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Growth strategies for fabricators

Developing plans for increasing revenue and profitability

Editor’s note: This article was derived from “Going to Market,” a conference session presented by Lisa Wertzbaugher at The FABRICATOR®’s Leadership Summit 2016, Feb. 24-26, San Diego.

Many small businesses start in much the same way—a few used machines, some rented space, and a lot of ambition. Revenue, profit, and budgets are limited, so marketing the new venture usually is limited to little more than cold calling by the owner. Small businesses usually grow slowly, but repeat orders, organic growth, and word-of-mouth advertising help. If all goes well, the business is on its way to buying new equipment, hiring additional staff, and leasing additional space before long.

However, at some point the revenue usually levels off. This is when a focused, sustained sales plan can help. In the case of Superior Tube Products Inc., Davenport, Iowa, the company owners hired a former employee (and daughter) Lisa Wertzbaugher to develop and execute a sales strategy. She had spent several years away from Superior, working in medical sales—first in supplies, then in devices—and brought that experience to the family business.

Wertzbaugher discussed four aspects to sales: Business development, consultative selling, sales and finance, and sales force development.

Business Development

Sales leads can come from a large number of sources: the company’s sales force and independent sales representatives; inquiries from customers’ and potential customers’ engineers and purchasing agents; contacts made at expos, conferences, and seminars; and inquiries from vendors and equipment dealers. Regardless of a new lead’s origin, the first stage in assessing it is a review of your company’s capability: is it a good fit with your existing equipment and services?

If you already have the necessary equipment and expertise to make the part or the assembly, it goes to the next stage: Market assessment. Is the location domestic or international? Is the application in an industry you currently serve? If it’s overseas, dealing with a foreign customer is just one component; dealing with a foreign bureaucracy is another. Do you know enough about shipping internationally and the paperwork needed to get the products through the customs department at the destination? Learning about the necessary manufacturing standards, safety codes, and anything else relevant to the application can be critical to selling components or assemblies to a foreign customer.

If it gets through the first two filters, the last question is this: Does the opportunity align well with your company’s strategy? Every fabricator has a reputation for providing some combination of quality, service, price, and innovation. The new project is a contender only if it fits your existing strategy without requiring you to make any sacrifices.

Bear in mind that pursuing a sales lead from a new customer is one of three complementary growth strategies. The others are capturing additional business from existing customers and acquisitions. Each has a unique combination of cost, sales cycle, and potential revenue growth:

  • New customer. Winning over a new customer has a high cost and long sales cycle, but the upside is that this avenue has good potential for long-term growth. Getting the first order usually requires numerous visits to the customer’s office to discuss capabilities, quality, and lead times, as well as visits to your facility to demonstrate your capabilities, and perhaps a couple of meetings over dinner. It might even require an investment in new equipment.
  • Wertzbaugher added that responding to a request for quote has little, if anything, to do with capturing a new customer’s business. Capturing the first project from a new customer takes trust, and trust takes a long time to build.

  • Existing customer. Working with an existing customer is the safest bet, whether it’s additional orders from growth of existing products or winning bids for new orders. An existing customer involves the least cost and the shortest sales cycle, but the potential for further sales is limited.
  • Acquisition. Whether an acquisition target is a direct competitor, partial competitor, or a manufacturing company that would complement yours, an acquisition is involves a long sales cycle and a high cost. An acquisition is a big investment, often requiring much more time and effort than gaining a new customer. The upside is that acquiring a company increases your company’s revenue overnight.
  • Wertzbaugher stressed that responding to sales leads isn’t a strategy; it’s just day-to-day business. Strategy starts by listening to the customers when they discuss future projects—features and components in the planning stages—and making equipment investments to keep pace. Wertzbaugher cited a strategy attributed to hockey legend Wayne Gretzky: “I skate to where the puck is going to be, not to where it was been.” A forward-thinking strategy takes time to develop, and time is a luxury few small businesses have, but to achieve long-term growth, it’s necessary to understand the direction of the markets you serve, Wertzbaugher stated.

    Figure 1
    If a fabricated product or assembly fits high on the bimodal curve, having an advantage in either price or some combination of quality, service, and innovation, it is likely to be a good fit. Any part or assembly that has no distinct advantage falls in the trough of the curve.

It also requires a nearly continuous appraisal of the equipment on the shop floor. Can it do the job? As equipment ages, it falls further and further behind the current state of technology and gets closer to obsolescence. Every fabricator has to update the tooling, software, and hardware from time to time to stay in the game.

Using the Bimodal Curve. A bid for new business that passes through the three-stage filter needs another look—an evaluation on a bimodal curve, which is an inverted bell curve (see Figure 1). Every item that comes out of every manufacturing plant everywhere in the world can be evaluated on this curve, which has two extremes. In manufacturing, these are cost and value (any combination of quality, service, and innovation). If a new business opportunity comes along and your company doesn’t have an advantage over your competitors in either cost or value, it might be best to pass it up.

Superior puts its twin-head bender, which has a maximum capacity of 2 inches OD, on the left side of the bimodal curve; the company uses it to crank out large volumes of lawn mower and snow blower handles to compete on price. It also has a bender that handles diameters up to 10 in. OD. This was a speculative investment; Superior’s owners had determined that the market interest in 10-in. bent parts was sufficient to justify it and made the purchase, despite having no orders for such large tube. Because this bending capacity is uncommon, this bender occupies the right-hand side of the bimodal curve. Part price isn’t a big factor when Superior discusses this capability with its customers, Wertzbaugher said.

A tube laser that handles diameters up to 3 in. or so is in the middle of the bimodal curve. Tube lasers have been available for decades, and many of Superior’s competitors made this investment years ago and have paid off the loans on these machines. In other words, a laser of this capacity isn’t unique and Superior’s competitors can compete on price, leaving Superior with no clear competitive advantage in purchasing one. However, this didn’t stop Superior from making the investment; the ownership team knew that it had to do so to offer a complete array of services to its customers.

“An equipment purchase doesn’t have to be on one side of the curve or the other,” Wertzbaugher said. “It can be in the middle, with no competitive advantage, as long as you can justify it.” The risk isn’t a matter of having a process in the center of the bimodal curve; the risk is having too many processes in the center.

Building a Network. While many fabrication shop executives, managers, and supervisors focus almost solely on getting product out the door, especially in the early years of the company’s existence, the tipping point comes when the revenue is large and stable enough to justify additional staff, freeing the executives to plan and pursue strategic objectives. Wertzbaugher noted that industry affiliations, whether national, regional, or local, are additional ways to keep up with industry trends, interact with customers, and seek out new customers. Whether attending a conference, seminar, workshop, or expo, this type of face-to-face interaction can help to build or enhance a relationship. Because it’s not a sales call, this sort of contact is relatively relaxed and takes place in a neutral setting.

Educating Your Network. Superior Tube Products has an educational program, STP Institute, that teaches buyers and engineers about the broad and fine points of tube bending, including aspects such as processes, machines, tooling, materials, specifications, and tolerances. The session has two goals. First, it teaches OEMs how to reduce the complexity, and therefore the cost, of bent tubing and tubing assemblies. Second, it shows the participants what Superior can do for them.

“This course has brought us more new customers than any other source, by far,” Wertzbaugher said.

Consultative Selling

After you gain a customer, what’s next? If you advertise your fabrication and machining services, you might be selling yourself short. If you don’t visit your customers often, you’re putting your business relationship in peril. Purchasing agents are people: people thrive on relationships, and relationships thrive on communication. Wertzbaugher schedules annual interviews with Superior’s top 20 customers to ask about service, quality, and communication and to discuss some of the intangible services Superior brings to the market.

  • Sales force. A dedicated sales force isn’t just a benefit to your company; it’s a benefit to your customers, too. Discussing your capabilities—that is, talking at your customer—is little more than a sales pitch. Routinely asking your customer for the opportunity to eliminate his latest headache—in other words, listening—is a customer benefit. A dedicated salesman is also a single point of contact for your customer to address any issue that arises with quality or service, which is another customer benefit.

    If you’re shipping product to several of an OEM’s locations, hiring a national account manager to oversee all of that business can be a good idea. However, national account manager isn’t just a fancy title. It’s a two-way street of responsibility. The national account manager is responsible for learning the details of the processes and products thoroughly so he can respond to customer complaints; meanwhile, the company has to give him enough leeway to make decisions to resolve complaints.

  • Engineering support. Whether you have bona fide engineers or staff members with the equivalent in experience, you have a lot to offer in terms of designing parts and assemblies to reduce complexity and cost. Every fabricator has a favorite story or six about saving a customer money, so don’t be shy about offering your in-house expertise to your customers. The customer knows best how to make the finished product, but you know best how to make the components and assemblies that go into the finished product.
  • Manufacturing support. The ability to make, maintain, and repair tooling in-house can be a key differentiator. Relying on an outside toolmaker lengthens lead times considerably and leaves you much less control.
  • Logistics support. The customer wants what he wants when he wants it. You want the business. This means making deliveries just in time—no sooner, no later. It’s not always easy and it’s not always cheap, but it’s always necessary.
  • Consultative selling puts a heavy emphasis on determining customers’ needs in any timeframe: short-, medium-, and long-range. It’s also a matter of learning customers’ long-term strategies. In every interaction, the focus should be on the long-term costs and benefits of a solid and lasting strategic partnership, not part price. Other capable fabricators are skating around, watching the puck, ready to offer a low bid to capture some of your business.

Sales and Finance

The financial state of the company is the health of the company. Amassing the data needed to create a detailed financial picture can be time-consuming, and many small businesses don’t do it, but understanding the state of the finances is the foundation for growth. You can’t get to your destination if you don’t know your starting point.

  • Analyze your company’s growth and profitability. A snapshot is good, but a history is much better. Review the trends over the last three to five years.
  • Review the current market situation. The 80/20 rule applies to many things, and in a small business, it’s typical that 80 percent of the revenue comes from 20 percent of the customers, but this requires a closer look. How much of your company’s revenue is tied to a single customer, and could your company survive if that customer went into bankruptcy or decided to take its business elsewhere? Likewise, how much of your revenue comes from a single industry? How much comes from domestic customers and how much comes from international customers? Concentrating on a few customers and industries is necessary to build competence, but diversification is necessary to survive.
  • Review the major customers—the 20 percent that bring in 80 percent of the revenue. How much risk is tied up in each? How healthy are they? How much is tied up in accounts receivable, and how many days do they take to pay?
  • Review your company’s balance sheet. Where do you stand in terms of profit and loss? In which direction are these trending?
  • Compare your company to peer companies. Where do you stand regarding wages, benefits, and revenue?
  • After you gather this information, use it. The phrase privately held describes your company ownership, not the company’s financial data. Sharing this information is necessary when working with your customers, especially big, publicly held companies. Greater transparency leads to greater trust, which is the first step in turning new leads into new business. Numerous benefits come from sharing financial data internally and externally:

  • The only way to show that your company has the potential to be a responsible, stable, long-term supplier is to show responsible, stable, long-term financial management.
  • Knowing where you stand is the first step in building a sales forecast or two (for example, a detailed forecast for the next 12 months and a big-picture forecast for the next five years).
  • An accurate financial picture is necessary for working up any expansion plan, whether it’s to purchase a machine, lease additional space, or hire more staff.
  • Knowing the industry makeup of your customer base is necessary to diversify your business. Concentrating your business in a single industry increases your risk when that industry enters a downturn.
  • A thorough understanding of all of your fixed and variable costs is necessary to work up a reasonable sales quote and to meet your company’s profitability targets.
  • When a heavyweight OEM requests a cost reduction, a detailed understanding of your company’s financial picture, project by project, allows you to enter contract negotiations in the strongest possible position.

Sales Force Development

In nearly every small company, everyone from the owner to the newest employee has several core duties, but at some point the sales effort becomes too critical to be diluted among several people, according to Wertzbaugher. Depending on the size of the business, one person should be responsible for sales. Granted, hiring a sales manager isn’t cheap, and neither is developing a sales force, but deploying a sales team is a key component in any growth strategy.

“It’s the future of your business,”she said.

The head of the sales department has to be accountable to the owner, and likewise the sales staff has to be accountable to the head of sales. A sales force comprising salaried employees is expensive, but it gives the owners substantial control; outside sales representatives are much less costly, but they work for themselves, so direct control over their schedules isn’t possible. Whether the sales force consists of employees or reps, it’s up to the company’s executive team to do everything possible to maximize the potential for their success:

  • The sales personnel are the face of the company, so supplying them items emblazoned with the company logo—business cards, brochures, and customer gifts—is the first step in equipping them to carry the company’s message with them everywhere they go.
  • You can fortify this message by developing a PowerPoint presentation about your company and its capabilities. Keep it brief.
  • Offering a compensation package that reflects industry norms is essential, as is recognition for those who meet or exceed their sales goals. Distributing a monthly sales report to all of the reps is the main tool for tallying these achievements.

“Nothing is more motivating to a sales rep than the monthly sales report,” Wertzbaugher said. “It shows who’s hitting their goals and who’s not, and they don’t like to be at the bottom of the list.”

In return, it’s critical that the sales force provides as much information as the executive team requests. Companies run on information as much as they run on revenue, so daily or at least weekly reports and updates are necessary.

Managing outside sales reps properly is a time-intensive effort, Wertzbaugher said. Turning the reps loose and hoping for the best is a surefire way to achieve unexceptional results, at best.

“I’m in contact with our reps nearly every day,” Wertzbaugher said. She also recommends a few other strategies:

  • Accompany the reps on sales calls at least once a year. You don’t know how well they sell unless you learn how they sell.
  • Don’t ignore a missed sales goal; have a discussion about it. Cold calling is always tough, but the rep might have a valid, reasonable explanation for missing a goal.
  • Track all sales expenses (budgeted and actual) to understand the effectiveness of your sales expenditures.

Putting the Puck into the Net

Growth isn’t a goal; growth is a process that comes from accomplishing a series of goals. These goals are diverse but related.

Of course this doesn’t mean that growth hinges on success in every initiative. Setbacks happen in business. Growth comes from reasonable, well-planned initiatives that minimize risk so that successes outweigh setbacks. Success comes from balancing risk with diligence and preparation.

More Gretzky wisdom: ”You miss 100 percent of the shots you don’t take.”

Lisa Wertzbaugher is the sales manager for Superior Tube Products Inc., River Cities Business Center, 280 East 90th St., Davenport, IA 52806, 563-285-1914, www.superiortubeproducts.com.

About the Author
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Eric Lundin

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Eric Lundin worked on The Tube & Pipe Journal from 2000 to 2022.