Packaging Machinery Manufacturers Institute (PMMI)

Packaging Machinery Manufacturers Institute (PMMI)
4350 N. Fairfax Drive
Suite 600
Arlington, VA 22203
703-243-8555
[www.packexpo.com]
Contact: Joshua Caulfield, Director of New Media

CEO: Charles Yuska
Budget: $10 - 25 Million
Staff Size: 21 - 50

Plexus Consulting Group, LLC
1620 Eye Street, NW
Suite 210
Washington, DC 20006
Phone:  202-785-8940
Fax:      202-785-8949
Email:   info@plexusconsulting.com

Vital Stats:

The Packaging Machinery Manufacturers Institute (PMMI) is a trade association whose 477 members manufacture packaging and packaging-related converting machinery in the United States and Canada.

The Challenge | The Solution | The Process |Unintended Consequences |Unforseen Benefits|Measurements & Results | Lessons Learned

The Challenge

How to develop a portal to meet the needs of the packaging industry?

PMMI is not a newcomer to the Internet. In fact, PMMI has been using the Internet for many years and seeks to "stay on the cutting-edge, not the bleeding-edge" of technology to benefit its membership. PMMI leads its members on technology issues, and they have long recognized the organization's Internet savvy, exemplified by its popular Packexpo.com site.

Two years ago, rapid advances in web technologies spurred brainstorming within PMMI and the organization's leadership wondered how to take advantage of the trend. At that time, there were no portals designed specifically to meet the needs of the packaging industry and PMMI decided to "run with it" and beat the competition to create a portal for the industry. Before the term "community" became popular, PMMI had long been creating online communities for members

The Solution

PMMI created www.packexpo.com.

As e-competition began to emerge, end users were starting to build their own sites and even long-standing PMMI partner publications were entering the field. Spurred in part by this intensely competitive environment, in which ".coms" such as Verticalnet and packaginginsider.com actively rival associations to provide e-business solutions to their members, a packaging portal - - www.packexpo.com - - was viewed as the vehicle to taking PMMI's membership to the "next level" in terms of community development and as a result, market success.

The Process

PMMI followed a three-step process to launch www.packexpo.com:

• Developed a business plan
• Launched competitive bid to develop the portal
• Consolidated the strategic partnership
• Determined the equity model

To create a viable online community, PMMI developed a business plan and following a competitive bid process, decided to partner with Cendex.com (Central Data Exchange) to create Packexpo.com, an Internet start-up built around the packaging portal concept.

Ultimately, Packexpo.com was spun off as a private, for-profit company. Cendex.com and PMMI currently have a 50%-50% equity stake in the portal. This equity strategy enabled PMMI to continue as a provider of added value to members. Since members effectively own PMMI, they are assured that the organization always has their interests at heart. As a general rule, this cannot be said for Dot.coms, which are owned by stockholders who may or may not be responsive to association member needs.

The Partnership Decision
Cendex.com saw value in this business-to-business opportunity. Due to the high level of competition, namely four websites offering similar services, PMMI chose to partner rather than to remain self-sufficient. The technology companies have the capacity to "replace any association." However, they appear to be trying to replace too many at once, and they don't have the advantage of a home-grown community. For PMMI, it was essential to spin-off the website into a for-profit operation. Although the organization is financially strong, it cannot compete with the billions of dollars in high-tech financing which its Dot.com counterparts can claim.

The Equity Model
Many different equity models are out there. A 50%-50% partnership worked best for PMMI. Cendex.com had built the PMMI trade show site for "free" in exchange for the ad revenue, and this served as its contribution to the venture. PMMI agreed to provide the content while Cendex.com built the site.

Unintended Consequences

The Importance of Budget Clarity
At one point prior to the partnership with Cendex.com, a vendor went significantly over budget, creating serious production issues. The venture became unprofitable and this created serious friction between PMMI and vendor management. Although the issues were resolved by PMMI's holding the vendor strictly to the terms of their contract, confusion can reign regarding expectations and perceptions of what is required and consequently, the value of the ultimate deliverable.

Unforseen Benefits

As with any high-stakes, high-visibility activity, pivotal decisions can mean the difference between failure and success.

Unintended Financing
To compete effectively with other portal providers, PMMI planned an IPO and embarked on several rounds of financing to support the project. The PMMI website had been re-vamped to a second evolution. Marketing and public relations professionals were brought in to develop the site. Customized applications, functions and content providers were secured.

However, after the second round of financing, the market crashed and PMMI decided to adopt a "wait and see" posture. There was no interest in diluting equity without receiving value. Ultimately, PMMI decided to launch what became a successful private placement. On December 5, 2000, Packexpo.com, secured $7.5 million in funding in second round financing. Together with PMMI, investors included Mid-Atlantic Venture Funds, Hickory Venture Group, and a select group of packaging companies.

Measurements & Results

Key metrics to gauge Packexpo's success include the following, and to date the results have been very encouraging:

• Revenue generated
• Member feedback
• Competitive intelligence
• Number of subscribers
• Global access - - creating value beyond the membership

Revenue
Packexpo.com is still a work in progress. The site has gone through several evolutions and is now in its sixth incarnation. While figures are confidential, economic measures are key to determining success, and the site has begun to generate revenue.

Member Feedback
Member feedback is another measure of success and to date, it has been very positive. While members sometimes balk at the $1700/year storefront (half of what competitors charge), just one sale can bring in anywhere from $10,000 - $150,000 in revenue to make it well worthwhile. Currently, the site is receiving 5,000 unique hits per month. This year, PMMI's major trade show generated over 45,000 visitors alone.

Competitive Intelligence
PMMI also monitors the competition closely. There are other providers who are seeking to launch similar sites, but they do not yet have critical mass in terms of the number of subscribers, content and members.

Global Access
Although members don't like the fact that competitors are sharing their cyberspace - - PMMI's trade show has been opened to non-members - - they appreciate that as a result, PMMI can afford to charge less and create more value for end-users. As savvy business leaders, they recognize that including global and not just NAFTA-based companies ultimately adds greater value to all concerned.

The Bottom Line
Packexpo.com has approximately 500 packaging companies paying up to $10,000 annually to have their products and services listed in the site's searchable databases. These paid listings have produced 64,000 qualified sales leads for companies over the past year.

As a result of the investments in Packexpo.com, additional marketing and sales staff will be hired to increase the customer base and draw more traffic to the site, which currently averages 40,000 unique visits per week. Packexpo.com will enhance the search capabilities of the "company and services" database, and add power to the online purchasing exchange, allowing companies with packaging services needs to post online Requests for Proposal.

First Anniversary Celebration
Packexpo.com recently celebrated its first anniversary at PACK EXPO International, the world's largest packaging tradeshow produced by PMMI, attended by more than 75,000 packaging professionals. The new investments will take Packexpo.com to a projected positive cash flow environment in 2002.

Lessons Learned

PMMI's experience with www.packexpo.com is brimming with vital lessons:

• The choice of a business partner and equity strategy are key elements of success
• Member relations can make or break an association's competitive advantage
• "Decision by committee" thinking can hamper progress
• The CEO and Board must work together to lead
• Always remember the "why" behind the initiative

"Getting two companies to work together is difficult."

The choice of partner and equity strategy are key elements of success. The most critical decision that an association can make with regard to an e-commerce venture concerns its choice of partner. With no programmers on staff, PMMI had to rely on a technology partner to sustain the site. Many associations license their names, but this is tantamount to giving away their customer relationships. It is absolutely essential to retain ownership of the association's e-business. Associations that don't see this, risk 'giving away' their membership and ultimately their value to that membership.

PMMI's decisive competitive advantage is its relationship with members. The trade show and all member deliverables provide an opportunity for developing an increasingly loyal customer base. The competitors have the technology, and are looking for the community. According to PMMI, associations with a solid community are in a better competitive position - - technology can always be brought into the picture. A loyal community is much harder to develop.

Moreover, a good revenue model is critical to ensuring success. Associations should not pursue projects that do not provide a return on the investment either through dues or increases in non-dues revenue.

"You can't build a horse by committee, or you will get a camel."

One of the key lessons of this endeavor is that a decision-by-committee model does not provide an effective or efficient path to achieving desired results. Even given the site's success to date, "issues" remain with regard to coordinating staff and members to create content.

"You need a leader, two leaders."

The association president has to be on board, leading the membership. Commitment at the highest level is essential. Wherever there is economic revenue to be gained, there is competition. "If you want to play, you have to pay." While organizations can do a lot with a little, adequate time and resources must be committed in order for the venture to work.

Also, it helps to have a project manager that speaks the language of technology as well as the language of associations. Project management cannot be delegated to the technology partner alone, and the association's president should have other priorities. Given the luxury of time, a quick learner can "come up to speed" on e-commerce in several months. Without that luxury, a project manager with Internet expertise, who knows the market, how much things cost and more importantly, what they are really worth is absolutely indispensable. PMMI delegated the project management role to a systems analyst and information architect with association experience. "There is too much to learn and you can't learn it fast enough."

Most importantly, it is vital to remember the "why" behind the initiative. An association cannot possibly navigate the complex decision process involved in launching a for-profit website without constantly being mindful of why they decided to proceed in the first place.