Key Idea #1: Innovate Before Competitors Do
When Chris and Sara bought Graber, they bought a solid business with a good reputation, but the sales were flat. The employees were dedicated, but the company needed fresh energy to start growing again. To dump the stodgy image of the company that he bought, Chris found an Italian fashion designer who came up with improved form and function for his bike racks. Chris believed that the market was ready, willing and waiting for new ideas and he was right. Customers have flocked to the new products and employees love to come to work.

Topic For Discussion: How does innovation improve employee morale?

Answer: The energy has come from Chris and Sara, but also from the thrill of bringing new products to the marketplace. Before your sales go flat, start innovating. Coming up with new products and the processes to make them is stimulating. In general, people stay where they are growing and leave where they are not growing. The employees at Graber are asked to contribute their ideas and then can see those ideas being implemented. A new product is like a new baby. Everyone who is involved is proud and that boosts morale.

You think about it: What can you do to be more creative and to inspire your employees to come up with new product and service ideas? What outside source could you tap?

Key Idea #2: Buy Out A Tired Owner
Chris bought Graber and then proceeded to put his own personality into it. He bought a brand that represented quality and stability, however, sales were flat. Chris built on the good he bought and threw out the bad.

Topic for Discussion: What was Graber's biggest problem when Chris took over?

Answer: They were stuck making old products. Chris said, "They were wondering and watching what was going on out there. They had a good nucleus of people and a good reputation in the marketplace as being honest and honorable people. But the image of Graber in the marketplace was more of a nuts and bolt manufacturer, and things from a development and design standpoint had leap-frogged them. And whenever you have your competition 'obsolete' your own product, you're in a big danger zone, and that's what they had happen to them."

You think about it: What good business do you know about that might be under performing because the owner may be tired and ready to retire? If you can't think of any, how could you find out about the possibilities out there?

Key Idea #3: Make Change Fast And Easy
Soon after Chris bought Graber, he could see that future customers were looking for bike rack styles and functionality to change with their fast-paced lives. To meet customer demand, Chris had to free his plant from old manufacturing techniques.

Topic for Discussion: What did Chris do to make change easy?

Answer: Chris made a commitment to change when he invested in cellular manufacturing. To help you think about changes you can make that that will gain the most and lose the least, read the book, The Goal. It was written in 1984 by Dr. Eli Goldratt and in this important work he laid out his ideas now well-known as TOC, the Theory of Constraints. Dr. Goldratt says to make improvements we have to know:

• What to change -- what is the leverage point.
• What to change to -- what are the simple, practical solutions.
• How to cause the change -- overcoming the inherent resistance to change

You think about it: What is your weakest link? What can you do to strengthen it? Where does the flow in your processes seem to divert or slow?

Key Idea #4: Limit Suppliers To Increase Influence
Your business becomes important to your suppliers because they value your loyalty to them.They know that if they treat you fairly, they can count on your repeat business.

Topic for Discussion: How does having just one supplier for tubing change the way Chris does business?

Answer: Chris said, "We have one major tubing vendor with whom we have a true partnership. And we're not going back and forth and saying 'Hey, we need a cheaper price here or we need this or that.' We sit down and develop a strategy with them, and we're honorable in the commitments we make to them. We're committed. And they're sharing technology with us, too. We send engineers down there to work with them to try and get a better understanding on how we can perform manufacturing at a higher level."

Topic for Discussion: Should Chris be nervous that this supplier would take Graber for granted and gradually hike up the prices?

Answer: If he didn't trust these people, he would not have formed such a close relationship. He said this is based upon a "win-win" - not "a winner take all" - philosophy. He wants long-term quality and profits that he believes will be achieved by sticking with people he can not just buy from, but from whom he can learn.

You think about it: Would it help you manage prices and quality if you reduced the number of suppliers with whom you work?

Key Idea #5: Establish A Board of Directors
Every successful business owner has mentors, people they trust to whom they go for advice and a few have a formal board of directors or a board of advisors.

Topic for Discussion: How does an owner go about forming a board?

Answer: Chris recruited his banker, attorney, father, father-in-law and the president of a bike company who truly represents the customers. His father is one of the innovative members of his team and you might remember that he had come up with a brand new product. His father-in-law took a company from $500,000 to $150 million in sales. This tells us that you should not put relatives on the board just because you enjoy their company. Every person must have experience to bring to the party.

Many owners in our library depend upon bankers, attorneys and CPAs which is smart because these professionals see inside of so many companies. They can offer both hard data for benchmarking and anecdotal insight depending upon the problem you are trying to solve.

Topic for Discussion: How do I attract experienced business leaders to serve on my board?

Answer: Just ask. We have found that extraordinarily successful business owners want others to succeed. Simply ask the person you want if they have time in their schedule to serve. Meeting quarterly is enough and you don't have to spend a lot of money. You can serve a nice lunch in your own conference room, supply your finanical statements and your goals for the future then launch a discussion by asking: What do you think we need to be doing that we're not now doing?

Compensation is optional. The owners we know don't pay board members. Probably the people you want are already wealthy and don't want money. What they really want is for you to ask them hard questions, listen to them, act on their ideas and then report back to them the results. This gives them a sense of accomplishment and they will be anxious to come to the next meeting to see the numbers.

In addition to having a board of directors, many owners belong to peer groups which can help as much as a board of directors. Vicky Carlson owns a Herman Miller Dealership and she is a member of the Herman Miller Dealer Council. This is the perfect group for Vicky because all of the members do exactly what she does and they all share their financials. There may not be anything like this group that you can join, however, you can think about finding some group that will teach and inspire you. This type of learning is called peer-to-peer learning. According to the Edward Lowe Foundation, "A peer network consists of a small group of chief executives who meet regularly in a confidential, supportive environment under the direction of a seasoned facilitator. The group typically ranges from six to 14 participants who operate noncompeting businesses." The power for Vicky is that her colleagues do exactly what she does and they all share their financials.

We have taped many programs about business owners who tout the groups they depend upon for inside information to solve sticky problems and will mention just a few of the options. If you are under 40 years of age, you can join Young Entrepreneur's Organization. If you are a woman, there is the Women President's Organization. If you have about $1,000 a month and will commit to a year's membership, you can join The Executive Committee, better known as TEC. The web site of the Edward Lowe Foundation has a group locator and links to articles about peer groups. As a member of a peer group, we believe that the biggest benefit of a powerful peer group is there is no advice given. We only tell our own stories of how we solved or failed to solve a particular problem. This way, you are guaranteed information from the real world.

Look for a group that does not try to sell to each other, one that has a facilitator to keep the discussion on track and one that does not bring in speakers.

You think about it: Do you feel alone at the top? Are you in a group that helps you solve problems?Can you make a list of your dream board members?

Key Idea #6: Give Customers A Forum
Chris has personally built relationships with the leaders in his industry. Even though every top person was not his customer at the time, he invited them all to a fabulous off-site event. He wined and dined them, asked what they would like to see him make for them then he sat back and listened.

Topic for Discussion: What happened as a result of this one event?

Answer: He won every single account that he did not have previous to the event. Big companies spend millions of dollars trying to find out what customers want. As a small business owner you probably think you know what your customers are thinking because you work with them day-to-day. On the other hand, most of us don't ask our customers the hard questions.

Topic for Discussion: Why don't we ask our customers more questions?

Answer: Fear and lack of time. You think if you really ask the question, "what would you like us to be doing that we're not now doing?" you'll actually have to change.

At Record Technology, owner Don MacInnis turned his total attention to his devoted customers. He said they told him, "You have a great product. There's no better vinyl record manufactured anywhere in the world, but we feel it can be better,' because there are places that are making a thicker, heavier record, a record that--the typical record weighs about 110 grams, and there were places that were making phonograph records that were 180 grams, which is about 50 percent heavier. And our customers were saying, `If we had an RTI pressing on a 180-gram record that would be just great for us, because we could really sell that, and we would also be willing to pursue more licenses for product.' "

What do you think? Should you wait to listen to your best customers until competitors with a new technology nearly eat your lunch?

Answer: No, no, no. That is arrogant, solipsistic and just plain stupid. Don't ever wait to dig into a customer's mind. Instigate a plan whereby you ask two questions on a regular basis. Number 1: Did we give you exactly what you expected? Number 2: What can we be doing for you that we are not now doing?

This takes courage but you've got that or you wouldn't be a business owner. Now you have to find time to do it.

You think back: What did Don do when he heard what his customers wanted from him?

Answer: He took action but he didn't go so fast that he sacrificed quality. He said, "It took us nine months of experimentation and tinkering and so forth to get the product to meet our standards." Don had a "Name Our New Product" contest for the employees. The winning name turned out to be HQ-180 which of course stands for high quality and 180 grams in weight which is what the customers asked for.

Can't you just see all 37 employees watching the first HQ-180 being stamped onto their creation? I can and it gives me goose bumps. People love being challenged. Don said to his team, "can we do this?" Well, the answer was yes and the company is growing and the HQ-180 is keeping Record Technology on the top of the heap.

You think about it: When can you get your customers together? When can you get some unvarnished opinions from customers?

Key Idea #7: Fight Against Bankruptcy.
Chris refused to take his company into bankruptcy because he did not want to hurt his vendors, customers or employees. Instead, he took on all the debt of a law suit and stood strong. Bankruptcy is a word that strikes fear in the hearts of all of us. Yet sometimes bankruptcy is the only viable route to ensure a company's long term survival. Consider the following hypothetical situations:

• A barge company has long term fixed price contracts to haul flour from the mills down the Mississippi river. Tugboats are used to haul the barges into and out of the open river. There is a world wide oil shortage and the price of fuel sky rockets. The barge company's contracts do not include fuel escalation clauses.
• A service company operates out of 10,000 square feet of leased office space. The lease is non-cancelable and has 7 years remaining. A number of major tenants in the area move out and there is an excess of commercial space available. The cost per square foot decreases dramatically. The service company finds that it can no longer compete effectively in its market due to its higher occupancy costs.
• The employees of a successful manufacturer are unionized. The union contract is up for renegotiation at the same time that the manufacturer loses 2 of its 3 largest customers. Union negotiators are demanding increased wages and benefits for their membership.

In each of these cases, the bankruptcy is not a "way out" but a "way back," perhaps the only way back to profitable operations and financial stability. What about the vendors or, in bankruptcy language, the unsecured creditors? As difficult as it is to write-off the accounts receivable of a customer, once that hurdle is over, would a creditor be better off with a financially revived customer or no customer at all?

The word bankruptcy comes from the Italian "banca rotta" or "broken bench". According to legend, in medieval times, when a tradesman of Florence's Ponte Vecchio bridge was unable to meet his financial obligations, soldiers would break his bench to prevent him from selling additional wares. Today's creditors sometimes, sadly, take the same view. But most are sophisticated enough to realize that what's lost is lost, and looking forward, perhaps more carefully, is in their best interest.

Topic for Discussion: What does the law say about banruptcy?

Answer: Article 1, Section 8, of the U.S. Constitution enumerates the powers of Congress which include establishing "uniform laws on the subject of bankruptcies throughout the United States". Congress met this obligation with the passage of U.S.C. United States Code, Title 11, Bankruptcy. Chapter 7 of the Code, Liquidation, and Chapter 13, Adjustment of Debts of an Individual with Regular Income, provide the governing legislation for the permanent discharge of debt by a corporation and individual, respectively. Chapter 11, Reorganization, provides the opportunity for a restructuring of debt and a fresh start.

Although Chapter 11 is the applicable law for both businesses and individuals, in practice it is used almost exclusively by businesses. Bankruptcy filings and subsequent proceedings are under the jurisdiction of the Federal District courts. Although the law is the law, each District has considerable latitude in establishing rules. The information provided here is general and should not be relied upon as legal advice. Businesses contemplating bankruptcy should seek legal counsel from an attorney experienced in such matters in their respective geographical area before proceeding.

Topic for Discussion: What is the banruptcy process?

Answer: A business seeks protection under the courts by filing a petition for voluntary bankruptcy. Voluntary bankruptcy is when the debtor seeks the relief of the court. Involuntary bankruptcy is when a group of creditors ask the court to declare the debtor bankrupt. Bankruptcy in general is expensive and time consuming; involuntary bankruptcies are rare.

When the petition is filed by the debtor, creditors are prohibited from making collection efforts on amounts owed and are barred from filing litigation against the debtor and from foreclosing on any assets. Leases and contracts are generally voided; and any current litigation is stayed. The debtor has the right to some breathing room, to sort things out, to regroup, and to turn the business around. He may continue to pay the ordinary ongoing expenses of the business, but he may not pay any liabilities incurred as of the date of filing. Sounds great, doesn't it? But the price is high.

As soon as the petition is filed, the debtor assumes a second identity of debtor-in-possession or DIP. The debtor is in possession of his assets, but since his liabilities to 3rd parties exceed his assets, he is assumed to be safeguarding those assets for the creditors benefit during this period of "reorganization". Rarely does the court appoint a trustee in the case of a small business bankruptcy, the trustee's responsibilities rest with the DIP. Bankruptcy has been compared to living in a fishbowl. The reporting and disclosure requirements are onerous as the DIP reviews all creditors' claims, makes monthly operating reports to the court, accounts for all property, and provides whatever information is requested. The real victim in bankruptcy, they say, is trees. Small businesses have 100 days to submit their plan for reorganization to the court. Past that deadline, the creditors may submit a plan. Most often in the case of a small business, the Chapter 11 filing culminates in a Chapter 7 liquidation of the business.

If the business is liquidated and the assets sold, secured creditors, those with liens on company assets, get paid first. Remaining funds are distributed to creditors with a priority claim, such as taxing authorities and employee benefit plans. Unsecured creditors are last in line, and share in any remaining proceeds on a "cents on the dollar" basis. Rarely is there anything remaining for distribution to stockholders. According to a study performed by Dr. Stuart Gilson of Harvard Business School, 80%-90% of the Chapter 11 filings of companies with assets of $100 million or more result in successful reorganizations. Continental Airlines, which has filed for protection from its creditors under Chapter 11 of the U.S. Bankruptcy Code not once but twice, in 1983 and 1990. The vast majority of filings by companies with assets of $20 million or less result in Chapter 7 liquidations. Clearly, the eye of the needle for a successful business restructuring is very small. How does a small business owner navigate through it?

Topic for Discussion: How does a business stay alive through the process?

Answer: A Chapter 11 filing is financially, emotionally, and even physically draining. Before proceeding, the small business owner(s) must ask himself and/or herself the following questions and carefully consider the answers:

• Is my fundamental business plan sound, i.e., are the current difficulties due to nonrecurring events? If I can get through this, do I have a viable company or am I just postponing the inevitable?
• What would a willing buyer pay for my business? How much value lies in the company's reputation, customer lists, trade secrets, and other intangibles? (Although there may be no interest in selling the business, an honest answer to this question will be a strong indication of whether or not it makes sense to proceed with a restructuring.)
• What is my relationship with my bank? This is particularly important if your bank is also a secured creditor. You will most likely be required to maintain a "cash collateral" account where the bank will approve the release of every individual disbursement.
• What is my relationship with my vendors? The largest vendors will form the creditors' committee. Will they want to continue to do business with the debtor after the filing? Am I an important and/or longstanding customer? How important is it to them that I survive? (These questions make it clear why most of the successful Chapter 11 filings are those of the large companies).
• Do I have the right attorney and CPA to advise me through this process? Do I know how much they will charge?
• How much cash can be stockpiled before the filing? How does this compare to the amounts my attorney and my CPA will charge me?
• What will be the effect on my employees? Will they support me through this time or will they immediately start looking for other positions? Will I have to terminate some of them? If so, whom? What will be the effect on the others? Can we take care of our customers if we reduce our workforce?
• How will I communicate the fact that I have filed for bankruptcy to my employees, my customers, and my vendors? How will I continue to communicate with them as I develop my plan for reorganization? What level of support can I expect both initially, and thereafter?
• What are my chances for survival and at what cost? Is it worth it?

These are tough questions and a small business owner's attorney and CPA can be invaluable in providing dispassionate expertise in what is a very emotional time for the decision maker. Few small businesses emerge successfully from a Chapter 11 filing but some do. A careful consideration of the likelihood of a positive outcome to the challenges of corporate bankruptcy can only enhance the likelihood that a business will emerge healed.

Key Idea #8: Win Big Customers
Six years after they had bought the company and as they were pulling themselves out of a hole from paying attorney fees, Saturn asked Graber to be its roof rack source.

Topic for Discussion: What is the impact of a big customer on a small business?

Answer: It can be fabulous and terrible. Some small companies take on a big customer and over time lose their solid small customers. This is a perfect way to lose your business. No matter what, never let one customer have more than 20% or 30% of your business. We have seen it over and over and the most intoxicating customer is the Federal Government. The problem is, as soon as they change leadership or a new competitor gets in the door, you can lose the account.

Chris is smart and has not let one customer dominate and at the same time he has used the fact that Saturn is his customer as a sales and marketing tool. The very first sponsor we landed for the television show was IBM. Having IBM helped us to get every other sponsor. E-Poxy makes water-tight expansion joints. They landed the Capitol complex in Albany early on as well as the George Washington Bridge, the Statue of Liberty and the Golden Gate Bridge. It is possible for very small companies to win business from the biggest customers in the world. You should go for it.

You think about it: What high visibility customer should go after?

Key Idea #9: Bring In Experts
By working with the University of Wisconsin, Chris has tapped into the minds of an innovation and manufacturing team that helps business owners streamline the production of new ideas. He has given employees the tools and time to innovate and he himself focuses his own attention on innovation.

Topic for Discussion: Why is working with the University of Wisconsin manufacturing experts such a good idea?

Answer: They have access to the latest research on processes. The experts suggested that Chris use a cellular layout for the manufacturing processes. According to the authors of Operations Management published by Prentice Hall, cellular layout was "first proposed in 1925 but did not rise to prominence until the 1980s when the Japanese perfected its application. A cellular layout should improve efficiency while maintaining flexibility." Flexibility is important because Graber is constantly changing.

Chris said, "Cellular manufacturing has improved our efficiency by almost 25 percent. Because we are able to react quickly to changes in production runs, we have less work-in-process inventory and higher quality."

Topic For Discussion: What did it teach you about Chris when you learned that he called on the university for help?

Answer: Chris doesn't think he knows everything. If you're willing to seek advice, you will grow your business faster than if you learn simply by trial and error. A know-it-all-attitude doesn't take anyone very far in life.

You think about it: What experts should you hire to help you stretch forward?

Key Idea #10: Make Made In America Mean Quality
Chris and Sara are sentimental. They grew up in Wisconsin which is steeped in a manufacturing tradition. The proud past of Wisconsin factories is being carried on at Graber because Chris and Sara are determined to prove that, "Made In America" means quality.

Topic for Discussion: What part of the process at Graber is global?

Answer: The design. Fabio Padrini designs for Graber from his Bologna, Italy studio. The reason is, Fabio is, in Chris' opinion, the best in the world for what Graber needs to accomplish. There's a great design tradition in Italy and many, many cyclists! If you can find and afford the best person in the world for any task, we hope you leap at the chance to hire that person.

You think about it: Is money the only reason to do or not do something?