Friday, January 25, 2013

Death of a Salesman?

Quick... what do teachers, doctors, restaurant servers, and young girls all have in common?...

... before you answer... consider the following exchanges I’ve recently had with all of the above...

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Teacher: Mr. Kalb, I really think that your daughter is tremendously gifted and has a real shot at a top-tier college.

Me: Really?... you mean like an Ivy League type of school?

Teacher: Perhaps... although she’ll need to work on her SAT scores to get any real consideration from those universities... I can recommend a prep course that meets every Saturday morning for 4 hours that guarantees to improve her scores by at least 300 points... it’s a little pricey but the results are well worth it...

Me: Well I want to do whatever I can to help her get to the college of her choice... so let’s sign her up.

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Doctor: I have reviewed the tests from your physical exam... everything looks really good except your LCL cholesterol level... it’s slightly above average... it’s nothing to worry about... but I’d like you to consider start taking a low dose of Lipitor just to get it down a bit.

Me: High cholesterol?... me?... I ride my bike 150 miles a week... do you think it could have been that BLT I had for dinner last night?...

Doctor: Just because you’re in shape doesn’t mean you can’t have high cholesterol... it’s genetic as well as life-style and diet related... it could have been that BLT you ate last night... but let’s start you on the medication just to be sure...

Me: Well you’re the doctor... so I trust you.

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My Friend (at dinner): Um... I’m thinking about having the sea bass special... is it any good?... I don’t want it to be too fishy...

Server: Oh... the sea bass is my favorite dish on the menu... it goes especially well with the Iron Horse chardonnay...

My Friend: Perfect... I’ll order the sea bass and a bottle of the chardonnay...

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Adorable little girl at my door: Hi... my name is Ashley and I’m selling cookies to support my girl scout troop... would you like to buy some cookies so we can go to the Girl Scout jamboree and meet other girls from around the world?...

Me: I’d really like to help you out... but my doctor told me that I can’t eat cookies any more... because I have high cholesterol.

Little girl: That’s okay... you can buy some cookies and donate them to our military troops overseas... it’s called "Operation Thin Mints"... this way they can eat your cookies...

Me: Okay... that sounds good... I’ll donate 5 boxes.

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When I first mentioned teachers, doctors, restaurant servers, and little girls... I’m sure you were thinking... oh yeah... you mean ruthless "salespeople"...

Say the word "salesman" and it conjures up mental images of Willy Loman, Glengarry Glen Ross, Avon ladies, Amway, and Fuller Brush men... men dressed in plaid jackets and brown slacks... driving big cars... with a case of samples and a book of prospects and customers...

These are the sleazy, say anything; do nothing types... with one foot in your door and one hand in your pocket... these are people trying to hustle you to buy something you don’t want... don’t need... and is way too overpriced for the value delivered...

Traditional salesmen typically rank up with politicians and lawyers as the most despised professions.

But the world has changed... and so has selling...

In the most recent census, 1 out of every 9 people (11%), considered themselves to be in "sales". These are people who are paid to sell products and/or services... professional sales people...

Now consider for a moment what the term "sales" really is...

Selling, in the broadest sense, is influencing, motivating and/or moving others to do something that they would not ordinarily do... it is providing information... it is offering up options... it is helping others make a choice... it is the art of persuasion.

Think about your work for a moment... do you attempt to motivate others to do an act (like a teacher motivating her students to do their homework)?... do you provide information so people can make informed choices (like an auto mechanic pointing out the excessive tire wear due to a bad alignment)?... do you try to influence how others act (like a computer programmer trying to develop a new useful phone app).

How about a healthcare professional trying to persuade a patient to modify their lifestyle to live a healthier life?...

Are you in customer service performing pre- or post- sales activities?

Do you provide a set of options to your clients, such as a contractor, an accountant, or a banker?... if so... then you are selling...

Even if your job doesn’t involve working with the external public (or government jobs), your position usually requires a certain degree of selling from time-to-time... selling your new ideas to management... pleading for new funding for your project... selling girl scout cookies to your co-workers to help your daughter earn that prize...

It is almost impossible to think of any position where no selling occurs...

... regardless of what title is printed on our business card... we’re all in sales.

Several years ago... I was having an argument about where to go to dinner with a friend... she is a quiet introverted artist who would seem (at least on the surface) to be the farthest thing from a traditional sales person.

We each presented our ideas and arguments to one another as to which restaurant was better. I was hoping to strike a compromise position where we could find a mutually agreeable restaurant... however all at once in a very quiet but determined voice... she exclaimed that I was a trained professional sales person... and she was NOT going to try and negotiate with a professional... so we were going to her restaurant... period!!

One of the greatest acts of salesmanship I had ever seen... from a most unlikely source...

Thank you for your kind support of OptiFuse, where we are always here to provide our customers with the information they need to make an informed buying decision.

Friday, January 18, 2013

Opportunity Lost...

"Life is a sum of all our choices"
~ Warren Buffet 

"Jim, this is a perfect investment for us", said my friend John, one of the participants in our discussion.
"You, Steve, and I can pool our money to come up with the down payment... and the money we collect from the rent will cover our monthly mortgage payment... it’s perfect!"

"Well... let me crunch the numbers you gave me to see if it makes sense", I replied, "I’ll let you know in a few days."

John and Steve have been my friends since college. John is a project engineer for a large defense contractor. Steve is a high school science teacher. Neither of them have any professional expertise in real estate outside of owning their own homes.

As it so happens, John works with a woman who rents a condo from an elderly couple. The condo is in a gated planned community not far from their work.

The woman told John that their landlords are looking to sell their condo as they are hoping to retire in the near future and would rather travel than fix leaky plumbing.

John asked Steve and me over his house to discuss the possibility of the three of us buying the property before it goes on the market.

John had called the elderly couple to inquire the asking price and some of the details regarding the taxes, homeowners’ association fees, Mello-Roos (special assessments for schools / fire / and parks), and insurance.

The couple was asking just over $200,000 for the property (which was right in line with the comps in the immediate area). The taxes and Mello-Roos were approximately $4000 per year and the association fees were $300 per month.

John also contacted his banker to ask about currently mortgage rates and lending criteria. The banker indicated that banks were indeed lending on income properties with favorable rates (less than 4%)... provided the investors put down a minimum of 30 percent.

In order for us to purchase the property, the three of us would each need to come up with 10% or approximately $20,000.

The monthly rental income was $1500 which was about the market rate.

After running the numbers, I could see where there would be a positive cash-flow of about $200 per month from the investment. In addition, there may be some appreciation of the asset sometime down the road.

Quantitatively, the deal looked pretty sound (at least at first glance).

My portion of the down-payment could be funded through my retirement account so I wasn’t necessarily worried about that particular aspect but there were some real qualitative things bothered me about this project. 

·  Currently, there were renters there, but what happens if the renters moved out? How long might the unit be vacant?

·  How fiscally sound was the homeowners’ association? With so many condos in foreclosure these past several years, did the association actually have escrowed funds to do the necessary repairs when needed?

·  The unit was now over 20 years old, how would we pay for repairs if and when we needed to make major repairs?

·   What do I (or my partners) know about being a landlord? None of us had any experience in this field to ask the right questions and avoid what might be expensive pitfalls.

·   Real estate might not be very liquid in this market. If something went wrong, we could be stuck owning something that we didn’t want to keep or risk taking a big loss if we needed to sell at a "fire sale" price.

There was also one calculation that I didn’t make when doing my first analysis.

I reviewed the income and expenses of the investment, but I didn’t consider the cost of time and money as opposed to putting the resources into an alternative investment.

If I considered all of the time I would need to invest in managing the investment... plus the $20,000... could I actually create a better return for my investment by doing sometime else?

This is the opportunity cost (or better said... the lost opportunity cost) on my investment.

This is an analysis that is sometimes difficult to truly assess. It involves a lot of "what-ifs" using assumptions that may or may not occur.

In the end, it distills down to a simple problem: We don’t know... what we don’t know... and we can’t accurately predict the future.

This is a concept that plagues me each day.

All of us have a limited amount time and/or money (even the richest among us). If we spend our limited resources doing something... then it is no longer available to do something else.

Each day at OptiFuse, our phones are constantly ringing with potential customers who are asking us to quote pricing and availability, provide them with sample parts, and/or help them with technical support.

We will always try and assist the customer with whatever they need in order to buy our parts.

However, for a variety of reasons, and more often than not, we will NOT make the sale.

Despite all of our efforts, our pricing might be too high, our delivery too long, our products not exactly equal to our prospects requirements, or a slew of other potential issues that will cause the customer to buy the parts from another source.

Some times we might spend months of time and thousands of dollars pursuing a sale only to be told no in the end.

We are of course disappointed that we did not make the sale... but more even more disappointing is that we could have put those limited resources towards other projects that we might have gotten.

There’s the dilemma...

If we don’t labor and plant the seeds... then we definitely won’t have any fruit of the labor in the future...

... but even if we do make the effort... we are still unassured that the efforts will pay any rewards.

Our only guarantee is that if we don’t do anything... then we won’t be afforded the opportunity to succeed.

In the end... I decided against participating in the purchase of the condo with my friends.

Steve and John are going forward with the project and I wish them well... I might rue the day for not joining up with them... but real estate isn’t my business...

Manufacturing and supplying circuit protection is what I know and what I’m good at... and in the end offers me the best opportunity for success...  
Thank you very much for your support of OptiFuse where we can help you to find success with your circuit protection needs. 


Friday, January 11, 2013

The Forseeable Future...

Intelligence is the ability to adapt to change
~ Stephen Hawking

At OptiFuse, January is reserved for creating an operating budget for the upcoming year.   

Generally, I will first meet with our sales staff to try and determine what our projected revenues will be.  Together, we will review the past sales history of each and every customer.    

We then will try and assess whether this customer has sales that are trending up, trending down, or remaining constant.  We will then take a look at potential projects and new business opportunities at the customer.  Finally we will assign a projected sales number to that particular customer in the box beside the account name.

One by one, we go through the entire account list.

After which time, we will total the projected revenues contributed by each customer.

To this total, we will then add a "new business" sales number.  This is some random number that we seemingly select out of thin air.  This pie-in-the-sky number is a way to try and account for those new sales opportunities that are completely unforeseen in January but will somehow materialize before the year-end.

Total those two numbers together and voila... there you have it... our projected revenue for the upcoming year!

At that point the "fuzzy math" gets a little better.

With incredible accuracy, the rest of the numbers follow a very logical and predictable path.

We know within a couple of percentage points, what our production and freight costs will be.  Applying this percentage to the sales number, we can very accurately predict what our annual gross profit will be.

Using historical data, we know within a couple of percentage points, what our occupancy, compensation, operations, sales, and interest expenses will be.

Subtracting the expenses from the gross profit, we can then predict our net profit.

We then use time-tested benchmarks to determine our optimal inventory days, A/R days and A/P days.  This helps us to manage our cash-flows.

This budgeting process is textbook management and accounting... I’m certain that the late management legend and business guru, Peter Drucker, would most likely approve...

...but somehow, theory rarely conforms to reality... it just never seems to work in real life...

The fundamental flaw is that we have no real idea what our true revenues will be from one year to another.  The expense side is generally predictable.  This is because expenses are based on our own actions. 

Conversely, revenues are unpredictable because they are solely dependent upon the actions of other people (customers).

Sure... we can try and make calculations based on previous sales years... we can look at back-log and try to use that as a gauge for future revenues... we can plug in an educated estimate as to what we reasonably can expect for unknown sales opportunities...

...but in the end... it’s all just a hopeful guess trying to predict what the buying habits of our customers and potential customers might be over the next 12 months.

A Tale of Three Years

Over the course of the last three years at OptiFuse, we have been significantly wrong with our revenue projections... which needless to say... caused us a multitude of management problems along the way.


In 2010, in the middle of what has been characterized as the worst economic conditions in our lifetime, our sales revenues were up over 30% from what should have been expected in early January.

We rationalized this great growth in sales as validation that our message was starting to resonate with our customers and the marketplace in general.  Our products were being readily accepted as a low-cost / high-quality alternative to the incumbent market leaders.

Due to the surging sales, expenses and inventory levels were significantly increased to keep up with demand growth.

We were finally on our way to hyper-growth and the riches that would certainly soon follow...


In 2010, the company had turned a corner and in the year that followed, it was our intention to keep the upward sales trend moving along the same direction.

In January of 2011, our team concluded that we could reasonably expect sales to continue to grow... at worst case... grow at 10-15%.

Well, so much for the great crystal ball... Sales in 2011 were down almost 15% from the year before (not 15% down from the budget number... 15% down from the previous year!).

There was no reasonable explanation for the drop in sales.  The global economy seemed to be recovering, the stock market was up, and overall, the general consensus was that the worst of the recession was behind us.   

Still in the end, our customers (based on demand from their customers) weren’t buying as much of our product.

Our product quality had not changed... our pricing had not changed... and our customer service levels had not changed...

We were at a loss as to what predictors we had missed... what did change?... what did we do wrong?...

Due to the losses in sales, we needed to react sharply and quickly reduced inventory and expenses.  Fortunately we reacted fast enough to the changing conditions so an economic catastrophe was averted.


After a disastrous 2011, we needed to buckle down and get back to basics. 

We decided that we needed to get ourselves out of the office and spend more time in front of customers.

We needed to update our sales literature, invest in sample kits, and revamp our website.

The problem was that we were still smarting from lower than expected sales the year before so there was very little extra cash to invest in these worthwhile projects needed to once again grow the company.

And to top it all off... these investments were still wild gambles... there were no guarantees that they would actually pay dividends any time soon...

After a great amount of soul-searching and some debt restructuring, the decision was made to move forward on these projects despite the inherent risks...

A national sales manager was hired, a new full-line catalog was created, and a completely revamped website was launched in 2012.

It appears that the gamble seemed to have paid off...

Year-on-year sales were up over 40% in 2012.
Now specifically... why were sales up?... well unfortunately, I truly cannot answer that question...

I’d like to believe that it was hard-work and doing all the right things right... but in the end... I’m not really certain of anything anymore...

Foreseeable future

The "foreseeable future" is an oxymoron.

We know our customers, our products, and our market better than almost anyone in our industry... but even with all of that knowledge, I do not believe that we can truly accurately predict what 2013 (and beyond) will hold for me and OptiFuse.     

The lesson here today is that no one can accurately predict the future... regardless of how much data, experience, skills, and knowledge one has.  Markets are still unreliable and move faster than ever (in both directions).

My best advice is to try and continuously move with the changing environment... constantly re-examining our positions and our strategies... and adapting to the changes quickly.

The foreseeable future is but a few minutes from now...

Wait... my phone is ringing... my foreseeable future could be changing...

Thank you very much for your support of OptiFuse as we find ways to quickly adapt to our customer’s needs.

Friday, January 4, 2013

Your Best Shot...

I happen to be a rabid fan of college basketball. I literally bleed red and black (well... red at least) for my San Diego State Aztecs.

I’ve been a long-time season ticket holder and attend all of the games, unless I’m out of town on business.

While at a game recently, I watched in delight, as one of our sharp-shooting guards hit three 3-pointers in a row from nearly the same exact spot on the floor. This player seemed unstoppable from beyond the arc. No matter what the opposing team did, the player continued to drain 3-pointers from the outside.

As the first half continued though, this same player no longer was content to catch and shoot the ball. Now suddenly, when he got the ball, he attempted to drive toward the basket looking for layups against the much taller interior players.

The results were as expected...

He had two of his shots blocked... two additional shots missed the mark as he needed to avoid the stretched arms of the taller players and shot the ball while off-balanced... and finally he committed a turnover as he lost the dribble in traffic.

As I was watching this from my seat, I couldn’t help but feel a fan’s frustration with this particular player’s performance.

Why did he feel the need to abandon the things that he did extremely well (long range 3-pointers) and try to do things he wasn’t particularly good at (dribble drives to the basket)?

He is an expert at doing what he does best... why do something different?

Perhaps the young man was trying to prove to himself, his coach, his teammates and the fans that he was a multi-dimensional player who had additional skills beyond that of being a sharp shooter... but this simply wasn’t the case... he was great at one thing and mediocre at the others.

At half-time the coach must have pointed this fact out to him, because in the second half, the player stopped trying to do things that he was unsuited for and focused on the things he does well.

He finished the game as the game’s leading scorer and did not commit another turnover for the rest of the game.

As I was sitting in post-game traffic, I started thinking about what I had just witnessed that evening...

Here was a player who had perfected his talent into a great skill... a skill that he was very successful at performing... but for some unknown reason... he abandoned the very thing that made him successful in order to pursue something different.

Unfortunately, I see this same thing almost every day in business...

I watch in horror as the company’s superstar salesperson gets promoted into a sales management position only to fail miserably.

It’s not for the lack of effort... and in fact... the new sales manager works harder than she’s ever worked before... the problem is that she doesn’t possess the skills and inherent talent necessary to excel at her new sales management job.

That’s because a sales manager’s true job isn’t to grow sales... it’s to grow sales people!

This person isn’t a sales manager... this person is a sales person... they should stick to doing what they do best.

In the same way, we wouldn’t expect the salesperson to be great at accounting or engineering... those are completely different skill sets.

I’ve also seen where the "creatives"... those people at a company who are charged with creating and developing new ideas... are saddled with writing reports, following antiquated and bureaucratic procedures, and developing fiscal projections.

This is not what creatives are supposed to be doing... they should be creating fresh new ideas... not completing departmental P&Ls or writing sustainability reports...

I suppose that there is an argument that a person needs to be developed into a more "complete" well-rounded individual... someone who understands the "big picture" and can grow into new and more challenging positions within the company.

Can you imagine hiring an auto mechanic who regularly only uses one tool to fix your car?... however the idea isn’t about limiting the tools used to create an outstanding performance... it’s about limiting the scope of the work.

While it is true that a great mechanic learns to use all of the tools in his tool box... the mechanic still just works on cars... he isn’t expected to fix your water heater at your house (although he might have the mechanical talents to do this work as well)... fixing water heaters is not what they do best.

The main idea here is that we have certain God-given talents that we are good at.

We should be working hard to honing those "good" talents into "great" talents... by developing our natural skills into our own "unstoppable shot".

Micheal Jordan was the best ever at hitting clutch jump shots... but he gave it all up to try and hit a curve-ball... and struck out in the process...

Thank you for your support of OptiFuse where we continue each day to become better at what we do well.