Tuesday, January 17, 2012

Going forward, what do you feel are the three greatest risks-threats to your company? Blog author's comments on recent survey results.

In the “Reprographer Survey” Reprographics 101 recently conducted, we asked Reprographers this question:

“Going forward, what do you feel are the three greatest risks / threats to your company?”

44 Reprographers participated in the survey. Of those, 8 did not provide a response to the question. As to those 8, perhaps they do not feel there are any risks / threats to their company, ….. or maybe they were just too lazy to submit responses.

Anyway, as to the responses we received, I decided to try and “categorize” the responses, as best I could. And, I did that so that I could “comment on” the responses, for whatever that’s worth. You may not agree with my categorizations, nor with my comments about the responses, and, if you don’t agree, you can add your “two-cents-worth” by using the “comment” feature on our blog.

About the “bulleted-lists” that appear below; I tried my best to eliminate duplicate thoughts, but, in some cases, there will still be similar or duplicative responses.

Okay, here we go…..


· Governmental stalemates

· Political situations

· Building departments overregulation

Blog author’s comments: Speaking frankly, I don’t agree that there is “overregulation” of building departments. We should be thankful that we have “building codes” and “building regulations” in the U.S. All you have to do is look at countries, who lack building regulations and codes, where entire cities are virtually decimated by earthquakes or hurricanes, to be thankful that we have regulations and codes in the U.S. Also, there have not been any additional regulations or codes, to speak of, during the Great Recession, that were not already in place when the U.S. A/E/C Industry experienced an enormous, extended boom. Regulations and codes did not stop that boom. In my own opinion, there has not been enough stimulus on the part of our elected representatives; much of the stimulus, to-date, has been directed at making banks and financial institutions healthy, rather than directly stimulating the A/E/C Industry. There will not be a strong recovery until the A/E/C Industry shows evidence of a rebound (non-res and res, included.)


· Economic crisis

· Long term economic doldrums

· Recession / Depression

· Deeper recession

· Economic instability

· Economy

· Bad market

· USA enters a double dip recession

· Economic downturn

· Lingering recession with more customers scared of spending/investing

· Further economic decline

· Government projects drying up before commercial comes back

· Construction (lack of)

· No new jobs being created in the construction field

Blog author’s comments: Certainly, the economy affects reprographers’ businesses, as well as all other businesses. But, much of the economy – GDP growth in a consumer-driven economy - has to do with “positive outlook” vs. “negative outlook.” Perhaps if there was not so damn much fighting in government, consumers and businesses would have a more positive outlook, and, with that positive outlook, feel more confident about investing and spending. Lack of confidence is always a nightmare for recovery and growth.


· Higher taxes

· Increased Taxes

· Health Care Benefits

Blog author’s comments: Our current income tax code is a complete abortion. But, as my father-in-law always said, “if we’re paying more income tax, that means were making more money.” Of course, his statement would not be true if our increased taxes resulted from a hike in income tax rates, rather than from an increase in profits. On the other hand, I’d be willing to pay a higher rate of income tax if the income tax system was a level playing field, which it is not, provided that the increased income tax was used to stimulate the economy and job growth. As to health care benefits (the costs thereof), that’s been out of control for many years, even during the great boom our country experienced.


· Lack of credit for developers; no new projects

· Banks not loaning money

Blog author’s comments: So, our government instituted policies to get banks and financial institutions healthy. But, what have our banks and lending institutions (the latter, collectively speaking) done with that money, other than, sit on it and earn a safe spread between cost-of-money (interest expense) and investment income (interest income), by investing in government sponsored investments, rather than taking risks in lending to businesses. But while this sentiment applies to many banks and lending institutions, it does not apply to all. For example, Wells Fargo (WFC) just reported its Q4 2011 results, and those results were an excellent improvement; an improvement primarily attributable to WFC’s commercial-loan-growth. Copied from an article, that appeared today on the Internet, about WFC’s results:

"Wells Fargo has a better business model for the environment we're in now because commercial lending is their biggest sector," said Jeffrey Sica, president of SICA Wealth Management in Morristown, New Jersey, which is generally negative on the banking sector.

"They're not overly involved in the trading activities that the other banks are involved in."

The San Francisco-based bank said it earned 73 cents per share. The average estimate from analysts was 72 cents per share, according to Thomson Reuters I/B/E/S.

Reflecting a trend demonstrated on Friday by results at JPMorgan Chase & Co, Wells Fargo's total loans grew about $9.5 billion from the end of September to $769.6 billion at the end of December.

The bank said planned run-off of discontinued loans was more than offset by growth in a broad range of loan types, especially commercial loans. "Core" loans increased by about 2 percent from the previous quarter, although analysts noted the growth included U.S. commercial real estate loans purchased from struggling European banks.

"In addition to the organic growth, we saw an opportunity from the acquisition standpoint," said Chief Financial Officer Tim Sloan in an interview. "Not everybody in the industry has the capacity (to do that)."

One area where Sloan said the bank wasn't seeing much growth was utilization of existing credit lines, typically an event that occurs as the economy rebounds. The economy is "definitely improving" but not "as fast as everyone would like," he said.


· Mergers among A/E firms

· Client Closings

Blog author’s comments: The A/E/C Industry recession has now lasted for at least 4 years, and, during that time-frame, some A/E firms have gotten into financial trouble, forcing some A/E firms to seek consolidation with other firms. If your biggest A/E customer is acquired by another A/E firm who is a customer of one of your competitors, that’s the fastest way to lose a large account, for sure, and this certainly has to be a concern of Reprographers.


· Employee retention

· Not being able to find qualified workers

· Current workers not performing

· Cost of more skilled employees with sales experience

· Keeping the people we need

Blog author’s comments: Hasn’t our industry – haven’t our reprographics companies - always been faced with these same concerns?


· Increased competition

· Very hard competition

· Desperate people in Industry

· Idiotic competitors

· Companies going cheap immediately just to get the business

· Competitors

· Competition

· Price erosion

· Lower prices

· Pricing pressure in large format color

Blog author’s comments: Hasn’t our industry – haven’t our reprographics companies - always been faced with these same concerns? I can’t help recall thoughts I’ve had in the past about “price-competition”, market by market, where, within each market, price-competition is always stiff, even though “price-levels” (at which competitors compete) can be very, very different. Take for example “a market area” where the largest reprographers bang it out, 2 cents per sq ft being the difference, but where that difference is between $.10 and $.12 – versus “a different market area” where that 2 cents per sq ft difference is the difference between $.04 and $.06. This is definitely the type of discussion – food for thought – that Reprographers should have at industry networking events, but, with the demise of the IRgA and regional associations, these types of discussions may end up being non-existent, to the detriment of all in the reprographics industry. I’ve never been in favor of price-fixing, IT IS ILLEGAL. But, industry-pricing-education (both intra-market and market-to-market) and the common-sense application of that education ARE NOT ILLEGAL.


· Lower margins

· Erosion of profit margin

· Reduced profit margins on existing printing

· Cash flow (declining cash flow?)

· Lack of operating capital

· Investment in right areas for growth

· Continued industry fragmentation

· Making the wrong decisions

· Not choosing the right path for diversification

Blog author’s comments: Not much to say here, except for the comments two people made about “making the wrong decisions” and “not choosing the right path for diversification.” Most people in the reprographics industry do believe that the volume of A/E/C plan-printing (on paper) is not going to rebound in direct proportion to the rebound in design/development/construction activity the A/E/C Industry eventually experiences. Prints-on-paper, per-project, have declined the past several years. That decline has been fairly substantial (according to our recent survey results.) However, no one really knows whether that will continue to be the case or whether, just to the opposite of what many now think will be the case, prior “print habits” will resume, when the A/E/C Industry experiences its coming robust recovery. We just don’t “know”, yet. But, to be on the safe side, it is probably necessary that reprographers, if they have not yet done this already, continue to think about “diversification”. Choosing the “right path” for diversification requires (I should say, demands) lots of research – and lots of back and forth discussion, within and outside of the reprographer community. If you have the opportunity to network, do it! If you don’t have an advisory board (consisting of people from inside and outside of the reprographics industry), then put one together!


· Technology available to customers has reduced our involvement in their workflow, e.g. FTP sites

· Technological obsolescence

· Electronic take-off

· Reduced need of clients to print documents

· Electronic documents

· Online software companies

· Reality of a more paperless environment

· Digital document distribution

· Reduction of need for hard documents

· Elimination of print in AEC

· Reduction in printed material

· Outside industries breaking into our niche and taking business

· Further digitalization of workflow

· Technology eroding core business

· The overhead that we must carry to provide the level of service our customers still require (fast turnaround, etc) is too high based on the level of sales in this market. Even when construction spending increases this will be a challenge because, on a mass scale, the print and distribute workflow is gone forever

· Decentralized printing

· Digital Technology

· Large software firms; Microsoft, Autodesk,etc.

· Technology

· Technology change

· The Internet

· Losing control over document flow

· More paper going to digital

· More competitors moving into our space

· The green movement has made those who make their money by selling paper planetary villains.

· New internet technology that could further (negatively) impact sales revenues

· The ability to charge digital fees for services requested by customers (posting to planrooms, maintaining planholders lists, etc) are being challenged by FREE services from the likes of Bluebook and other free services. These companies get their revenue from other sources e.g. advertisers.

· With the decentralization of printing leading to small inexpensive MFP printers, will the small sized Reprographic companies fall victim to ever larger national companies with larger purchasing power? The MFP devices my company sells are now being sold by large copier companies who have more boots on the ground. They can advertise on TV and they can negotiate prices from the manufacturer that I have no chance of ever getting. In some cases we compete with the manufacturers directly. In the case of HP, our retention rate for OEM inks is about 10 %

· Internet competitors

· Small-format vendors entering the wide-format market

· Electronic profits (replacing profits on printed documents?)

Blog author’s comments: Reprographers, most of the risks / threats in the above section are way beyond your control. If you do not take steps to further diversify your business …. away from A/E/C reprographics (including document management related to A/E/C documents …. you may be faced with a continuous need to down-size (right-size) your A/E/C capabilities - your equipment plan, employee population and facility size. Some will do just that - - - and, hopefully, will “survive.” But, to grow, you’re probably going to have to figure out how to generate revenues outside of the A/E/C industry, and it is likely that doing so will require added investments in technology, software, equipment, different people …. and a different mind-set than you had before the recession kicked-in. Our recent survey of Reprographers asked Reprographers for their opinions about “now and forward” diversification opportunities; opportunities that they are thinking about or have already begun to pursue. (If you want a copy of the survey-results file, e-mail your request to joel.salus@mac.com)

For those of you who managed to make it all the way through to the end of this post, thanks for taking the time to read it. And, best of luck to you in thwarting the risks/threats that your company faces.

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