Even More Random Thoughts From Vegas

A few more random thoughts from Las Vegas…

• As usual I hear many insights as I speak to folks from around the country.  I spoke to a senior manager of a recently merged organization and asked how the partners were getting along… and he nailed it… “they are learning how to disagree”.  What a great observation.  For those who are considering a merger (or even those who have already made the jump) this is a very important point (newlyweds should also pay attention).  Learning to disagree is a valuable experience, and something many owners have never really had to experience.  Sure you can have all the debate you want but in the end, the owner slams their fist on the table and that’s the way it is.  But in any type of partnership, that’s not the way it is… thus the value in learning how to disagree.  This first requires honesty… everyone sits in the meeting all happy-face (nothing wrong here!) and the minute they walk out the door the bitching starts.  All of you (and your employees) have experienced these types of waste-of-time meetings where nothing that is real is discussed.  This is not the course to a long-term relationship.  Instead honesty is required… you think this and I think that, and I think you’re wrong and here’s why.  Remember, we too often assign a moral aspect to our disagreements… generally no one is “good” and no one is “bad” in these disagreements, we simply disagree.  You think pricing strategy X is what we should follow… I think strategy Y is a far better choice.  No one is “bad” in either.  Second, keep the fist off the table… you have partners (or a spouse) and they get a say in this too, whether you like it or not.  Yes it is good being King, but in a working partnership no one is King.  If you can’t accept this, don’t form partnerships (or get married).  And work on the art of disagreeing… it doesn’t mean the other person is bad or stupid or whatever… it simply means you disagree.  Learn to live with this reality… learn to actually like it.  Vigorous, honest, friendly debate almost always leads to better solutions.   

• Spoke to another large southeastern wholesaler who was attempting to put together a multi-distributor acquisition of various brands – these are becoming more common every day.  It was a magnificent strategic move which would strengthen all purchasers… only one problem, the purchase multiple for the brands was relatively high and a couple of the distributors were balking at the price.  I agreed with the concern but the move was a huge strategic advance and the volumes were pretty low… thus the total acquisition price per distributor remained quite low… and if they wanted to get the deal done, that is what it was going to take.  You find very few fire-sale prices in this industry… most sellers can take a “take it or leave it” approach, they can live with either option.  But a few of these folks just couldn’t get over the multiple being “too high” (whatever that means)… and thus they walked away… for what in the end was a fairly small sum of money.  Which leads to another great quote from the distributor who was trying to drive the acquisition… “strategy, not price paid will determine the long-term winners in this industry”.  I know it is easy to spend other people’s money (just ask the federal government) but I wholeheartedly agree with this insight.  As I remind people… remember a company called InBev which WAY overpaid for Anheuser-Busch… it was a HUGE mistake… yeah right.  They seem to be laughing all the way to the bank.  Strategy is everything… price paid is just the method you use to achieve it.  Don’t forget.

• To expand on the above point a little, you also have to be a “player”.  I have a client and good friend who I have known for many, many years.  He’s been in the market for an acquisition since I’ve known him.  He’s debt-free, got a ton of money and could finance a HUGE transaction.  Want to know how many deals he’s got done?  Zero.  He is a bottom-feeder who keeps looking for that great deal but he refuses to step to the plate and offer market prices.  Who doesn’t want to buy things at a below market prices?  Unless the seller is in distress, this NEVER happens… and even then it seldom occurs, the marketplace is generally incredibly efficient.  Deals have happened around him that he wasn’t aware of until after the fact… this upsets him… “why didn’t they call me?!”  They don’t call because they know he is a bottom-feeder and why waste their time and effort on a person who in the end won’t even offer market price?  What’s your reputation out there?  You can dream all you want but deals are an auction… and if you want the item on the auction block you can be the top bidder or you can go home… those are you only two options and dreaming and scheming won’t change a thing. 

• Software co-op – This wild and crazy idea (I’m a font of those) is bred out of client and personal frustration. Perhaps it is time for distributors to band together and create their own integrated route accounting system (of course with all the bells and whistles).  For close to 30 years I’ve continued to hear complaints (mostly valid) about the offerings of the software providers to this industry.  In fact, after a few years in this industry (mid to late 80’s) I seriously considered starting a company to provide distributor-centric software for the beer (beverage) distribution industry.  If I was going to do this I would need to raise capital, therefore I’d need to make a pitch to investors… but unfortunately, there are structural problems with this industry (and they continue to this day)…

*    It is a consolidating wholesaler marketplace (therefore a shrinking base of potential customers) with an evolving set of needs.

*    The software is pretty specific with few if any areas other than distribution to expand into… a lack of additional opportunities.

 ü  It is a “replacement” sell.  One of the most difficult sells there is.  You don’t go in and simply sell your product; you have to kick someone else out to make your sale.  Seamless integration?  Smooth transition?  Bull.  It is a pain for all involved and thus to make the sale you have to offer and the client needs to identify a substantially better product to induce the client to switch… or as in many cases, you get so sick of your present provider’s shortcomings that you’re willing to jump ship regardless. “Just make it go away!”

Unfortunately, when one adds these all up it doesn’t make for the best pitch to potential investors who hope to see a substantial return on their investment.  You see the impact of these market realities in the present providers… all very small businesses… folks who are running on legacy software but who don’t want to take the time and $$ to completely re-write their code.  Products whose performance gives one pause… I run a report this way and I get this answer, I run it another way and get a different answer.  “Seamless” upgrades which throws your inventory off for months.  Many wholesalers live “the nightmare,” so you know what I’m talking about. 

Is there a better way for today and tomorrow?  Perhaps a customer-owned, non-profit co-op which develops and maintains software specific for the beverage distribution industry?  Your businesses are far too large and complex to put up with sub-par software, but based on the market realities I’ve just outlined above, I don’t see world-class software coming into this industry… the business fundamentals simply aren’t there ($$ opportunities) for independent outside investors.  A co-op might be the answer and could have many advantages…

*    Assuming one could attract enough initial members, the cost per member would be substantially less than what you are presently paying.  Members who join after the start-up phase would be charged more than initial members.  To minimize the risk to members, the investments could be staged or offered in traunchs… $X for design specs, if the member chooses to continue $X for beta product, etc.  The key point is the first point in this paragraph, attracting enough initial members.  If that can be accomplished the rest should be relatively easy… KEG 1 and the Reyes’s could get it going on the MillerCoors side, get a similar group with ABI products and off you go… the smaller folks will line right up.  Find an experienced project person to run the thing, form a user’s group to direct product specs and development and run with it.  And PLEASE, this shouldn’t be a MC versus ABI product… just the best product for the entire beer distribution network.  For once let’s leaving the fighting for the street, where it should occur.  And since the lines between beverage distribution are fading, it should include wine, liquor, beer, NA’s, etc.

*    Since we would just be beginning, we would have no old legacy code to work around.  New code written specifically for today’s and tomorrow’s hardware… and using the best software language(s) to accomplish our tasks.   The user group could work directly with all major suppliers and retailers to ensure all desires are met.  With a large team of quality software engineers, you would be surprised at how quickly this product could take shape.

*    This co-op could support a much larger software team allowing for better products, quicker updates, more support for all the new hand-held devices, etc.  Every member would gain.  When you consider the size of the software teams backing all of the major route accounting systems (and the various peripheral software) versus the $$ size of this industry, you see that these are very small companies trying to support a massive, dynamic industry… but the market reality I have already outlined above, lack of $$ potential, stops serious software expansion… therefore let’s do it ourselves.  I’ve nothing against the present providers; it’s just that there is perhaps a better way.  As the mob, ABI (and yes, even MillerCoors) and I would rightly say… “nothing personal, it’s just business”.   That quote covers a lot of things in this industry anymore.