Joe duBord,
Meditech Communications Inc.,
ThisClicks Interactive:
651.636.7350
joe@meditechcommunications
www.go-meditech.com
Steve Coleman,
Platinum Group:
952.829.5700
steve@pllc.com
www.theplatinumgrp.com
Darlene Miller,
Permac Industries Inc.:
952.894.7231
dmiller@permacindustries.com
www.permacindustries.com
Tom Salonek,
Intertech:
651.454.0013, ext. 12
tsalonek@intertech.com
www.intertech.com
Tony Sorensen,
McKinley Group Inc.:
952.476.2107
tony@mckinleygroupinc.com
www.mckinleygroupinc.com
Nic Thomley,
Pinnacle Services Inc.:
612.977.3100
nicolas.thomley@pinnacleservices
www.pinnacleservices.org
Owners say how they’ll back up vow
to last through bad times
by Beth Ewen
“IT’S UGLY. VERY UGLY. We’ve had some customers whose business is down 50 to 75 percent,” says Darlene Miller, president and CEO of the Burnsville-based manufacturer of precision parts Permac Industries Inc., when asked how her company is faring compared to this time last year.
She had projected a 32 percent reduction in revenue for the year, she continues. “It’s more like 40 percent. A couple of large customers are closing plants.” But like many other small-business owners in the Twin Cities, Miller has gathered her management team, communicated with her workforce, made several painful decisions and adjusted to the new reality.
She cites a brand new contract in the aerospace and defense industry, and a July trip to Chicago for a new project, making parts for a multi-headed beverage dispensing system. In fact, her company’s work in the food and beverage industry has been a bright spot, making such things as a lettuce chopper system or a slushy machine for fast-food restaurants, which are doing well as consumers look for cheap eats.
Work in the medical technology industry, too, is bearing fruit. She started a manufacturers alliance in that business sector several months ago, and says her company has secured its third customer through the network. Talking with others in industry associations and chambers of commerce is her operating mode. “Network, network, network,” is Miller’s mantra. “There is work out there. I’ve never made so many calls since I started this business” in 1992. “We’re scratching and clawing.”
She is also vowing to make it, a promise to employees and customers that she takes seriously, and one that was echoed by a dozen business owners that Upsize contacted in July for in-depth interviews, and more than 160 who responded to the Upsize annual economics forecast survey in the spring.
Says Miller, emphatically: “We’re in survival mode, but we ARE going to make it. We’re determined.”
The reports of tough timeswere underscored this spring. That’s when Minnesota business ownersturned sharply negative when asked about revenue prospects at their ownfirms, for the first time since Upsize began asking for their annualeconomic outlook four years ago.
Almost 30 percent saidthey believe revenue will decrease at their own companies in 2009 from2008, while just over 40 percent believe revenue will increase. Another30 percent think revenue will stay steady.
Last year only 6 percent of respondents thought revenue would sink, andmore than 81 percent predicted it would rise. They were overwhelminglyoptimistic about their own fortunes even though a third thought theoverall economy would worsen last year.
This year, 56 percent expected that the overall economy would worsencompared to last year, while 20 percent believed the economy wouldimprove. Predictions for their own particular industry were similar,with 46 percent believing industry conditions would get worse, and 24percent saying they’d get better.
Owners are taking swift action to react to declining sales, or theprospect of same, with dozens of CEOs saying they’re freezing salaries,cutting bonuses, trimming health care costs, negotiating with vendors,or all of the above and more.
Controlling staffing levels is the prime action for business owners: 19percent of the respondents say they will decrease their number ofemployees, compared with nearly 24 percent who will add workers and 57percent who will keep their employment numbers steady. Last year only 4percent planned to cut employees, while 48 percent planned to increase.
At Permac Industries, Miller has called for two layoffs and two weeksof planned closures, since November 1 of 2008, the day that she sayscustomers noticeably began cutting their orders. She’s using thestate’s workshare program, in which manufacturers can reduce hours andthe state picks up the missing hours from the unemployment fund. Themove will result in higher unemployment insurance taxes for Permac inthe future, but for the short term Miller says the program helps softenthe blow to her employees’ wallets.
What has been her employees’ reaction? “Remarkably wonderful,” shesays, expressing gratitude to the loyalty of her machinists and otherworkers, and to her management team who have come up with ideas to cutcosts. “As business owners, we have to stay positive and not share ourfear totally,” she believes, and has committed even more time thanusual to talking with employees on the floor, sharing information. “Youhave to communicate, communicate, communicate. They need to see mebecause they need to know we will make it.”
She also recently asked her accountant for a reality check: she wantedto know, was her belief that the company can weather this economicslump based on reality, or was she delusional? After a thorough reviewof the books, she says, her accountant assured her that Permac is ontrack.
Miller projects about $3.5 million in revenue for the year, down about$1.2 million from last year. She employs 27 people now. In addition tothe payroll cuts, she’s looking at refinancing some debt. At the end of2007 Permac doubled its facilities size, and last September Permacbought about $1 million worth of capital equipment. She says she’sworking to refinance with bankers, who aren’t necessarily responsive.”Not all of them, no. The smaller community banks, they’ve beenaggressive,” she says.
Joe duBord, CEO of MeditechCommunications Inc. in St. Paul, checks the report of his company’slatest finances when reached by phone in late July. “Our revenue isactually up by 0.5 percent since last year,” he says. He’s happy aboutthe uptick, however slim it is: “That’s less than 1 percent, but I’msurprised actually.”
He cites the strength of the medicalproducts niche that his company serves. They create video, 3Dinteractive, CDs and other formats describing how medical and otherproducts work, which his customers use to market themselves. “Themedical presence in the Twin Cities is so strong. There still are a lotof medical startups that come to us and need to get in front ofinvestors” and others, duBord says.
The company’s second and younger division, ThisClicks Interactive forWeb development services, is not as strong now but he believes it”looks good for the future.”
DuBord and his business partner Brian Hagen went into the year withgreat caution. They cut their budgets by 50 percent on software andhardware purchases, a difficult decision given their belief that thecompany has to be on the cutting edge of technology because customersexpect it. “We decided to hold onto some computers for another year.We’ll be OK,” he says.
They looked carefully at raises for employees, but decided to go aheadwhen revenue was trending a bit ahead of last year. They even gave oneemployee a 20 percent boost. “To be able to do that felt pretty good,”duBord says.
He says customers are asking to negotiate lower prices on projects,something they haven’t done before, and duBord’s team is responding bylooking at every aspect carefully and suggesting ways to trim theproject but still be effective. The company’s ability to do that hasbeen honed over years of work, so that they know exactly how much eachcomponent of a production costs.
“We’ll look at it and say, do you really need so much 3-D animation?We’ve been doing this for so long, that we’ll get together with ourproduction team and we’ll brainstorm,” he says.
He says his role is no different from what it has been in the past.”It’s the same, I’m just more nervous,” he says with a laugh. “I’m justkeeping a close eye on things, looking at A/R” or accounts receivable,”and looking at our job board. I’m always happy if we have a month anda half of jobs,” and that was the case in late July.
Business has been helped by the company’s long history in the medicalniche, which is marked by people at large companies, Boston Scientific,say, leaving to start or join newer businesses. duBord and Hagen havebeen able to maintain those contacts as they move to new firms.
They also are the first to jump onto new technology that puts thecompany high on search engines, and in one case has led them into a newopportunity, installing cameras so customers can monitor a constructionsite, for example, via computer monitor.
Meditech produced an interactive kiosk for the I-35W bridgereconstruction in Minneapolis last year, and through that work secureda big freeway project in Detroit, for an information kiosk there. “Withtechnology, we look for ways to be ahead of the curve. We’re set up onblogs, and on Twitter and Facebook, so we come up high on searchengines.”
One thing that has him worried right now is the new Obamaadministration. “The uncertainty of the administration is a concern.We’re watching health care, especially, for the effect that it mighthave on our large company customers,” says duBord.
In the Upsize survey, respondents expressed uncertainty or negativitytoward issues that the new administration is trying to address. Forexample, more than 45 percent think the tax climate is less favorablethis year than last for small-business owners, while 12 percent thinkit’s more favorable.
Obtaining business financing is another big negative for this year’srespondents, with more than 56 percent saying it will be harder to dothis year than last. Last year only 11 percent thought credit would beharder to obtain. They responded in the spring, before the Obamaadministration started talking about extending financial bailout helpto small businesses. Reached in late July, many business owners sharedanecdotes about long-time bankers refusing to extend more credit.
Although duBord follows such issues, his advice for business owners isto not get paralyzed. “Stop reading the news and just get to work,” hesays. Meanwhile, he’s proud that so far Meditech’s business is steadywith last year, on track to hit $1.5 million, give or take 5 percent.”I think it’s pretty darn good,” duBord says.
“June has been a monthlike none I’ve ever seen,” says Nic Thomley, CEO of Pinnacle ServicesInc. in Minneapolis, which provides health care and housing to peoplewith mental and physical disabilities. He includes both the good andthe bad in that assessment.
The bad: They took a 2.58percent reduction, or $260,000, in the amount they will be reimbursedby government, primarily through Medicaid, as part of the state ofMinnesota’s efforts to balance its budget. For a $10 million company,that hurts.
But they immediately made up the cuts with two moves. First, they bidon a Wright County contract to operate a home for children with severebehavioral needs. The county was unhappy with the agency that had thecontract, Thomley says, and put out a request for proposal. Pinnaclehad to get the home open by July 1. “We’re on Day 21,” he says, reachedon July 21. “It’s an adjustment. We were short-staffed at first. We’vegot such a great team.”
In June another company lost its license to provide care from thestate’s health department. Thomley found out about this from an e-mailservice, and called up his contact with Hennepin County to expressinterest in the contract. “They called me back and said the Departmentof Health suspended their license, and we have four days to take itover.” They wanted him to come in that day to discuss the deal. “I waswearing jeans so I had to run out and buy some clothes. I workedeverybody through the weekend” to get ready to take over twosingle-family homes and an apartment building.
While traveling to the sites on a Tuesday, for the 6 p.m. scheduledhandover, “my COO gets a message on her cell. It said STOP, the statestayed the suspension,” Thomley says. “So of course we went to havesome drinks.”
Just a few days later, a Friday, the state went through with thesuspension and Pinnacle was asked to take over, an event so chaoticthat the former agency’s employees weren’t told, and the former agencytook everything they owned out of the homes, even the paper products,Thomley says.
“All of a sudden we have to staff three new places. We were left withthe clients and their pills. We went to WalMart at 3 a.m. to buy toiletpaper,” he says.
Despite the chaos, Thomley believes the acquisition was the right movefor Pinnacle. “I decided to do it because we needed something positive.I’m a believer that a business has to grow so there are newopportunities.”
Because of the state’s continued budget problems, he believes healthcare providers will continue to be squeezed, so simply trying to getnew business isn’t fruitful. “Even though we knew it would be messy, wejumped on it,” he says. “It was really good for us. It allowed us tocreate more jobs, at least four management level jobs and as many as 25direct care jobs. In a month we created 30 jobs, and we’ll exceed $10million this year” in revenue, the company’s highest number yet.
He turns philosophical when asked for advice for business owners. “Howmany recessions have there been? 22? 24? We’ve come out of all of them.I have a more optimistic view. Entrepreneurs are going to bring us outof this recession,” he says.
Respondents to the Upsizesurvey are taking a host of actions to weather this slump; more than 70Minnesota business owners reported specific actions they’re taking,including these few samples:
“Stay creative with terms when you have an account,” says Dave Klun, The Remodeler’s Choice.
“We just cut our most expensive item, health care. We’re downsizing operations,” says James Hoeppner, Metro Alarm.
“Customer service and loyalty are to remain our priority in order toobtain more qualified referrals,” says Traci Dokken, McGowan &Dokken Remodeling and Design.
“We joined an online bidding service,” says Kevin Schluck, MCR Manufactured Component Resource.
“Cut spending,” says Don Reardon, Mendota Resources Inc., and thatsimple imperative is echoed by nearly every business owner and expertadviser these days.
“We’re just death on fixed costs,” says Steve Coleman, a partner withPlatinum Group in Eden Prairie, which consults with stable companies toimprove their finances and with troubled companies to turn them around.Platinum also has a small equity fund that buys stakes in firms. “Ifthe cost goes up in relation to business, that’s fine, but if not,”find a way to cut it, he urges.
Rent and building space, for example, can often be cut. “A lot ofcompanies have more space then they need. I can’t tell you how manycompanies have excess materials stored in all that extra space.”People, too, are expensive, so he advises going with independentcontractors, temporary workers, and consultants or outside serviceproviders whenever possible.
Tony Sorensen, partner with the McKinley Group, a recruitment firm inMinnetonka that places people in sales, engineering, informationtechnology, accounting/finance and marketing, had to trim his staff to47 full-time people earlier this year, down six or seven. That wasafter business fell off the cliff after January 1.
“For us 2008 was our biggest revenue and profit year ever. Then all ofa sudden January hit. The first quarter was the worst our company hadever seen,” he says. Started in 2001, the company hit $11.2 million inrevenue last year.
“We weathered the fourth quarter of ’08 extremely well, and we thoughtwe might have sidestepped this thing,” he says. Then the first quarterof 2009 came. “Literally it took us back to the start of our company.We were completely knocked out.”
He says he and his partners got “back in the trenches,” to helpemployees get through the bad times. He’s seeing more deals in thepipeline now, especially in requests for salespeople, which he believesis a harbinger of more business activity. “Sometimes it’s good to trimthe fat, and run with the people who can really make an impact,” hesays.
At Intertech Corp., the software development and training company inEagan, CEO Tom Salonek froze pay for all employees this year, a firstfor the company. He’s been “pleasantly surprised” with how well hisemployees have reacted, something he attributes to the company’sregular communications, and his long-held philosophy to share financialand other information.
“We’ve been open book for as long as I can remember, and we’ve hadmonthly meetings for as long as I can remember,” Salonek says.”Communication and transparency helped. We need to make sure that we’reover-educating people about where we’re at.”
He says revenue is about 5 percent less than this time last year, andhe expects to end the year about 3 to 5 percent below last year’s markof $7.2 million. “We’re making money. It’s fun to talk about growth butit’s equally important to focus on profits.”
He counsels other business owners to focus on cost savings, and teachesbusiness students at the University of St. Thomas the far greaterpositive impact of expense cuts vs. revenue gains. “The impact of costsavings gets even more important when margins are slim,” he says. “Theimpact of holding pay steady is huge,” at his firm; now they don’t haveto generate a much larger revenue gain to cover a payroll increase upto $250,000.
Salonek’s firm is doing more than cutting costs. They’ve outfitted aroom with technology so they can offer virtual training to students atremote locations, which is bringing in many new customers. In fact,even though revenue is slightly down, it’s coming from many newcustomers (“it’s closer to 100 than to 10, the new customers we’vepicked up,” Salonek says) which he believes bodes well for when theeconomy turns.
They’re enjoying success from a program to award elite customers whopay upfront with discounts on training and exclusive goodies; thatlocks in those customers and improves company cash flow.
“We have made it a focus to talk about what we’re doing right,” Saloneksays. “We’re not going to change the economy, all we can do is changeus.”
