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Operating leverage: Adapt your technology to new markets

Business, Features, Management | September 1, 2009 | By:

You’ve got the skills, the equipment, the employees, the opportunity. Go for it.

In good economies, a rising tide lifts all boats, points out business speaker George Hedley.

“Even people who weren’t following good business fundamentals were making money,” says Hedley, CSP, who heads up Hardhat Presentations and recently authored Get Your Business to Work! 7 Steps to Earning More, Working Less and Living the Life You Want. “Now that the tide’s gone out, they are exposed, and don’t know what to do.”

These business owners may have old trucks. They don’t want to use uniforms, invest in marketing, hire the best people or offer needed training, he says. In contrast, successful business owners adapt new technologies and leverage their existing competencies to seek new markets.

Spawn of the customer

Industry veteran Bud Weisbart, IFM, is vice president of A & R Tarpaulins of Fontana, Calif., whose company evolved into divisions in aerospace and awnings over three decades.

A & R had its beginnings in manufacturing tarps for transportation and industrial applications; customer requests drove the company to pursue new markets.

“You can extend yourself into other markets using your capabilities as well as your knowledge and understanding of the potential applications of fabric,” Weisbart notes.

The company’s foray into aerospace products evolved from a request for anti-static fabric protection at a glass lens manufacturing operation. With help from fabrics from Herculite Products Inc., Emigsville, Pa., A & R provided a solution to the challenge of dust embedding into the glass from static electromagnetic charges. Weisbart later got a request from the Vandenberg Air Force Base for anti-static tents to protect the MX missile during testing. Using a heavier version of the Herculite fabric, A & R built a tent assembly and also secured a spot on the Martin Marietta contractor database.

The company then expanded its capabilities to address mandatory requirements for technical jobs by achieving ISO and the AS Aerospace Quality Certifications.

“Through trial and error, you develop a body of expertise and create additional marketing opportunities,” says Weisbart. “Then when somebody says they’ve got to work with something exposed to 3,000 degrees Fahrenheit, you can say you have worked with such products and address that requirement.”

Feedback from key employees

Weisbart says his company’s success is due in large part to the “tribal knowledge” of his long-time employees, many of whom have more than 25 years of experience and often mentor less experienced employees.

Employees and clients collaborate on projects to optimize the finished product’s success; as an example, a project to manufacture payload fairing blankets for satellites in conjunction with the Atlas program engineers.

Weisbart and his wife, Carmen, president of A & R, run an open organization, encouraging clients to visit the manufacturing facility and sharing company information with employees, with whom they meet daily. Employees work across the company’s three divisions.

The company’s adaptability and flexibility extends to the use of new materials. For example, A & R works with 3M™ Nextel™ woven ceramic fabric, which requires a ceramic yarn, to make heat shields.

“There are nuances to working with that fabric,” Weisbart says. “You have to be careful when you‘re sewing, and not crease the material in a way that takes away from its strength.”

Bringing value to the client

Weisbart says that he doesn’t focus on ROI or trends as much as whether a product is marketable, something his company can competently address, and whether it will bring value to the client. For his company, there are several markets within aerospace that present a number of opportunities, such as insulation, protective covers, high-temperature and acoustical products.

Weisbart also avoids the vulnerabilities that occur by being tied to one market segment, through diversification into the company’s three market areas (tarps, awnings, aerospace). Because of the company’s capabilities to address new opportunities, Weisbart expects A & R’s pattern of incremental growth to continue: Over the last three years, the company has gone from $2.2 million to $3.4 million in sales, and in 2009 is on track to reach sales between $3.4 million and $4 million.

Another company that has responded aggressively to possible new markets is Donovan Enterprises in Stuart, Fla. The 32-year-old company began by providing truck tarps in response to a Florida law mandating them; it also provides metal parts for containment of trucking aggregate, agricultural products and solid waste. Over time, Donovan Enterprises has bought and sold related businesses, including an insulated division started from scratch and sold for $10 million.

When hurricanes pounded Florida in 2004 and 2005, Mike Ciferri, vice president and product manager in charge of the tarp division, noted another opportunity, investing $750,000 to develop a fabric-based hurricane tarp system to protect life and property. Combining polymer fabric and geogrid composite, the Donovan Advanced Hurricane Protection system covers openings up to 50 feet wide and 14 feet tall, with applications ranging from residential porches to high-rise condominiums. The single see-through screen has a design pressure of 135 psf and utilizes a cable and pulley system to travel corners.

Ciferri asked company engineers to draw upon their skill sets to design a product that could meet the challenge and remain cost-efficient. He spent a few years learning about hurricanes and government regulations, and proceeded with product testing. He went outside the company to find someone with the marketing expertise to promote the new product.

Adjustable strengths

While a faltering economy and a relative calm in recent hurricane seasons have temporarily slowed consumer demand, Donovan Enterprises is leveraging its metal fabrication facility and sewing shop capabilities to take on work for clients as far-reaching (and influential) as the U.S. government and Walt Disney World®.

According to Ciferri, while his company may not always be either the least expensive or the most innovative in a given market, Donovan stays ahead of the curve by providing the right products to the right markets—and through the long-term relationships developed by the company’s 36 outside sales representatives, many of whom have more than 20 years with the company. Donovan Enterprises also supports its dealer relationships, rather than selling directly to end users.

Ciferri is also a member of the board of directors of IFAI’s Truck Cover & Tarp Association (TC&TA), and believes that it pays to be a member of a trade organization that can help maximize efficiencies and help uncover new business opportunities for members.

Business owners get into trouble when they run up against that part of human nature that resists change, says Ciferri; he prefers adapting as needed and a more gradual approach. A case in point: his company once bought a U.S.-manufactured leno weave product, a polypropylene with a leno twist. When the supplier continued to raise prices, Ciferri started buying standard PVC multi-color mesh—the material he originally replaced with leno weave—for 30 percent less and brought in prefabricated tarps from overseas. Being flexible allowed him to buy the least expensive product, he says—without sacrificing quality.

Ciferri also believes in following market trends. “You’re either riding the wave up or riding the wave down—you can’t stop the wave or change its direction,” he says. “You’ve got to make the best decision with what you’re looking at and continue looking for new opportunities.” In today’s lean times, staff has been reduced from 100 to 60. No new equipment purchases are made if there’s not a three-year payback.

“We’re doing everything we need to do so we can stay semiprofitable and at least not lose money, so we’re in a good position when the market comes back,” says Ciferri. “You have to take your skills and say, ‘We can make tarps. Let’s do awnings. We have sewing machines and welding machines. We can go into a whole new industry.’”

Calculating risk

Engineered Textile Products Inc. (ETP) in Mobile, Ala., is a custom fabricator of industrial and environmental fabric products. A relatively small company, with 35-40 employees, it was incorporated in 1980, but through acquisitions traces it roots to 1877. Current markets include water industry membranes, transportation, awnings and recreational products.

Chairman Ken Robinson credits his company’s longevity to innovating products for various uses, and to listening to customers. If there are numerous requests for something different, his company will evaluate the potential.

“Many times, new markets are brought to you, whether by a friendly competitor or a customer. We estimate the market size, whether our company is a good fit, and how much of the market we feel we could chip off for ourselves,” says Robinson. ETP specializes in custom designs with rapid turnaround capitalizing on a large inventory of materials and a skilled workforce of dedicated employees.

Business owners must be willing to take calculated risks, Robinson adds. “Some companies place a very large bet on an opportunity, and if it fails, they are out of it; versus making a small dent into it, and if it fails, it hurts, but it’s not the end of ongoing operations.

“If it works out, it may be an area that in coming months will help replace some of the business the shrinking economy took away.”

According to Hedley, business owners need to re-think their business models and stop resisting change. “They want the pain to go away, the economy to get better, and are postponing decisions affecting their future until it’s too late,” he says.

A business that’s gone from $5 million to $2 million has to start over again from a $2 million business—re-organizing sales, marketing and overhead, Hedley says. Try new markets, products, delivery methods and systems. Companies without the necessary expertise should hire someone who has it, and start moving again.

A full-service provider

Think like a Fortune 500 CEO, Hedley says. “They’ve got to make a profit every quarter,” he says. “They don’t care about the economy. Their top line has to grow. If it doesn’t, they get fired.” Successful CEOs seek strategic alliances, partners, companies to buy, divisions to sell, joint ventures with other buyers and vendors to grow their business.

Weed out ineffective employees and give more recognition to the effective ones, he advises. Ask those employees for input on improving the company.

“You’re not in the fabric business. You’re in the money-making business. What else can you do to make money? Be a full-service provider for your customer,” he says.

Hedley advises against trying to make money by saving money. “There are two kinds of business people: those who try to save their way to success by doing everything cheaper, and those who invest in their future through training, customer service, marketing, and improving their image.”

Carol Brzozowski is a freelance writer based in Coral Springs, Fla.

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