For those of you who haven’t already figured this out, I’m a history buff. Because of that, I often “look back” what people said in the past, if only to compare what they said “back then” to what’s going on now. My wife often reminds me, never say “never” and that “always” seldom, if ever, always applies. (My wife has great common sense; certainly much more than I do.)
Two and a half years ago, Mike Cottrill of Smart Business L.A. authored an article about Suri Suriyakumar, Chairman and CEO of American Reprographics Co (ARC), and the article was based on an interview of Suri.
Given the fact that ARC recently (Jan 1, 2011) made a decision to “rebrand” all of its individual “divisions” to the ARC name, I found a “look back” at that August 2008 article/interview to be interesting. Here’s a “reprint” of that article / interview. If you find differences between “then” and “now”, I’m sure you’ll find those differences attributable to “changing times.” “Changing times” do have a way of influencing changes.
Mergers and Acquisitions
Strength in numbers
How Suri Suriyakumar acquires and integrates entrepreneurs to drive American Reprographics’ growth
By Mike Cottrill
Smart Business Los Angeles | August 2008
Suri Suriyakumar has a pretty straightforward view of leadership.
“I totally believe in the fact that a great leader will be able to inspire teams to accomplish goals that they did not think were possible,” he says. “You have to inspire them and make them believe that they can accomplish these goals, because otherwise, they would have done it themselves — the reason they haven’t done it themselves is they look to you to motivate and inspire them.”
Suriyakumar, president and CEO of American Reprographics Co., keeps that in mind with each step his company takes. Already the largest provider of document management services to the architectural, engineering and construction industry in the U.S., American Reprographics has acquired well over 100 companies ranging from a few million dollars in revenue to $75 million in the last two decades. With so many of those deals made directly with owners, Suriyakumar and his leadership team have done extra work to keep the entrepreneurial spirit alive in each company they’ve bought.
Rather than just pulling the resources of a new company into the giant arms of American Reprographics, Suriyakumar keeps each one independent to spark its growth. While many companies will wave goodbye to large percentages of a staff when they acquire a new business, American Reprographics focuses instead on respecting the assets that already exist. Introducing a few of the best practices that American Reprographics knows in a way that comforts the acquired team, Suriyakumar slowly eases them into the company by allowing them the autonomy to act independently to leverage their local expertise while their systems are being fine-tuned. The result is 300 individual reprographics companies growing with entrepreneurial spirit under one giant umbrella. Using that philosophy, American Reprographics’ net sales have increased from $416 million in 2003 to $688.3 million in 2007.
Break in your new team
Suriyakumar knows that American Reprographics is the biggest in its industry, but that’s no reason to be a bully.
“We have to bring about best practices and things which are required by a larger company, but it can be done in a way that we are not disrespecting the local owners, in a way that lets them keep their pride and their dignity,” he says.
Suriyakumar wants to keep the entrepreneurial spirit alive by taking a hands-off approach. While you want to begin to implement your company’s procedures to better the acquisition, the first goal should be easing minds to keep the acquired company’s energy alive.
“We never change a president’s job title,” he says. “The key element of that is for us to understand that we’re not just buying a company because we have the money but to win the hearts and minds of the people over in the company we acquired. Failing to do so would actually put our investment in jeopardy.”
When you’re acquiring a smaller company, you have to quickly let people know that being part of a larger organization won’t kill the entrepreneurial spirit.
“The important element is right at the beginning of the acquisition for us to be able to protect ourselves as a company to let them know you are actually going to improve the company,” he says. “When people get acquired, their biggest worry is that their title will change, their jobs will be cut off and somebody is going to bring improvement by cutting cost. Our strategy has been, whenever we acquire a company, we want to look to grow the company. Our first objective is to say, ‘OK, how do you take this company from this level to the next level in terms of profitability?’”
The more clearly you can lay out your plans for the company at the beginning — showing the ways you want to improve the company without sharp cuts — the easier it will be to win people over. With a very successful track record, for example, American Reprographics is able to show new people times that it has improved things like accounting and purchasing without personnel changes to sharpen a company. If you can show potential success because of your involvement, you can actually drive away concern.
“We are able to tell them, ‘Our company is an open book. Look at the numbers we have; look at so many of your colleagues that have gone from 8 to 10 percent (profit margins) to 15, 16, 18 percent,’” he says.
“You say that to somebody who has been long enough in the industry and you really get them fired up, they say, ‘Heck, if Tom can do it and Peter can do it and Martha can do it, I can do it, too.’”
Keep the flag flying
Though that original outline will help set the table, you have to follow up by being clear about your intention to run your new acquisition as an autonomous segment.
“While we know best practices, we have better buying power and we know HR issues, we absolutely must be respectful and give him or her the right position to run the company,” Suriyakumar says. “So our first objective is to make sure that we are joining that company in that marketplace instead of that company joining us.”
The trick is the way you bring a new company into the fold. American Reprographics doesn’t take over the new company in name.
“We don’t buy the company and tell them, ‘Oh, by the way, this owner has a new boss and, by the way, we’re going to change the name and the color and we’re going to give new titles to all of you,’” Suriyakumar says. “Because when you do that, you take away a lot of the motivation, the enthusiasm, their pride and their dignity. We work behind the scenes to develop and improve their accounting structure, their cost structure and put more to the bottom line and the employee and the owner actually benefit by it while taking away all of the headaches.”
The first benefit to letting the company run under its old flag is that it keeps the spirit of the owner focused on the business.
“If you think about any entrepreneur that’s built a company over 20, 30, 40 years, they sell the company, they get a chunk of money, and typically, they would like to get on with their life, so to speak,” Suriyakumar says. “But if you create an environment in which they have their dignity and in which they can do all of the things they did before, then they would stay. When you acquire a company, they are often shackled with problems. ... They have HR issues; they have insurance problems. These are all headaches of a small company owner. So there are a lot of things, which keep them awake during the night, and when we acquire them we remove all those shackles. We say, ‘You go and do what you did best for the last 30 or 40 years, which is selling reprographics to your customers,’ and the owners love it.”
In addition to keeping that internal knowledge with the company, you can also hold onto the relationships those owners had with local companies.
“We don’t change their names and put a big American Reprographics stamp and make them one company,” Suriyakumar says. “We ... let them act as their own company because local relationships are very important.”
It can occasionally take an ego adjustment for the company doing the acquiring to work behind the scenes while the existing company is still the face of the organization, but Suriyakumar says that one of the biggest mistakes you can make in growing through acquisitions is assume that just because you’re bigger you know the market better.
“It’s a typical thing for a large company, when they acquire a small company, the first thing they do is to say, ‘We’re a big company, we acquired a small company, so you guys now have to sit and listen to us, and we’re going to tell you how to run this company,’” he says. “If we go and buy even a $3 million company, whether it’s in Idaho or North Carolina or Minnesota ... we are proud to be part of that company, and that company we bought only because they know their business, so we become part of them instead of them becoming part of us.”
Knock off the moss
While so much of the beginning of an acquisition is about being hands-off and easing the new company into your family, Suriyakumar knows changes must be made.
“These are small companies, they all come with a certain amount of baggage, and it’s our job to go and clean those companies up,” he says. “Even when you’re a well-managed company, you’re still always going to have situations when you grow fast, where it’s only natural you start gathering some moss, some inefficiencies.”
Like everything else American Reprographics does, it has an approach that encourages an entrepreneurial spirit from every unit. Overall, the company has 300 locations broken up into 45 divisions. Suriyakumar has a vice president and a team at headquarters assigned to watching over the daily numbers for each and every division to see where soft spots develop. In addition to that, those numbers are posted for everyone to see to encourage competition and recognition.
Suriyakumar checks in on any area that’s weak without taking over the business. He instead focuses on the assets that American Reprographics has to help and offers support from anywhere in the company.
“It’s very important for them to know that I know their successes and failures and I’m there to celebrate or help,” he says. “So on the one hand, if they had a phenomenal quarter or month or got a great billion-dollar project, I will be the first one to call and congratulate them on their tremendous success and thank them for the effort. At the same time, if certain divisions are not operating up to par, then it is my job to call and point out specific issues and say, ‘Look at this and come back to me — what should we do, what could we do, where do you need help from the corporate office?’ So once you do that, and communicate that on a regular basis, then their confidence goes up significantly because everybody feels like the boss knows where we are.”
Instead of micromanaging divisions, Suriyakumar learns where the company is strongest and explains how those areas can help any groups that hit bumps.
“The important thing is for a leader to identify and be able to justify his position as to why we should do better than others,” he says. “Obviously, you can look at somebody and say, ‘You should do better, go do better,’ but that would be demotivating sometimes. It’s really important for a leader to be able to identify the strengths of the company and be able to communicate those strengths and make your team believe you are absolutely right. I’m able to explain to them and say, ‘OK, we understand your market is soft but look at the opportunities we have in front of us.’
In allowing each segment of the business to operate individually while keeping it under one umbrella, Suriyakumar hasn’t just seen American Reprographics grow, he’s seen the inside knowledge of the company increase because it retains about 95 percent of the business owners that it acquires.
“One would expect that (the owners) would take the money — whether it’s $3 million or $5 million or whatever it is — and then they’ll go about doing their things, go fishing or whatever, but that really doesn’t happen in our case,” he says. “We inspire and motivate them to stay with us. That’s what helps grow the company.”