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Glen Taylor Taylor Corporation Mankato, Minn

From the farm to the Forbes 400

This profile is excerpted from Bootstrap to Billions: Proven Rules from Entrepreneurs who Built Great Companies from Scratch by Dr. Dileep Rao. Copying or reproduction in any format or medium without the prior express, written consent of the author is strictly prohibited. For additional profiles or information: InterFinance Corp. Phone: 763-588-6067; www.uEntrepreneurs.com; www.infinancing. com

“Printers like presses. I like customers” … Glen Taylor

Summary: When Glen Taylor was 16, he was a father, husband, manager of a farm, and a 4.0 GPA (if you don’t count typing) high-school student. When he finished high school, his teachers persuaded him to enter college rather than go into farming. With scholarships, loans, and a part-time (32 hours a week) job in a printing company, Taylor pursued a degree in math, which he completed in three years. At the printing company, he implemented so many profitable, “common-sense” improvements, that, upon graduation, the owner asked him to join the company as the #2 guy for an annual salary of under $5,000. Taylor listened to his advisers at the college and agreed to join the printing company, even though he would have made more as a teacher and would have had his summers off. His professors told him that challenging opportunities in business do not show up every day, and he could always go into teaching later. Within a few years, he had made so many improvements to the company (and asked for a piece of the larger pie) that he was making in excess of $35,000, and had bought 13 percent of the company with his savings (he could live on the original $5,000 salary). That is when the owner of the printing company announced that he was ready to sell and gave Taylor a year to put together an offer. Initially, Taylor planned to buy the company with two of his colleagues. However, he soon found that they had differing goals. Taylor wanted to expand, and expand, and expand. The others did not. So Taylor bought the company on his own. Today his company is a colossus in the printing industry with operations throughout the world, putting Taylor on the Forbes 400 list of richest Americans. On the side, he owns the Minnesota Timberwolves NBA franchise and was the Minority Leader of the Minnesota State Senate. Who knows, one day he might even become one of the best schoolteachers on the planet. This is how he did it.

Before the Startup

1. Connect the dots between results and rewards. Glen Taylor was raised on a farm. His parents did not have much money. Each year they borrowed money to farm and then paid off the loan from the results of their efforts. They did not get too far ahead, but life was good. They had a large garden, an orchard, chickens, cows, and pigs, and they sold the produce, eggs, milk, etc., to buy other items. This gave Taylor a basic understanding of business: the more you produced, the more money you made. Although his dad was a farmer, he did not like farming. His father liked people and sports, and so did Taylor. The

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rules of his house were fairly simple. Taylor could play sports, which he enjoyed, if he got good grades; treated others, including his siblings, well; and did his chores. He learned the direct connection between results and rewards (or lack of same).

Lesson: Build a very clear connection between effort, values, results, and rewards. This lesson helped Taylor join the Forbes 400.

2. How you see affects what you do. When Taylor was a junior in high school, his girlfriend became pregnant, and they got married. Taylor was 16. At this time, his dad had another job and his older brother started college. So Taylor had to manage the farm. His routine started at 6 A.M. with his chores. Then he went to school, after which he had more chores, and then field work until midnight (except in the winter). He learned time management and to set priorities. He found out that he had to get his school work done at school. While the teacher was explaining problems to the class, Taylor was doing his homework. The hard work and long hours could have encouraged Taylor to drop out of school like many others had. But he stayed. In his senior year, his family decided to sell the farm and Taylor ended up working at another farm to earn money. When he finished high school with all A’s except a B+ in typing, his teachers strongly suggested that he should go to college and not into farming. Taylor saw how difficult it was for his father to get a promotion in his job because he did not have a college degree, even when he was qualified for the job. This convinced Taylor. He went to Mankato State University (MSU).

Lesson: Your lens affects your vision and your vision affects your behavior. If you focus on problems, you will see hurdles. If you focus on opportunities, problems become stepping stones to growth. It’s your choice.

3. Multi-tasking before the term was invented. Taylor was awarded an academic scholarship to attend MSU and he obtained a National Defense Loan that he did not have to repay if he became a teacher. And to support his family, he also got a part-time job working 30-32 hours a week at Bill Carlson’s company, Carlson Letter Service (subsequently Carlson Craft), where his wife also worked. In addition, his brother moved back to MSU and they worked together as laborers doing anything from mopping floors to handyman jobs. He never had to use the money from the National Defense Loan program. He majored in math, and minored in physics and social sciences. He was sharp enough to excel at all of them. His goal was to become a math teacher since that would give him the flexibility to teach anywhere in the country, and he also found that he liked to work with people and motivate kids. Even with the job and family responsibilities, Taylor got his degree in three years due to the “setup in high school” where he had to develop good habits, value time, and prioritize his life to survive and excel.

Lesson: Brains help. What’s important is what you do with it. Mix good habits, a strong work ethic, and clear direction, and you can do wonders. To quote an old cliché, Taylor excelled at making lemonade from lemons.

4. How many jobs can one man have? As a student at MSU, Taylor joined Carlson Craft (at that time called Carlson Letter Service). The company’s owner, Bill Carlson, hired a number of college students, and there were about 20 others from MSU who worked there alongside Taylor. Taylor’s first job was running a press, which was considered to be an entry-level position. When another student who was in charge of inventory took a summer vacation (amazing the other students, since summers were for working), Taylor offered to do his own job and also that of the vacationing student. Carlson agreed. Taylor did both jobs and offered a variety of suggestions to change inventory practices to save money, such as reusing cartons and envelopes. Carlson appreciated the additional savings and offered the job to Taylor on a permanent basis. When the other student returned from his vacation, he learned that he had been assigned to the press and quit. Taylor then asked if he could help in ordering and saw how they could save money there. He noticed that he could get better prices by combining orders and he negotiated for them. He also examined freight bills and noticed that they could qualify for lower freight charges by combining

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freight. When Taylor graduated from college at the age of 21, Carlson asked him to stay on with the company as the #2 person.

Lesson: If you have a summer job and a “Glen Taylor” wants it, don’t go on vacation. When bureaucratic corporations ask you to think outside the box, they do not tell you that they want you to stay inside a larger box that is outside your inner box. Entrepreneurial firms place no such limits. They want to save money and make money. Take advantage of your opportunities. Great ones are rare and they come in disguise.

5. Could have, would have, should have… decisions that alter your life. When Carlson asked Taylor to join the company on a full-time basis after graduation, Taylor asked him about his salary. Carlson suggested that Taylor check out his other options to see what he was offered. Taylor was planning on becoming a math teacher. This is when “modern math” was being introduced into schools. As part of his undergrad education, his professor had asked Taylor to evaluate an eighth-grade class in the local district, which wanted to test this new concept. Taylor was asked to be the student teacher, and teach modern math to the top eighth-grade students and the bottom ninth-grade students in the school. His report’s conclusion was that the top students got it easily, but that the schools should teach the bottom students more basic math skills, such as percentages, that they would need in life. This experience and report made Taylor a hot commodity as a teacher recruit. When he graduated, top schools in the country, such as Edina in Minnesota and schools in California, called to have him teach modern math in their schools. Taylor asked his professors for advice, fully expecting them to suggest the teaching career. Instead they suggested that he join Carlson, pointing out that he could always go back to teaching (and be a better teacher with the practical experience), but that an opportunity like the one at Carlson did not come along every day, and it could reflect Taylor’s special talents. Taylor accepted Carlson’s offer.

Lesson: When making life-altering decisions, select mentors wisely and know your passion. Some options expand your horizons and help you reach your goal. Others restrict your choices, as Cortez did when he scuttled his ships and forced his conquistadors to win or die. Key is what you do after you make your choice.

6. Your word. Taylor still had to arrive at a mutually agreeable pay-scale arrangement with Carlson. Since Carlson had never had a #2 guy, he was unsure what he should pay. Taylor knew what he could get from the school districts who were trying to recruit him. But he was not sure what to ask for (especially since he wanted the job and did not want to blow it by asking for too much), and so he went and told Carlson, “whatever you decide, I will take.” Carlson offered $4,250, which was below the market (compared with salaries of $5,000–6,000 that Taylor was offered as a teacher and that, too, with free summers). While Taylor thought that perhaps he should have asked for more, he agreed to the pay offered by Carlson. As he puts it, “I said I would, so I did.”

Lesson: Don’t give your word casually. When you do, live up to it. Years later Taylor found out that Carlson offered him $4,250 because he was paying himself only $4,500. If he had asked for $6,000, he might not have been offered the job.

From Entry to Ownership

7. Why are you in business? Carlson Craft was primarily a printer of wedding invitations. The company offered its products as pamphlets in a catalog with a hard cover. These catalogs were distributed without charge to drug stores in the region, and customers examined catalogs from various printers to select the printer and type of invitation. After he joined the firm on a full-time basis, one of the first things Taylor did was to compare the company’s catalog with those of the leaders in the wedding-invitation printing industry, which were primarily from New York and Chicago. He believed that if they were to succeed, he had to “go against the best and be better than them.” Their catalogs were big, well-done,

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attractive, and looked very professional. Taylor laid these catalogs next to his firm’s own to compare them, and to understand customers and competitors by looking for similar products, features, and strategies in each of the catalogs. And he asked himself a simple, billion-dollar question: “Why would people buy from Carlson?” He could not see an obvious advantage, and concluded that many of their customers were buying from them because they were local and slightly lower-priced. He came up with a new strategy that included the following:

• Develop a fancy, rich-looking catalog that copied (also called “fast follower” in business school- speak) the competitors’ designs.

• Include all the products that were most commonly featured in the various catalogs, assuming that the more frequent the occurrence of a product, the higher its popularity.

• On items that were easy to compare, set prices slightly below (around $1) the competitors, giving customers a reason to buy from him rather than from his competitors. But have higher prices on accompanying items and customized options. As an example, the standard wedding invitation price was at 11 lines with a higher price for more lines (but the cost to add more lines was minimal). The invitation shown in the catalog had more than 11 lines, with the hope that customers would choose to add more lines and increase the package price. His total package was comparable to that of his competitors, but he was thought of as very competitively priced.

He printed 500 catalogs compared with the previous run of 300 and widened the distribution. Sales started to increase.

Lesson: The fundamental question in business should be “why would anyone buy from me rather than from my competitors?” Taylor calls this common sense, which is actually not very common. To answer this question, know your customers and their choices.

8. Customize to satisfy customers’ unique needs. The new catalog got Carlson noticed. Customers and retailers started paying more attention to the company. Brides were impressed with the catalog, which placed Carlson in the same league as the leading companies in Chicago and New York. But Taylor found that, very frequently, they were not ordering the products in the catalog but calling in because they wanted custom designs, wording, and colors. They wanted their wedding invitations to reflect their personalities on their special day. Previously, when this happened, the company’s (and industry’s) response had been to tell them that “you can get what we have.” Taylor, however, noticed that the brides were not asking about price when they wanted to satisfy their unique wishes. He decided to try to satisfy these customers. Whereas previously, Carlson was the low-price vendor, now they started selling customized products at a higher price. Taylor realized that this could be a unique competitive advantage for Carlson and started to focus on answering the broader question, “what does the bride want?” He hired a designer to design new types of invitations. The innovations and new designs were taken to groups of local female college students, employees, and young women for feedback. Taylor specially organized these groups to make sure that his company’s innovations were in sync with the market. Although these initial groups were very homogenous, and did not include many ethnic and religious groups, he appealed to a large segment of the country. In later years, he broadened the scope and composition of the test groups. When he noticed that these groups and customers wanted unique colors beyond the ones in the catalog, he asked the mills to make his paper in those colors. Since he had to buy minimum orders, he had to make sure that he offered colors that were in demand. To know which colors would be in demand, he started going to the New York bridal shows to examine the latest fashions and colors. He pointed out to his customers that they could coordinate all the colors in their wedding, including the paper products, invitations, bridal dresses, etc. He could not keep up with demand. Bill Carlson was looking for minimum of 5 percent gross margins. By differentiating his company’s offerings to satisfy the unique needs of his customers, Taylor could increase the size of his typical order by 5 percent and increase his profits by over 60 percent. The company started to take off.

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Lesson: Henry Ford said that customers could get “any color – so long as it’s black.” That’s why GM overtook Ford. Companies that satisfy customers’ needs better than their competitors nearly always do better than those that satisfy their own needs. Taylor developed a structure for getting good ideas and for testing them. Ego or the “not-invented-here” syndrome was not a factor in his selection. The result showed up in company sales and profits. Why did Taylor test and not use his own instincts like many do? As he puts it, “what did I know?” When customers ask you for something, listen.

9. Innovate for more customers. About the same time, Taylor helped an entrepreneur start a business to supply school proms. His concept was to offer products based on the hit songs and movies of the day to replace his competitors’ tired themes, such as Hawaiian hula proms. He needed a variety of paper-based items for his business, and Taylor offered to supply him. When this business took off, Taylor used the concept in wedding invitations. The industry had been built on standard themes and wording based on religious affiliations, such as a Catholic wording and a Protestant wording. Taylor noted that brides were not much older than the high school graduates who attended proms, and that they would be listening to the same songs. Taylor and his team came up with new wording and themes based on hit songs and movies. Brides liked these themes, and they further customized their invitations with their own words at a slightly higher cost.

Lesson: Innovation often means applying an idea that works in one place to others. Ideas can come from competitors, customers, and vendors. Keep your eyes and ears open to catch the latest trends and capitalize on them.

10. Who/what comes first… customers or machinery? Since machinery is the most expensive investment in a printing business, Taylor knew that if he did not worry about press utilization, efficiency, and cost, his company would not be in business for long. They needed to modify operations, improve press utilization, and reduce initial setup costs to be profitable. They did so by modifying machinery and adjusting business practices. Most of Carlson’s competitors were printers and emphasized operations and machinery utilization (due to the investment), and asked customers to adjust by not offering smaller order quantities. Taylor looked at business from his customers’ perspectives and adjusted his operations to make a profit. With a printer’s perspective, machinery issues ran the business. With Taylor, customer needs ran the business. This was a key difference. His competitors liked large orders due to the savings in press utilization. Taylor liked small orders because there was less competition and offered higher margins, and the huge number of customers with smaller orders meant potentially large markets and volumes.

Lesson: You can manage your business to make your machinery efficient or your customers happy. Put customers first. They will make you rich. Why didn’t the other printers do it? As Taylor notes, “They liked machinery. I liked customers.”

11. But cut costs to become competitive and make money. Lower prices on standard, easily comparable items, and customization for higher margins, were only part of Taylor’s strategy. He knew that this would grow the top line, i.e., revenues. Taylor wanted to grow the bottom line, i.e., profits and cash flow. This meant that he had to make the operation more efficient and effective to cut costs while satisfying customers. In addition to charging more for smaller orders, Taylor started looking at every aspect of the business. As examples:

• Carlson was buying raw materials for envelopes and invitations in packages, which were then unpackaged, printed, repackaged, and sold. He streamlined this process and bought in bulk to reduce raw-material costs and the cost of labor to open the packages.

• They scheduled all orders of a certain color at the same time to minimize press-setup time. • He started to develop standards for labor and machinery so as to be able to measure and improve

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individual and company productivity and drive down costs. • He developed stronger controls to know the cost and proportion of raw materials that were

wasted, and then he cut the waste. Lesson: It is easy to cut prices – until you fail. Taylor cut prices selectively on easily comparable products. To succeed with lower prices, cut costs. And offer other products and services, such as customized products, that have higher margins.

12. Expanding with UPS. As Carlson started to grow, Taylor started to expand the distribution network. In addition to drug stores, Taylor started expanding geographically and also adding florists, printing shops, and dress shops. At the time, UPS was expanding into rural America. Previously, Carlson could only ship via the Postal Service, which resulted in a high level of damage. He had always been happy with UPS, so he decided to expand his geography based on UPS expansion plans. He obtained free Yellow Page directories for cities and towns with more than 1,000 residents in the states where UPS was expanding its reach to get the names of retailers who advertised wedding services. He then calculated the number of dealers he wanted to have based on the population of the town and the estimated number of weddings they were likely to have. If there was more than one advertiser in the Yellow Pages, he first selected the one with the bigger advertisement. He sent the selected retailers a card inviting them to order the catalog for free. When he did receive a card back, he checked their Dun’s profile to make sure that they would be a strong customer. He also started offering faster service. Chicago and New York printers normally shipped in 14 days. In contrast, Carlson shipped products on the same day for rush orders (at a slightly higher price, of course). On others, the order was shipped within one to four days. No one was faster. With customization and speed, sales shot up and so did margins. As UPS expanded its geographic reach one state at a time, so did Taylor.

Lesson: Grow with the trends (also known as “go with the flow”). The expansion of UPS to rural areas allowed Carlson to expand its territory, offer faster service, and increase the number of distributors. Customization, speed, and efficiency allowed Carlson and the retailers to earn higher revenues and profits. Give customers what they want, and price becomes secondary.

From Ownership to the Moon

13. Get the means to acquire the company. Carlson Craft had never made over $50,000 in annual profits. Taylor’s customization program had the potential to increase profits, and Taylor wanted a piece of this increased pie. So he asked Carlson if the managers could have a bonus based on profits over $50,000. Since the company had never made profits above that in any year, Bill Carlson was skeptical about the potential to make this meaningful to the managers. Taylor added that this may end up being a theoretical discussion, but it would be a great incentive. So Carlson agreed. The company made $150,000 in net income the next year and Taylor was convinced that they could sell more invitations at even higher markups. At the end of the year, Bill Carlson had the books audited and then invited the three managers to dinner at a fancy restaurant (Taylor’s salary was still $5,000 so this was special) and gave them their bonus checks. He also informed them that he wanted to change the agreement with the three managers. He increased their base salaries, with Taylor’s salary growing from $5,000 to $26,000. Taylor and his family could live on $5,000. He saved the rest.

Lesson: Negotiate for bonuses to build your nest-egg based on growth. Offer the same to your employees. They will work harder. Taylor noted that he would not have done what Carlson did by increasing the base and eliminating the bonuses. His philosophy was to increase the base salaries by a small amount, but increase the level at which bonuses were calculated so that managers always got rewarded for increasing profits. After the first year, future years’ profits at that level belonged to Taylor. Managers had to keep the business growing and raising profits.

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14. Bulls make money. Bears make money. Hogs don’t. Taylor’s success had not gone unnoticed outside the walls of Carlson and he had other options. He had been approached by investors who offered to invest in a new company at which he would receive a handsome salary of $100,000 – but no stock. Taylor did not trust the offer because he thought that he may be out of a job after he had set up the investors in the new business.

Lesson: If you want to recruit superstars with a proven track record, make it worth their while but make them share the risk. One assumes that these superstars are not stupid. Why should they accept an offer where the gains can be temporary but the losses permanent?

15. Become a shareholder. When Taylor started with Bill Carlson in 1959, Carlson Craft’s sales were in the neighborhood of $180,000. By 1974, sales had reached $7 million, and the company had no bank debt. Taylor had started “pestering” Carlson about buying stock in the company by 1965 and continued to ask him about the possibility of becoming a partner. Ultimately, Carlson had relented and sold Taylor and two of his colleagues in the company’s management team one share each out of the 100 shares he owned. As soon as Carlson agreed to sell one share, (the proverbial “camel’s nose in the tent”) Taylor asked for more. He used his savings to buy more shares in the company. Soon Taylor and the other two managers had accumulated 13 percent each, with Carlson owning 61 percent. Taylor asked Carlson not to sell any more shares to others.

Lesson: Once you sell shares to others, even if it is one share, remember that they are your partners. Make sure you want them as partners. So think about whom you want to own equity in your business and offer it for results or cash. In this case, obviously, it was a very profitable arrangement for both Bill Carlson and Glen Taylor.

16. Partners with the same vision. In January of 1974, Carlson approached his partners, the three managers, and told them that he wanted to sell his shares by December. Taylor negotiated the price on behalf of the team (he was the #2 guy in the company) and went to the bank and asked for a loan in excess of $1 million to buy Bill Carlson’s shares. His assumption was that the three managers would each own a third. While Taylor was arranging the package, his friends and advisers suggested that Taylor buy the company on his own because partnerships do not always work, especially if the partners have different visions of how the company should operate. Taylor’s response was that he knew his partners and had worked with them. After he had lined up the financing, he informed his partners and suggested that Taylor and the others would have salaries in the same ratio as in the past (Taylor’s was higher), and that Taylor would be CEO while the others woul