When Paul Schumacher founded Canton-based Schumacher Homes in 1992, the company built about 10 homes a year. Sixteen years later, Schumacher Homes builds more than 500 homes each year and has expanded throughout Ohio and into Indiana, Michigan, Pennsylvania, Kentucky, West Virginia, North Carolina and South Carolina.
Offering high-quality homes at affordable prices has helped lead Schumacher Homes to continued growth and success, but the company’s service is what really attracts customers, Schumacher says. In fact, the majority of the company’s new customers come from referrals.
Schumacher came up with two innovative ideas to make the homebuilding process easier for its customers the Front Door Price Quote System and On Line Design.
The Front Door Price Quote System provides a straightforward approach to the quote process by itemizing more than 200 features so customers can view the price of an item, along with a picture and description. Everything is out in the open from the very beginning so that customers are not surprised by hidden costs, Schumacher says. Customers can experiment with changes in plumbing, lighting, exterior doors and cabinetry and see how that would affect the overall price.
Schumacher says Schumacher Homes was also the first builder in the nation to offer On Line Design, which allows customers to work with a new home consultant to make changes to their floor plan online. They then e-mail the revised floor plan to the company’s in-house design department, which draws the new plan and returns it to the customer within 48 hours.
All customers are also given a DVD that details each step of the homebuilding process, from signing the contract to details about Schumacher’s warranty program.
In addition to taking care of its customers, Schumacher Homes also takes care of its 175 employees. New employees participates in a week of training known as Schumacher University or Schu U, giving them the tools and information they need to succeed. Employees are tested on everything from customer satisfaction to the company’s policies and procedures.
At Schumacher Homes, employees are the key to success, so a well-trained staff leads to satisfied customers.
HOW TO REACH: Schumacher Homes, (800) 813-1116 or www.schumacherhomes.com
The tire industry grew just 2 percent in 2005, yet Terry’s Tire Town increased its revenue by more than 20 percent, created 15 new jobs and opened a new warehouse and a new retail store. President Will Tolerton says that the secret to the company’s success is customer advocacy.
The $150 million company has two mottos: “Partners in prosperity” and “Success one client at a time.” Although those mottos have helped Terry’s Tire Town prosper during it 34-year history, they have been even more relevant recently. At a time when the tire industry is consolidating, Terry’s Tire Town has, in a large part, succeeded by taking care of its customers.
“We recognized that our customers, which are primarily independent tire retailers, were in major jeopardy of being destroyed by the big box mass merchandisers and national retail chains,” says Tolerton, who has been president since 1998. “What we have done is provided them with training to separate themselves from the mass merchandiser.”
Terry’s Tire Town spent more than $400,000 in 2005 training independent tire retailers. Training includes everything from phone selling techniques to technical skills, and making sure that all of the company’s technicians are and remain ASE or TIA certified.
Terry’s Tire Town also has an in-house advertising department to create and place ads for its partners, and it sends a customer service team to each retail store for a week to experience what the tire retailer deals with on a daily basis. Tolerton does everything he can for his customers, because if they don’t succeed, Terry’s Tire Town doesn’t succeed.
In the past 10 years, 20 percent of independent tire dealers have left the tire business; however, of the 400 dealers who partner with Terry’s Tire Town, only three have gone out of business during that same time.
The company rolled out a new innovation in 2005 called Terry’s Direct to further help its independent tire retailers succeed. The business-to-business Web site allows customers to search the company’s more than 200,000-tire inventory by size, brand and vehicle.
“You can select whatever type of an automobile you have, select one of the wheels from our inventory and it will show a picture of what your car would look like,” says Tolerton.
This Web site has been a tremendous selling tool for independent dealers because customers can see what their car will look with a variety of tires at a variety of prices. These prices are one size fits all, Tolerton says, separating his company from the national retailers who often tell consumers one price, then later hit them with extra costs.
If a dealer doesn’t have an item in stock, Terry’s Tire Town will generally deliver it within 24 hours, and it delivers to more than 1,500 customers daily. And if a mistake is made, the company will send a delivery person up to 180 miles each direction to deliver a single tire to fix a mistake.
That kind of service has paid off. In 2005, Terry’s Tire Town opened a 100,000-square-foot distribution center in Richmond, Va., which made $7 million in sales last year, and Tolerton is projecting $18 million in sales for 2006. It also began construction of a 35,000-square-foot retread shop in Alliance and opened a retail store in Hartville.
These expansions made it possible for Terry’s Tire Town to grow from $129 million in revenue in 2004 to $148 million in 2005 in a struggling industry.
But Tolerton never lets his success go to his head. He has been a Little League baseball coach for seven years and sponsors from two to five baseball teams a year. The company also donates to organizations including Alliance schools, to which it gave more than $20,000.
“We appreciate the support of the Greater Stark County area for the last 34 years,” says Tolerton. “We plan to continue to give back to the community, and we appreciate many more years of support.” HOW TO REACH: Terry’s Tire Town, www.terrystiretown.com
Olans and co-founder Lee Masover created TRG in 2000 as a one-stop-shop for retailers who need to open new stores in a hurry. TRG provides clients with every service connecting with opening a store, from the original design to computer installation. And because it is involved with every aspect of the process, Olans says he and his team become an extension of the client’s company.
TRG is growing at a rate of about 30 percent a year, and the $25 million company has helped Weight Watchers, T-Mobile and others open new locations customized to their needs.
Smart Business spoke with Olans about he builds relationships with his clients and maintains quality as TRG grows.
How do you communicate your mission and vision to employees?
They have to understand the fact that the chain is only as strong as the weakest link. If anybody falls down on the job, then the whole process will basically crumble. Every individual needs to be a strong link in that chain so that everything goes off as smoothly as possible.
We like to talk about the fact that no matter whether we are doing our first store or our 100th store, that the experience on the part of the client has to be the same. There is no letting down and saying, ‘Well, it’s our 100th store, we don’t have to worry about performing to the same degree.’ We feel, and our customers feel, that we have to hit it out of the park every single time.
How do you build close relationships with your clients?
Most people in the store fixture business (are) specialists. Those companies only care about their one particular specialty, so they’re given a set of drawings ... they produce what is on those drawings and don’t go any further than that. They’re strictly acting in a role of a supplier.
We’re acting in a totally different role, which is we are now becoming an extension of the company we are working for. The first thing that we do, and we tell our clients this upfront, is we learn their business. We take whatever time is necessary to truly understand what they’re trying to accomplish, so that whenever anyone is dealing with them, it’s as if they are dealing with us. It’s one continuous loop.
How do you learn a client’s business?
We sit down with the key people in the organization, because our success is going to be predicated on having them available to us. We don’t just want to meet with the head of real estate or the head of the construction department. We want to meet with as many top-level people as we can, because we want to make sure that they understand that our success is driven by a buy-in on their part.
We spend quite a bit of time out in the field. If they have existing locations, spending time with them and asking them questions and trying to gather as much information as we possibly can, both good and bad, in terms of the experiences that that client has had [is important], so that we don’t make the same mistakes that have been made previously.
How do you maintain quality?
It’s something that is actually inherent in what we do. It’s what runs through all the individuals who work in our company. If everybody is not perfuming at a top level, then they don’t stick around very long. It’s a team effort, and everybody has to be performing at a high level.
It’s the extra things that you do. We speak with our clients on a daily basis, more typically multiple times on a daily basis. We really maintain close contact.
There has to be a very good fit between what we offer and what our clients needs. We’re very selective in terms of the clients we take on. We want to make sure that what we are doing is what they need and also works in terms of what we do.
We are not a price-driven company, though we are extremely competitive. If someone right out of the gate has cost the No. 1 issue, we say, ‘Thank you very much, but that’s not what we’re all about.’ We’re all about value and service and being that extension of that company, as if we were sitting right there in their office.
HOW TO REACH: Total Resource Group, (847) 329-7900 or www.totalresourcegroup.com
And although former CEO Stephen Myers left the 73-year-old company with a solid foundation of growth and profitability, Orr wanted to take that growth one step further. After analyzing the situation, Orr developed a plan to grow Myers based on five key principles: organizational development, business growth, customer satisfaction, cost control and positioning the company for the future.
“These are the cornerstones of our business, and by pursuing them, we ... position ourselves to deliver greater value to our customers, shareholders and employees,” says Orr.
Depending on people
One of the first things Orr did upon becoming CEO of the polymer products and wholesale distribution company was to organize Myers into five segments, four based on the products manufactured and one based on distribution.
Managing directors were appointed to oversee each segment, and they, along with seven other general managers, are charged with putting together a strategic plan for each business segment, keeping Orr’s five key principles in mind.
Orr uses a set of financial metrics based on percentage of growth in sales and profits, as well as return on invested capital, to evaluate his managers. One of his favorite quotes is “Great managers are almost always great simplifiers they can cut through an argument, debate or doubt to offer a solution that everybody can understand.”
Orr also defines great managers as loyal people who are detail-oriented, who can motivate others and who make tough decisions to better the business. Most of Myers’ general managers have been with the company for years, serving in several different positions.
When Orr talks about organizational growth, his first principle, he talks about having the right people in the right places. Once he has the right managers in place, he holds them responsible for making sure their employees are in the right place and doing their jobs.
“The general managers need to know what their key positions are,” says Orr. “Then you take a look at the people who are in those positions and see if they match up. I’ve always found that there really aren’t bad people. They may just be the wrong people for a particular job, so you may be able to find something that is more suited to them and their knowledge, experience and key aspects that they can do differently. Then you find the right person and put that right person on the job.”
Listening to customers
When it comes to Orr’s second principle, business growth, innovative products that create excitement in the marketplace are essential and allow the company to better serve long-time clients, as well as gain new ones. Orr would like 10 percent of his business to come from new products, and he relies on both employees and customers to come up with innovative ideas.
“It’s the responsibility of the general manger and his team to pull out those ideas from his organization,” says Orr. “I unfortunately only get to visit one of our companies maybe once a year, if I’m lucky. It really falls to those executive management teams to harvest those ideas. New ideas create growth, growth creates profitability opportunities and people are measured on profitability.”
Customers also approach Myers when their needs change or to suggest a new product that could help their business. Although their suggestions help fuel innovation, listening to those suggestions, questions and concerns is a large part of Orr’s third principle, customer satisfaction. Orr says that the way to satisfy his clients is by giving them a complete solution to their problems. When a client suggests a new product or process, Orr sends engineers to research it, then sales associates try to sell other clients on it.
“If the amount of business is there, then we will design and tool a new product,” says Orr.
One example is Myers’ Citadel container. Before it was created, tomato paste processors and manufacturers had to ship their product in wooden boxes that often deteriorated before they got much use. Someone brought this problem to Myers’ attention, and its Buckhorn business created a plastic solution, now known as the Citadel bulk shipping container. The sales team then approached leading manufacturers with this solution, which was instantly embraced by the industry.
There aren’t many things that Myers won’t do for a customer. In fact, the company recently invested in a new manufacturing plant in Brazil to help support a key client’s expansion and it custom-designed plant packaging to help another customer launch new lines of flowers.
Judging by the numbers
Although Myers’ sales were strong, an increase in the cost of raw materials was a serious threat to its profitability. The cost of plastic resin, the primary raw material that Myers uses, was 30 percent higher in 2005 than in 2004, and Orr had to find a way to offset those prices. That led to his fourth principle, cost control.
Orr looked for ways to minimize expenditures and maximize cash flow and offered his employees this advice: Spend Myers’ money as cautiously as you spend your own. Orr also stresses that operating expenses can only be a certain percentage of sales. That number is confidential, but employees know it and are held accountable for meeting it.
“There has been a direct correlation to increased material costs to a decrease in our operating expenses,” says Orr. “All of our businesses are charged with that. They’re held accountable for it. That involves reductions in spending ... and several factories were consolidated. We are doing all the right things from a cost standpoint that we feel is necessary to help us offset, but the way those resin prices have gone up, we can’t save our way to profitability.”
So that price increase must be passed on to customers. Myers was able to recover approximately 75 percent of the $48 million increase in raw material costs, and had these efforts not been made, its net income would have been dramatically lower.
When it comes to the fifth principle, positioning Myers Industries for the future, the four previous principles come into play, as does selling businesses that aren’t excelling and acquiring new businesses that will enhance Myers’ position in key markets.
Orr and his managers are constantly evaluating the different segments and brands within Myers. They meet once a year and discuss where the company is going and where capital should be spent, and financial metrics are set up to keep businesses accountable and on track. Those metrics are reviewed on weekly or monthly, depending on the business.
“We’ve set certain financial hurdles to meet,” says Orr. “If businesses are meeting those, then we continue to invest in those with capital. If businesses aren’t quite meeting those, we ask ourselves, ‘What can we do to get them to that level?’”
If Orr thinks that a particular business may not be able to live up to the standards set for it, he will consider selling it. And if he comes across a company that looks like it will fit well with Myers’ existing businesses, he will consider acquiring it. Myers has a history of growth from strategic acquisitions and that is something that Orr will continue to look for in the future.
Because Myers is essentially a holding company, it can’t approach acquisitions in the same manner as many companies. Orr has to make sure that a strong management team is already in place because Myers doesn’t have the executives to run new businesses. He extensively interviews the leaders of these companies to make sure that they really know and understand the business and that the business can grow.
“We try not to have to put any management into it, because A, we don’t have it, and B, that’s kind of costly and it takes away from people knowing all about the business,” says Orr. “When you bring somebody from the outside, there is a steep learning curve. When you make an acquisition, you don’t want to go through a learning curve, you just want to keep operating.”
Financials also come into play, but Orr needs to know that a business can continue to grow, not just that it has grown in the past. With proven leaders in place, Orr has a better chance of predicting that business’s profitability.
Finally, he needs to make sure the potential acquisition’s product will fit in and add to Myers’ existing products.
“We virtually do everything on the plastic side of business and quite a bit on the rubber side, so it helps that an acquisition has a process that we know and understand,” says Orr. “We also look at potential customers in markets to see if there are any synergies there with our other businesses.”
If all of those factors are in place and the business looks positioned to grow and make money, Myers will acquire it. Many times acquisitions are a cheaper way to offer new products because it doesn’t have to buy equipment or find employees to create that product.
One year after taking control of Myers Industries, Orr has taken the first step in following in Stephen Myers’ footsteps and leading the company to continued growth and profitability. His strategic business evolution program has helped the company take a more disciplined approach to growth, which contributed to an increase in revenue from around $800 million in 2004 to more than $903 million in 2005.
Net income increased 25 percent in the fourth quarter and resulted in the highest fourth-quarter earnings in six years.
“What really pleases me is that Steve selected me about five and a half years ago to come into Myers with the idea that we would eventually have this transformation,” says Orr. “...It’s quite an honor when you take over a business that has been family-run for almost 75 years, and I’m trying to continue that tradition.”
HOW TO REACH: Myers Industries, (330) 253-5592 or www.myersind.com
His previous company was based in New York, but by headquartering his new company, Zookbinders, in Chicago, Zucker reduced costs and positioned himself as the only photo album company within 1,000 miles.
Low prices initially helped Zookbinders gain clients, but great customer service has retained them. And Zucker stresses great customer service not just in initial dealings with a client but also when things don’t go according to plan.
“As a manufacturer, there are occasions when we are late on an order or that we’ve done something wrong,” says Zucker, president of the $6 million-plus company. “Our clients know that the customer service reps are their advocates. We view a mishap in manufacturing as an opportunity to show off how we’ll jump through hoops to satisfy a client, kind of turning a negative into a positive.”
Smart Business spoke with Zucker about how he initially attracted clients and the importance of customer service in a growing company.
How did you market yourself and create a client base?
We’ve always been a quality house from Day One, and this was a benefit that we promoted aggressively. However, since the cost of doing business in Chicago was a lot lower than what we were used to in New York, we were also very price-competitive.
We changed the pricing structure on the way our product is sold. Industrywide, prior to us starting, it was very confusing. There were a lot of nickel-and-dime charges, and quite honestly, it turned off a lot of potential clients.
We came in and simplified it and basically said all-inclusive pricing. This album with this amount of pages costs this, period. And that really helped us out.
Our product line was also very simple in that we offered choices only on items that we thought were important to the client for example, color of leather for their album cover. And we didn’t offer choices on less important items. This kept our costs and mistakes down and allowed us to train new colleagues quickly.
The last thing we did was, initially, our prices were way below market because we wanted a flood of business and the good buzz that comes with that.
How do you encourage your employees to excel at customer service?
We remind them that outside of work, they change hats and become the customers. They have many interactions, both positive and negative, with customer service reps in their daily dealings.
We frequently discuss why they continue to give business to the same companies, whether it’s a restaurant, a dry cleaner, a beauty salon, and customer service is usually a driving force. One of my personal experiences with customer service reinforced the power of good customer service.
My family took a trip to Seattle and we stayed at the Fairmont Olympic Hotel. We experienced such superior service that I sought out the hotel’s general manger to compliment him. I was half joking when I told him that I would like to bring my entire customer service staff to experience this level of customer service.
He was flattered and offered to have his staff put on a training program for our staff. We flew a staff of 14 to the Fairmont and had an extraordinary customer service experience.
How has that helped you better serve your clients?
We had the hotel’s director of operations put on a training presentation for us in which they shared some of their secrets and training tips. The one question everyone on our staff wanted to ask was, ‘How do you deal with clients that are unhappy?’
The presenter said, ‘Get past the tone and volume and listen to the message.’ And that was the golden nugget. They shared with us about how they trained their staff on how to make eye contact and how to use the client’s name and be proactive.
One of the other things we learned is you have to recruit talent. If you don’t recruit the talent, it is really hard to coach and take someone who is not at the talent level that you want to do the job that you want.
One of the other benefits was it was a morale booster and a team builder. As the president of the company, I don’t interact with everyone here on a daily basis. It was my personal agenda to spend a little bit of time with everybody and get to know them better in a less formal setting.
I think that was as big a benefit as the formal training. HOW TO REACH: Zookbinders Inc., (800) 810-5745 or www.zookbinders.com
Education: Bachelor’s degree, business administration, Troy State University, Alabama; completed graduate programs at the Air Command & Staff and Air War College
What is the biggest business lesson you’ve learned?
Recognize the importance of people. I think that’s extremely important. From being in the Air Force for 38 years, (I learned) that it’s one thing to motivate people to do a job, and it’s another thing to motivate people to go to war. It all comes down to people.
Whom do you admire most in business and why?
When I retired from the Air Force, the reason I wanted to work for Lockheed was a man that I think has the highest integrity of any businessman that I have ever seen. His name is Dan Tellep, and I hold him in high esteem. He was the CEO of Lockheed at the time.
On the skills a CEO needs to succeed: You have to have integrity to be successful. You have to be honest to be successful. You can’t be a little honest and you can’t have a little integrity. It’s tough, but those are two areas you need to concentrate on. If you do, you will be successful.
There are two theories of leadership that I ascribe to. One is called the leadership diamond. If you can picture a four-sided diamond, the characteristics displayed there are vision, courage, sense of reality and integrity. The composite of all of those is leadership. I try to embody those characteristics the best I can. That’s not my theory someone else developed it but I read about it 15 years ago and it seemed to resonate, and I tried to live up to that.
The second theory of leadership comes from the book “Good to Great,” a very prominent management book. It described leadership as a paradoxical combination of professional will and personal humility focused on the best interest of the organization. If you can think about it that way, it’s a determination to serve the best interest of the organization and an ambition that is not focused on yourself. Any time you start to think about what is in your own best interest, you are skewing what you might do. When you get in the state of mind to do that, it goes back to one of those leadership characteristics, and that is integrity. If you truly have integrity when you are responsible for leadership in a company, you are not looking after your own interests. Focusing on the best interests of the company has always worked out well for me personally, either by preparing me to do something else at another company or performing well in the company that I am responsible for or an employee of.
On communicating vision:
You have to be clear and simple. It should be easy for everybody in the company to understand the vision of the company. When it gets too complex, then people can’t relate it to their own job every day. The vision of our company is, we serve together to provide the care and choices that make a difference in the health and wellbeing of the lives we touch. People can relate to that.
First of all, you develop a vision that is inspiring, something that can really resonate with people. You make it simple, and you speak it simply. And when you show it on a graphic, you show it very simply.
The leadership of the company must embody that vision. If I speak those words and people in the company see me or other members of the leadership team behaving in a way that is contrary to that, then that vision will mean nothing to the employees that work here. If it means nothing to the employees, then it won’t mean anything to our customers we won’t be able to make those words a reality. You have to develop a single vision, and the leadership of the company, and ultimately, all employees, have to embody that vision. And then you have to repeat it, over and over, time and time again.
Employees were involved in the development of that vision. It’s just like anything else. If people are involved in the development of something and it’s just not foisted upon them, then it means more to them. It means more to people in the company when we demonstrate that employees from other elements of the company, not just the leadership of the company, were involved in developing something.
Create a culture where people expect one another and expect the leaders to embody the vision. A culture where when people see, at all levels of the company, if people are not embodying it or if some of our business principles aren’t true to that vision, then they will speak up, and they are encouraged to speak up. We have cultural characteristics that are published and were developed with input from all levels of the organization and are incorporated into the performance evaluation of employees. People are expected to live those cultural characteristics.
On dealing with employees:
Be approachable, be one of the people. Don’t try that, just live it. Don’t be somebody that is stuffy and sits in the office someplace and thinks they’re living in a different world from the staff employees.
I really believe in concentrating on the positives of people. Not that in a performance evaluation you shouldn’t bring certain things to the attention of people that they could do better, but when you concentrate on what they do well and you nurture their talents and their creativity and thank them for what they do and reinforce the good that they do, you are going to be so far ahead of concentrating on things that people aren’t doing well. Most people know what they could do better. Concentrate on what they do well and encourage them. It’s wonderful to be encouraged, and it’s wonderful to work in a company where encouragement is part of the culture.
HOW TO REACH: Care Choices, (800) 677-6350 or www.carechoices.com
In January, the president and CEO of health care solutions company Allscripts jumped at the opportunity to acquire A4 Health Systems, a move that doubled the company’s clinical software revenue and its work force.
Tullman says it can be dangerous to grow only through acquisitions but finding the right one can be a great move. Although Allscripts was already growing rapidly, the acquisition introduced the $120 million company to clients it didn’t have the product offerings to cater to before and added 1,600 health care organizations to its client base.
Smart Business spoke with Tullman about the process of acquiring a company and how acquisitions will fit into Allscripts’ future.
How do you decide which companies will make good acquisitions?
We always begin by looking at the people and whether there is a good cultural fit. A4 is about our size in terms of clinical revenues, they were close to our profitability, but most important culturalwise, they have a very entrepreneurial cultural that is very client-focused, and they were very tough competitors in the market. They have about 400 people. We have about 400 people.
We first looked at people and leadership. John McConnell, their CEO, is a great leader and has built more than one successful company, and he will be joining our board of directors. Their sales force is the best sales force in the market they compete in.
We thought there was a very good people connection, a very good cultural fit, and then, in terms of business itself, they were the leading provider in the markets they were in. Across the board, this was as close to a perfect acquisition as you can find.
How do you combine corporate cultures?
What you try to do is take the best from each of the organizations and blend them together to create a new culture kind of one plus one equals three. To give an example, as we evaluated financial systems, even though we were the acquirer, we thought their financial management system was better than ours, so we will convert to theirs.
In other systems, we might ask them to convert to ours. If you sell different products in different markets, it’s not like you have to combine everything, especially overnight.
How will you lead the company now that it has doubled its number of employees?
Our company has not only a solid management team, many of whom have worked with me in at least one other company, but in addition, we grew a group of secondary managers who are now ready to step up. That said, we expect that the leadership at A4 will continue to play a vital role in their success and in our company.
We also expect that some of our young managers will also step up and play an increasingly important role. Once again, it is a blending of the organizations.
What are the benefits of growing through acquisitions as opposed to internal growth?
Good companies do both. They want to make sure that they are in a business that is growing rapidly and ours is and that they’re growing internally. We have consistently grown between 40 (percent) and 50 percent or more internally.
Good companies are also opportunistic. When the opportunity came to double the market size, which allows us to be more responsive to all of our customers and invest more in research and development, that was an opportunity that was too good to pass up. I think good companies do both they make sure that they have an internal growth strategy, but they also look for acquisitions that are thoroughly valued and that would fit with the company.
How do acquisitions fit into your growth strategy for the future?
We don’t need to make an acquisition to grow because our own internal businesses are growing rapidly. On the other hand, we are going to be opportunistic. To the extent that great opportunities come along, we expect our industry to continue to consolidate, and we are going to look very closely for opportunities.
This is not a growth-by-acquisition strategy. This is a growth strategy that can be helped by appropriate acquisitions, and there is a very big difference.
HOW TO REACH: Allscripts, www.allscripts.com
Spachman couldn’t agree with his boss’s ideas, nor could he change them, so rather than compromise, he left the company to start his own. But instead of offering typical insurance coverage, he decided to focus on small, specialized niches whose needs were ignored by most insurance companies.
“We wanted to operate in business markets that were underserved by the mainstream insurance companies,” says Spachman. “These markets were usually too small, too remote and just too different to attract the attention and interest of the larger household name companies. They are smaller markets, but we are a smaller company.”
When Spachman started National Interstate Corp, he provided passenger transportation insurance. Over time, he expanded into other niches, such as recreational vehicle and marine insurance. By going after these smaller markets, Spachman could essentially eliminate competition by offering customized coverage that other insurance companies couldn’t.
In 2004, National Interstate reached $171 million in revenue, and Spachman continues to grow his company by expanding into new niches, maximizing revenue in existing ones and adding new services.
Finding a niche
Just because a niche is underserved doesn’t mean it will be a good business opportunity. Spachman says the first step in finding the right niche is to pick an industry, such as the personal auto industry, and then find a subset of people in that industry who aren’t having their needs met by traditional insurance companies.
In the case of the personal auto industry, Spachman focused on owners of motor homes and travel trailers.
“A lot of companies won’t write coverage for those units because they are so different, unique, unusual, and the market opportunity is limited compared to standard personal auto,” says Spachman. “There are really just a handful of companies who write specialty insurance products for recreational vehicle enthusiasts.”
Because the majority of insurance companies focus on traditional insurance needs, it is not difficult for National Interstate to find niches that need customized insurance. In fact, many niche opportunities are presented to Spachman by outside brokers and agents.
“We have developed a reputation for being innovative and creative and responsive to market opportunities,” says Spachman. “Agents, brokers and consultants will come to us and say, ‘Would you consider this unique insurance opportunity?’ Most we don’t do, because we find something about it that we think is unfavorable, but every once in awhile we find one that we think we can support, and it becomes a successful business opportunity for us.”
Spachman mainly relies on his employees to find new niches and explore the possibilities.
“We always have two or three product opportunities on the drawing board,” says Spachman. “Part of the management here is to decide when we can enter a new market, what the opportunity is and whether our infrastructure our ability to perform the business that we are already in is ready to take on more.”
To prepare the infrastructure for new niches, National Interstate is constantly growing its accounting, IT and claims settlement capabilities. If the infrastructure isn’t ready to support the new niche, it will fail. So although there are plenty of opportunities to expand into new markets, Spachman has to safeguard against taking on too much too fast.
“You grow too fast when the infrastructure starts to deteriorate or isn’t as responsive or capable as it has historically been,” says Spachman. “When we see it starting to tax our infrastructure, we back off on the top-line growth. We might wait to introduce a new product until the rest of the company can catch up with us.”
Spachman has grown National Interstate between 15 percent and 25 percent each year. He says he can maintain that kind of growth over a long period of time, but anything beyond 25 percent would be too difficult to manage several years in a row.
And even when a good growth opportunity is identified, Spachman has to wait for exactly the right time to enter the market.
For example, in 1994, National Interstate employees identified a key niche the Hawaiian transportation market that would contribute to the company’s growth. There was an obvious need for a company to write transportation insurance in Hawaii because the only insurance available was through the Joint Underwriting Association, an organization of insurance companies that provides insurance for markets that otherwise would have no coverage.
“Much of the insurance business is cyclical in nature, meaning that the insurance companies that participate in the markets tend to raise or lower their prices to maintain or gain market share,” Spachman says. “The best time to enter a new market is when the market is hard, when competition is limited, prices are high, profit opportunities are plentiful. There are lots of things you have to consider when you are thinking about entering a brand new insurance business.”
Spachman concluded that for National Interstate to be successful in Hawaii, he would have to open an office there because Hawaiians tend to buy locally. But the transportation insurance market alone was not large enough to support a separate office. Spachman knew there was an opportunity in Hawaii, but it wasn’t a good time to take advantage of that opportunity.
The right time turned out to be a year later, in late 1995, when many insurance companies were downsizing or withdrawing from lines of business. One of those companies specialized in small business insurance, and Spachman took over where that company left off. By writing insurance for both transportation risks and small commercial businesses, National Interstate had the support and clients necessary to warrant opening an office in Hawaii. Today, National Interstate is the leading writer of transportation insurance in Hawaii, Spachman says.
However, even when the infrastructure is ready, a new niche is identified and the timing is right, success in that niche is not guaranteed. Spachman learned that firsthand when National Interstate entered the truck insurance market by acquiring a company in suburban Chicago.
“It was a mistake,” says Spachman. “We were unsuccessful in getting the management of that company to manage that business the way we manage our business, to take our approach. We couldn’t teach those dogs new tricks.”
It took Spachman about a year to realize that the acquisition was hurting, not helping, his business. Rather than waste any more time or money, he fired everyone and brought what was left of the business back to his Richfield-based headquarters. He then hired people who he had previously worked with and were familiar with National Interstate’s culture and had experience with truck insurance.
Although Spachman’s actions were drastic, he succeeded in turning the truck insurance business around, and that experience will affect how he grows his company in the future.
“We are certainly leery of (acquisitions),” says Spachman. “We view acquisitions as not the preferred way to grow because of the difficulties we had in the past. We prefer to grow by organic growth.”
Spachman’s growth strategy for National Interstate also focuses on expanding the company’s existing product lines by providing existing clients with more coverage and going after new clients.
National Interstate might start off by offering basic insurance coverage, and as it learns more about that niche and becomes more well-known by clients, it can provide more services and expand its influence on those customers. Spachman’s employees focus on a single niche or a single type of insurance to ensure that they are really tuned in to what that market’s needs are.
“It becomes their whole reason for being here,” says Spachman. “By having these people focus on a small market opportunity, we can bring some intensity to their focus. If we were organized along traditional, functional insurance lines, like claims, marketing, underwriting, that kind of thing, it would be difficult to provide enough intense focus on a particular product line to succeed.”
National Interstate also makes it a point to constantly market to new clients in existing niches to show them how their needs can be better met.
“Every one of these different niches that we enter has its own marketing strategy,” says Spachman. “We don’t use a single strategy for everything. Some are very similar, but we basically try to sell our products to customers in ways that are most comfortable for the customer.”
That might be through agencies owned by National Interstate, brokers, captive agents, independent agents or the Internet. Spachman says that he uses one or more of those strategies depending on his analysis of the end user.
For example, he uses independent agents and the Explorer RV Agency, a captive agent, to sell insurance to motor home and travel trailer owners. The independent agents specialize in selling insurance to RV owners and generally have relationships with RV manufacturers, dealers and travel clubs.
But as times change and more and more people are turning to the Internet, a growing percentage of National Interstate’s RV business is coming from the Explorer RV Agency, which sells insurance coverage through its Web site.
No matter what approach Spachman takes, quality is what matters, so he makes sure that his employees are communicating to clients and potential clients every step of the way, starting with the marketing. So even though Spachman uses brokers and agents, he doesn’t rely on them to communicate his message, and customers appreciate that they are dealing with National Interstate employees firsthand.
“(Customers) know who is accountable for providing good service and they know who can fix it if they’re not getting it,” says Spachman. “That’s a good feeling for a large commercial risk that pays a lot of money to their insurance company and demands service and expects it.”
However, Spachman ran into a problem when he couldn’t find enough qualified employees to help run his company.
“Contrary to popular belief, Northeastern Ohio is not an easy place to attract people from other parts of the country to come to,” says Spachman. “We’ve has limited success in getting someone to move from, say, Dallas, Texas. Those are the downsides. The positives are we are blessed with good educational facilities; local colleges around here are plentiful.”
Spachman made the strategic decision to hire promising graduates and provide them with the training they need to be successful at his company. Career Track is a three- to four-year program in which participants develop skills in one of three core areas: claims, IT or underwriting.
“At the end of the program, they are an experienced professional, and now we have someone that we can build on and may be a candidate for a future project manager job,” says Spachman. “That strategy was initiated here a little bit out of necessity, but it was a preference, too. It was a way for us to find high-potential people and develop their skills and their approach to work in a way that matched our needs and our culture.”
This hiring strategy has worked well for Spachman as he continues to grow his company by moving into new niches, adding new services and attracting new clients.
“Every business and most personal exposures need insurance,” says Spachman. “We always have opportunities to grow. This is a huge industry, and we are a very small participant in it.”
HOW TO REACH: National Interstate, (800) 929-1500 or www.nationalinterstate.com
Education: Did not attend college
What is the biggest business challenge you’ve faced, and how did you overcome it?
The biggest challenge that we as an organization have faced is, how do we transition from being an entrepreneurial-driven organization to becoming a larger, more management team-focused and -driven organization.
Jumping from one level to the next level is what any business finds difficult in growth. Managing the growth in a controlled fashion and being able to make that transition at all is No. 1.
No. 2, credit to the founder, Bill Hutter, and credit to a lot of the people here, is that this organization is transitioning and has transitioned into an organization that has grown beyond just being entrepreneurial. The good news is that we have retained that as part of our culture, yet the organization is not 100 percent dependent on the entrepreneur and the founder.
That is a testimony to Bill. A lot of entrepreneurs are a stumbling block for not allowing organizations to attain the level of success they could. Bill has actually hired, trained and empowered people in management capacities to help grow the company.
What is the most important business lesson you’ve learned?
One of the things that Bill (Hutter) has shown me is that when you are young and trying to climb the corporate ladder, you really need to be humble and grateful. Out of those things, you are able to enjoy the accomplishment. I really believe that your success comes from the success of others.
Whom do you admire most in business and why?
There are two people. My mother is one of them. She is an incredible businessperson. She showed me the importance of perseverance.
She also taught me the ability to be patient. Sometimes you have to wait and be patient for a solution to come around.
Another person is Jim Near, the former CEO and president of Wendy’s. What I really admire about him is how he was able to take business basics and principles and translate them from a small stand-alone business to a huge restaurant chain. I also admire his humbleness and graciousness.