metal containers and closures for the food and beverage, household, personal care and healthcare markets, grew from $69 million to $900 million in sales over 26 years.
Berlin Packaging grew over 10 times faster than the industry for the last decade by getting joy from crushing its competition.
Berlin Packaging started life as a division of Alco Packaging. In 1988, Andrew Berlin's father, Melvin, put down $500,000 and borrowed $11 million to acquire the business that was losing money on $69 million in revenue.
By the end of 2014, that business had grown to $900 million in revenue. In the decade ending that year, it had grown at 22.6 percent annually, far faster than the 1.5 percent to 2 percent growth rate of the packaging industry.
And in October 2014, Berlin sold a chunk of the company to a private equity firm for $1.43 billion -- about 14 times its $100 million in earnings before interest, taxes, amortization and depreciation (EBITDA). He owns a minority stake in the Chicago White Sox and Cubs and remains the company's chairman and CEO.
Berlin started working at 5 years old for his father, who ran a tin plating business in Chicago. He attended Syracuse University and from there went to Boston College, where he studied history with the goal of becoming a history professor.
He soon tired of that and decided to become a lawyer because he liked the idea of being a Perry Mason who got the guilty person to confess to a crime in 45 minutes. After graduating from Loyola University Chicago Law School, Berlin started practicing law and lost interest in that after about two years.
He got what he called "the commercial bug" and has remained infected with it ever since. He gets a kick out of boosting a company's EBITDA. And he did that when he started running Berlin Packaging, which had 35,000 products. Berlin developed a plan to make the company profitable by getting rid of slow-selling items on its inventory shelves, cutting operating expenses and selling more of what customers wanted to buy.
To keep Berlin Packaging growing at 10 times the rate of this $55 billion industry, he uses four principles to "crush the competition."
1. Hire for traits, not skills
Berlin believes that his ability to hire the industry's best talent helps the company to win. "When we bought the company, it was hemorrhaging intellectual capital. There was lots of mediocrity, no skill development. Training, recruitment, and retention were poor," he explained.
Berlin has turned that human resources problem into a hard-to-copy way to beat competitors. He calls it "Camelot Culture." As Berlin said, "We want every worker to be a dynamic leader who believes in the strategy, wants to grow professionally, seeks collegiality and a sense of belonging,and a derives joy from crushing the competition."
What kinds of people does he want to attract to that culture and how does he do it? "We hire for traits. When I interview candidates, it is like an iceberg. I only see the 5 percent to 10 percent of the person -- how they look, what it says on their resume. We do situational interviewing to uncover whether they have traits like imagination, integrity, creativity, ambition, wit, and a willingness to work hard. We can teach them skills but by the time they interview with us, they either have these traits or they don't," explained Berlin.
The lesson here is that the CEO is the keeper of the culture. And the culture is defined by the traits of the people a company hires, develops, and promotes.
If your company has the right culture, it will attract the top talent and push them to stay ahead of its rivals.
2. Give talent an offer it can't refuse.
Once you find talented people who fit with your culture, how do you attract, motivate, develop, and reward them?
For Berlin, the idea is to make them an offer they can't refuse. "We use a T-chart -- a psychological contract with our employees. We owe our employees better pay and benefits than competitors provide, a big and growing investment in their skill development, a commitment to helping them with their career path, strong leadership that knows where the company is going, and collegiality."
In exchange for all that, Berlin expects its people to boost the company's EBITDA. "Our people know how their actions improve our income statement. We expect each employee to boost revenue, cut operating expense, or improve productivity. For example, the receptionist looks after the esthetic of the offices among other duties. She often puts things out to bid. Reduce costs of plants and flowers, the cost of soda and coffee, lunch vendors," said Berlin.
Employees are rewarded for their EBITDA contribution. As he said, "Every dollar saved is equated to EBITDA margin so everyone knows what a dollar saved equals in dollars earned on a sale. And we reward people with quarterly bonuses based on what they do to boost our bottom line."
Any company should be able to use this model -- especially if it teaches people how they can each contribute to boosting the company's earnings.
3. Turn customers and employees into your best sales people.
Happy employees can make for happy customers. And happy customers can give your company strong references to others. In this way, your company can grow steadily while spending less to hire and market because employees and customers remain loyal.
It sounds glorious, but how do you make it work? Berlin Packaging focuses its attention on improving what is known as a Net Promoter Score (NPS) -- a number that measures how willing someone is to recommend your company to others.
Explained Berlin, "We use NPS to measure employee and customer willingness to recommend us. For the packaging industry, the typical NPS is seven. When we started measuring NPS in 2011, we were at 30. By 2015, our NPS had risen to 51. Seventy four percent of our employees give us nines and tens, and we have a 93 percent employee retention rate."
4. Give away EBITDA-boosting services to get long-term contracts.
If your customers want to pay the lowest possible price, how can you gain market share while making a profit? In the case of Berlin Packaging, the answer seems to be to outperform rivals on factors other than price by helping them increase their cash flow. As a reward, Berlin wants long-term contracts -- which I would guess helps it to lower its costs.
The first way Berlin Packaging wins is to deliver quality products, on time, at a competitive price. "For the last 131 months in a row we have delivered 17,000 shipments a month 99 percent on time -- that is better than the industry. And our products conform to customers' quality standards," he said.
But Berlin thinks of these as table stakes -- the contract-winning test is how much Berlin boosts customers' EBITDA. To do that, "We give away services for free -- lending customers money to buy productivity-enhancing machines at zero interest, helping customers to install ERP and NPS systems and lean manufacturing, working with them to get ISO-quality-certified, and our Studio One Eleven division helps them to analyze weaknesses in their competitors' product lines and develop products to exploit those weaknesses." explained Berlin.
"In exchange for boosting their EBITDA, which we report to them every six months, we ask them to give us long-term supply contracts. We have gotten our customer churn down to under 1 percent of sales."