The secret? Much like a fast-food restaurant or a warehouse food store, ELF has effectively rewritten its industry's customary P&L. Its high-powered marketing and fast turnaround generate rapidly growing sales. And though some expenses are high, sales translate into profits because the company keeps other costs at rock bottom.
* Like a fast-food restaurant, ELF offers a full meal -- but from a limited menu. The company doesn't build sophisticated high-speed, high-volume lines for the likes of Coca-Cola; nor does it do much in specialized market niches such as pharmaceuticals, where the equipment must often be built to Food and Drug Administration specifications. "Our product is standard in conception and parts," acknowledges Ake; "our competitors tend to do more specialized work." Result: while the competition has to spend big bucks on engineering, ELF spends little. Since ELF is one of the nation's largest suppliers of standard-model filling lines, it can buy parts the way McDonald's buys rolls. The company has a blanket order with a supplier for stainless-steel turntable tops, $295 if purchased singly. ELF's price: $95.
* Like a warehouse food store, ELF keeps overhead to the barest of minimums. Ake's abhorrence of debt means that the company has no long-term liabilities and thus no interest expense. He asks customers to pay immediately on installation (literally the same day), so there are no accounts receivable and no need for a collections department. This is a $10.7-million, 100-employee company -- yet it has no chief financial officer, no treasurer or controller, no personnel department. Its office staff consists of a part-time bookkeeper, one assistant, and four women doing clerical work. "Everyone else in the office is selling," says Ake.
* The company's compensation system also keeps fixed costs low. Salespeople are on straight commission, installers on a bare-bones minimum plus commission. Ake's four sons and all ELF supervisors get modest base pay plus various forms of profit sharing. For a while, Ake even paid production workers a low weekly salary -- no overtime -- supplementing it with generous regular bonuses. The Labor Department made him change it to an hourly wage with overtime; even so, fewer than half of ELF's employees punch a time clock. More than in most places, personnel costs vary directly with revenues. So a slow month doesn't necessarily mean an unprofitable one.
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On paper, everything at ELF is part of a system: the demo-truck routines, the production forms, and so on. But no system is simple when it's running at high speed -- and the faster the growth, the more possibilities for breakdowns.
The fact is, any self-respecting consultant could point to half a dozen potential trouble spots. All that inventory, for example: do you know exactly how much of each part you need? Can you track it day by day? Asked just such questions, Jeff Ake looks a little sheepish: "Inventory management is something we're not good at," he admits. What about purchasing? Interviewed on the subject, Brad Ake describes some new forms he has designed, the better to keep up with what needs to be bought. Implication: he's not keeping up right now quite as well as he'd like to be.
Late last year, the systems threatened to grind to a halt. With domestic sales booming and orders flowing in from the new U.K. operation, Greg Ake and the others in the factory found themselves struggling to keep up. Self-reliant as ever, they decided they just had to work harder. Build it. Ship it. The machine isn't working right? Have the customer call Chris Ake (yes: number-four son), vice-president over in service. Chris won't know anything about that particular job, of course, but maybe he can find an installer to put a Band-Aid on it. No time to waste -- we've got six other orders in the pipeline. Ten days, remember.
Pretty soon, says Jeff Ake, ELF was approaching meltdown. "Production and installation couldn't handle any more sales. We were late getting equipment out. And the salespeople! They had climbed into some kind of ivory tower and were promising machines that were impossible to deliver. 'You want 120 a minute instead of 80? Sure, we can do that.' "
To fix such problems, other companies might hire more managers, even bring in some high-priced experts with experience in the industry. Jim Ake, so far, has preferred to tinker. He set up teams, each pair of salespeople grouped with installers and service people, and each team responsible for a given region. That didn't work; no one seemed able to manage the teams ("We had people flying all over the country to do little service calls"). Most recently he has been talking about reshuffling his sons' responsibilities. Orders slowed down a little at the start of this year, so the immediate crisis isn't so acute. As to what will happen when they pick up again, all Ake can say is, "We'll be trying something new."
For all the difficulties, though, you have to be optimistic about the future: ELF knows precisely what makes it distinctive in its industry, and it shows no sign of letting mere operational difficulties get in the way. If you had been in LaPorte one Friday not long ago, for example, you would have seen an animated group in the cubicle that passes for Jim Ake's office. That day, Ake himself could scarcely contain his excitement.
