Lexington, KY - It's common practice these days to measure entrepreneurial success by the level of outside funding attracted to a project. But taking that view can often overlook an equally important marker of success: making the most of the assets you have on hand, including your internal cash flow, to grow your company from within. This is how Carey Smith went from selling sprinklers to cool the roofs of large factories and warehouses that were baking in the summer heat to where he is today as chief executive officer of Lexington-based Big Ass Fans, a company that, despite the recession and continuing weakness in the economy, has not seen a single layoff. Smith spoke with Business Lexington's Tom Martin.
TM (Tom Martin): Take us back to your realization in late 2008, 2009 that the economy was taking a turn for the worse.
CS (Carey Smith): We pay an awful lot of attention to our sales data, month by month. We started to see it in the first quarter of 2008. We noticed it straightened out a little bit, then we noticed that July of 2008 was soft. We realized at that point that something was amiss and we garnered our resources, and by the fourth quarter of 2008, we had basically come up with a plan that would allow us to weather what turned out to be the recession without any layoffs of employees and without cutting back on our marketing and advertising expense.
TM: Prior to that period of realization you had been in a steady growth mode, correct?
CS: Yes, that's absolutely correct. Prior to that time we grew from between 20-25 percent for about four years running. It was pretty obvious to us when that slowed down. That, to us, was quite an anomaly and what we were able to do through the recession, through 2009 was limit our downturn to just over 10 percent. We were hoping to keep it in a single digit but it did hurt us to lose about 10 percent of our gross revenues during that period.
TM: When it became evident that this situation was going to be sustained, at least for a while, what were the temptations that you were met with in terms of keeping the company on an even keel?
CS: I suppose what you're asking is did we entertain laying off employees or cutting back substantially, and quite honestly we didn't. What we did was we looked for growth of revenue in areas that we had not fully exploited. We did run numbers. I asked my finance director to run numbers to see how low we could go. How much revenue we could lose without getting to the point where it was going to hurt us so badly that I don't know what we would have done at that point? But it was substantially less than what actually happened. It was another 20 percent below the revenues that we were able to sustain in 2009.
TM: Do you also look at your supply chain and look at places where you might be able to cut costs?
CS: Well, if you're running a company, that's what you do all the time. All of the components that we use in the fans that we manufacture are obtained by us within a radius of about 150 miles. And it's very difficult for us to use suppliers outside of that range, simply because they can't guarantee the quality of the supplies. And if we can't see them within one day via an automobile, then we typically don't deal with suppliers like that. But in reality, if you're doing a good job, you're on top of your suppliers all the time. We have very good suppliers and we stay very close to them, but cutting back costs, I mean, you have to realize we're all in it together, and that includes the suppliers. And to try to beat up on your suppliers in a situation like that - I wouldn't recommend it. It's not good for a long-term relationship.
TM: Getting back to surviving this economic situation by keeping your workforce intact: How, from a human resources perspective, have you benefited as a company?
CS: One of the advantages of being a closely held company rather than being a publicly held company is that you're able to plan for the long term. When we hire people - our employees, our people I mean - they're the backbone of the business. And it would be a terrible situation for us to even think about laying people off because, well, for several reasons: One, it costs an awful lot of money to hire and train people. And unless you think that the economy is never going to recover, all you're doing is you're adding cost to the recovery cycle. Secondly, these are people that we know, and I mean, times are tough. Why would you throw somebody out? It's not going to get any better, and I think on the microscale, the way you look at it is (that) they are people. But on the macroscale, I think if everybody looked at it that way and just slowed down just a little before they thought, "Oh my gosh, what I've got to do is cut cost, and my heaviest cost is my people" and let them go - well, that's just a totally ridiculous way to look at it. The fact that we didn't do that eliminated the cost of (eventually) rehiring people.
TM: These days, there is a very widely shared outlook on the state of the economy, and we're not seeing a light at the end of the tunnel at the moment, so it sounds as though this is an article of faith in your workforce.
CS: No, I think it is. And I think that the fact that we did not lay employees off can be attributed to the fact that, coming out of the recession, we were able to grow at a rate of 30 percent in 2010 and 2011. Through today, we have been able to grow at well over 30 percent. We kept our powder dry and recognized that the economy was undoubtedly going to come back, as it will even if we have another slump. We can take advantage of that much, much faster than other companies that might be our competitors. We don't have a lot of competitors, but for us it builds a stronger company internally and externally. It's what fuels our growth. And we're looking for more growth this year as well as next year. I think you just have to have a positive attitude.
An awful lot of young entrepreneurs today are basically told to focus on getting that first slug of capital on their elevator sales pitch, their angel investors or their VCS, venture capitalists. And they see that as the end-all-be-all of the business. From my perspective, that's just totally wrong. Once you let go of the absolute control of your business, that is when you let go of any hopes you ever had of driving a business the way you want to drive it. We are beholden to nobody, and that allows us to make decisions that a larger publicly held company can't make. They've got investors to answer to, and they're driven by the market. They're driven by the quarterly reports. They are thinking about their investors, thinking about how to cut costs. And cutting costs? That's never going to build revenue. Never ever, ever, ever. You never gain market share for your brand by cutting cost. Can't do it.
TM: Let's continue to address that newly minted entrepreneur. In these times, it's hard to come by capital. It's hard to come by that cash you need to stand up and act on your ideas.
CS: You know, I need to tell you something. You need a heck of a lot less capital than you think you do. When you're forced to pay an awful lot of attention to your costs because it's coming right out of your back pocket (or as most people in business know, the credit cards are what fuel your business for quite some time), if you didn't have to think about it to that degree, you probably wouldn't be in business today. So, I think it's an excuse in an awful lot of situations to say, 'Well, we don't have the capital.' You have an awful lot more than you think you do.
You don't need what you think you need. You don't need a new 3 Series Beamer. You don't need things like that. What you need to do is get to work. I mean, we used to do a lot of silly things. I use to drive around and not stay in motels or hotels; I had a pickup truck and I slept in the back of it, and all that meant was you had to be pretty damn tired. You have to be tired to sleep in the back of a pickup truck. And if I wasn't tired enough, I had to get up and drive some more until I was tired enough to fall asleep. I mean, there are an awful lot of sacrifices.
But to imagine that if you don't get some VC or some angel investor to give you money, then you're not going to be a success, in my mind it's very foolish. You want to own it; you want to drive it yourself. You don't need to listen to somebody else tell you what do you.
TM: One last area to touch on and that's your involvement in the community. Throughout all this economic trouble, you've continued to support charities. You've stepped up most recently as a sponsor of local community theater, the Balagula Theatre Company. What's your philosophy in that regard?
CS: We employ over 200 people here in the area, and I think that when you're successful as a business, you owe it to the community to give back as much as you possibly can. And additionally, an awful lot of the charities that we give to quite honestly are suggested by the employees. They will have interest one way or the other, and we have a very small group; actually it's just me and one other person that makes those decisions as to what we're going to fund.
It's not just employee driven. People make a case for it, and if we think that it's something beyond just one individual's interest, we very often will support it. So we have quite a list of foundations and organizations that we fund over the years. And we're happy to do that. That's fun, because you get all sorts of nice letters back, and then we get to send out our foam fannies and everything else, so it's a hoot.
TM: Carey Smith, CEO of Big Ass Fans, I appreciate your taking time for us.
CS: Oh, thank you very much. I really like to do this sort of thing. I have a hard time shutting up.
TM: Well, let's do it again sometime. Go off on a couple of other tangents, interesting stuff.
CS: Thank you.