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Growth over cutbacks works for him

(First Person features local businesspeople relating, in their own words, experiences and lessons that have shaped their company’s development. The goal is to inspire and inform others through first-person accounts.)

By PETER SCHOTT
Two years ago I held the fate of my company in my hands. My story now is of the transformation, development and growth that followed.
XL Tool & Machine Corp. was founded by my parents in 1967. My father was a toolmaker and my mother handled the bookkeeping and clerical work. The company manufactured engineering prototypes for new products under development. Over the years their manufacturing business was successful and grew. They retired in 1994 at a time when the forces of the market were radically changing the nature of small manufacturers in Rochester.
Our largest customers–Eastman Kodak Co. and Xerox Corp.–were under tremendous pressure to compete in the global economy. They looked to their suppliers for help. They became increasingly demanding, asking for more, better, faster, cheaper. They reduced the number of suppliers with whom they did business in order to lower their cost of procurement and gain control over pricing. They created preferred suppliers: In return for a large volume of work and long-term contracts, the preferred suppliers provided additional services and more favorable pricing.
The selected suppliers expanded quickly on a steady supply of work. We, meanwhile, were shut out and struggled to compete for the leftovers that fell through the cracks in the system. This put a squeeze on our margins and profits.
At the same time, the core of XL Tool & Machine’s business–engineering prototypes–was quickly becoming obsolete. Building prototypes is expensive and time-consuming. Design and product cycles are shorter. There just is not sufficient time or money to manufacture successive generations of prototypes to prove a design. The need for prototypes has been greatly reduced by improved engineering software and alternative technologies such as stereo- lithography.
Our sales and profits declined, jeopardizing the survival of the company.
Our competitors who had become preferred suppliers benefited from the growth that followed. Their resources increased substantially and soon were far greater than our own. They were able to attract financing for large projects, to modernize their equipment and to expand their facilities. As their capacity increased, they realized an economy of scale that resulted in improved margins. With adequate profits they invested in work-force training and more new technology. In short, they became even more formidable. We were being left behind.
The company was at a crossroads. Our sales were flat and we were barely profitable. As my parents retired I faced a critical decision: downsize to protect the company’s assets, or reinvest to restore the company’s competitiveness.
Downsizing would mean reducing the payroll in order to cut expenses. This would temporarily improve the company’s finances, but then what? In the long term we would not have sufficient profits to provide the competitive wages and benefits required to attract skilled employees or buy the modern equipment that could keep the company competitive. I saw a grim future of subsistence in which the viability of the company would gradually erode until it failed completely. This was not acceptable. I chose growth.
A business is a creative endeavor driven by one’s ego, optimism and desire for accomplishment. I wanted the company to grow and prosper. I wanted to maintain and create good jobs, wages and benefits for my employees. I wanted to make a positive impact on the community. I wanted to make my parents proud. I wanted to ensure my own success and believed that the best way to do that was by making sure the business was successful.
So in October 1994 I hired a business consultant, Michael Dickinson of Innovations Plus. He evaluated the company’s situation and together we developed a business-improvement plan. The plan called for restructuring the company around a new quality system, obtaining additional financing, enhancing our capabilities and expanding our capacity. In order to support the plan we also would need to dramatically increase sales and develop new customers.
I implemented the plan in January 1995. Shortly after, I decided the company needed a new identity to reflect the profound changes that were taking place and to send a positive message to our customers, employees and suppliers. We developed a new logo and marketing materials. In June 1995 I changed the name of the company to XLI Corp.
The metamorphosis of XL Tool & Machine Corp. into XLI Corp. presented tremendous challenges to the organization.
The single biggest challenge has been overcoming the resistance to change. Our organization was insular and had become complacent through the prosperous years. We were not fully prepared for the additional work the plan required. Most employees embraced the plan and adapted nicely to the new corporate culture. A few did not. This resulted in some difficult personnel decisions, including terminating several long- standing employees. Happily we also have created additional jobs.
Other challenges faced by the company included balancing short-term and long- term goals, managing cash flow, learning new skills, finding qualified new employees and processing additional work. These are the challenges of a growing business, the kind of challenges that every business owner likes to have.
I have learned several important lessons over the past two years.
First, identify your personal and business goals and make a written plan to achieve them. The plan must be consistent with your own values so that you will have the confidence of your customers, your employees and your creditors. A consultant is useful for this task because he or she can offer an unbiased view and a fresh perspective.
Second, promote the plan within your organization by stating its benefits to your employees and appealing to their imagination. Do this frequently. It will keep you and the organization focused.
Third, surround yourself with capable, enthusiastic people. Make them responsible for the company’s success; give them the appropriate freedom and resources; and reward them when they achieve the desired results.
Finally, after nearly two years of hard work by our dedicated employees, the company is beginning to see meaningful results.
Today XLI Corp. is a full-service manufacturer of precision components and assemblies. We serve customers internationally in a variety of industries, including office automation; mass data storage; medical diagnostic equipment; measurement, inspection and test equipment; and process-control equipment.
In January 1995 we had 18 employees; we now have 35. Sales are up and our finances have improved. The company is growing again. And although much work remains to be done, I am confident that choosing growth was the correct decision.
(Peter Schott is president of XLI Corp.)
(If you have a story to tell, fax a brief synopsis (no more than a page) to Associate Editor Christina LeBeau at 546- 3398, or e-mail it to RBJournal@aol.com.)

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