When is the “next big thing” not always such a great thing for your business? When does innovation cost more than its worth? It’s a tough call, and a recent piece in L&NW reminded me of the balancing act owners need to play when pursuing new business opportunities.

I’m referring to an article published in September on Amcor Flexibles, a company that is teaming up with ICONIQ Drinks to provide a new, flexible packaging of still water. The drink, which is designed for sporting events, is in a flexible pouch, which allows for practical, easy consumption. It also boasts an environmentally friendly design, as it has a lower carbon footprint and produces less waste.

I like the innovation and the great design, and it looks like Amcor Flexibles is a smart company. They’re a perfect example of how selecting a niche can result in huge business opportunities. A visit to Amcor Flexibles’ website reveals the company has approximately 33,000 employees, 300 sites and supplies a wide range of products to the food, beverage and healthcare markets. It’s a solid company that has resources to innovate.

So how does this relate to you? I’d like to use Amcor to illustrate a financial quandary that many business owners encounter every day: the cash trap. A cash trap occurs when there is not enough cash flow to cover the cost of new equipment, generate a profit, and maintain your position in the competitive marketplace, all without incurring too much debt. I’d like to use Amcor’s new products in a hypothetical situation to illustrate how cash traps can cripple your business.

Cash Trap #1: Taking on the Big Project
Let’s assume you are having a decent 2012 in your respective niche, printing labels for food products. You have a pretty decent market share, and your sales are good. Not great, but very good.

One day, a representative from Amcor Flexibles calls. Thanks to the great article in L&NW, the demand for their new water pouch has skyrocketed. In fact, the Boston Marathon has decided to use the product alone for the entire race, and the company needs help. Even for an organization the size of Amcor Flexibles, this demand will put a tremendous strain on their production capacity, and they need to work with a partner on the product.

Immediately, you start salivating at the numbers being thrown your way. This is a big job, and it will definitely boost your yearly income. But you’ll need to buy a special press for the job and add more staff. Because of the tight deadline, you’ll also need to ask some current clients to wait on some of their regular re-occurring orders.

You look at the bottom line, and you take on the job. You buy the new equipment, figuring that having the asset will generate more business down the road once the Amcor job is done. You’ve just wandered into a cash trap. Here’s why:

You jumped in without checking on the client first.  Granted, in this case Amcor looks like a solid company and undoubtedly pays their bills. But what if they didn’t? What if you purchased the new equipment, and then the client either reneged on the payment or did not honor the credit terms? If you’ve put some current clients on hold, this could seriously hamper your cash flow.

You purchased instead of leased.  Time and time again, owners think that a new asset will help them generate new business. Unfortunately, it takes more than an asset to drive new business.  You need the entire infrastructure to support it. A better bet would be to lease the equipment, so that once Amcor is done, you don’t have the pressure of making payments on a big piece of unused iron.

You didn’t analyze your cash flow properly.  You know there is going to be a huge influx of money coming in, but have you taken the time to properly analyze what’s going out? Besides the payments on the equipment, you’ll likely have overtime costs to meet the tight deadline, and you’ll probably have to hire talent at a premium to help you get the job done. When all is said and done, the windfall might not be what you had once expected.

Your current customers might not come back. To fit in this tight order, you’re going to have to delay some regular customers. How will they feel about this disruption to their service? What happens if they leave you, then Amcor cuts its order?  You’d be stuck with your new press and lots of capacity – what then?

You’re going to put a lot of pressure on your team to get the job done. Are they up for it? Are they going to work these extra hours for the good of your business without getting something in return? Think how it will affect your culture, and your cash flow, if some of your top people decide it’s not worth it.

Upon further review, the big job might not be the cash cow you’d anticipated. Instead, it might have led you into a cash trap from which it will be difficult to emerge. 

Cash Trap #2: Chasing the Hot Niche
In the first cash trap, the business fell into your lap. In this cash trap, you seek out the business.  You’ve just read the article in L&NW on Amcor Flexibles’ new product, and you read that it is selling like gangbusters. Your growth has been flat for the year, and you know it’s time to make a bold move.

After reading articles from business advisors like myself, you decide to go after a niche market. But instead of taking a more cautious approach, you look at Amcor Flexibles’ double-digit profit margins and ask yourself: “Why am I wasting time with my current business when I could be making double-digit profits?”

You decide to transition the entire company over to produce the same type of products that Amcor Flexibles creates.  You want to move aggressively, knowing that time will be of the essence. However, you’re certain that with all your resources aimed in the right direction, you’ll soon be able to snatch a piece of Amcor’s pie. Once again, you’ve wandered smack dab into a cash trap. Here’s why:

By abandoning your current business, you’ve cut your cash flow.  As a pseudo-start up, you have some established cash flow to help fuel your new venture. But you’ve abandoned it. If you can’t replicate Amcor’s success, you are sunk in a big way.

I applaud the courage it takes to leap into a new venture, but I shake my head at the decision not to take a more strategic approach. Once again, leasing makes more sense. You’ll still have monthly payments, but you’ll also have an out if the business doesn’t take off.

You don’t have contracts in hand before you begin your efforts.  This is the most critical part of starting a new venture. I can somewhat justify purchasing assets if you have guaranteed business, but what if nothing is flowing in? Without contracts, you have no guarantees.

To be clear: I’m in no way giving you advice on whether or not you should pursue a niche like flexible water pouches. (Remember: this is a hypothetical situation.) In fact, I hardly encourage niching in your business. But before you make a move, consult your financials. Instead of buying the big iron, find the point where you can purchase new equipment, and then consider a smart way to acquire it.

If you do wander into a cash trap, it’s going to be very difficult for you to climb out. Either you’re going to have to stop investing entirely in the new niche or product, for example, and maximize your business for cash; or, you’re going to have to invest big (big!) time in your new venture so you can capture market share. 

Both are difficult propositions, and should serve as fair warning to any printing owners. Look to the future with your strategy, but refer to the present-day cash flow as you make your plans.



Rock LaManna, President and CEO of LaManna Alliance, helps printing owners and CEOs use their company financials to prioritize and choose the proper strategic path. Rock can be reached by email at [email protected].