When a midwest furniture manufacturer decided to spin its trucking unit off, they remember the problems with start-ups.
The Wieland brothers made furniture. And since it had to be delivered, they thought, 'Why not truck it ourselves?' Now they know
As a rule, Bill Ogden has no problem with bankers. After all those years he spent "in public," as he puts it, with Coopers & Lybrand, Ogden believes he has come to understand banker types. He knows how to think the way they do, how to talk their language, how to calm them down. Which is not to say that when Ogden joined Wieland Furniture as chief financial officer, a few years back, there weren't challenges. Wieland was already an $8-million manufacturer by then (on the way to $17 million today) and an alumnus of the Inc. 500 list -- well past the point on the growth trajectory where it normally makes sense to bring somebody inside to handle the books.
There had been some work to do, but Ogden was quickly satisfied, and the bankers were, too. Wieland, after all, would be any small-town bank's idea of a dream customer: a thriving family business that came to tiny Grabill, Ind. (north of Fort Wayne), in 1983 and since then has done nothing but spread wealth all over town -- making high-paying jobs for local woodworkers and seamstresses, expanding the tax base, and establishing a $2.5-million line of credit with Grabill Bank. In time, it got so that Ogden actually looked forward to the periodic check-ins at the bank. He was proud of Wieland's income statement, sure of Wieland's stability, and eager to tell the story.
But lately Ogden has been having a harder time at those meetings. The bankers have begun asking questions that he isn't confident he can answer in a way that makes sense even to him. More and more he finds himself identifying with the bank's point of view. What's strange is that the questions have nothing to do with furniture; they're all about trucking. When he meets with the bankers later on this April afternoon, they'll probably want to know why Wieland Furniture violated a loan covenant last month forbidding transfers of more than $30,000 to Wieland Transportation, a wholly owned subsidiary that leases and operates a fleet of 18-wheelers. The trucking business has been draining cash from the furniture business for the better part of a year, hence the covenant. It's almost an old story by now. March's transfer, however, was truly ugly: $48,000. How is he going to explain that?* * *
Ogden's anxiety is rooted in a larger question with keen relevance for company builders: what happens inside a healthy, growing enterprise when it moves beyond doing what it knows best to doing something else, too? Most entrepreneurs can understand how easily that might happen. Once you're in business, it's hard not to notice new opportunities. Maybe it's an idea connected in some way to your core, a way to leverage what you already possess -- market data, expertise, untapped capacity. There are consultants who promote such leveraging, and they'll probably give you all the encouragement you need.
Or maybe the new idea is unrelated, something that has little or nothing to do with what you already know or what you're geared up for. But because of the position you're in, you see it -- it's there -- and you want to act on it. You're successful. You know how to run a business. How hard can this new venture be?
So you plunge in. And maybe it works. Maybe your managerial skills really do transfer. Maybe the new business grows and grows until it displaces the old, and eventually no one remembers, or cares, what you used to do. Du Pont used to be in the gunpowder business. Sony's first product was a rice cooker. It can happen. Moreover, there's an element of entrepreneurial machismo in pulling off such a stunt. Succeed and you lift yourself above mere products, above luck. You become like the golfer in a recent magazine ad. "Once you understand the basic swing," he says confidently, "it's just a matter of adapting it to different situations."
Alas, that has not been the experience of the Wieland brothers -- Brad, Brace, Blaine, and Blair -- in their unhappy foray into trucking. They're third-generation furniture men, these four, builders of funky, innovative designs on contract for schools, hospitals, and businesses. When they leased their first rig, in 1988, they weren't trying to muscle in on J. B. Hunt. All they really wanted was a dependable delivery option for their own product. So far, so good.
Then the truck started bringing in money for the company, which made adding more trucks seem like a smart thing to do, which led, lickety-split, to the thrilling appearance of a $3-million business-within-a-business called Wieland Transportation. Wonderful, except that in retrospect, even then (look out!) Wieland Transportation was bombing down the road, careering out of control, heading, in Ogden's nightmare, for a fiery crash.
Blaine Wieland, the sober, reflective president and CEO of Wieland Furniture, refuses to accept Ogden's fiery-crash scenario. He's learned a lot about the trucking business in the last year or so -- more than he ever wanted to know, truthfully -- and he thinks he has a handle on things now. On the expense side, he recently cut two administrative positions at Wieland Transportation and committed to turning back three tractor leases when they expire in the fall. Then he ordered John Stoller, the company's president, in off the road, where he had been soliciting new accounts, and charged him with maximizing revenues off a smaller base.
Those are meaningful steps, Blaine Wieland thinks. When the bankers find out about them, they'll relax. Ogden may fret, but he's an accountant, and that's his job. Wieland's the entrepreneur in the equation. He knows the bank won't cut him off -- not today, anyway -- and short of that, nothing it can say or do really concerns him.
No, Blaine Wieland's mind is elsewhere at the moment, on his own organization, on the price he and everybody around him -- Ogden included -- are paying for having gotten themselves so deeply involved in this nonfurniture business in the first place. There were real benefits to branching out, of course. Those were obvious to everyone from the start. What were hidden, until much later, were the costs. Or as Blair Wieland, Blaine's younger brother and the head of Wieland's core contract furniture division, frames the issue: "A lot of things can look easy from a distance. But the closer you get, oh my goodness!"* * *
It seemed like a good idea at the time. Wieland made a product that demanded special handling, which meant that common carriers -- the packhorses of the trucking industry -- were not an option. Specialty shippers, on the other hand, were expensive and not always reliable. So when the fellow who was then head of plant operations proposed one day that the company lease his brother's idle rig and hire the brother to make deliveries, the consensus within the company was "OK, let's give it a try."
Note the aim: customer service. It was a way to close the quality arc from design to production to delivery, to limit the variables at the end of the transaction. At least now the Wieland brothers could be reasonably sure that their chairs, sofas, and love seats would be handled with care and arrive on time. And when problems arose, they would have their own man on-site -- a knowledgeable, helpful, presentable man, accountable only to Wieland Furniture -- to deal with them.
One truck, one driver, performing a valuable service for Wieland Furniture and its customers. "Saying, 'Hmm, the normal service we can get outside doesn't understand our problems; therefore, we can do it more efficiently ourselves,' is probably a rational analysis," says Howard Stevenson, a professor at Harvard Business School. "The problem is when you carry it forward from there."
For Wieland Furniture, carrying the idea forward involved two steps. Step one, a baby step, was a matter of making better use of available resources. Since the company already had a truck, and the truck had to come home after every delivery, better it should come home full than empty. That's how Wieland Furniture got into the business of back-hauling third-party freight. It was good business. The added costs were insignificant, and the extra revenues went straight to the bottom line.
Step two, however, was a leap: adding capacity. The brothers still knew next to nothing about the trucking business, but already they knew enough to be intrigued by its potential. Blaine Wieland was drawn to the beauty of selling the same service over and over again to the same customer -- so unlike the contract-furniture business, in which big sales invariably precede long droughts. "They need you again next week," he says. "I really liked that. It seemed in some way easier."
Within a year Blaine Wieland had signed long-term leases on five more tractor-trailer combos. Allen Fischer, the original driver, was behind a desk now, managing operations and dispatching. Like anybody running long-distance freight, Fischer measured his success by how close he could come to an impossible goal: having every truck always full and always moving, exchanging drop-offs for pickups in a never-ending ballet. Wieland Furniture, with its steady flow of shipments, gave Fischer a nice base -- but that's all it was, a base. Just to cover his fixed costs, Fischer had to scramble -- not only for back hauls, but for outgoing freight as well.
In those days Wieland Transportation was a division and not yet a separate corporation. Fischer did his own tracking, though, and the numbers he was showing Blaine Wieland were impressive, although not as impressive in reality as on paper. For one, Fischer wasn't allocating any general and administrative or legal expenses. But, says Blaine Wieland of his rationale then, "at the very least I'm seeing some of the positive side of things. Customers are liking it. I'm loving this repeat-business stuff. Let's add a few more! So we went up to eight trucks."
Somewhere along the way, the Wieland brothers had crossed the line. They were in two businesses now, one unlike the other in a thousand ways. Wieland Furniture had started in the usual way: the idea came first, and then the means. "I want to make furniture -- now what do I need?" is how Professor Stevenson illustrates the standard progression. "Not 'I have a saw and a planer and a glue clamp -- now what can I make?" But, adds Stevenson, when those people got into trucking, "they went the opposite way. They said, 'I have a truck, now what can I do?' "
Just because you go about things backward doesn't mean you can't make the business work, says Stevenson. But "you usually do that by saying, 'For what opportunity do my resources provide an unfair advantage?' That's what Du Pont did. They were already experts in chemicals. Wieland had an unfair advantage as long as all they were doing was covering their back haul, because they had almost no marginal cost. But by the time they got to the second conception of the business, they had actually blown their advantage."* * *
In 1993 the trucking operation was not yet a burden to Wieland Furniture. The brothers were still under its spell. The romance of owning and operating a whole fleet of teal blue semis with "Wieland Transportation" on the side of every cab appealed to them. The brothers can admit that now. There's a family story about when they were kids on vacation with their mom and dad, standing mesmerized at a truck stop before a big shiny rig, one of them bravely putting a finger on the paint. The door to the cab suddenly swung open, and the driver barked, "Don't touch!" The object of their awe, it happens, was a Steelcase truck. Steelcase and Herman Miller, besides being the giants of the contract-furniture business, have their own trucking divisions. "We have our own trucking company, too," says Blair Wieland. "Beat that!"
Moreover, Wieland's trucking business was more than covering its own expenses. At the height of its glory, during the fiscal year that ended April 30, 1993, Wieland Transportation made a pretax profit of $176,000 on revenues of $2,368,000. At 7%, the trucking business's margin fell short of what the brothers expected in the furniture business, but it was acceptable, absolutely, considering the side benefits.
But then, like visitors and fish in Ben Franklin's aphorism, the beguiling business of trucking started to stink. Exactly when and how are hard to say. Weather was a factor -- snow idled the fleet for an extended period, freezing revenues but not expenses. Insurance costs rose unexpectedly. Problems with drivers accumulated. Fischer, the head of the trucking division, left to start his own outfit and took Wieland's biggest customer with him.
Blaine Wieland's own sense of what went wrong with Wieland Transportation is that it was largely a management issue. He blames Stoller, Fischer's successor, for failing to make tough decisions on personnel when he had to. "He didn't have the force of will," says Wieland. Consequently, nonproducers lingered on the payroll, and revenues fell. But even as he's telling the story Blaine Wieland eventually comes around to blaming himself. It had been up to him, after all, to make sure Stoller was doing his job. The fact that Wieland let things get out of hand speaks to the first of several costs exacted on his company by the whole episode: loss of control by the CEO.
"The furniture business that we started here, we were bred to it," Blaine Wieland says. "We think about it during our sleep at night. That's been easy for us to do. We have such passion for it. But even early on in our trucking business, I thought, 'Man, if I'm honest with myself, I don't really like the industry. I'm not comfortable with the people. I don't know what kind of relationship I'm going to have with those drivers. Can I manage something that I don't have a passion for?' "
It took hard times to expose Blaine Wieland's vulnerability, but once it had been exposed, it seemed obvious. Trucking problems arose that were outside his orbit as a furniture man, and he would leave them to others to solve. "Because I couldn't step in and do it," he explains. "I'm confident in furniture -- if a manager is having trouble, it's 'Let's just relieve him of his duties, and we'll cover it.' If trucking has trouble, I don't know whom to call. I don't know the brokers. I don't know the customers. I don't know how to coordinate."
And because of that? "I'm dependent. It's a scary position for an entrepreneur-owner to be in. Dependent."
The second cost was interdepartmental conflict. The accounting department, accustomed to orderly billing and collection procedures, was thrown off balance by the motley crowd of customers that trucking brought in. Accounting has fought an ongoing battle with the dispatchers, who, in their zeal to get the freight, don't worry as much as they should about the company's prospects for eventually getting paid. In the worst example, the trucking operation somehow let one customer's debt climb to $90,000 before Blaine Wieland finally stepped in. "Unbelievable carelessness, just incredible carelessness," says Wieland. "It happened because I trusted someone who trusted someone who trusted someone, with everybody assuming we weren't booking any more freight from that customer. But we were."
As far as Ogden, the CFO, is concerned, collection isn't even the half of it. To him, the whole trucking operation seems at times like a nest of unruly expenses he can never hope to clean out. That results in a third kind of price the company pays for moving outside its core business: loss of focus. "It's horrible," he says, launching into a litany on $50 truck washes ("We want the trucks to look good, but maybe they could be washed twice a month, not every week"); $500 towing fees; obscenely high cellular-phone bills ("Drivers get lonely on the road"); and the proclivity of some drivers to jump from their cabs rather than descend the ladders ("Breaking ankles and legs, messing up knees"). Then there are the phone calls in the middle of the night, like the one from the driver who had pulled up to a guard booth on a college campus at 3 a.m., left the cab to ask directions without first setting the brake, and seconds later watched his $140,000 rig roll down a hill and through a parking lot. ("The first car it hit was a 1994 Eagle Talon. Got rolled up underneath the trailer, kicked out the other side.") Afterward, Ogden comforted himself with the knowledge that no one was hurt and that he had recently taken out a $10-million liability policy. But it galls him, still, that he should be spending so much time and energy "trying to control the bleeding" in an arena so far removed from Wieland Furniture's turf.
It was partly to isolate the problem and partly to impose some discipline that Ogden had broken out Wieland Transportation as an independent corporation in October 1993. Headquarters moved to a dedicated facility in New Haven, Ind., 15 miles from Grabill. Separation eased some difficulties in the relationship but exaggerated others -- namely, the trucking operation's tendency to neglect the needs of the furniture operation in its own internally driven pursuit of profit. The percentage of Wieland Transportation's non-Wieland customers rose from around 50% (mainly back hauls) to 80% and beyond. Even before the move, there were Wieland drivers who spent much of their time hauling other people's freight -- everything from garbanzo beans to furniture made by competitors. Still, says Ogden, "they knew where the plant was, they probably helped load the furniture, they knew the people that built the furniture, and they knew the people that helped process the order -- 'OK, Fred, you built it, now I'm gonna go deliver this!' 'All right, have a great trip!' " But after the move to New Haven, there were those among the company's 18 drivers, says Ogden, who had never carried a load of Wieland freight. "They didn't have a clue where the furniture plant was located. They didn't even know what we made."
Distance, in this case, has bred antipathy -- yet another price paid for diversification. The furniture operation feels abandoned. Internal freight managers, who have always been free to choose other haulers, are doing so. And it isn't always because of price or convenience. Often, it's simply that people in the two companies don't like one another. Over time the wall between the trucking and the furniture operations has risen so high that one day not long ago a furniture employee approached Blair Wieland and suggested the company might want to rent a few trucks so that it could deliver its own products. Evidently, he was serious.* * *
Blaine Wieland got through the April meeting at the bank -- the one Ogden was so worried about -- as he expected, without too much difficulty. There was a new loan officer present, sent out from Norwest, Grabill Bank's partner on the Wieland account. He was not yet familiar with the details of the company's story and seemed to take Blaine Wieland's explanations at face value. Not even the violation of the loan covenant fazed him. Afterward, the bank agreed to write a temporary exemption, keeping the credit lines open.
For that, Blaine Wieland could thank his company's close 11-year relationship with Grabill Bank. The bank had been instrumental in bringing Wieland Furniture to Grabill from Bay City, Mich., in the first place. It had been a willing partner in the company's growth, a constant in good times and bad. But lately the relationship had grown more strained. Here, then, was one more cost: Blaine Wieland had spent all those years building trust, only to have the bankers start giving him funny looks. It was as if Wieland and the bank didn't understand each other anymore. "We're comfortable lending money to a furniture company" was the explicit message Wieland was getting from the bank. "We're not comfortable lending to a trucking company."
In May Blaine Wieland met with the bank again. This time it was painful. Wieland's prediction that the trucking operation would break even in April had fallen short by about $20,000. By now the aggregate loss for Wieland Transportation, including bad debts, was approaching $300,000. Meanwhile, the new loan officer had learned his accounts. Knowing more, he was more worried. Like a lawyer patiently building his case, he recapped the whole sorry sequence of events for the benefit of everyone present. Then he asked the unanswerable question, "Why would you have gotten into trucking?"
"I just felt so low," says Blaine Wieland, "just so inept." During all those years working with his father and his brothers, building Wieland Furniture, he had come to think of himself as "a disciplined person, a learner," able to apply himself successfully to almost any task. The trucking fiasco had taught him otherwise. "Why was I not able to hold that together?" he had to ask himself now.
And what of his plans for the family business? It would be a cruel irony if the trucking operation edged those off the road. His father, Roy Wieland, had toiled 30 years in the old family furniture business with his own three brothers, and for what? Hard times drove Roy and his brothers apart. They eventually lost that business, handing it over to another company to escape debt; that company later sold off the assets and shut it down. Blaine and his brothers remember the day their father came home from the office for good, carrying a box that held only the contents of his desk.
Which is how Blaine, the third son, came to lead Wieland Furniture -- the company he and his father started together after Roy's old business dissolved -- into the next generation. There had been nothing left for the older brothers; they'd gone off in other directions. Blaine was lucky. By the time he came of age, a new market had sprung up in Michigan, the result of a new law requiring state hospitals to use furnishings that looked as if they belonged in a home, not an institution. Roy and Blaine conceived the idea of "renewable furniture" -- attractive pieces with interchangeable parts, easy and economical to restore. The new Wieland Furniture caught the market and grew, and in time Blaine's brothers joined in.
Brad, Brace, Blaine, and Blair -- four sons determined to succeed where their father and uncles had failed. That has meant staying together as a family as well as staying in business. "I've always had a need for the family to be in business together," says Blaine Wieland. "It may have been because I was raised expecting that, and it was taken away. Now that it has returned, it's still more precious."
After the May meeting Blaine Wieland performed a little exercise at the bankers' request. He ran spreadsheets on half a dozen trucking scenarios, which included reducing the size of the fleet, signing a contract with an outside operator, and just shutting the operation down. The last option was tempting. These were exciting times in the furniture business. The brothers were branching out. They were in the midst of creating two new divisions -- Wieland Residential and Wieland Direct -- and were in the early stages of an alliance with Herman Miller, one they hoped would catapult Wieland Furniture into markets previously beyond its reach. All that would require capital -- retained earnings, which were diminishing with each monthly transfer to Wieland Transportation; and debt capital, to which Blaine Wieland's access was rapidly becoming problematic. All in all, Wieland had to admit, it would be nice not to have to worry about the trucking operation.
Unfortunately, quitting wouldn't be easy. Already Wieland Transportation is $300,000 in the hole. To back out of the company's leases now would cost another $200,000. "That's $500,000," Blaine Wieland says wearily. "There aren't many $17-million companies that can pay $500,000 and not really think twice about it."
Not that diversification is a bad idea. Even after all he's been through, Blaine Wieland doesn't believe that. He still wants a company that's involved in more than one business. He'd rather preside over 10 $10-million businesses than run just one doing $100 million. "I'm not afraid of doing something I don't know," he insists. "But it takes a little bit more, I think, deliberateness than what we applied here."
Realistically, he thinks, his job now is to right the situation. So he's spending at least half his time on trucking -- checking in with Stoller every few hours, tracking revenues daily, putting in place new procedures that he hopes will allow him to begin backing off by the end of the summer.
But it won't be easy. "The business has built up several hundred thousand dollars of backward momentum," he says. "I wish I could change it all next week, but I can't. It's going to take discipline, every day a little advance, every day a little better than yesterday. We've got a ways to go."