The right turns Featured

8:00pm EDT April 24, 2005
The outlook for Robroy Industries Inc. might appear as optimistic as the view from its Verona headquarters, which overlooks a wide stretch of the Allegheny River -- pleasant and relaxing.

The manufacturer's offices stand in a wooded area behind a wall of pines that Peter McIlroy, now chairman and CEO, planted there 20 years ago. The trees are tall enough now to separate the company's campus from railroad tracks and a street lined with businesses in this working class community.

The 330-employee company came off a strong year in 2004, with $78 million in sales and $17 million in pre-tax profit. What's more, it's averaged 18 percent profit over the last three years and carries no debt.

McIlroy expects the next 10 years to be a strong period for Robroy, given the products and the industry segments in which it operates. Two segments promise strong organic growth -- a pipe lined with fiberglass and cement that is used in oil field applications to resist corrosion, and its business in fiberglass enclosures used to house computer and electronic gear.

While it is in a mature industry with modest growth, Robroy is a dominant niche player with its third business unit -- coated conduit products -- which offers several brands and has little competition. Of the four brands of PVC-coated conduit available in North America, for example, Robroy owns three.

But McIlroy refuses to take anything for granted. The company has had plenty of ups and downs over the last century since McIlroy's grandfather started the business in an Etna garage. He founded it as Enameled Metals Co., and his goal was to apply black enamel to steel pipe and other metal products to provide corrosion resistance.

Plant fires, floods, labor and ownership disputes, economic downturns and a host of other misadventures visited Robroy Industries over three generations of family ownership and have demonstrated to McIlroy that it wouldn't take much to reach the tipping point for failure if enough things went wrong.

In a family business, McIlroy says, management tends to be seat-of-the-pants, and what you learn you learn strictly by doing and by "tribal knowledge," as he puts it.

"That's the way your father did it, that's the way your grandfather did it, you learn by example," says McIlroy. "You don't have that much formal education. This is typical in family businesses."

A few wrong moves, says McIlroy, and a company, especially one that depends on a limited line of products or services, could end up quickly closing its doors with a shift in the market, a customer that defaults on payments or a bad investment.

Even with good products, good people and some good luck, a family businesses can fail as a result of a single bad decision.

"One of the things that I've seen over the last 40 years is that companies cycle up and down," says McIlroy. "Along that journey, there are points where you have to make critical decisions, watershed moments, and at those watershed moments, you either make a right or a wrong turn."

Strong finances, solid products

With all of the things that could have or did go wrong, McIlroy credits Robroy Industries' success and survival to a few key factors, including good luck and fortunate timing. The company has retained a strong balance sheet, says McIlroy, even during tough times, enabling it to weather the downturns and difficulties.

Second, its core products, which he describes as having the common characteristic of offering resistance to corrosion, have value-added engineering applied to allow it to steer clear of being simply a provider of commodity items. Robroy Industries saw the writing on the wall in the late 1970s, when it chucked its galvanized conduit business. Aluminum conduit had been introduced and Robroy Industries realized that one of its products, galvanized steel conduit, was simply turning into a low-profit commodity with which the only competitive point was price.

When Robroy Industries veered off of that path, it almost always led to trouble. The company acquired 16 businesses between 1960 and 2003, and McIlroy says the ones that didn't pan out well usually were commodity businesses, where there was lots of competition and only one factor of interest to buyers: price.

One of Robroy Industries' product lines is fiberglass enclosures for electrical and electronic equipment and controls, a business that continues to be a key part of its electrical products business.

Seeing an opportunity in a related business, McIlroy acquired a company that makes steel boxes for housing computer storage devices, such as disk drives, figuring that it would provide a more complete line of products and complement Robroy Industries' fiberglass offerings.

The business did well at first. But as the computer business expanded, it attracted off-shore competitors. Raising the bar, thought McIlroy, might be the answer.

"We moved upscale, we bought another company that had more sophisticated internals," says McIlroy.

But that wasn't enough, either.

The short development cycle required for successive generations of the products was something that Robroy Industries wasn't accustomed to. Long development lead times often left it with obsolete products and costly markdowns. Despite pouring tons of cash into engineering new features for the enclosures, the effort was lost on the customers, and McIlroy dumped the business.

"My mistake was I didn't recognize that to the end user, that particular engineering value that we were putting in ... all of that was thought of by them as a commodity service," McIlroy says. "Even though we were putting a lot of engineering cost into it, we weren't perceived as a value-added supplier. There has to be some degree of technology or engineering value in the product."

Decentralization

With its operating units spread from Texas to Michigan and its headquarters in Verona, McIlroy decided in 1995 to decentralize Robroy Industries' management.

"The decision-making really all came back here, and there was a lot of politics, and it took forever to get answers, and we were perceived as not being easy to do business with," says McIlroy.

Instead of a team of vice presidents at the headquarters, McIlroy put them onsite to manage each operating unit. The company closed its Verona plant, consolidated its operations in one of its Texas plants and hired David Marshall as president and COO to oversee all of the operations and report directly to McIlroy.

Marshall, says McIlroy, loves plowing into the details of the business, while McIlroy likes handling the big picture. The outcome of decentralizing, says McIlroy, has been positive.

"With successful management at a local level, you can do fabulous things, and we are doing that today because each one is a small business, very responsive, very excited, making their own decisions," McIlroy says.

But decentralization can be "a double-edged sword," McIlroy says. "You put in the wrong leadership, and it gets completely out of control."

One of the reasons that its venture into the computer enclosure business wasn't a success, McIlroy says, is that he couldn't find the right person to manage the business. Those kinds of problems take awhile to surfac e, and when they do, McIlroy says, they can end up costing a lot of time and money to fix.

"It takes a long time to find out that it's not working," he says. "But when you do, usually there's a can of worms there that takes a long time to clean up."

Watershed moments

McIlroy doesn't minimize the role of luck and timing in the success of any company. In Robroy Industries' case, he points out, the decision by his father to take the company public in 1959 and expand operations provided cash that helped it avoid bankruptcy in the slow economic period from 1960 to 1963.

When the computer box businesses that Robroy Industries acquired turned out to be cash drains in the 1990s, the strength of its other lines propped up the company's finances.

And although he's confident that the company will continue to grow and sustain profitability, McIlroy remains fully aware that making the right decisions will play a key role in its success. While the view of Robroy Industries' future is as promising as the vista from McIlroy's office window is pastoral, he's keenly aware that there will be challenges, that being at the top of the cycle only makes it easier to slide down.

"It, too, will run its course, and we'll have more watershed moments," he says. "The question is, how will we do next time?"

How to reach: Robroy Industries Inc., www.robroy.com