Growing By Design
Three years ago, Sally Von Werlhof's goal was to grow her $1-million design/manufacturing business into a $50-million company. Today, she just wants Salaminder Inc. to be profitable. "I'd like to show an aftertax profit of a million plus a year. What size we have to be to have that kind of profitability depends on how smart we are in doing our business," Von Werlhof says. That is quite a change in attitude. But Von Welhof's ability to redefine her goals is exactly what has kept Salaminder alive through some rough times in the western-wear industry.
Von Werlhof started Salaminder in 1974, and was slowly building a reputation as a top-of-the-line western-apparel designer. Her decision to relocate from Colorado to North Kansas City, Mo. -- near the site of the American Royal, one of the largest rodeo/livestock events in the country -- put her in the perfect spot to go after the market she wanted for her all-American-made garments. Since western apparel usually is immune to the vagaries of high fashion, Salaminder's early years showed steady and manageable growth.
Until, out of the blue, the 1980 movie Urban Cowboy took the country by storm. From south to north, retailers everywhere were trying to find enough western wear to satisfy the demand. Even customers of such high-fashion East Coast stores as Saks Fifth Avenue and Bergdorf Goodman wanted the urban-cowboy look. Salaminder was swamped with orders. Then, just as quickly as the fad had started, it stopped -- "in July 1981," a wiser Von Werlhof recalls.
She had learned about uncontrolled growth the hard way. "All of a sudden, the retail stores went bankrupt, owing us money. I had a lot of bad debts to write off," Von Werlhof says. Salaminder lost 288 accounts in 1982. Von Werlhof cut her work force from 60 to 30 employees, eliminated all support staff, and switched from in-house sewing to contracting. "We all do whatever needs to be done, and that includes a lot of just getting in there and doing the physical work," she says of the remaining staff. By the end of the year, the company was showing a profit again.
Although top-of-the-line western designs were the backbone of Salaminder, Von Werlhof also had tried to diversify. The attempts weren't very successful, though, mainly because they were based more on personal whim than on production costs. The company was putting out a line of $5 pot holders that took nearly as much time to make as a $50 garment. A children's line was successful in terms of sales -- but it cost about $3 less to make a child's item than one for an adult, and the wholesale price was $40 less. Salaminder had to diversify, but Von Werlhof's spontaneity as a designer was proving to be disastrous.
Yet that is what she did best and liked to do best. So Von Werlhof approached Crosby Kemper, chairman of United Missouri Bancshares, an old-line conservative Kansas City resident, with an offer -- a percentage of her company for his business advice, along with enough cash to finance a new high-fashion, nonwestern line and a New York City showroom. "I wanted someone with real clout that I could go to with tough questions," Von Werlhof says.
Last year, Kemper bought 4% of Salaminder outright through the bank's holding company, 22% through its Small Business Investment Co., and another 22% in a convertible debenture. "We think she has talent and the ability to succeed," Kemper says in response to some doubters in the local business community. For the first time, Von Werlhof had to justify every design, from both a fashion and a business standpoint. She hired a general manager, created a strict production schedule, cut sample costs, and discontinued such unprofitable products as the pot holders. Von Werlhof also decided to grow by establishing herself as a licenser of Salaminder designs, rather than by adding new lines to her manufacturing woes. By the end of 1984, sales had increased by 50%.
Salaminder opened its New York City showroom last fall, and the company divides its time between high-fashion design and western wear. Western apparel, Von Werlhof says, will always be the mainstay of her business, and any new products will be licensed, not manufactured, by her company. "We have learned through trial and error why it is best to specialize in what you do best," she says. "With everything we do, there is a tough question asked. And that is, How does this add to our existing business? How is this profitable?"
DONNA FENN | Inc.com Contributing Editor
Donna Fenn is the author of Upstarts! How GenY Entrepreneurs Are Rocking the World of Business and 8 Ways You Can Profit From Their Success, an exploration of the ways Gen Y is changing the entrepreneurial landscape.