Introduction
The Leatherman Tool Company was founded in 1983 after one of its founders, Tim Leatherman, realized the need for better multifunction tools to be prepared for the unexpected. Leatherman Tools is headquartered in Portland, Oregon, and continues under private ownership, selling about $100 million of tools per year, but would like to increase business by supplying a variety of customer needs. They have survived some competition and challenges throughout their 32 years in business, but need to intensify their entrepreneurial activities in order to continue to grow. This report contains recommendations for ways in which Leatherman can increase entrepreneurial intensity.
Goals
Appropriate Level of Entrepreneurial Intensity
Entrepreneurial intensity reflects the frequency and degree to which a company is innovative, risky, and proactive. Older companies tend to settle into those processes and products that they know they can do well, but this restricts growth. Competitors need to be watched out for, as well, so that they do not jump into the market with products just as good, with some innovative advantage. However, the multitool business only has a few competitors, and Leatherman was one of the originators of multifunction tools. Furthermore, U.S. customers are more inclined than ever to buy American. With Leatherman Tools’ location in Oregon and dedication to remaining here, their American-made products can be a selling point and advertising focus. Their reputation for quality tools is already established.
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Leatherman Tools has had a few major intense entrepreneurial responses to changing conditions already. Customers wanted smaller, less obtrusive tools that they could carry everywhere, so Leatherman created the key ring multifunction tool. After new travel restrictions were put into place, customers let Leatherman Tools know that they could not carry their multifunction tools on airplanes because of the small knives included. Leatherman Tools worked with Congress and the Transportation Security Administration to loosen those rules, but were ultimately unsuccessful; any blade with a sharp edge remained forbidden on airplanes. They therefore developed the Tread, which is an assortment of tools fitted into a watch band. Thus people can carry their tools even while traveling, which was when Tim Leatherman found himself in need of a multifunction tool in the first place.
Given the high profitability of the company and the low level of competition, Leatherman tools can proceed with a high level of intensity. They should proceed with their plans to innovate into the various niche markets as soon as possible. They already have the vision; they just need to implement it. If they begin to run out of manufacturing capacity, then expansion should be relatively simple. Multiple tools will use interchangeable parts, put together in different ways.
Performance Metrics
As new products are added to the Leatherman Tools lineup, several metrics need to be tracked. The most important include the following: The burn rate, or rate at which money is being spent on new products relative to the rate of growth of these niche businesses. No business wants to go into a financial hole. On the other hand, money needs to be spent sufficiently to optimize the growth rate, with efficient manufacturing processes put in place and adequate advertising budgets so that customers are aware that new models of tools are available to meet new needs. Leatherman Tools should be particularly concerned about being too cautious, as older companies tend to be; given their previous and continuing success, they will have financing options available if needed. Revenue, profits, and growth over time should be tracked at least monthly. Where possible, we also need to track where customers are coming from. Are they new customers responding to advertising? Are they old customers with a general multifunction tool, returning for more specific tools for more specific uses? Are old customers referring new customers? Most importantly, are they customers who would have bought a general tool if a more specific tool had not been available? Leatherman also needs to continue to keep in close contact with customers for both quantitative and qualitative feedback. This metric has already been in place and has led to some of the previous innovation that allowed Leatherman to respond to customer needs, creating much of the success they have already enjoyed.
Product Innovation Goals
Leatherman Tools management has already taken notice of niche tool markets that have met with a great deal of early success. They should continue on this path. There are tools that can be designed more specifically for various sports, hobbies, outdoor adventures, life in the city, and women and children. As long as the defining characteristics of a Leatherman Tool remain that it has multiple functions, is made with quality to stand up to a lifetime of hard work, is made in America of American steel at a reasonable price, then it will be just the Leatherman tool that every customer needs.
Should Leatherman Tools expand outside these niches? There is a market for inexpensive, long-lasting, American-made tools beyond the multifunction tools. These might be a direction for future growth, after fully inhabiting the niches. They also should note technological changes that may alleviate the need for certain tools or increase the need for certain new tools.
Action Steps
Strategy Changes
The major challenge in strategy is to move forward quickly enough. Leatherman Tools currently has 50 different tools in various styles, but they seem more a variation on a theme rather than appeals to the niche markets. So far, niches have been more talk than reality. The best strategy may be to pick one, manufacture it, advertise it, follow the metrics, and when it starts to succeed, start with the next niche. They have evidence that niches are successful in the tool business, so there is no reason to hesitate. Metrics will let them know where strategy tweaking needs to be done to best continue.
Structural Changes
Of course manufacturing facilities will need to be expanded as the company’s business grows. One change in financial structure is to take revenues from the currently successful lines and establish a preference for investing them in new niche lines. A change in organizational structure is to provide lines for employee to employer communication. Employees are also people who use tools. So far, most communication has come from customers, but there is no reason not to provide employees with tools and have feedback from employees. Other than that, top management at Leatherman Tools is already talking about innovation, so it does not look like management change needs to take place; once they begin moving, they will likely continue, they just need the impetus to begin.
Changes in Human Resource Management
Older companies can become hidebound and try to avoid risk, and it looks like Leatherman Tools may have a little of this reluctance to change, but it is working to move forward. The best prod to innovation and excellence would be to make employees stakeholders. In addition to implementing feedback mechanisms as noted above, provide employees with a small amount of company stock or performance bonuses. It is then not only encouraged for them to communicate ideas for improvements and innovations upward, it is incentivized.
Changes in the Control System
Every new line should have its own control system. Quality and strength are Leatherman Tools hallmarks. Without those, one bad tool could ruin the reputation of all. Quality control should be strict. Furthermore, orders and sales should be strictly tracked so that precisely the number of each line of tools is produced. Customers hate waiting for the product they want to purchase, and it will be more important than ever to produce just enough but not too many. Storage of an overflow of tools would be an unnecessary expense compounded by multiple lines of tools. Any inventory control that has not been computerized should be, in the interests of efficiency.
Changes in Culture
The culture does not need to be changed, but rather strengthened. Leatherman Tools has done very well to date. Quality products, excitement for products that add to adventures, concern for customers who need tools to deal with the unexpected have been hallmarks of Leatherman Tools. The only thing they might add is a new entrepreneur or two if they feel that they still grow too slowly.
Other Changes
Leatherman Tools should continue or perhaps even expand their research into their competitors’ multitools. Further changes might be needed in the future. A couple areas of consideration: Miniature multi power tools. Can a tiny battery-operated tool with drill or screwdriver or other heads fit into a miniature carrying case and/or on a key chain? How many tool needs will be computerized in the future? Should tools contain a small flash drive or microchip? Leatherman Tools should make sure that progress in technology does not render their multifunction tools obsolete, but they can easily keep up.
