Carving Out Profits

Christiana, PA. (FSB Magazine) -- It sounds great at first: Kendl Monn's furniture business, Irion Co. Furniture Makers (furnituremakers.com), has a yearlong backlog for its flawless, handmade reproductions of Revolutionary War-era highboys, chests and tables, some of which sell for more than $100,000 apiece.

Irion's painstaking restorations of original works are on display at the Yale University Art Gallery and the Philadelphia Museum of Art. One secretive Pennsylvania plutocrat has even hired Irion to replicate 80 of the greatest pieces of American furniture ever made for display in his baronial mansion outside Philadelphia. That project alone should keep Irion's half-dozen craftsmen busy for the next two years.

But life at Irion is less rosy than it sounds. First off, Monn's 15-man firm is just barely profitable. Irion earned $73,000 last year on sales of $823,000. Equally worrying: That yearlong pipeline doesn't mean much when a single piece of furniture can take six to nine months to complete. "It's not like we're knocking out 100,000 widgets a day," says Monn, 48.

Irion's chief executive isn't worried about his own income. He rents out two houses and a commercial building that he owns near Irion's shop in tiny Christiana, Pa., on the edge of Pennsylvania Dutch country. Monn also makes decent money restoring antiques in his spare time. But Monn says he wants Irion to become more profitable so that he can pay his craftsmen more and keep the company alive.

"It takes five to ten years to become a master craftsman, but they make only about $40,000 a year," laments Monn. "That's about half what people pay their plumber, and it's not right. I don't want to see them installing kitchen cabinets because they need more money."

We recruited three crack consultants to help Irion carve itself a brighter future. Shelly Funderburg, 38, is an organizational psychologist with the Columbus office of Right Management, a career and organizational consulting firm. Lawrence Gelburd is a technology and marketing consultant who teaches entrepreneurship at the University of Pennsylvania's Wharton School. Eric Siegel, 50, is a management expert who co-authored The Ernst & Young Business Plan Guide and has lectured at Wharton for more than 25 years.

Siegel and Monn sit down in an Irion showroom jammed with cabinets and sample bedposts. Richard Herzog, a part owner of Irion who manages the company's upholstered-furniture line, is also present. Siegel, a buttoned-down but affable man with close-cropped hair, starts by asking how Irion is organized. When Monn and Herzog mention their yearlong backlog of orders, he pauses. "If you're looking for ways to make earnings tick up, and you have such a big backlog, the simplest way is to increase prices."

Been there, explored that, Monn replies. Every year he tests the pricing waters by attending a big crafts show in Philadelphia. "We're already pushing it," he says. Rather than jack up prices, he would like to snag more customers for Irion's entire line, from $100,000 highboys to $3,000 beds. Simpler, more affordable items such as plain cupboards and beds are a mainstay for Irion. "We rely on them for steady cash flow," Monn explains. "It's about half our business."

Siegel suggests that Irion's first priority should be to boost sales of its high-end pieces. That will burnish the brand and allow Irion to charge a premium for its low-end offerings, which are simpler but handcrafted to the same exacting standards as the fancy stuff. "Nobody wants an $80,000 Volkswagen," he notes, "but everybody wants a $30,000 BMW."

Siegel urges the partners to hire a good public relations professional who can create buzz for Irion in decorating magazines and at trade shows. Simple advertising won't do it, he cautions. "You don't want to just put your face on a milk carton," he says. "A good PR firm will charge $3,000 to $5,000 a month, but it pays for itself if you sell one more $80,000 piece."

The problem is finding furniture builders with the world-class skills needed to make that extra piece. It takes as long as ten years to turn a beginner into a craftsman, so Irion must be very careful not to take on too much work too soon. To lift some of the pressure from their staff, Monn and Herzog should outsource some of the simpler pieces to former Irion employees who have set up one-man shops in the region. That will free up Irion's master builders to work on the most expensive items with the fattest profit margins.

Figuring out how to carve the elaborate finials that top the best pieces is an expensive trial-and-error process for Irion's artisans. But each additional copy is vastly easier and cheaper to produce once the craftsmen learn the right technique. Siegel suggests that Irion crank out additional spec copies of each antique masterpiece instead of a single replica made to order. That's a risky proposition for a small shop such as Irion, but Monn agrees to consider it. "I could have one master craftsman supporting four guys making the cases," he says thoughtfully.

Finally, Siegel suggests that Irion start coming up with its own designs. "Have you ever thought of the same quality but a different look?" he asks. Monn seems leery at first, scoffing at furniture makers who "put a New York foot on a Philadelphia table. Purists spot it instantly." But then Monn mentions the architect and furniture designer George Nakashima (1905-90), who crafted simple, modern pieces from exceptionally beautiful wood. "I like the thought of you being the Nakashima of your own genre," Siegel says. "The price limits start to go away."

But Siegel urges caution: The last thing Irion wants to do is alienate existing clients by abandoning its niche in high-quality antique reproductions. To avoid confusion, he suggests that Monn and Herzog market their original designs under an entirely new brand. "Do it in a studied way," Siegel urges. "Take some designers and old clients out to lunch. Ask them what new designs might be compatible with current market trends."

Monn is intrigued. He notes that he has a 30-year supply of fine old hardwood stashed in warehouses around northern Pennsylvania. But he's not sure what an original Irion design would even look like. "I'm a hard-core traditionalist," says Monn. "But we do need to diversify."

The next day marketing expert Lawrence Gelburd arrives at Irion's sprawling, sawdusty shop wearing a suit and tie. "Oops. Wrong color," says Monn of Gelburd's dark clothes, and tries to steer him away from a blizzard of wood shavings. After a tour of the busy shop, which includes Monn enthusiastically splashing water on unfinished planks of wood to show off their grain, all hike to the top floor.

The conversation soon turns to Irion's competitors. Monn complains that many of his high-end rivals "cheat" the customer by using machines to carve and finish furniture. The solution is obvious, Gelburd says: Irion needs to educate buyers about its superior craftsmanship.

To create a curved-front chest of drawers, for instance, Irion cuts the curves from a thick piece of hardwood such as walnut or maple. Mass-market furniture mills typically save money and time by steaming and bending a thin piece of wood into a curve, even though warped wood eventually loses its shape. But educating the customer doesn't necessarily mean launching an ad campaign. Irion could reap valuable free publicity by donating high-end furniture to the National Constitution Center in Philadelphia. The partners should also revamp Irion's website to include videos about their extraordinary craftsmanship. Better yet, Irion could send its master craftsmen out to build actual furniture at trade shows and museums. "It's visually stunning to see people at work with a tool going 'urrh, urrh,'" Gelburd concludes.

Organizational psychologist Shelly Funderburg manages to tour the workshop without getting a speck of sawdust on her green skirt, all the while chatting with craftsmen and oohing over carvings in progress. Funderburg swiftly determines that Monn and Herzog aren't sure what to do about Irion when the time comes for them to retire.

Both insist that they don't plan to take much money out of the business. While Monn and Herzog aren't rich men, both have enough money put away to retire in comfort, they say. Neither partner is interested in leaving his share in the business to a family member. Monn stresses that he views Irion as a labor of love. The previous owners sold the business to him for a nominal price in 1993. In five or ten years Monn and Herzog hope that some deserving employee will be able to buy Irion on similar terms. "I got the company because I was the most passionate about the craft," says Monn. "I want to pass it along to someone who will preserve the business. If we die, the workmanship could die out with us." And besides, he adds, "I want to be the old man who comes back to visit and pass something on." But to whom?

Great craftsmen aren't always good managers. Irion's current employees are "a little redneck, no college degrees," says Monn. "They have good motor skills and enjoy solving problems," adds Herzog. "But I'm not sure they can handle the pressure [of running a luxury-furniture business]. Some clients are hard to deal with."

Funderburg wonders if a local trade school could help them spot an artisan with managerial skills. Alternatively, Irion could canvass contacts in the museum world for a new CEO with the requisite knowledge and passion for fine furniture. But Funderburg urges Monn and Herzog not to overlook Irion's current employees. "You're at a turning point," she says dramatically. Funderburg suggests monthly staff meetings where everyone can weigh in on current projects and the company's future. "Do you ever take the pulse of people in the shop?" she asks. "People tend not to do that in a small business where you see the staff every day. But one of your workers just might want to take on different responsibilities."

One obvious way to engage workers in the business more deeply is to make them owners through an employee stock plan. "If your workers have skin in the game, they'll have ideas and passion," she says. The key with any stock plan is to transfer shares gradually so that employees have an incentive to work hard. "Don't give away the house too early," she cautions.

A few weeks later Monn reports that Irion is seriously contemplating a move into original design. "We contacted some of our best designers and decorators and told them to keep us in mind for original or contemporary design work," he says. "This was very well received." Irion is also revamping its website and preparing a five-minute video on its craftsmanship. While it's unclear who will take over the business after Monn and Herzog retire, the partners did meet with their employees to discuss Irion's new direction. "They agreed that diversifying could be fun and profitable," Monn reports happily. "The whole company is excited." Monn adds that he has discussed succession planning with employees but hasn't yet identified Irion's next owner. We will stay in touch with Irion and report back on how well the company crafts its new design.

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A luxury-furniture maker gets a makeover