Extra Point

December 2003

by Jack Tenney, Publisher

What's the question?

Fred Harris was a former senator from Oklahoma when he mounted a short, unsuccessful campaign for president in 1972. He wrote about his experience in Atlantic Monthly. In the piece, he quoted another former Oklahoma senator, Bob Kerr, on the subject of political fund raising. Kerr likened the process to harvesting frog hair: "The trouble isn't getting it, it's not getting warts while you do it."

The same might be said of making your "numbers" in business, a frantic exercise for many business people as the calendar year comes to an end. I had a good friend who was always stressed this time of year as his company was squarely astride a raging tiger of a market that demanded his company grow at the clearly unsustainable rate of 50 percent a year. As they came down the homestretch each calendar year, they looked in every corner for some sort of stunt to help them reach their target.

Here are a few brief examples of some of the more creative ways my pal played the business Jeopardy! game. Jeopardy!, as you know, is a television game show in which contestants are given the answers and asked to supply the correct question. For instance, if the answer is $100 million in sales and you've got $98 million, what's the question?

"Can we make the nut by adding a week of sales or should we wait until next year?" was one of the questions my friend asked. His company had elected the 4-4-5 weeks accounting calendar, which resulted in four 13-week quarters a year. That's 364 days, which means that every six years or so, the last quarter becomes 4-4-6!

"How many temps do you have to hire and train to pick and pack 40,000 extra orders between Christmas and New Year's?" was another of his year's final questions. The average order shipped at my pal's company was around $100, which meant they shipped more than 20,000 orders per week to generate $100 million in annual sales. To add a week's worth of billing by purging their backorder files, they would need to pick and pack 40,000 $50 orders to total an additional $2 million. While he thought they could have done it, they decided not to risk zero or worse margins just to meet a gross sales target.

Prebilling was another stunt my buddy pulled off. His company was a distributor of teeny-tiny pieces and parts. More than 90,000 pieces and parts to be sort of exact. They shipped this stuff out in the years before Fed Ex and the Internet in paper bags that closely resembled pharmacy prescription bags, using scheduled airliners and local haulers for distribution, and acres of order-entry clerks to generate paper trails, pick lists, packing slips and invoices on the front end. Their purchasing agents didn't negotiate; they expedited. The agent ordering the most product in a week was given a golden phone the next week! You can imagine what their catalog looked like really exciting, such as "Canon 4prg5amprstr $14.99." Manufacturers bought listings and ads in the catalog, similar to slotting fees in the grocery industry. Facing another shortfall one year, this time in profits not sales, my friend asked, "Can we make up the difference by essentially borrowing from our vendors in the form of higher listing income this year in exchange for the promise of a purchase premium next year?"

He was pretty good. And he never worked for Enron. And he never got warts.

Peace.