Fixing a family business

(FSB Magazine) Beaver Dam, Wis. -- Jim Kirsh is justifiably proud of his cast-iron foundry. Seventy years ago his grandfather started the firm in the bucolic town of Beaver Dam, Wis. Each month Kirsh Foundry (kirshfoundry.com) turns out 1,000 tons of wheels, gears, radiator components, gas jets, and other parts. Revenues grew from $11.9 million in 2005 to $12.4 million last year. While the 105-employee company had profits of about $400,000 in 2006, the picture is grimmer today. "Things just went to hell," says Kirsh, 54, a friendly, athletic man with a touch of gray in his hair. "We've lost about $50,000 since October of last year."

It's surprising that Kirsh has stayed out of the red this long. As automakers have moved to aluminum and plastic parts, and sent much of their remaining casting business overseas, the U.S. industry has seen shrinking profit margins. Nationally the number of foundries has fallen to 2,190 from 4,100 in the past 25 years.

Kirsh has survived because it specializes in small runs and quick turnarounds, knocking out as few as 12 rare or outdated parts at a time for businesses that range from giants such as John Deere to tiny Mills Bell-O-Matic, a slot-machine restorer based in Commerce City, Colo. "We're in the service business," says Kirsh. "We store customer mold patterns for 22,000 parts and can get you a missing piece that's delaying your assembly line in days."

Lately, though, something is off. Kirsh says he and his brother, Steve, 49, the company's president and head of operations, are stumped. Prior to this Makeover they sought help from two consultants, but improvements didn't last. Kirsh knows one thing: Winning new business is increasingly difficult. It has always been hard - manufacturers are loath to switch foundries, because it can take months of tinkering to get their mold-making patterns working on new machinery. Now downsizing has made it tougher - purchasing managers are too harried to take sales calls.

To help Kirsh forge some fixes, we brought in three experts. First up is Steve Predayna, a CPA and an M&A expert at Schenck Business Solutions, an Appleton, Wis., accounting and consulting firm. After a foundry tour, Predayna heads to Kirsh's office to peruse the books.

Predayna, 38, is impressed to find that the company possesses volumes of information on each batch of castings, such as labor costs, defect rates, and employee productivity. Often small companies have no idea which products are their moneymakers. But in 2002, Kirsh brought in consulting firm Custometrics (custometricsinc.com), based in Hartland, Wis. The consultants gathered data, made staffing decisions, and took steps to lower the number of defective castings. "They were great," says Kirsh. "They saved us a million dollars a year." But last year, after Kirsh cut the consultants' onsite time to a few hours each week, scrap and labor costs rose again, and earnings plunged.

Kirsh suspects the trouble lies with his four middle managers. They're his pals. Hard-working and dedicated, some have been with him for 20 years, rising from machinists to well-paid executives. But Kirsh says they are having trouble using the data the company gathered to tweak staffing and operations and seem reluctant to make tough calls, especially when it comes to assessing and disciplining subordinates.

Manager Larry Bartruff, Kirsh's head of human resources, concedes that applying the data is tricky. "There can be some analysis paralysis," he says. "There's so much to look at." And Bartruff acknowledges that he and the other managers sometimes "have difficulty taking a hard line. Some of us have grown up here, learning from the skilled workers who are now our subordinates. We try to emphasize the positive."

A broken golf club in Kirsh's office prompts a discussion about how he spends his time away from work. It soon becomes clear that he has competing priorities. He likes his golf, and he's chairman of the local hospital board.

He never got too involved with the consultants. Instead, he had them work directly with the middle managers. "The problem is with the four managers and your hands-off style," says Predayna. "Having four managers report to two brothers who aren't 100% focused means no one is accountable for anything."

The prescription: Hire a skilled outsider who isn't afraid to discipline nonperformers, advises Predayna. "Pay him $150,000 a year and have your managers report to him," he says. "Give him full control so people can't go around him." Bringing in skilled outside management, Predayna says, will also help boost the foundry's value when the brothers sell the company, which they plan to do a decade from now.

The next consultant, Ann Kinkade, is director of the Family Business Center at the University of Wisconsin at Madison. Kinkade, 45, is most troubled by Kirsh's habit of setting goals, such as more efficiently using his workforce, then failing to follow through and coach managers on their performance. That's a sign that the owners are too complacent, she says. "You ask why you're in the red, but there's no fire in the belly," she notes. "You're saying, 'We've got to make the best of this for ten years until we sell the business.' Your employees sense it, and feel comfortable too."

Kinkade also observes that Kirsh's focus on performance data is a diversion from the real management issues. "The business isn't about numbers, but people," she says. She urges Kirsh to hire an outside firm to conduct blind employee surveys. "What's a usual survey outcome?" Kirsh asks. Kinkade says she can't predict that but is confident some new insight will emerge, an issue that isn't showing up in Kirsh's numbers. "I don't know if it's with hiring, or maybe the laissez-faire style at the top," she says. Kirsh is intrigued. "I have no idea how employees see me as a leader," he says.

As the conversation continues, Kin kade learns the makeup of Kirsh Foundry's three-member advisory board - two of Kirsh's friends and the firm's lawyer - and is clearly displeased. "It's incestuous," she says. "Get three people from other businesses and industries, such as real estate and advertising. Pick savvy businesspeople - no friends, and no paid advisors like your lawyer," she adds. Strong, independent boards are a hallmark of family companies that have lasted three generations, she points out.

To help Kirsh woo new clients, we tapped John Vautier, president of Vautier Communications, an Arlington Heights, Ill., sales consultancy. Vautier, 53, asks about the company's recent jump in sales. Much of that has been the result of increased business from a few big customers that are doing well right now, such as Caterpillar, Kirsh says. But the foundry has excess capacity, and Kirsh wants to see growth.

For this meeting, Kirsh brings in salesman John Cernik. Vautier asks Cernik to describe his sales technique. Cernik, 54, says his MO is to dog purchasing agents until they agree to a meeting, during which he describes the foundry's capabilities. If he gets a second face-to-face, he uses it to request the business.

Vautier says this strategy reveals a common mistake: using the client's time to talk only about what your company can do and why the prospect should pick you. It is far better to ask the purchasing agent about his own needs. Once a prospect has raised his issues, Vautier suggests that Kirsh's salespeople should have a half-dozen stories in mind describing how the company has fixed a similar problem.

Kirsh wonders if he and his team should avoid overworked purchasing agents and instead pitch directly to assembly-line managers, who may be frustrated by the hassle of getting rare parts. Vautier is leery of making an end run around the purchasing department, but he likes the idea of reaching this audience of purchase influencers. "Go to trade shows that draw the managers you want to reach, and place articles about yourselves in the trade magazines they read," Vautier suggests.

After the sessions, Kirsh surveyed his managers and found there was confusion about the chain of command and some resentment over job duties, both of which he addressed. Fearful that board members from other industries would send him in odd directions, Kirsh has no plans to change his board. Though Kirsh says he's desperate to fix his management problems, he balks at hiring a $150,000-a-year manager. "It's too expensive," he says. We'll keep tabs on Kirsh and report on his progress.

YOUR TURN

FSB's experts help a foundry wipe out red ink. What's your advice? 

Could your business use a makeover? In general, successful Makeover candidates are profitable small companies with at least $1 million in annual gross revenues. To submit your firm for consideration, e-mail the FSB makeover editor here. Please describe your business briefly, provide your most recent and projected revenues, and explain why you think your company would benefit from a Makeover.