Value of Experience!

Chapter I

Milupa AG

From failure to success!

1. How simple bill posters became successful entrepreneurs

In the Thirties, Germany and many other countries were still suffering from the effects of The Great Depression. High unemployment rates dominated daily life. In those days, Mr. Philipp Bender and Mr. Heinz Koch were very fortunate to find work as bill posters for a company specialising in advertising.

Large advertising posters were fastened on all kind of visible walls, mostly on street corners and town centres, as well as on special round Litfass-columns located along main streets and in cities and villages all over Germany. No salaries or wages were paid for this simple activity of replacing old posters with new ones, but the job was compensated with a small fixed amount for each new poster placed.

It was so entertaining to listen to Mr. Bender talking about his work as a bill poster, and he put on a roguish smile when admitting that their work could hardly be controlled in those days. This situation invited them to round the numbers in their favour, and he felt that this was the real excitement in this job. Nevertheless, it was hard work loading the bicycle early in the morning with all the required materials and tools, such as the new posters, a small ladder, a bucket filled with glue, tools for removing old posters and fixing new ones. Climbing up the ladder, scratching off the old poster, sticking on a new one in its place, reloading the bicycle and riding to the next location to do the exact same thing again, went on day after day, regardless of weather conditions. What a boring life, he and his bill poster friend, Heinz, thought! This work did not at all satisfy young geniuses. They were looking for better opportunities, knowing these were hard to find.

One evening, at the beer table in a small pub in Friedrichsdorf, Mr. Heinz Koch had heard that Mr. Emil Pauly, the owner of a small rusk-bakery, was also badly hurt by the tough recession and intended to sell his struggling business. Heinz Koch was interested in this venture, but he did not have enough money to buy it. So he asked his colleague, Philipp Bender, to join him in trying to buy this small rusk-bakery. And somehow, they managed to raise the money, using what little savings they had and borrowing the rest from family members and friends.

Some weeks later, both were the proud owners of the Emil Pauly rusk-bakery. They had neither experience in baking, nor had they any idea of the products and their benefits, but they expected that this business would cover their modest living expenses much better than their hard job as bill posters. With a great deal of courage, they quit their work and became ambitious young entrepreneurs. They were convinced they could do much better than Mr. Emil Pauly had in his old age, but they did not yet know how – and just counted on their luck.

The process of baking rusks always left some crumbles. Emil Pauly had given these away to farmers in the neighbourhood, who used them to feed their pigs. The two new owners didn’t like the idea of giving away something for nothing, and searched for a better way. As creative young entrepreneurs, they found a genius solution. They started to grind the crumbles to get flour, poured this into attractive packages, and sold it as infant food supplement. What a brilliant idea! This was the way to make gold out of waste!

Soon German mothers began buying this new product, and mixed it with cows’ milk to bottle-feed their babies. A new baby food was born, offering high calories and satisfying especially hungry babies. Mothers were happy to have quiet, well fed babies, and welcomed this new way of preparing baby meals. Consequently, sales began to increase dramatically and soon the former small rusk-bakery had to be expanded and became a rusk-factory. After some time, selling rusk-bars no longer had priority. Instead, rusk-bars were produced just to be ground to rusk-flour. This was packed into attractive paper-pouches and sold all over the country as the new, modern infant food, advertised with the slogan: The new way to feed babies.

To demonstrate to the public the change from a simple rusk-bakery to a rusk-factory, and then further to an infant food manufacturer, the two owners decided to change the company name from

Emil Pauly to Milupa-Pauly GmbH

This also indicated a change in the legal status from a private enterprise to a more prestigious company with limited liability (GmbH = Gesellschaft mit beschränkter Haftung).

Playing around with the letters of Emil and Pauly, they dropped some and newly combined those remaining. From Emil, they took MIL, and from Pauly, they used the U and PA, thereby creating the new name MILUPA and registered it as an international trademark. Once more, the combination of letters leading to this new name proved the remarkable creativity of the new owners. Later, the name MILUPA spread all over the world, and today it represents a highly valuable international trademark.

Other new infant food products were gradually developed, expanding this booming business which was slowly growing to an important infant food producer. The original roots, the simple product rusk bars, were soon forgotten.

What an impressive example of true entrepreneurship! The creative idea of making better use of waste not only laid the foundation for building an important industrial enterprise, but it also opened the doors for the former simple billposters becoming millionaires.

By 1969, Milupa-Pauly GmbH was producing and selling a large line of infant food, dietary products, and even cough and cold pharmaceuticals. The two owners were very successful and had reached a sales volume of 104 million German marks. Both had long reached retirement age and, having no qualified successors in their families, they decided to sell their company.

Some large international companies tried to buy this interesting enterprise, but in the end, the two owners decided to sell it to the well-known German Quandt Group, rather than to a large US enterprise, which had offered an even more attractive price. For many years, Mr. Bender and Mr. Koch had admired the tremendous success and the sound business policy of the German Quandt Group. They were deeply impressed by Dr. Herbert Quandt’s ingenious take-over of the majority of the shares of BMW, and his success in leading this automobile manufacturer to become a highly respected world enterprise.

Mr. Bender and Mr. Koch expected that this German buyer would best respect their life-achievements, and continue managing MILUPA in accordance with their proven business philosophy, which was to serve German mothers and babies with outstanding nutritional products at affordable prices.

Having sold their booming business at a very high price, the former Poster Stickers retired from Milupa-Pauly GmbH as very rich men, and were then able to enjoy life and look back with pride and satisfaction at their successful entrepreneurial career.

2. Starting on the wrong foot

As new owners of Milupa-Pauly GmbH, the Quandt Group had to appoint a completely new management board, composed of four executives. An experienced top executive, who also served the Quandt Group in various other leading positions, was elected as chairman of the management board.

For the important division of marketing and selling on the German home market, an executive was elected from the outside, bringing yearlong marketing expertise gained on the German home market. He was also elected vice-chairman of the management board. A scientist with a doctor’s degree in nutrition was put in charge of research, science, sourcing and manufacturing. Considering my international management experience, I was appointed to manage finance and administration, but especially to build up a completely new international business. At the time of Quandt’s acquisition, Milupa-Pauly GmbH was operating only in Germany.

Soon after these four board positions were established, the vice-chairman strongly felt Milupa needed an additional field of business in order to be more diversified. In view of the quickly declining birth rate in Germany, he saw little potential in developing the business of infant food, nor did he see an interesting future in the dietary or the generic pharmaceutical businesses. Therefore, he made diversification the key point in his marketing strategy.

He studied various opportunities, and was convinced he had found a promising project. After much debate in the new management board, he finally got basic approval to enter a licensing agreement for the new product chocolate-drink. The management board regarded this idea as viable and was convinced of its merits. After all, the vice-chairman was considered to be the marketing expert in Germany, and we were also of the opinion that he deserved our confidence and a chance to prove himself in his new position. The basic plans he presented made sense, particularly in view of the expected serious decline of the number of births in Germany. Therefore, the green light was given to launch this product and the vice-chairman presented it to the market with a big fanfare.

To demonstrate to the general public the new company strategy and to obtain stronger market recognition, the legal status and name of the company were changed again from Milupa-Pauly GmbH – a company with limited liability – to the even more prestigious, Milupa AG, a shareholders’ company. The name Pauly disappeared.

The vice-chairman was an excellent speaker. He was tall, heavy, and had a deep, strong voice. Using impressive words, he was successful at convincing his audience. He ordered the entire Milupa sales force to present and sell the new chocolate-drink with top priority all over Germany. Soon the new product was available in the stores from Munich to Hamburg.

In the past, the trade had always had full confidence in Milupa-Pauly GmbH; and now with this latest product backed by a new, modern company strategy, it expected that Milupa AG would create high consumer demand, as the stores were used to in the past. In fact, supported by new arguments, it was relatively easy for the sales force to convince the trade to accept the new chocolate-drink. It met open doors and did an outstanding job in achieving large distribution all over Germany. In order to create consumption, huge amounts were invested in advertising, promotion and public relations. Everything was in place, so that important re-orders could be expected from the trade. So far, so good!

Massive distribution and complete availability of a new product in the trade are essential, so that consumers can easily find the product on the shelves. However, what matters more is consumer acceptance. It was soon evident that consumers were not interested in a chocolate-drink. They did not accept it, and even ignored the new product. In spite of the great effort made by the trade and Milupa, the new chocolate-drink remained almost untouched on the stores’ shelves. The expected consumer demand wasn’t met, and even another huge special investment in advertising was not able to create it.

Slowly, this unexpected situation started to cause concern. Again and again, the vice-chairman convinced the management board that launching a brand new product required time. He was still extremely confident that consumption, and therefore sales, would soon follow. In an effort to prove his judgment right, he ordered his sales force to start hard-selling. To support this, extremely high discounts and free goods were offered to the trade, hoping it would load even more of the chocolate-drink on its shelves, expecting that these special actions would eventually create consumption and sales.

What made the situation worse was the fact that the vice-chairman, in his desperate situation and without prior consent from the management board, shifted large amounts of advertising funds that were provided for the core product line infant food to be used for the new chocolate-drink. This unauthorised action opened the door for conflict in management, since it could not be tolerated without strong opposition. The vice-chairman was fully aware of the fact that his decision for launching the chocolate-drink had to become a success at any cost.

He knew that success was essential, not only for his personal reputation as a well-known German marketing expert, but for his entire future career. This led him to pursue further risks trying to save his personal situation, even at the disadvantage of the company. More and more he avoided presenting plans for approval to the management board, and more and more he made marketing decisions on his own.

This created a difficult situation for me as board member responsible for finance and control. I also came to the conclusion that the vice-chairman had completely misjudged the situation. His latest estimates were unrealistic and would also fail, as did all the plans he’d presented since the beginning of this venture.

During board meetings, I was trying to show the reality of the situation, supported by the most recent actual results. These were highly worrying. Therefore, I strongly intervened and opposed the vice-chairman’s new intent to use even more advertising funds for the chocolate-drink; money that was provided and urgently needed for the core line infant food. The fact that I judged the situation differently caused some tension within the management board, and my view was considered as the one of a typical accountant with no understanding for the real art of modern marketing. For my board colleagues, well-chosen words and big new promises were more pleasant to hear than the serious warnings I presented as the responsible executive for financial control.

In spite of increased selling efforts, more advertising and promotional investments, sales for the new chocolate-drink remained completely unsatisfactory and were far below the newest revised plans. Soon the trade started becoming disappointed. Wherever Milupa sales people showed up, they were confronted with strong customer complaints, something they had never experienced before. Gradually the trade started requesting that all of the unsold products be returned. However, the sales force had instructions from the vice-chairman to refuse to accept such returns – an action which seriously damaged Milupa’s reputation as a reliable business partner. But the most serious problem was that all this concentrated effort to support sales of chocolate-drink had caused a dramatic decline in the company’s overall sales, especially in the most profitable core product line, infant food. This development caused a serious decline of profits. No wonder. The sales force had neglected supporting infant food, switching its entire effort away from profitable to much less profitable products.

All this had led to another very dangerous situation. The general decline of total sales caused a significant decline of sales-related commissions for the sales team, dramatically hurting their income. Nothing worse can happen to a company than having a disappointed, demotivated sales force not believing in their own future, and not being convinced of doing the right thing. The trade, the sales organisation, and all involved, were now on the way to losing the battle.

Milupa had always been profitable in the past, thanks to strong sales of infant food and dietary products. But now, with a dramatic sales decline of the entire product line, those profits were fading away. As if this was not yet enough, we were soon confronted with another extremely worrying development. More and more of the market share of infant food was being lost to competition. They could not only benefit from Milupa’s disastrous marketing policy, but also from the loss of enthusiasm, motivation, and productivity of Milupa’s sales force. All of this presented a serious blow to Milupa, and opened the doors to a great disaster.

Again, the management board kept discussing the situation as an urgent subject. Yet, once more the vice-chairman managed to convince the majority of the board members that he just needed some more time and some additional advertising funds, in order to prove that his marketing strategies worked. Brilliant, emotional and theatrical rhetoric had again won over hard facts.

I was deeply shocked when, in spite of my strong opposition based on actual figures, the majority of the management board again approved a further shift of advertising money away from infant food in favour of the chocolate-drink. In no way could I accept this majority vote without taking further action. I knew that this decision would ultimately make the situation much worse, would result in a further decline of sales and increase losses and, as a consequence, would throw the company into a very serious liquidity problem. As board member responsible for finance, it was my duty to take unusual, decisive action. I was determined to stand up and fight. It was time to sound the alarm and to put an end to all of this smoke and mirrors.

The majority decision of three to one was binding, and this made my position both difficult and risky. Standing up against my three colleagues – including the chairman and the vice-chairman – could seriously hurt our personal relationship. I had to be prepared to lose the battle and deal with all the consequences, perhaps even being dismissed. Nevertheless, I decided not to accept the binding board decision, not to live with it, not to go along with it, and not to assume the attitude: It was their majority decision, not mine, that has led to this disaster. That was not my style, and not my character!

Courtesies no longer had any place in this dangerous situation. I was strongly convinced our Milupa ship was steered to directly hit an iceberg and sink. My conscience and sense of responsibility said: Do what you feel is right; do it without hesitation and do it now, as long as the danger can still be conquered!

So I decided to push the emergency button, to use the heavy guns, and to try once more to open the eyes of everyone. This time, I was documenting my position in a written, concise report addressed to the vice-chairman. In this report, I first criticised the basic marketing strategy, which completely neglected the profitable core products. Then I presented the actual figures, the original plans, the various revised plans, the significant deviations, and my prognosis for the current and following year. I presented a prognosis not only covering the chocolate-drink business, but the results for the total company as well, showing clearly the heavy ever-increasing losses.

I wished to present and discuss all this information personally with the vice-chairman, hoping I’d be able to convince him this time, and give him a last opportunity to correct his loss-producing marketing strategy. When my report was ready the following day, I requested an urgent meeting with him. But here came another great disappointment; he refused to talk to me, stating: I have a majority vote for my plans. There is nothing to talk about. I urge you to finally give up your opposition. You, too, are bound to our vote! By refusing even to listen to me, he made another very serious mistake.

I had no other choice but to present my report to higher up: to the chairman. He was seldom in his office because, aside from Milupa, he also chaired the management or supervisory boards of some other companies of the Quandt Group, such as BMW, Industrial Works Karlsruhe and all Byk Gulden companies. At my urgent request, we met the next day in his office. It was a Friday afternoon.

Carefully listening to my arguments, and studying my written report showing facts and figures, he became pale and almost speechless. I also presented logical conclusions in a well controlled, sober language, and not in a loud and beautiful rhetoric, as he was used to from the vice-chairman. I strongly criticised the basic marketing strategy with the following arguments:

Quandt Group has bought a blooming infant food business, which has grown year by year in sales and profits. And now we, the new management entrusted to further develop this business, are starting to destroy most of what has been bought. We do this by no longer using the main company resources, such as the sales force and advertising funds, for profitable core products, but for new ones not wanted by German consumers. Instead of building on proven strengths and valuable experience, we speculate in new hopeless fields. As I have stated in previous board meetings this is, in my opinion, absolutely irresponsible towards our shareholders, the Milupa personnel and also the trade and consumers. Inevitably, the actual policy must lead to a total disaster. Unfortunately, the vice-chairman refuses to listen to me; this is why I had to ask you for this urgent meeting. As board member finance, I cannot continue to carry this responsibility any longer, if the present marketing policy is not dramatically changed immediately. The figures I have explained many times at our board meetings – you have the newest ones in front of you – do speak a very clear language! I agreed to join Milupa in order to contribute to develop it further, and not to destroy it.

With these serious comments and my written report, I really hit the target and convinced him. At the end of my presentation, he got up from his chair, looked at me with an expression of terrible worry on his face, shook my hand and thanked me for my initiative, expressing his full appreciation. Now he understood and admitted that we were indeed on the road to disaster.

He paused for a while. Then he requested my help to solve the problem. He kindly asked whether I would be prepared to work out a basic plan over the coming weekend, showing what I would do to save this situation. He realised the problems were so serious that it was his duty to inform the supervisory board, chaired by Dr. Herbert Quandt. For this crucial meeting, it was important to present plans of how this serious situation could be saved, and how we could move ahead. I promised that my plans would be on his desk by Monday morning. Later he confessed to having had a very worrying weekend, regretting not giving this matter more attention in the past.

My plans were based on a company policy guided by:

Concentration on core products, infant and dietary food.

Following this policy, we could benefit from the proven experience, know-how and goodwill of the entire Milupa organisation. In other words: Let us go back to the roots of Milupa!

The supervisory board, responsible to control the management board, met for an urgent meeting the following Tuesday morning. They had no other choice but to make a very dramatic decision: Either to accept the judgement of the vice-chairman; or to accept mine, as board member responsible for finance. The decision was dramatic. The vice-chairman was called to the meeting of the supervisory board, where he stubbornly insisted on continuing his marketing policy. This led to his dismissal on the spot, without even serving notice. He returned to his office one hour later, collected his private matters and left the company by the back door the same morning – forever. We never met him again.

The remaining members of the management board agreed it had been a dramatic mistake to fully trust the former vice-chairman and approve his marketing strategy for so long. My two colleagues admitted: Indeed, we were misled by his brilliant rhetoric. It was a mistake relying on his past experience and believe his big promises.

We analysed the situation and agreed that we all had to face the fact that the reputation of Milupa on the market had badly suffered. Worse still, the reputation of the new management board had suffered immense damage throughout the company, especially with the personnel. We all understood that intelligent, outstanding work was required to win back confidence and achieve a turn-around very soon. And we all kept in mind the German saying:

Confidence is good, but control is better.

3. Let us do the right things! And let us do things right!

The same Tuesday afternoon, completely unexpectedly, the supervisory board and the chairman of the management board asked me to immediately accept the functions of the dismissed vice-chairman. This was in addition to my current responsibilities as board member for finance, administration and international business.

The chairman explained: Your plans for solving the actual problems, your proven success in developing the international business through clever marketing, have left an excellent impression on all of us. The supervisory board and I believe that you will be able to successfully master the German market, too, and all the other duties involved with the vice-chairman’s position. We count on you and ask you to accept this additional responsibility!

I thanked him for the confidence placed in me and the offer, but asked for a night of reflection. I wanted to sleep over this unexpected proposition and thoroughly discuss it with my wife. I had not expected this offer at all, nor had it been my intention to become vice-chairman. All I wanted to do was my duty as board member finance, and contribute to bringing the company back onto the right track. What I was offered now required careful thinking.

The chairman of the management board was living far away and, therefore, he was not available to participate in the usual social life connected with such a position. The vice-chairman had to handle all this, often accompanied by his wife. Consequently, my wife would also be affected by my decision. Accepting this offer would mean that I would have to devote even more time to the company.

In my newly extended position, and in my function as vice-chairman, my wife would become the First Lady of Milupa, representing the company with me at important events, such as medical and trade congresses. On top of that, we would have to take part in many social events, as was customary in these executive circles. We would have to entertain business guests in our home. All of this represented quite some stress for my wife, and I needed her to be fully aware of this. Therefore, her consent was important to me, because her understanding for these additional duties was the basis not only for my commitment to my new extended responsibilities, but also for our harmonious family life. I was always aware that her input and support – mostly behind the scenes – and being able to discuss certain business problems with her, was absolutely crucial for my professional success. Our open exchanges of views have always been extremely helpful in the past.

In fact, so far my real ambition in Milupa had been to build up an important multinational business. Being so strongly convinced of the great health benefits of feeding babies with Milupa’s high quality infant food, I felt a strong desire to make these superior products available to babies all over the world. I had already started to do this with great success, following a clear and logical strategy. The proof that this worked had been clearly given by the outstanding results achieved within a short time.

This was my strategy for the international business:

Concentrate on countries where no grass grows; countries which have no local dairy industry. These are forced to import all dairy products, including infant food. In those countries, we have to win superiority with top quality and a highly ethical working approach. Our main objective will be making a significant contribution to better infant nutrition. Scientific progress in infant nutrition must be the basis for winning the confidence of the medical profession. We have to work with complete devotion, offer scientific knowledge and better products than any competition, and so sales will follow automatically, and so we will win.

To implement this policy, a glance at the world map gave me a clear direction of the first countries to be chosen: Saudi Arabia, Jordan, Kuwait, Dubai, The Emirates and Oman. In these countries, we had already established sound and growing businesses in only eleven months. As the next step, I was ready to conquer the Turkish market and, furthermore, to form our first Milupa subsidiary in Greece.

What an exciting professional life! On one side, I felt like an army general, leading a strong army to conquer the world! On the other side, I felt like a missionary, bringing sound knowledge of infant nutrition and urgently needed products to numerous countries. Their many problems were hindering the healthy growth of babies, such as lack of knowledge of essential baby care and