You have been thinking this way for decades. What do you say to people in small companies who are scared that they are not going to be able to make it through this recession?
Well, it's not so much what I would say as what I would ask. I'd ask, "How productive is your team? Are you leveraging the mental capacity of everybody in your organization?" Nine times out of 10, when I go into those small organizations you're asking me about, I find CEOs who have taken all the responsibility upon themselves. They're freaked out, because they believe they have to come up with all the answers. But that's what leads to failure, especially in this type of economic environment. People just don't understand that you do not have to take all the problems on yourself. Nobody is smart enough to take on a crisis like this one all alone. But people have been taught that it's the job of a CEO to have the answers.
What should CEOs be thinking about if they want to emerge from the crisis stronger than when it began?
If your sales are down and you're losing money, you're crazy not to be investing in repositioning. You have underutilized capacity. People are standing around. Don't lay them off. Have them come up with new products, new ideas, new services, new ways of doing things. Maybe you find something new to do with your underutilized capacity. Maybe you can change your products or go into different markets. That's how we got into making engines for pumping natural gas. Our automotive people were building engines for cars. Someone noticed that they could be refitted for other uses. Natural-gas pumping equipment looked promising, given the stricter emissions standards in California. They did the research, made some adjustments, built a prototype, worked out the quality procedures, and found customers. Each step required an investment. In a down period, while you may not have cash to invest, you do have excess people capacity. Most companies reduce it by having a layoff. That's what I call cutting to the bone. You wind up weaker as a result.
SRC is an employee-owned business. How important was employee ownership to doing all this?
That's a great question, but it's probably a question that has to be answered by the employee owners, not me. Personally, I don't think we could ever have come this far if I owned 100 percent of the company. I know myself; I couldn't have handled all that wealth. I would have felt guilty. That's not the person I am and not the person I want to be. I just believed from the very beginning that the employees create the value.
You have often spoken about what you call the company's contingent liability to its employee owners. Eventually, they will want to cash in their stock, and the company will have to come up with the cash to pay them. Your awareness of that contingent liability has driven a lot of the innovation, hasn't it?
I think that is the best-kept secret of running a successful company. Knowing we have to cover the contingent liabilities pushed us to find answers. If your company is publicly owned, you don't have that pressure, because there's a market for the stock. When you're privately owned, you definitely work in a different world.
Is that true only of employee-owned companies?
No, I think it applies to a lot of privately held companies, especially ones owned by families. It's different in companies founded by people who've already decided they're going to run it for five years and sell it. Granted, a lot of people tell themselves, "When push comes to shove, I can always sell the company." They don't think about how they're going to feel when they find out their employees don't want them to sell. You design a culture where people work 40 hours a week, make friends, raise kids, become members of a community. It's very hard to let go of it. But if you want to keep it, you have to be willing to ask yourself, "What are our vulnerabilities, and how can we address them?" I will say this: We did not walk away from that question. Our people had the courage to come up with answers. That was the beginning of creating the subsidiaries, which became our vehicles for innovation. They brought out the entrepreneurship in us. And we still have some trapdoors left that we haven't used.
What do you mean?
Well, 20 years ago, we bought a big piece of property here in Springfield for $250,000. Its value increased to about $4 million, but it's still on our books at the purchase price. We could sell it if we needed cash. We also helped start a bank that eventually was sold. The stock is on our books at less than $500,000, but it's worth $3.4 million.
Is there a downside to paranoia? Some people might say you miss opportunities if you are always worrying that something could come along and whack you.
I'd say you're a fool if you know you're going to get whacked and don't do something about it.
You actually enjoy working in an environment like this one, don't you? I can hear it in your voice.
I think that it's really, really hard to win with a lead. I like coming from behind. And we're all coming from behind right now. An economy like this one creates opportunities. You bring in something new, but you don't let go of what you had before. When the economy comes back, you get a twofer. In the long run, it creates more jobs and more security.
Why do you prefer coming from behind? Is it the challenge?
I think there's a sense of satisfaction when, regardless of how bleak the situation is, you find people succeeding. It gives you inspiration to see them going the extra mile. It gives you hope. In order to be courageous, you need to see things happening that generate hope. There's a lot of bad things going on, and we're totally influenced by the media, which tell us all about them. It's great to see people fighting back.
