An interesting small business story

Some of you might know that I have some ownership in a small wood products company in Idaho named Quality Corners. The downturn in the housing industry hit us pretty hard. We lost a big chunk of business when one of our biggest customers decided to start manufacturing some of the items we made for them. The volume of business with our other customers dropped dramatically. We dipped below break even for a month. The weaker businesses in the industry were starting to fold. We were worried.

That was about four months. Grandpa Milo, who is also a part owner, has always said he did not participate in downturns, but that is easier said than done. What should we do? We knew that many of the best companies try to grow their market share during downturns. They do that by both getting new business with their current customers and by finding new customers. We decided that was a great idea, but the question was how to go about it. We had a base of four large customers and fifteen to twenty smaller, but significant customers. We were (and are) on very good terms with all our customers. Even the big customer who had decided to do their own manufacturing was satisfied with our products and especially our service and delivery. So, we decided to start by talking with the big four to find out if there was anything we could do to get more business from them.

First, we approached a customer who had been buying one product line from us for five years that they sold to one of the large national retail chains. We knew they were buying most of the other products that we make from China. We sat down with them and asked them what it would take to win that business. They loved our service, delivery, and even our prices for the products we provided, but did not believe it was possible for us to meet the prices they got from their Chinese suppliers. Still, since they were happy with what we did for them, they let us quote the business. What they did not tell us is that they were very unhappy with the quality, service, lead time, and delivery they were getting from our Chinese competitors. We gave them a quote for one of two product lines.

The funny deal is that our pricing was good enough to win the business on eighty percent of the products. They gave us a second chance at quoting the other twenty percent and we won the business. The margins were very low, but we knew that if we could get close to breaking even on the first couple of orders, we would learn how to make these products faster, cheaper, and with better quality. We would be able to find cheaper material so that by the third or fourth order we would be making OK margins. That is exactly how it appears to be working. We have modified the processes, materials, and suppliers to the point where we are a little better than break even. We have identified a new machine to build and some new material sources that will allow us to push our margins into more of a comfort zone. We have told them that we want to quote on the last product line that is still being manufactured in China as soon as we have the first one under control. They are very, very happy with the reduced lead times, greatly improved quality, and the ability to solve problems by just picking up the phone.

The company that started doing their own manufacturing to replace us did not have the ability or desire to make some of our specialty products, so some of their divisions continued to buy from us. When they made the change to using their own parts, we thanked them for their business over the previous years and told them we would be happy to help them out with these products if they ever got in a bind. Well, yesterday they called and told us they were in a bind. We told them, “No problem, we can help you out. Let us send you a quote for the parts you need.” Then, based on the new knowledge we had accumulated when we were working to compete with China, we sent them a quote for pricing that was 15% lower than the prices we had previously charged them. The division manager was so surprised, he said “Holy, *$@?%&!” Then he told us he was going to talk to upper management about reevaluating their decision to make these products themselves. We do not know what will happen, but we are optimistic.

In addition to these two events, we have been able to get our foot in the door with one new large customer and are in continuing talks with another. We have added two significant new, unique product offerings and are very optimistic about the future. The reality is that, if an upturn comes, we will be double or triple the size of what we were at time we lost the work from the big customer. It is hard work now and we are not making a lot of money, but we are winning market share and positioning ourselves well for the future. It is really quite gratifying.