EMA Journal • PMAA Journal Fall 2018 • Money Matters

Highly profitable petro companies run by very competent business people have unknown vulnerabilities. In this age of multiple aggressive door knockers, and a plentitude of merger and acquisition transactions, if you are buying or selling, these five vulnerabilities are critical to expose and cure so they don’t bite your cash or your business when you least expect it. Check these off your list.

Supply — Given that this is the first profit driver of any petro business, I am dismayed by a lack of supply and price depth in most organizations. How many people in your organization can procure, supply and negotiate contracts effectively? If the answer is, God forbid, only you or only one person, that is a huge vulnerability. Develop depth by having multiple key leaders in your company knowledgeable about resources (connected to the right people) for all vital supply points.

Just as you need depth within your own organization, reduce your vulnerability by developing multiple relationships within each key supplier. Don’t be caught in a negotiation disadvantage from having only one contact person with your suppliers. Refinery personnel often move positions, so having multiple relationships within your key suppliers mitigates your risk.

Technology — As a progressive marketer, you are likely bringing more and more technology into your business to stay competitive both in efficiency and customer satisfaction. From order to tank monitoring, to dispatch, to delivery, to invoicing, more and more tech is the norm. Add automated BOLs, back office, CRM and payroll, and you will realize you are highly tech-dependent. Now who has the keys to those kingdoms? One tech guy? Your outside consultant? How many people have passwords and password reset ability? How much backup and duplication do you have?

Again, the key is to be sure there is no technology vital to your business where the knowledge and control rests in only one person. You and your team must be fanatically deliberate in multiple trusted key leaders having knowledge and access.

Pricing — With market consolidation, the pricing behaviors of your competitors can drastically change, quickly leaving you eating dust. Even if you have a good pricing system and team members running the day-to-day, who is responsible for price strategy?

Whether your business model involves fuel, grease or Twinkies, who makes those pricing decisions, how, and with what competitive data or analytics? For instance, I am often asked about premium brand mark-ups; how much higher can a premium brand be priced above unbranded and sustain or gain volume. That cents-per-gallon answer varies by geography and requires sound market analytics. Who keeps an eagle eye on the competitive market at your company? Is it again just one person? How often? Is this a focus area or an afterthought? Consider developing pricing teams so the pricing keys to your future profitability are not sitting in just one person’s head.

Culture — If you’ve heard of “Expense Creep” in cycles of declining margins eroding profits, realize that Culture Creep is deadly in the same way. I’ve coined the term “Culture Creep” to mean a slow veering off an established core values path. For instance, you’ve had a culture of excellence, but after a few acquisitions, you find that excellence is slipping. Maybe your delivery windows are missed, drivers are not maintaining trucks as well or the warehouse is a little messier. It’s not one thing you can point to, and it’s not drastic, but you can feel that your business and customer service isn’t what it used to be — even the luster is gone on your hard assets. That is Culture Creep.

Maybe you notice communication slip ups, or people complain they are out of the loop, or maybe you yourself feel like you are the last to know. That is Culture Creep. Culture Creep is a vulnerability that costs money. And as companies grow either organically or through acquisition, culture must be managed just like supply, pricing and tech.

While you may think culture is an HR function, it’s not. It starts with the CEO and trickles down through the leadership team to your ground troops. The senior leaders of any organization set the culture, lead the culture by example, and ultimately define and enforce the culture. The keys to keeping culture on track are vision, mission and purpose statements collaboratively developed by your team, core values with defined behaviors, results-based job metrics, and then continuous 90-day culture reviews as a normal procedure in your company. Culture adherence equals more profit, Culture Creep equals lost profit. It’s worth making this a priority and part of what we teach and coach in our easy to follow M-Power program.

Decisions — Smart business owners make really good decisions; the vulnerability happens when there is no formal decision process. Running a petro company for 40, 50 or even 100 years has required great decision-making skills. Vulnerability exists, however, when key decision criteria are only in someone’s head. Vulnerability exists when there is an absence of decision systems. As family members proliferate over the generations, and opinions about growth and risk become more divergent, having no formalized system is a recipe for family feuds, and at worst, a recipe for disaster.

You will find great success, less family feuds and enormous peace of mind by developing a decision matrix. These are agreed-upon “rules of the game” for decisions agreed upon by the family. A typical matrix includes target rates of return, geographic constraints, personnel time, debt and risk evaluations. As I’ve helped families develop their own tools, they find the time they invest into decision clarity is priceless. It takes all major decisions out of the “talking about it for hours” (or maybe that should be arguing about it for hours!) into an empirical decision with all leaders knowing “the why.”

Now that you know these potential vulnerabilities, pick just one you will work on first. Which one resonated the most with you? Which one has the potential to pull you down or off your trajectory? Don’t, I repeat, don’t try to tackle all five at once. That is setting yourself and your team up for failure. Choose one, tackle it, get a win, then move on to the next, your second-highest priority. These will take time, and we are here to guide you to success if you want a little support in your journey to securing your future for many decades to come.

Because we are so passionate about family legacy, we’ve added a “next gen” track to our popular Focus on Competitive Advantage event. It’s the place to:

If you sell petroleum products, you need to be there. For more information on Focus on Competitive Advantage, check out www.bestpetroevent.com.

Since 1991, Meridian has provided insight and services to more than 3,900 petroleum marketers, growing and expanding their market share, while increasing their cash flow and profits. Being the leading petro valuation provider in the nation, Meridian is also trusted for buy/sell transactions. To find out what Meridian can do for you, visit www.askmeridian.com or call us at 800.728.9005 for immediate assistance.