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Jeff Devin: “The Reasons for the Demise of Hispanic Yellow Pages Network”

In this column, Jeff Devin, CEO of Mañana Marketing and a former Yellow Pages publisher, emphasizes on the need for “service driven” business models, which Hispanic mom & pop shops understood but some private equity backed companies moved away from.

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A once fragmented industry made up of mostly family owned businesses which published Spanish directories in every major Hispanic market in the USA is an industry of the past. The roll-up of these independent community publishers began in mid 2002 with acquisitions being made by prestigious, multi-billion dollar equity firms.

 A private equity firm’s main goal is to buy businesses as low as it can, increase revenue/EBITDA, take advantage of economies of scale via the acquisitions and sell the combined profitable company as high as they can on the exit strategy. Sounds like good business, but was it? Not for HYP network or Directorio en Español as they were known. They went out of business via chapter 7 in Jan 2009. Why would such a previously successful business model when operated by independent publishers now be victim of such a fate of full bankruptcy at the hands of a seemingly new and sophisticated management, HYP Network? The answer lies in the fact that they changed the business model. The independent “Mom & Pop” publishers were “Service Driven Businesses”

(Remember service driven as it is the opposite of what I am about to tell you). Their focus was on the client, the Hispanic community; quality well distributed directories published on time and a dedication to their valued, employees. These independents epitomized the service driven business model. They had a clear mission as just mentioned and enjoyed decades of publishing success while making profits. But the bottom line was not the day to day focus. It didn’t need to be. It was taking care of itself. Operating a business adhering to sound accounting principles is relatively easy. You simply do not spend more than you take in, keep your eye on the P&L and balance sheet and adjust accordingly. The Value proposition for the client drove substantial revenue to the bottom line while expenses were kept in check. Profits were directed to service and product enhancements and funding organic growth into other markets.

  If there did need to be belt tightening the owners would feel the pinch not the clients. The sacrifices were made internally and the clients never felt a hit on results via product degradation. That was the successful recipe of Jeff and Ileana De Leon Devin the founders of Directorio En Español.

   In 1989 the couple ventured out in the world of entrepreneurs and started one of the countries first Hispanic yellow pages. The beginnings were quite humble starting in their apartment with just the two of them in the Tampa Florida market. The directory grew organically from Tampa to Orlando, Houston TX and strong partnerships were developed in Miami/Ft Lauderdale. The Devin’s were the largest independent publisher at the time with a fully contained operation center on the cutting edge of technology and sales training systems.

  My name is Jeff Devin I was the general manager and CEO prior to the acquisition by a Boston equity firm of our company. Ileana is my wife and was president of the former Directorio en Español prior to us selling it in 2004 to the equity firm.

  We sold it and remained on for a year to help transition the team and further our recipe with new management into other markets. We also remained investors in the newly formed HYP Network. After one year and mounting frustrations we decided to leave HYP Network and dedicate ourselves to our established marketing firm; Mañana Marketing. We remained optimistically hopeful that the new management would change their path and bring the company back to the service driven model and through to success.

 The expectations were high with the new managements top line revenue goals. The new management convinced the investors and partners at the equity firm that they could bring in revenue growth and expand exponentially with-in a couple of years doubling and tripling revenue. For example when we owned the company and just prior to the acquisition we generated 2 million in revenue in the Houston market directory our first year publishing in this market. The new owners projected a 5 million top line revenue target in Houston a couple years out. This seemed a stretch but perhaps realistic as the new management touted extensive knowledge of the industry, leadership skills and most importantly the capital infusions they were going to make into the company to promote and brand the product.

  It was soon apparent in my opinion the new management did not understand Hispanic culture, Spanish language directory business; they did not embrace the concept of a service driven business and the importance of the value proposition to the clients. This “service driven model” is proven and instrumental for successful growth. The years following after the new management took over the Houston market and made personnel changes, directory paper and distribution cuts the revenue dropped by half.

 The company was now a “Product Driven Company”. The company was managed via spreadsheets looking for cuts to fund bottom line while demanding top line revenue growth. There was not the new advertising/branding and marketing budgets as promised. Employees became liabilities and not one of the greatest assets. Much of the Hispanic management was moved out and replaced with non Latinos from RBOC/English yellow page companies. There was minimal capital infusion. When there was it came in the form of a capital calls to cover what became expenses higher than cash flow revenue. The company was losing money. Investors kept the faith and made additional capital investments based on projected sales and recorded sales which may or may not have been real. Those sales and associated revenue did not materialize. It happened literally overnight. The once profitable companies run by Hispanic business owners were now bleeding revenue at the hands of the new management.

  Sales were demanded by management from sales people but there was no motivation only short term, involuntary compliance from over stressed management barking commands. Good people were lost in the sales department and many other departments. Top producers were disenchanted and company moral was low. Employees which once saw the directory quality and the customer as the purpose of their work became disenchanted and disconnected from the service driven business model. Both customer service a directory quality standards suffered.

  The new product driven company was focused on increasing bottom line by cutting expenses. Moral was at an all time low. They lost focus on training and development as well as team building and motivation. They started reducing quality and cost. The directories shrank in size and quality due to the cuts which projected failure of the company in the market place. Clients saw a negative difference in the quality of their product and the Hispanic community saw demise of a directory that they were proud of and used. Employee benefits were attacked. Distribution suffered. The desperation spilled over into billing. Payments were being demanded before the directories were being published. A desperate dash for cash flow was made and the clients felt it.

  The down hill path of what was once a thriving business through good economic times and bad had its fate sealed.

  It was at the company lunch celebration on Christmas 2008. The Friday before Christmas vacation employees gathered for a lunch at which everyone brought in a covered dish. I remember those well when I was there years ago. There were always good Spanish foods from a variety of countries. It was a festive occasion of good food, and anticipation of a much needed Holiday celebration. After lunch when employees got back from lunch and were preparing to leave they all got an email that basically said; do not return after the break we will notify you later if and when the company will reopen. It came as shocking tearful news for a wonderful team of people. They spent their vacation stressed and wondering if they would have jobs in 2009.They never went back to work. The next email was basically to tell people how to file for unemployment. Happy New Year.

   While this company went wrong, it is not a testament to the viability of the lucrative Hispanic consumer market and the media which effectively reach it.

  There are successful, viable alternatives in an industry that is very strong and brings excellent results to the clients which cater to it.

 Look towards Sección Amarilla USA LLC a Telmex company with its Spanish print and online yellow pages program. Mañana marketing our company has built training programs both in print and interactive online training courses. The message in training is to present the value proposition by matching Sección Amarilla services with the needs of the clients.

Another division of our company Mañana Marketing handles the generation and processing of national sales. Since April of 2008 and April of 2009 we have increased national sales over 80% by promoting the value proposition.

  I have had the privilege of getting to know the CEO Juan Reffreger. He is leading the success of Sección Amarilla. They are a Hispanic company with a Brand that is widely recognized and used amongst the Hispanic consumer population in the USA, Mexico, Argentina, Peru and Columbia. They currently dominate the Hispanic directory market place. They publish in 31 states with 63 directories.

Jeff Devin is a managing partner of Tampa FL, based advertising agency Mañana Marketing. Together with his wife Ileana De Leon Devin they founded Directorio En Español in 1989 and sold it in 2004 to a private equity firm.

 

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