CEO Confidential
Why manufacturing CEOs, managers and entrepreneurs alike are getting together to share ideas, advice and experiences.
BY TOM MASON
Reed Hart, CEO of LCS Precision Molding, had a special urgency as he drove from his plant in Waterville last January to Greater Mankato Growth, where he would meet with other manufacturing executives at their monthly day-long "peer council" meeting.
The Mankato group is one of eight Enterprise Minnesota-sponsored peer councils statewide. The peer councils enable manufacturing CEOs to speak with each other candidly and confidentially about issues that matter to them and to their businesses.
Hart's issue that day was the sales dilemma that inevitably confronts all manufacturers who are too small to sustain their own sales force: Do I get better hands-on control over my sales operation by taking the financial risk of hiring a costly inside sales manager? Or do I
sacrifice control with the more economical option of hiring sales reps?
As he outlined his situation to the other nine CEOs in the group, he found that each one had faced the same issue in some form or another.
LCS each year ships about 30 million plastic parts to customers, primarily in the window and door industry. About 20 percent of his customers comprise an eclectic array of parts for motor sports, recreational equipment, furniture makers and in-store displays.
About half of his customers were in-house accounts. The other half were handled by outside sales reps: two covered eight western states, and one each handled the Midwest, the east and the southeast.
"It was like herding cats," he says now.
Some reps, he told the group, were great; some were coasting.
The peer council conversation confirmed Hart's instincts. Several others had the same kind of love/hate relationship with their reps. They appreciated how reps could extend their sales reach and the cost efficiencies of only paying commissions when products were sold.
Yet he knew, too, that his high-volume/lowprice units often were not a priority in the sales bags of each of these reps. In their competitive efforts to meet more than just one need for customers, these reps carry aluminum products, adhesives and vinyl extruders.
"We're not a lead dog," Hart says. "We're often a drag-along."
He fretted that he had no control over the reps' time. His challenge was trying to find the time to travel with each rep on customer visits at least once each quarter.
"Unless you work with them--see the customers and manage the process--you could easily end up with reps that don't produce very much," Hart says.
Hart admits that the conversation didn't offer much that he had not already thought about, but the unvarnished discussion persuaded him he should hire a sales manager, despite the bad economy. "I knew it that day," he says.
Although he says it is too soon to conclude that the hire has worked, Hart thinks that there are enough deals in the pipeline to feel good about his sales goals for 2010, even if they are weighted to the second half of the year.
"We're getting there," he says, adding that he already feels better about control. LCS recently reassigned customers from one rep group to another. His new salesman also is spending more time with customers and making concerted efforts at prospecting.
Hart is in his fifth year as LCS's top executive. His father-in-law, Don Kaplan, founded the company in his garage some 35 years ago, shipping just a few thousand parts per year.
When Hart took over, he was armed with an MBA. His most recent business experience was at Hewlett-Packard in Roseville, Calif., a suburb of San Francisco.
"The first year and a half was difficult," he says. "There isn't anything that prepared me for the issues and problems of running a small business."
Lacking the economy of scale to afford specialists, small business owners tend to wear a lot of hats, among them those of strategic planner, chief salesman, host of vendor relations, human resource manager, health care negotiator and engineer.
In Hart's case, the recession squeezed both sales and margins, forcing him to undertake even more managerial responsibilities. Hart found himself taking on more project management, estimating and even becoming more involved with activities on the production floor.
"It took me a while to adjust to the idea that there was no one else to make the decisions," he says. "At HP, there were a ton of other managers that I could talk to. It was great. You just don't have that in a small business."
John Connelly, director of consulting at Enterprise Minnesota, sees the peer councils as a way for executives to find those consultative relationships. "When they are inside of their own businesses, small manufacturers are expected to know the answer to every question that
comes up," he says.
"They are evaluated and debated based on the type of the answer they come up with--or the lack of an answer. So they feel pressure: Have I responded to this properly? Was I overly aggressive? Is there more to think about?"
The peer councils provide business owners with a place to step out of their individual businesses and talk about issues with others who may be in the same boat. Sometimes conversation is simply venting, but most councils very quickly get past venting and move on to something
productive.
Connelly says he is surprised by the diverse and sophisticated business experiences of council members, regardless of the topic. "I'm not surprised that someone says, 'What do I do about this Blue Cross/Blue Shield issue? I've never come across this before.' I am surprised
that there always seem to be one or two people in the room who say, 'I've wrestled with that.' And they are able to talk about it. Sometimes someone will say, 'Here's what I did, and I made a mess of it.' And then it is a learning opportunity. Then you can say, 'I'm not trying
that!' That is a major piece."
Jerry Kauffman, president and CEO of Windings Inc., and another member of the Mankato council, also is a relatively new CEO. "It quickly became apparent to me that in my new job as president, I don't have any peers within the company," Kauffman says. "I don't want to make
that sound self-serving, but my point is that in the chief executive chair, there are some things for which you really need a resource outside of your company to help you. I've found that in the peer councils, that's a very common feeling, and so I think that is a key need that the
peer council can address for all of us at the same time."
Craig Ryan, general manager of Page 1 Printers, is not new to the peer council scene. Ryan also participates in a council made up of strictly printing companies, and he has found that bouncing ideas off a wider variety of manufacturing leaders has also been helpful. "I think
it's teaching me how to grow as a general manager and as someone in a leadership position," Ryan says.
Through peer council meetings, Ryan learned that communicating to his entire staff as a whole--instead of only to smaller groups or individuals--can help to keep employee morale levels high. To that end, Page 1 Printers has begun a quarterly newsletter detailing best
practices, ongoing safety and waste metrics, and events throughout the business. Ryan says the response from employees has been "very good," sparking discussion and idea exchange among employees on ways to help the business thrive.
Another value of the councils is that CEO members often challenge each other to get their heads out of day-to-day management decisions and think in terms of larger strategic planning. "They often ask each other, 'What are you going to do next?' When evaluating a problem,
they ask, 'Where are you headed with this?' rather than spending too much time on, 'How did you get here?'" Connelly says.
The original peer council is nearly a decade in the making, started in Owatonna by Dick Pederson and a handful of other experts for Enterprise Minnesota. As Enterprise Minnesota experts at that time were taking on a more advisory role in helping manufacturers to grow and
compete, Connelly says they began to notice many similarities between companies in terms of challenges and experiences.
"Sometimes it was that they had run into the same problem; sometimes it was that they had solved the same problem. But we began to realize that if they could talk to each other, they could benefit from where somebody else had already been," Connelly says.
Today, roughly half of the Owatonna peer council members remain from the first group that met more than eight years ago. Connelly says this is a testament to the benefits of participating in peer councils.
"It's actually phenomenal," Connelly says of the founding members who continue to meet and share ideas. "They found a set of advice, a set of players that they don't want to lose touch with--and they keep coming back. I love the fact that when they do it, they have two
ideas in mind. One is, I have to come with information that somebody else can use and I have to be there to share that. That's what allows me to have the right to ask for advice on other things. They hold themselves responsible for being available so that they can take advantage of
others' availability."
Enterprise Minnesota currently maintains seven ongoing peer councils throughout the state. Alexandria hosts three--one each for CEOs, operations managers and entrepreneurs. Others are located in Monticello, Mankato, Eagan, and one in conjunction with the Southwest Initiative
Foundation. There also is one in Grand Forks, which is operated jointly with the North Dakota Manufacturing Extension Partnership.
SWIF's peer council meets at the foundation's offices in Owatonna. Peer council members in this group are all either current or prospective beneficiaries of SWIF investments. Connelly says this helps SWIF to ensure that all of the beneficiaries of their current and future
investments have everything they need to succeed.
Each group meets once monthly for about five hours per session, and sessions are facilitated by professionals supplied by Enterprise Minnesota. Jan Hepola, process engineering consultant, manages the Mankato group. Hepola, a graduate of the University of Minnesota, is a
certified trainer for Training Within Industry who has a deep background in Internet business, online marketing and project management. She organizes the elements of each meeting and, as facilitator, unobtrusively keeps the conversations moving and relevant.
Joining her in Mankato are Pedersen and Greg Thomas, a native of Mankato. Thomas is a business development specialist for Enterprise Minnesota, with expertise in sales and production management.
Thomas likens the peer councils to an informal advisory board for participants, where one leader's current challenge is something that others have already experienced in their companies. He adds that it also helps to pinpoint ways in which Enterprise Minnesota might be able to
help.
"I get a chance to learn about [peer council members'] businesses and what they're challenged by at a very deep level. Based on what I've heard at peer council meetings, I might come back to them and dive a little deeper to see if there's a resource that Enterprise Minnesota
could help with, or even something outside of our company that might help them, if it's something that we don't do," Thomas says.
Pedersen brings to the peer council a master's degree in engineering from South Dakota State University. Pedersen has more than 35 years of experience serving south and southeastern Minnesota as a professional business advisor for Enterprise Minnesota.
Hepola kicks off each session with a "fastburn" discussion of issues that each executive wants to talk about. The group includes any topic its members want to discuss--nothing is off-limits.
She also encourages a round of resource sharing. Has anyone attended a useful (or not useful) conference or professional group? Have they heard good speakers? Read useful books?
"The conversation is the biggest value," she says.
The afternoon session typically features an outside speaker who will discuss (but never sell) topics that emphasize strategic planning or processes. Recent topics have included health care, "lean" accounting, the tax implications of the new administration or how to create a
sales team. It tends to be more strategic than operational, Hepola says. "But we'll go anywhere, if there is demand." Most recently, for example, the Mankato group heard about customer-relationship management (CRM)--how to integrate information throughout your sales operation and
how customer information is shared within an organization.
"It tends to be a dialogue," she says. "This is a small group of very sharp people. They don't tend to just take it all in. They want to participate."
Participants whose experiences would be relevant to others are recruited and matched by like-minded executives. Each company enjoys category exclusivity, so that they don't worry about sharing inside secrets with competitors. There also is a sacred bond of confidentiality.
The formula for success is largely predetermined before the first meeting, by carefully selecting who participates.
"Confidentiality is absolutely key," Kauffman says. "I also give Enterprise Minnesota credit because they are careful about putting the groups together, and are very vigilant about not setting up a situation where there could be a conflict of interest or potential
competitors within the same council--that would be crippling to it. They're very careful."
Another requirement--that needs no enforcement--is that each participant take the meetings seriously and show up regularly. "I jump through hoops not to miss peer council meetings," Hart says. "I find it incredibly helpful."
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