Paper Distributor Sticks to Basics

Michael Fox came from a long line of inventors and entrepreneurs and bolstered what he learned at home with a degree from Cal State Northridge. Before he could take over the family business, however, his father and uncles sold it. He says that although he tried being an employee the entrepreneurial bug kept biting. So 15 years ago, Fox pulled together $400, set up shop in his parents’ spare bedroom and began selling paper. How does a small business go up against the office supply giants and thrive? Fox relies on old-fashioned basics: watching costs, slow growth, meticulous account tracking and personal relationships. He was interviewed by freelance writer Karen E. Klein.

When I started my business I didn’t own a car, so I borrowed a buddy’s Toyota pickup for deliveries. I would slip fliers underneath the doors at high-rise office buildings around 6 a.m. and then go to my parents’ place and wait for the phone to ring on a second line I installed there. Sure enough, the phone started ringing. I sold copier paper at first, then I expanded into other kinds of paper, copier toner cartridges and computer supplies.

I always controlled the company’s growth. Initially, my delivery area was within a 10-mile radius of my home office. Now, we ship nationally, although 95% of our business is in Southern California. I think running a tight ship is really important, unless you’ve got millions of dollars being thrown at you. I always kept the inventory in our warehouse very low, for instance, so our cost of goods stays low. Our inventory turns over every week because we have the manufacturer ship directly to the customer as often as we can.

Because we move about 20 truckloads of paper a month, and we sell to professional firms with high-speed copiers that can’t use low-end copy paper, our paper cost is very close to the big guys’. Office Max and Staples may sell lower-quality paper cheaper than we can, but as soon as you go up one paper grade, our costs and our prices are competitive with theirs. I also make sure that we pay for our paper by the 10th of the month so we get a 2% cash discount. That is pure profit that I can put toward my bottom line.

I know what my bottom line is because we track margins and profit on a line-item basis daily. Computer technology allows us to focus in very quickly on accounts that are not making money. It’s not something we realize a year down the road. Unlike a lot of small companies, we focus on profitability and longevity as much as we do on sales.

Customer retention is very important to me. Because we’re a smaller company, we know our customers personally. They call here, and there are four people who might take their order, all of whom have relationships with them. I have customers from day one who remember when I used to do the deliveries personally. They enjoy seeing our success and being able to pick up the phone and talk to me directly at any time--I don’t screen my calls. The same goes for our vendors. They know me personally. They know that we do a consistent volume, that we pay on time, and that we’re not a problem account. So when paper supplies get tight, I can call these vendors, and they’ll make sure I never have to skimp my customers on paper.

Making sure that my customers have their paper and toner is my goal. We have a 24-hour customer service hotline, so I can send paper to customers by messenger in an emergency. Our delivery trucks always carry extra paper, and sometimes we arrange for one customer to borrow paper from another one in the same building because our customer base is concentrated in a four-block radius of high-rises in Century City.

Because I go out of my way for customers, and I know them personally, I have very little problem with bad debt. We ask for payment 15 days after delivery, and our average collection is 25 days. If they go over 30 days, their account gets flagged. By the 35th day, they’ll get a call from me. I make it pleasant, not demanding, and I always start by asking if I’m wrong or if they’ve simply overlooked the payment. People automatically get defensive, no matter how diplomatic you are, but I’ve found that if customers think you’ll give them 35 or 40 days, that’s when they’ll pay you, and I can’t afford to be the bank. The cost of doing that is tremendous. So I educate them and they know I run a strict 30-day payment schedule, and that’s when they pay us.

I think as long as we keep our costs down, stay competitive, provide good service and a genuine thank-you to our customers, we’ll be around and we’ll continue to offer secure jobs to our employees for a long time.

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If your business can provide a lesson to other entrepreneurs, contact Karen E. Klein at the Los Angeles Times, 1333 S. Mayflower Ave., Suite 100, Monrovia, CA 91016, or at kklein6349@aol.com. Include your name, address and telephone number.