Keeper Of The Flame

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In June 1979, construction completed, they decided to throw an open house, a chance to show off the company to their local neighbors. They weren't expecting much of a crowd; there'd been no effort to spread the world, except for a short note in the "Owners' News."

Five thousand people showed up, proud Defiant owners from across the country. So a tradition was born, the annual Owners' Outing, a gathering of the tribe, repeated every August in growing numbers, a celebration of the dream.

Looking back, the 1980 Owners' Outing was probably the high point in Vermont Castings' history. Sales would climb for one more year, to $29 million, but by Christmas 1980 Howell's cancer had been diagnosed.

It was Howell, along with the board of directors he assembled, who convinced Syme to turn the company over to "the corporate types," as they were later so scornfully called within the company. It was a question of keeping their "manifest destiny" alive, Howell argued: that $50-million goal was still within reach, but to get there without Howell's steadying hand, the ball-bearing factory would have to grow up. Vision wasn't enough; they'd need strong executive leadership, professional management to bring in systems and procedures, a formal planning process, and a chain of command. With so much of that infrastructure already in place, by the early '80s it was time for Syme to let go of the torch.

"It was a hard argument to disagree with," Syme says. "At that point I didn't have a job in the company in any case."

No one expected Syme to take over. His role had been corporate wildman, the blithe tinkerer. Clearly he was too obsessive to function in the real world of balance sheet and bottom line, too disruptive to be part of the effective management team they would need to cope with the new problems facing Vermont Castings in the early 1980s.

Those problems kept getting worse. The wood-stove boom was over, the market dropping between 10% and 20% year after year. The back-to-the-land set had traded their overalls for pinstripes and moved to the city; the old problem of unfillable demand had been replaced by a growing battle with inventory control.

Vermont Castings' wood stoves were still among the "99 Things that, Yes, Americans Make Best," according to Money magazine, and market share was growing enough to keep revenues fairly flat. But profits were slipping. As a one-product company in a shrinking niche, Vermont Castings looked particularly vulnerable to further market erosion. That $50 million worth of infrastructure and unused foundry capacity now looked like simple, expensive overhead.

There was a logic to every decision the corporate types made over the three years after Howell's death, each a conventional management solution to a perplexing corporate problem. But Vermont Castings had never been conventional; those well-meant decisions would nearly destroy the company, severing its connection with the market and its work force, putting its reputation and franchise at risk.

How does conventional management cope with falling profits? One way is cut costs by adding controls. Vermont Castings' management still preached quality, but it implemented management by objectives, with foundry and assembly workers measured by their ability to improve scrap and assembly rates.

Sure enough, the scrap rate went down; employees stopped rejecting marginal castings. The assembly rate improved, too; fewer cosmetic defects were being caught. "We may have accepted some stoves that were 'close enough,' " Bill Floyd says. "We'd always looked at the numbers, but under the corporate types the numbers became job one. I don't know if quality dropped off that much, but it certainly wasn't as much fun to work here."

What's the solution? Look for a new niche, something countercyclical, and hope your reputation can be transferred. So Vermont Castings' management began considering new products: hot tubs and spas, perhaps, a gift line of trivets and thermometers, a gardening-by-mail business.

It didn't make sense to Syme, "but I kept telling myself, 'I can't be right; they have all the management horsepower.' "

While few of the new product lines worked out, they led, logically, to a change in distribution systems that would cut the company off from direct market connections. It made sense to build a strong dealer network: Vermont Castings would need dealers to push those countercyclical products, whatever they might be. And it made sense to move out of mail order, too: cannibalizing your dealers' sales was no way to win their loyalty.

After that, it was a simple question of costs. If you weren't selling directly to customers, why did you need a toll-free number or a newsletter? "Rare and unusual" doesn't show up on a balance sheet.

The Owners' Outing went, too, victim of the same logic. Read the numbers. The party cost Vermont Castings $75,000 a year. Since the company sold some $120,000 worth of product with a 60% gross margin each time, netting $72,000, it would be saving $3,000 a year.

No one planned to end the outing, exactly. But no one approved the list of committee assignments either, or signed off on a budget, and the deadline passed.

There was a new leadership style in place. No more calling your boss by first name; you communicated by memo. No more batting around ideas in the halls; planning moved through a formal process. The spontaneous parties were gone; you couldn't even bring in a six-pack for your department on a Friday afternoon without formal permission. Rare and unusual? Bob Ferguson, head of R&D, started thinking about wearing a tie.

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