Mergener's Printing and Office Supply

Yes, the pink sign says "22LR Sale"

This week’s Local Small Business essay is about Mergener’s Printing and Office Supply: Phone number (517-975-4550)

The selection criteria were much the same as last weeks.  I was looking for a local business with longevity and I wanted a business with enough “eye candy” to support the essay while I get the hang of business reporting.

Mergener’s Printing and Office Supply

Mergener's can print on a variety of substrates, many of which have good resistance to weathering.

This substrate is extruded plastic board.  The ink is fused to the board so it is wind, wear and waterproof.  This is ideal for permanent signs in high traffic areas.

Yup, they have office supplies.

Mergener’s is an interesting blend of businesses.  They provide a service (graphic design), manufacture a product (printed materials) and sell retail (office supplies and sundries).

Cash Flow and Pocket Stop

Mergener’s reminds me of the ideal Amish farm.  The ideal Amish farm typically has a milking operation which provides steady income year round.  Then, the farmer looks at his resources and his markets and produces a bewildering array of agricultural goods with the intention of producing a second, variable stream of checks every week of the year.  His variable stream might start with maple syrup, Easter chicks, cut daffodils and tulips, asparagus, rhubarb, green onions, strawberries, sugar snap peas, raspberries, green beans, pickling cucumbers, sweet corn…Christmas trees, mistletoe, fudge, fruitcakes, and smoked meats.

The key is to exploit every square inch and every moment of time.  It is also critical to keep the maximum number of dollars on the farm.  Cash-flow is of limited value if there is no pocket-stop.  An ancillary benefit of this approach is that it keeps kids busy and (mostly) out of trouble.

Gene Logsdon once asked an Amish farmer why he did not buy more farm land.  The Amish farmer owed 28 acres which is about 1% of what a conventional farm needs to be economically competitive.  The farmer looked over his domain and said something to the effect of, “I might be able to farm more than 28 acres, but I could not farm it well.”  It is telling that this farmer had been able to raise a large, healthy family on that 28 acres and he did not go into debt doing it.

The customers for skateboarding supplies is not big but they are very enthusiastic and tend to spend money as soon as it hits their pockets.

The owner uses these products and thinks the world of them.

Spinning product so the customer can see multiple aspects of it was pioneered by Lex Wexner.  It optimizes sales per unit of merchandise and  is still considered good merchandizing.

A key to staying in business during times of price instability (i.e., inflation) is to charge enough to ensure that you will be able to afford to restock your shelves.

Mergener’s is similar to that Amish farmer.  Mergener’s is not a small business.  The owner calls it a “micro-enterprise”.  The retail shop is about 12 feet across and 24 feet deep.  The owner not only sells office supplies, he sells skateboards, wheels, friction tape.  He sells Herbalife nutritional supplements.  He sells ammunition.

The printing side of the business is like the farmer’s dairy cows.  It produces steady cash-flow.  The majority of his clients are other businesses who come to him for their various forms and other printed material needs.

The retail side of the business is the variable side of the business.  He is always arranging and rearranging his offerings.  Square footage allocated to each class of products varies by dynamic demand.  For example, the nutritional supplements are selling well during these dreary days of winter and the skateboard supplies…well, not so much.  He is going to flip his retail space around to capitalize on that.

---Editorial Aside: The perils of a small, single person business---

Mergener’s office supplies retail business supports the printing business in a few unexpected ways.  It was originally put in as a convenience for his customers and to productively use some floor space that was too narrow for printing equipment but too wide to use solely as an aisle.  Perhaps the thinking was that walk-in traffic might generate some printing business as well.

A mini-pinball machine.  It is all mechanical.  It cannot be justified by any "hard" business basis but it is fun and generates showroom traffic.

A trickle of retail customers also gives the single proprietor a reason to get up and physically move around, to get a little bit of intellectual stimulation.  Working alone can make a person feel very isolated.  The prospect that customers might walk in at random times is enough to create a sense of connection.  The key is to not have the retail business become a burden that detracts from the meat-and-potatoes end of the business.

---End aside---

Merchandizing

At one point our conversation wandered into the details of merchandizing.  The owner was able to tell me on a rack-by-rack basis which ones moved a lot of merchandise and which ones seemed to be invisible to customers.

His observations were initially counter-intuitive.  Material in flat-racks sold briskly while merchandise in four-sided “spinning” racks did not move.  Upon reflection, it is probably due to the nature of his merchandise.  The customers fall into an efficient search mode by ignoring everything more than a few inches outside a given focal plane.  Customers end up seeing right past the spinny racks.

There are not many people in retail who can articulate that micro level of detail.

Overhead

Eaton Rapids has seen many new businesses come and go.  The ones with longevity survived because they developed strategies to keep their fixed costs low.  Business with high fixed cost may thrive during good times but fail during economic downturns.  They bleed money while their revenues dry up.

One of Mergener’s strategies includes low rent.  He has a very frugal footprint in square-footage.   Also, being an older building, he does not have to pay top dollar per square foot.  Older retail space might be the kiss-of-death for consumer products but his space is very close to many of his business customers. 

Another strategy is lean inventory.  A common failing of new business owners is to fall in love with some item of inventory and to over buy because they are absolutely sure everybody in town will want to buy one.  One happy side effect of frequently rearranging the footprint is that one does not fall in love with the inventory.

A fixed cost reduction strategy from the printing side of the business was to form strategic alliances with other printers.  Mergener’s quotes jobs that they cannot do in-house and then farms them out.  They have two reasons for doing this.  Mergener’s does not end up sitting on a bunch of seldom used, rapidly depreciating equipment.  The other reason is that they know the technical side of the printing trade better than their customers.  They can spec and source the job far more quickly than the customer, freeing up the business customer to do what that customer does best….providing service to their clients.

---Editorial Aside: Integrity and Trustworthiness---

I asked for some examples his work to photograph.   He politely refused. All photos shown here are of materials that are in the public domain or his customers encouraged him to distribute...materials like business cards.

Mergener's prints business cards.  This one looks very classy with white font on a black background.

Others opt for a more colorful palate to project a different image.  These cards have very good definition and the crisp detail that my cheap camera does not capture.

He explained that printed materials contains intellectual property which belongs to his clients.  He prints brochures, menus, fliers for upcoming sales promotions, business forms.  Imagine how betrayed a business would feel if a competitor learned about an upcoming promotional event and underpriced every special by ten cents?  Or, consider the effect on sales if customers learned that prices were going to drop by 25% within a week.

---End Aside---

Saying “No” to Business

This interview was conducted very shortly after the terrorist attacks at Charlie Hebdo, a French magazine.  So the topic of self-censorship came up.

One of the advantages of a private business is that the owner has more latitude to pursue or refuse business.  I ask the owner how he handled requests to print “edgy” or potentially inflammatory bumper stickers and other materials.

The owner told me that he has “not-bid” business in the past.  He also told me that he is a dedicated, practicing Christian and the last time he looked in the Bible it said something like, “…and treat your neighbor as your self.”  He uses that as his touch-stone.  In his mind, he replaces target of the bumper sticker with Christ or Christianity.  Then he consults his gut reaction to decide whether to “bid” the job or “not-bid”.

Link to previous small business report.
Link to next small business report. 

The Pernicious Effects of "Maintenance" costs

The pernicious effects of maintenance, overhead and other hidden costs

"If you are not putting money in my pocket then you are taking money out of it."   -Every businessperson

The general model of animal growth is that most of the resources (in excess of maintenance) in young animals goes to growing frame (i.e., skeleton), then when the frame is about 2/3 grown the lion's share of resources (in excess of maintenance) transition to growing muscle (meat), then when the animal is nearly full sized the lion's share of the resources (in excess of maintenance) transition to growing fat.

Part of the art of growing animals profitably is to know when to sell them.  Ideally, it is the day they have sufficient fat to achieve the highest premium in the commodity market.  Typical weights are 120 pounds for speckle-faced lambs, 230 pounds for meat hogs, and 1250 pounds for beef.

A key point is that the only resources that actually contribute to animal growth are those "in excess of maintenance".  It is possible for animals to eat low grade forage that will stunt their growth such that they never reach a marketable condition.  Those animals never put a dime in the owner's pocket.  Rather, they take money out of the owner's pocket because they consume resources (capital, management time, feed, medications, etc.) that could be directed to profitable enterprises.   There is no "surplus" to harvest, for city people to eat.

Another subtlety that might be missed by the casual reader is that the difference between forage that is 50% digestible and 60% digestible is not 10% but infinity.  Domestic animals cannot meet their maintenance needs on 50% digestible forages, they actually lose weight.  Those same animals will gain weight, get pregnant and raise salable lambs and calves on forage that is slightly higher quality at 60% digestibility.

Picture from HERE

Increasing maintenance needs throw the effects of low quality (or quantity) forage into even starker contrast.  There is a reason why ranchers in harsh areas raise medium sized, thrifty mamas.  They are the original "low maintenance" girls.

Plants

It is similar with plants.  I was pruning apples trees today.  Fruit trees produce branches with glorious abandon.  The branches crowd and shade each other.  The branches that bear fruit are weighted down and sink into the gloom beneath the dense canopy. Once in the shade they become net consumers as they cannot even photosynthesize enough to meet their maintenance needs.

My pruning plan is to remove every other row of trees so I can move about the orchard, care for the trees and harvest the fruit.  The remaining trees are being pruned as a ray of sunshine can only be harvested once.  A canopy that is any denser than that will set more fruit than the tree can ripen to excellence and air flow will diminish and disease can flourish.

Again, it is a case of reducing the maintenance demands of the tree so it can produce a surplus that I, as a human, can benefit from.

I think that one can find parallels in human social and economic systems if one digs deeply enough.  Excessive commitment to maintaining legacies destroys surplusses, drags down productive enterprises and enervates the entire organism.

Schumpeter is sometimes cast as a champion of socialism, but one of his most important concepts is "Creative Destruction".  Failing enterprises must be allowed to fail so resources, including capital, can be released for redeployment to more productive enterprises.

Picture from HERE

There is an exception to the "ray of sunshine can only be harvested once" rule.  Additional species, species with other phototrophic needs or with offset periods of peak growth can also use those beams of sunlight.  That is how Trout Lilies, Trillium, Hepatica, Bloodroot, common violets, Ramps and chives flourish beneath maple trees.  They don't compete with those trees.  They take their nibbles, uncontested, at the beginning of the growing season.

One of the things that tickles me is that I found a gentleman who wants the apple wood.  He has a smoking business (?) and he will come over and pick up the wood.  His name is Mike Poneta and his phone number is 517-525-3046.