Short-Term Opportunities May Mask Long-Term Pain: This is a cautionary tale about Prestige Ameritech and its owner, Mike Bowen. The North Richland Hills, TX company is America's number one maker of hospital surgical masks.

During the 2020 coronavirus crisis, you'd think the company would be working 24/7 to manufacture the one commodity that Americans and the rest of the world want so badly. "But … noooooo," as John Belushi used to say.

In 2007, Bowen warned that allowing another country to serve as our main supplier of personal protection equipment had the potential to become a national security nightmare. But no one listened. Of the current situation, Mr. Bowen said, "There is 200 times more demand than there is supply. My phone is ringing every two minutes. Every one minute I am getting an email."

The story is that, during an outbreak like this, everybody wants to be his customer. But as soon as an outbreak subsides, some customers dump him and run back to China. The reason? His masks may cost a dime each, but a made-in-China mask might go for only two cents. This time around, Prestige Ameritech is apparently asking new customers to sign long-term contracts before the company accepts their large orders. Most refuse because, as soon as things get back to normal, they'll go back to buying cheapie masks from China. Or some other low-cost country.

The company is in a building originally used by Kimberly-Clark to make medical masks. But that company moved its operations to Mexico. When Prestige Ameritech opened in 2005, it was touted as a great day for the made-in-America movement.

By 2009, Prestige Ameritech had grown strong enough to meet the demand caused by the H1N1 swine flu outbreak. Hospitals promised to stick with Prestige afterward, but later broke their promises. The allure of those cheaper Chinese masks was too tempting. The next year, Bowen and company president Dan Reese had to lay off 150 workers. Bowen recalled that "150 people that saved a lot of hospitals from closing their doors were rewarded by losing their jobs. And that's not going to happen again."

Karl Denninger commented, "When there's an outbreak - like last time, with Swine Flu - he gets orders. He ramps up to fill them. Then the outbreak passes, and guess where the hospitals go? Back to China. This leaves him with capital equipment leases and people. If he doesn't lay them off he goes out of business. If he does lay them off, he gets hammered with much higher unemployment insurance premiums, the leases on the equipment he has no use for" … and almost goes out of business.

It should be noted that many hospitals have outsourced all of their routine purchasing to firms like McKesson, a $200+ billion medical/pharma distribution giant. How much stuff McKesson imports from China is unknown.

Mr. Bowen's story resonated with me. During the bulk food fad of the 1980s, our plastics manufacturing firm made a lot of custom see-through acrylic bins for big chains such as Safeway. But these large companies soon wanted more: carry ready-to-ship stock, offer turnkey bulk food supplies (scoops, weigh scales, racks, etc.) and provide on-site installation contractors. We felt the market was a fad, so we declined to make investments in workforce and inventory. Other acrylic fabricators chose to jump in. Within a year, the bulk-food craze was over and those who went along with the large supermarkets demands were stuck with unsalable products. I know of several plastics companies that went out of business when demand for bulk food installations evaporated.

We also developed a stock line of acrylic displays, sold through store fixture distributors. There was a great demand for our display products during the late Summer and Fall. Suddenly, distributors who had previously rebuffed our sales efforts, now wanted to be our buddies and buy from us (because their other suppliers couldn't fill orders promptly). Filling their orders would have overwhelmed our already-stressed manufacturing capabilities and made it tough to take care of our loyal customers who ordered throughout the year. We wised up quickly and informed our new 'buddies' that we'd be happy to set up a distributor relationship with them as soon as they placed a $20,000 good-faith initial order - for merchandise to be shipped right after our busy season ended. These fair-weather friends stopped calling us.

The lesson is: Take care of your good repeat customers because they will take care of you. The one-shot, flighty buyers can fend for themselves … elsewhere. (posted 5/4/20, permalink)

---

Small Biz Stats: Last year (2019) was reportedly a great year for startup businesses, and 2020 is going to be even better, due largely to continued growth in wellness and high-tech. Here are some interesting start-up and small business statistics:

• There were 30.7 million small businesses in the U.S. in 2019.

• Immigrant entrepreneurs account for 25% of all new businesses in the United States.

• Almost 70% of American entrepreneurs start their businesses at home.

• 42% of startups fail because they offer products or services that the market doesn't need. Or want. This indicates a lack of market research by founders. In my article, 'How To Start Your Own Business In Six Steps', I wrote, "You must develop substantial knowledge about the marketing environment in which your new business will operate:

• What is the market like? (size, dominant players, price points, seasonality, customer mix, etc.)
• What is required - startup capital, expertise, etc.
• How will your startup's offerings fit the documented needs of prospective customers?
• How will you effectively promote and sell when you're just starting? And ... how much will it cost?"

I also wrote, "Read books on marketing and selling. Read at least four of them. Marketing and selling are not the same, so be sure to get books on each. Marketing and selling problems are the largest single cause of startup business failures in the U.S."

• Only 50% of businesses with employees survive five years.

• A 50-year-old startup founder is twice as likely to succeed than a 30-year-old founder. Age does beget wisdom.

• A 60-year-old startup founder is three times more likely to succeed than a 30-year-old founder. Older entrepreneurs are more experienced, more cautious and will do their homework more diligently before starting a business.

Something to think about, eh? (posted 2/5/20, permalink)

---

The Unbearable Dumbness Of Diversity: A recent article in the Costco Connection carried this headline:

The article urges business owners to become more "culturally intelligent." No measurable benefits are touted. Are there stories told of craggy old white guys who ... (more >>>)

---

How To Succeed In The Restaurant Business: In the world of new businesses, dining establishments have the highest failure rate of all. Opening a restaurant is complex and capital-intensive compared with many other start-ups. Eateries are typically not high-margin businesses, so there is little room for error. Average pre-tax profit margins range from 2-6% (2% for full-service and 6% for limited-service places like pizzerias).

In my many years as a business consultant, I advised numerous restaurants. Based on that experience, I recommend eight things you must do to achieve restaurant success ... (more >>>)

---

Business Advice You Can't Refuse: Speaking as someone who spent almost five decades in the business world, the best book (and film) for understanding the workings of large corporations was 'The Godfather'. Some of the great lessons I learned as an employee of a couple of large Corporate Families:

1. Trust no one.
2. Forge strategic alliances.
3. Loyalty counts (sometimes/usually/for a while/when it's convenient for the Bosses).
4. It's not just about product - it's about distribution.
5. Never speak against the Family. (posted 4/27/12, permalink)

---

Polymer Giants: A recent issue of Plastics Distributor & Fabricator magazine carried the inspiring and almost-Runyonesque story of E&T Plastics. In 1946, Sidney Erman and Rudolf Thal combined their business acumen and their initials to create E&T Plastics. Both were refugees of Nazi Germany.

In its early years, E&T Plastics was confined to an apartment in Harlem where plastic was dyed in the bath tub and shaped by heating it up in the kitchen oven. Due to a lack of raw materials in the aftermath of World War II, E&T's supply of plastic came largely from the recycled canopies of no-longer-needed military aircraft.

There are thousands of stories like this about early postwar America where budding entrepreneurs creatively scrounged to build what soon became successful businesses. Some grew to become industrial giants and household names. All from humble beginnings.

People today have forgotten that when World War II ended, there were shortages of many items as factories struggled to made the switch to peacetime production. In 1946 and '47, many automobiles were delivered with sawn lumber pieces instead of chrome bumpers. Customers were given IOUs for 'real' bumpers which would be available later.

Meanwhile, Sidney and Rudolf soldiered on in their new homeland and, by 1964, E&T's products were featured prominently in several exhibitions at the New York World's Fair in New York City. The company even made its mark in Times Square in the form of an impossible-to-miss advertisement for Planters Peanuts.

E&T is now a large plastic distributor, fabricator and sign supply house with multiple branches in the U.S. Gary Thal, Rudolf's son, is company president.

There are other tales of industrial heros, who lived by their wits and made the plastics business the gigantic industry it has become today.

In the acrylic plastics field, people like Bob Gardner and Frank Moore became missionaries, getting automakers, appliance manufacturers and other mainstream manufacturing firms to use injection-molded Plexiglas in place of traditional materials. Such men were a generation older than me but I was lucky enough to know them and learn from them. I once carpooled with the legendary Mr. Gardner.

These folks are the unsung heros of modern American industry. We owe them much. (posted 8/22/11, permalink)

---

Small Business Support: There is a new program at the Vancouver Branch of Washington State University that "links business students with small-business owners." Groups of seniors act as consultants to small business owners, providing outside, objective recommendations for solving problems and improving the business.

The goal of the program is to give a boost to businesses that have the most potential to create more jobs in Clark County, while making the university more relevant to the larger community. "I think it will be incumbent for universities to take their obligations to the community more seriously, because there's not going to be support for an ivory tower," said Joe Cote, professor of marketing at WSU Vancouver who is leading the collaborative effort. "You have to show the value of an institution."

My good friend Richard represents the classic entrepreneur. He's had his own business of one sort or another for most of his working life. Starting in the late 1960s with a single retail pushcart, he later established his own HVAC firm and now is in the natural gas development biz in West Virginia.

This year, several area small businesses were given advice, including a dry cleaner, a bakery, a yacht repair shop, a seminar/training firm and a vineyard. The program has been initially underwritten with $22,000 grant from JP Morgan Chase Bank. It is hoped that the effort can be expanded with increased financial support from the big players in the local business community.

I wholeheartedly endorse this idea. Thirty years ago, my own small business was helped by a similar program at Oregon State University. It was funded by the Small Business Administration. We "hired" students every year for several years to carry out projects that we didn't have the time or expertise to do. We got back detailed studies and recommendations on redesigning our accounting system to better identify the profitability of particular business segments, finding out salaries and wages were needed to be competitive and redesigning our warehouse and shipping area for better efficiency. The students were conscientious and professional in their approach and provided insights and remarkably creative ideas.

Dick Lane, who was then our SBA contact, told me that the program was foundering because small business owners would refuse to participate, apparently "because they didn't want to disclose business internals to students." That's a shame because we never experienced even the hint of confidentiality breach in our many dealings with students and their profs.

I hope the WSU program is successful. Entrepreneurs need all the good business advice they can get. I've tried to provide some on the Business Advice section of this site. (posted 5/19/11, permalink)

---

Bad Advice: I enjoy the Costco Connection magazine and there's usually good advice to be had inside, But the article in the May issue about alternatives to websites is just wrong.

If you're a drywall contractor who only does local commercial work and you only have eight potential customers, you don't need a website. You can build your business based on dinners, drinks and golf games with prospects and clients.

For the rest of us, a website is a necessary way to reach out to potential customers - it is your 24-hour color literature rack, your instantly available curriculum vitae or the always accessible menu for your restaurant.

The author's suggestion about using free online listings with Yahoo et al, various internet Yellow Pages or Local.com as a website substitute is a bad idea and, in my opinion, a waste of time. Get real. Get a genuine web address with your own unique URL. And pay a proven professional to design an effective website. It's well worth the money. (posted 5/9/11, permalink)

---

The Accidental Entrepreneur: Robert Reich has written that "2009 might instead be remembered as the year business startups reached their highest level in 14 years - even exceeding the number of startups during the peak 1999-2000 technology boom."

One surprise is the age of these new entrepreneurs. Most of the growth in startups was propelled by 35- to 44-year-olds, followed by people 55 to 64. "Forget Internet whiz kids in their 20s. It's the gray-heads who are taking the reins of the new startup economy. At first glance, all this seems a bit odd. Usually new businesses take off in good times when consumers are flush and banks are eager to lend. So why all this entrepreneurship last year?

In a word, unemployment. Booted off company payrolls, millions of Americans had no choice but to try selling themselves. Another term for 'entrepreneur' is 'self-employed'."

"Yes, a growing number of Americans went out on their own before the recession, but clearly their numbers have vastly increased. While some are happy about their new status, most are worse off than they were before. It's one thing to be a contingent worker in good times and when you're young; quite another in bad times when you're middle-aged."

The hot word in the corporate world today is Workforce Transformation. Meaning, you'll now be working for us only when we need you. As a freelancer with no benefits or job security. Popular alternative euphemisms include 'contingent worker' and 'temp independent consultant'.

Like the apprentices and journeymen of old, you're now on your own. The question is, will you spend your days hammering out jewelry in a hovel or will be like the great Matthias Baldwin who leveraged his precision metalworking skills learned as a jewelry apprentice to create the mighty Baldwin Locomotive Works, which in 1837 - just after the birth of the steam locomotive - employed over 300 people.

By 1907, Baldwin was the world's largest locomotive manufacturer and the biggest employer in Philadelphia, with 18,500 workers.

I have posted a number of articles designed to help those Accidental Entrepreneurs. You'll find them listed here. (posted 6/14/10, permalink)

---

Make A Profit On Everything You Do: There's a management theory that says it doesn't matter if Safeway, Kroger (or any business) makes a profit on every tomato it sells, as long as the grocery chain makes an overall profit. This theory has been used for everything from filling airline seats or motel rooms at ridiculously cheap prices to creating 'loss-leaders' (items sold at prices below cost) at retail stores.

There are six problems with selling anything below cost:

1. You need very sophisticated tracking mechanisms to measure, restrict and control sales. If everyone only goes to Safeway to buy loss-leader tomatoes, Safeway will go bankrupt. Therefore, much time and energy must be expended to measure (and, ultimately, restrict) tomato sales. Most small businesses don't have the time or ability to track such information. Most large companies have the ability, but don't use it. Or don't know how to use it.

2. Any time you offer anything below cost, you attract the worst kind of customers - price shoppers. These folks have no loyalty and buy strictly on price. And, their very presence may drive your good customers away. When the airlines began filling their seats with super-discounted fares in the early 1990s, one flight attendant remarked, "We are now getting rude, smelly people who have no manners and used to ride Greyhound. Now they ride with us and are driving our (full fare-paying) business customers away."

3. Loss-leaders are often bigger loss leaders than companies may think. Buying tomatoes for 34¢ and selling them for 29¢ doesn't tell the whole story. By the time you add in the cost of delivery, unpacking, in-store placement, etc., that 34¢ tomato may end up costing 49¢. Suddenly, a small loss-leader becomes a bigger one.

4. Once you've started selling 29¢ tomatoes, you begin to give yourself a reputation. It will be very hard to convince your present customers to pay 49¢ for the same item. I am convinced that many of the problems at Nordstrom have been caused by the 'success' of Nordstrom Rack. Racks were started as a way to offload out-of-season and obsolete merchandise at hot, discount prices. Now, everybody that I know checks the Rack for 'deals' before they go to Nordstrom and pay full-tilt retail. When Midwest department store chain Dayton-Hudson decided to start a discount division (many years ago), they used a different name - Target. With good reason - they didn't want to cannibalize sales from their full-service stores.

5. There's a certain cynicism among buyers which is brought out every time they're exposed to a 'loss-leader'. They're sophisticated enough to know that, if you're taking a loss on one item, you're probably overcharging them elsewhere. Your firm is now perceived as less-than-honest to them.

6. It is well-known that the cost of 'investing for the future' (new machinery, expansion, new promotional materials, etc.) is ever-increasing. It's driven by competition - companies which are always making improvements. How can you invest in the future if you have a negative return on investment? You can't, yet that's exactly what unprofitable offerings provide.

In my manufacturing company, we only offered discontinued, hard-to-get-rid-of items at less-than-cost prices. Everything else was priced to make a profit; even though several of our competitors offered 'loss-leaders.' Many of our customers told us that they went to our competitors strictly to buy loss leaders, but bought everything else from us because we offered better service. We could afford to provide better service because we were making more profit than our competitors.

Loading a trailer with freshly-manufactured, boxed Plexiglas store fixtures on shrink-wrapped pallets in 1985, using our ancient 1955 yellow Hyster forklift in Tangent, Oregon.

Make a profit on every product or service you offer. It's the key to long-term success in business. (posted 6/3/10, permalink)

---

"Please Leave A Message; Your Call Is Really Important To Us." The National Federation Of Independent Businesses has reported that small businesses overwhelmingly continue to cite 'Poor Sales' as their number one problem.