IWCO Direct -- Direct Route to Success

By Erik Cagle

Senior Editor

One would be hard pressed to find a better model for success than the one that is constantly being crafted and perfected at IWCO Direct in Chanhassen, MN.

The former Instant Web Companies, which recast its name last year to reflect its integrated direct mail package capabilities, has been a runaway train for billowing sales the past four years. Its revenues in 2001 registered a very respectable $84 million, a figure that climbed to $91 million in 2002 and $124.9 million in 2003, culminating with an estimated $146 million for 2004.

Growth a Constant

Perhaps culminating is an inaccurate term; sure, the sales have reached a high water mark for IWCO Direct, but there is little evidence to indicate that growth—all of which has been organic—is subsiding.

Plus, the integration philosophy is not limited to the direct mail packages IWCO Direct provides for industries that include financial services, insurance and customer loyalty programs. The company interweaves its clients, employees, vendors and business partners via a myriad of programs aimed at educating, informing and blending together the many players that comprise all aspects of the final product.

In this regard, IWCO Direct is taking communication to a new level. Perhaps it is only appropriate, for this is at the very heart of what makes a successful direct marketing campaign tick—the ability to communicate a product and/or service in a most concise and effective manner.

According to Peter Karle, executive vice president and CFO, the stellar financial performance mostly results from the execution of the company's game plan.

"We put a strategic planning process in place and built the right management team to execute that plan," Karle says. "We've also gone through fairly extensive account reviews and, over time, have eliminated underperforming accounts or accounts that don't embrace the single-source concept. Obviously, cost containment is a big part of it.

"The fact that we have this integrated model gives us the unique opportunity to eliminate some redundancies and really keep the communications channels open with customers, employees and suppliers," he adds.

The company was founded as Instant Services by Frank Beddor in 1969 and changed its name to Instant Web after installing the first web press in 1976. The pieces that would ultimately lead toward the current integrated network slowly fell into place as United Mailing was acquired in 1977, followed by Victory Envelope in 1981. Four years later, a manufacturing facility was added in Little Falls, MN.

The seeds of integration really took root in 1999, when Beddor tapped Jim Andersen as president and Karle as finance guru. Tom Wicka joined the fold in 2002 as executive vice president of sales and marketing, and now the foursome comprise the ownership group.

Changing with the Times

But the true blueprint didn't materialize until last year, when the company changed its name to reflect its single-source capabilities of creative services, printing, promotional plastics, envelope printing and converting, mailing and logistics management services, including commingling.

"There was a need to refocus and rebrand ourselves in the marketplace," Wicka explains. "As the company became comfortable with producing total packages and the three companies were reorganized into one, we felt the time was right to evolve that name into one organization. IWCO Direct really gives us an emphasis on one organization that services a new market segment: the integrated solution. It taps into a rebranding opportunity to talk about our growth, but it also represents the changes that took place in our organization over the past five years."

The changes are very much still in progress. At press time, IWCO Direct put the finishing touches on a deal that sees Citigroup Venture Capital Equity Partners (CVC), based in New York City, join the ownership fold. CVC, Andersen, Wicka and Karle have acquired the company, with Beddor, the founder and chairman, opting for retirement after 35 years.

Houlihan Lokey Howard & Zukin served as exclusive financial advisor. The firm initiated, structured and negotiated the transaction on behalf of IWCO Direct.

One source of growth for IWCO Direct has been the repurposing of direct marketing dollars from the telemarketing channel due to the national Do Not Call registry. The single-digit spike has been slightly more than incremental, according to Andersen, but the primary growth catalyst has been the one-stop suite of services that IWCO Direct now offers.

Andersen may be the best friend the direct mail industry has these days. He has been a leading proponent and activist in the crusade for postal reform, which is desperately needed in order to avoid crippling double-digit postage increases that are slated to go into effect early next year unless the United States Postal Service (USPS) can get a facelift. The USPS, after all, is still operating under 30-year-old business practices.

In December, Andersen's IWCO Direct contingent, along with paper supplier International Paper and high-volume financial services mailer Capital One, met with U.S. Treasury Secretary John Snow as part of a lobbying effort. The special interest trio then sat down with Sen. Susan Collins (R-ME), the chairperson of the government affairs committee for the Senate. They were joined by two postal representatives—the letter carriers and the AFL/CIO—in an effort to galvanize the reform effort going forward.

"We're restarting the engine from all the lobbying we did last year," Andersen says. "We're going to try to connect our industry—other printers, mailers, envelope manufacturers—to continue to jump on the subject. It's a powerful audience: we have nine million employees in this sector in the United States. It's about maintaining jobs and we need to get a favorable bill passed by Congress this year."

Getting Smarter

Education is highly important in this regard, adds Wicka, particularly for those direct marketers that may not fully appreciate the gravity of the situation. "We have some customers who spend $100 million a year on postage and do not understand what's at stake," he says. "For those types of customers, we've been a great resource to help them get their engines started internally."

Speaking of education, IWCO Direct opened the Direct Marketing Academy in 1999. Kurt Ruppel, marketing services manager and a 20-year veteran, is the instructor. He guides customers, either at IWCO Direct or onsite at a customer's facility, through the technical nuances of printing, envelope manufacturing, data processing, mail preparation and USPS regulations. The lessons, as brief as an hour or as long as several days, can be general in nature or customized to address a specific educational need. Testing is also provided, if desired.

The beauty of the academy, Wicka believes, is its uniqueness within the industry. "There's really no place in the market that offers, under one organization, this depth of education," he says. "For example, how an envelope is created is relevant to how components get inserted into it. We help people better understand the relationship between components and how they react to one another when they come together.

"We've had great reviews. Graphic artists will come in and say, 'Ah-hah, now I understand the challenges of print or the importance of keeping within postal specs.' "

IWCO Direct is a big fan of taking the guesswork out of doing business for customers, employees, suppliers and business partners alike with a host of communication-based initiatives to help drive its integration model. Just to name a few:

* Customers. Among the tools at IWCO Direct's disposal here are the Customer Spotlight and Satisfaction Survey.

With the Spotlight, held eight times a year, clients are flown in to meet with any number of IWCO Direct team members—press operators, roll tenders, customer service reps—who have any interaction with the customer's job. They meet with 100 to 150 employees in a training room and talk about "the good, the bad and the ugly," according to Andersen. This helps customers communicate their objectives directly to IWCO Direct employees.

In 2004, IWCO Direct implemented its performance assessment tool, which measures customer satisfaction in five areas: service, delivery performance, quality, value creation and business costs. It allows the company to evaluate improvement opportunities on a customer-by-customer basis.

* Employees. The company hosts Town Hall meetings with all 1,100 employees. It's an opportunity for the executive team to share information regarding financial performances and strategic plan initiatives. Newsletters and personalized communications—"Pete's Perspective" and "Letters from JNA"—also keep the employees abreast of company progress.

* Suppliers. Here, the company hosts a Supplier Summit to get 75 to 100 vendors up to speed on the inner machinations at IWCO Direct. They, in turn, discuss with the printer the various issues that are confronting their businesses and the industry overall.

* Business partners. This ranges from involvement with industry associations to the company's work with attaining postal reform, as well as interaction with national, regional and local business groups.

Equipment Upgrades

In addition to making investments in people, IWCO Direct has committed monies toward equipment and new facilities. In January, the company unwrapped its new high-speed mail processing technology center, which was slated to create upwards of 100 new jobs.

"The center supports our print, plastic and envelope manufacturing capabilities, and allows us to get more product in the mail," Karle says. "Our customer programs are very complex and change frequently, sometimes at the last minute. The center gives us some added flexibility that we didn't have before and helps improve our speed to market, which is critical from a customer perspective."

In addition to its investments in people and education, the company has also been aggressive on the new equipment front, to the tune of $13 million over the past 18 months. Highlighting the acquisitions: four Kodak Versamark DS5240 ink-jet printers and a D7122 model, three CMC inserters, a dozen Sure-Feed AT1 card affixers, a 45˝ Polar cutter and four Ehret Controls VC520 rotary cutters.

Fast to the Finish

The four high-speed Ehret finishing systems from MBO America consist of a servo-driven Ehret UW520 unwind unit with web guide and dancer rollers for tight web unwinding; four PFS/520 plow fold units; four servo-driven Ehret VC520C cutting units with chip-out removal, variable from 1⁄8˝ to 4˝; four eight-page MBO Perfection folding units with conical cone guides (one folding unit features Navigator controls with plate and roller sets for fast changeover); as well as three Palamides BA 700 delivery systems for paper banding at speeds to 600 cph. This is said to be the first configuration of its kind in the U.S.

IWCO Direct also picked up its fifth Siemens dematic delivery-point barcode sorter (DBCS), the same machine that the USPS uses to sort mail. According to Karle, future investments will concentrate on IWCO's personalization strategy.

The company has also trumpeted its desire to expand geographically into the eastern region of the country, and Andersen predicts IWCO Direct will have a "footprint" there at some point in 2005. In doing this, customers will enjoy greater postal penetration via proximity to population centers.

"As we move east and get closer to the population centers there, our geographic center will provide additional flexibility to our customers and also provide us with enhanced logistics services," Andersen states. "In essence, we're going to create a mini IWCO East and, obviously, we will move west as well. We'll manage and split the files (in Minnesota) and perform production and execution closer to the population centers, allowing us to deliver in-home faster. We believe that will continue to give us a competitive advantage."

Creating value for customers is easily one of IWCO Direct's strong suits, and much of it occurs before a single piece of mail hits the postal stream—in the form of information, education, resources and a sense of partnership. And while IWCO Direct has a financial stake in postal reform, the leadership position that the company has taken clearly demonstrates a sense of obligation and business community.

For Andersen, it's really just taking care of business.

"We put a lot of energy into developing products and services for our customers, and we have some things in the cooker right now that we will be bringing to market this year," Andersen reveals. "We'll continue to invest in new equipment and technologies that will address our market's hunger for speed to market and increased response rates. For example, we can impact response rates favorably through the packages and designs we produce within our creative development. And we're also concentrating on our logistics solutions related to mail management. That's a key barometer in defining our success.

"But it all really starts and ends with our phenomenal group of 1,100 employees. They have driven the success of this company over the past four-plus years, and they're the ones that have made a difference."

Call it the Direct impact.