In 1997, Reell's salespeople began making sales calls in Asia--and got nowhere at first. Then Reell came out with a new, patented technology that allowed it to produce high-quality hinges almost 30 percent smaller than those made by its competitors. That was a significant advantage to manufacturers of the sleeker, lighter, thinner laptops that were in growing demand. Sales of the new hinges took off, and margins remained strong.
The move into Asia coincided with another important event: the retirement of the two remaining founders. By then, Wikstrom had been at Reell for 17 years , and some thought he could handle the job alone. Along the way, however, he had become a passionate believer in shared leadership. When a board member suggested he become the sole CEO, he demurred. "If I'm offered the job, I will decline," he said. "But if we're talking about a co-CEO, and we find someone whose skills are complementary to mine, I'm very interested."
The person ultimately selected was Carlson--a West Point graduate, Vietnam veteran, ex-IBM sales rep, and Wharton alumnus. He had worked in sales and marketing for several companies before deciding that he had had enough of corporate life, whereupon he started his own consulting business in the Twin Cities. Lulic, who had interviewed him for a book she had written, approached him about the co-CEO job. When he said he wasn't interested, she insisted he read the chapter in her book about Reell. He did and changed his mind, and the triad became a dyad.
For the first couple of years under the new regime, things could hardly have gone better. Sales almost doubled, from $16.9 million in 1998 to $29.6 million in 2000, and the size of the work force topped 200. Driving the growth were the sales of laptop hinges, which skyrocketed from $5.2 million in 1998 to $19 million in 2000, generating operating profit of $2.8 million. Reell's share of the laptop hinge market hit an eye-popping 25 percent.
Wahlstedt, for his part, couldn't have been happier. "I am pleased to say...that the company has never functioned better," he wrote in a company history that he had been putting together over the years. "There is greater synergy between individuals and departments than ever before and many individuals are flourishing in ways that once seemed impossible. Steve Wikstrom and Bob Carlson have proved to be wonderfully compatible and complementary...clearly demonstrating that the shared leadership success of the Founders was not a 'fluke.' "
"Do you play bridge?" Bob Wahlstedt asks. He is sitting in a small alcove adjacent to the office shared by Reell's new CEO, Donaldson, and its president, Kyle Smith, who joined the company in 2006. At 74, Wahlstedt still has a commanding presence, but you can sense the weight of the years--especially the past six years--on his shoulders.
"Have you ever heard of duplicate bridge?" he asks. "It's when different people play the same hand in different games that go on at the same time. Afterward, you see the different ways that the hand could be played." He speaks slowly, stopping occasionally to measure his words. "I'd like to go back and make one or two different decisions, and then see what would have happened. What if we'd decided not to go into Asia? Our non-Asian business is as big in volume and as profitable today as it was in 1998. Maybe we were wrong when we thought we'd have to lay people off." He pauses. "Or what if we'd gone into Asia but priced our products to protect our margins and let the volume fall where it may?" There is a wistful look on his face. Then he gives a little shrug. "But you can't play duplicate life, can you?"
So much has changed since he wrote his last, hopeful entry in the company history. He now knows the long-term consequences of that decision in 1998. He traces the steps. "We made concessions on price to get volume," Wahlstedt says. "Was it right? It was in contrast to our history. We'd always used price to maintain margin. What if we'd done that here? It might have cost us some business, but would we be better off?" To handle the volume, Reell doubled the size of its building and spent some $1 million on new automation. As a result, it went from coping with volume to needing volume, which just increased the pressure to make further concessions on price.
Competing on price led to sales volatility. All a competitor had to do was offer a lower price and--poof--the sales would disappear. The volatility, in turn, helped undermine the plan Wahlstedt and his colleagues had had in mind when they made the Asia decision. "Our strategy was to build a bridge from where we were to where we wanted to go long term," he says. "We didn't want to lay people off, and we wanted to buy time to get to the next level." By that, he means developing new markets and new high-margin products that could sustain Reell well into the future. "But the market didn't let us do it. A combination of the volume, the price pressure, the volatility, and the massive investment resulted in all of our energy going into developing the Asia business instead of finding new opportunities."
So how and why had the company strayed from its historical commitment to maintaining its high margins? Was Reell's culture part of the problem? Did it lead, if not to complacency, then to a certain blindness to the business realities and the initiatives needed to sustain the culture?
