Avoiding too much of a good thing - Northwest Industrial Coatings Co

Nation's Business, Oct, 1991 by Chris Fish

My firm has been growing at a rate of about 35 percent a year. So it probably sounds strange to hear that the number actually reflects controlled and stable growth. In fact, our growth rate is nowhere near the triple-digit increases we could achieve simply by making short-term profits our priority.

Restraining growth is not the most popular entrepreneurial strategy--and it's often frustrating--but it is an intentional building block for the success of my 6-year-old company, Northwest Industrial Coatings Co. (NIC), of White City, Ore. I'm investing in the long term by choosing carefully among our near-term opportunities.

NIC has neither a catalog nor a sales force, does no advertising, and, in spite of the tantalizing opportunities on our door-step, has no plans to sacrifice its long-term goal just to pursue every available dollar now.

NIC is involved in three different businesses: manufacturing powder coatings and equipment sold under the trade name Prismatic Powders, maintaining a facility that applies those coatings, and providing consulting services to various industries, including our own.

When the company started, I spent the bulk of my time developing new coatings--our powders come in 2,400 colors and textures--and testing and marketing them to build a reputation for unequaled quality with our customers.

Right from the start, we had chances to bring in some very big clients. They would have consumed more than 25 percent of our capacity, however, and that is more than I am comfortable with. I didn't see any sense in pursuing more than I thought the company coudl reasonably handle; I wanted to create a lifelong enterprise, not pile up the sales figures.

In retrospect, this was particularly fortunate when it came to certain satellite-antenna manufacturers. Had we let them, these companies could have used up all of our production capability. When their industry faltered, some of them were gone overnight; NIC wasn't.

Diversifying both our product lines and our types of customers ensures an independence over the troubles that may face our customers or their industries, and it helps to maintain a steady growth.

But even that diversify does not guard against the temptations to grow.

It is intoxicating to know that the order are out there, that customers want to increase the business they do with you, and that there are new product applications with enormous market potential.

In NIC's case, all of our marketing is by word of mouth. We expect 1991 sales to be 14 times larger than first-year revenues, more than 10 percent per year beyond goal.

With just a little bit of marketing, this business could explode in our faces. Imagine, for example, inviting 50 people to a party. If all 50 show up and you only have enough food for 12, your guests aren't going to be satisfied.

NIC guards against that. If we can produce only enough food for 12, we aren't going to invite more.

What's more important is that we aren't going to expand hastily to accommodate the others. Our capabilities--ranging from production output to the skills of our new hires or our managers--determine how much we can do; we must be able to do a job to our standard before growing, rather than let demand dictate growth.

I don't want to be sitting with solid orders and lacking the materials, manpower, or capacity to fill those orders for six months. We have a responsibility to our customers; if we're not able to take care of their needs--delivering a top-quality product when they need it--then we are costing them money. I won't be in that position.

If rapid growth leads to a deterioration in product quality or customer service, the revenues will dry up--and the company will have even bigger problems. It's harder to win back a customer than it is to sign one up in the first place.

Recently, our management team got together to discuss planning. A number of people here wanted to start franchising, selling our systems and coatings to companies that want to set up independent powder-coating shops. Given the number of inquiries that we have received, we know that demand exists.

I put it off--at least until next year. The potential is there, and I'd like to satisfy it, but not at the expense of either the customer or NIC's reputation. We simply aren't ready for franchising yet; I'd rather have things organized properly before jumping in.

Limiting growth is neither a popular nor an easy strategy. Whether by good planning or a stroke of luck, NIC has been able to set and meet realistic but aggressive targets. We simply don't let our eyes get bigger than our appetite.

Don't mistake controlled growth for a desire to stay small, however. There is no limit onhow big this company can be, only on how quickly it gets there and how it maintains standards along the way.

It would be easy to view controlled growth as a tortoise-and-hare exercise, but I think it's more like the rabbit winning the race while wearing a protective tortoise shell.

Chris Fish is president of Northwest Industrial Coatings Co., in White City, Ore. He prepared this account with Nation's Business Contributing Editor Charles A. Jaffe.