Roadmap for Growth

They had some financial backing from Levering, who built Crawford Electric Supply into one of Texas’ larger distributors before selling it to Sonepar in 2007, and former Major League Baseball All-Star Andy Pettitte. And they had some sage advice from Joe Jones, a legendary Texas distribution executive who sits on the Lonestar board of directors. With these resources, Metzler, Vaughn, Clay and the Lonestar team developed a package of project management, logistical support, education and lighting design services to help electrical contractors win more commercial lighting projects.

Lonestar’s executive team says some of their initial ideas for growing the business didn’t pan out because they had neglected an important element in their planning process — asking customers what they needed from a distributor and what types of products and services would differentiate from the many national, regional and local electrical distributors already serving the Texas market.

As Jason Vaughn explains it, “We realized early on that we might not get a gear line and that it would put us at a competitive disadvantage. We created a think tank group to come up with ideas to add value to contractors to differentiate ourselves. We did the big meetings with whiteboard ideas, but when we went to contractors and told them what we were going to do for them, they said, ‘We don’t need that.’ And we said ‘Uh-oh, that’s not good.’

“Somebody said, ‘Why don’t we ask the contractors what they want us to do?’ We asked the basic question: ‘Mr. Customer, what is it that you would like distribution to do for you?’”

“We went back to the whiteboard and figured out what we could do profitably,” says Metzler. “We developed strategies around what the customers asked us to do. It’s been a game changer for us. Along with hiring great people, that’s the reason we have been able to grow so fast.”

Vaughn and Metzler said the Lonestar team and the sales veterans with strong contractor relationships that they hired met face-to-face with owners of Texas electrical contractors and asked them several basic questions:

•  What’s costly for you?

•  What’s critical to you?

•  How can we add value to your business, not only financially but also from a time-constraint position?

•  What can we do to make your business better?

•  How can I help you save money?

•  How can I help you build your jobs more effectively?

MAKING CUSTOMER LOOK LIKE LIGHTING WIZARDS

Lonestar Electric Supply’s Lighting Controls Division exemplifies its strategy of listening to customers talk about their basic business needs and then providing a solution to profitably meet those needs by staffing the solution with the right people. In the case of lighting, customers needed help learning about new green building codes that govern which products are required, designing lighting jobs, and then pulling together all of the products and delivering those products when and where they are needed.

Training. Many of Lonestar Electric Supply’s customers are smaller electrical contractors who aren’t familiar with how new building codes determine which lighting products are installed. For example, the 2015 International Energy Conservation Code (IECC 2015) has strict lighting power allowances and requirements to shut off commercial lighting when not in use, and the company trains customers on this important code. Says Jason Vaughn, “With our Lighting Controls division, we are trying to make them look very smart in front of their customers. We are educating them on how they can act like a much larger contractor. There are a lot of new codes in Texas. Blueprints will just say, ‘Must meet IECC 2015,’ but they don’t know what that means. Contractors give us the plans, and we will say, ‘If you do this and this, you will be compliant.’ Our team is known as the resident expert on this, to the point where we have even taught the inspectors on it. The more we can educate electrical contractors to work smarter, the better quality of life they have to do other things. It’s a big offering for us.”

Design. Lonestar Electric Supply has built out a value-added service that you don’t see very often with distributors — lighting design. It may seem like offering lighting design would put the company in competition with the contractors or lighting reps who also do design, but Metzler and Vaughn said their contractor customers and lighting reps are glad to hand over the design aspect of lighting jobs when they don’t have the bandwidth to do it themselves.

Vaughn says Lonestar Electric Supply acts as a consultant for electrical contractors. “The overflow they can push to us. They say, ‘Hey, I need you to design this job to be IECC 2015 -compliant.’ We can turn that job around quickly to meet the small business owner’s expectations. The contractor’s customers then think he is really brilliant. It’s all investments that we continue to innovate and offer, in hope that they help build long-time relationships with customers.”

Jeff Metzler says the design service ties into the company’s mission of making life easier and more enjoyable for its customers, not only on the job-site, but also outside of work, too. “When you are an independent startup and don’t have a gear line and some other key franchises, and when you are not a member of a buying group, you need to impact the customer’s life, and not just have a better price,” he explains. “We are a low-cost producer and must impact the customer’s life, not just his electrical life. If we can do that, maybe he will remember and be loyal because we are making a difference in their world.

“We will not cross any boundaries. We met with all the rep owners and told them if we are doing something they are making a living doing, we will stop it. We are the distributor, and by definition, we will do everything the customer does not want to do, and everything the manufacturer does not want to do. That’s how distribution was invented. The distributor was created to do everything these two guys did not want to do. Our value proposition is in the middle of the food chain. So, if we are crossing boundaries, we will pull back.”

Logistics. The logistical element of a typical lighting job is often complicated by some unique shipping challenges. Lighting fixtures are often shipped by manufacturers on a part-by-part basis in dozens of different boxes, and electrical contractors must assign someone on the job-site — often at hefty wage rates that can hit $50 per hour in the Texas market — to unpack the boxes, inspect for damages and piece together the fixtures.

Lonestar Electric Supply developed a customized cloud-based system to track fixture shipments that offers real-time mobile access for both employees and customers, and an innovative logistical support system where it brings these shipments into a special logistics warehouse and a dedicated crew inspects all products for damage, labels all shipping boxes with special job and location codes, and then holds the products for the job until the contractor needs them on the job site.

Explains Vaughn, “One of the things that bubbled up during our think tanking with contractors is on-site management of materials for projects, particularly lighting fixtures and gear. A contractor on larger jobs typically has a material handler. That comes with a fee — labor costs. Typically, they release a job and maybe 19 pallets show up, and they are at the freight elevator trying to manage an 18-wheeler and trying to manage how to get the load up to the floors. In that process, stuff is damaged and stuff is lost. It’s a huge burden of time.

“We will bring that whole project in our building. That same 18-wheeler comes to our receiving dock. We receive the material and inspect for damage. So, we know immediately if it’s damaged, not five or six, eight or nine months away when the fire inspector is on the floor. For a 30-story building we may get 62 pallets. We break it up so all the components are in one pallet. All the fixture parts they need to install are right there. The old way, they might have to dig through all of those pallets to find an end plate.

“We break down those pallets and put unique identifiers on every box. We delineate between the parts of the fixture — the can, trim, the LED module, etc. In the project area of our warehouse, we store that material by location just like it’s a stock item. Our ERP system tracks the ins and outs of that just like it was a stock item. If someone orders 100 Type ‘A’ fixtures, when that fixture comes in, it gets inspected, a sticker is put on every box and that box is put in a location and it’s identified in the system that way.

“A project manager can release it just as if it were a stock item. A ticket prints just like it was a stock item. In this process, we can take a huge $1 million lighting job and it looks like a stock item to our contractor. In some cases, we have contractors who say, ‘We are going to install Level ‘A,’ and I need 10 ‘As,’ 10 ‘Bs,’ and I need them at 3 a.m., because that is when I have the elevator. And by the way I need the switches and the occupancy sensors.’

“That is a normal course of business now. We will shrink-wrap what is needed. Every box will have a job name and floor level if they need it. As customers have gotten used to it, they have requested even more innovation. They might say, ‘Can you get this up to the 22nd floor, and get it in this area?’

We go through their safety training and we get authorized to be on the job-site. Their $50-an-hour electrician does not have to waste an hour. He may be up on a ladder wiring a fixture and he says, ‘Just put it there.’ We have established a value proposition that saves them tangible cost savings.”

Vaughn says an additional benefit of this system is that the electrical contractor, general contractor or anyone else working on that lighting job can visit Lonestar’s logistics facility and see the lighting products for the job. “They will send their general contractor by, or they may need to take pictures and at any time they can say for example, ‘I am with XYZ Electric. Show me the fixtures for Texas Children’s Hospital.’ And they can go to the computer, print out a materials list and walk around the warehouse to see the fixtures. It’s all bonded by the insurance company. It’s their material.”

One of the side benefits of this system customers quickly saw is that Lonestar could not only stage lighting products in their dedicated logistics facility, but also switchgear, even though they don’t have a switchgear line. Metzler and Vaughn said when customers need to have switchgear available locally for a job but aren’t ready for it yet on the job-site, electrical contractors will actually tell other electrical distributors to have the switchgear shipped to the Lonestar logistics facility, and Lonestar will deliver it to the job-site at the proper time in the construction process.

Metzler says the company provides this package of services at no additional cost. “It’s in our value proposition, in our price,” he says. “We have been able to get that done and remain profitable. It helps that we have three people in our corporate office. We have a lot less corporate overhead. We like to think we are only spending money on things customers want. If there is no value to the customer, why spend money on it?”

ALL WITHOUT A SWITCHGEAR LINE

This brings us to one of the more amazing parts of Lonestar Electric Supply’s growth story. The company expects 2019 sales of $240 million — all without having a switchgear line. When you figure switchgear accounts for an estimated 8% of distributors sales according to EW data from Top 200 distributors, it’s interesting to think how much bigger Lonestar could be if it was also selling switchgear.

The company doesn’t have a switchgear line because of what we can respectively report is “political pressure” applied by some of Lonestar’s competitors on leading switchgear manufacturers. Metzler says other distributors are applying the same pressure on IMARK and AD to keep the company out of the buying groups. Metzler would love to have a switchgear line and says it would be an important part of Lonestar’s product offering. But because the switchgear business is mostly direct ship, a distributor’s role is different with switchgear than with other products. “The manufacturer’s sales engineer does it all,” he says. “The manufacturer is adding tremendous value because the technology is amazing. The distributor handles paperwork.”

In its early days, Lonestar Electric Supply also had some challenges in getting access to product lines in some other areas (poke-throughs are one example), and Metzler says the company is extremely loyal to the electrical manufacturers who took a chance on Lonestar in its early days.

THE PEOPLE PART OF THE EQUATION

Metzler, Vaughn and Clay are proud of the employee teams they have built over the last few years and agree a big reason they can attract good employees is the word on the street is that Lonestar Electric Supply is a good company to work for because it has a company culture that focuses on independence and lifestyle, while giving employees a voice in the decision making process. 

They say that as an independent electrical distributor, Lonestar Electric Supply is more nimble than large regional and national chains and can push much of the decision-making right to the salespeople on the front line so they can react fast to customer demands. “We hire the best people in the market, says Vaughn. “‘A’ players want to be around ‘A’ players. Because of our autonomy, we don’t lose people. We are very protective of our culture.

“I was fortunate to work at a very good national chain. The difference to me is that we are much more nimble and closer to the customer, closer to our people. It’s like a family. It’s more like independent owners dealing with independent owners, which is a huge value proposition for us. The guys making the decisions can deal with the guys making the decisions without a whole lot of middle decision makers.”

Metzler says the company’s future growth track is hard to forecast. He, Vaughn and Clay recently developed some short-term forecasts where they projected $20 million a month. But the very next month they hit $23 million. “We are doing more than what we expected and that can be hard to resource,” he says. “We need to stay nimble enough to react quickly to whatever curveballs we see. We don’t really need big, official corporate meetings. We are all best friends and in a five-minute conference call the whole state is aligned.”    

Sidebar: How the Texas Market Helps Fuel Lonestar Electric Supply's Growth

Lonestar Electric Supply has some geographic blessings not available to electrical distributors in many other metropolitan areas, as its locations in the Houston, Dallas-Fort-Worth, San Antonio and Austin service some of the fastest-growing metros in the entire country.

While the Houston market remains a little soft because of the city’s energy market and because its office vacancy rate is by some measures the highest in the nation, the Houston branch that Jason Vaughn manages will do $90 million this year. The company recently bought a new 105,000-sq-ft branch to service that metro.

Neil Clay manages the company’s branches in Dallas and Fort Worth and will be soon moving into a new 136,000-sq-ft facility there. He expects to hit $110 million in sales in Dallas this year, and says there’s been quite a few new corporate headquarters being built there by large companies, including PGA Golf and American Airlines.  He says there’s a ton of commercial construction throughout the Dallas-Fort Worth Metroplex. Clay says his Dallas contractors really like Lonestar’s package of logistical and lighting design services. “They recognize the value add,” he says. “We basically turned into a construction manager assisting the customers.”

The Austin and San Antonio branches are also growing fast. The Austin location managed by Gene Benner is seeing lots of action with construction of new corporate office complexes, and the San Antonio branch managed by Scott Shaver is enjoying a steady flow of general commercial business, commercial sales related to the energy business in the nearby Eagle-Ford shale region, and projects at the area’s military bases. The company’s 56,000-sq-ft branch there just opened in March and already has more than 28 employees.

After just opening in May of last year, the Austin branch will hit $50 million in revenue in 2020, based on its current backlog. Says Metzler, “Austin has been crazy with all the work. I would tell you everybody is winning in Austin. I guess we took some share, but it’s such a hot market and it will be for a couple years. It will max out, just like the oil companies in 2013, 2014 and 2015. All the oil companies were building then and now they are done. That’s what will happen in Austin. We are in the middle of a good two-year run there.”