Building a Company, and its IT, in 90 Days

(2005-10-05) - Contributed by Edward Cone

Precious Moments was making good money licensing images of sad-eyed waifs to big consumer-products companies.
Then it suddenly had to go into business for itself.

Ready. Set. Go. You've got three months to build a decent-sized manufacturing and distribution company from scratch,
complete with financial and IT departments, a call center, a customer relationship management and enterprise resource
planning system, and a brand-new warehouse and the software to run it. What's your first step?

That was the problem facing Precious Moments Inc., a licenser of collectible figurines and other products bearing the
image of the popular, tear-drop-eyed characters created by artist Sam Butcher. After decades of collecting fat checks,
the Elgin, Ill., company had to create a full-blown operating line of business on the fly in order to save its largest single
source of revenue.

Until this year, the entire staff of Precious Moments consisted of Chief Operating and Financial Officer Dan Huwel, a
receptionist and three artists. The company made money by licensing images of its signature urchins to scores of other
companies, including behemoths such as Hallmark Cards Inc. and Procter & Gamble Co., which then put those images
on greeting cards, paper towels and dozens of other products.

Retail sales of Precious Moments-branded merchandise reached into the hundreds of millions of dollars annually, with
more than $30 million flowing back to Precious Moments in the form of licensing fees and royalties. There is even a
"Precious Moments Inspiration" theme park (run by a sister company in Carthage, Mo.), where the attractions include a
chapel decorated with Bible scenes inhabited by Precious Moments-style characters. Hundreds of couples get married
there each year.

The Precious Moments figurines themselves are extensions of the original product line based on Butcher's work. The
artist licensed the right to make and sell the statuettes to Itasca, Ill.-based Enesco Group Inc., in 1978, shortly after he
created the Precious Moments concept. Since then, the figurines, made in Nagoya, Japan, and retailing for as much as
$160 for special editions, have become a staple of the so-called collectibles market—that amorphous, multibillion industry
that includes everything from Hummel figurines to Civil War chessmen.

Often attached to life-cycle events such as birthdays and weddings—precious moments, as it were, marked by a new
porcelain gewgaw—the figurines are still the largest single source of revenue of Precious Moments' licensing business;
under its ongoing contract with Enesco, they were slated to bring in $15 million this year.

But sales of the figurines have slumped in recent years as the collectibles market has suffered a downturn.

Membership in the Precious Moments collectors club has gone from more than 200,000 members in the late 1990s, to
20,000 active members today. Enesco, a publicly traded company that also distributes products licensed from Walt
Disney Co., as well as a variety of gift and home-and-garden products, has seen its Precious Moments business
collapse. The brand sold just $56 million worth of figurines for Enesco last

year—down from nearly $100 million three years ago, and more than $170 million in 1998—and the company wanted out of
the pricey deal.

There were other problems at Enesco, too, including a failed enterprise resource planning software implementation and
wholesale management changes. Last year, the company lost $16 million on $269 million in revenue.

Negotiations to end the 27-year partnership between Enesco and Precious Moments started in March—as did planning for
PMI's upcoming independence. On May 17, the licensing agreement came to an end. By July 5, Precious Moments was
fulfilling orders at its new, if not quite finished, warehouse.

"They were interested in moving away from collectibles, and we were interested in seeing them make investments in the
brand," says Huwel. "It was in our interest to take control once they no longer had a vested interest in the business."

By late August, Steven Troccoli, the director of IT, who himself had been at Precious Moments for less than six months,
described the atmosphere as "still frantic, but calming down."

{mospagebreak title='ZIFFPAGE TITLEMoment by Moment '}

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Moment by Moment

The changeover from shell company to operating business was no easy task. Each day, Enesco typically shipped about
1,000 Precious Moments orders and handled some 300 service calls, managing nearly 2,000 stock-keeping units worth
of palm-sized porcelain angels, kittens, brides and bashful children.

To take on the business, Huwel needed a call center and an enterprise resource planning system, along with other key
back-office applications. He had to have a warehouse capable of handling the 48 trailer loads of merchandise that
Enesco would begin turning over to Precious Moments in mid-June. The proprietary software used to manage a 20,000-
member collectors club had to be brought in-house, and pretty much everyone who would run all of this stuff had to be
hired and trained.

The only way to get it all done in time was to start early, even before the negotiations with Enesco were concluded. So in
March, Huwel retained Mike Berent, the chief operating officer of Chicago consultancy Tahoe Partners LLC, to map out
the still-prospective transition, and on April 1, Troccoli signed on to help run it. By April 20, a blueprint of the project had
been drawn up, and a warehouse was under construction on the grounds of the Precious Moments theme park in
Missouri. "We had to have an idea of where we wanted to go if this was going to be possible in the time frame we had,"
Huwel says. "I was pulling together a conceptual project plan, and rough timelines of the disciplines we needed to
establish and the people to bring on board, getting a sense of what the overall organization needed to look like."

It was a calculated risk, because Huwel was making financial commitments, hiring people and paying for assessments of
his hardware and software needs, without knowing for sure where his revenue would be coming from.

"There was concern that the deal wasn't going to come together, and it was interesting when the negotiations got rocky,"
he says. Huwel describes the conversations with Enesco as "cordial," but the talks snagged on money and dragged out
for two months, rather than the two weeks Huwel expected.

The ties between the two companies were deep—and lucrative. Enesco had tried to purchase both Precious Moments
companies in 2000 for as much as $175 million, but that deal fell apart. Huwel couldn't afford for that to happen this time.

As part of the deal, Berent had also contracted with Enesco to handle its end of the transition. "I thought, either this is
going to be fun or I'm going to be like the cop in a domestic dispute, wondering who has the gun," he says.

{mospagebreak title='ZIFFPAGE TITLENinety'}-Day Wonder">

Ninety-Day Wonder

The idea was to duplicate, on a smaller scale, the operation Enesco had run for years, using packaged software
whenever possible, and making sure to keep a tight focus on supporting the emotional bond between company and
customer. Most other companies in PMI's situation might have outsourced customer service. But Precious Moments is a
company built on sentiment and sad-eyed waifs—forces powerful enough to reshape a make-or-break technology project.

So a quick-and-dirty, hands-off call-center operation in Bangalore was out of the question. Instead, the company took the
time to hire a veteran call-center executive and staff a new customer-care department that now has 20 full-time workers.

Why bother? "People have an underlying spiritual connection with our products," says Troccoli. "Even more than with a
company like Disney, the relationship is significant to the brand." Precious Moments customers want to talk to Precious
Moments people. Only about a third of the 300 daily customer calls are about orders. The rest are about Precious
Moments figurines—when is a new piece coming out, whether an old one is still available. "It's a personal thing," says
Berent. "Sometimes the service representatives are almost doing therapy, and that requires a sensitivity level you can't
get from an outsourcer."

Huwel had been running Precious Moments for the Butcher family on behalf of an investment firm called Trivest Partners
LP, which had tried to buy Precious Moments in 2003, but instead ended up agreeing to run the licensing and theme-
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park businesses. Now Huwel had to staff PMI in a hurry. He spent most of his time at company headquarters in Elgin,
interviewing and hiring people as quickly as he could.

But much of the work was also taking place at the Missouri theme park, where Huwel was using the company's existing
assets whenever possible. Instead of starting from scratch, he built the call center by leveraging a smaller, existing
operation used to support a Precious Moments doll business run from the park, and he raided the park gift store for
knowledgeable workers who could better relate to the collectors who would call the new service center. By July 1, Huwel
had 50 employees, including financial and IT staff, and a key product manager and sales head poached from Enesco.

Because Huwel was more interested in shopping for talent to staff the new company than for software to run it, he went
with relatively uncomplicated packaged products as often as he could.

"We started with a bit of a blank piece of paper, and a lot of processes in place at Enesco that were no longer
appropriate in the context of our existing business," he says. "They are a much larger organization, with formalized ways
of doing things that we stripped down on the fly." Says Berent, "It helped to have a greenfield and not to worry about user
bias."

There was no real thought of replicating the complex PeopleSoft applications that ran Enesco's back office. So when an
existing system used to support the Precious Moments doll business turned out to be creaky and outdated, the company
went with software from Microsoft Great Plains and an improvised warehouse management application Troccoli himself
cranked out in just four days. "We chose programs we knew service providers, including resellers and consultants in the
area, could support," says Huwel.

But it didn't make sense to start completely anew. Berent's team began working to replicate the proprietary software used
by Enesco to manage the Precious Moments collector's club. "It's a 80,000-record database of buying patterns and
habits going back years, down to the SKU numbers, and it's the best test environment for new products the company
has," Berent says.

"We had to clone that and ship it to the theme-park campus in Carthage, where the warehouse and related operations
were being constructed, and we had to upgrade things like user interfaces that had not been touched in years."

Things got more complicated as Enesco laid off some of the personnel who had supported Precious Moments, pushing
more responsibility onto the new organization sooner than it had expected. "We started out talking about just doing the
distribution angle by July 1—the physical plant, and the pick, pack and ship—and we ended up taking on a lot more than
that," Troccoli says. "We had a responsible business conversation about licensing issues in April that, by May, had
changed to us taking on these big operational pieces like order management and customer service."

Originally, Enesco had planned to phase out support for some more complex functions over the second half of 2005.

Electronic data interchange connectivity to major customers, including large chains such as Walgreen Co. and specialty
shops such as Hallmark, had been slated for October. But Enesco dumped large-order processing into Troccoli's lap
much sooner than expected, and he had to be operational by mid-August. From the first of July until then, Precious
Moments found itself awash in paper purchase orders from its biggest customers.

{mospagebreak title='ZIFFPAGE TITLEOn the Fly '}

On the Fly

Huwel spoke several times every day with Berent and Troccoli to make sure that the operating and systems plans stayed
in sync, and the team held a weekly meeting in person. "We were trying to weave in operations, systems and hiring so
that they would all come together at once," says Huwel.

The weekly war-room meetings were largely effective—in part because the tight schedule left no time for second-guessing
decisions. "There was a frankness to the conversation that really mattered," Troccoli says. "The question was, can we do
something right now, yes or no? If not, then it doesn't happen, get it out of my way. And you've got to be flexible. One
day, about five weeks from launch, our collections manager pointed out a big hole we'd missed in our invoicing operation.
Everyone just looked up and said, let's get the resources there, now."
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Even so, communication sometimes sputtered. "We didn't engage with headquarters as much as we needed to," Troccoli
says. "The physical separation was an issue when it came to things like speaking with our sales people about customer
expectations."

But success required more than setting priorities in a hurry. "On any failed project, they'll tell you what their priorities
were, and you can usually see the exact moment where they lost their nerve," Troccoli says. "People are going to want
things that are really valuable, and you have to be able to say, I'm sorry." Precious Moments, for example, sells some
products exclusively to certain dealers, but Troccoli knew he couldn't build that screening feature into his new systems in
time for the launch.

"It made the people who have to deal with those customers very uncomfortable, but it just was not a priority compared to
getting the basics in place."

Precious Moments' 90-day project was not a job for a control freak. "There is always a balance between control of a
project and delaying the process," says Huwel. "Given the time frame here, we had to tilt that balance far away from
control. We gave up some measure of an ability to sleep at night, but the business need overrode things that would
otherwise have begged for caution. You can't do an exercise like this unless you have a command and authorization
process that allows decisions to be made in a decentralized way and on the fly."

That's one reason Huwel put so much of his focus on hiring the right people for the new organization. "We had to get
people involved and trust their judgment. We asked them to develop plans and methodologies, and if we signed off on it,
then we gave them the freedom to go for it. You've got your time frame, you give me an estimate, just come back to me if
it changes."

Teamwork was essential, but it could only go so far, Troccoli says. "There was zero operational blame-ism, and a lot of
the tension was taken out with humor, although that started to wear after a while." Not that he's done. By Labor Day,
Troccoli was thinking about a real warehouse management system to replace the kludge that got him through the
summer. Berent was talking about product lifecycle management software and demand planning applications. The sprint
was over, and the long race had just begun.

{mospagebreak title='ZIFFPAGE TITLEKeeping the Precious Moments '}Coming">

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