When expansion plans backfired for a specialist printer, a hard choice had to be made: crystallise a big loss or risk far worse happening to the company?
| Entrepreneur |
Trevor Hone, Managing Director |
| Company |
Avon Graphics |
| Business type |
Specialist printer |
| Founded |
1968; began specialty printing in 1976; began interstate expansion from 1985. Trevor Hone started as an employee in 1978; became an equal partner in 1982; bought his partner out to become full owner in 1990 |
| Employees |
75 full-time; 20 casual |
| Head office |
Melbourne (head office), Sydney and Brisbane |
| Contact details |
www.avongraphics.com.au |
Key Learning Points |
|
Delegation
The enthusiasm and energy of a founder get a small business started but they can be weaknesses when the business expands. One person cannot do everything. Hire good people - and learn when to let go.
Partnerships
Develop very strong alliances with clients, suppliers and, wherever possible, your competitors. Relationships helped save Avon when times got tough.
Hard decisions
When saving a business, there is no room for pride or misplaced compassion. Cut back now to avoid losing the business later.
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The Avon Graphics Story
Trevor Hone preys shamelessly on people's primitive lust for gold. For almost 30 years, his company - Avon Graphics - has been adding to the lustre of luxury items such as chocolate and cosmetics by embellishing their packaging with gold and silver. But the gloss was less obvious when Hone first expanded interstate from Avon’s Melbourne base and ran into recession, debt - and some valuable management lessons.
Avon Graphics began as a standard printing business in Melbourne in 1968. In 1976, it transformed itself into specialty printer, using techniques such as embossing and foil-stamping to distinguish itself from the competition. Revenue and staff numbers increased and by the mid 1980s, Hone felt that Avon was ready to expand interstate.
In 1985, Avon bought a factory in Sydney but was soon struggling to find the cashflow to service its debts. To pull out of Sydney would have been an embarrassing admission of failure; to stay could have destroyed the entire business. Worse still, interest rates were rising, pushing down the sale value of the land. What to do? Hone wanted to keep his Sydney foothold. He says: "I [had] made a few mistakes [but] I just couldn’t see the logic of selling that factory. I figured we just had to hang onto it."
Hone’s accountant disagreed and insisted on a sale in 1993. The limb needed to be amputated to save the patient. Hone says, “It was a tough time – very tough. We bought our factory at the bottom of the interest rates and the top of the market and when we sold, it was the opposite. We lost several hundred thousand dollars.”
But Hone was not ready to give up. Avon rented factory space in Sydney and clung on - just as the early 1990s recession bit hard. Hone says: “We hung on. We worked very hard. We scaled our business down.” Avon sacked staff, sold equipment, negotiated with the landlord to reduce rent and with the bank to “give us some relief”. Costs were reduced by 20%.
Hone says: “I guess we did all the things a business would do to fight our way through it – Our suppliers gave us extended terms and our customers - remembering that everyone was in the same recession - tried to pay us early. So we got through it.”
The business has subsequently grown to a turnover of $10-15 million with 75 employees, up from a turnover of $3-4 million when Avon first moved to Sydney. Avon’s customers are typically printers working for manufacturers. A key marketing goal has been to convince manufacturers - the customers of Avon’s printer customers - that spending more on speciality printing will add value. Certainly, luxury product manufacturers understand the need for glitter, but now Avon is trying to convince manufacturers of everyday products such as cereal and soap powder that gold embossing sells.
The problem, Hone says, is: “You see a lot of anecdotal information that tells you that a pack with foil or embossing on it stands out on a shelf but when you’re trying to convince large corporations you’ve got to be able to give them figures.”
Solution? Get some proof. In 2002, Avon commissioned RMIT University to survey people about their product purchases. RMIT found that 81% of people surveyed said that they would choose embellished packaging over plainer packaging; 90% said they would pay more for it. The $3000 survey provides Avon with solid evidence for its marketing program.