Missing Plan

If you really want to test your professional character, see what happens when your business starts missing plan ... by 45%.

Back in 2001, I was part of a new management team recruited by the esteemed Michael Smith (of Lands' End, Classmates.com and Bag, Borrow Or Steal fame). Our job was to fix Nordstrom.com, a division of Nordstrom that was posting hideous double-digit negative EBIT, year-after-year.

In our first four months, we experienced something that tests professionals who think they're brilliant. A business that was failing mightily began to miss expectations by more than twenty percent. In fact, one series of catalogs missed plan by forty-five percent. That means customers liked the catalog so little that they spent almost half of what they spent in a comparable catalog the year prior --- a year where double-digit negative EBIT occurred.

Here is what the results looked like, with numbers altered to protect the innocent:

Analysis Of Catalog Results
	Rates	Plan	Actual
Circulation		4,000,000	4,000,000
Demand		$35,000,000	$19,250,000
Net Sales	71.0%	$24,850,000	$13,667,500
Gross Margin	52.0%	$12,922,000	$7,107,100
Less Book Cost		$5,000,000	$5,000,000
Less Var. Op Expense	11.0%	$2,733,500	$1,503,425
Var. Op. Profit		$5,188,500	$603,675

When your catalog misses expectations by nearly five million dollars profit (remember, numbers have been doctored a bit, to protect the innocent), folks begin pointing fingers at each other ... quickly! Your new merchandising expert blames the old administration. The old administration blames the new team. Your President suggests you don't know a thing about circulating catalogs.

After the finger pointing subsides, you have to get down to the hard work of planning next year's catalog. You use the catalog that completely failed as your planning base. Your circulation plan for the next year might look as follows:

Next Year's Plan
	Rates	This Year	Next Year
Circulation		4,000,000	1,600,000
Demand		$19,250,000	$10,900,000
Net Sales	71.0%	$13,667,500	$7,739,000
Gross Margin	52.0%	$7,107,100	$4,024,280
Less Book Cost		$5,000,000	$2,479,000
Less Var. Op Expense	11.0%	$1,503,425	$851,290
Var. Op. Profit		$603,675	$693,990

This is called "thinking inside the box". And it is damaging. You end up trimming circulation by more than half, to get rid of unprofitable names. By doing so, you only increase profit by about a hundred thousand dollars. And, you've made the business much, much smaller.

Actually, your customers are making your business much, much smaller, because they're voting with their pocketbook that they don't like you.

But this is where you get yourself in trouble, if you continue to "follow the rules". In other words, if you continue to circulate to a certain cutoff level, you are "certain" to run yourself out of business. You cut marginal names, the very names that will pay the freight in a year or two.

Missing plan by 45% requires you to re-think your business model.

In our case, many more members of the management team "left to pursue other interests, we wish them the best in their future endeavors".

A stable team of leaders "gelled". We "rightsized" the catalog business (fewer titles, fewer pages, fewer in-home dates, capitalize on e-mail and online marketing) A hideous profit and loss statement became one that any leader could be proud of.

You don't learn a lot when your channel is constantly growing by twenty percent, or thirty percent. You learn a lot about business, and about people, when your channel fails to meet plan by forty-five percent.

It will be very interesting to see what happens to today's online business leaders when the online channel begins to decline, an inevitability in the evolution of business channels.

Leaving Lands' End

Today, I stumbled across a Powerpoint presentation I gave at Lands' End, back in the embryonic stages of a thing called the internet.

The 1994 presentation outlined the impact of mailing numerous, small, targeted niche catalogs to customers. From mid-1993 to mid-1994, our list processing experts correctly executed 128 simultaneous, annual holdout tests, impacting ten percent of our housefile. Using experimental design techniques that would make Ph.D. statisticians at Kansas State University proud, we were able to understand how much incremental sales we could generate by mailing an increased number of targeted mailings.

We were able to demonstrate that a customer began to 'tire' after receiving a catalog more frequently than every eighteen days. Each additional catalog we mailed to the customer drove less and less incremental sales. Eventually, we put too pressure on the customer's wallet. Instead of spending more, she began to allocate her dollars, proportionately, across the catalogs we mailed.

At the time, each business unit determined their own catalog contact strategy. There was not a lot of coordination between business units. If a customer recently purchased a turtleneck from our monthly catalog, each business unit immediately mailed the customer a targeted merchandise catalog, because this customer was a 'recent' buyer, a great prospect for their merchandise offering.

Our year-long test "suggested" that a centralized, coordinated circulation effort could generate more profit (though it would result in a decrease in sales) than allowing each business unit to determine their own circulation strategy.

In October and November of 1994, we presented our findings to management. I recall spirited debates, and for good reason. If you were the Vice President responsible for running a business unit, and some dweeb in the circulation department suggests he control your marketing strategy, you might elect to lash out at him!

Late in November 2004, our circulation team was gaining momentum on the opportunity to have centralized control over the catalog marketing strategy. I recall a raucous Christmas party on a Friday evening, where we celebrated our success with a veritable plethora of alcoholic beverages, mixed with a heavy dose of arrogance. All seemed good in the world.

We recovered from our weekend, and arrived to a new work landscape on Monday morning. Within a half hour, we were informed that Bill End, the CEO of the past several years, and in my opinion a friend of our work, was being replaced by a gentleman named Mike Smith, the current President of Bag, Borrow or Steal. Mike was previously the leader of one of the business units that had control over it's own catalog marketing strategy.

No single inflection point in my career impacted me more than this one. Within days, our circulation director was asked to run the Kids division. A person outside of our circulation team, with little or no true circulation experience, was promoted ahead the existing managers in our department. He became our new boss. He was a good, bright person --- but not the person we anticipated would succeed the prior leader.

In my case, I lost all but one of the analysts I had reporting to me, as they were assigned to marketing teams responsible for driving the circulation strategies of their own merchandise divisions. A centralized strategy would not happen in 1995.

Within two weeks, I went from feeling like a hero, to feeling like a zero.

Eleven months later, I would follow a former Lands' End manager to Eddie Bauer. I was leaving Lands' End.

I have yet to work in an environment that was as stimulating as the one at Lands' End during the final six months of 1994. Many of the individuals working in circulation at that time have gone on to do great things. Many more have gone on to be great people.

The best lesson I learned from that experience involves the concept of being "right". As a mid-level manager at a billion dollar company, I strongly believed that I was "right", that I had a strategy that would improve our profitability, that all needed to bow down to the brilliantly conceived strategy of an arrogant twenty-nine year old.

Being "right" means very little. Articulating a strategy that allows everybody to benefit, personally and professionally, means everything. Not many of us are able to pull off the latter.

Within six short months, I learned everything I needed to know about office politics, marketing strategy, autonomy and empowerment, the use of analytics in decision making, and the great impact one single inflection point can have upon a person's career.

Your turn --- is there an event that happened in the course of your career that impacted you, professionally and personally? If you experienced such an event, what did you learn from the experience?