It was 2008, times were tough, and Ruscilli Construction Co. Inc. saw that many contractors were submitting rock-bottom bids just trying to keep their heads above water. While it may have been tempting to follow suit, the family-owned company refused to throw away what four generations had built into a total construction resource. It was a calculated risk.
“There was a lot less work out there to go after, and as a result, we witnessed a lot of our competitors change their approach to the business and their culture,” says Lou Ruscilli. “They were doing this in an attempt to survive.”
Before 2008, the business of Ruscilli Construction was hitting record highs as far as the volume and the number of projects. Then it appeared the plug had been pulled.
“In our industry, just like a lot of other industries then, we all took a lot of things for granted,” he says. “I hate to say that the phone would ring, and you would pick it up — don’t pass up the opportunity. We were always providing fantastic customer service. But how that was communicated down to the project level and how we evaluated our project teams, as it relates to how that experience was for the client, I don’t know if we were drilling down quite that far.”
The company, operated by Jack Ruscilli, chairman, his son Lou, CEO, and his nephew Tony, president, took a frank look at its culture, saw what needed to be done and is now actually back to pre-recession levels in terms of volume.
“We feel that our company is busier than the majority of our competitors,” Lou Ruscilli says. “The work that we have is good work and with very good clients. In 2012, we were in five states. In 2013, we will be in at least 10 states. Our increased workload has allowed us to attract very talented professionals from all over the nation.”
Here’s how drilling down farther brought substantial benefits for the 72-employee company, which tallied $100 million in revenue for 2012.
Find the right route
Once a recession hits and business drops off, a business has to act — and fast if it wants to cut its losses. But the knee-jerk reflex action may not be for everybody.
“Our competitors tried to keep the same number of people, the same number of volume and just go after just about everything,” says Tony Ruscilli. “It became more of a conflicting relationship than a team relationship. That wasn’t the approach we wanted to take.”
“We made a very conscious decision at that point not to change the way we did business but rather to find new ways to bring value to our clients,” Lou Ruscilli says.
If a company has been around for some time, looking at its history may give a clue about how the current problem could be handled. Take for example when Ruscilli Construction drew up its core values in response to some concerns during the 1980s when the company saw a big growth spurt.
“We probably had hired about 100 people,” Jack Ruscilli says. “I remember sitting at a table with the managers, a lot of people I didn’t personally hire. I saw a leaking culture, and I didn’t like it.”
This was an opportunity to lay down the company’s core values, what is called The Ruscilli Way. The values include safety, integrity and honesty, but more importantly, they are what the company stands for.
“We had some people who didn’t have the same values that we did,” says Jack Ruscilli. “They came from other companies, and we weren’t doing things in unison. But today, The Ruscilli Way is used when we are hiring someone. It is discussed with them to make sure we are up front, that they understand how we intend to do business.”
Customer satisfaction would be something that was openly discussed throughout the company and constantly reinforced.
“You have to go out and challenge your associates to enhance your clients’ experience, primarily through better communication and responsiveness,” Lou Ruscilli says.
To do that, one of the most effective methods is to create a sense of ownership.
“That meant our project managers, our project engineers, superintendents and field labor had to take ownership as if they were owners of the company and were responsible for how the clients would be treated,” Tony Ruscilli says. “Go the extra mile; do whatever it takes.”
Focus and communicate
Communication in any form motivates people. That’s an accepted observation inside and outside the business world. The key to using it effectively to achieve your goal is narrowing your focus to find the most effective forms of communication.
Once Ruscilli Construction realized its best route out of the recession was through a refocus on its core values, it was a simple but extensive task.
“It really started with communicating with our associates — sitting down with them, taking them to lunch and really making sure that they understand our definition of client satisfaction and that they understand our definition of responsiveness,” says Lou Ruscilli. “And the folks who didn’t understand it, well, they pretty much are gone.”
To achieve that understanding, a key point to make is that it is a win-win situation.
“It is much easier to manage and be a part of the team that is a team working together for the same goal,” Tony Ruscilli says. “We are all working toward the same end, and it is more of a team atmosphere than it is an adversarial relationship. So for them, it’s an easy buy-in, an easy way to say, ‘Hey, this is the way I always want to be a part of any project or any team.’”
There is one point to remember about customer satisfaction versus making money — profit isn’t everything.
“Stress to your associates so they all understand and appreciate that profit isn’t the No. 1 driver around,” Lou Ruscilli says. “It is customer satisfaction. It is relationships. You satisfy those two criteria, and at the end of the day, the profit will come — even more so, in the form of repeat clients.”Ruscilli Construction didn’t panic as the recession roared and now has pre-downturn volume levels to show for it
A new emphasis on core values, as it were, can repair broken links in the chain of success.
“As we started building the volume again, we just have had a wonderful selection of other new hires that have come to work for this company because of the fact that it’s really a revitalized company and it’s progressing and doing more and more business,” says Jack Ruscilli.
Happy customers mean more business. One of the best tools to determine customer satisfaction is a client survey. Ruscilli Construction makes note of accolades or beefs about its managers and associates with surveys throughout the entire project. If there is something that is a problem, it can be addressed at the time.
“All throughout the project we give them a chance to say, ‘Hey, I don’t like this, or should we consider this?’ says Jack Ruscilli. “The objective is that when we are done, we have a perfectly happy client. And if there is something that comes up wrong, it is addressed, and it is taken care of immediately so there is no excuse for us or the client not to have a great project.”
If your company is serious about improving its perception among clients, you should be able to accept criticism given in a survey or by other means.
“I can remember one engineer saying, ‘You mean you would actually put yourself up to that kind of scrutiny?’” Jack Ruscilli says. “And we said yes! You want that. You cannot improve if you don’t know what you are doing wrong. You want to nip problems in the bud, and that’s what we to do on the job site, every step of the process.”
The results of the refocus on Ruscilli core values have been beyond expectations.
“It has been amazing,” Jack Ruscilli says. “I have had some of our associates even say that it has affected them at home; they are taking a different look at how they are acting and how they are treating people.”
To carry that one step further, re-examine the prospective clients.
“Now we are looking for those same values in our clients,” Lou Ruscilli says. “We are more selective today than we probably have ever been with these types of projects that we pursue the clients who we want to.”
Keep in mind that relationships build over time, and can be lost in a second.
“With any organization, when you engage with your client, you are making at some level some sort of investment in that relationship,” Lou Ruscilli says. “What we have learned over the years is that the folks you have interacting with that client need to really understand what their expectations are and how they are going to be evaluated. You need to be caring for those same requirements, those same beliefs, to your clients or to the people you are working with. If they are not going to appreciate the investment you are making, it is probably not the right arrangement.” ?
How to reach: Ruscilli Construction, (614) 876-9484 or www.ruscilli.com
The Ruscilli File
Jack Ruscilli, chairman
Lou Ruscilli, CEO
Tony Ruscilli, president
Born: All are from Columbus.
Tony: I went to Michigan State University and received a degree in business.
Lou: I went to Clemson University and earned a degree in construction management.
Jack: I went to Findlay University and graduated with a degree in marketing.
First job: All worked for the company as teenagers. Jack started at 12, Lou at 14, and Tony at 15. Jack: We all had experience in the field. There probably wasn’t anything that I asked somebody to do that I probably hadn’t done myself.
What was the best business advice you received?
Jack: Mine is probably from my grandfather, Louis Ruscilli Sr. Years ago he would see me as a young man struggling with a big decision, and I can always remember him in his common way saying, ‘Hey, you do the best you can. You be honest. And don’t worry about it. Quit worrying about these things.’ In his way, he was saying do what you can do and back off. One of the things I remember my father always saying is, ‘Little profit is no loss.’ I remember when he first said it. I thought what is the big deal about that? What he was really saying was, ‘Don’t be greedy. Treat the customer right and ask for a fair profit and everything will work out.’
Lou: When I first got in the business, I would get nervous a lot. We were going into a meeting with a client, or we had an important meeting coming up and my father would always say to me, ‘Just be yourself. At the end of the day, just be yourself and everything will work out.’
Tony: My dad, Bob Ruscilli, was vice president, and he kind of oversaw all the guys in the field, So having worked with him for many summers as a kid growing up, I saw that he was willing to get in and do whatever he needed to do to make things happen. If it meant getting in the trenches, he would get in the trenches. So as my uncle alluded to earlier, the one thing he taught me was, ‘Don’t ask somebody to do something that you are not willing to do yourself.’ I’ve lived by that pretty much all through growing up and watching him.
What’s the secret of a family business success?
Jack: I think it is straightforward honesty. We all tend to be pretty blunt, myself and Lou in particular; Tony sometimes is the mediator. But we put it out on the table and walk away, and we are still family.
Tony: I would say one of my Uncle Jack’s strongest attributes is he embraces family and finds ways to bring us all together as a group.
Lou: I would just reinforce what both my father and my uncle said. It is about communication, and it is about, at the end of the day, we are family. We all have to look out for each other’s interests and that’s what we do. There are no divided lines in this. We are going to succeed as a team or we will fail if we are all individuals.
Six years ago, Jim Treliving started to see troubling signals in his business. The restaurant franchising boom that had been rolling since the end of the 2001 recession was starting to slow because money was getting tight and financing for franchisees was drying up. Thus, the robust growth that Treliving’s company, Boston’s Restaurant & Sports Bar, had enjoyed for the previous half-dozen years was starting to slacken. c
“The main challenge I’ve had to deal with these last few years has been with the financial portion of our business,” says Treliving, whose company today operates 400 franchises in the United States, Canada and Mexico and generates systemwide sales of more than $1 billion. “The financing situation has really changed a lot since 2006 or so. Up until then, the franchisees we dealt with had lots of avenues to get financing for their business.”
The easy-money trend in restaurant franchising started to tail off in 2006 and 2007, and then it began dropping at an even faster rate in 2008 during the most recent recession.
“The financing really dried up,” he says.
Treliving started as a franchisee with Canada-based Boston Pizza in British Columbia in 1968 and eventually bought out the entire Boston’s restaurant chain in 1983.
“This has really affected just about everybody in most small-business market sectors. Small-business growth in the United States has really been negatively impacted by the inability to find sources of financing.”
Nowhere has that trend been felt more acutely than in the restaurant-chain business.
“It has taken a toll on us, especially when it comes to trying to attract new franchisees into the business,” Treliving says. “New franchisees generally need to have a down payment of 20 to 35 percent of the cash available to go into business. Nowadays, even [potential franchisees] who do have that amount on hand are having trouble getting banks and other financial institutions to do any kind of work with them in the sense of taking a chance on them.”
Today’s persistently low interest rates make it hard on those who want to start businesses because finance companies are less inclined to take chances on small businesses when their potential returns are so low.
“Most of the banks we’ve talked to in the U.S. — even though they’re in a situation where their balance sheets are OK — they’re not lending money for small businesses,” Treliving says. “And it’s not just the banks; it’s all types of financial institutions. Obviously, any type of lender is going to require a return on its money, and if you’re buying the money at a bank at 2 percent and you’re lending it out at 3 or 4 or even 5 percent, you’re not going to make a lot of money on it. That’s why they’re not taking many chances on people who want to start small businesses.
“It’s funny; these days a lot of people in this business are saying, ‘The good thing is we’ve got these low interest rates — and the bad thing is we’ve got these low interest rates.’ It’s really a tough problem.”
Give partners slack
The financing problems that Boston’s and other small and midsized restaurant companies have been facing isn’t limited to just attracting new franchisees. It’s also affecting the ability of the company’s existing franchisees that want to expand their businesses by opening new restaurants within their territories.
“A lot of our franchisees bought territorial pieces,” Treliving says. “We entered into agreements with them back when we sold them their first store that they would open a certain number of additional restaurants in their territory over a certain period of years. We mutually agreed, and an important part of that agreement was that we had to make sure that they’re on solid financial footing before moving to the next level.
“Unfortunately we’ve had a fair amount of franchisees that, even though they have a good solid track record, when they’ve reached the date when they’re supposed to build that next store in their territory, they couldn’t get the financing they needed to do it.”
Boston’s approach in these situations has generally been to give its existing franchisees more time to strengthen their market footing so they would eventually be able to obtain financing to build the additional stores in their territories.
“The plan was that they agreed to build a certain number of stores in their territory in a certain period of time, and if they didn’t — if they failed to do that — then they would lose their territory, and they would lose the money they had paid in upfront fees to hold their territory,” Treliving says.
“We began to see with many of them that we’d have to wait a little while, until the money [for financing] started to loosen up again. We saw that we would need to reset those dates so our franchisees would have more time to build those new stores and not lose their territories. We basically had to rectify the dates so we wouldn’t go offside with our franchisees.”
“So this financing situation has really slowed down the growth of everybody — not just new franchisees, but old franchisees as well.”
Find other sources
Even though the lending picture hasn’t been good from traditional sources of financing for restaurant franchises — i.e., banks and large finance companies such as GE Capital and others — Boston’s and other restaurant chains have had a degree of success finding financing for some of their franchisees via nontraditional sources such as private equity firms.
“A lot of people are going out and finding independent money on the side,” Treliving says. “So we started looking as well for some of these new sources that would deal with us. For many years, we had been dealing with a couple of major companies for financing, but now one of them had pulled out of the business completely, and the other one had quit lending new money for restaurant franchises.
“So we had to look for other avenues, whether it was banks or individuals or private equity that had been sitting on the sidelines and were now saying, you know, ‘Maybe we should jump into this business.’”
With some legwork, Boston’s was able to uncover some of these smaller, off-the-beaten-path financing sources. In so doing, the company was able to keep growing, albeit at a slower pace, even during the four-year downturn when traditional financing was very tight for the restaurant business.
“We had to go and look for some of those individuals and private firms,” Treliving says. “Most of them are regional. People are more likely to lend money to nearby sources, wherever they happen to be, because they can drive by and see the property, so they know where the money’s being spent and how it’s being spent. If you look at 90 percent of the restaurant chains around the country, everybody was going through the same thing. They were knocking on doors everywhere.”
Do it yourself
Lending from the traditional sources has started to loosen up a bit over the past year, but Boston’s has decided it isn’t going to rely so heavily on those traditional sources anymore. The company has decided to take a big step forward and create its own financing division to help its franchisees grow.
“We’re putting a package together right now to do that,” Treliving says. “We’re well on our way to develop our own financing. The first thing we’re going to do is go and help our existing franchisees that want to expand but can’t get the capital they need to do it. We’ll be willing to lend them money, because we’ve seen what they’ve been capable of doing over the last five or 10 years. They’ll be our first customers.
“The next ones will be potential new franchisees that we think have a great opportunity to get into the business now. We’ve been starting to receive a fair amount of inquiries about this, now that things have started to loosen up a little bit financewise.”
Asked what he has learned and what advice he would give other executives facing similar problems with tight lending inhibiting their growth, Treliving says he suggests that you choose your dance partners very carefully.
“I’ve talked to other CEOs in various businesses, and it’s really all about quality now — the quality of who you’re going to do business with,” he says. “The quality of franchisees you’re getting is what you should be looking at now — the strength of the person going in. It’s not just simply about grabbing anybody that’s got a warm body and going into business with them anymore.”
Treliving says that containing costs and reinvesting in quality service are more important now than ever, and not just in the restaurant-chain sector or the food-service sector but in all service-oriented businesses.
“You really need to be watching your costs right now,” he says. “It’s an absolute necessity. And your service has to be absolutely top-notch all the way through your operation. You can’t get away with anything less than that. If you’re willing to do these things, this can really be a great time to get into a business and have success with it.”
How to reach: Boston’s Restaurant & Sports Bar, (972) 484-9022 or www.bostonsgourmet.com
The Treliving File
Chairman and CEO
Boston’s Restaurant & Sports Bar
Born: Virden, Manitoba
What was your first job, and what business lessons did you learn from it that you use today?
I delivered groceries for a family that owned a small grocery store, and I think the biggest thing I learned was persistence — the stick-with-it sort of thing. The place where I delivered groceries — it was very important that they be delivered on time. You had to come there clean and ready to go to work. And you had to provide great service. That was extremely important, the service aspect of it — being on time and getting the groceries out to people right away. Those things stuck in my mind when I went into the restaurant business.
Do you have a main business philosophy that you use to guide you?
I believe very much in dealing with people on a face-to-face basis. And I want to do business with people that I can have fun with — people that enjoy the same things I do.
What trait do you think is most important for a business executive to have in order to be a successful leader?
You have to have honesty and integrity. You have to be honest with your people, and honest with the franchisees you’re dealing with. Of course it’s inevitable that you’re going to have problems with your franchisees from time to time. But you sit down and discuss it with them so that you understand their side and they understand your side. And then you both make a decision on what you’re going to do, and you go forward with it together, as a team.
What’s the best advice anyone ever gave you?
My dad gave me a couple of good pieces of advice a long time ago: Always leave a little something on the table for somebody else, and always work hard and do the things that you want to do, that you enjoy doing.
Most people know Cinnabon by its mini-bakeries in malls and airports where you can grab a cinnamon roll while hustling from one place to another. And for its first two decades of existence, that’s essentially what Cinnabon was — a fast-growing chain of franchised kiosks in high-traffic venues known for the cream cheese/butter/sugar-frosted treats.
But in the last few years Cinnabon has expanded its brand and its identity by selling new products through new channels. And that’s where it has become very complicated for Cole to manage all those products and distribution channels to make sure Cinnabon’s growing brand continues to function as a seamless, integrated whole.
“That’s definitely the key challenge I’ve faced — being successful at global multichannel brand management,” says Cole, who took the reins at Cinnabon after a 15-year stint with Hooters of America, where she served as vice president.
“The Cinnabon brand is not one-dimensional; it doesn’t play in just one channel or segment. And because we are truly a multichannel business, leading that brand across all those channels and making sure that the channels integrate with each other and feed the brand is by far the most important thing I do.”
Cinnabon — which has more than 900 franchises in 48 countries and is approaching $1 billion in annual consumer sales — has fed its growth in recent years by creating and marketing new products primarily through two new conduits: consumer packaged goods in grocery stores and licensed products sold via other outlets such as fast-food restaurants.
“Our main channel has always been and remains immediate-consumption food service — our franchise bakeries, our company’s face as most consumers would know it,” Cole says. “But we’re seeing significant growth in our newer channels, which are basically grocery retail — our consumer packaged goods division — and food-service licensing, where we develop products for other immediate-consumption restaurant locations.”
Getting those products and distribution channels to mesh well and feed off each other is Cole’s constant and never-ending quest.
Protect the brand
As any company expands its product offerings and increases the number of conduits through which people can obtain them, the complications of doing business multiply, usually a lot more quickly and dauntingly than anyone expects. Cole has learned this lesson firsthand at Cinnabon, and she has tackled the challenge head-on.
“There are inherent complexities when your brand or your products as consumers know them don’t live in just one space — when there’s no longer just one place that they can get them or just one way that they can get access to them,” Cole says.
Safeguarding and augmenting the value of the company’s brand is a key driving factor, and the most crucial consideration Cinnabon’s leadership team weighs is determining which new business opportunities to take on and which ones to let pass.
“My No. 1 leadership focus is to make sure the brand is protected and enhanced — at all times, by every initiative we undertake,” Cole says. “It’s all about the brand. It’s about managing the brand, leading the brand, making sure that any new initiatives are accretive to brand value.
“The essence of this approach is that inherent in any good brand there is equity. The brand carries with it a value that has been built over time, typically through its original channel — in our case, our franchise bakeries. And that equity must always be carefully protected and taken care of, first and foremost.”
Cole cites the recent introduction of Cinnabon’s International Delight Coffee Creamer, which is now available in grocery stores and other retail outlets around the U.S., as an illustrative example of the way the company creates a new business channel to enhance the value of its brand. Cinnabon’s leadership team first determined that expanding the company’s presence in the market for coffee-related products would be a good fit for Cinnabon.
“It’s a matter of understanding where your branded products have equity and where that value can readily translate into a new area,” Cole says. “For us, we feel that we own quality indulgence. It’s who we are. When people think of our brand, they think of over-the-top indulgence — warm aromas, warm flavors, warm textures. And when you’re crystal-clear about what attributes you own, that allows you to then extend those attributes into other products.
“We knew we wanted to be in the coffee family of products, because that’s all about warmth and comfort, and it goes well with cinnamon rolls and our flavors and our other products.”
Once Cinnabon’s executive team members decided they wanted to expand the company’s footprint in the coffee sector, they sought a suitable partner to help their company create and market a new retail coffee-related product.
“When we look for a group to partner with in any channel, we always look for best-in-class,” Cole says. “We do this because we have a premium brand — it may be a snack brand, but it’s a premium snack brand — so we feel we always need to be with premium partners that have brand awareness at least equal to ours. Two companies that have fit that type of requirement for us in the past are Kellogg’s and Pillsbury, to cite a couple of examples. In the coffee creamer space, we decided International Delight was the best fit.”
So Cinnabon teamed up with International Delight, whose coffee creamer products are distributed by WhiteWave Foods, and the companies together created a cinnamon-flavored coffee creamer that met their respective quality standards and their goals for introducing the jointly marketed, co-branded product.
“We had to be heavily involved in the R&D, because the flavors and the aroma have to be just right,” Cole says. “We can’t afford to have a product out there in the market that has a picture of our cinnamon roll on the label — a product that we’re that heavily invested in — and, you know, have it taste like Red Hots. The quality has to meet our standards. That’s hugely important to us. It would be too easy to just go and throw your name on things.”
Cinnabon’s R&D department and licensing group worked with International Delight to tweak and refine the cinnamon flavor of the creamer to ensure that it would meet Cinnabon’s customer’s expectations.
“The end result is this amazing, disturbingly delicious coffee creamer,” Cole says. “And, you know, that’s the bar that we always have to meet. When you open the bottle and smell it or when you pour it in your coffee and taste it, you have to have one of those eyes-roll-back-in-your-head moments. Like, ‘Wow, this is so good it’s almost inappropriate.’ That’s what we go for. And we won’t stop — we won’t release a product — until we get to that point.”
Cinnabon has had similar success partnering with other companies to license new products, including Pillsbury and Kellogg’s, as well as Burger King, through which it markets the Minibon, a smaller version of its signature cinnamon roll, and Taco Bell, through which it has licensed Taco Bell Cinnabon Delights — doughnut-hole-like balls filled with sweet cream cheese frosting and dusted with cinnamon and sugar.
Cinnabon has enjoyed success in recent years with these multichannel brand initiatives — new products introduced, financial growth, growth in the number of distribution points, synergies with the channels reinvesting in one another in varying combinations. Cole attributes the company’s recipe for success to a number of ingredients, chief among them the Cinnabon leadership team’s clear understanding of the company’s identity and its strengths and weaknesses.
“If there’s one piece of advice I would offer above all others, it’s that you’ve got to have clarity on the core of your brand and what makes it unique,” Cole says. “If you miss that, you’ll make mistakes, and it will be difficult to correct them later. You have to really get down to your core DNA. If you’re going to expand your brand into different channels beyond the channel you started in and where you had your early successes, you have to make sure you clearly understand what you’re about and what you’re not about.”
In the end, successfully managing a brand with multiple products marketed via multiple channels is a matter of constantly asking yourself whether each new opportunity is right for your company and, most importantly, being able to articulate convincingly why it is or isn’t a good fit.
“When tweaking your business model to grow in new ways, you, as the leader, have to keep your compass set on doing the right things for the right reasons,” Cole says. “That sounds simple, but it’s not. You can’t let yourself get distracted by tomorrow’s opportunities. You have to continually ask, ‘What are the right things to do for the brand?’ and ‘What are the right reasons for doing those things?’ — and make sure everyone is aligned around that. That’s how you keep the business pure; it’s how you keep integrity around the business and keep people’s hearts and minds focused on building the brand over time.”
How to reach: Cinnabon Inc., (888) 288-7655 or www.cinnabon.com
The Cole File
Born: Jacksonville, Fla.
Education: MBA, Georgia State University
What business leadership lessons did you learn during the time you were studying to get your MBA?
When I was getting my MBA, we were in the processing of selling my previous company, Hooters. So it was like getting two graduate degrees at once. I would go to class and learn a new financial modeling system, and then go and meet with investors and analysts and apply what I had learned.
What was your first job, and what business lessons did you learn from it?
I sold clothes in a mall when I was 15. I learned a lot about connecting with people in that job, and partnering — working with customers shoulder-to-shoulder instead of nose-to-nose.
Do you have a business philosophy that you use to guide you?
Do the right things for the right reasons. And, at all costs, do what you can to avoid being swayed away from that philosophy. Having someone at the top who’s always asking the question ‘Is this the right thing for the right reasons?’ can really help a company avoid risk and build a powerful culture.
What trait do you think is most important for an executive to have in order to be a successful leader?
I would say adaptability is No. 1. And then I think there’s this other intangible, and I don’t know if there’s a single word for it. It’s a combination of traits that results in a leader being able to make others believe.
What’s the best advice anyone ever gave you?
Be thoughtfully bold. That speaks to respecting others and understanding your environment, but being willing to speak up and take chances. That advice came from a mentor that I had in the industry.
It took three tries over the span of five years to make the merger of Radiancy and PhotoMedex a reality. So when the merger was finalized in 2011, Dolev Rafaeli was determined to make all aspects of it a success.
Rafaeli had been the CEO of Radiancy and was assuming the CEO’s position in the combined company — a manufacturer of medical treatments for skin conditions and other skin-related consumer products, which would carry the PhotoMedex Inc. name.
In terms of their history and DNA, the two companies had starkly different backgrounds. Radiancy, the larger of the two companies, was privately held, focused on consumer sales and had developed a presence in the international marketplace.
PhotoMedex was a public company, sold mostly to other businesses and was heavily focused on domestic sales.
From 30,000 feet, the companies were complementary parts, bringing different areas of strength to the table. The merger was a puzzle-piece fit. But at ground level, things were a little more complicated for Rafaeli and his management team.
“The biggest challenge, and the reason it took us five years to make it happen, was what you would call an HR challenge,” Rafaeli says. “Usually, when you look at mergers and acquisitions, everybody can understand the very objective analysis of numbers and the very subjective analysis of how things might look if we merge the two companies. The biggest challenge was, how do you get two teams engaged when at least part of the two teams thinks they don’t have a future in the company?”
Rafaeli had to combine two cultures from two different backgrounds, and once he had everybody on board, he had to set the stage for the company’s continued success or any momentum gained during the merger process would be lost.
In any large-scale change, alignment starts at the top. Nobody in the company will adopt the changes if he or she sees any type of negative or mixed reaction from those in charge. To that end, the management teams at Radiancy and PhotoMedex began the process of finding points of consensus nearly five years before the merger took place.
“We actually had known each other since 2007, so there wasn’t too much change in the transition for the management teams,” Rafaeli says. “We put together a project team that was running the two companies as if we were merged, about eight months before the merger happened. We were making decisions and considering things together, and we built our plan to make changes both before and after the merger.”
As the larger company, Radiancy had the majority of the resources that would be needed during the merger process, but since the combined company would be publicly traded and carry the PhotoMedex name, PhotoMedex served as the basic template by which the new company would be constructed. It was a matter, in many cases, of the combined leadership team creating operational alignment by building more efficiencies into the previously existing PhotoMedex processes.
“A lot of it happened before the merger was even consummated, so for example, we took apart all of the logistics philosophies in the old PhotoMedex but reassembled them based on the old PhotoMedex while using Radiancy’s resources,” Rafaeli says. “Since Radiancy was bigger, we had better costing to do things, resulting in a savings post-merger. We did the same thing with our insurance platforms, payment processing platforms, and with our PR and advertising companies.”
With an aligned leadership team creating aligned strategies, systems and processes, it became much easier for Rafaeli to bring the rest of the company’s workforce on board with the merger. An important first step was letting the company at-large know that no layoffs were planned as part of the merger.
“The scale and geographic diversity really required that nobody leave,” Rafaeli says. “We needed to keep all the finance teams that both companies had pre-merger. Each side had to learn what the other was doing and develop a way to combine the systems. We had to become SOX-compliant and handle a very coherent reporting system.”
In some areas of the company, the best solution was a combined one, implementing practices from both pre-merger companies. But in other areas, Rafaeli and his team decided to take an either/or approach to implementing best practices, aligning the company with one standard or the other.
“The operations team in both previous companies had two complementary sets of knowledge, and we had to merge the two of them in a way that took advantage of all the areas of strength,” Rafaeli says. “What happened was, we had the quality manager of the old PhotoMedex oversee the quality system of the combined company. The supply chain manager of Radiancy took over material supply for the whole company, because Radiancy was doing it more efficiently.”
It is crucial that you paint an accurate and complete picture of your vision for the post-merger company and that you do it early in the process. If you are going to create buy-in and subsequently create complete alignment throughout all levels of your organization, everyone has to know where they fit and what will be asked of them.
“We have very talented and experienced people, and we wanted all of them to stay and be engaged in the process of the merger and remain engaged post-merger,” Rafaeli says. “The important part there is keeping them engaged throughout the process of the merger.”
Announce your arrival
Even if you’re keeping the identity and product lines from both companies, as the relaunched PhotoMedex did, it won’t be business as usual for your customers. They’ll see a new company with a future in flux, which is why you need to connect with your customers and paint the same clear, accurate and candid picture that you did for your employees.
One of the ways Rafaeli and his team sought to announce the arrival of the new PhotoMedex and affirm the company’s identity to outsiders was through its marketing efforts.
“It was a very interesting process,” he says. “We took two companies — one that has the knowledge of how to advertise, and the other with knowledge of the business. One of our main business lines is in the area of psoriasis treatment, and the PhotoMedex people knew a lot about psoriasis and psoriasis treatment. They knew about the view in the market, the conditions of the marketplace, how physicians view it and the market’s view of that.
Through a unified effort leveraging the areas of expertise that now existed in the combined PhotoMedex, the company’s advertising specialists developed an advertising strategy based on the selling points of the company’s products.
“We had work sessions where we drilled down on the information,” Rafaeli says. “Because of what we sell, we deal with a lot of FDA regulations, so we have to be very regulatory-conscious in the way we advertise. Our quality and regulatory affairs manager oversees a lot of that.”
Advertising — especially in a time of change — is a risky proposition. You really don’t know how the market is going to receive the change until you see some reaction. You don’t really know what is going to appeal to customers. If you had a high trust factor between consumers and your product or service, you have no real way of knowing if that trust factor will survive a transformational change like a merger.
It’s a fact of business life that has been in the front of Rafaeli’s mind as he has watched PhotoMedex roll out its new advertising campaigns over the past year-plus. All you can do as a business leader is stick your neck out, observe the results, gather data and make adjustments.
“Because we’re so involved in advertising, we get questions about advertising from other businesspeople on almost a weekly basis,” Rafaeli says. “We tell them that they have to be very careful and diligent, because advertising can be a very, very risky business. You can go out and spend money, get no results and have no idea why you didn’t get results. You don’t know if it’s because you failed to choose the right targets or the right price point or some other factor.”
Early in the process, Rafaeli and his team decided to focus on a straightforward and positive approach to advertising. PhotoMedex ads can vary greatly in how the message is conveyed, depending on media and geography, but the clarity regarding the product and the company behind it are constant themes.
It’s an approach that has helped galvanize PhotoMedex’s marketing strategy and has helped to make the merger an overall success. The company generated $110 million in sales for the first half of 2012, with full-year projections of more than $230 million.
“Consumers can be exposed to hundreds of different types of ads every day, and many of them are either negative or misleading. They can try to tear down what the competition does, or promise results that they can’t deliver.
“But what I think is truly effective in an ad campaign is a straightforward approach that doesn’t create unrealistic expectations. And what an effective ad campaign really means is that when the need arises, you will trust our company. You will pick up the phone or go on the computer, and you will look for us.”
How to reach: PhotoMedex Inc., (215) 619-3600 or www.photomedex.com
The Rafaeli file
Dolev Rafaeli, CEO, PhotoMedex Inc.
Born: Haifa, Israel
Education: Bachelor’s degree in industrial engineering and master’s degree in operations management, the Technion — Israel Institute of Technology; Ph.D. in business management, Century University
More from Rafaeli on the advertising strategy of PhotoMedex: Our advertisements might look a little different, perhaps even awkward, to some people. We have an advertisement in a number of magazines where we show a woman shaving her face with a blade.
The reason we do that is, one of the products we sell is called no!no! hair removal, and we saw that one of the key drives for buying the product was female facial hair. There is not really any other solution to that besides a hair removal product. A woman isn’t going to put a razor blade to her face. And when we were testing this, we knew the reason we had bought and sold over 3 million units. We knew why people needed it, but we didn’t know how to convey the message.
We went about doing this very carefully, having clinical ads and physicians talking about it, and it didn’t work. So we decided to try something that might be perceived as awkward, having a woman shave her face. We put that on, and six months later, in a number of major magazines, you see our ad.
When it came to psoriasis, the key discussion also became, ‘What do we show? Do we show people with psoriasis? Or do we go to the other extreme, like ads for erectile dysfunction medications in the U.S.?’ Obviously, they’re not going to show anything like that in a literal sense. They show couples on the beach having fun and so forth.
We tested it in certain ways, and we ended up not showing the psoriasis treatment at all. People who have psoriasis know what they have. They don’t need to see it. People who don’t have and who will never have psoriasis don’t care to see damaged skin.
Align your management team.
Roll it out to the rest of the company.
Advertise with a direct message.
Smoothie budgets were drying up everywhere, and Frank Easterbrook was one of the first to realize it.
The owner and CEO of Juice It Up! — a chain of juice and smoothie bars, franchised by LLJ Franchise LLC — watched throughout the recession as the discretionary spending of consumers slowed to a trickle. With less money to cover bills and groceries, many households could no longer afford trips to the ice cream parlor or smoothie shop. It didn’t take long before Juice It Up! felt the pinch.
“As people lost their jobs, they stopped purchasing discretionary products, like things that were considered treats,” Easterbrook says. “Items like smoothies were just not being purchased at the level they were prior to the recession.”
The downward spiral only picked up steam throughout 2009 and into 2010. Cash dried up, forcing about half of Juice It Up’s locations to close. What was once a chain of 180 stores had dwindled to 90 by last year.
“My company was on many of those store leases as a guarantor,” Easterbrook says. “So in many cases, I became the last resort for the landlord, and I had to negotiate millions of dollars’ worth of lease settlements to get through the recession. It was something we never could have anticipated.”
The company has emerged from the recession intact and is attempting to re-enter growth mode, but the effects of the recession remain. Easterbrook’s skills as a leader were put through a severe test over the past four years. He and his staff had to find new and creative ways to market their products, boost morale for all 1,200 corporate and franchise employees, and protect the corporate culture that he and his leadership team had worked so hard to build and maintain.
Take initial steps
As revenue started to dry up, Easterbrook took some steps to try to solidify the company’s financial outlook — most significantly, he suspended some franchisee royalty payments to the company, and he negotiated rent reductions with commercial landlords, saving money for about 85 percent of the remaining Juice It Up! franchise locations.
But perhaps the most critical action taken by Easterbrook and his team involved advertising. Saving money in the form of reduced expenses gave franchisees some relief, but no retail entity survives without a steady supply of consumer dollars. Despite the steep uphill battle in front of them, Easterbrook and his franchisees had to lure customers in the door and get them to buy the product.
“Though we reduced royalty payments, we kept the advertising payments and fees coming in, because we felt we had to advertise heavily if we were going to get through this tough time,” Easterbrook says.
“Simply put, we had to have the means to let people know that we are still here. So we added to the advertising cash pool, and advertised using methods such as billboards and local television ads. We wanted to maximize the reach into our communities, to maintain our presence with consumers.”
Easterbrook gives his franchisees some degree of control over their advertising approach via a local store marketing, or LSM, program. The program allows franchise owners to tailor local advertising to their market.
“We have a lot of templates there for franchisees to use, where they can incorporate their own name and local information into the advertising template, then take that to the printer,” Easterbrook says. “It includes items such as coupons that they can distribute, posters to hang in the store and some other materials. We do try to give them a great deal of freedom with what they can use and materials they can create.
“But the freedom only comes after we’ve looked at the material and reviewed it, and decided that it fits the look and feel we want to see in our stores. The control we exercise is strategic-level control, but the specific implementation is up to the franchisee.”
Giving your field associates a reasonable amount of control over the marketing of your brand is important, because they know the customers the best. You do want the message to remain consistent with your brand and values, but you need to allow some flexibility regarding how your brand is related to potential consumers in a given geography.
“You need to understand who your core customer is, and focus your advertising on reaching that customer,” Easterbrook says. “But it is an awfully broad question, because each product can have its own demographic. Previously, I had worked in the food industry for Mars and Nestlé, two big companies that do a lot of advertising and spend a lot of money. We worked hard to understand who our customers are and to identify the most effective ways of reaching those customers.”
Throughout his career, Easterbrook has focused on an advertising strategy that creates multiple touch points with consumers. It’s something he brought with him when he came to Juice It Up!, and he continued to develop that strategy as the recession created an even more pronounced need for the company to appeal to consumers.
“In some cases, your strategy might consist of media coverage like radio and television, and other times, you might find it more useful to go the print route with coupons and Valpak mailers,” Easterbrook says.
“One area where we found some traction was bus stops, which kind of goes hand-in-hand with advertising on billboards. In most areas, the public bus stops have small shelters, so people can wait under a roof if it’s raining. Inside those shelters, there are places for paper advertisements, and we started advertising in there. It’s about finding a lot of methods to connect your brand to consumers.”
Illustrate your vision
During a crisis as severe as the recent recession, you’d be excused by most for going into survival mode, eschewing any large-scale plans in favor of merely reacting to whatever the economic climate throws at you.
That might help your company weather the storm from a financial perspective, but it won’t do anything to salvage team morale or reinforce your culture. In those areas, you still need to show your people that you have a vision — not just for getting out of the crisis but for prospering once you’re on the road to recovery.
At Juice It Up!, Easterbrook wanted to reinforce a message of stability throughout his franchise network. He wanted his franchisees to know that the tools and infrastructure for future growth were still in place and that the company planned to expand when the climate was right.
But for the duration of the recession, and despite the fact that Juice It Up! was losing franchises, he wanted his remaining franchisees to know that the corporate entity was stable and still capable of supporting its franchise network with whatever resources deemed necessary.
“As this recession started to cover us like a blanket, they just needed to know that we were going to be there,” Easterbrook says. “So we had a series of meetings, some in a face-to-face setting, and I found those to be very important.
“As the leader of the company, you need to be visible. You need to demonstrate your interest and concern for them and their businesses. Some of our franchisees have effectively invested their life savings in the company, in their stores, so I needed to assure them that we were going to be there, and we’re going to get through the recession together.”
Easterbrook used the meetings, and other communication opportunities, not only to reinforce his vision and promote a feeling of stability but to also maintain a dialogue aimed at developing a constructive relationship between the leaders at the corporate level and franchise operators. Strong interpersonal bonds form the basis for the working relationships that can help your company endure a crisis with its culture intact.
“Relationships are really critical to withstanding the kind of thing that we went through,” he says. “It becomes a function of establishing your core values and communicating those core values and maintaining a very high level of professional and personal integrity. If you are a person of high values and you practice and communicate those values and you live those values and you combine that all with honesty and integrity, people know you’re genuine.”
External marketing and internal communication produce the combined effect of reaching all three of the constituencies that Easterbrook needed to reach: consumers, franchisees and corporate associates. With all three constituencies engaged and aware of Easterbrook’s plans to bring Juice It Up! through the recession, the company was able to endure the crisis and is now emerging with a focus on the future.
“Our core values that we follow are quality, responsibility, mutuality, efficiency and freedom,” Easterbrook says. “We feel that each one of those impacts one of the three stakeholders that we have, which really leads to us establishing the way we operate. We strive to provide value for the money that our consumers spend with us and to assist franchisees in maximizing their investment. All of the programs we have and the communication we do is aimed at achieving both of those objectives.”
How to reach: Juice It Up!, (949) 475-0146 or www.juiceitup.com
The Easterbrook file
Frank Easterbrook, owner and CEO, Juice It Up!
History: I started as a small investor in Juice It Up! when the company was founded in 1995. The company had 25 stores by 1999, and in 2001, I bought out all the shareholders and focused on becoming a franchisor. We had grown the company to 180 stores in 2008, just before the recession hit.
What is the best business lesson you have learned?
Accept failure. Treat it as a lesson. When you open a store that doesn’t survive, you don’t look for someone to blame. You look to discover the lessons that you need to learn, and you debrief everybody on those lessons. You learn the things you did right and the things you did wrong. When you have a problem, don’t avoid it. Face the problem, make a decision and learn from the consequences.
What traits or skills are essential for a leader?
You have to be a person of values and integrity. If you have that, you will be someone that people will respect and listen to, so those are very important traits to have.
What is your definition of success?
Everybody has a different definition. Mine would be continual improvement. If you are better tomorrow that you were today, you will naturally become more successful. Things can’t stay the same. They’re either improving or declining, so if you want to survive as a business, they have to improve. As the head, you have to identify those areas for improvement.
Diversify your marketing strategy.
Understand your customers.
Refine your messages.
As Jerry Azarkman watched new stores open in Phoenix and Tucson, Ariz., he felt proud that Curacao, the company he launched at the age of 24 with a mere $20 in his pocket, was beginning to expand beyond its Los Angeles roots.
But he was also concerned about the sales volume at these new stores. They just weren’t doing as well as the stores located closer to Curacao’s Southern California headquarters.
“The L.A. store’s volume is much higher,” says Azarkman, co-founder, co-owner and chief marketing officer for the Latino-oriented retailer that’s corporate name is Adir International.
“The number of credit applications approved at the Phoenix store is much lower than the stores closer to headquarters. Why is it smaller the further you go? All these things gave me a thought about the implementation of direction. The further you go, the communication kind of slows down, and it doesn’t get there.”
Azarkman wanted to turn that around and ensure that wherever he opened a store, whether it was next door to his office or 1,000 miles away, it would offer the same quality of product and service to Curacao customers.
“The biggest challenge is as you grow, your structure grows and there are more layers of management and communication,” Azarkman says. “That communication has to be the same from level to level all the way down to the front lines. The challenge is when the communication doesn’t get to the level you want it to get to.”
It’s a common problem for growing businesses and Azarkman wasn’t casting blame about it. He just knew that his 2,600-employee company needed to adapt and rethink its communication channels to ensure that everybody was on board with what was happening.
“I’m involved in the philosophy of the company, which is keeping employees motivated so they can do their jobs at a top level,” Azarkman says. “They really want to do that. They’re not doing it out of fear. They are doing it because they believe in it.”
That attitude would be the key to helping Curacao achieve continued growth.
Demonstrate your commitment
One of the biggest changes Azarkman made with Curacao was to change the company’s name. It may not sound that meaningful to the internal operations of a company to change the name from “La Curacao” to Curacao and redesign the company logo, but it provided Azarkman with a vehicle to demonstrate the company’s commitment to digging deep and looking for ways to provide even better service to its customers.
To get things rolling with this process, Azarkman brought in an outside consultant to make an honest assessment of what needed to change.
“We hired a company from the outside because you cannot believe in your own judgment,” Azarkman says. “You’ll create an impression that you’re much better than you actually are. It’s better for somebody from the outside to look at you than for you to look at yourself.”
The firm came in and set up focus groups in the communities where Curacao did business.
“They did focus groups with our customers, with customers that left us three years ago, with people who had never been in our stores and in communities that had never heard our name,” Azarkman says. “Out of that, we learned a lot about what the community thinks of us, what changes they are expecting us to do and what changes we have to do.”
The groups provided a great deal of feedback, including the suggestion that ultimately led to a new name and logo. It was a good foundation to begin transforming the business. But the key to providing what your customers are looking for is asking the question with the knowledge that you’ll need to keep asking it again and again.
“Expectations change with time,” Azarkman says. “You create an expectation, a standard, and then the next day, you have to go and create a much higher standard and create a ‘wow’ in the minds of customers that walk in the store. When they leave the store, you want them thinking, ‘Wow, I never thought I was going to get that value or that experience.’ To get to that point is a constant struggle.”
Earn employee support
Azarkman needed his employees to buy in to the pursuit of superior customer service without feeling as though they were being punished or forced into something that didn’t fit their skill sets.
“If they’re not buying in to it and they are going to be forced into doing something that they don’t believe in, it’s not going to happen,” Azarkman says.
There needs to be something out there, a reason to work harder and exceed customer expectation.
“What’s it in it for them?” Azarkman says. “What are they going to gain out of it? A better career path, higher income, more security, better stability for the company? You put all those things together, and you’re going to create a team that is really going to be motivated and dedicated and really cares about the company because they are part of the company. They are working there because they belong there. They are part of it.”
A comprehensive training program at Curacao, known as the University of Curacao, bolsters employee engagement. It helps promote an environment of learning and growing that Azarkman says is one of the keys to achieving growth.
“You need to know how to motivate people and get them to perform better,” Azarkman says. “You have to provide the tools that they need. Managers are tool creators. They create tools for their associates to perform. If they are creating the right tools and then people are using the tools that have been created for them, the success is going to be there.”
Azarkman refers to the sale of a television as an example of the outcome he seeks in training his managers and employees.
“Let’s take a Sony television,” Azarkman says. “You can buy it anywhere in town. You can go on the Internet and find 10,000 places to buy it. The difference is what is coming with that television. What value am I giving to that customer with that TV? What is the additional value?”
If everybody is thinking about ways to please the customer and is able to bring up those ideas without fear of reprisal, the result is a strong culture and a strong company that consistently exceeds expectation.
“It’s not that you create a ‘wow’ in the minds of customers and that stays,” Azarkman says. “Today, you’re meeting expectations. Tomorrow, it might not be enough.”
Don’t lead with fear
The effort to drive home that message to stores near and far away from Los Angeles and ensure that everyone is pushing toward those goals on a consistent basis has to begin with you.
“You have to make sure that all your executives are really buying in to it,” Azarkman says. “If anybody has a doubt or has something they don’t agree with, let’s put it on the table, fix it and make sure we all agree. Get one direction you can all agree on and go from there.”
If you want to learn what needs to be fixed in your business, you’ve got to be willing to accept criticism.
“The minute there is fear, all the communication channels are shut off and they are not going to be willing to open their mouths and discuss issues or concerns that they have,” Azarkman says. “If the leader is creating fear and the people have to work with that fear, it’s not going to last too long.”
Companies that insist on coming up with reasons why a problem doesn’t really exist are only setting themselves up for a bigger failure down the road.
“The communication will determine the success or failure of the company,” Azarkman says. “If there are real problems that need to be addressed and you don’t put them on the table, they will accumulate until there’s an explosion because people were afraid to bring it up.”
One of the solutions to the problem of lower sales volume in the Arizona stores was to enact rotating management teams between the more established stores closer to Los Angeles and the newer, less experienced stores in Arizona.
It’s a step that can help you better assess your team and weed out the people who aren’t going to be a part of your future.
“You need to check performance and evaluate each person,” Azarkman says. “You always have to create a bucket of people that are performing. Unfortunately, some do not perform no matter how much you try to educate and help them. So you have to let them go so you can keep your company healthy.”
Fortunately, Azarkman has more talented people on his team than underperformers who have to be let go. Curacao has more than 2 million credit applications on file and continues to expand. Azarkman says it all comes back to the philosophy of customer service.
“If the customer gets service above expectation, it means you’ve done something to maintain and keep that customer,” Azarkman says. “It’s small advice, but it’s big if you keep it in mind.”
How to reach: Curacao, (866) 410-1611 or
The Azarkman File
Jerry Azarkman, Co-founder and co-owner, Curacao
Born: Tehran, Iran. I moved to Israel at the age of 6 and grew up in Israel. I came to United States at the age of 21. There was a good community of Jewish people living in Iran before the fall of the Shah. There were probably about 1.2 million Jews there. My parents felt that it was going to extreme Islam already in those days. And in 1961, they decided it was not going to be a stable country to stay in, so we moved to Israel.
Education: I did three years of computer language study at Bar-Ilan University, Ramat Gan, Israel. It’s a university. I took some evening courses while I was in the military service.
Who has been the biggest influence on your life?
My father, Oscar. Any time I’m in a problem, I go back to things that he told me. The things I’m passing to other associates in the company, it’s come from the first lessons of motivation that my father passed to me and my brother.
What one person would you like to be able to meet and why?
Albert Einstein. First, I would like to see his philosophy about life, religion, God and how science is connected to religion. What did he really see? Maybe the guy is so extremely smart that he had to bring himself hundreds of levels down to talk our language so we could understand him. I would like to know what level he is.
Don’t be afraid to seek outside input.
Work with employees on new initiatives.
Don’t lead with fear.
Twenty years ago, McKinley Inc. was a company with 450 employees. Ten years ago, the company, which specializes in real estate investment and management, had a single operating platform for all of its businesses.
That was then, this is now.
Today, Ann Arbor-based McKinley has more than 1,400 employees and six different divisions contributing to its $273 million annual revenue figure.
It’s a long way of saying that growth has been a fact of life for CEO Albert M. Berriz. That’s a good problem to have, but it still comes with a series of challenges that must be met and overcome if Berriz is to have a financially and culturally healthy company on his hands for years to come.
“There are a couple of basic disciplines that we are very methodical about,” Berriz says. “One is we maintain a very flat organization. I believe that the distance from where I am sitting to where our customers are sitting is really no more than two heartbeats. I have six divisional CEOs who report to me, and they are flat with the people in the field, who are our customers.
“The second thing is, the six individuals who run each of the businesses have a lot of autonomy. They really get a lot of freedom to run their businesses as their own.”
For Berriz, managing growth is about managing the distance between people. Though he oversees a company with assets in 25 states, he wants as few levels and geographical barriers as possible to exist between management and field employees, between management and customers and between peer-level employees in the field.
But to maintain that type of connectivity, Berriz has needed to constantly work on strengthening his company’s cultural values and refining his communication strategy.
“Anything we do is really not top-down; it’s really integrated throughout the organization and is customer-driven,” Berriz says. “Everything we do needs to be driven by our responsiveness to our customers.”
Promote your core values
Though Berriz gives his division heads a high level of autonomy regarding how they manage, he still requires them to hire, make decisions and lead based on McKinley’s core values and core purpose, which is posted on the company’s website: “To enrich the quality of life in our communities.”
Berriz wants his executives to lead with their own leadership styles, but he has learned that a company will not be able to grow and adapt effectively without every employee’s compass arrow pointing in a common direction. That fact only becomes more critical as your company continues to expand and add people.
“While I’ve basically given them liberty to run their businesses, and I’m not a micromanager, we do still have a commonality regarding what the core values are and what the core purpose is,” Berriz says. “Even though each member of my team might be hiring differently, their standards are the same and the core values that they’re hiring for are the same.
“That is how you continually promote your core values throughout the organization. Even though we’ve grown to 1,400 people, when we do employee surveys, it’s not uncommon for 90 percent of our employees to have a full understanding of what our core values and core purpose are.”
When McKinley’s management talks about those values to the company’s employees, they use individual examples whenever possible. Berriz says if you can put a face on the behavior you want emulated, it has a much better chance of taking root and becoming something that your company embraces as it grows.
“It has to be something that is done throughout the organization, as opposed to top-down,” Berriz says. “If you look at our core values and the things that signify our core values, we helped to reinforce them by talking about individual people in the organization. We didn’t just write it on the wall. We actually took examples of great people in the organization and used those examples to help fashion our values.
“Say we have an employee named Jeff, and we want to have Jeff as our positive example. We ask what makes Jeff a great person in the organization. That is how we got our core values. We didn’t do it backwards, just by coming up with things and writing them on the wall. You take a look at your seasoned people in the field, people who are successful and embody certain positive characteristics, and say ‘That is how we want our people to be.’”
Hire with a purpose
If your culture is both formed and driven by your people, you need to hire managers and employees who embody the traits and principles you want to emphasize. Technical skills can be taught, but values, ethics, adaptability and a willingness to put the customer first are, in most cases, a product of personality before training.
Identifying and hiring the best possible management team members is a crucial first step. If they are on board with your cultural principles, they’ll hire like-minded people as part of their teams, and those people can, in turn, attract more of the same — a factor that can work to your advantage in a big way if you are eyeing a period of aggressive growth.
“Great people attract great people, and that’s huge, because you can’t have an organization like ours with mediocre people,” Berriz says. “And once you have great people, they expect to retain the great people they’ve hired.
“I think one of the biggest reasons people leave or stay with an organization is their boss. The six CEOs I have serving under me all have very high standards, so they serve as the litmus test. They are going to be the ones who expel mediocre people and attract great people.”
Berriz says you should never forget that any given person’s impression of the company, its mission, its values, its growth plans, and his or her relevance to accomplishing it all is predicated largely on the boss-employee relationship. It’s why each person at every level of your organization needs to strive to embody and lead by your company’s values.
“Associates can know the name of a company, they may understand what a company does, they may know their job,” Berriz says. “But at the end of the day, the real relationship is with their boss.
“If it’s a sour one, their view of the company and what the company does will be sour. If it’s a good relationship, their view of the company is a good one. That’s why people stay with or leave a company because of their boss. It’s rarely because of other issues.”
Berriz takes that philosophy a step further, trying to promote a positive relationship between upper management and all McKinley’s employees in the field. He sets the tone himself by setting up multiple channels for communication and dialogue focused on the company’s present and future growth plans.
“There is a difference between autonomy and not having a common culture,” he says. “One of my most important responsibilities is attracting and retaining great people, and I need to do that culturally — not just with my six CEOs, but I have to do it right down through the organization.”
Berriz describes himself as an “old-fashioned guy” when it comes to communication. He prefers in-person interaction whenever possible, but given the number of people McKinley employs and the size of the company’s geographical footprint, it’s impossible to maintain a consistent level of personal contact with every associate in every corner of the company.
Berriz has needed to find other ways to engage his people. One of the primary ways he’s attempted to bridge the gap is by embracing social media as a communication tool.
“For instance, if you go to my Facebook page now, you will see news about what is happening in the company,” Berriz says. “I’m making four or five posts today to Facebook, and my Facebook page is tied to our company website, as is Twitter. So if you are a team member and you want to stay in touch, you can go to my Facebook page. If I didn’t put that effort out there, if I didn’t utilize those social media platforms, I don’t think my communication would be as effective.”
Berriz has recognized that a large percentage of his workforce is composed of those who came of age in the era of the Internet. Younger employees have lived their entire professional lives in an environment that includes high connectivity through electronic media.
If you are going to connect the company’s purpose to younger workers and maintain a dialogue with them, you need to consider the value of Facebook, Twitter, blogs and other electronic media platforms in your communication strategy.
“A big portion of our population at McKinley is in the 18-to-35-year-old category,” he says. “That means social media and how we are communicating in real time can be very powerful in terms of developing and maintaining a common culture. I travel around, but there is no way that I can touch every person in the company through traveling. You have to make other efforts, otherwise you’ll be out of touch.”
How to reach: McKinley Inc., (734) 769-8520 or www.mckinley.com
The Berriz file
Albert M. Berriz, CEO, McKinley Inc.
History: I was born in Havana, Cuba. My family moved to the U.S. in 1959, when I was three years old, as a result of the revolution in Cuba. I grew up in Miami, where I graduated from the University of Miami with a degree in architecture and engineering. I later received an MBA from Northwestern University.
What divisions do your CEOs oversee?
We have five real estate divisions — two commercial and three residential — and one division that covers acquisitions, finance, partnerships and new ventures. Five of them are based out of the Ann Arbor office, but they are never here. They are always out in the field. We have one individual covering the Carolinas, Texas, Nevada and Arizona; we have one individual who does Florida, Michigan, Indiana, Illinois; and another one who has a third overlaid geographically.
For me, nowadays, it doesn't really matter where they live. I have one CEO who works down in Florida and actually keeps an apartment down there, which is great because that person stays closer to our people and closer to our customers.
What are the keys to staying in touch with your direct reports?
It is all personal. I am on the phone with a few of them every day, or talking in person once every couple of weeks. I am very connected with those people. I am not a micromanager, it is not my style, but we have an understanding and expectation of what the results need to be and what the culture needs to be. But after that, it is really up them to lead in their own style.
What are those conversations like?
It is very high-level. We have a very transparent organization, so you are either on or you’re off. We have dashboards here that are always available in real time, so I am always aware of good or bad developments. So the results part is easy, and the culture part is easy too, because I have a good sense of what is happening in the organization.
We have a well-run organization, so I am mostly focused on the future, where we are headed in 12 months, in five years and 10 years, as opposed to the problems of today. If there is an occasional problem today, I will deal with it, but to be candid, the problems are infrequent, so they are seldom an issue.
Define your company’s purpose.
Hire people to fit that purpose.
Utilize multiple avenues of communication.
Shelly Sun was quite confident that BrightStar Care would emerge from the 2008 recession intact and ready to grow. The challenge was convincing employees and franchisees that the health care staffing solutions provider could achieve such a daunting goal.
“Access to financing to start franchisees had dried up and was completely unavailable,” says Sun, the company’s co-founder and CEO. “That meant our ability to grow and add new franchisees to fund improvements in our system had declined.”
As a CPA, Sun decided to put her experience in the financial realm to use and tackle the financing issues. She asked her franchisees and employees to look at what they could do to increase efficiency on their end.
“I really empowered my team to take on those initiatives and work with the franchise advisory council on key sets of goals that were going to move the profitability and top-line elements of the model forward while I focused on capital access,” Sun says.
Through it all, Sun demonstrated her confidence. But it was the steps she took and the action that followed her words that enabled everyone else in the organization to feed off of that confidence and become believers themselves.
“It’s really important to spend time helping every employee understand what makes a business tick and how their role in the greater ecosystem can make a difference every day,” Sun says.
The result of the collaborative effort is a company that has bounced back and is poised to grow from 250 to 300 locations by the end of 2013, including new locations both in the United States and overseas. BrightStar has about 60 corporate employees and 25,000 employees in its overall system.
Sun says a key to BrightStar Care’s continuing success is a culture that has prepared employees to be ready to adapt.
“We’re rarely doing the same thing three months from now that we were doing three months ago,” Sun says. “We’re just not that type of culture. We’re an ever-changing culture. We believe the way to be the leader in this industry is to continually be improving what we do and the outcomes we deliver for the franchisees and consumers we serve.”
Here are some of the ways Sun uses employee engagement to help BrightStar succeed.
Focus on solutions
You’ve got to empower employees and give them opportunities to discover the solution to problems on their own. But that doesn’t mean they have to be completely on their own. Whether it’s you or a supervisor, employees who are developing still need the support.
“I use a 1-3-1 approach with my people,” Sun says. “For every one problem that they have, they need to bring three possible solutions and one recommendation. If someone walks up to me with a problem, I’ll say, ‘OK, great. Go think about that problem a little more. Think of three possible solutions and a recommendation. Then let’s sit down and talk about it.’
“I won’t let you follow through with a poor recommendation. It’s likely one of those solutions or a combination of them is going to get us there. We continue to reinforce that thought process, engagement and ownership at the employee level. We have every manager within our organization do that with their people.”
It’s easy to talk about, but Sun says it’s often much harder to follow through when the pressure is on and it feels like a problem needs to be solved right now.
“What’s hard for most leaders, and I’m no different, is it’s often faster to solve a problem for an employee than it is to let them think it through on their own,” Sun says. “But the outcomes are so much more sustainable for me in following that 1-3-1 approach wherever possible.”
Another thing to keep in mind is that delegation can come with urgency. If something needs to be done more quickly, tell the person that they need a solution tomorrow instead of next Wednesday.
The key is to make sure on an ongoing basis that you’re making time for your people, specifically your direct reports, to help them and to support them in helping their team members.
“I block time on my calendar so that 10 percent of my time is spent with each of my five direct reports,” Sun says. “When I lose sight of that because of other things going on, the ripple effect of that will begin to show up two to four weeks later. ... Make sure you’re dedicating time to your people.”
Keep looking for talent
Sun loves to see people who are already on the team blossom and fulfill or even exceed their potential. But she’s always keeping her eyes open to bring new people in who can join the team and make the company even better.
“I won’t go recruit a specific individual because I likely know their peers or their boss and so that would be inappropriate to do that,” Sun says. “But I might post on my LinkedIn status that we’re seeking a new director of field support for the West region. And within 12 hours, I might have eight people who are in my network reach out to me and say, ‘I’ve been waiting for an opening to work for BrightStar. You guys have such a great reputation.’”
The key to generating those kinds of feelings about your business is to have a strong culture where employees are eager to welcome new people aboard.
“It’s important externally for the leader to be very articulate about the vision and strategy of the organization,” Sun says. “It’s equally important, if not more important, to be able to do that internally so employees understand where they are at is the best company they could possibly work for. That way, they are talking to friends and family about how great it is to work at BrightStar. That’s how you get great future employees.”
Sun says networking isn’t just about talking to people about job openings that you have today or will have tomorrow.
“You never know where an opportunity is going to arise or what a relationship is going to lead to,” Sun says. “We all have a lot to learn from one another, and we need to enjoy that journey along the way.”
Make your company desirable
You’ve got to think beyond what you do each day to crank out your products and services. Who benefits from the things your company makes? What difference do your employees make in the lives of others? Those are things you need to think about if you want to build a strong culture that can withstand challenges like a recession.
“You need something that people are looking to get behind,” Sun says. “If they are a really talented individual, salary usually isn’t the reason people take jobs or keep jobs. They want to respect the company that they work for. They want to be proud to talk about it with their family at the dinner table. They want to understand where and how they are going to grow with the company.”
Don’t be mysterious about your company’s growth plans. Be clear about the plans and clear about what steps employees can take to be part of those plans.
“What’s the future state of the organization?” Sun says. “Is it planning to grow, add new business lines and new brands? If exceptionally talented people come in at a lateral level, do they have the opportunity once they prove themselves to move up because the company is going to be different and growing and expanding in future years?”
While a good culture alone isn’t enough to drive a company to success, a bad culture can easily poison a workplace and make it nearly impossible to succeed.
“You’re not going to keep the best people if you’re telling them from A to Z what to do and you’re not empowering them to make their own impact and their own difference every day,” Sun says. “As the leader, I set the direction and the vision clearly enough where they can tell it’s Swiss cheese. But I’ve empowered them well enough to be able to know that they have a significant role in plugging those holes.”
And when the times turn tough, show faith in your employees that they have what it takes to pull your company through to the other side.
“Our people saw we were in it with them and we weren’t cutting people,” Sun says. “That empowered our people to want to go even further than the extra mile. We would remain loyal to them and they would remain loyal to us and give us the extra effort to help our franchisees succeed and get to the other side, no matter what that took. They knew we were making sacrifices to not cut staff to keep our profits in line with where they had been historically and let profits suffer.”
How to reach: BrightStar Care, (866) 618-7827 or www.brightstarcare.com
The Sun File
Shelly Sun, co-founder and CEO, BrightStar Care
Born: Knoxville, Tenn.
Education: Bachelor’s degree in accounting, University of Tennessee; master’s degree in accounting, University of Colorado
What was your first job?
I worked in a shoe store, Franklin Shoes. I spent every paycheck on shoes. I’ve had a strong work ethic from a very young age, and I’ve always had a shoe fetish, too.
Who has been your biggest influence?
My father was a very strong workaholic and entrepreneur, so I always saw the work ethic and determination. But for me, it’s about trying to balance having both the success that a great business can deliver while also having people like and respect me — respect being more important. That includes my own family.
Who would you like to meet and why?
Marshall Goldsmith. He’s one of my favorite authors and has written some of the most impactful business books for me personally — being able to take some of what he has written for everyone and be able to talk about my specific circumstances as a leader in my organization. It allows me to look at how I could more specifically apply great leadership principles that have been helpful in the abstract, but would be even more helpful in the specific.
Give employees a chance to solve problems.
Articulate your strategy.
Make your company a great place to work.
As a 20-year veteran of the insurance industry, Charlie Rosson has seen his fair share of financial uncertainty, economic downturns and business struggles. So when he was promoted to CEO of Woodruff-Sawyer & Co. on Jan. 1, 2008, Rosson recognized rather quickly that his tenure was going to coincide with all three.
“Right from the start, like everybody, we were thrown a pretty difficult set of circumstances to deal with,” says Rosson, CEO of the San Francisco-based insurance services firm. “So many businesses were impacted in terms of their sales and access to capital and their business overall. The recession impacted our clients directly, and we were challenged to respond to that by coming up with more aggressive programs for them to quickly save them money and to help a lot of them through survival mode.”
Although clients were losing revenue and facing serious financial struggles of their own, the firm still needed to find ways to keep business profitable. But many clients could also no longer afford the firm’s services and products at the same rates or prices as in the past.
Like most professional service firms, Woodruff-Sawyer needed to find ways to keep clients’ businesses afloat but also avoid losing their business.
“Obviously, we had to become more efficient in the way that we do business, and we had to recognize in a lot of cases our clients weren’t willing or didn’t have the wherewithal to pay the same type of fees or commissions that they might have before the difficult time,” Rosson says.
“The way we would structure an insurance program before the financial crisis or before things got really difficult obviously wasn’t implacable anymore. So we had to kind of come to terms and help them with declining values and property, shrinking payrolls and overall downturn.”
Finding creative ways to deliver the same types of programs for clients more affordably wouldn’t be simple, especially because each client’s business was so different.
Rosson knew that the firm needed to work much more closely with clients to figure out win-win solutions.
“We had to negotiate greatly reduced premiums for them and come up with coverages that met their needs but were at a price point that they could afford,” he says.
So as Rosson and his team began talking with clients about their changing risks and opportunities, they also asked each client for a list of must-haves.
“We really had to dig in and find out what are the things our clients truly value and what things are sort of “nice to haves” that they didn’t value as much, and frankly, weren’t willing to pay for,” Rosson says.
“We’re fortunate that the clients we serve we have a great relationship with and normally have a pretty deep dialogue with them and attempt to fully understand their business,” he says. “So we can go in and talk about the services we deliver, how they’re delivered and how the team is structured, then drill into what things are important to them. Then we ask them honest questions about what things they can live without.”
Knowing your customer’s “deal breakers” can help you pinpoint the exact value that you add for them, allowing you to identify and recommend business solutions that are cost-effective but that still meet that customer’s needs.
“What clients are looking for is value, and in our case, it’s quality of advice,” Rosson says. “It’s how do we help our clients become more successful? And oftentimes when we partner up with them and really understand their business, we can help them execute a strategy that maybe they wouldn’t be able to execute without us.”
You may see opportunities to meet the future needs of your customers as trends emerge of where their businesses are moving and as new technologies come along. For example, the recession spurred the firm’s investment in technology to help address client issues.
“The current generation of buyers has already adopted technology as a core part of the way they do business, and that curve is only going to get steeper as newer generations come into the workforce and become leaders of companies,” Rosson says. “They’re going to expect that they can interact with service providers and professionals through some sort of technology medium. They’re not going to expect the traditional back and forth model that’s defined our industry for quite a while.”
Trim the excess
Once you identify your clients’ pain points and priorities, you can begin looking for ways to serve their needs more efficiently.
Rosson realized that although Woodruff-Sawyer continued to deliver valuable services and advice for clients, the firm could save time and cost by streamlining its approach — as could its clients.
“We had to get much more efficient in terms of the way we structured our teams, and we had to use technology in ways that we hadn’t before, in terms of delivering things through the Web that may have been done before either face-to-face or through some other lower-tech way to deliver service and advice,” he says. “So we are using technology in different ways, and we’re just more careful in terms of how we assign resources to client teams.”
Rosson restructured the company’s practice teams to put the focus on having the right people in the right roles, instead of just more bodies, to cut down on unnecessary costs.
“Don’t get swept away by how much revenue you think somebody can generate or how dazzling somebody is,” Rosson says. “Really do your homework and find out what that person is all about. Are they really a fit for the organization? Do they really have the client’s best interests at heart? Can they collaborate well with others? Those are really important things.”
Another way Rosson saw to improve efficiency was integrating technologies that could make communication more user-friendly for clients. Most of the technologies Woodruff-Sawyer has deployed are collaborative, meaning they enable communication between clients and associates outside of the traditional email and face-to-face meetings. In addition to saving its clients cost and time, many changes have streamlined the firm’s processes overall.
For example, the firm now issues all of its certificates online and deployed a portal called Passport, which permits document sharing and collaboration with clients over the Web to expedite projects.
Since seeing the positive impacts, Rosson has continued to pursue a direction that involves technological innovation. Recently, the firm launched an online portal for small businesses called, BizInsure, hired a chief information officer and has made investments in online business to ramp up its overall technology component.
“I’m absolutely convinced that emerging technology is going to have a disruptive impact on our business,” he says. “And I believe it’s going to be in a positive way, and we’ll be right there to capitalize on it. The way that we’re going to interact with our clients in the future is going to be different that our traditional model.”
Enable a responsive culture
Of course, it’s difficult to devise efficient and cost-effective solutions for clients if you don’t empower employees to be creative and test their ideas. Businesses that run their organizations with a heavy-handed, top-down leadership structure can easily stifle the kind of creative, engaged culture it takes to provide the most value to clients, Rosson says.
“To be a top-tier professional services firm, by definition, you want to have professionals — and you need to treat them that way,” he says. “The way to treat them that way is to respect what they do and be there if they need advice and guidance. You have to have a certain amount of structure, but listening and not being overly prescriptive or top-down in our approach has really paid dividends.”
Rosson avoids a command and control culture at Woodruff-Sawyer by furthering the firm’s corporate vision to remain an independent brokerage firm. Being a 100 percent ESOP firm gives the company a flexible infrastructure where top people feel empowered to make decisions and operate with more freedom, he says. With no shareholders, employees are able to focus on the client and do things for clients that might be difficult under a different leadership structure.
“We’re able to do things for clients in terms of being flexible and the people who are working with clients have a lot more authority to get things done for them, deploy resources and make decisions that our competitors who might have a different ownership system can’t,” Rosson says.
“Our independence is a key part of our competitive advantage and a big part of our culture.”
The independent structure has also helped the firm attract talented employees who value autonomy and the ability to be responsible to a client’s needs. And for companies that can’t do an ESOP, leadership comes into play even more. As a CEO it’s important to set the tone for your direct reports and other employees by showing that you trust their decision-making abilities.
“I truly believe that we have the best people in the industry,” Rosson says. “These are people who have arrived at a place professionally. They don’t need me to look over their shoulder or a leader to second-guess what they are doing.”
Rosson says in the future, the firm will continue to be prudent and watching the bottom line while making investments in technology and internal perpetuation to keep the firm independent. By successfully delivering insurance services in an efficient and user-friendly way for clients, the firm has not only retained clients, it’s also been extremely successful in adding new business.
“The vast majority of our growth is organic growth through just going out and telling our story,” Rosson says. “With a lot of our competitors, and the large ones, it can be very difficult or very expensive to access very sophisticated resources. What we do is deliver those same resources or the same level of advice — or even better — but do it in a way that’s less expensive and much more user-friendly.”
As a result, Woodruff-Sawyer has grown its revenue approximately 40 percent since 2007, generating approximately $70 million in revenue in 2011.
“Like so many businesses, the downturn forced us to work smarter and more efficiently and embrace technology,” Rosson says. “As the economy has slowly improved and our clients’ businesses has improved, we’ve found that we’ve been able to leverage our technology and we haven’t had to increase our costs at the same rate that maybe we would have. So we’re actually seeing that our business is healthier now, after the downturn, than it was before.”
How to reach: Woodruff-Sawyer & Co., (415) 391-2141 or www.wsandco.com
- Ask customers where your business provides the most value.
- Utilize technology to cut down on time and cost in customer interactions.
- Empower employees to help clients by avoiding a top-down culture.
The Rosson File
Woodruff-Sawyer & Co.
Born: San Jose, Calif.
Education: B.A. in history from UCLA
On growth: If you’ve got a very strong core business — I’m so bullish on the insurance business — you don’t need to take on too much debt or be overly grandiose in your expansion plans. Expansion and acquisitions all should be driven around acquiring people who fit into the organization, really bring something to the table and add to your organization rather than just executing a geographic growth strategy or putting pins in the map. All of your expansion should be for the right reasons, with the right people with client in mind, rather than trying to fill out (geographically) with different offices all over the place.
What is your favorite part of the business?
The best part of the business is getting out and meeting with clients and prospects. That’s why most of us got into this business and what really drives the passion for it. A lot of our relationships with clients go back 10, 15 and 30 years even. That’s the most fun part of it. I think it’s also really gratifying to successfully run the business and see the impact that you can have on employees’ lives.
What would you be doing if not for your current job?
Teaching English in Argentina
What one part of your daily routine would you never change?
Interacting with our clients and prospective clients
How do you regroup on a tough day?
I try to exercise every day.
What do you for fun?
Cooking, traveling, reading, coaching kids’ sports
It looked to be another great year for Republic Steel.
Coming off its 2005 acquisition by Industrias CH, S.A de C.V. (ICH) — a fast-growing steel producer and processor based in Mexico City — the company had cleared up all its previous debt, the steel industry was flush with opportunity, and as the new
was laser-focused on building a strong team and investing in best-in-class facilities to position the 125-year-old steelmaker for growth.
And that, of course, is when everything went south.
“After October 2008, the whole world changed for the industry,” says Vigil, who joined the Canton, Ohio-based steel company in 2005. “The recession threw us a curveball that we were not planning. I don’t think we were looking ahead. We had really relied on intelligence based just on market view.”
As the largest maker and supplier of special bar quality (SBQ) steel in North America, Republic produces steel for applications such as automotive and energy. It has been developing its steelmaking practices for more than a century. But even a company with annual sales of more than $1 billion wasn’t immune to the shock of the 2008 financial downturn.
Declining demand and struggling customers, who were urgently looking for ways to cut costs and scale back, hit the company hard. Almost overnight, Republic Steel saw its volume of business nosedive.
Streamline your structure
Not yet knowing the full scope of the downturn, Vigil knew that Republic Steel — like its customers — needed to cut costs to minimize the financial fallout. So the first step was to look for ways the company could streamline plant operations.
“At that point, the volume with the plants that we had had a lot of fixed costs,” Vigil says. “We were forced to shrink our footprint to be able to manage our costs and have a profitable business.”
Increasing efficiency without sacrificing quality can be tricky. You need to examine the profitability of every segment of operations thoroughly. First, identify the areas that have the most efficient costs, and second, identify where costs overlap. This process allows you to consolidate the most efficient operations and shut down equipment and functions that no longer make sense.
By making these changes, Republic Steel was able to shrink its footprint to that of a much smaller company in a short time period.
“That was a very different situation for us from 2005, but it was also a very good experience for us to try to model our business for the future,” Vigil says. “It allowed us to look at things in more detail and understand our business and our cost and the opportunities that we had to be more efficient.”
Taking cost out of operations not only allowed the company to produce SBQ steel more efficiently, but it also freed up resources, which Vigil reallocated to enhance the company’s quality, delivery and range of products in its SBQ steel business to provide more value to customers.
“We have to be right there with them making a product that suits their needs,” Vigil says. “Our No. 1 qualification or differentiation in the market is our ability to work with technicians of our customers to develop the products that fit their needs and then produce them consistently with a low cost and high quality and delivering them on time.”
When you’re not making a commodity, you need to be more focused on quality and continuously improving your products to stay competitive, Vigil says. The key to staying relevant was investing in the company’s strengths, such as its years of experience in the steel industry. The fact that the company’s Canton plant was the first-ever producer of SBQ steel provides it with a strong competitive advantage.
“Our brand has good recognition, and we continue to build on that by making our customers really comfortable in the long run that they have a true partner with Republic Steel, a company that knows what it wants and that can adapt to the changing market as needed,” Vigil says.
“With more than 125 years of know-how, you get a very good result. You can continuously provide the same quality that your customers are used to with more efficiency. It allows you first to be more competitive in the marketplace and maintain and improve your quality in the product.”
Since 2005, Republic Steel has reinvested close to $130 million in new equipment and new processes into its core Northeast Ohio facilities, which include plants in Canton, Lorain and Massillon, Ohio. In 2012, the company also announced that it would invest more than $87 million in a new electric arc furnace and equipment at the company’s Lorain, Ohio, steelmaking facility — a move that is adding approximately 450 employees.
The company chose the Lorain plant for the investment because of its close proximity to the existing customer base and to other Republic Steel facilities. Having a smaller physical footprint allows you to allocate resources to growing areas more easily to develop strong teams, while delivering a consistent experience for customers.
“We see a strengthening automotive industry as well as a lot of growth in the energy sector side through the gas horizontal drilling process,” Vigil says. “We see ourselves in a very good position to serve those markets in the long term.
“It gives us an opportunity to serve our customers with more product and a very solid footprint in the long run. Our customers have a supplier that has no debt and that is investing in its business. So we feel that our customers see us as a long-term partner, and they can stick with us for years to come.”
Look to your core
When your company is facing market volatility, past plans and strategies may get tossed out the window rather quickly. To ensure that Republic Steel didn’t lose sight of its identity in the chaos, Vigil used the company’s core values to guide the strategy — specifically two values passed down from its parent company, ICH.
The first was carrying a debt-free balance sheet.
“When we acquired the company in 2005, we inherited some debt from the previous administration,” Vigil says. “We worked very hard to pay it off with our own resources and some support from the parent company.”
Even when the company was losing volume during the recession, Vigil wasn’t willing to take on debt in favor of gaining more financial flexibility. In fact, he says borrowing money often results in the opposite outcome for companies by stifling their spending. Carrying zero debt allows you to make decisions without dealing with banks or lenders.
“Some companies have different opinions about debt, and in certain cases, it allows companies to be flexible and grow faster when an opportunity comes, but we still have that flexibility because having no debt makes us attractive to banks,” Vigil says.
“The recession has been the best proof of the strategy. We tested it through this downturn, and we were able to manage through the recession a lot better than some other companies who have big debt or a lot of interest to pay.”
As a result, the company has been debt-free since March 2006, operating as a true cash-flow company.
“It makes us a stronger company, and it allows us to keep reinvesting even in the downturn because the money that we generate is really for us and not to cover any debt obligations that we have,” Vigil says.
The second core value that helped guide the company through the recession was having a diversified mix of sales. Carrying a wide range of products makes the company a one-stop shop for many customers. So even in the downturn, Vigil continued to make investments to expand Republic Steel’s capabilities in emerging markets, such as natural gas and energy.
“The volatility in our customers’ industries continues to be something that we’re monitoring very closely,” Vigil says. “The economic situation worldwide, starting with Europe being so volatile, continues to have a big effect on our customers’ ability to project their levels of operations.
“Having a more diversified mix of sales allows us to not have all of our eggs in one basket and participate in different industries, and we’re able to better ride the cycles. We, as a company, believe that if we stick with those two values — remaining debt-free and continuing to have a diverse mix of sales — we can deal with the volatility in different markets.
“We’ve prepared our company to be better geared to react now than we were in 2008. Through these changing circumstances, we’ve created a more flexible company with the investments that we’re making, allowing us to grow our strength faster.” ?
How to reach: Republic Steel, (800) 232-7157 or www.republicsteel.com
1. Find ways to cut cost by shrinking your footprint.
2. Allocate resources to growth areas.
3. Guide your strategies with core values.
The Vigil file
President and CEO
Born: Mexico City
Education: Universidad Anahuac in Mexico City
What is one part of your daily routine that you wouldn’t change?
I like running every morning before going to work; it really makes a difference helping me start every day with great energy and a clear head ready for business.
Best piece of business advice:
I’ve benefited a lot from the experience that my team brings to my decision-making process. That saying that more heads are better than one — that does apply in practice. It’s particularly important in soft science to surround yourself with good members willing to openly give their take on problems so that together you come up with the best solutions.
What do you do for fun?
There is no better way for me to spend my time when I’m not at work than with my wife and kids. From training for a marathon with my wife, to being attacked with toy swords by my three and four year old boys … it’s the best time of my day!