Against the Grain

Sandy Gray was only 26 when he took over a company that had lost $4.2 million in the previous three years. Its bills were 90 days past due, and its second-largest customer had just gone bankrupt and announced it would not pay the $300,000 it owed. Instead of running in the other direction, Gray accepted an offer to overhaul the maker of wood products for windows. Within three months, he had achieved a positive net income for the first time in three years. Gray, who won a Chamber of Commerce Blue Chip Enterprise Initiative Award this year, was interviewed by freelance writer Karen E. Klein.

I was working here as operations manager when our CEO decided to retire and I was asked to become CEO. I was five years out of Princeton with a degree in operations research engineering. I had no management training, but I saw this as a once-in-a-lifetime opportunity.

The first thing I discovered was that our gross profit margins were negative. Our previous CEO had believed that we would overcome our losses with volume, but the more we sold, the more money we were losing.

Our largest customer represented 60% of our revenue and virtually dictated our prices. They had a death-grip on our margins and they paid us two months after shipment--if we were lucky. Every week, I had to call them and beg them to send their payments Federal Express so we could keep lumber coming in.

I decided we had to raise our prices to the point where that large customer would no longer buy from us. Simultaneously, we began reaching out to the growing number of small- and mid-sized window treatment fabricators around the country.

Wood blinds were becoming popular, and we knew that small retailers and wholesalers wanted to assemble custom blinds on site. They needed to carry small inventories and get quick shipments. We established a 24-hour turnaround time for them and began stocking a variety of finished parts.

By meeting their needs, we were able to get higher prices for our products than the major players were used to paying. And by establishing 10-day payment terms, we found we could achieve positive cash flow.

It was a very scary thing to tell our largest customer goodbye. I question whether I’d be able to do it again if I was facing that same situation today. But at the time we really had nothing to lose.

Another thing I did was to insist on monthly inventory. In the past, the company had taken a physical inventory only once a year, at which point they would discover they had lost money all year. So we started counting every stick of wood on the premises every month, and we still do it to this day.

Previously, our lumber cost had been running at 72% of sales. By introducing some new technologies and minimizing wood loss, we were able to reduce the lumber cost to 52% of sales. That immediately helped us achieve healthy margins.

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We also started putting our name out front in our industry. We had always been the largest company in our market niche, but we’d operated in the background, selling to 27 customers. We started going to trade shows, began a marketing campaign and placed some ads in trade magazines.

Since 1993, our business has more than doubled, going from $10.3 million to more than $22 million. We have more than 200 customers, including eight overseas customers. Best of all, where I’m concerned, we achieved the turnaround without one layoff. Most of the employees have been here longer than I have, and it has been satisfying to see people become more enthusiastic about their jobs instead of just punching the clock.

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If your business can provide a lesson to other entrepreneurs, contact Karen E. Klein at the Los Angeles Times, 1333 S. Mayflower Ave., Suite 100, Monrovia 91016 or send e-mail to [email protected]. Include your name, address and telephone number.

AT A GLANCE

* Company: American Hardwood Co.

* Chief executive: Sandy Gray

* Nature of business: Manufactures wood components for window blinds and shutters

* Location: 15411 S. Figueroa St., Gardena

* Founded: 1914

* Employees: 150

* Annual revenue: $21.6 million