Entrepreneur of the Year
For decades Allen Breed pushed air bags -- which his only potential customers, the giant automakers, first tried to muscle out of existence and then tried to buy from someone else. Breed won
FOUNDER: Allen Breed, engineer and lifelong inventor, now 68
MARKET ENTERED: Air bags. Market nonexistent at the time (1967). Product's only potential buyers -- the big automakers -- violently opposed it
STRATEGY: Pioneer product. Push for its acceptance. Vertically integrate to manufacture it
RESULT: Pretax profits of $110 million on sales of $401 million in 1995. Created industry* * *
In a winter day in 1973 Allen Breed barreled in from a swing of sales calls, as fired up as ever, bearing the usual news: he'd been shot down again.
The perpetrator, this time, was General Motors. Word of it shocked no one. Nearly everybody else in Detroit had shown Breed, the tireless champion of air bags, the door. "We lost track of how many times we heard 'No," says Breed.
Dejection not being an option, however, on his internal dash, Breed met the bad news of that particular day with his usual fervor and chin-up cheer. "Allen is a guy who doesn't have a bad day," says Johnnie Cordell Breed, his partner in business and in marriage. "He has a good day or a better day."
Calling a huddle on the tiny company's shop floor, Breed told his remnant of engineers, "We're going to swing 'em, boys." They'd heard it before. It was his personal anthem.
"They don't like the moving parts," he explained. "OK, they're gone. We'll redesign the thing, simplify it. Maybe use a magnet. It's cheap. Probably take 30% out of the cost."
"He sketched it right there on the back of an envelope," recalls Harald Husby, then an engineer and now vice-president of the company.
A month later Breed was back on a plane bound for Detroit with a new prototype in his pocket. It was an even simpler version of his ball-in-tube sensor, a device that could detect a collision and activate an airbag within 25 milliseconds. It was a design that cost a third less to build. It would win half a dozen patents. And GM nixed it.
Over the next 10 years Breed would hear -- but somehow never register -- every objection imaginable: It won't work. It costs too much. Babies will die. And who wants a balloon shooting out of the steering wheel, anyway? He would assemble a collector's set of rejections from automakers around the world.
Not that the indefatigable entrepreneur ever stopped dogging those automakers. It may have taken a decade and a half, but in the end, he did "swing 'em." Today, as chairman and CEO of Breed Technologies Inc., based in Lakeland, Fla., he calls 21 of the world's car companies, including the Big Three, his customers. His air-bag sensors can be found under the hoods of more than 30 million vehicles. In fiscal 1995 alone, Breed sold 23 million of them, posting $401 million in revenues and netting $110 million -- an eye-popping 27% -- pretax.
The company's growth over the last eight years has been blistering -- from a scant $2.4 million in profitless revenues in 1987 to $89 million in sales five years later. In 1993 sales reached $153 million, before more than doubling to $324 million in 1994. Despite constant price pressure, gross margins have marched a steady slope upward, making Breed one of the most profitable suppliers in the automotive industry. And several thousand lives have been spared every year, thanks to the air-bag systems that Breed's trusty sensors have triggered in time.
As stubborn about holding onto equity as he was about selling air bags, Breed (along with his wife) holds 60% of the company's publicly traded stock, placing him among the wealthiest men in America, worth an estimated half a billion dollars last year. The battered Citroen he drove in the 1970s has been traded in for a chauffeured stretch. And a Lincoln Town Car. And a Mercedes. Not to mention the rest of a fleet that, including the red Ferrari, matches his customer list. His Florida estate sits on its own island.
All because he turned a deaf ear to customers. And refused to follow competitors. And ignored the warning, written in red, all over his bottom line.
Thirty years. That's how long it took for Breed's overnight success. Breed Technologies, with its more than 5,000 employees and branches in eight countries, went from zero to nearly half a billion dollars in sales, it's true, in less than a decade. But only after Breed had spent 20 years going almost nowhere.
Hardly his firstborn business, this company is more like the 68-year-old founder's great-grandson, the successor to two previous companies -- Breed Corp., founded in 1961 to design timing devices for the military, and Breed Automotive, spun out in 1987 to supply air-bag components to automakers. Breed Technologies, as the public company was rechristened in 1992, is about as far from whence it sprung -- a small contract- engineering shop in New Jersey -- as Sputnik was from Earth.
A guy who likes to get in on the ground floor -- and spend an awful lot of time there -- Breed, as a young engineer, spied opportunity in the rising military-industrial complex of the 1950s and 1960s and set out with Breed Corp. to design sensors for missiles and other armaments. While other military contractors rode the war demand of the '60s to the top, Breed Corp. never made it past the mezzanine -- in part because its founder got preoccupied with some futuristic devices that relied on the same sensing technology he had applied to weapon detonators. They were called air bags.
He made his first car-company pitch -- to Chrysler -- in 1967. That's when the fantasy started -- about how every car on the road would have air bags and how Breed's runt of an enterprise would squeeze out multibillion-dollar competitors to become a world-class manufacturer of air-bag products.
No one at the time would have bet more heavily -- or indeed worked more tirelessly -- against him than his would-be customers did. Not only did the automakers want no part of Breed the aspiring supplier, they wanted no part of air bags, period.
Despite market research indicating, as early as 1970, that consumers did want air bags and would pay for them, despite field tests that said they worked reliably, despite federal mandates requiring they be adopted, air bags, and all their partisans, were the sworn enemy of GM, Ford, and Chrysler. From 1970 to 1984, when the federal government mandated the phase-in of air bags, the recalcitrant Big Three played cat and mouse with both regulators and the market. Detroit announced and then either canceled or deferred the introduction of air bags nine times. The Supreme Court called the industry's long standoff "the regulatory equivalent of war." Only a high-court decision handed down in 1983 and an act of Congress passed in 1984 brought it to an end.
Thousands of lives that might have been saved were lost. More than a few would-be suppliers fell, too. The dance with Detroit grew too costly for most, especially the biggest suppliers who'd won contracts and tooled up for production, only to watch their investments get flushed every time the carmakers reneged. After a decade of on-again off-again rollouts, the question of when and whether an air-bag market would arrive became one that few suppliers had the patience or the capital to answer. They folded their air-bag operations in disgust.
But Breed, incapable of quitting, kept on: cracking up cars on tracks and on computers, piling up sensor patents, waiting for the moment he swore would come -- when the air-bag market would inflate.
"When something is basically good," says Breed, "you can suppress it for a while, but you can't kill it."
"He just wouldn't give up," recalls Ted Thuen, vice-president of new-product development and a cohort of Breed's for more than 30 years. "He just kept saying that this was going to go." No matter what the car companies argued -- that hubcaps and stereos, not seat belts and air bags, moved buyers -- Breed believed safety would sell. "Air bags will be the biggest safety feature since antilock brakes," he kept telling his future customers.
Call it visionary. Call it obstinate. Allen Breed is both. A cautious manager would have weighed the risks and considered the competitive disadvantages -- like Breed Corp.'s small size and inexperience as an automotive supplier -- and pulled out. Most did. But Allen Breed is neither cautious nor particularly managerial. He's a brilliant engineer, an irresistible salesman, a poor realist. His optimism borders on the delusional.
"He's got the strongest rationalization process I've ever seen in my life," says his son Doug Breed, corporate procurement manager. "Sometimes you're telling him, 'Hello, it's raining. You're soaking wet.' And he's looking at a break in the clouds."
From the late '60s until the mid-1980s, it was often pouring on Allen Breed. Not that he'd admit it. Even though he went through three divorces, mortgaged nearly every personal asset, endured being blacklisted by key customers, flirted with bankruptcy, and survived triple-bypass surgery, the storm-resistant Breed pressed on.
All he says about those years now is that "it was hand to mouth." The air-bag skunkworks continued -- with Breed pouring at least $20 million in earnings and personal cash into development -- while the company survived as a government contractor. The company's revenues bounced up and down with the cost-plus contracts it won or lost from the Pentagon. Breed designed parts for missiles and land mines, developed Agent 007 gizmos like camera pens, and even dabbled in commercial work, designing a round-dog machine for the inventor of the Whopper, who thought the future of fast food lay in patty-shaped hot dogs.
By the mid-'80s, when Breed Corp. began angling for production contracts from Ford and GM, the company was a money-losing enterprise that had never topped $10 million in revenues and had never manufactured more than job-shop lots of anything. Which was an unabating frustration for Breed, a "maker of things." His company's stunted size and uncertain market and anorexic bank account had always conspired against his boyhood desire to own some big "werks" -- a factory, a stand of smokestacks, an army of machines -- where hundreds would come day in, day out to "hammer stuff out" in his name.
Licensing had been his lot. He'd designed too many new and improved mousetraps to remember, only to sell off the rights to bigger players, who got nearly all the glory and all the gross, tossing him 3¢ on the dollar as a royalty. It was no way to make a fortune. It was no way to build a company. Breed wanted more: to be a manufacturer, cranking out seven-figure volumes; to be a modern-day Henry Ford, his hero; to be the builder not of some anonymously successful little business but of an empire.
The market was so late-blooming and the customers so hostile that, ironically, Breed got a crack at realizing his dream: at manufacturing the product he might have otherwise licensed away. All those false starts and reversals, which had discouraged rivals, in the end empowered Breed. They bought him precious time -- not only to perfect a cost-effective design but also to raise capital. And then marry it.* * *
"He was attracted to my mind," says the vice-chairman. "And to my bank account."
In 1986 Johnnie Cordell (not yet Breed) had a net worth of $16 million. "Not bad for a girl who started out with nothing and never borrowed a dime," says the entrepreneur whose travel business, founded in 1974, had grown to more than $25 million in revenues. She had met Breed in 1985 at the Pritikin Longevity Center, where both had retreated to correct habits that had left them with health problems, him with a bad heart and her with runaway blood pressure. But while everyone else talked "lifestyle changes," Allen Breed talked air bags. And Johnnie Cordell, who knew something about building a business and also knew that an obsessed man on the brink of a new market might spell a decent investment opportunity, listened. Months later, the two planned to meet in Chicago for a business dinner. Cordell found herself meeting Breed at a hospital instead. He'd had another coronary and was scheduled for a triple bypass the next morning. "I spent the whole night with him," recalls Cordell Breed, Allen Breed's administrative alter ego. "Getting a living will written, calling his kids, discussing what kind of funeral he'd want if he didn't pull through.
"You trust somebody pretty implicitly after a night like that."
In August 1986, when a recovered Breed called for a loan, she sent him a blank check, good for $100,000. He used $90,000 to close on a 107-acre facility, where he had hoped to manufacture millions of sensors. "I had to look big before I could get big," recalls Breed. "Shortly after I sent the check, I was up in New Jersey," says his wife, who joined the company as angel and chief financial officer (to look after the millions she would eventually invest) before becoming a shareholding spouse. The two married in 1987, the year Breed Automotive (at Cordell Breed's insistence) was spun out of Breed Corp., the year after sensors first began to roll off the lines at Allen Breed's long-dreamed-of factory.
That Breed Automotive was one of two sensor suppliers on the planet when federal air-bag mandates were issued didn't hurt its chances of capturing business. Its technology, fundamental and well covered by patents, demanded that Detroit deal with Breed the outsider. It did not mean production contracts were in the bag. The air-bag war may have been won, but the spoils were not guaranteed to those who'd fought it. Automakers, after all, didn't like to do business with strangers.
Ford and GM pushed Breed to license its technology to TRW and Siemens, behemoth suppliers that the automakers trusted.
"If I were in their shoes, I would have been apprehensive, too," says Breed. "You can't have a whole automotive production line held hostage by one unknown supplier."
Senior vice-president Tom O'Connor, who soon after joining the company found himself charged with hiring 150 people in a week's time, recalls thinking, "These people are crazy, they have no contract, they have no factory. They've got one little component. And they think they're going to do business with the world's largest companies?"
Allen Breed refused to grant a license to the favored suppliers without getting a chunk of the production work himself. He knew it would ramp up dizzily. One out of every 10 new cars would ship with air bags that year. The following year, 1988, 25% would come equipped with air bags, then 40%, and finally, in 1990, 100% of cars were required to have driver's side air bags. Breed insisted the company ride that curve. It hammered out an agreement with Ford to license its sensors to TRW and split the production 50-50. It cut a similar deal with GM: Siemens and Breed would each build half. Chrysler went to TRW, which had extended patient credit during the troubled automaker's bail-out years.
Hard-won contracts in hand, Breed had to prove he could deliver. Could the rookie, who'd made only a few thousand sensors the year before, meet a quota of 35,000? The automakers didn't wager on it. Although TRW had been awarded only half Ford's volume, the automaker tooled it up to produce 100%. Some called it a precaution. Others read it as a sign that Ford fully expected to give all its business to TRW, the insider. At supplier meetings, Cordell Breed recalls, Ford and TRW would sit elbow to elbow at a conference table, while Breed sat on the sidelines. "At lunchtime, they'd order in, then turn to us and say, 'Be back at 2." The newcomer Breed, it appeared, would be a temporary solution to a temporary problem of too little capacity. The only way to hang on to the business would be to exceed every expectation the customer had.
TRW and Siemens contracted out for parts like the sensor's tube, but Breed, knowing his design was trickier to manufacture than it appeared, defied the conventional wisdom that told him to outsource. His standing as a supplier was tenuous; he refused to gamble his output on inexperienced subcontractors that might ship bad lots late. "I wanted to be on top of what I was making," says Breed. Besides, he figured he could make the parts cheaper himself.
"He said, 'We're not farming this out. This is the most important part of our process," recalls Doug Breed. "And Allen Breed makes the process the core of the business."
"We'll cut blanks on high-speed screw machines," chairman Breed told his incredulous production chiefs. "We'll build a machine that can hone them automatically" -- to get the cylindrical tubes within unforgiving tolerances of only 40-millionths of an inch. "We'll make them for a fraction of what it costs outside." Breed made them for 45¢ apiece. Competitors were paying upwards of $2 each for the same parts. "We were able to make great margins," says the younger Breed. "We blew everybody else out of the water."
What TRW didn't outsource, it automated, spending approximately $25 million over three years on hard automation that took months and just as many bodies to get running. While TRW struggled to debug its hardware, Breed hired manual assemblers, many off the unemployment lines, and practically hand-made sensors -- thousands more than it had been contracted to. TRW, complaining that Breed volunteered little information about how to actually produce the design it had licensed, stumbled. And Breed eagerly took up the slack. In 1988 it made 70% to TRW's 30%, and matched Siemens in a dead heat.
In 1989 the Goliaths started to catch up, TRW producing 40% to Breed's 60%. Breed had converted to semiautomated assembly lines and thrown its New Jersey factory into overdrive to crank out 350,000 sensors that year. It was seven times the volume produced the year before, but the numbers would leap another order of magnitude in 1990. There was no way Breed could wring 3.5 million sensors out of its original facility. As rivals worked the kinks out, Breed's competitive advantage -- reliable, on-time delivery -- was slipping away. "We had two choices: either build domestically and spend a lot of money for automation. Or go to Mexico and rely on manual labor," which cost 10¢ on the dollar there.
In a preemptive strike, Breed announced he would slash prices by 30%. "What I really wanted was to take my competitors out," he says. "I wanted the whole market. In business I don't believe in sharing."
Manufacturing would move across the Rio Grande.
It took guts and Breed's impossibly positive thinking to pull it off. The $30 million needed to build a plant wasn't exactly sitting in the bank. A workforce, however cost-effective, would be tough to assemble from a motel room in Brownsville, Tex. And in those pre-NAFTA days, nothing guaranteed that a shipment, even if it made it off a loading dock, would cross the border in decent time.
With the help of $5 million from Cordell Breed and another $20 million from an equity deal she cut with Kobe Steel, Breed's Japanese licensee, "we went from green field to closed-in plant in six months," reports Breed. The first plant, built in Matamoros, Mexico, with eight lines and a one-million-sensor capacity, was operating before 1990 was out. Competitors were taking twice as long to get new plants up to speed. By 1991 the inventive managers at Breed had doubled the plant's capacity and had produced 2 million sensors in Mexico. Breed broke ground on a second plant 30 miles away in Valle Hermoso. It made 5 million sensors the following year.
Allen Breed's penchant for making instead of purchasing parts was paying off: it allowed him to slash costs and drop prices, yet maintain margins. "By making parts ourselves, we could control the cost, control the supply, control the quality." He was flouting conventional wisdom again and building a vertically integrated company. But he was producing more sensors, with fewer defects, for a third less. And doing business with Breed was becoming a hard habit for automakers to break.
"By the early '90s we had 90% of GM's business," reports Breed. "In 1992 Ford shut down TRW and gave us all the business."
Wall Street applauded, snatching up 4.3 million shares in a $67-million initial public offering in November 1992. "We told them we were giant-slayers," says Cordell Breed.* * *
For three years now Breed has monopolized the electromechanical-sensor business, capturing an estimated 80% share of the $300-million market and making money hand over fist. A decorated veteran of the air-bag wars, this unlikely victor managed to take nearly all the spoils. Now he's fighting to keep them.
The giants are back. The growth has tapered. And the product -- electromechanical sensors -- may be nearing the end of its life. The sensors so proudly mounted on the wall of Breed's engineering lab are growing cobwebs now. And in Detroit, car companies are buzzing about electronic sensors, the next generation, which TRW and Allied Signal and the car companies' own internal divisions are expected to dominate.
The bears on Wall Street, having battered the stock, circle. "Breed's sensor business has begun to decline," says Chad Brown of IPO Research Inc. "Electronic sensors are the future. But Breed has no major contracts to produce those next-generation products. And it's too late. The business has been sewn up by bigger players."
Breed admits he's a little behind the curve. Even though customers were telling him back in 1990 that they wanted electronic rather than electromechanical sensors, he wasn't in the practice of listening all that closely. The engineer in him considered it inferior technology.
So now the company must reinvent itself as an electronics manufacturer. "Yeah, we can do that," can be heard around the place, an echo of the old days when nobody thought Breed stood a chance of becoming the world-class, global manufacturer it is today. Once more, Allen Breed's engineers are hearkening to his familiar cry: "Don't worry, we'll swing 'em." The personal anthem plays on.
In the meantime he's scrambling to diversify the product line, to sell more inflators and modules (entire air-bag systems) to offset an anticipated dip in sensor sales. The competition in those categories is also heavyweight. And the customers aren't any friendlier, demanding price rollbacks from suppliers. Breed works feverishly to "get every fraction of a cent out" of the cost of goods. "A never-ending exercise," says Breed. "The minute you stop cutting costs, you get run over by the competition."
Still flush with cash, he's expanding overseas, where the market is young, pouring as much as $100 million into ever more capacity and positioning the company to supply the suppliers of next-generation sensors. He's quickly snapping up companies that can pry open the door to the electronic-sensor market. He purchased one company, Finland-based Vaisala, when it was in the throes of bidding on GM's electronic-sensor business. "We came to the table as the new owners, and GM said, 'Oh, you again," says Breed with a chuckle.
As always, he's searching for that break in the clouds. In his gadget-filled study at home on "Breed's Island," he points to his chronometer, a backlit panel displaying a map of the world with a bell curve of light moving across the Americas. It tells him it's dawn in Alaska, dusk in Greenland. It tells Breed where in the world he'll find daylight -- he's not looking at the shadows.
"I never met a rich pessimist," he says.
Breed Technologies Inc., Lakeland, Fla.; founded in 1961
$401 million in 1995 revenues; $110 million in pretax profits
Born: Chicago, 1927
Parents: Father, oncologist who pioneered radiation therapy for cancer patients; mother, homemaker
Education: B.S., Northwestern University, 1950. Completed degree in two and a quarter years by doubling course load (rigged tape recorder in one classroom while attending lectures in another).
First Job: Manufacturing-design engineer for RCA
Other Experience: Sold magazines on Chicago street corner, starting at age 6.
Other Companies Started: In 1956 launched joint venture turning Waltham Watch, a gear maker, into a defense contractor. Later brought in partners, went public, lost control of company, disagreed with majority shareholders, and departed in 1961 with $300,000.
Role as CEO: To be a visionary, charting future course of company. To select the right people and get out of their way. To can them quickly when they're not the right people after all.
Family: Married to Johnnie Cordell Breed, entrepreneur who funded Breed Technologies' ramp-up; four grown children (two of them involved in company)
Hero: Henry Ford, the ultimate vertical integrator: "He brought iron ore into one end of his plant. Three days later it came out the other end an automobile."
Quote: From Calvin Coolidge, on persistence: "Nothing in the world can take the place of persistence. Talent will not; nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent." The quote hangs on walls in Breed offices around the world.
PROFILE:THE MAKER OF THINGS
When a call comes through from one of his chief engineers, a fidgety Allen Breed practically leaps from his chair to take it. He's been waiting all day. Stooping over the speakerphone, his blue eyes fixed on the box, he fires a clip of questions about the testing of a new product. They're not just management plaints like "When can we ship it?" They're detailed inquiries, the kind only a guy who dreams in schematics and knows his way around a lab can ask.
Even from his princely corner office, this engineer, now also a globe-trotting air-bag tycoon, still hears the call of the lab, still gets his hands dirty on a new design, still needs that daily data dump from his soulmates in development. No matter how many miles he logs visiting operations and customers on three continents, buying companies, building plants, and chasing new or bigger contracts, Breed, this year's Entrepreneur of the Year, founder of one of the fastest-growing and most profitable suppliers to the worldwide auto industry, is, aw, shucks, just a guy who likes to build stuff. Like air-bag systems and their component parts. Like multinational industrial dynasties.
The 68-year-old CEO, who works 14-hour days, looks out on his mile-square campus in sun-bleached central Florida and explains his passion with a shrug: "I'm a maker of things." In huge volumes. At ever lower costs. Most of what Allen Breed makes -- the products that brought in $250 million-plus of fiscal 1995's $401 million in sales -- are electromechanical sensors that tell air bags when to inflate. Breed Technologies also manufactures some air-bag inflators and systems, but the bulk of its revenues and almost all its profit have come from its conquest of the air-bag-sensor market. In the last five years Allen Breed has made nearly 75 million sensors for more than 140 models of automobile. When it comes to dollars, he's made a few hundred million more.
He's a mogul, for goodness' sake. You'd think the magnitude of his success, against impossible odds, would have inflated him more, would have transformed him into some self-important CEO-statesman. But Breed remains the affable, slightly awkward engineer, with the ready smile, the glasses a little too big for his face, the hands jabbing the air excitedly as he explains a new product, a new process, a new acquisition with some "beautiful technology."
For Breed, the thrill still comes from building new stuff. Cheap. The overactive boy who rigged up alarm clocks to sound in the middle of Presbyterian church services still likes to invent gadgets (still timing devices) that surprise the hell out of everyone. He tosses a handful of miniature metal parts on his desk like jacks and palms a sample of his new inflator. Not much bigger than a hockey puck, it's a device that propels an air bag. Breed hopes it will also propel next year's sales. "We'll make every single part in this thing," he says, beaming. "We won't be paying someone else's margins. That's the way we steal business."
An industrialist in a postindustrial age, a guy who gets vertical just as everyone else goes virtual, Breed breaks rules for a living. Like the ones that say the customer is always right, or listen to your market, or know when to quit.
Nothing is more unconventional than the way he manages his company. It's a half-billion-dollar publicly traded mom and pop. Obsessed with his products, he directs most of his prodigious energy and engineering genius toward making more for less, toward wringing costs out of his products and driving sales up. The rest he delegates. Legal, finance, administrative details -- "They bore him," says his son Doug. That's where Johnnie Cordell Breed, his former financier and current wife, comes in.
While Breed whittles away at the cost of goods, Cordell Breed polices expenses. Her fiscal vigilance is legendary. Cordell Breed still reviews every travel request. She knows if a scrap hauler is weighing light. She knows what a United Way sign at the plant entrance costs. "She's a helluva manager," says Breed, wrapping his arms around her.
Other managers at the company haven't fared so well. Turnover at the top has been brisk: Breed has had three manufacturing vice-presidents in as many years, and a marketing vice-president and a president were ousted this year. "We get people in here from big companies, and they get fired," says longtime associate Ted Thuen. "They don't get it. It's not tomorrow. It's not 'maybe next week.' It's now. Allen has to move."
Some motor inside Breed never stops urging him forward, regardless of how many roadblocks are thrown up against him. "The natural state of any deal is dead," he says. "You got to just keep kicking it and kicking it and kicking it."
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