It's Not Luck (28 page)

“Which means,” I quickly translate it, “that launching this offer will translate to about two month’s lost sales for us?”

“It will be compensated somewhat by their orders to cover for shortages, and hopefully by shops that we can attract to us, shops that right now we aren’t doing business with. I think that the drop will be closer to one month rather than two. That’s roughly the size of the bullet we’ll have to bite.”

“Can we afford it?” Bob asks innocently. As if he hasn’t been worrying about this problem himself.

“I don’t know,” I hesitate. “We already took one shot this year, the finished goods inventory reduction. It was a big one. Almost ten million dollars. What we are talking about here is even bigger. Almost two months of lost sales will increase this year’s losses to unbelievable numbers. I don’t know how I can pass it by the board.”

“But this will guarantee that next year and the year after, this company will register record profits,” Don tries to argue. “Trumann and Doughty will understand it. They are shrewd businessmen.”

“Yes, they are,” I say. They are shrewd enough to realize that if we go ahead, there is no way we can sell Bob’s company this year. Can I persuade them? Maybe.

“I have a suggestion,” I say. “You all go have lunch. I’m going for a walk. You gave me a lot to think about.”

24

Bob’s headquarters are located in the middle of a nice park. The weather is pleasant, the big trees provide almost a pastoral atmosphere. I don’t notice any of it. I’m pacing the narrow paved trails, fuming.

Once again, this devastating, short-term pressure. “Time is money,” I can almost hear Brandon. “Can you guarantee that we will make more than inflation? The credit rating of UniCo is too low. We cannot afford to continue taking such an exposure.” Yes, I know it all. But it’s absurd to give up on such an apparent opportunity.

Maybe I can persuade Brandon and Jim to postpone the sale? I can guarantee making more than inflation. What will be the return on investment if we implement this solution? The investment is giving up on two months’ sales.

Actually it’s not giving up on anything. If we understand that as long as the shops haven’t sold, we haven’t sold, then all this frantic push on the shops takes an entirely different posture. By forcing the shops to hold more inventory, we have simply removed ourselves further from the market. How much inventory do they carry now? Four months? In an industry that constantly releases new product lines, to be four months removed from the market is devastating.

Forget it. For now I have to consider the impact on our books—and on our books, sales means sales to the shops. We’ll lose two months’ sales. How much are we going to gain? According to Susan, we’re probably going to increase sales by thirty percent. Maybe more. I think I can take her estimate as realistic. She is conservative. She is the one who will have to deliver, and she’s been in this business all her life. She knows it inside-out.

Let me use as a conservative number an increase in sales of only twenty-five percent. That’s beautiful. It means that in the long run each year we’ll get an equivalent of three months’ on the two months lost sales. That’s one hundred and fifty percent annual return. Who is talking about inflation? That’s better than a gold mine.

Wait. How long do we have to wait until we reach the long term? I don’t like pies-in-the-sky. When will net sales increase? When shops finish reducing their surplus stocks. That’s not too remote. It should happen in about four to six months. In some cases, less. With this argument I stand a chance of persuading the board. I’ll have to do it meticulously.

What exactly do I want to persuade the board to do? To postpone the sale of I Cosmetics. Until when? Until at least next year, then they’ll be looking good.

No, it won’t do. Oh, my God, I’m in a deeper hole than I thought. If I succeed in convincing them to postpone this sale, I’m dead.

They must take care of the lousy credit rating of UniCo, that I can’t change, which means they must get enough money from selling my companies. They are talking about needing over one hundred million dollars. If I persuade them not to sell I Cosmetics, by that act, I’ve signed the death sentence for Pressure-Steam. Then they will have to sell it to the shredders.

No. I must protect Stacey’s company. Bob is okay. With this beautiful marketing solution I think I can persuade any buyer to allow Bob to continue to run his company without interference. I think that I can even present it in such a way that proper prospects will be willing to pay a higher price. Yes, this I may be able to do.

Shall I leave it at that?

I don’t feel comfortable with it. It means that Bob and his people will have to postpone the implementation until the sale of their company is complete. That is stupid. And I don’t care what our crazy financial statements are saying. There must be a better way.

But there is another thing troubling me also. It’s obvious that the negative branch of this marketing idea was bothering them. Bob, Susan and Jeff knew it all along. How come they didn’t succeed in trimming it?

Their intuition about it is huge. Their desire to protect their company is even bigger. And they know that the only way that they can do it is to come up with a good marketing solution. This is an excellent one—except for this negative branch. According to Jonah, people who have the intuition and drive to the extent that they succeed in writing a Future Reality Tree leading to the desired effect will always succeed in trimming every negative branch. Why haven’t they?

Did he say something about it? I can’t remember. Maybe he did.

I go back to the main building and take possession of an empty office. Everybody is still at lunch. Julie should be at home.

I explain my puzzle to her. She listens attentively. When I finish, I ask, “Did Jonah ever say anything about this?”

“Yes, he did,” she assures me. “He said that often people dismiss an injection that can trim a negative branch.”

“Why should they? We want to trim this negative branch. We want it desperately.”

“He said that it happens when the injection leads to new negative effects,” she explains. “Then people tend to regard the injection as impractical, and they will simply ignore it.”

“I see.”

“From my experience, this is a common mistake. Often, if you stick with such an injection, you find that the negative branches it causes can be trimmed, usually pretty easily.”

“You think that’s what might have happened here?” I wonder. “You think maybe they have an injection that they dismissed?”

“Maybe. Alex, what do you have to lose? Check it out,” she says.

She’s right. I must cut this negative branch. Too much is at stake.

“Yes, I will. Thank you, darling.”

“And Alex,” she gives me some last minute advice, “even if you see that their injection leads to many new negatives, continue the process. At the end it does work. You’ll see.”

“I’ll tell you tonight. Thanks again. Bye.”

I go back to the conference room and write the negative branch on the flip-chart. Starting with the statement in their Future Reality Tree, “Shops drop unneeded inventory,” and ending with the fact that we lose the equivalent of about two months’ sales. Shortly after I finish, they all enter.

“What’s the verdict?” Bob asks.

They are all waiting to hear my answer.

“What verdict?” I ask. “We haven’t finished the analysis yet.” And before anyone has the chance to object, I continue, “We were discussing this negative branch,” and I point to the flip-chart.

“How can we possibly trim it? I want to hear your ideas, even if you already discussed them and decided that they are impractical.”

“Yes, we did discuss some possibilities,” Bob admits. “But none of them made any sense. We’re stuck. So what will happen if we can’t trim it? Are we going to move ahead or drop it?”

“I haven’t decided yet, it’s too early. Now I would like to hear some of these impractical injections. Please.”

They don’t want to continue. They want the verdict now. I can’t blame them. They live under immense pressure. It’s not at all easy to work in a company with such an uncertain future. Right now, for them, any answer is better than this uncertainty. But I can’t afford to give it to them. Not until I’m convinced that there is no other way. And I’m not yet convinced.

“At least give me the opportunity to realize that there is no way to trim this branch,” I try to persuade them to continue. “Do you want me to decide on such an important matter before I’m convinced that I have all the facts? Bob, will you please give me the injection that looked the most promising. Even though at the end you decided that it’s impractical.”

“What we were playing with,” Jeff speaks up, “is the underlying assumption that we can’t increase sales in the near future. We were toying with ideas of how we could.”

“Good thinking,” I say. “Right into the heart of the problem. And . . .”

“And we came up with something, but the medicine is worse than the disease. And besides, there is no chance you’d approve it.”

“Try me.”

“Well, we could give our merchandise to the shops on consignment terms. No obligation when we ship to the shop, but it has to pay upon selling. Susan claims that this would increase sales to new shops more than what we’ll lose from the existing shops reducing their surplus inventory. Yes, we know that it’s impossible. You’ll never authorize the cash injection,” Bob says.

“Besides,” Susan adds, “it has many other negatives. If we give our goods on consignment the shops will have much more cash.”

“What’s bad about that?” I ask, still trying to figure out if I can get them some cash to do it. Maybe short term. I’ll have to check.

“What’s bad about it?” she echoes my question. “The shops are going to use this money to buy more from our competitors.”

“Live and let live,” I say.

“No. It’s going to hurt us. The shops have limited display space. We are going to end up with less display space than we have now. And you know, whatever is not displayed is not likely to be sold.”

“Susan,” I ask, “can we condition our offer on agreed upon display space?”

“You mean, that the shop commits to dedicate certain predetermined space to our products, like brand names in the big chains? I don’t think that would be a problem, especially when they can fill up the display without any hassle. And that’s the case if we give it on consignment, it doesn’t require any cash investment from them. And with our delivery ability they won’t have any blanks. I think that we can actually ask them to guarantee us more space than they currently give us.”

“This will increase our sales?”

“Oh, yes. No doubt. It will also give us some more immediate sales. In order to fill this space many shops will have to expand what they carry from our product line. You see, most of them are not carrying all our product lines, and they don’t want to display a lot of repetitions. Yes, this will help. Considerably.”

“But,” she turns gloomy again, “how can we control them. We are working with thousands of shops. It’s impossible.”

“What do you mean by control?”

“Look,” she tries to explain, “if we give our goods on consignment, the shops don’t have to pay when we ship.”

“They don’t pay for it now, as I understand. They pay only after ninety days.”

“Yes,” she tries to control her impatience, “but the sale is done when we ship it to them. If we switch to consignment, then they’ll have to pay only when they sell it. Most of them are·so pressed for cash that I’m afraid they will simply not report sales. We can’t control it. We can’t build a police force that goes and counts what they actually sold. It’s impractical.”

“Susan, that’s not a problem,” Jeff says in a quiet voice. “We are not going to ship them merchandise the way we are doing it today. We are going to replenish to them. This means that in order to get merchandise, they will have to report what they have sold to us on a daily, or at least a very regular basis. I think that we can easily build an amicable system.”

“Hmmm. . . . Maybe. Let me give it some thought.”

“It’s all very nice,” Bob says. “But are you going to give us the cash. Consignment means that the shops are holding our inventory. Do you think that we can get back the cash that we released to UniCo when we dropped our finished goods inventory?”

By now I know the answer. Susan provided it. I decide to teach Bob a lesson. “Yes, I’ll get it for you. As much as is needed. But before I leave here, I want to know exactly how much you need.”

“No problem,” he says. “I asked Morris, my new controller, to calculate it. I’m sure he has the numbers.”

“How much is it?” I ask.

“Frankly, I don’t know. You see, a day after I asked him, we decided that it was impractical. So I never asked for his answer. But I can call him in.”

“Please.”

Until Bob’s controller arrives, they debate what to do with the shops’ obsolete product. They come up with some neat solutions. The more they examine it, the better it looks. They are on a high. My promise to provide them with the cash they need has lifted a ton off their shoulders. It’s fun to watch. Eventually Morris arrives. “I took the time to double-check the numbers, just to make sure.”