Made Here: Careful financing and customer selection drive growth
Manufacturing in America is alive and well. In our “Made Here” series, we talk to some of our manufacturing business clients and learn how they’ve flourished in spite of tough odds in recent years.
Foamtec, a Northern California manufacturer of decorative architectural shapes, has been growing in part due to a strategy of selling to distributors rather than direct to contractors and builders. This move by Jeff Lemon, Foamtec’s owner and CEO, has allowed him to expand and insulate his seven-year-old company from the common slowdowns in the homebuilding industry.
In the Q&A below, you’ll see Jeff researches his prospective customers carefully, choosing strong distributors who will market his products through social media, Google ads, and other means. More recently, Jeff has used access to credit to improve cash flow with volume discounts from suppliers and to invest in equipment to improve his products and speed up production, enabling his company to sell more.Q: How would you characterize your growth? A: Our pattern of growth has been pretty consistent — anywhere from 15 to 20% growth each year. If I would have stuck with working direct with contractors or going to builders, we would have gone up and down with their business. How did you decide to sell to distributors rather than direct?
I took different business models from the other companies I worked at. I took what they did well and combined them into my own business model. It definitely paid off for me. We’ve focused on selling to distributors and picking and choosing — because not all distributors are going to fit our business model.How do you choose distributors?
A lot of the distributors have an online presence, so I look at how they’ve structured their websites, how easy it is for the end-user to navigate, and how well they’ve marketed competitors of mine on their sites. I look for someone doing a little bit above and beyond, with blogs or a lot of advertising on Google.Have you had a growth plan, or has it been spontaneous?
Up until about six months ago, it has been somewhat spontaneous. Once I finally got in with a bank that would help me and give me lines of credit, that has opened a lot of doors to see what we can do better to provide for the dealers selling our product.
We’ve reinvested money into the company by making new molds, bigger molds, and more of the same part so we can produce faster and satisfy the needs of what people are looking for in the market.When you look at planning for growth, what do you take into consideration?
It really does come down to cash flow. Up until recently cash flow has been really tight. The lines of credit really helped in the sense that I can take that money and reinvest it into what we’ve needed the whole time to really make the company grow.And then how about on the accounts receivable end? You’ve got more customers buying more product, and you’re waiting the usual 60 or 90 days for payment, so that can be a strain on cash flow, right?
With the lines of credit, recent growth, and changes we’ve made, I’ve been able to produce a lot faster. So instead of an order going out in 30 days, it’s now going out in 15 days. I’m also able to collect quicker. The money is just spinning a lot faster now.
We’re also in the middle of purchasing equipment that will cut my operating costs. I’m going to spend probably $30,000 or $35,000 on a piece of machinery, but it’s going to cut my operating costs $15,000 to $20,000 a year. And not only is the machine going to cut costs, it’s going to produce an even better quality product.What words of wisdom would you have for other manufacturers in terms of how to plan and manage growth?
Patience is key. I’m very young; my business is young. We have a lot of years ahead of us.
Pick one thing at a time: “What can we do to improve one step of production?” Then once that’s handled, you move on to the next one, and then the next. You just slowly pick away at it until all of the steps are flowing smoothly.