Mitchell York

Professional EOS Implementer™

 Contact: mitchell@york.coach

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I was an Eyewitness to a Murder

July 5, 2014

 

It’s rare to be an eyewitness to murder.

 

One of the leading companies in the New York City event planning business was killed recently, and its story has some lessons for people inside and outside the industry in which it participated.

 

The company was acquired by a much bigger player a number of years ago.  The backers of the acquiring company were private equity investors who had the idea of doing a national rollup of businesses in this particular industry segment and then taking the resulting entity public or selling it to another investor.

 

From the acquisition date onward, the way the company was managed changed dramatically. The acquiring private equity company was saddled with debt, so paying down their borrowing became the most important priority. Before that, the most important priority was customers. And in New York, customers (in this case caterers, event planners and event venues, primarily) were very, very finicky. They wanted what they wanted, when they wanted it. Imagine that.

 

The customers started to see changes in how the company, with whom they’d done business for decades in some cases, was being managed. Before, the company invested in new products in a way that seemed almost excessive.  (Excessive but very profitable.) The acquiring company was from California and had no experience in the New York market. It didn’t see why New York had to have products that were different from the ones that, say, Washington, D.C., or Chicago or Los Angeles had.

 

Customers grumbled but were loyal to the former owner, who stayed on to help ease the transition. But then new people were hired, and rather than relying on the Old People to show them how they’d done things and been successful, the new people started implementing their own systems. After a while, customers weren’t getting exactly what they ordered. Some orders were missing important items and some big events didn’t go so well as a result.

 

The Old People told the new owners that customers were angry and that things needed to change. But the new people didn’t listen. Those whining New York customers will just have to adjust and be satisfied the way other customers are.

 

Soon there were new managers and new sales executives who were charged with stopping the inevitable decline in sales that occurred when the acquiring company stopped listening to the Old People and to customers. One had a brilliant idea: focus on new customer segments that didn’t care as much about quality. There were  sales “blitzes” in which the new people went along with the Old People to visit customers and tell them how great the company was,  and how the new company could serve them nationwide. Trouble was, nearly every customer cared only about New York.

 

The downward spiral continued until Chapter 11 inevitably came. The company will soon close its New York operations and many people will lose their jobs. The customers will be very well looked after by any number of competitors who treat them like the picky, pain-in-the-ass, demanding New Yorkers they are.

 

This little parable offers a few lessons for acquirers, particularly of the private equity variety:

 

  • Assume you know absolutely nothing when you acquire a company.  Be humble. Listen to the Old People. And give them financial incentives, beyond their paycheck, to help.

  • Realize that “synergy” is a fable.  Customers don’t care about how you want things to work and how you’ll achieve “economies of scale” so your investors can be paid back. They care only about themselves.

  • New York isn’t Texas or California or D.C. What works there won’t necessarily work here. For that matter, what works anywhere won’t necessarily work anywhere else.

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