That morning our friends from Kraft Foods were visiting Love and Quiches. We were supposed to spend the day in the Freeport facility working on a co-branding project, but we ended up staring at the screen of a tiny fourteen-inch TV in our small conference room. As many Love and Quiches employees as could fit into the packed room watched with us. It was so surreal that we found ourselves shaking our heads, trying to clear our eyes of these images. We thought it couldn’t really be happening. But it was, and we saw it all.
Later that day, our traumatized visitors from Kraft eventually found their way home, but it wasn’t easy. The disruption was monumental. Nothing was moving.
Our buyer was in Las Vegas for a big bakery show. She had to get back somehow, but there were no planes, of course, and no cars were available to rent. She approached a complete stranger who got the very last car at one agency—perhaps in all of Las Vegas—and was heading east; she offered to share the driving. These strangers spent almost three days traveling together—each thinking the other could very well be Jack the Ripper—before parting at the George Washington Bridge. Both of them were relieved finally to be near home and convinced they would keep in touch. But of course, they never saw each other again.
I have a friend whose daughter-in-law lived downtown; she literally ran uptown barefoot in her pajamas with her half-naked newborn, dust and debris everywhere, found her way out of the city, and never returned. She left behind her clothes, her furniture, everything.
New York had been brought to its knees, and so had Love and Quiches. We got clobbered, as did so many other businesses. Twenty-five percent of our business at the time was within the airline industry: obviously not a very great place to be just then. We suffered hundreds of thousands of dollars in canceled orders and hundreds of thousands more in losses due to what was now obsolete and irrelevant inventory, both finished and raw, already produced in anticipation of filling those orders.
We had hundreds of thousands of additional dollars tied up in inventory for our other channels of business, not to mention our lease for storage space across the street and the accompanying carrying costs. In short, our glut of inventory was a recipe for disaster.
Everything came to a dead stop. There was a mass reshuffling in our customer base, especially those segments we serviced that were heavily travel related. The phone stopped ringing. Long-standing contracts were canceled because of the severe disruption, and there was plenty of other collateral damage. Sbarro lost two units when the towers collapsed, although, miraculously, no employees lost their lives. Their hundreds of units in airports across the country suffered, however, which led to their distributor filing for bankruptcy. That hit us with a further loss of even more hundreds of thousands of dollars. This distributor had never been a good payer, and I often had to appeal to my friend Joseph Sbarro himself, who would call the distributor for us, raising his voice and demanding payment on our behalf, so that there would be no disruption of supply to his restaurants. But now the distributor had gone bankrupt altogether.
To add insult to injury, we were sued by the bankruptcy receiver for the last payment of about $250,000 we’d received from the company—only a part of what they owed us! Because of a quirk in the bankruptcy statutes, anything paid out within ninety days of the filing is deemed preferential. We ended up settling for $90,000, which we had to pay the court—and don’t forget that our lawyers in this case did not work for free. Because we were a legitimate claimant we got some of the money back years later, once the case finished wending its way through the courts. But it came to about ten cents on the dollar! I don’t remember ever being quite so angry.
Another of our distributors that exclusively serviced the airlines could never fight its way back to profitability and closed its doors, costing us $200,000. We were not happy people.
It was a devastating time for the country and for our business. Our reserve cash—so vital for carrying companies through downturns and slow periods—wasn’t enough to help us weather this unfathomable storm. Our path ahead looked rocky and uncertain to say the least.
Indeed it was. With ironically superb timing, the bank that we had been with for many years leading up to 9/11, which was originally a Midwest outfit, decided to withdraw from the New York market. We found ourselves in the unenviable position of needing to find a new banking relationship at exactly the wrong time. We succeeded, but not very easily. It was another marathon, but the relationship with our current bank has grown, and we are still with them today, a decade later.
There was one bright spot along that path, however. We qualified for an SBA disaster (9/11) loan with an extremely favorable interest rate and a twelve-year payback because we were so specifically and negatively affected in so many ways. This helped us secure desperately needed funding. Still, once again, we had to put up our home as collateral; there are no free lunches. During this period, there were times when I feared 2001 might mark the end of the Love and Quiches story, but we did not, could not, give up.
Here is one of the very first lessons every entrepreneur needs to learn: you are going to suffer adversity and setbacks. There is no escaping them. But your success depends on how you handle those setbacks. If you can push through, keep your spirits, your determination, and your courage up, and if you can learn from the experience, you’ll come out much stronger than you were before.
Running a business is not for the faint of heart. Adversity can hurt. Your mistakes can be humiliating. When you find yourself in that place—when a new product fails, when your partner quits, when you’re denied a loan, when a competitor steals one of your best customers—you cannot take it as a sign from the universe that you should give up. Every success story has these dark chapters. If you want to keep your business alive, you have to press ahead, overcoming the situation at hand. However, this was adversity at an entirely new level.
I have come to think of everything that happened, from our founding in 1973 to that period in the early 2000s, as a kind of game, a warm-up for all that was to come. It was my accidental business period: Love and Quiches Lite. The adversity brought on by 9/11 pushed us to become something new, different, and better. It served to show me that I could do it, that we could do it. On some level, it was like a magnified version of that six-thousand-case order for our delicious Pecan Brownie Pie in the late seventies—it catapulted the business up to a new level and catapulted me into what would be the rest of my life.
We’d found ourselves in absolutely the wrong place when 9/11 struck, but it helped us realize that we needed to completely overhaul our business model. And we sought a lot of outside advice to make sure our path would be all up from here. From that point forward, we slowly gained ground that we have never relinquished. The changes we went through in the early 2000s were transformational, and we ended up bigger and stronger. (More on how we did it in the next two chapters.)
As a business owner, it’s part of your job to prepare for the future, but we’re all subject to forces we can’t control, whether it’s an unthinkably tragic terrorist attack or a sudden economic downturn. The test of your business is in how you respond to those forces when they come—and they will come.
As I’ve described in previous chapters, Love and Quiches has been profoundly affected by several major recessions since its inception. And most people don’t even remember the one early in the decade—in March 2001, statistically ending in November of that year—because of the tragic events surrounding 9/11. But we were still battling the effects of that early recession when the unthinkable occurred.
In addition, the commodities debacle of 2007 was particularly harmful to my industry: the prices of our most basic ingredients—eggs, soybean oil, butter, flour, cream cheese—skyrocketed, sometimes doubling or even tripling. It was more than we had ever paid since our founding. We could not, of course, raise our prices to match, since our customer base fought us tooth and nail. When those items began to moderate, we then experienced the same escalations in the prices of sugar, choco
late, and nuts. And we use a lot of sugar, chocolate, and nuts! These, too, eventually moderated, but they never fell back to prior levels. Other commodities will soon escalate, and so it goes.
Coupled with the Great Recession and the ensuing global financial meltdown, times were, and remain, challenging to say the least. We all now are still at battle with the lingering aftereffects. This is the new reality; the cycles are never ending.
And so it will be with your business, whether you are selling web designs or artisanal cheeses. The first key to success is staying determined and positive during the hard times so that you can emerge, newly strengthened, on the other side.
Chapter 10
From Overstuffed to Lean and Mean
Success is not final, failure is not fatal; it is the courage to continue that counts.
—Sir Winston Churchill
After 9/11, we steeled ourselves to keep calm, not to panic. We all knew that going forward every step would be important, and as an organization, we were ready to act. We knew transformational changes were needed, and we were prepared to face them head-on.
Every business owner, especially in the manufacturing sector, has to learn how to construct an organization that adheres, above all, to principles of efficiency, or your chances of turning a profit—or surviving in the long run—are slim indeed. Growth is a wonderful thing, but it merely exacerbates problems if you aren’t ready. Our time to get ready was upon us. At the heart of our reinvention was our move from an overstuffed, overstaffed operation to a lean and mean one. We went from having an unnecessary glut of inventory to operating more efficiently than ever before, and it saved Love and Quiches.
Our first steps in the “lean and mean” transformation were to lay off some workers—hard to do, but necessary—and to hire our first CFO. Our director of operations from out West (the one who had pumped us full of more inventory than we could possibly use) was shown the door. We planned our withdrawal from our unneeded space across the street. We trimmed all discretionary spending; if we didn’t need to do it or buy it, we let it go.
It was during this period that we contracted our first consultants, who brought to the table two extremely important developments. First, we adopted a “just in time” (JIT) business model, which completely changed how we had been operating since 1980, the year we had moved into our facility at Freeport. Second, we instituted a “pipeline” approach to our sales efforts.
One word of caution about consultants before we talk about these two developments. When hiring consultants, define very clear parameters when it comes to the scope of the project, the time line, and the cost. Otherwise, before you realize it, the costs can easily spiral out of control and eat up all the improvements the consultants suggest. In our first time using consultants, we were too innocent, and although they brought a lot to the table, the experience was very costly and we had difficulty ending it. Since then we have been careful. We also have found that it is never a good idea to hire a consultant into a permanent position. Usually, consultants have a very specific area in which their expertise lies, causing them to lack flexibility. If we have learned one thing really well, it is how to change course, to be flexible, and people who can’t be flexible don’t work well as permanent parts of our organization.
Despite these caveats, it remains true that consultants can bring fresh eyes and expertise to a situation or a process. Sometimes we kept doing things merely because we had always done them that way. Every company—small businesses as well as giants—suffers this same weakness at some point, and consultants can be a good way to help an organization move beyond it.
Learning to Be Lean
In simple terms, JIT means that we keep very tight reins on our inventory, both raw and finished. Theoretically, when we receive an order, we order the ingredients, produce the product, and ship it out as quickly as possible. As a result, we contain our inventory and carrying costs and increase our cash flow. Cash is king. We only bring in supplies for our purchase orders in hand. We turn over our finished inventory every two weeks and are assured that what we produce is already on its way out the door, with no excess or potentially obsolete inventory of either type.
This may seem like a gross oversimplification of our path forward, and a business of our size is, of course, extremely complicated. But the JIT method is now ingrained in our organization and serves as the synchronizing rhythm for all departments.
We have had other very fruitful consultancies since the first one in 2002. Shortly after that first experience, we received a grant from the New York State Department of Economic Development to help us learn lean manufacturing. Lean manufacturing is also known as the Toyota method because that company first developed it. Its key element is called continuous improvement. We changed everything: how we did things, where we did things, nothing out of place, and bringing the work to the worker, not the other way around. This new business model transformed us forever; it is the nuts and bolts of how we generate our revenue and profits.
The grant picked up a large part of the cost of hiring consultants to help with the process of educating us.
The consultants we hired taught all of Love and Quiches’ employees, from the top down: I participated, as did the line workers, the porters, and everybody in between. Since we still had the building across the street at the time, our “teachers” set up their “classroom” there to minimize disruption to the day-to-day running of the business.
The consultants set up a simulated clock factory as the model we would follow. It’s not as strange as it might seem: all manufacturing processes have much the same elements in common, whether you’re making clocks or cheesecakes. We were divided into teams to produce these clocks, which were made of paper, plastic, clips, and other simple parts. Rudimentary as they were, the finished clocks actually worked!
We followed the consultants’ procedures from orders coming in to gathering supplies, manufacturing, packaging, and shipping. During each session we were timed and made to start over again and again; with each repetition we recognized more and more efficiencies and shortcuts to help speed the process without sacrificing quality. More often than not, our efficiencies and shortcuts even improved the quality of the product. We got faster and faster, again without sacrificing quality, with each team competing to beat the other with process improvements and completion times. It was absolutely amazing!
There was a second part to the project. This time the teams participated in a virtual order for carrot cake (no actual cake, just the process) from taking the order to shipping it out the door. So many things that we had been doing the hard way became glaringly obvious. We started to institute changes even while the learning process was still under way.
The most obvious lesson was the great advantage that teamwork, team building, and mutual respect can bring to an organization. We reorganized our work centers, brought the supplies to the line workers to avoid downtime and cross traffic, and maximized value added (in layman’s terms, productive) activities. We have never lost these principles; as human nature inevitably dictates, however, when we see some practices slipping, we reboot and retrain. This is ongoing.
Today we more or less measure all activities in actual minutes, product by product, but the groundwork was set during that six-week lean manufacturing consultancy as we were beginning to recover from the effects of 9/11. And we all had a great time to boot!
This is not to say that you need to hire consultants to benefit from lean manufacturing and just-in-time processes. There are plenty of great books on this subject (see my favorites in Recipes for the Mind). As you continue to build your organization—whether you teach yourself about lean operations by reading such books or you decide to spend money on bringing in lean consultants—you must focus on reducing waste and increasing efficiency. Bring on people who have experience with these methods, and work consistently at keeping the dynamic going.
Prioritizing Pipeline
The purpose of any business, first and foremost,
is the pursuit of profit, and all the changes we made after 9/11 going forward would assure that we stayed on that path. We are survivors, and each change to the company strengthened us.
Our first round of post-9/11 consulting also taught us the importance of pipeline. At the end of the day, everything depends upon the orders in hand. Everybody waits for the phone to ring, the faxes to come over, the electronic orders to be emailed because no matter how carefully and detailed the sales budgeting process may be, no one has a crystal ball. Unexpected changes—from a hurricane down south to a change in management or ownership of a very large account—can affect gross sales. Adjustments can be made to produce goods more efficiently and with less waste, and equipment can be kept running smoothly with less downtime. Yet the sales numbers inform it all.
So many things compete for your attention when you’re running a business, but it’s imperative that you not lose track of your pipeline. We now keep our pipeline filled, making sure enough new prospects are waiting in the wings while we work on closing current new customers and bids. A robust pipeline doesn’t mean everything is going to fall in your lap, so we track our potentials, our in-process, our decision pending, our closed, our lost opportunities, and why the opportunities were lost. We have gotten rather good at it, and each salesperson is required to update a Pipeline Report weekly.
With Love and Quiches Page 13