Two companies chase
big goals in annual contest
boss can bolster
vision with facts
“So it’s growing into something else,” says Stacy Anderson about her 10-year-old company Earth Wizards Inc., a $2-million firm that started in the blacktop business.
Describing exactly what that “something” is should be her main focus in the next few months, the Upsize Growth Challenge experts agree.
Anderson’s company is one of two winners of the 2010 Upsize Growth Challenge, which experts who can help them get there, and reports on their progress.
Anderson grew up on a blacktop crew in her parents’ business, eventually moving into selling and estimating, hiring truckers, doing “huge” bidding projects against ever-bigger players. “I’m not that way. There were a lot of aspects of it that didn’t quite fit,”she says about the way her parents’ company evolved.
Shortly after starting her own firm in 2000, she quickly moved into the landscape business, figuring that would be a natural complement for her blacktop crews. “I thought, our guys are smart. We’re there on site. It made sense, right? Well it didn’t,” Anderson says with a laugh. “The two mentalities are so different. Landscape install is a marathon. Asphalt is a sprint.”
But another area of interest soon drew her attention: consulting with asphalt customers about how to deal with runoff water. That part of the business has now grown into a full-fledged design and installation service that accounts for half of the company’s revenue and is capturing more and more of the founder’s passion.
“In 2003-04 I started to understand storm water,” Anderson recalls. “I was always earthy-crunchy, and I would call my old professors. I would say, ‘The quality of our lakes is so bad.’ I would come at it from a contractor background. I’d say, ‘Why not dredge it.’ So we started to advise our clients on how to use the runoff water.
“Our niche is infiltration design, and this is representative: A customer will have a flat roof. The rain runoff goes into the sewers. The city of Minneapolis doesn’t like it. We say, let’s infiltrate it to go into the ground and use it. It can go into permeable pavements or rain gardens.
“The idea is to get the water to go back into the ground.”
At first people weren’t so interested, except to meet watershed requirements when they were, say, building their big mansion on the lake. Now Earth Wizards is perfectly positioned for a trend.
“A lot of ‘normal’ people are wanting to redirect their ground water,” Anderson says, and her firm has a unique background when competing against the average rain garden consultant. “A lot of designers don’t understand construction costs, but we do.”
Pushing for more
She wants to push further. “I want to expand the educational side” of the business, she says. “I always thought Martha Stewart is so cool, because she’s educating people but we will keep buying her products, we get her magazine. It’s fun for us.
“I want a retail center of some sort, to have a place for people to come and see these things. Having a center, it gives you a different credibility. To lure people in it’s a big trap.”
Earth Wizards now has an equipment yard in Coon Rapids, leased from her parents, that is packed with heavy machines. Its headquarters is an office condo. She uses a team of independent contractors, including a civil engineer, landscape architects, designers. The staffing arrangement was the idea of a new part-time chief operations officer, DeEtte Feurtado, who points out another advantage that would come with a centralized headquarters.
“It would lead to better communication. Everybody looks to you,” Feurtado says to Anderson. “The more contact you have” with people the better.
Anderson then describes her worries about liability: all that heavy equipment, all those workers driving around, all the concerns about finding qualified people as her middle-aged workforce ages even more. “It worries me to have a loaded dump truck in the city. I could lose my company in one wrong really bad day.”
It’s at this point, about a third of the way through a 90-minute workshop to help Anderson reach her goals, that the Upsize Growth Challenge experts start to point out the contradictions in some of her statements.
Bridget Manahan, senior vice president of commercial banking for Western Bank in St. Paul, asks a question that any CEO could use to sharpen strategic thinking: “What does Earth Wizards look like five years from now?”
Says Anderson, among other things: “I see it as being more of an assister of the contractor and the building owner. In a way it’s like growing smaller.”
Manahan responds: “Good answer, and I didn’t expect it. I thought it would be, ‘Oh, I want to be $10 million in revenue and have a lot of fixed assets.” Clearly stating and communicating your vision is a crucial step, for a CEO and Manahan suggests a practical way to make the process concrete rather than dreamy.
“The starting place, if I were in your shoes, is to sit down with an accountant and take a good look at where you are today and where you would like to take the business, initially short term, as of 12/31/2010, and then 12/31/2011. Include in that some basic assumptions of the business, and then how some of your other decisions fit into it.
“Plot the cash flow scenarios based on having a new facility and not, and so on,” Manahan says. “Spend some time playing around with it.” A detailed cash flow analysis will help her decide what to pursue; only then will she be ready to round up the financiers and take other steps to pursue it.
Karen Bertulli, an attorney with Winthrop & Weinstine in Minneapolis who works with many closely held firms, agrees that “the first thing is you need to loop in an accountant.
“You’re in a really good position. Your business has transitioned organically. You could easily grow. You need the tools to get you there,” Bertulli says. “Ask yourself, when would you like to have the showroom? Set a date. State the things you need to get it.
“When you’re thinking strategically you do have to literally go through your financials. You should go back and you’ll see a pattern develop. I think it’s putting down the baby steps to get to the larger goal,” Bertulli says.
Anderson had earlier described her plans for the company this way: “I’m a dreamer, and it could change.” That flexibility has been a strength because it has allowed her to adapt quickly to changing conditions. As Bertulli and Manahan suggest, she can now add specifics to that vision in order to make it happen.
Loren O’Brien takes pride in the industrial and construction supply company he has built, B&F Fastener Supply in Minneapolis, from three employees in 1988 to $19 million in annual revenue, just under 100 employees and nine locations around the region.
He relies on a small and tight-knit group of senior managers, many of whom have been at the company for two decades, to manage everything from four new branch openings since 1988 to a software conversion earlier this year that needs a do-over.
To reach the company’s new goal-doubling in revenue in five to seven years-he should beef up his management team and relationships with accountants, bankers and most urgently information technology pros, say the Upsize Growth Challenge experts.
B&F Fastener Supply is one of two winners of the 2010 Upsize Growth Challenge, which experts who can help them get there, and reports on their progress.
Within reason or not
“It is a nut-eat-nut world, if you want to put it that way,” says O’Brien about his industry: selling nuts, bolts and more than 75,000 other products to contractors, manufacturers, steel fabricators and the like. “Fasteners are not glamorous. When I first started, people said, how do you make a living in this business? You’ve got to sell truckloads of them.”
O’Brien, who gained industry experience at Fastenal, the publicly held Minnesota-based company that dominates the business, has focused relentlessly on customer service. B&F has more than 55 red trucks delivering products each day to customers, free of charge-a policy they stuck to even when gas prices soared.
Customers can order just about anything, and B&F will add it to their product mix and deliver it pronto. “We do all sorts of crazy stuff. That’s just part of our model, to be flexible,” says Todd Boone, executive vice president, who was not at the first Upsize Growth Challenge workshop in July but gave a tour later of the Minneapolis facility.
“As long as it’s within reason we’ll do it, and sometimes when it’s not within reason we’ll do it,” Boone says.
B&F Fastener Supply opened four branches in 2008, under the direction of a new district manager hired for the task, and as a group they have turned their first profit by the second quarter of 2010. The company was debt-free at the time, and used credit lines to open each facility, at a cost of about $300,000 each.
It will follow the same financial model to open another branch this fall, and a second this winter, on the way to eight to 12 branches over the next five to seven years.
The economic collapse in fall 2008 set the company back. B&F was on a record pace for sales in 2008, just shy of $19 million. “In January/February 2009 we dropped 30 percent,” recalls O’Brien. “We went back to the basics of picking up new customers.
“In 2009 we picked up more than 500 customers. It was a directive from me to steal market share,” O’Brien says. “By the end of 2009 we closed down 19.7 percent. So far in 2010 we’re up 12 percent.” They stayed in the black in 2009, “yes, barely,” says O’Brien, and avoided layoffs.
“We take pride in the fact we’ve never had a layoff,” O’Brien says. “We decided as a management team to cut hours” across the board in January of 2009. Full hours were reinstated a few months later. “I don’t like the layoff part of it. We have 75,000 products and our people need to know them.”
O’Brien expresses confidence in his team’s ability to handle the challenges that come with growth. “We did it ourselves,” he says at one point during the workshop, and that could be his mantra.
The company self-finances its expansions growth, using receivables and inventory to secure bank financing to open the next branch and the next. They don’t use an outside accounting firm, because O’Brien says he is comfortable with the numbers.
A software conversion that failed this May, however, tested that confidence. “I still have the shakes over that one,” says O’Brien. “We went live May 1st. Everyone worked the weekend before.”
After struggling with the new purchasing system for three days, they decided to revert to the old system because the new one wouldn’t accommodate specific customer orders. “If our customer calls and wants 22 nuts, we’ll sell it to them,” O’Brien says.
“I’ve been in business for 22 years, and that was the scariest thing I’ve done,” O’Brien says. They’re working with the software vendor to fix “pages and pages of issues,” and will make another attempt to convert this fall.
People on the team
At this point, the Upsize Growth Challenge experts begin identifying how they can help O’Brien. “Who is leading the charge internally for your software conversion?” asks Bridget Manahan, senior vice president for commercial banking, Western Bank in St. Paul.
The answer: O’Brien and his executive vice president, Todd Boone.
“Did you have an outside accountant involved with this?” she asks. No. “Do you have an internal CFO?” she asks. No.
“I look at your company, and I think, oh my gosh you’ve been growing in this economy. This is a great success story,” Manahan says. “At what point does it make sense for you to look at your senior management team?” She suggests adding a chief financial officer to help “plan this growth, somebody who has the charge and the luxury to analyze those pieces strategically.
“You’ve been doing this all yourself,” Manahan says, and to grow he’ll need to change.
Karen Bertulli, an attorney with Winthrop & Weinstine, suggests a consultant to help in the short term on the software conversion. She also suggests a doing a beta-test with a small group of customers, or running the new system parallel to the old until all problems are resolved.
For the long term, Bertulli advises O’Brien to reach out for more support, to have a frank talk with his banker to resolve questions, to get those necessary relationships in place now, before the giant growth push gets underway.
“With all the plans to grow you need to have those people on your team, so when you’re ready to go they’ll be with you.,” Bertulli says. “In all these instances these are relationship issues that are important. In each of these instances you have to trust them and feel they’re working for you, with your software vendor, with your financial partner.”
O’Brien says he hasn’t thought about this before. “I’ve always considered myself the CFO, but it’s the Cheap Financial Officer,” he says with a laugh.
“We are self-learners. I tend to do things myself,” he says, sounding like the typical entrepreneur, but indicating that he will reflect and probably act on their advice. Getting B&F Fastener Supply to twice its size will take the help of all hands.