Economics & Research Blog
Why Micro-, Small, and Mid-size Businesses are Essential to Commercial Printing Success, and Why that Disrupts the Foundations of Our Business
A recent Wall Street Journal article titled &
By Dr. Joe Webb
Published: August 12, 2009
A recent Wall Street Journal article titled “Boss Nation” detailed the nature of the self-employed. The article stated:
According to the Census, more than 10 million Americans are self-employed, up from about 8 million in 1980. Even more telling, the number of "non-employer firms" -- businesses with no payroll -- recently topped 20 million, up from 15 million in the late 1990s. A lot of people with jobs also have businesses on the side they hope will become big enough to support them.
About 15 or so years ago, the big buzzword was “SOHO”, acronym for “small office/home office,” like it was some kind of new discovery. What was new was that B2B companies finally took note of the kinds of things retailers like Staples and Dell Computer were doing. Both were employing consumer marketing tactics to reach an underserved, and growing, market. The adoption of personal computing made all kinds of new businesses possible, and a changing communications market, built around cellular phones, meant that small businesses could have an easier time working out of their homes.
Despite the recession, or perhaps because of it, there are over 74,000 net new businesses every month, on average, or nearly 900,000 a year. Some of these businesses are accidental entrepreneurs, of course, having lost their jobs, and deciding to go out on their own as a last resort. That's net new businesses, the remainder after subtracting closed businesses from newly formed ones.
The primary contact point for new businesses was the franchise and independent quick printer. Their use of retail storefronts attracted anyone newly working on their own for stationery and business cards, and rather basic promotional printing.
A lot has happened since those days. The office superstore changed much of that, as their copying services at that time, and now a broader range of printing services today, are often the top-of-mind choice for freshly minted entrepreneurs.
One would think that this would give the superstores an upper hand. It does, but even they are competing with the impact of home and office desktop printing, as well as electronic communications. It may be hard to believe, but the effect of desktop printing and rampant connectivity on quick printing and small commercial is probably greater than the competition from office superstores. You can easily point blame at office superstores because they are so visible. It's much harder to point at tens of millions of desks occupied with people who are thrilled with the idea of printing something out themselves, or do not know a time when it was actually worth the trip to drive to a retail printer for 25 copies of a single page document.
The printing business is quite different, of course, and I will be spending some time discussing many of the issues and trends that make it so. There are many macro-trends (or “mega-trends” as was the name of a popular 1980s book), that it is often hard to discern how they will play out and what they mean for our business. Commercial printing is remarkably diverse, a vast collection of product or process specialists, or both, linked only by their core technologies or the fact that at some time at some place, colored liquids are applied to substrates of a client's choosing.
Look at what's happened to the biggest print products. Magazines are under assault, with a 33% decline in ad pages over the last two years. The shift from space advertising to other media has undermined the financial foundation on which most magazines were built. Catalogs play a muted role in the promotional efforts of direct marketers, as catalogs are slowly but regularly displaced by direct mail and e-commerce initiatives. Newspaper inserts suffer with the fates of their hosts, as newspaper circulation has declined, and retailers shift dollars to alternative media and cable television.
In the middle market, Google has been the chief culprit in the decline of the product brochure and sell-sheet. The use of marketing and selling support materials has been corroded by the easy access to websites and documents through search engines. Users barely have to know web site addresses anymore. They just “google it” and expect to find the information they need, and they do. Of course it's not the same as print, and never will be, in its appearance, and even in its utility. Print is better, but access to printed information is not immediate, incapable of providing the millisecond satisfaction that seekers prefer at that moment. Print has to be planned for and requested, and that's too much work.
This does not mean that there is no need for print. Of course there is. The question is where and how.
There are some significant trends playing out in the economy that will alter the nature of business:
Environmental and other regulations push marginal players out of marketplaces, and create specialists who become experts at compliance, and then outsource their services to others.
Employment regulations, including those related to the various health care proposals, discourage hiring except for core and required positions. Some of the regulations make it difficult or costly or time inefficient to dismiss personnel.
Planned changes in tax laws limit the rewards of taking risks. Businesses will take to only the core mission projects that will yield the highest and most certain returns. Projects that would have been considered worthwhile will be marginalized. Whatever is not core, will be sent elsewhere, or not be pursued.
Communications technologies make it easier to coordinate functions and suppliers without having constant physical proximity.
Many of these trends are deeply-entrenched social or technology cycles, and get and extra push during economic difficulties. Recessions, for example, cause businesses to look at operations more closely and act more quickly than they would in prosperous times.
These trends make a case for commercial printing businesses to become a broader resource for micro-, small- and mid-size businesses who will not be able to afford managers and content creation processes that they would have in the past.
Communications is a more difficult job now. The palette of traditional media is not being eliminated, but that palette is bigger and heavier, with more choices. In fact, choices is not the right word. Most communicators that have decided to put everything online have been disappointed. There are always customers, prospects, and users who need printed materials, even though their numbers may be decreasing. Since B2B marketing is aimed at understaffed workers who have little time, no one can tell when, where, or how, they will access or be exposed to the information the communicator wants. More media just made the palette of communications alternatives larger and heavier. As each medium is added, the audience reached by it is smaller than the next. All media are dealing with whatever their equivalent phrase is for “shorter run lengths.” We were there first; now we have company.
The capital base of the printing industry, especially for mid-size and large printers, is based on “the big order.” A $10,000 project is far more profitable than four $2,500 orders, or one hundred $100 orders, or 300 or so $30 orders. The fixed costs of each job are out of alignment with the new smaller order sizes that the industry is currently experiencing and will continue feeling. No matter what size of print business it is, businesses built on producing million run length jobs now find them replaced by 100,000 run jobs. The 25,000 jobs are now 5,000 run jobs. There are few reprint jobs, if any. At one time, about one-third of sheetfed jobs found their way back onto press again.
There is a good case for building a new business from the bottom up. Unraveling the capital base which was built on assumptions of a vastly different marketplace might be too difficult. (I'll be discussing these issues in later posts.
A company that is a good example of the working with this different kind of marketplace is Vistaprint. There are others, but Vistaprint is public (NASDAQ: VPRT), so data about their operations are easily found. Vistaprint is riding the trend of the self-employment and freelance nature of the workforce. They make money from the birth of new businesses, whether they are accidental entrepreneurs or not.
On an inflation-adjusted basis, the company has gone from a four-quarter moving total of $116 US annual sales at the end of their 2006 fiscal year to $315 million for their just completed 2009 fiscal year. Forty percent of the company's sales are from non-US sources. The four-year inflation adjusted average order size is $33.76. Their bottom line is over 10%. The company has specialized in specialty items that most printers would not have produced themselves, but be sent out to a trade printer. When everyone else in the industry was certain that they could not make money in small quantity specialty products, Vistaprint went in the opposite direction. They negated the high costs of small orders with a highly automated order entry and production system. They violate numerous printing industry rules of thumb, like printing short run business cards on 40-inch presses. This contrarian approach made possible by their aggressive online marketing, which produces orders that are ganged to take advantage of the large press size. Some printers say that Vistaprint can do this because they do not have to support a sales staff or put sales people on the road the way printers do. But those printers do not have to hire programmers and systems analysts the way that Vistaprint does.
Not every company can be Vistaprint, nor should they. That would be a denial of the value of competitive advantage and marketing differentiation. There are numerous ways to be successful in the printing business, but it seems that printers are often after that one secure way to success, and take paradoxical comfort in the mediocrity that comes from operating to industry standards.
There are opportunities for printers to fully immerse themselves into the conundrums of business today and in the years ahead.
Concerned about the environmental impact of communications? Printers can produce jobs that meet environmental goals and deploy them into other media at the same time.
Companies have to watch their headcounts? Outsource administrative and logistical functions to printers.
Communications departments not considered a core function or worth additional investment? Print businesses can become a hub for coordinating the various media and professionals needed to produce them.
Micro- and small- and mid-size business will rarely have the staff, nor the internal expertise to manage 21st Century communications, nor will they have the resources needed to create them. The biggest problem of these businesses is obscurity, especially in the chaotic environment that typifies today's market communications. New businesses need not just a plan for communications, they need an efficient way to implement whatever plan they have with wise counsel in the process.
Print businesses still tend to be anchored to a geography, those limitations are being loosened by communications technologies and more automated and efficient transportation providers.
Many print businesses have prided themselves on their addition of inventory and fulfillment capabilities. The storage and movement of physical goods is an important offering to clients looking to minimize their space and minimize their staffing needs.
Communications management is the ultimate inventory and fulfillment offering. There are multiple media in digital and tangible form, there is a great need to harmonize and maintain their content, adapt them accordingly, and provide for their constant availability.
Ultimately, there is a core set of challenges that must be confronted when the marketplace has radically changed. The original assumptions and rationale of an individual printing business must be re-examined by every print business owner, investor, and entrepreneur. Each business will answer differently; no company will look the same because their skills and resources are different, as are their markets.
Future posts will examine these issues in greater detail.