On the Road
Yeoman Engineering was a well-run business that treated its customers like gold. But sometimes bad things happen to good companies
If you were in the market for plastic injection molds and had the chance to create your ideal supplier, you might conjure up Yeoman Engineering. At least you would if you valued lavish service, first-rate products, and cutting-edge technology. You might also try to re-create Yeoman's assiduous management: from the CEO's insistence on the absolute efficiency of her pin-neat shop floor to her appreciation for the niceties, like dried flowers in the bathroom. "It had a reputation as the top tool shop in town," says Mark Bailey, a design engineer at Yeoman, who grew up across the street from the company, in Huntington, Ind.
Had a reputation.
Shari Yeoman sits at her desk on a winter's day, pale afternoon sunlight filtering through the blinds. Her coffee table is littered with wine bottles and T-shirts, corporate giveaways that she collected in sunnier times and now wants simply to unload. The lobby is empty; the shop out back as still as a tomb. "Our company is 40 years old this month," muses the business's former CEO. "One day, everything you work for for 40 years just goes away."
For Yeoman, that day came two months earlier, in October, when 300 tool-and-die-shop owners -- some from as far away as California -- swarmed through Yeoman Engineering, scribbling notes and jabbing calculator keys as they prepared to bid on her equipment. That same day Yeoman's banker, formerly generous with credit but now suddenly sweaty-palmed, cornered her in her office seeking a lien on the building. "He told me, 'We want your building as collateral because we don't think you'll get that much for the equipment," she recalls. (In fact, Yeoman's equipment fetched $900,000, twice what the banker had estimated.)
Yeoman Engineering fell victim to circumstances both financially devastating and, for its owner, personally wounding. Founded in 1959 by Yeoman's father-in-law, Jerry, the company made molds for thousands of identical plastic parts, chiefly for the auto industry. In 1996, Yeoman's major customer made what she considered an insultingly low offer for her business. The CEO balked; the customer started making its own molds in-house. Yeoman's sales fell off a cliff, dropping from a high of $3.5 million in 1995 to less than $1 million last year.
The demise of Yeoman Engineering knocked the breath out of a lot of people, especially the many customers who admired it. "I was floored when I heard she was going out of business," says Randy Heffner, president of Auspro, a maker of screw-machine parts in Elkhart, Ind. "Shari is very, very knowledgeable about her business," he says. He then shifts to the past tense. "She knew the product, she knew the people she dealt with, and she was not afraid to take chances."
"They pulled our fat out of the fire on more than one occasion," says Don Sanderson, manufacturing manager of Autojectors, which makes injection-molding machinery. On one such occasion Autojectors had bought a flawed mold from another supplier, resulting in the production of faulty medical parts and an incipient multimillion-dollar lawsuit. Yeoman fixed the mold and saved Autojectors from a costly day in court.
Perhaps Yeoman Engineering was just too good, suggests Frank Smith of Alcom Canada, a maker of molded coils and Yeoman's customer since 1985. "Maybe Yeoman's products didn't wear out as fast as her competitors'. Maybe we just didn't have enough business for them," he says, seeming almost to blame himself. "They deliver excellent quality. I wouldn't buy a tool from anybody else." Now, of course, he'll have to.
The demise of Yeoman Engineering is not due to a single cause. Matters beyond the CEO's control, such as the brutal economics of the auto industry and the migration of manufacturing to cheaper climes, helped doom the company. And Shari Yeoman made a fatal mistake: she became captive to one very large and very satisfied customer, which kept her little company so loaded down with work that it never had the time or inclination to seek out new markets.
She admits now that she was too trusting, too nave. "I always gave really great service to my customers," says Yeoman, one of those seek-to-please people who sometimes bend over backward so far it breaks their spines. "Some of the other shops in town just said I was nuts."
Shari Yeoman is a cheerful and irrepressible ("I'm real mouthy") woman who has endured her share of travails. Abandoned by her first husband at the age of 24, she held down three jobs to support herself and a young son. In 1975 she met and married Ed Yeoman, and for the next 13 years she remained at home raising their three children while her husband worked alongside his father at the family business. Then one morning 12 years ago, Ed stepped into the shower and suffered a massive heart attack. He was 37 years old.
At the funeral, Yeoman was surprised when Larry Denbo, the general manager of Wabash Technologies, Yeoman's major customer, took her aside. "Shari," he told her, "I know this is not the right time, but I want you to think about taking over the business."
Yeoman was scared, confused. With only two years of college and virtually no knowledge of the tool-and-die trade, she considered what Denbo had suggested impossible. But she was mindful of the legacy begun by her father-in-law, who had died two years earlier, and continued by her husband. "What would it say to my kids if I just walked away from the business?" she asks.
So Yeoman stepped up. Eight days after burying her husband she went to work at Yeoman Engineering, using the proceeds from her husband's life-insurance policy to buy the company. (She already owned 3%, inherited from her father-in-law.) A quick study, she spent the first 18 months asking lots of questions and listening hard to the answers. When she got into a jam, she would seek advice from Denbo.
Yeoman's trust in her major customer -- in some years Wabash accounted for as much as 95% of Yeoman Engineering's annual sales -- was founded on a long-shared history. Like Yeoman Engineering, Wabash, a supplier of sensors to the auto industry, had roots deep in the community. It opened a plant in Huntington in 1953, and the two companies grew symbiotically over the years. But starting in the early 1980s, Wabash began to change. In 1981 it was acquired by Kearney-National, an industrial conglomerate based in White Plains, N.Y. Kearney itself was subsequently swallowed by a bigger fish, Dyson-Kissner-Moran, based in New York City. Today DKM is a very private industrial conglomerate operating on three continents and approaching a billion dollars a year in sales.
Shari Yeoman became captive to one very large and very satisfied customer, which kept her company so busy that it never had the time or inclination to seek out new markets.
Kearney's swallowing of Wabash was a typical response to the auto industry's relentless winnowing of its supplier pool, which has led to a Darwinian struggle favoring larger, more integrated, more efficient suppliers able to continually cut costs. "The industry says, 'Come back to us with a 4% to 8% cost reduction each year or we won't do business with you," says Joe Elkins, who recently sold his own metal-stamping business and is now a consultant to small manufacturers. The migration of manufacturing and assembly to Mexico and offshore has further tightened the screws on midlevel suppliers and in turn on their suppliers, tiny companies like Yeoman Engineering.
But as the outside world grew increasingly cutthroat, Yeoman saw no reason why life inside her company had to change. Business was about more than just making money, she maintained. Her employees were like family -- she even cooked lunch for them once a month. "Sometimes I do business with my heart, not my head," Yeoman admits.
If Yeoman treated her employees like family, she treated her customers like royalty. Her strategy was to win by delivering exceptional quality and service, vital in the auto sector, where a faulty mold can shut down a production line, costing thousands of dollars. She equipped her workers with beepers so Wabash could find them day and night. When Wabash asked Yeoman to relocate some people and equipment to the Wabash plant, she complied. Yeoman even invited Wabash, which lacked its own high-tech machining capability, to lead tours through her clean, technologically impeccable shop when the sensor supplier wanted to impress customers and close sales.
She was generous in money matters, too. After Wabash landed a big cash-flow-constricting contract with General Motors in 1990, Yeoman charged the company for material on only 12 prototype molds, deferring about $250,000 in labor costs for two years. Wabash subsequently chose another shop to make the production molds. "We carried them in that project and others," says Yeoman.
By the early 1990s, the auto industry's fortunes were soaring, but the quest for efficiencies spawned by its earlier decline had become the rule. Denbo died in 1994; in 1995, Ford, a major Wabash customer, announced it was moving much of its assembly work to Mexico and wanted its suppliers by its side. That led to a 29% cut in production at Wabash's Huntington plant.
Throughout the turmoil, Yeoman Engineering kept the faith. Mindful that her customer -- even in its reduced state -- required ever-faster turnaround, Yeoman spent as much as $200,000 a year on new technology, principally sophisticated machining tools. "If I couldn't keep the company at the highest technological level, it would be worthless," she says.
It was precisely that impulse to spend and modernize that gave Yeoman value -- and turned it into takeover bait. In 1995 the company rang up $3.5 million in sales, its best year ever. Meanwhile, Wabash was feeling continued pressure to improve productivity and integrate vertically. One way to do that was to bring some of its mold making in-house. Wabash made a list of several local tool-and-die shops it would consider acquiring. Yeoman Engineering was at the top.
Wabash prized Yeoman for its cutting-edge technology and spectacular service. According to Shari Yeoman, Wabash's offer reflected none of that. "They tried to steal the company," she says. "It was a joke."
The numbers that Yeoman provided to Inc. appear to bear her out. At the time Yeoman Engineering had $500,000 in cash and $300,000 in accounts receivable -- primarily work completed for Wabash -- on its balance sheet. It had just bought a building next to Wabash and made $700,000 worth of improvements on it. Inside that building the company had installed $1.5 million worth of equipment and a fully trained workforce. Wabash's offer? Just $1.5 million for everything.
Yeoman's attorney, Mark Guenin, who took part in the negotiations, calls the offer "low from the standpoint of any fair consideration of the value of the assets." Guenin thinks the timing of the Wabash bid was suspect, given his client's recent investments in real estate and equipment -- all made, in fact, to accommodate its largest customer. "That would have been the time when she would have been financially extended," says Guenin.
Wabash's offer left Yeoman feeling angry and emotionally blackmailed. "I didn't know what to do," she recalls. "I was afraid that they would put me out of business if I didn't sell." But she was determined to tough it out. "When I came in here, people trusted me with their lives. How could I turn them over to Wabash?"
Yeoman's impulse to invest in technology turned the company into takeover bait. When Wabash made a list of several local shops it would consider acquiring, Yeoman's was at the top.
Numerous calls from Inc. to Wabash's president and CEO, Jerry Gallagher, went unreturned. David Bovenizer, who worked in Kearney's corporate office at the time of the attempted buyout and handled the negotiations, cites harsh industry economics as the trigger for Wabash's actions. As a supplier to the auto industry, Wabash was "forced to take initiatives to lower our costs," he says. "We explained to her what our problem was."
Bovenizer asserts that the offer was fair: two and a half times what it would have cost Wabash to enter the mold-making business itself. "We offered her a significant premium," he says. Yeoman calls that estimate "bullshit," saying it would have covered only used equipment and an untrained workforce. Guenin estimates that if Wabash had started up its own operations, it "would have cost $3.5 million."
Bovenizer says that Wabash wasn't trying to put Shari Yeoman out of business, but he warned her that trying to rebuild her customer base quickly would be difficult. "I expressed my concern to her," he says, "but she was confident that she could replace the business."
In the wake of the aborted buyout, Wabash took some of its mold making in-house and didn't offer any more to Yeoman Engineering, forcing Shari Yeoman to scramble. She hit the road, exhibiting at trade shows, hoping not only to replace the lost volume but also to diversify beyond the auto sector. But the markets for new molds in industries such as medical supplies and capital goods were slow, giving customers little incentive to try out new suppliers.
To buoy cash flow, Yeoman increased maintenance and repair work on molds out in the field and shrank her workforce from 27 to 15 employees. Despite the CEO's efforts, the company ran through its cash reserves and began depleting a bank line of credit.
Yeoman's cash diminished, but seemingly not her optimism. In a January 1999 interview with Inc. she described herself as upbeat and exhilarated by the challenge. "We are more efficient than we have ever been; we're more cost-effective in the way we quote jobs," she said. "In 11 years I never really had to go out into the real world. This makes me stronger."
Inside the company, however, the actions of some staff members were undermining that strength. The generous CEO had bought a computer for one of her best employees so that he could work at home: he used it to plan a competing business. Another employee left to start his own tool-and-die shop and immediately began soliciting business from Yeoman's remaining customers.
Still, Yeoman Engineering remained attractive to would-be acquirers. In the final six months of the company's life, three separate investment groups offered to rescue the business, but Yeoman saw them as financial opportunists, eager to flip the company and cash out. "They had no clue about the business," she says. "They weren't in it for the long haul."
Last September, Yeoman finally decided to close the doors. The timing seemed strange. New orders were starting to come in, and "there was a lot of life left in the company," says Mark Bailey, the design engineer. But Yeoman says the flow of work was unpredictable. She could no longer afford to live off her credit line month to month.
"I saw no other choice," she says now. "If I had stayed in business longer, it could have been a disaster for the company. I wouldn't have been able to pay off my debts." But what practicality enforced, Yeoman still finds difficult to accept. "I used to think that if I could just get away from this, it would be a blessing," she says. "I didn't realize how much I would miss it. It gets in your blood."
A few months before the end, Yeoman called in consultant Joe Elkins to tell her what ailed her business. Elkins had bought a metal-stamping plant in 1990, when it was "eight months from auction," he says. That company had sales of $1.9 million and 18 employees. When he sold it, in 1997, it had $11 million in revenues and 100 employees. Yeoman figured Elkins knew something she didn't.
But Elkins, too, was puzzled. "She had a wonderful shop," he says. "When you go into a business that is struggling, you normally see a lot of inventory, the shop is dirty, and people don't care. This was just the opposite."
So what was Elkins's secret? "Delight the customers," he replies. "Make them smile."
That's what Yeoman Engineering did for 40 years. In the end, it didn't matter.
Edward O. Welles is a senior feature writer at Inc.
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