The following is an interview with Eric Hilferding, CEO of ClassB, a custom t-shirt manufacturer, and printer for my graduate coursework in entrepreneurship. Eric and I first met in 2005 when I was with the Boy Scouts of America. His company was one of the BSA's first licensees in the revamped licensing program. We became fast friends and I have long admired his attention to detail, his creativity, and his commitment to service.
Q. Tell me a little about ClassB and your role with the company.
A. ClassB is a provider of custom decorated goods including t-shirts, embroidery and promotional products to primarily nonprofit organizations. The company started in 1982. We currently have 38 full-time employees. We focus on having a great customer experience. The internal motto is we sell service not t-shirts. I am the CEO of ClassB and one of the two company founders back in 1982. I have been formally running the company since the mid 1990’s.
Q. Did you have any entrepreneurial experience or education before launching the company?
A. I have zero business or entrepreneurial education - I have a BA in History. Luckily, learning about running a business was always a part of my life. I started working at around age 8 at my grandfather's lumber yard. My parents often discussed business at the dinner table.
When my mother and I started ClassB, all immediate family members eventually were employed. I read profusely to fill gaps in my knowledge. I was very lucky to have my father with his extensive business knowledge available at all times. Without his experience, I would have failed many times over. Now I realize how right he was on everything.
Another key area is my Boy Scout experience. I learned so much by making lots of leadership mistakes in my Troop and working at Summer Camp. Having that sandbox to learn is one of the most valuable things I can imagine. If not for my parents and the Boy Scouts, my only business reference point would be work based sitcoms.
Q. What are you most passionate about and how does it tie to your work each day?
A. My main passion is that we treat customers right. It's probably some of the Boy Scout indoctrination. However, most of it is driven by a sense of perfection and trying to avoid the guilt of an unhappy customer. I obsess over a bad customer experience and have to process thru it to be able to move on. I get lots of satisfaction by improving things. I lose interest if things stagnate or a task becomes repetitive and no longer optimizable. The idea of constant iterative change and the occasional disruption suits me. I also enjoy the new things I have to figure out. On some days I’m a scientist, engineer, investigator, lawyer, judge or a plumber, etc. It’s never the same every day.
Q. Business owners have many responsibilities during the day. Some of those responsibilities are more challenging than others. What are a few of the things you find to be the hardest to do? What are some of the easiest? Moreover, why are these things easy or hard for you?
A. The hardest thing for me is finding uninterrupted time. Every day being different is great - having so much to do is a problem. I have lost weeks just trying to finish something in 30 min increments. Kind of related: the most challenging thing for me is finding good people - they make all the difference. I have learned to hire people that fill my weaknesses not people who are like me.
I can’t tell if someone is a good fit in an interview. I have to hire them and then decide in 2 weeks at most so I can circle back to my 2nd option. The destruction to customers, profitability, and other employees that a single person who is “not a good fit for the job” can bring is incredible. As long as I remember that, firing people is easy. If I forget, firing is a drawn out, expensive, painful to all parties process - especially me. The easy stuff is fixing systems and things - why because I’m a systems guy, not a people person.
Q. As an entrepreneur, there are all kinds of things that can affect the business. We could spend all day, every day, worrying about those things. What are some of the things that “keep you up at night?” And what do you do each day to mitigate those worries?
A. I worry a lot - to the point of being unhealthy. I have a terrible fear of not doing things correctly - still a Boy Scout in some ways. I always strive to go above and beyond. I always play things straight - I assume that everything will always be discovered at some point - so it should be done in a way that would be correct from the get-go.
My biggest fears are someone taking advantage of us. This comes in two forms - frivolous lawsuits and unfairly instituted/ enforced regulations. I have seen a few ridiculous claims - I have a good family lawyer to pass them off. I also worry that someday an employee here makes a small mistake that destroys the company, puts all my employees out of work, and puts me in bankruptcy.
Many regulations often require academic-like responses, seem punitive, or meant for an unspecified situation—they are a time and soul killer. My fear comes in because they often seem to be unfairly applied. Unfortunately, you never know for sure how to comply or if the rule is real. You have to wait time to have an idea. It’s the uncertainty that gets me. The personal interpretation of a regulation by a single inspector has been devastating in time and money.
I mitigate these two things by trying not to think of them. I do all I can to do the right thing anyway and just hope.
Q. How do you motivate yourself each day? What do you do to let off steam?
A. Motivating is easy for me - I’ve worked all my life, so has everyone in my family. I’m a workaholic for sure. When things become overwhelming as they often do, I just have to remember to ignore the 100 things going on and move one thing forward at a time. Eventually, I can work out of the mess. I wish I could say being a business owner is glamorous - clearly, I’m doing it wrong, but my 'letting off steam' is maybe two days a year where I get to go hiking in the desert with not a soul in sight for miles.
Q. What’s your favorite customer story from your business?
A. For owners and managers, you really only hear the problems. It’s great you ask this question because it's important not to lose sight of the daily things that go right. Ninety-eight percent of the time, things go good or perfect. The customer service people at ClassB get to hear all the good stories. I encourage them to share with everyone. We have the entire wall of the customer service area with photos and experiences that customers have shared with us.
I think my favorite situations are when we go out of our way big time to get the customer their shirts in time for an event that has special meaning for them. We have turned out shirts in a day and overnighted them because the customer made a mistake and we wanted to make it right for them. The best customer experiences come from looking for the customers best interests and ignoring the effect on any single transaction. Bake in some money to your price to be able to treat them the way you wish things worked.
Q. In your experience, what have you found works best to motivate employees?
A. Wow, have I worked the gamut on that! The one thing I have learned the hard way is don’t listen to what they say will motivate them. Money, benefits, and perks only work in certain market conditions or individual situations and are secondary or even a counter to the true motivator. The number one motivator is good managers. Those managers have to have people skills. They have to make the work environment-friendly, positive, professional, productive, fun and fair. They have to respect all the
employees by having their fellow employees have a purpose and contribute to the team.
All managers have to pull their weight and show appreciation for everyone's efforts. They also have to hold a high standard. If all that is in place - employees will be close to self-motivated and not look to leave. They are more productive, and guess what: Now those managers worth more, and they get more money. Try to work it backward, and it does not work at all. I personally am a horrible motivator - I am lucky that I have managers that are really good at that.
Q. Entrepreneurs are risk-takers. We know there’s a probably a more significant chance for failure than for success. Still, we move forward. As you think about your entrepreneurial plans, what is your worst-case scenario? What makes that the “worst” for you?
A. I always view the current situation as transitory. What is working today will not at some point. All I can do is keep moving and try my best to adjust.
I think my worst case scenario is that I get so caught up in the day to day issues of running my business that I lose the big view of where the market is going, and we fall behind. Know this always happening to an extent. I don’t want to fail my family or employees because of something I missed. I don’t want to look back after the failure and realize I spent too much time on ABC instead of XYZ.
There is a burden in having so many people and their families relying on you for their lively hood. I have maybe 60-100 people indirectly or directly relying on me. I do not want to fail them. If it was just me, failure is easy and guilt-free - plus the Boy Scouts taught me how to survive in the woods if need be.
The most common definition of business suggests it is the “organized effort of individuals to produce and sell, for a profit, the goods and services that satisfy society’s needs” (Pride, Hughes, & Kapoor, 2013). In a manufacturing-driven society, this definition might be valid, yet it arguably emphasizes an outward-in approach to product and service development and in doing so has potentially set a generation or more entrepreneurs off on the wrong foot. So many entrepreneurs believe that the “thing”—the product or service—they have created will “satisfy society’s needs” without giving enough thought to understanding what society needs, values, and expects. The focus on the thing poses one of the most significant long-term barriers to success for entrepreneurs.
Entrepreneurs devote too much time and energy to the perfect execution of the product or service at the outset. In fact, many entrepreneurs invest—maybe even over-invest—in the thing before they understand if there’s an actual market for the thing. Not long ago, I spoke with an entrepreneur who had an idea for a new technology product and a pool of funds to develop the product. He was searching for a developer to help get this product off the ground but had not thoroughly researched the market opportunity for what he was about to create. Moreover, he had done little more than cursory research on his target customer. His focus was on product execution, rather than customer understanding. Unfortunately, this approach is all too common with startup entrepreneurs. A good product or service—one that meets a customer's desires—will be far better than a great product or service that misses that mark.
Steve Jobs once said, “Customer’s don’t know what they want until we have shown them” (Isaacson, 2011). To Jobs’ point, when new ideas for products and services are solicited from customers, those ideas tend to mirror competitive products in the marketplace or be derivations of products or services already available (Furnham, 2000). However, this should not suggest that knowledge of the target customer and customer input is without value. In fact, one might argue that Jobs and his team developed their products based on a clear understanding of the needs, values, and expectations of their target customer. Apple’s customers, for example, have come to expect the most innovative products, of the highest quality, that enable a short learning curve, efficient use, and support the simultaneous engagement with other products (Hyungu, 2013). Apple’s focus on delivering products to that target customer, and then taking care of that customer with committed customer service, elicits profound loyalty to the company and its products.
Customers are the only thing that matter to a business. Regardless of the product or service offered, if there are no customers, there is no business. It is surprising how many entrepreneurs start their business with an idea of a product or service and a detailed plan for execution of that offering, without a clear understanding of the customer. The customer’s needs, values, and expectations are never thoroughly researched, and the thing, as developed, misses the mark with the intended audience.
All of this is not to say that the thing—the product or service—is not essential. It is. However, a product or service is only relevant in the context of the customer’s needs, values, and expectations. A product and service placed at the center of the business, particularly in today’s business environment, may work in the near term but is not sustainable. The customer must be at the center of the enterprise for a business to have long-term success.
Perhaps a more appropriate definition of a business for our current environment might be “the organized effort of individuals to satisfy society’s needs, by producing and selling goods and services, for a profit.” Changing this definition might encourage entrepreneurs to focus first on the customer, and make product execution and delivery the second step in the business development process. Putting the prospective customer first might well make all the difference between success and failure of the next entrepreneurial venture.
What do you think? Should the customer needs, values, and expectations trump sheltered product development?
Furnham, A. (2000). The Brainstorming Myth. Business Strategy Review, 11(4), 21-28.
Hyungu, K. (2013, September). To Be A True Industry Leader: Apple Inc. and Microsoft Corporation in Consumer. Leadership & Organizational Management Journal, 2013(3), 114-130.
Isaacson, W. (2011). Steve Jobs. New York, NY, USA: Simon & Schuster.
Pride, W., Hughes, R., & Kapoor, J. (2013). Business (12th ed.). Cengage Learning.
Any business that holds and manages inventory does so with the goal of selling that inventory to produce revenue for the company. The key is to maintain just enough to meet demand, but not so much as to have money tied up in inventory for a period longer than necessary. No business holding inventory desires to have more, or less, inventory than is needed to meet customer demand at any given time because failure to meet customer demand will negatively influence sales and profitability. These factors make inventory management one of the most significant challenges any business, but particularly a small business, can encounter.
Depending on the kind of business, there can be many different types of inventory. For example, manufacturers will likely have an inventory of raw materials, work-in-progress inventory, and finished goods inventory at a minimum. A retailer might have merchandise inventory, a service business might have an inventory of hours available to resell, and a magazine or online publication might have an inventory of space that could be filled with advertisements. How each business type manages its inventory may be a little different, but each has the same purpose in mind: To maximize cash flow.
Demand forecasts are an integral part of inventory management. If the business demand forecasts are incorrect, it can be a significant blow to cash flow. For example, if the business assumes the demand will be high, and the assumption is erroneous, it may have too much cash tied up in inventory assets, which in turn would restrict cash flow because the product on hand is not selling as predicted. Conversely, if the business predicts the demand will be low, and the assumption is incorrect, it may not have enough inventory to meet customer expectations, resulting in lost sales and therefore tighter cash flow.
One of the simplest ways to manage physical inventory is to measure productivity and turnover (Traster, 2007). The idea here is to determine how often during the year the business can convert its inventory assets into cash (learn more about inventory turnover and other financial ratios here). Assessing the most appropriate turnover rates is a factor of a company’s sales volume. The goal is to either turn the inventory more times over the course of the year or reduce the amount of inventory held at any given time to maximize cash availability. If money gets tight, it is smart to evaluate the slower moving inventory and determine how price adjustments might help improve sales and increase cash flow, even if the margin on the sale is lower than desired.
Another way to manage inventory levels to maximize cash is to improve supply chain processes using a just-in-time model. For example, gaining agreement from a supplier of raw goods to hold those items necessary to produce a finished product in the warehouse, but not take them into inventory until manufacturing demand requires it, means raw materials are not in stock before necessary. This is one way to hold on to cash a little longer. Another approach might be to make a process change and to delay final assembly and packaging of the product until just before a customer may need the product, thereby reducing labor costs and inventory levels until the very minute (Anderson, 2010). These are only a couple of ways that small modifications in the supply chain process might reduce inventory levels and improve cash flow.
Service businesses and publishers have a slightly different problem. In these companies, fixed inventory is available, and when it is not used in the defined period, it is revenue lost. A consulting firm or advertising agency might have calculated its available inventory of hours by assuming that every revenue-producing person should bill (to clients) an average of 95% of his or her hours per each week for the firm to be successful. Assuming a 40-hour work week and 30-minutes for lunch each day, each should bill 35.625 hours per week. If less than 35.625 hours are billed, that inventory of hours and the revenue it would have produced is lost. The firm must somehow make up that lost revenue elsewhere. Sometimes, hourly rates are increased over time to help make up the difference. But often the solution means firing those who consistently under-perform.
Publishers allocate and maintain an inventory of advertising space within a publication for a specific time. If the advertising does not sell before the publishing deadlines, the revenue is lost. To offset lost revenue, the publisher might offer deep discounts on the unsold space at the last minute to improve cash flow. The publisher might also increase the inventory availability in subsequent issues in an attempt to recoup revenue lost to unsold advertising space.
Inventory management is an art and science. It requires diligence, a reliable inventory system, and designated staff to maximize cash efficiencies. While different business types have different requirements for inventory levels, all businesses must have a keen understanding of their customer needs and market demands to forecast need. Moreover, companies must have a detailed knowledge and control of cost and production schedule to ramp up, or down, depending on the demand forecast. Striking the proper balance with inventory is vital to maximizing cash flow.
Anderson, L. (2010). Accelerating Cash Flow Through Supply-Chain Innovation. MWorld, 9(1), pp. 36-38.
Traster, T. (2007, May 14). 5 steps to get a grip on inventory. Crain’s New York Business, 23(20).
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