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Tanner Montague came to town from Seattle having never owned his own music venue before. He’s a musician himself, so he has a pretty good sense of good music, but he also wandered into a crowded music scene filled with concert venues large and small.But the owner of Green Room thinks he found a void in the market. It’s lacking, he says, in places serving between 200 and 500 people, a sweet spot he thinks could be a draw for both some national acts not quite big enough yet for arena gigs and local acts looking for a launching pad.“I felt that size would do well in the city to offer more options,” he says. “My goal was to A, bring another option for national acts but then, B, have a great spot for local bands to start.”Right or wrong, something seems to be working, he says. He’s got a full calendar of concerts booked out several months. How did he, as a newcomer to the market in an industry filled with competition, get the attention of the local concertgoer?

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by Beth Ewen
August - September 2010

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Entrepreneurs Series

Loren O’Brien,

B&F Fastener Supply:
612.788.7468
lobrien@bffastenersupply.com
www.bffastenersupply.com

B&F Fastener SUPPLY is poised to begin a growth push toward $40 million

Loren O’Brien, CEO and founder of B&F Fastener Supply in Minneapolis, is one of two winners of the Upsize Growth Challenge 2010 because of his company’s ambitious growth goal: he wants to double in revenue in the next five to seven years, to $40 million. His plans to get there and advice to help him are detailed in the article that follows. Upsize sat down with O’Brien in July in his busy St. Anthony distribution center to learn more about his philosophy and to meet his management team. Their difficult task will be to keep the focus on customer service while they drive double-digit growth each year.

Upsize: Describe your company as it exists today.

O’Brien: We’re an industrial and construction supply distributor with nine locations. We have a distribution center in Ramsey which houses our packaging division and our custom machining division. Our corporate office is here in St. Anthony, and that’s where most of our accounts payable, accounts receivable and purchasing happens. We have seven branch locations in Duluth, Fargo, Mankato, St. Cloud, Sioux Falls, LaCrescent and Waterloo. Four of those we opened in 2008.

Upsize: I see your parking lot full of red B&F trucks.

O’Brien:  They’re delivering product. We don’t charge our customers for the delivery. We’ve done that from day one, even through all the gas price increases of recent years. We move a lot of product through this building and through Ramsey.

Upsize: How much?

O’Brien: Through June we processed 30,000 orders companywide, about half of those are processed through St. Anthony. Our fleet of trucks is 50 to 55. So we deliver to a lot of manufacturers, people making products that you buy at a Menard’s or some place else, everything from garage doors to big steel fabricators. We sell a lot to big contractors.

Upsize: And your biggest selling product is the fastener, otherwise known as…

O’Brien: Nuts and bolts. It’s pretty simple. It’s our baseline. But over the last several years by the needs of our customers we’ve gotten into a lot more. We stock in excess of 75,000 products, and we have available in excess of 300,000 products. It’s more than nuts and bolts now.

Upsize: Describe your ambitious growth plans.

O’Brien: In the next five to seven years we’ll grow this company to $40 million plus. We’re at the halfway point. It’s an ambitious growth plan but over the last several years we lost focus on the growth plan, with the economy kicking us back.

Upsize: Why do you want to grow to that size?

O’Brien: We feel we can double our sales because the market is out there for a company like that. We know our competitors. It’s aggressive, but when you look at only double-digit growth for each of the five to seven years, we’re on track. For 2010 we should be back to our 2008 numbers, about the $19 million range.

Upsize: You talked earlier about how your company had grown complacent during the good years, and you were rolling along. But with the economic collapse worldwide in fall 2008 you had to take a hard look. What did you do?

O’Brien: We stepped up our marketing, and we started to ask a lot more from our salespeople The sense of urgency to do more during the week was coming from the top down. We picked up a lot of new customers in 2009, we picked up 500 new customers. In 2010 we picked up 600 new customers.

Upsize: How?

O’Brien: We brought in our salespeople, and we’re in constant contact with our people on the road, roughly 30 people We’re direct sellers, like a door to door thing. Our business along with everyone else’s, when the economy went down our business went down. We went out and took market share.

Upsize: How did you do it?

O’Brien: We concentrated more on the customers that we knew were a good fit for us. Some of the larger manufacturers and some of the larger product lines we carry, that we know we can have the parts to them that day or the next day.

Upsize: Are you the only company that does the free daily delivery service?

O’Brien: Some say they do, but it’s a matter of checking whether they have surcharges and things like that.  We’re doing it in pretty big numbers. Our trucks are driving over 5,000 miles a day to deliver to our customers.

Upsize: Tell me about the top three actions you’re going to take to double in revenue over the next several years.

O’Brien: First and foremost we need to open new branches in smaller areas and smaller towns.  We’ll open 8 to 12 new branches in five to seven years. We’ll have one in September of this year, and another in December of this year or January of 2011.

Upsize: And you go where a big competitor is, when you choose a branch?

O’Brien: Yes we do. We know if there’s a market our competitors are in, we know we can go in and take market share, with our service and amount of inventory.

Upsize: Do you price lower than the competition?

O’Brien: That is usually not our selling point. I challenge our salespeople to get an order without being low. It’s short-lived in this industry if you go out and sell on price.

Upsize: What else will you do to double?

O’Brien: We’ll monitor to be sure we’re picking up new business. When I look back at the hard years, we didn’t pick up enough new customers. We want to see that the new customers number is up every year, and sell our existing customers new product every year.

Upsize: How do you know if you’re on track?

O’Brien: A lot of it is the new and existing numbers that I pull out every month. I go to the front desk and ask, what are the new credit applications? I say, what’s the credit app situation? I keep track of that on a weekly basis. If we continue on a pace with our double-digit growth, and with the additional branches, we’ll get there.

Upsize: How will you continue to make money as you drive top-line growth?

O’Brien: We have to maintain our margins. Sometimes you have to walk away from business if it’s not good business for you. That’s not just in the margins, but if the customer is stretching out their payments, or if the stocking of inventory isn’t right.

Upsize: And you monitor that on a customer by customer basis, or on a product by product basis?

O’Brien: All of the above. We can drill right down to product line, and one particular part. So if it’s a customer stretching the payment terms out and we’re not making the margin, we’ll walk away.

Upsize: Is there a third action you’ll take to reach your goal?

O’Brien: We have to add more product lines to offer our customers. They like to be able to one-stop shop. When you look at the fasteners and other products that are considered maintenance items, and with layoffs of buyers, you have less buyers now. We’ve picked up more product lines that 15 years ago I wouldn’t have touched.

Upsize: Like what?

O’Brien: Safety supplies, Gatorade, paper towels…A lot of it is customer driven. When a customer starts to buy from our company they’ll say, I’m ordering one part from one company, can you get this for me? We’ll source it out, get competitive on it, and it’s kind of like add-on sales.

Upsize: How will you finance the new locations?

O’Brien: We’ve done it throughout the years internally. We use a bank, and have a long-term relationship.  Our growth will all be driven on inventory and receivables. It costs close to $300,000 per branch to get it operational.

Upsize: Do you finance one at a time, that is, use your existing collateral for the new one?

O’Brien: In 2008 when we opened the four new branches we were a debt-free company. We worked hard to get to that point. We used our credit lines. When you look back at 2008 it wasn’t a great decision to open those because the economy changed, but now we’re really looking forward to it. Those branches are breaking even or are profitable.

Upsize: How has financing changed for you, with tight credit these days?

O’Brien: Some of the things we ran into in the last six or seven months, even though our credit is good, the banks that we’re dealing with have different regulations they’re dealing with. It’s an eye-opener, in terms of maybe it’s time to look for more options.

Upsize: Do you own your branches?

O’Brien: I look at it as more of an investment strategy on my part. We own Ramsey, we own Waterloo. It depends on the market. In Mankato, we built a 30,000 square foot facility, because that market needed a building like that. We use 8,000 feet and lease out the rest. We look at the individual market first as to what we need for space, and then secondly we look at the real estate market. At Waterloo at the time, there were not a lot of buildings available down there.

Upsize: Why will you continue to finance your expansion with internal funds. Why not go after money from other sources, to grow faster?

O’Brien: We haven’t needed to do that. We’re a very credit-worthy company. Growing at double-digit rates is going to be a challenge for us. After we have the next two branches we’ll have to look at how much more product we’re going to push out.

You know, I really have never done any checking on other financiers. I’m a private owner and I really like that. I worked for a public company in the past and I try to treat my employees differently. There are a lot of great public companies out there, but we have the philosophy that the customer comes first, then the employees, and I like to think I’m third in line. In a lot of companies the shareholders come first, and I don’t like that philosophy.

Upsize: Talk about the best decision you’ve made as the company founder, to beat your competition.

O’Brien: Building up more branches. The competition is going to have a hard time dealing with a company like ours because we have the buying power now, and the ability to move product. And we have long-term employees, and that means a lot because they know what they’re talking about when the customer calls.

Upsize: Describe a turning point for your company, when something happened and things began going much better than before.

O’Brien: That happened a long time ago when we lost a large contract. It was a negative turned into a positive. We were stocking a lot of product for them, and they took all those parts and gave us a pretty good influx of cash. We took it and opened our first branch in Duluth, in the mid-90s. We invested that cash back into the company, and that was our philosophy.

Upsize: I suppose initially it was a pretty big negative?

O’Brien: It was a shock. But then you looked at the numbers, and we said we’re fine. Instead of taking the money out of the company we invested it back.

Upsize: What have been the darkest days at your company?

O’Brien: I’d probably change that word to challenge. The biggest challenge I had was when I took complete control of the company in the early 90s. My original business partner unfortunately passed away at a young age. All of a sudden I was in charge. I didn’t consider myself a leader of any sort.

He had taken the role of sales and marketing, and I was operations. At the time we only had maybe 12 or 15 employees. It was a personal shock, and all of a sudden I thought, what do I do? You think you know everything, but you don’t You go through the grieving process but you still have a company to run. My wife was a great help. She was raising four kids under the age of 6 and I was probably the fifth kid at the time. We got through it together.

I was more scared than anything. Luckily we had buy/sell agreements in place. Once we got through that it was fine, because we went back to selling nuts and bolts.

The other challenge was, in May I thought I was losing complete control, when we tried to do a software conversion. I turned the company over to a software firm. We tried the changeover for three days and then we pulled completely back.

O’Brien: With the computer thing I felt completely hopeless. It was a learning process. We have to go back after it this fall. I relied on my employees. I’m not really good at the computer thing. I’m good at the numbers, but I rely on my employees for those things.

Upsize: What are your lessons learned, that you can share with other entrepreneurs?

O’Brien: There are not too many companies in this industry that are our size. There are a couple really big ones, and then a lot of little ones. I’ve surrounded myself with good people. I can trust my employees.

I think the other big thing is, I try to be as clear as possible when I talk to my management team, so they know exactly what my direction is when we go forward with our growth. It comes right down to serving the customer. I’m pretty blunt. When I see something I need done, I’m blunt and matter of fact, so there are no misunderstandings.