Integrating The Team
Peterson Brothers, Inc.
The two Peterson brothers are Rick and Terry. We have been in business together since 1977. Peterson Brothers, Inc. is a holding company with investments in numerous, unrelated businesses. We have a model for running our companies that has produced solid financial results in good times and bad. (Please see our document, “Principles for growing value at investment-grade privately held companies.”)
One of our businesses is a media company that publishes trade magazines and websites for different industries. Annual revenues are about $20 million. A few of the subjects we publish magazines and websites on include:
- Life Science and drug discovery
- Medical device
- Food industry
- Municipal drinking water and waste-water treatment
- Healthcare technology
We also have an ownership position in Black Knight Security, a security guard firm that employs 150 uniformed officers in four states.
We are also the majority owners of Corry Micronics a company that designs and manufactures electronic filters. We have manufacturing facilities in Corry, PA; Bangalore, India; and Haiti.
Our engineers have developed components that can be found in products as diverse as the guidance systems of Raytheon air-to-air missiles; to St. Jude defibrillators in hospitals; to devices the military uses to scan for covert surveillance bugs; to devices the army installs in military vehicles that jam the signal of someone trying to detonate a roadside bomb.
- Management team
Each of our business units is run by a Steering Committee that meets monthly. The Steering Committee is made up of key managers at the business and strategic members from the Holding Company. At each monthly meeting we begin by discussing any bad, negative, or threatening news. Next we turn to our financial statement package. We scrutinize the financial reports and make decisions based on what they tell us. Next we present any motions that involve an increase to any expense. Then we review sales progress; production issues; and customer satisfaction data.
Because we have been at this for 30+ years, we’ve been able to develop principles and frameworks that result in producing consistently good business results. In addition to our “Principles for growing value” is a document we call, “Character Is Destiny.”
These documents hang on the walls at our businesses. We strive to adhere to and affiliate with employees and partners who meet this definition of high-character. And we push to operate our business consistent with these principles for growing business value.
- The following are examples of investments we’ve made, and then the improvements we installed to grow the value of the company.
What we inherited:
In 1990, Jameson purchased a monthly trade magazine titled, Business Electronics. The magazine was founded by Vance Publishing in Chicago. At the time they published about 14 different monthly magazines. Vance ran Business Electronics for a few years but was never able to make it profitable. So they sold it to John William Roberts, another Chicago publisher. The Roberts organization published the magazine for a couple of years, but they were also unable to grow the sales enough to exceed expenses.
What we did with it:
- Because sales were so low, there wasn’t much to gain by improving efficiencies. If we were going to win, it would have to come from sales and marketing.
- There was a hodge-podge of markets and products clumped together trying to be served by the magazine. Some of the technologies featured were trailing-edge. We went into the circulation files and culled out the low-impact readers. We replaced them with business managers who were leading their companies into new burgeoning markets.
- We also changed the editorial focus to concentrate on industry leaders in these new growing markets. We refined the name of the magazine, its tag line and niche statement to better reflect our new direction.
- We ramped up the sales department. But because Jameson is located in Erie, PA we were unable to hire done-it-before, successful, trade magazine advertising salespeople. However we were able to hire bright, high-character people with good work ethic. So we brought on a curriculum designer and developed an extensive sales training program that taught our new-hires how to be good trade magazine space salespeople.
- We outworked our competitors while at trade shows, on road trips into our customer territories and while on the phone back at our office. We studied our customer’s objections to giving us more of their budget, and we made the product changes called for. The combination of all this rewarded us with double digit growth in sales for 15 years in a row.
- It took us about a year to make the magazine profitable. After that, in spite of pretty dramatic, constant growth, we were able to maintain one of the highest return-on-sales percentages in trade publishing.
What we inherited:
When we acquired Corry Micronics it was a 30-year-old manufacturer of electronic capacitors. The Company just had this one product line, and annual revenues had never reached $1 million. It employed 12 people most all of whom were paid minimum wage, with no benefits. So employee turnover was very high.
It was located in a corrugated metal building without air-conditioning which got oppressively warm in the summer. At the core of its capacitor products is a ceramic tube, which is made from powder into a batter, much like making a cake. And as with cakes, the ceramic compound was negatively affected by the dramatic fluctuations in heat and humidity. Much of the equipment the company used was described by a maintenance applicant who declined our job offer as “junk held together with bailing twine and duct tape.” In truth we inherited machines which the former owner acquired from a competitor who was throwing them away because they had exceeded their useful life, and produced a high percentage of non-compliant material.
There was no outbound sales effort. Its whole sales and marketing strategy was hinged to its website which produced very few new customers. All together the company only had about a dozen customers and one represented about 80 to 85% of total sales. So there was a dangerous customer concentration problem. And the Company’s only product was in the “steep decline” phase of the product life cycle.
What we did with it:
- Even before the closing we knew we had to greatly expand and professionalize the sales function. So we partnered with a done-it-before successful VP of sales from another technology company. He came onboard as our VP of Sales, and before long demonstrated the skill and acumen to be a strong president, which he is today.
- One of our first acts was to give everyone pay raises. We installed company-paid health insurance for employees and their whole family. We gave them a 401(k) with a generous company match, and other typical benefits necessary to attract and retain quality folks.
- We moved the operation into a better facility, one with insulation and air-conditioning, which would inspire customer confidence, and that employees could be proud of. We acquired new tube pressing equipment and new kilns, and our ceramic yields improved dramatically. We invented a new piece of equipment, and got it patented, which can do the work of nine employees per shift.
- We installed the quality control systems necessary, and got the Company ISO certified. Some of our products have a military application so we also got ITAR registered. We installed expensive Manufacturing Resource Planning (MRP) software. All of these infrastructure improvements gave the president the foundation he needed to acquire many new customers.
- Today the company has over 300 customers, no one of which represents a concentration problem; and over 30 different product lines. All of our new products are in leading-edge technologies in growing markets. We increased by 20 X the average size of a sale. We now have single months where we sell more than the company’s annual revenues prior to our involvement. Multi-national customers tour our facility and declare it compares favorably with other world-class vendors they use.
What we inherited:
The predecessor to VertMarkets was the Small & Medium-size Business (SMB) unit of Vertical Net. Vertical Net was the high-flying, publically traded Internet company formed in 1997 which rode the Internet bubble until it burst. It was located near Philadelphia, PA and at its height operated websites and online marketplaces in over 50 different industries.
At one point Vertical Net had a market cap in excess of $1 Billion, and 1,200 employees. But it never made a profit. The founders and their Wall Street backers couldn’t figure out how to get it profitable. So they hired an executive from AOL (America On Line, the dominant online company at the time) to be the president. But he wasn’t able to get the Company profitable either. So the board decided to bring in a Fortune 500, bricks-and-mortar guy to try his hand. They head hunted in the president of Stanley Tool to captain over the Company. But during his tenure he had no better results than his predecessors.
By 2002 the Internet bubble had burst and the board decided to give up, and sell the SMB unit. We acquired the assets in July of 2002. Prior to the sale to us, even though the company still had a huge market cap, its revenues from selling its services to its customers was only a few hundred thousand dollars annually. And its annual losses were down to $millions, from $10’s of millions. At the closing, this unit of a public company became privately held. And we were in a race to get it profitable ASAP.
By the time of our closing, the employee headcount was down to 50, six of which made up the sales department. The first of the six salespeople quit the day we acquired the business. The second quit the next week. Within 90 days every one of our inherited salespeople quit. But of the operations-side folks that remained, most were high caliber, smart, talented, hard workers, including the former Mercer consultant they installed as president to shepherd over the sale of the business unit. And this team did not want to give up. They wanted to fight and strive and make the business successful.
What we did with it:
- After a series of meetings with their key people we agreed on the philosophies they would put in place to change the trajectory of the Company and win in the marketplace.
- First we ramped up an outbound sales department, hiring salespeople and sales managers in Philadelphia, Pittsburgh and Erie, PA.
- In the first six months we put 22 new salespeople in place.
- By the end of our first full year, our salesperson head count was at 30, plus three sales managers.
- Before us, the average annual sales per salesperson was under $20,000. By the end of our first full year our sales per salesperson was $87,000. Year 2 = $164,000. Year 3 = $179,000. Year 4 = $269,000.
- Before us, the number of paying customers was under 50. By the end of our first full year we were at 239. In our third full year we sold 549 clients. Year 4 = 725.
- Second, we focused the business on those markets which showed the most promise for growth.
- Third, we made changes necessary to provide more value to the customers.
- Then, we dramatically raised the sales price of Vert’s product offerings.
- In spite of losing all of their salespeople, our first full year of selling brought in $2.6 million in revenue – about 10 times that under the founders. In year two we drove sales up to $4.4 million. We closed out year three with $5.5 million in sales. And in our fourth year our sales exceeded $7 million. This sales level allowed Vert to become profitable for the first time in its history. And it has remained profitable since.
Black Knight Security
What we inherited:
Black Knight Security is in the business of providing uniformed security guards to commercial buildings, industrial facilities, schools and high-end residential living facilities. The founder / owner / president had started the company about seven years prior to meeting us. He had a military background, was highly skilled at people and asset protection, and was almost exclusively focused on providing excellent service. But the company lacked systems and controls. It was fortunate to grow sales, but without strong back-of-house procedures it grew itself into financial trouble, and needed a cash infusion.
What we did with it:
- One of the first things we did was develop and install a pre-employment system to hire better guard candidates who would stay with us longer. After we installed it, the new hiring system cut our employee turnover almost in half. This resulted in huge savings of time and expense because the guard business is so employee intensive.
- Prior to our involvement there was no discipline around financial reporting or statistical analysis. We established a monthly review of financial statements and productivity reports. At these meetings we scrutinized the data and acted on what it suggested we do to strengthen the company. This enabled us to wring costs out of the operation and improve our gross margin.
- We installed best-of-breed systems and written procedures, so we could grow, yet still keep work quality and customer satisfaction high. We established a formal training program for site supervisors. We added inventory software to control our uniforms expense. We upgraded our Time and Attendance software and added Human Resource Information Systems (HRIS) that automate our Recruitment and Performance Review functions. We created a formal bid template that protects us from underpricing ourselves during the bidding process for new customers.
- We identified Key Performance Indicators (KPI’s) that allow us to deal with issues in real-time instead of reading about them in after-the-fact, end-of-month reports. As an example, we installed new employee scheduling software which allowed us to drive down non-billable overtime – one of the major determinants of profitability in this industry.
- Once we felt we had strong systems and controls in place we focused on ramping up sales. We put an outbound sales process in place. At the beginning of that year our annual revenues were $1.5 million. In our first year with our new sales focus we added more than $2 million in new revenue, while retaining the existing accounts.
- All of these improvements have enabled the company to pay off old loans, and for the first time ever the company has savings accounts.
Learn more about our philosophy