And yet Setpoint does have one asset that Steve Petersen, at least, would be willing to pay a substantial price for -- namely, a particular type of corporate culture.
"How many companies can find out they're losing money in the first week of November and turn it around like that? Not many."
--Joe Knight, CEO of Setpoint
We generally think of corporate culture as the cumulative result of a lot of things a company does that have little or nothing to do with running the business -- dress codes, policies concerning pets, company outings, Friday-afternoon beer blasts, and the like. At many companies, moreover, that's about all there is to it. Culture is an add-on. It has only a tangential relationship to the hard logic of profit and cash flow that ultimately determines whether a business lives or dies. When the company gets into trouble, moreover, it often jettisons the very practices it's been using to define its culture. Witness the dot-coms.
But a growing number of companies like Setpoint have figured out how to build a vibrant corporate culture with a rigorous attention to the financials. The camaraderie, the sense of all-for-one-and-one-for-all, actually grows out of the company's management system.
Not that these companies are lacking in the kinds of rituals and practices we usually associate with corporate culture. Setpoint has enough to put any Silicon Valley start-up to shame. For one thing, almost half of its workforce -- including its two founders -- are dirt-bike fanatics, and they regularly go riding together in the mountains around Ogden, Utah, where Setpoint is located. On the bulletin board in the shop are photographs of various employees flying through the air on their motorcycles. (Not under Setpoint's auspices, of course.)
At Setpoint, such extracurricular activities work in tandem with the management system to create a culture that gives the business a kind of inner strength, allowing it to weather crises that would sink most other small companies and quite a few larger ones as well. That sort of a culture, Steve Petersen believes, has real value.
Petersen has been in business long enough to know how easy it is for a company -- especially a project-based company like his -- to run out of cash when it's growing 50% or 60% a year. He also knows that the risk is compounded when a company attempts to achieve such a growth rate by taking on entirely new types of projects, as he plans to do. Those projects will make his company as vulnerable as any start-up to the danger of losing control of its cash.
That's where Setpoint comes in. Somehow it has built a culture that has everyone involved in the process of controlling cash. The process begins with Setpoint's management system, which allows people throughout the company to track their progress on specific projects with an extraordinarily high degree of accuracy. Using that information, Knight can forecast cash flow and determine how much cash will be needed to cover the company's financial obligations. If cash-flow problems lie ahead, he can't wave his wand and make them disappear, but he can see them coming 3, 4, sometimes as many as 10 months in advance. So he is never caught by surprise. He has plenty of time to sound the alarm. When the alarm goes off, moreover, Setpoint's people know what to do -- and they do it.
"That openness -- we started with it, but we've grown an average of 20% a year for 23 years. You lose that feeling over time. We want to get back to it."
--Steve Petersen
By way of illustration, Joe Knight likes to tell a story about an episode that transpired in November 1998, back when he was still the company's CFO. Setpoint had been on a growth binge and was pushing the limits of its credit line, as Inc 500 companies so often do. Its bank at the time was Zions Bank, and the loan officer was "breathing down my neck," Knight recalls.
"We'd had three months of losses, and we were running the company on our credit line, but I'd told the bank we'd break even in November and get back to profitability by December. Then I got the numbers for the first week of November, and they were awful. We just had too many projects that were losing money.
"We didn't have the board back then, but we had the same system on a spreadsheet. I handed it out to everybody, and I talked to Steve Nuetzman, the lead engineer. I said, 'Look at this, Steve. We're losing money again. If we don't do something, we're going to max out our credit line, and then we're really going to be in trouble with the bank.' "
Nuetzman got the message. On the following Monday, when Knight looked at the spreadsheet for the previous week, he was stunned to see that the situation had been turned completely around. Virtually no work had been done on the money-losing projects. Instead people had focused almost all their attention on the projects with higher gross-profit margins, so the company had made money for the week.
"I added it all up, looked at the number, and thought, 'Wow,' " Knight recalls. "I went right over to Nuetzman and congratulated him. I was pretty excited because it meant I'd be able to go to the bank and say, 'See, I said we could turn it around, and we did.' How many companies can find out they're losing money in the first week of November and turn it around like that? Not many."
