Bumping Against the Ceiling
The Design Monkey is a solid small business, but one that has reached a critical point: In its current state of operation, the firm is having trouble generating more revenue growth.
By Robert Carey
For more than 15 years, Jon Empey worked in the advertising and marketing world as a graphic designer, where he created brochures, magazine ads and a variety of marketing materials. But in 2003, that all changed.
"My neighbor was president of the high-school booster club, so I mentioned in passing that if he ever needed artwork done for clubs or events, that I could do it," Empey recalls. "He responded that the club didn't like the service they were getting from local screen-printing and embroidery shops, so he wanted to know if there was some way I could help in that area."
The problem the club had was that "the basketball team might qualify for a tournament on Saturday, and need shirts and hats done by Wednesday for when tickets went on sale. So parents were driving halfway across the state to pick up nice items with a fast turnaround," Empey says. "It hit me that there was a real need in our area for good-quality decorating that could get done quickly." He took a few months to size up the local market, brush up on screen-printing skills that he last used in college and take an entrepreneurial class. Then he jumped in, starting The Design Monkey in the basement of his Auburndale, WI, home with a six-
station, four-head manual press.
Today, nearly two-thirds of his clients are schools and nonprofits, with the rest being a few small businesses (for whom he'd like to do marketing-material and Web-design work, too) plus some individuals. Empey lives in a somewhat rural four-town area that's at least a few hours from Milwaukee, Green Bay and Madison, though there are four more towns nearby where he'd like to extend his reach. Empey enjoys improving on clients' designs as well as creating ideas for them from scratch. The bulk of his designs end up as screen-printing jobs, but 10% become embroidery; his hope is to double that percentage but continue to outsource the stitching to what he says are "very competent and reliable contract partners."
This mix of clientele and products has made for a nice operation; the firm's revenues increased by 25% in 2008 and by 7% in 2009, and Empey's overall margin is nearly 30%. He would like to keep growing at about 10% each year for the next few years, but several obstacles are making this difficult. First, Empey feels stymied from landing larger screen-printing jobs because of competitors who cut prices below the level where he can compete. Second, he's squeezed into a 300-square-foot space in the basement of his home, where he and a half-time machine operator work, as do some friends and family during the busiest times. Third, outside of word-of-mouth referrals that come from clients and the local chamber of commerce, his business-development initiatives are weak – his Web site is very basic, and he has only a Yellow Pages ad and a sign at a local golf course as advertisements.
Step One: Refine the USP, and re-set prices.
Empey's design expertise and speedy turnaround are advantages that he uses to set himself apart from competitors in quality and customer service. But he should also use those to justify higher prices. Scott Manley, a counselor at the Valdosta State University Small Business Development Center in Georgia, says Empey's sweet spot is doing cool designs for school clubs and teams.
"He should absolutely charge a premium for doing those on the quick turnaround time he offers," Manley says. "It's not possible to offer great designs and quick turnaround time, all at the lowest prices too. You can't be all things to all people. He clearly has a unique selling proposition (USP), so he must get his pricing in line with his USP – and make sure what he's saying in the marketplace is conducive to getting people to value his superior designs and his turnaround times. He says himself that many customers seem to come back to him, so when he bids on jobs against shops that compete on price, he needs to stick to his guns and market the heck out of his USP."
Brian Greul, owner of The Texas Shirt Co. (asi/343253), agrees. "Jon has to charge for the quick turnarounds, or people will come to expect that as part of every order, which is unreasonable," he says. "Even if he charges nothing more than a token rush fee of $30, that's critical to the customer's value perception, and to his bottom line – he might be pushing other jobs aside to do a school job in a few days, which interrupts business efficiency and has a real cost to him. A rush charge lets clients decide how important the order is, and they might become willing to order earlier to wait a bit longer for their items."
Step Two: Improve the Web site ASAP.
Once Empey's pricing is re-set properly, he can focus on his firm's presence in the marketplace. At the moment, that presence is sorely lacking, aside from local word-of-mouth action. "This is a case of the cobbler's kids having no shoes," Manley says. "Jon is a talented designer who wants to also offer Web site design to clients – but so far has neglected his own Web site, even for his decorating activity. If potential clients look at his site today, he won't get much Web site or decorating work."
Empey acknowledges that the site (www.thedesignmonkey.com) "is in desperate need of an overhaul – it's basically what I put up when we started six years ago, and all I do is put up new products on occasion. I have plans drawn up for the site, to have client reviews and testimonials, the unique job of the week, and all that. I just have to pull the trigger."
The quality of the Web site must match the quality of Empey's product offerings. What's more, "To differentiate himself from competitors based on his designs, he needs to make the site a robust portfolio of his work, a showcase where people can look at the range of things he's done and click on thumbnail photos that become larger to show details," Manley says. "The site has to attest to his superior quality. He operates from his basement, so the Web site is his storefront."
As for broader marketing initiatives, Richard Bloedow, president of GS USA, a laser machine manufacturer in Austell, GA, notes that Empey has "tapped the local school market well, but he should also advertise in the schools' printed programs, calendars and schedules so all the parents know about him, because they are businesspeople, too. Jon will also be able to build relationships with his fellow advertisers in these materials, local businesses who might need his services. I'm sure it's not expensive, and it offers big potential to spread his name in the community."
And if Empey wants work from the schools in the four other towns outside his immediate area, that's fine. "However, Jon's Web site must be set up to help him make inroads in other areas," Manley says. On the other hand, "I still think there is a large opportunity for Jon to get into commercial jobs in his immediate area," he adds. "If business owners are putting their firms' name on apparel and other items, they want a quality product. They won't go for the cheapest item, because the point of such promotion is to present a really good image. And that's what Jon's company is all about."
Step Three: Add a machine (or two), but consider the ramifications.
To more quickly fulfill the many mid-size orders he gets, and to be able to handle larger screen-printing orders at reasonable cost, Empey might consider getting an automatic press. "A small automatic machine can help bring costs way down," Greul says. "Production on a manual press is limited to about 60 pieces per hour, where an automatic can easily do 500 pieces an hour. Jon can find a slightly older automatic machine at a very reasonable price, and it can handle his mid-size jobs so quickly that he and his employees can do other tasks, such as marketing and researching quotes and creating designs. This efficiency would also keep his prices close enough to competitors to stay in the running for many jobs."
Bloedow offers a different suggestion: As a good artist, Empey could increase embroidery volume and revenue by doing his own digitizing and getting a crossover machine with six needles, and stitch samples and small, high-margin orders. "For less than $10,000 he can buy digitizing software, a crossover machine and the accessories," he says. "This would be a new revenue stream, and he could farm out larger jobs for fulfillment after he does the digitizing and does quality control."
If Empey decides to purchase either machine, he faces a dilemma: He'll need a bigger work space – one with rent and utility payments. Would these extra expenses be worth it in the long run?
Manley feels it would. "Given the potential of his business vs. his present volume, he seems constrained by his working space," he says. "His visibility in the community is hurt by being in his home. Jon spends 20% of his time marketing out in the community, but if he had a space with a production area in back and a customer service area in front, he'd be more visible. He could spend more time making targeted sales appointments, phone calls and e-mails to land deals, not simply to be more visible." .
ROBERT CAREY is a contributing writer based in NY.