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Too big, too fast Featured

10:09am EDT July 22, 2002
Declan Smith and Pete Anderson purchased Extrusion Services Inc. five years ago when it had 10 employees and nearly $1 million in annual sales.

In 2 1/2 years, sales at the extrusion manufacturer and fabricator tripled. That rapid growth left Smith, Anderson and their employees in a blur. Quality had dropped, morale was low and the partners were exasperated.

One day Smith and Anderson realized they barely recognized the company they had once been so proud of.

"With rapid growth," Smith says, "you spend most of your time filling orders. It's difficult to detach yourself and look at the big picture."

Two years ago, they did just that. The pair put a moratorium on growth and forced themselves to reclaim their business. Today ESI has 30 employees and nearly $5 million in annual sales. Smith is CEO; Anderson is president.

They don't pretend to be a model business yet, but Smith says, "I think we're a whole lot stronger now than we were six months or a year ago." Here are some of the ways they did it:

Create a sense of ownership

ESI designs, manufacturers and assembles some 100 pieces of custom equipment a year for the rubber and tire industries.

ESI had developed loyalty among manufacturers who wanted quality with a personal touch. On many jobs, it wasn't unusual to have nearly every employee involved at one point or another.

"A lot of the guys in the shop knew the customer when they walked in," Anderson says.

When quality began to suffer, they hired a quality technician to check the final product. But more importantly, they adopted a system that tags every job with a sign-off sheet: Each employee must sign off on his portion before sending it down the line.

"When people have to put their name on something, they take more pride in it, and they're going to make sure it's right," Smith says.

The system started in late 1997. Today a piece of equipment might contain anywhere from 10 to 25 different sets of initials. "They like the approach, but they had to get used to doing it," Anderson says.

Back that ownership with money and authority

It's one thing to expect your employees to take ownership; it's another to show them the feeling is mutual.

Two years ago the owners launched a 401(k) program with benefits paid based on profits. Their money became the employees' money.

In addition, Smith and Anderson tried to recreate the atmosphere that existed in the good old days. With only 10 employees, there were few formal meetings. When workers had ideas, they simply spoke up. If people thought the idea was good, it was rolled out the next day.

ESI drifted away from that, to the point where many didn't feel like they had input.

Today, Smith and Anderson frequently ask the 16 shop workers what can be done better on a given job or with a certain procedure. "Maybe it's something we hadn't thought of," Anderson says.

The owners jumped on the chance to get employee input when they moved three years ago into a new 25,000-square-foot facility off Home Avenue.

Employees were asked ways to make the layout of the new building better.

"If the employees feel they have more control over their work," Smith says, "they'll do a better job."

Don't forget to talk

ESI had few systems for communicating. It wasn't critical in a workplace where you could yell across the shop and everyone could hear you.

But as sales mounted and employment grew, that tin-can-and-string method broke down.

The engineering department overbooked projects, assuming the shop would want to work overtime. Or a shop worker would learn that a customer was upset about an order, but wouldn't tell the salesperson. Then the salesperson would walk in for a service call and get blindsided by the angry customer.

"We were always rushing and running so fast, the communication started getting less and less. We had to make sure we got it back, like it was when we had only 10 people," Anderson says.

Design meetings now include both the engineers and the shop workers. "Before, engineering would meet by themselves and then say to the shop, 'Here, build it,'" Anderson says. ESI has found that jobs can be completed better and faster when everyone involved in a job helps plan it.

Communication issues involving customers have been addressed through the hiring of a customer service liaison. All customer service issues come through that central source, and she distributes memos and information to everyone.

Smith still shakes his head remembering times when two people who sat next to each other didn't always pass along information. They just assumed the other knew. "It isn't just a big company problem," Smith says.

Realize employees work to live

Three years ago, many ESI shop employees were working 50 to 60 hours a week and salaried employees were topping 70 hours. Smith and Anderson, meanwhile, were working what they called "unproductive" 80-hour weeks.

While some shop workers enjoyed the fat paychecks, the harried atmosphere affected morale and efficiency, Smith says.

"You burn people out that way," he says. "Some people quit, and we had the potential for losing people we didn't want to lose."

Smith and Anderson say they had no choice but to nearly double the shop positions, and today they keep shop workers' weeks at about 45 hours. In addition, they allow each worker to set his own starting and quitting times, as long as it's the same every day. This allows workers to accommodate personal or family needs.

As for Smith and Anderson, their work weeks have slimmed to 55 to 60 hours, almost on their own. Anderson says much of their time was spent handling problems and unexpected phone calls. As the management of their company improved, the demands on their time have dropped.

You must spend money to save money

Smith and Anderson wrestled with creating new positions for various reasons.

The sales department has expanded from one to four as ESI has stopped its reliance on manufacturers' reps. On the engineering side, the company had two engineers five years ago. Last year it had four. Now it has eight. Smith and Anderson hope that translates into higher sales, because they believe ESI will be doing such a better job on design and quality.

"It was one of those decisions," Anderson says. "'Which comes first-the chicken or the egg?' We just said, 'This year we've got to bite the bullet.' Now the pressure is on."

The workload on the engineers before might have led to some of ESI's quality problems, he says. Now the engineers have a longer and more relaxed concept-and-design phase, and they're not pressured to spit out designs on impossible deadlines.

"If you don't have time to do something right on the front end, you'll have to take care of it on the back end," Anderson says.

"Sometimes before we would just make the same mistake over and over again, and that would cost money ... These positions are well justified."

Good customer service is proactive

ESI historically had few written procedures or systems for documentation. That wasn't a problem when ESI had only 15 regular clients. The details were easy to remember.

"We were a little bit loose before because everybody knew how to do things, or at least we thought that," Anderson says.

In addition to the new customer service position that feeds communication through a single source, ESI now keeps a central filing system on each customer with information such as service calls and warranties. "It's just better documentation and relying less on memory," Smith says.

Part of the documentation is a structured customer service follow-up procedure, including calls the day of delivery and a week after delivery to ensure everything was received, to check whether the equipment works well and to answer any questions. ESI also asks for feedback on the design.

"We had an erratic follow-up system before," Anderson deadpans. "If you remembered, you called them."

This new process helps the custome r and ESI. "You learn from what you did right. You learn from what you did wrong," he says.

Adds Smith: "We're finding out some things we might not find out otherwise."

And everything is documented. A suggestion now might help with another job next month or even with a job still in the shop.

Smith and Anderson can't help but look ahead as their potential market grows beyond its North American core. They hope to expand international sales from 15 percent to 20 to 25 percent next year. Overall sales could double again five years from now.

But the partners have a bigger goal. "One of the things we want to make sure we do now-that we didn't do before-is control that growth," Anderson says.

"Improvement is a continuous effort," he adds. "We've made more steps forward than backward, so we're OK."