Transcript – Episode 10

Dennis Zink:    Welcome to ‘Been There, Done That!’, a podcast series produced by SCORE. SCORE has 352 chapters and 12,000 counseling mentors across the United States. You can reach SCORE by calling 800-634-0245, or by going to our website at ‘SCORE.org’ where you can request a mentor.

SCORE is a resource partner of the Small Business Administration. Our goal is simply to help your business become more successful. We accomplish this by utilizing the knowledge base and expertise accumulated by our volunteer mentors as they truly have been there, done that.

I’m Dennis Zink, and I’ll be your host throughout the series, so sit back, relax and learn how to improve your business. Episode number 10, ‘Quality as a Marketing Tool’. Fred Dunayer joins me today in our studio as co-host, SCORE mentor, and our audio engineer. Good morning, Fred.

Fred Dunayer: Good morning, Dennis.

Dennis Zink:    Our guest today is Bob Theis with SCORE. Welcome to ‘Been There, Done That!’.

Bob Theis:       Hey, Dennis. Nice to see you. Fred, thank you very much. Appreciate it guys.

Fred Dunayer: Good morning, Bob.

Dennis Zink:    Bob is the former CEO and chairman of J.R. Clancy Incorporated in Syracuse, New York. The 129 year-old international company is the leading designer, manufacturer and installer of theater rigging equipment, everything that you need backstage for performance.

Bob bought the company in 1982 after sales, marketing and financial positions with RCA and Sony Corporations. He very successfully turned around the company from a two million dollar company in sales to over $32 million before selling it three years ago. Bob holds a Bachelor of Science and finance from Villanova University and an MBA in marketing from Wharton School at the University of Pennsylvania. As I mentioned, Bob is also a SCORE mentor.

Bob, we’re here today to talk about quality as a marketing tool. Could you please define what you mean by using quality as a marketing tool?

Bob Theis:       Sure, Dennis. Although my company had started quality initiatives back in 2002, I’d only believed that the product quality was something that was only perhaps cost beneficial. In other words, it was kind of a defensive strategy. In 2005, three years after becoming ISO certified, I had begun to believe that quality could be used to actually drive sales. Quality could be used as a marketing tool, and that’s exactly what we did.

My company was 116 years old when we actually got quality religion. I believe that quality which includes the product itself and the service aspects of it as well can be number one, ultimately used for cost containment, number two, I think it’s the right thing to do, and number three, it can be a very, very effective tool for driving sales and profits.

Dennis Zink:    What exactly did your company do if you can go into a little more depth explaining that?

Bob Theis:       Sure. J.R. Clancy was started in 1885 in Syracuse. It is probably the ultimate niche company. It designs, manufactures and installs theatrical rigging equipment and systems. For example, we did everything backstage. You actually probably have seen some of our equipment back in high school. If you go backstage, you see the pulleys and ropes. That is the Vanilla version of what we did.

We also specialized in performing arts centers. We did everything at the Metropolitan Opera, Lincoln Center, The Kauffman Center in Kansas City, The Art Center in Miami, we did many, many Las Vegas showrooms … That’s really the fun part of what we actually did.

Dennis Zink:    That’s quite a resume.

Bob Theis:       Yes, it was great. We had great fun. Our company employed mechanical engineers, electrical engineers, construction project managers, we had accountants, we had machinists, we had steel workers, and these were the people who actually did all of the backstopping for Bob Theis, and they were just terrific. We’re located in Syracuse. The company is still alive and well in Syracuse.

The interesting thing is that we were such a niche company. We’re probably the ultimate niche company that people really … You’d have to explain to people what we do, but everything backstage.

Dennis Zink:    How many employees did you have?

Bob Theis:       We had about 50 or 60 people in Syracuse, and then we would actually hire crews as we needed them. Our philosophy was that there were certain things that we didn’t do well like there are some machining operations that we didn’t do well, so we would go out and we contract out that and bring it back in and do the final assembly in house, but 50 or 60 full-time, and then crews as well.

Dennis Zink:    I’m dying to learn about what you did at Sony because I know you were involved with both the Walkman and the Betamax and the stories I’m sure are fascinating. If you could explain a little bit how that influenced your thinking going forward.

Bob Theis:       Sure. Back in the 1970s, I had the very good fortune to be with Sony. At the time at which we were sort of so to speak ‘The King of the Hill’, and we were really rocking at the time. One position I held was as director of advertising for Sony when we actually introduced the Walkman that obviously was a huge hit and then it became morphed into the MP3 players that we see today.

Another position I held at Sony was actually proved to be much more important to me as well. I was the project manager and product manager of the infamous Betamax which ultimately was one of the great business failures in American history. I was at the epicenter of it.

At the time of the introduction of the Betamax which was in the mid ‘70s, it was a revolutionary product. It would transform … You could time shift TV shows from then to now, and ultimately it became today what we use as DVRs. The VHS came out a few years later and they had a product which could record longer, so it was up to six hours while the Betamax only had a two-hour recording. That was a huge competitive disadvantage for us.

We invented a contraption which would affix to the Betamax, and you could actually stack cassettes in them so that you could actually have four cassettes stacked which would give you eight hours versus the VHS which had a six-hour. While it sounded great, the contraption didn’t work. In fact, it was a mechanical failure. Very often, I would get phone calls all the time from customers who are really, really, really upset.

Fred Dunayer: I had one of those first Betamax recorders. I thought it was the most amazing thing in the world. I never did hear about the four pack device, but I also thought that the quality of the recording was better on the Betamax than it was on the VHS.

Bob Theis:       Fred, you’re exactly right. The contraption was called the ‘Stacker’. It was our attempt at competing against the six-hour, but it was like as I mentioned before, it was a mechanical failure and quite honestly, I believe that we were arrogant in how we addressed customers’ problems when they called in and said, “This thing doesn’t work, it doesn’t eject, it gets jammed,” this and that and then we were arrogant in how we dealt with those customer complaints. Then ultimately, 30 years later, became the basis of revelation to me as well.

It was a great time and yes, I had a great run at Sony.

Dennis Zink:    They certainly had great products back then. I had a TV (Trinitron) that wouldn’t die. I mean, my mother-in-law took it over and probably had the thing for 25, 30 years and it still works. Couldn’t kill the thing.

Bob, you referred to the quality … Please define what you’re referring to as it related to your business.

Bob Theis:       Sure. Around the late 1990s and 2000, our company was doing just okay financially. We were profitable. We’re just doing okay. I noticed that our gross margins percentages were slipping. The issue was our product quality. Our products, we would … They’re heavy, heavy duty customized metal and steel products that are used in theaters and auditoriums backstage, the custom fit. They have to be extremely precise in how it fits into a particular space.

We were missing on probably five out of six cylinders and it was costing us a huge amount of money. It was frequently that I would get angry phone calls from dealers saying, “You guys, this doesn’t work. It doesn’t work. I’ve got a crew of eight iron workers here on sight, ready to install this and it doesn’t work”, or “You guys have back ordered one of the key components”, or “You guys are late. I’ve got this crew here.” It is extremely expensive. We wound up taking a lot of back charges. It was frustrating. It just wasn’t right.

We were looking for … My president and I were looking for a method to address the quality issue, and we came across a seminar put on by the ‘Baldrige Quality Award’ winners. We didn’t know what the Baldrige Awards were, but we went to New York City, attended this two-day seminar, and it was like a light bulb, instantly came on. It was just spectacular.

Dennis Zink:    That’s Malcolm Baldrige you’re talking about.

Bob Theis:       That’s correct. Yes. He was the secretary of commerce, and he created the National Quality Award. It’s a big time award. We walked out of there with a revelation. There were companies there our size who were National Quality Award winners. They had the energy, they had the profitability, they had growing market share, they were spectacular companies and they were very proud of what they had done.

Mike and I decided to use a quality framework to start our quality initiative, and the framework we chose was ISO. Going to ISO a little bit later, but ISO was our framework. It was a quality framework. Nobody in our industry even knew what ISO was. It just wasn’t part of our industry.

We started this quality initiative and there are about four different items that were critical, Dennis, to start this thing. Number one was we spent about two months traveling in the field to our customers’ job sites asking our dealers, customers, their installers, “What was it that you guys really, really needed?” The issue that came back was, “You guys have to be on time, you have to be complete with your order, and the order has to be correct, on-time, complete and correct revelation.” It can’t be just one of the three. It can’t be two of the three. It has to be three of the three.

The second thing is, up until the first 115 years, we talked to our dealers as dealers, customers. We decided to put them as partners. They were now partners. We would not refer to these people as dealers. They were now partners. Our mission became to make our partners successful. The idea was that if we made them successful, if they made money on their job site, then ultimately, they would continue buying from J.R. Clancy, and that would cement the relationship.

The mission statement became ‘Make Our Partners Successful’, and the acronym was MOPS, M-O-P-S. We had MOPS all over the place. M-O-P-S, MOPS, Make Our Partners Successful. That was the …

Dennis Zink:    It’s better than mopping up the mess.

Bob Theis:       Absolutely. It was great. It was great. Again, our philosophy was, ‘Make them successful, we will ultimately become successful. Give, then you get.’ The fourth thing was we became obsessive about tracking two metrics. One was the on-time, complete and correct. Many companies pound their chest and say, “Look how good I am because I have a 96, 97% or 98% on-time shipment record.” In our business, it doesn’t count. It’s only one of the three items.

The other part is that it has to be complete and it has to be correct. We actually started a metric on-time, complete and correct, so there’s three parts on the metric and that was the critical part. I don’t know of any other company that measures all three of those today.

Fred Dunayer: Not this isn’t a business, this is on the J.R. Clancy side which is the show must go on type environment, right? If people didn’t have the equipment that you would promise them by a certain date, it could cause real grief for them.

Bob Theis:       Absolutely. Absolutely, Fred. Generally, we were the last contractor. Our trade is the last contractor when you’re building out a theater, and the tickets have been sold and you’ve got to be on-time, complete and correct. We became obsessive about tracking that metric.

The other metric we became obsessive was partner satisfaction. We had to make sure that we were really, truly making sure that they were satisfied. We became obsessive about getting their feedback. We would either go into the field, number one, number two, we would also send out questionnaires, and we were very, very proactive about that. The other part was we actually hired a third party to go out and to take these partner satisfaction measurements as well. We became obsessive about those things.

These were the four things that were the customer side of the business itself. I don’t want to make it oversimplified, but the ISO part of it was the real tough part, because you start actually doing processes, and you refine the processes, you write them down, you weed out those things which aren’t necessary, you’re going to say, “Why am I doing this?” The framework was important, and that was the framework.

The nice thing about ISO is that when you have a problem, we call the ‘Corrective action’, it must be taken right there so it identifies, it bubbles up the problems and you address it.

Dennis Zink:    You’ve mentioned ISO several times. If I was a listener, I’m not sure that I would really understand exactly what it is, if you can go into more depth.

Bob Theis:       Sure. ISO is an acronym for International Organization for Standardization. Typically, it is a series of standards which are set that any organization can measure themselves and set up. In European countries, it typically is much more apparent that they have these things, but in the United States, not many companies have it. In our industry, Dennis, we were obviously the only person to do it. We did it because we wanted to get better. We had quality problems, we needed a framework. We need the discipline, and it gives you that as well.

Again, once you have a problem, it automatically surfaces that problem and you deal with it under something called a ‘Corrective action.’ Going back on our process, it took us 18 months to get ISO certified. We’ve probably spent in the neighborhood of $250,000. That was a huge amount of money, but it was the right thing to do.

You could have gotten ISO certified for under a year. You could have done it for maybe $50,000 and some companies do that, but we really wanted to do it the right way, and that was we saw a vision, we explained this vision to our partners, it’s to make them successful and it was critical for them to join in as well.

Dennis Zink:    What was the extra time and money for… What was the advantage of doing that? I really don’t understand why. If some companies could do it for less, what more did you get out of it by spending more and taking longer?

Bob Theis:       We turned over every process in our company, every process, and we just went deep dive into it and we just said, “Would do everything from how we address people when they call in to how we actually physically ship the box and what the box is going to look like when we ship it out.” Those were defined as well. Could you get by with something less than that? Sure you could, but we want it to absolutely have everybody, every function be part of this as well.

The next part of it is how do you get the buy in from these people. That was a critical issue, it’s how do you … People were skeptical. “Why are we spending so much time on this ISO, and why are we having these meetings, and why do we have to rewrite this stuff?” and so forth.

It was critical when you set the quality initiative to get the top management, and my president and I were the drivers of this. In fact, Mike was really the architect of putting this whole thing together. You need the top management to have the real driving force of this thing as well.

Dennis Zink:    With your background from Wharton, is that where you got some of these ideas to do this?

Bob Theis:       No. No.

Dennis Zink:    No. Okay.

Bob Theis:       I was a marketing guy, but … Having lived the bad side of quality, lived the bad side of quality through perhaps some of my experience at Sony, lived the bad side back in the late 1990s and some of the 2000s, I knew what we had to do and it just wasn’t good for us.

Fred Dunayer: There’s nothing like angry phone calls to wake you up.

Bob Theis:       Absolutely. It was … and you go home at night and you’d be pretty damn depressed.

Dennis Zink:    You mentioned ISO, I’ve heard the term ISO 9000. What does that mean?

Bob Theis:       That is one of the standards and that we were ISO 9000 and then became ISO 9001, 2000 and so forth. There are certain standards and they’re updated each year. Now, our industry was ISO 9000. In some industries, they have ISO 1400 and there are other quality initiatives out there as well. It didn’t matter to us what we had. We just needed the framework to give us the discipline to put the thing together.

Dennis Zink:    Measuring metrics was apparently very important for you with the on-time, complete and correct. How often did you measure these metrics? Was it monthly, weekly, daily …?

Bob Theis:       Daily.

Dennis Zink:    Okay.

Bob Theis:       Daily. Absolutely daily, and it was critical. That was a key metric. People were incentivized. In fact, the whole company was incentivized, and we would set goals. It was 95, 95, 95 and we would have 95% on certain issues as well. Once we hit those, people would get cash payments. It’s not huge, but it was just something to recognize and to keep everybody focused on that.

Dennis Zink:    When you say 95, 95% of where you want it to be or what does 95 mean?

Bob Theis:       We had to be 95% on-time, 95% complete and 95% correct.

Dennis Zink:    Why not a hundred percent?

Bob Theis:       We tried to, but it was very, very difficult. We are going to make mistakes. We do make mistakes, but how you correct that mistake, how fast you deal with that issue, and how you go something we used to call ‘Plus One’ is how you keep your customer satisfaction numbers up.

Fred Dunayer: Do you typically start at 95 or do you take metrics or look for incremental improvements to get to 95, or do you just set that as the goal and go for it from the beginning?

Bob Theis:       We just set as a goal from the beginning. It just sounded good. It wasn’t anything more than that, and we sometimes came at 93, 94, sometimes, we would come at 97 for the quarter as well. It worked out very well.

Fred Dunayer: Did it take some period or time to get to that or were the results immediate?

Bob Theis:       No. I believe that the first time out, we were down at a low, low 80s as well, and we kept building, building, building it. It took us a couple of years to get up that point.

Dennis Zink:    You’re trying to do everything complete, correct and on-time and obviously there are some times when you didn’t or I’m assuming that. Tell our listeners, I know you had a very unusual guarantee, something that I’ve never heard of before. Why don’t you go into that?

Bob Theis:       We realized that we were doing things that … I think it was the year … We became ISO certified in 2002. Three years later, by 2005, we were clicking. We were really clicking. Then, by 2008, we were really clicking and we were doing the right things. When there was an issue and/or issues, every company has, every organization has issues and how fast you deal with them, and how you respond to them is critical, but we were doing the right things. We always do the right thing. Our mission was to make our partners successful. What’s going to make them successful?

We were doing the right things. Then I thought, “Maybe we should get credit for it. What should we do?” We developed this program called ‘The Extraordinary Guarantee’. The guarantee essentially said, “We are 100% committed to the on-time, complete and correct OTCC shipment of your equipment. If you feel we have not met this commitment in any way and have caused you to spend additional time or money, then please attach a note with a brief explanation and deduct to your cost from this invoice along with your payment. Someone will contact you immediately to resolve the problem.” That was printed at the bottom of each invoice, it was printed on our price sheets, it was printed in emails that we send out to all of our dealer partners, it was sent out in literature. We had literature made up for it, we had a logo made up for it, and we merchandised it.

Dennis Zink:    That’s fantastic. What a great marketing tool.

Bob Theis:       It was. We were doing the right things. We were doing the right things so why not get credit for it? The risk is our equipment, when we sell equipment to our dealer partners, we’re talking about shipments which typically would go from $25,000 to $400,000. We’re talking about substantial amount of money. Did I get some pushback? I got a little bit of pushback from people inside and say, “You can’t and that’s crazy. What are you going to do?”, and my board also gave me a little bit of pushback, but it was the right thing to do, we were doing the right things, and it was really not as big a risk as you think it really was.

Dennis Zink:    I was saying when you do the right things, the right things happen and that’s proof of it right there.

Bob Theis:       That’s an excellent point. In the course of six years from when we started it, we actually paid out along the lines of about $250,000. There was one hit that we took which was $152,000, and we stood up for it. We took a hit of $152,000 on a particular project.

Did I make a customer for life? Absolutely. Was it the right thing to do? Absolutely. It was a revelation. I can assure you, once you get a hit whether it would be $25 deduction from an invoice or $10,000 deduction from invoice, you are going to take … It’s like a whack on the side of the head. Management hears it and you go, “What happened? Where did the system fall apart? What is the problem?” We would typically get on the phone, call the dealer, “What’s the issue?”, and so forth.

Then, the key to that is not necessarily … It is to correct the problem and make sure that it’s taken care of the next time. We developed something called ‘Going Plus One’. The best analogy I can give to ‘Going Plus One’ is if you’d go at a restaurant and your entrée comes out cold, and the waitress says, “I’m sorry for the cold entrée. Look, we’re not even going to charge for that entrée.”

The best restaurant will say, “We’re not going to charge for that entrée. The dessert is on us. Take a look at it.” What we did was also go plus one, so we would perhaps give them tickets to Amazon or gift cards or whatever. Sometimes, we would give them discounts on their next order. The issue was how do you do a plus one as well.

Fred Dunayer: How did you translate the corporate guarantee to personal accountability within the organization? I know that a lot of organizations, the staff is … They’re involved and they have to be between eight and five. To pull off something like this is not just getting top management involved, it’s translating that into accountability down the line. Did you have carrots and sticks or was it one or the other or …?

Bob Theis:       No. We had carrots and sticks, but our budgeting process, we had metrics for each departments, so not all of the metrics that perhaps were good for accounting were the good for the engineers, and each department had their own metrics. We became extremely metric driven and we’d have charts and so forth. We would review them at each of the quarterly meetings as well.

I got to tell you about the buy in. Going back to this ISO process, how do you get buy in from all the people? I had mentioned too that we did the MOPS, that became the mission and we actually had wallet cards printed up with our mission and people were expected to carry them in your wallet and when we had our quarterly quality meeting. If you want lunch, you show your card. Number two, it was pretty significant, we changed our logo. Our logo up until then was ‘J.R. Clancy Since 1885’.

I felt that it was important that we now could say, we’ve earned the right to say, ‘J.R. Clancy, Quality Since 1885’, so we changed that and made a big deal about that. We had buttons made up that says, “MOPS”. M-O-P-S. We had t-shirts and we had polo shirts that emphasized MOPS. We had a red carpet made so that if you were one of our dealer partners and you visited us, we would have the roll … I know it is. It was corny but it worked and it was great.

Fred Dunayer: No, that’s great.

Bob Theis:       It said, “MOPS”. We had internet contests. We had financial incentives that we would pay out each quarter during the meetings. I think one of the key things I did as the leader and I’m not necessarily pounding my chest but it is important as a leader, what you have to do is you got to keep communicating, you got to keep pushing, pushing, pushing so each about every six weeks, I would write a letter home to our associate and his spouse again talking about the philosophy of MOPS and what we’re trying to do, how far we’ve come, and so forth.

I wanted to make sure that the letters got home as well, because you need buy in from the spouse as well. We kept pushing, pushing, pushing. That’s how we got the buy in.

Dennis Zink:    it sounds like you really mopped up with that. In summary, would you consider your quality journey a success?

Bob Theis:       Absolutely. I think from a financial standpoint … Let me go back on our investment of $250,000. We paid that back in margin addition within one year. It was our dollars were paid off. That was easy.

Dennis Zink:    About how much did your margins improve by?

Bob Theis:       Probably two percentage points and we were doing a lot of volume so you do the math. It was big numbers. It was really big numbers. Our sales, our profits, our backlog exploded, so we joined ‘The Inc. List of Fastest Growing Companies’ two years in a row, we were named to ‘The Syracuse Fastest Growing Companies’ for quite a few years in a row, and I’m certain that the sale of my company which is back in 2011 was helped because we were now a quality company.

In terms of customer measurements, Dennis and Fred, our net promoter scores which we tracked were very high. We’re running in the high 80s which is extremely high. We were able to extend our warranty from one year to three years, so that helped our partners. It also is a nice marketing tool. We won ‘New Product Awards’ from our industry, and we won several industry customer satisfaction awards as well.

The last thing I think was really important as in terms of success is we felt good about what we did and that was probably the most important part of it. We actually helped many, many companies become successful, and that was really the key to it. That’s really what it’s all about.

Dennis Zink:    Okay. It was nice not to get those angry phone calls anymore.

Bob Theis:       Absolutely. It was great.

Fred Dunayer: When I understood we were going to be talking about quality as a marketing tool, the first example that came to me was Hyundai, and the fact that they were a second tier at least or probably a third tier auto manufacturer, and all of a sudden they came out with a ten-year 100,000 mile warranty. It seem to have really turned that company around that now they are known for their quality. They had to really put their money where their mouth was in terms of building the cars well enough that a ten-year warranty wouldn’t kill them.

Bob Theis:       Absolutely. It was kind of the same way although, we never model our sales on Hyundai, but we really had to put our money where our mouth was and we did. We took some hits, but overall, it was a very, very small percent of what it really was.

When you take a deduction and there’s a deduction and accounts receivable person comes in the office and says, “Hey. This partner has just deducted three, four or $5,000,” you say, “Why?”, so you make a phone call real fast and it really whacks you on the side of head.

Dennis Zink:    Did you ever contest any of those deductions?

Bob Theis:       Rarely. Rarely.

Dennis Zink:    No.

Bob Theis:       It was almost no pushback.

Dennis Zink:    You didn’t feel you’re really taking advantage of?

Bob Theis:       No, Dennis. That was I think my revelation 30 years later after the Betamax problem. We pushed back and pushed back when I was at Sony. That’s the lesson. The best hit is your first hit. You take it and you just move on. Let’s look for the next job together.

Fred Dunayer: People have sat here and listened for some 30 minutes. What thought would you like them to leave this conversation with?

Bob Theis:       Quality is not expensive. Quality will save you money, period. That’s the first part of it. If you’re talking dollars and cents, quality will save you money. The second is that again, I feel that is the right thing to do. It’s just the right thing to do. If you’re running a company, you have to stand for something, and we stood for quality. That became our mission. Quality was our mission, to make our partners successful. Again, if you give, you’re going to get.

Dennis Zink:    Bob, thanks for being our guest today on ‘Been There, Done That!’. It’s really a fantastic story and something that more of our listeners should pay attention to in terms of quality and using it as a marketing tool.

Bob Theis:       Guys, thanks a lot. I appreciate taking the time to hear our quality story.

Fred Dunayer: You’re been listening to ‘Been There, Done That!’, a podcast series sponsored by SCORE. The opinions of the hosts and guests are theirs and do not necessarily reflect those of SCORE. If you would like to hear more podcasts or would like information about the services we provide, you can call SCORE at 800-634-0245, or visit our website at ‘www.SCORE.org’.