Somewhere deep in the belly of every electrical supply business burns the fire of entrepreneurism. But in most companies, the flames warm few except the owners, family members and senior managers who share in profits.
In contrast, Winlectric fuels these flames by offering local ownership stakes to market-savvy entrepreneurs and providing them with a centralized package of business services including accounting, financial and computer services so they can focus on what they do best — using their contacts with electrical contractors and other customers working on residential and light-commercial construction projects to drive sales.
The concept appears to be working. When Electrical Wholesaling magazine first profiled the 35-year-old Winlectric in 1993, the company was No. 88 on the magazine's listing of the industry's largest distributors, with 29 locations. Today, Winlectric is No. 50 on the EW Top 200, with $94.2 million in sales, and 47 locations in 16 states.
There's truly no other electrical distributor that operates quite like Winlectric. The company is part of Dayton, Ohio-based Winholesale, which provides a package of business services and local ownership stakes to 429 distributors in the electrical, plumbing and heating, air conditioning, industrial PVF, fasteners, water works and electronics distribution channels. Together, the Winholesale family of companies produces annual revenues of $1.1 billion. These companies operate under the following names: Winlectric, Winnelson (plumbing); Winair (heating/air conditioning), Windustrial (industrial PVF), Winwater Works (water equipment for large municipal and other public water systems), Winfastener (fasteners) and Wintronic (electronics)
The Winnelson companies are the largest segment of Winholesale family, producing 56 percent of revenues; Winlectric's share of the pie is 10 percent (see pie chart on page 22).
While it may seem difficult to provide the same basic services to a family of such diverse distribution companies, Winholesale has fine-tuned its package of business tools over the years to incorporate proven principles of distribution and constant, real-world feedback from 400-plus distributors.
At the core of these business tools are 12 specific business ratios that Winlectric's president, Steve Ford, says work for all Winholesale companies. These ratios focus on return on investment, expense control, asset management, growth factors and financial health.
“What makes all companies equal is a ratio sheet,” says Ford. “That ratio sheet has financial parameters measured and compared against all other people running Winlectric companies. Those parameters are the scorecard where they can compare themselves to their peers.”
Over the years, these basic ratios have produced a solid 20 percent return on investment for the local company presidents, who rely on the ratios to guide investment in inventory, personnel and capital equipment. Indeed, while many of the Winlectric local presidents laugh about how they started their companies with little more than a few milk crates for a desk, they are dead serious about the return on investment they have earned on their stakes in their companies. Most Winlectric presidents recover their initial investments — which can be as little as $20,000 to $30,000, depending on the size of company they want to grow — in two years or less.
Bob Massey, president, Carterville Winlectric, Carterville, Ill., took a second mortgage on his house after he came to Winlectric from a cross-town competitor. “I went to Winlectric in April 1992, and by October 1994, I got the company in the black. Within 16 months, I got my investment back. That boosted my ego. For just a little bit of money, I have a $1.5 million company. I couldn't get this opportunity anywhere else.”
Harry Miller, president of Casper Winlectric, Casper, Wyo., has a similar story to tell. Miller worked for a national distributor, but knew he wouldn't get the taste of ownership there. After talking with a friend who worked for Winlectric and doing some library research on the company, he became interested in buying into one of the company's operations.
“We wanted a piece of the pie, so we scrounged up as much money as we could, and ended up being able to buy some of the company,” says Miller. “We were profitable our second month. We didn't have much more than a phone and a milk crate for a desk, but we built it up. We had material on pallets on the floor for a while, but started getting some shelving. It wasn't long before we had a pretty nice inventory.
“We had the relationships with customers because we had been doing counter work and inside sales for seven or eight years, and that helped because we had the relationships established. Now I am running Casper and the other two guys are running other Winlectrics.”
Wyoming and the Denver-Fort Collins, Colo., growth corridor is a pocket of strength that Winlectric would like to duplicate in many other markets. The company prefers to get established in a geographic area and then build on that success through start-ups or acquisitions.
Winlectric locations tend to be in small cities with a population of less than 50,000, in rural areas, and on the fringes of large metropolitan areas. The company's locations tend to be about 6,000 square feet in size and have six to eight employees. With its focus on light commercial and residential work, the company doesn't usually attempt to compete directly with established “downtown distributors” that focus on large commercial projects and industrial work.
“We are proud of what we can do, but we are cognizant of what we cannot do,” says Steve Ford.
Gary Reese, president, Lincoln Winlectric, Lincoln, Neb., said when Winlectric opened a location on the south side of Lincoln several years back, cross-town rivals that relied on downtown construction work and the construction and maintenance needs of the main campus of the University of Nebraska thought they were crazy. It turns out Winlectric's timing and market insight were on the mark. Reese says the company knew many of the area's electrical contractors lived in that part of town and were glad to have a nearby distributor where they could pick up supplies on the way to construction projects in downtown Lincoln. Competitors also guessed wrong on new construction opportunities near the Winlectric location, and today the roads near the thriving industrial park in which it's located are lined with the strip malls and light-commercial projects that fit Winlectric's business profile.
Winlectric will often start up a company in a market where other nonelectrical Winholesale companies are already established. The new Winlectric sometimes joins two or three other Winholesale companies that have the complementary products such as plumbing or heating and air conditioning that would be installed in a housing development or small commercial or retail project. Occasionally, these distributorships occupy the same or adjacent buildings and share a common yard and parking in what's called a “Win Plaza.” They still operate independently, though, and have separate entrances, offices and warehouses.
Winlectric relies on local owners with market expertise for most of its growth. Steve Ford says Winlectric local owners buy into their companies at a fraction of what it would cost someone to start up an electrical supply house on their own. Ford believes it costs most start-up distributors ten times more than a Winlectric start-up because they must buy their own computer system, hire business staff and ramp up other business services that Winlectric provides centrally.
“I think it would cost someone $300,000 to start up on their own, with a lot more risk,” he says. “If someone invests $300,000, it takes a lot of profit to get a return. Because the investment is small with Winlectric, it's not uncommon for a well-run company to get a 100 percent return in a couple of years.”
Winlectric start-ups tend to be small. For instance, to get 30 percent ownership in a new Winlectric operation with a $2 million sales goal, an individual will have to come up with about $35,000, says Ford. An individual's investment will vary, but it has to be enough to be “meaningful,” he says.
“We want a meaningful investment, and we want to know where that investment is coming from,” says Ford. “For many people, the money comes from a second mortgage on a home.”
Ford says the basic investment depends on the size of company the person wants, and the receivables and inventory needed to carry the size. Those three barometers determine the initial investment, he says. “Capital is like the fuel for a trip. In the outside world, it would be a multiple of 10. We already have a relationship with the bank. Other distributors must hire people for the back office and buy a computer system that might cost $100,000.”
These local owners usually share the investment of starting up a new business with a “sponsor company” in a nearby market, as well as with Winlectric (corporate). The presidents of the Winlectric sponsor companies are often “area coordinators,” who want to develop clusters of Winlectric locations in a given geographic area. Prospective owners still must secure bank credit and perhaps additional financing, but they have the advantage of going to a local bank familiar with the company through the sponsoring company. The bank may also be working with other Winholesale companies in the area.
Lincoln Winlectric's Gary Reese, a former electrical contractor, says the personal financial stake he has in his business makes all the difference in the world. Along with buying into and taking over the Lincoln Winlectric location, as one of Winlectric's area coordinators, Reese has helped sponsor locations in Kearney, Neb.; Omaha, Neb.; and Elk River, Minn. He wants to continue opening other companies to give others that same ownership opportunity. “To have your own hard-earned money in there, you take it a lot more seriously than if it was someone else's,” he says. “Plus, the pride you take. It doesn't belong to someone else. It partly belongs to you.”
Along with the focus on local ownership, what really differentiates Winlectric from other electrical supply houses are the centralized services its local companies utilize through Dapsco Inc. and Distro Inc., two service companies operating under the Winholesale umbrella for all of its locally owned companies.
Dapsco Inc. is the business services side of the organization and provides Winholesale companies with accounting, computer hardware, software design and support, financial services, communication services and human resources assistance. Dapsco developed the Wise computer system used by all Winholesale companies. Wise helps these companies manage their inventories, customers and receivables. It also has a transparent connection to Dapsco's EDI system and software-driven performance tools.
Distro offers distribution center services for all Winholesale companies by stocking and distributing products through four regional distribution centers in Franklin, Ohio; North Haven, Conn.; Denver; and Phoenix; and a commodities-buying office in St. Louis.
One additional business service that's evolving at Winlectric is volume-purchasing. Vendor relationships are a tricky balancing act for Winlectric, which wants its local companies to operate as independently as possible and gives them freedom to select the vendors that customers prefer in their local markets. However, the company also wants to utilize the purchasing clout that comes with being a 47-location company with nearly $100 million in sales.
“It's a fine line for our organization between mandating lines and still keeping independence,” says Steve Ford. “It progresses toward certain lines. We have nearly 85 percent support in certain areas. At this point we haven't mandated.”
The company will continue to refine these centralized distribution services to fuel its aggressive growth plans for the future. In the past ten years, the company has refined the computer services it offers its local companies and added a broader selection of management tools and employee training. Winholesale is also developing some state-of-the-art online promotional tools. For instance, the plumbing companies operating under the Winnelson banner can offer their customers an online tour of their showrooms. When customers want more information on specific fixtures in the video, they just click on those fixtures to access downloadable spec sheets.
Steve Ford would like to double the size of Winlectric in the next six years, and thinks Winlectric can eventually be a $500 million company.
“I don't think there is any limitation to the number of communities that needs an independent distributor,” he says. “We could have 20 more locations if we find the right 20 people. Those 20 people are hard to find. We need to find trailblazers to develop new pockets of geographic strength.”
Because it's tough to find the right personnel, Ford believes the company will have to consider acquisitions, which have not been a big part of the company's growth in the past. While start-ups by individuals with entrepreneurial spirit and solid market expertise will continue to be the company's primary avenue of growth, Ford can see the day when acquisitions will make up 30 percent of its new locations.
“Internal growth probably won't do it for us,” he says.
The company is moving into the acquisition game carefully because Ford does not want to get burned by deals that do not fit into the company's entrepreneurial culture. He believes it can take up to five years to determine if an acquisition is a success.
“Acquisitions are something that we are looking at, but in my opinion they are tremendously overpriced. I am sitting across the table from someone asking them to invest their life savings. If we make a bad financial decision and overpay, it could wipe out his life savings. That's something I would have trouble with. So we walk away from more than we should, but we are making sure it's a good purchase that will provide the opportunity for that person to succeed.”
To continue growing, it all comes down to getting the right people, says Lincoln Winlectric's Gary Reese, who recently hired a graduate of the industrial distribution program at the University of Nebraska at Kearney as an investment in the company's future.
“We hired him as a potential future company president,” says Reese. “He is starting in the warehouse, pulling orders and checking stock. At my expense he is working with one of our contractors for a month or so, in addition to his duties here, to learn the business. People are the hard part. That's an advantage our competitors may have. They have a pool of people. We have to do that locally.”
Ford, who worked for a CPA firm that had Winholesale as an account before joining Winholesale in 1992, says one of the biggest pleasures in his job is to see a person who has bought into the Winlectric concept build a successful company. Since becoming president of Winlectric in 1999, Ford has relied a lot on the company's many mentors and their years of experience in the distribution industry for guidance. He says the company's entrepreneurial culture offers local owners a lot of freedom.
“You can have an impact on people here. They let you run here, and you have an opportunity to fail. But this isn't for everybody. It's tough, hard work. It's your own money. If you are looking for a big brother to take care of your problems, it's not for you.
“In this consolidating world, this is an option. There is a place for us in every market, now and in 10 years. There are markets where big distributors do things that we can't, and I think we can do things that they can't.”
“We wanted a piece of the pie. I was with a national company for a while. You could get to be a manager, but there were never any ownership opportunities.”
“I used to be the guy driving the truck to the supply house. I would see the guy standing behind the counter and he was in his t-shirt and it was 20 below zero outside. It looked real cushy to me. I was all bundled up trying to dig a ditch in the ice. I thought, ‘I would like that guy's job.’”
Fort Collins Winlectric
Fort Collins, Colo.
“I have to have the challenge. Complacency is not something that excites me. I enjoy training people. I enjoy fixing things.”
“My goal is to continue to open other companies and give people the opportunity that was given me.”
“I have been with the organization for 16 years… I would like to get a couple of companies going.”
“It's amazing to me the opportunities out there. You can sell and do the things you like to do.”
Poplar Bluff Winlectric
Poplar Bluff, Mo.
“For just a little bit of money, I have a $1.5 million company. I couldn't get this opportunity from anyone else.”
“I was a lighting rep, and opened up in Hinesville in 1994.”
“What appealed to me about the organization is that they were willing to invest in me.”
A LITTLE BIT OF WINLECTRIC HISTORY
Winholesale and Winlectric trace their roots back to a 1958 fire at the Pueblo, Col., branch of N.O. Nelson, a plumbing distributor. N.O. Nelson had decided not to rebuild the branch, but Dick Schiewetz, Winwholesale's founding father, helped a group of employees buy the assets with the assistance of his company, Primus Inc., Dayton, Ohio, a firm that invested in distributors.
Primus took an ownership stake in the company and provided some centralized management services to the employees so they could rebuild the business. Schiewetz used this same basic concept with dozens of other companies in a variety of distribution industries that now make up the Winholesale family.
Winholesale's core operating strategy hasn't changed over the years, and neither has its desire to focus entirely on supporting the local owners. The senior management team for Winlectric and Winwholesale at the Dayton, Ohio, headquarters includes distribution industry veterans like Richard Schwartz, chairman of the board of Winholesale; Jack Osenbaugh, president, Winwholesale; Steve Ford, Winlectric president; and the presidents of Winnelson, Winair, Windustrial, Winwater Works, Winfastener and Wintronic. They prefer to stay out of the spotlight and devote their efforts to supporting the growth of the local businesses.