Just over a year ago, SDC Nutrition and Reaction Nutrition merged.
While SDC was primarily a powder manufacturer of nutritional and health supplements, Reaction manufactured capsules. The deal aligned five major brands and contract manufacturing under SDC, which was about 30 percent larger.
“What that’s done for us is to be able to offer both capabilities to our customers and their previous customers, as well as fill capacity of our new facility,” says CEO and Co-founder Sean Marszalek.
He had only ever done a small brand asset acquisition, which included five employees, so he wasn’t sure what to expect.
Combining the two cultures into one was a challenge. Both companies had similar headcounts of about 40. Today, SDC has about 90 employees.
“It took more time than I expected to feel like one company,” Marszalek says. “We had similar businesses in the same industry. I didn’t think it would take as long.”
His initial thought of six months turned into 11 months before it felt like one company, with people working together, and fluid teams and departments.
“We did bring in some consultants initially to help with the integration, from an operational side,” Marszalek says. “It was a lot of training. It was a lot of management being involved hands-on.”
SDC’s SOPs and quality systems were ahead of Reaction Nutrition, so it took effort to get the new employees up to speed on those standards. But the new company did adopt Reaction’s enterprise resource planning system. SDC was planning to upgrade its ERP, but Reaction’s custom-built system slowed that process down, which he says has been a big help.
Reaction had two facilities, while SDC had one. Since the merger, one Reaction location has been shut down and the other is being used as a warehouse.
While the employees were hesitant when the merger was first announced, Marszalek feels they handled the communication well. Both management teams set meetings with each department at all three facilities to share information and answer questions.
“We let them know, and that way they heard it from management’s mouth, of what we were doing and why we were doing it,” he says. “We knew that there wasn’t going to be much reduction in headcount prior to the merger, so we were able to rely on that. There weren’t going to be a lot of redundancies because we had two different types of operations that needed the people there.”
Overpromised, under delivered
One surprise, though, was the influx of business when SDC could sell its customers capsule products and Reaction Nutrition’s customers powder products.
“We were surprised at the amount of business that came in all at once, post-closing, and that caused us some backlog issues and exposed gaps that we had in our operations or capacity or equipment,” Marszalek says.
If he had to do it over again, he would have taken more time to look at all of the potential business and structured a timeline around bringing that business in.
“We knew what our business was and we knew what their business was, but the synergist business, we didn’t realize what that could do by trying to bring that all in at one time,” he says.
Companies need to understand that synergy and how things could go wrong quickly. They shouldn’t try to rush the integration. Otherwise, lead times will increase and orders will be delayed.
“Our biggest lesson was just being overexcited about the opportunity and not realizing that we could have maybe planned and taken a little bit more time to grow the topline of the business,” Marszalek says. “Because, quite frankly, there were moments where we felt like we overpromised and under delivered for customers. We had to make good on that in the past few months to get back in good graces and make sure we didn’t lose those customers, or try to win back customers that we lost.”
Pushing to improve
Now that the integration is complete, SDC is examining efficiencies and operating expenses.
Executives are focused on what equipment is necessary, how many people are needed and how to improve operations, as business has leveled off and is no longer backlogged, Marszalek says. For example, they are looking at how to sequence properly so SDC has fewer changeovers.
Personally, Marszalek has brought in experienced people and tried to stay out of their way, trusting that he had the right people handling the right pieces of the business. Over the past six months, however, that’s changed. He’s decided to become involved.
“Not because people weren’t doing their job, but just my input and insight and the way that I challenge them elevates their thinking process and their ability to execute,” he says.
While some founders struggle to get out of their people’s way, Marszalek found the opposite to be true.
“Now that I’ve started popping in more meetings and attending more calls and having more one-on-one time, the feedback that I’m getting is, ‘Sean, no, keep pushing us because the way that you challenge us makes each department better,’” he says. “They wanted me more involved because my expectations are really high and I think it makes them better.”