Our guest speaker in Midwest Entrepreneurs class last Thursday was Mr. Dick Francis, who owns and operates GFI Metal Treating in Rockford, IL (http://gfimetaltreating.com/index.php).

GFI specializes in a variety of high-quality metal heat-treating services performed per exact customer specifications. Clients—including the likes of Caterpillar, John Deere, and major aircraft parts and gun manufacturing companies—come to GFI with key component parts to their products to be hardened and finished. Many of these metal parts cost thousands—if not tens of thousands—of dollars to develop and produce. If these parts are not processed correctly by GFI, resultant failure of client products can potentially cost GFI’s clients millions of dollars (due to product recalls and, potentially, serious injuries or deaths). As a result, GFI must consistently be highly reliable in the services it performs; to not be highly reliable in consistent fashion entails certain business ruin due to client departure, negative WOM communication, and/or lawsuits.

Mr. Francis, who was accompanied by his wife Denise, graduated from Monmouth College in 1977 with a degree in Biology. He also played football for the Fighting Scots under the tutelage of legendary Coach Bill Reichow (http://www.monmouthscots.com/hof.aspx?hof=82&path=&kiosk=).

What we were privileged to hear yesterday was a truly remarkable entrepreneurial story of grit, unrelenting determination, teamwork, and heart—and trial-and-error and adaptation—from a truly remarkable and rightfully proud entrepreneur.

And it was clear to the class that it was here at Monmouth College—on the football field and in the classroom—where these qualities were instilled in Dick Francis.

Dick Francis bought GFI Metal Treating in June of 2000. This acquisition was in part due to Dick’s having grown tired of the corporate world (and the resultant desire to be his own boss). It was also done in part as a favor to the widow of a dear friend—the previous owner of the company—who had recently passed away. When he bought the heavy industrial, business-to-business (B2B) firm, it was a run out of a 10,000 square-foot garage full of out dated and dilapidated equipment. The company had annual sales of about $250,000 and employed 5 people. It was also literally on the verge of bankruptcy; about “two weeks away,” according to Mr. Francis.

Today, GFI is an ISO Certified, AS 9100 Compliant firm operating out of a state-of-the-art 42,000 square-foot building. It had nearly $2 million in sales last year and employs 15. GFI boasts as its major customers—and partners—the likes of Caterpillar and John Deere.

But this amazing transformation did not occur overnight; and not without considerable hardship.

Prior to taking the reins of GFI in 2000, Mr. Francis had formulated a detailed business plan to turn the company around. As he informed the class yesterday, the plan “was handy for the first ten minutes.” You see, his plan, while necessary to secure the bank financing needed to acquire the company, was based on “selling price and volume”; something that many—typically larger and more financially endowed—competitors were already doing. So, initially, GFI made a fair number of sales but they were not profitable sales and the company did little to establish a meaningful niche for itself in the metal treating industry.

This went on for about 18 months until, according to Dick Francis, he—with his wife Denise standing firmly behind him at all times—finally “figured it out.”

The strategic focus of GFI began to shift from the commonplace “low price and high volume” to a unique and more meaningful—and customer-valued—emphasis on high service and high quality customized to the exact specifications and needs of larger and better customers. Also, under Francis’ newly enlightened direction, the firm focused on building and maintaining mutually beneficial relationships with its customers; with a view toward building trust and becoming a strategic partner with the customer.

This shift in strategic focus sounds great but it is not easy to pull off in practice; and it does not occur quickly. One of the hard facts that Francis had to come to grips with in this regard was that he needed to “let go” of some of the firm’s existing customers—namely Chrysler—that were both focused on low price and were, in his words, “too demanding.” In fact, it is just in the last year or so that Francis feels that GFI’s goals in this regard have been achieved; mainly as evidenced in the company’s ongoing and growing partnership with Peoria-based—and quality-focused/obsessed—Caterpillar.

Another major hurdle that GFI has worked hard to—slowly but surely—overcome is in the area of technology. As previously noted, when Francis purchased the company in mid 2000, it was essentially a large garage full of dilapidated equipment. One of the company’s main pieces of equipment—a furnace used to heat steel—went out and collapsed within weeks of the acquisition. The office was outfitted with IBM Selectric typewriters; electric machines that I personally was replacing with electronic typewriters as an IBM salesperson in the mid-late 1980s.

Today, GFI is state-of-the-art and highly automated in terms of both production and office technology. Dick Francis proudly told the class that he uses a $7,000 Yokogawa Controller production automation system whereas many competitors employ devices costing only about $500. According to Francis, he does this because his customers want the highest quality possible and he is committed to doing whatever needs to be done deliver the desired level of quality.

Similarly, in the office, GFI is also on the cutting edge of technology. This is manifest most importantly in the area of the company’s customized, self-created order processing and database management software systems. Francis proudly ran the class through several of the firm’s detailed spreadsheets and invoices (which contain an amazing wealth of order and work detail designed to track everything the company does for each customer on each job). Obviously, countless hours have gone into this. Another indication of GFI’s obsession with quality and customer satisfaction!

I could go for hours with this… But it all keeps coming back to two pieces of advice that Dick Francis ’77 gave to the Midwest Entrepreneurs class yesterday.

First, in hindsight, Francis told the class: “Don’t buy a business with your heart… use your brain.” Clearly Dick Francis has a big heart; he bought the company largely with his heart when he acquired it in 2000 from the widow of a dear friend and it has taken a lot of heart to turn the floundering company—then two weeks away from bankruptcy hearings—into the success it is today.

Second, as he repeatedly told the class, his motto in the “lean years and hard times” was: “I think I can, I think I can.” Francis said that sooner or later, all entrepreneurs are going to get knocked on their backsides. The key—something he learned as a Fighting Scots football player under  Coach Bill Reichow—is to “Get up, dust yourself off, and never give up.”

So, the moral of the Dick Francis/GFI Story: (1) Don’t do what he did in buying a company with your heart, and (2) Do what he did in displaying a lot of heart in running the company. And never, never give up!!!

Finally, I would be remiss if I failed to mention one additional thing… While the vast majority of our guest speakers this semester have been visibly proud to share their entrepreneurial stories with us, no one has been more visibly–or justifiably–proud than Dick Francis. I believe there are two reasons for this. First, as discussed above, Francis brought the company back from the very edge of ruin/bankruptcy. Second, he was very proud to tell us that his son has become actively involved in the business and will, in fact, be taking over the firm sometime in the near future. A lack of “successful succession within the family” is in fact something that we have heard several other entrepreneurs lament this semester. Dick Francis certainly has a lot to be proud of on this front!

Thank you Dick Francis ’77 for a wonderful learning experience!!

See you all next week.

Regards,

Prof. Gabel

Our guest speaker in Midwest Entrepreneurs class yesterday was Larry Gerdes (of Atlanta-based Gerdes Huff Investments; a venture capital financing services firm).

The perspective on entrepreneurship discussed with the class by Mr. Gerdes can probably be best characterized as “more full spectrum” than any other seen or heard so far this semester. This breadth of perspective is in large part due to Mr. Gerdes’ extensive and broad experience—nearly 40 years of experience—both as an entrepreneur and working with other entrepreneurs.

Mr. Gerdes’ ongoing entrepreneurial odyssey begins in the tiny town of Walnut, IL; roughly two hours northeast of Monmouth. Gerdes grew up in Walnut on a farm. His parents were German immigrants to the United States who spoke little English in the home. He was the youngest of six siblings and the first member of his family to attend college; an “ag” (agricultural) major at the University of Illinois. There, Larry was a walk-on member of the basketball team and, against the wishes of his advisor, took an extraordinary number of business classes. After graduation from the University of Illinois, he earned an MBA (with Finance emphasis) from Indiana University. He then went to work for a bank in Peoria. And that is where his first significant exposure to entrepreneurship occurred.

While Gerdes was employed at the bank in Peoria in the mid 1970s, 1956 Monmouth College graduate Walter Huff—yes, the Huff behind the Huff Athletic Center here on the Monmouth College campus—came in looking for a $1 million loan to advance an entrepreneurial venture involving placing computers in hospitals for the purpose and collecting and automating patient information records. Gerdes arranged the loan—which was as large as the bank could possibly make—and subsequently assisted Huff in securing far larger loans from banks in Chicago and New York.

Gerdes left the bank and formally became a partner in Huff’s entrepreneurial business—HBO & Company—in the late 1970s. After moving the operations of HBO & Company to Atlanta and helping Huff expand the company into a leading medical software and related service provider, the two entrepreneurs took the firm public in 1981. As Gerdes informed the class yesterday, on the day the company went public, 30 of the firm’s 60-some employees “became millionaires” (and he and Huff found a $15 million check in their hands). Ten years later, the company was sold to medical industry giant McKesson for $12 billion. Yes, $12 billion…

Pretty good for the son of German immigrants who grew up on a farm in a tiny rural Illinois town… But there is much, much more to the ongoing entrepreneurial odyssey of Larry Gerdes.

After selling HBO & Company to McKesson, Gerdes and Walter Huff formed their current venture, Gerdes Huff Investments (GHI), in 1991. Shortly after the formation of GHI, the entrepreneurial partners made the initial investment in a venture that ultimately became Transcend Services, Inc.; a medical transcription services firm. Gerdes served as Transcend’s CEO and Chairman of the Board as he and Huff successfully grew the firm to become—yet again—an industry leader. Transcend was sold to larger industry rival Nuance for $300 million in 2012.

To summarize… Larry Gerdes’ entrepreneurial background includes partnering with Walter Huff ’56 to start, grow, and eventually sell-off two highly successful companies in the medical industry. It also includes the partners’ ongoing operations as venture capitalists (investors looking to invest funds into young entrepreneurial firms to facilitate growth and achievement of business potential). It was in this capacity—as a venture capitalist for more than 20 years—that Mr. Gerdes spoke to the Midwest Entrepreneurs class yesterday. The class was the most interactive of the semester and was essentially a question-and-answer session. Below, I recount select highlights of the fascinating “Q & A” session that transpired.

Q: Are venture capitalists aggressive like what we see on (reality TV) shows like Shark Tank?

A: Mr. Gerdes stated that he was not familiar with the show Shark Tank. The student asking the question then informed Gerdes that the show involves aspiring entrepreneurs competitively pitching their business ideas and plans to panels of famous—and very aggressive—“shark” investors (that have included Mark Cuban, comedian Jeff Foxworthy, and Kevin Harrington).

Knowing this, Gerdes explained that venture capitalism has changed significantly in the  last 5-10 years, with the type of investors found on Shark Tank coming—unfortunately in his opinion—to typify the industry. Gerdes explained that at GHI, the goal has always  been to “build companies and make dreams come true.” He stated that a typical arrangement with the entrepreneur is to take somewhere around a 20% equity stake in the firm with a view toward building it then selling off in around 5-7 years. This, according to Gerdes, was the common manner in which venture capitalism used to be practiced. However, he went on to inform the class that the “shark” type of investor portrayed on Shark Tank is the norm today. These investors, according to Gerdes, typically demand majority control of the fledgling firm and will invest only if they believe that the company can be built up and sold—for far higher amounts of money than GHI typically expects to realize—in 2-3 years. GHI, he told the class, continues to operate in the less “shark-like”/traditional manner.

Q: Did you bet on Walter Huff or his business plan?

A: Gerdes immediately responded that “it all depends on the manager’s vision and     leadership.” In other words, sound investments in entrepreneurial ventures should be based more on the person than the plan. Gerdes went on to say that, in the case of Walter Huff, he first listened to his business plan and then did an extensive search—of Peoria-area media and business contacts—into Huff’s background and experience. He found nothing but positives and was very impressed with the young entrepreneur’s vision and character; describing him as the “A-player” type of person that it takes to realize the full potential of great entrepreneurial visions.

Q: How do you know an “A-player” when you see one?

A: Mr. Gerdes referred back to what he had just stated about Walter Huff and then added that “A-players” are people that, “no matter what, always find a way to succeed” and have the rare ability to lead and truly inspire others to achieve their personal entrepreneurial vision and potential. Further, he noted—by way of a real example he has recently been involved with—that the “hardest thing” for the early-stage entrepreneur to do is to part ways with partners and employees that do not have what it takes to realize the full potential of the entrepreneurial vision. This hurdle is caused largely by the fact that the entrepreneur is usually slow to realize—but hit hard by the fact that—working with a venture capitalist means that the entrepreneur is now responsible to less emotionally involved people that know that tough decisions such as this—that entrepreneurs themselves have both never before considered and are likely to be very uncomfortable with—must be made. The point is that once the           entrepreneur brings in outside investors taking some level of equity in the business, they will be held fully and personally responsible to do whatever it takes—however initially uncomfortable—to realize the full potential of the venture. As Gerdes noted, it usually does take very long for the entrepreneur to realize and readily admit that these difficult decisions were absolutely necessary for the long-term good of the company.

Q: How many (entrepreneurial) proposals do you see each year?

A: Mr. Gerdes stated he typically sees about 2-3 proposals each week (which would thus translate to around 150 per year). Out of this, only about 20-30 entrepreneurial projects are “taken on” each year. Out of these, according to Gerdes, “maybe 1 of 7”—that means 3-5 of the projects taken on each year—eventually achieves objectives set by he and his partner Walter Huff ’56. Gerdes further stated that GHI typically realizes around a 20-25% return on investment each year.

What I personally have taken away most vividly from Larry Gerdes’ visit to Midwest Entrepreneurs class yesterday is that (1) we were very fortunate indeed to have someone with his level and breadth of entrepreneurial experience and expertise share their knowledge with us, and (2) that venture capitalism is—just as is being an entrepreneur—a highly risky undertaking. Further, what I heard yesterday underscores what I already knew about venture capitalism as a potential source of funding for entrepreneurs; it is not for everyone (and is most suitable for entrepreneurs working with very high-potential but risky ideas and ventures that, for a variety of reasons, make more traditional bank and other loans nearly impossible to secure).

In parting, I should mention that, in addition to being an entrepreneur and “traditional” venture capitalist,  Larry Gerdes also sits on the Boards of Monmouth College and the Chicago Mercantile Exchange (as well as several other companies and charities). He is also a member of the Dean’s Advisory Council for the Kelley School of Business at Indiana University.

Quite a man from quite humble Midwestern beginnings… I wonder if this is yet another story—among many we have heard in class this semester—of a strong work ethic gained via growing up in the Midwest leading, eventually, to entrepreneurial success. What do you think?

Thank you Mr. Gerdes for a wonderful and insightful learning experience!

See you all next week; Thursday to be exact (due to no class on Tuesday).

Regards,

Prof. Gabel

The Wahl Clipper Corporation was founded in 1919 by entrepreneur Leo J. Wahl in nearby Sterling, IL. Today, Wahl is a leader in the global clipper industry, with its products being used by barbers, stylists, and individual consumers in 165 countries.

As Midwest Entrepreneurs students learned in class yesterday, 2006 Monmouth College graduate Anthony Welty is significantly responsible for the success of Wahl’s products in 162 nations outside of the United States.

In less than seven years, Mr. Welty, a business and public relations major at Monmouth College, has risen to the position of Assistant International Product Manager in Wahl’s Professional Beauty and Barber Division. In this role, Welty is responsible for marketing research, new product development, product pricing, branding, sales support, integrated marketing communications, and other key aspects of Wahl’s international marketing strategy.

The main thing that I took away from Mr. Welty’s presentation yesterday is that while the Wahl Clipper Corporation is now in some ways very different than it was under the original entrepreneurial direction of Leo J. Wahl, it still maintains some of its original entrepreneurial characteristics (due, no doubt, to the fact that the firm is still privately held and [4^th-generation] family run). As discussed below, lingering entrepreneurial characteristics of the company include tight operational control, minimization of debt, an overriding concern for customer satisfaction, and competing for investment resources.

Tight Operational Control

If you are a student in the Midwest Entrepreneurs class or—for some other reason—a frequent reader of this blog, you know well by now that the class is based almost entirely on a series of guest speakers who are local or regional entrepreneurs. You also know well by now that the vast majority of our guest speakers have discussed how they strive to maintain tight, hands-on control of company operations in an effort to ensure that product quality remains at a very high level.

Unlike Wahl, however, most of the companies represented in class this semester are (1) at least relatively small, and (2) service providers. So, it was somewhat surprising—at least at first glance—to hear Anthony Welty discuss Wahl’s ongoing efforts to maintain tight, internal control over its manufacturing operations. After all, we are talking about a global goods manufacturing company here. Should it not be in the best interests of Wahl to contract out the manufacturing of its clippers to some able-bodied firm in China or another low-wage-labor nation? Wahl’s competitors have done this. Would not Wahl HAVE to do this to remain competitive?

In a word—according to Anthony Welty—NO. In fact, at Wahl’s Sterling, IL headquarters, the idea of contracting out the manufacturing of the firm’s products is “a taboo subject.” The attitude at Wahl has always been and remains: “If we are going to sell it, we are going to make it.” Clearly, Wahl believes that any cost savings—and subsequent price advantages—to be gained by having a third-party do manufacturing are likely to be negated by a reduction in product quality.

We have heard this same reasoning all semester from entrepreneurs running small service firms (that are typically highly customized to the needs, wants, and expectations of individual customers).

We have now heard it from Wahl; a goods company employing over 2,000 people in the course of doing business in 165 countries. Surprising? Not really when you understand that (1) the entrepreneurial spirit of Leo J. Wahl still drives the company today, and (2) if you are a high-quality producer and you want something done absolutely right, you should probably not relinquish control of it to someone else.

Minimization of Debt

Our second guest speaker this semester was extraordinarily successful local entrepreneur John Twomey (see http://blogs.monm.edu/entrepreneurism/2013/02/01/what-entrepreneurism-can-and-should-be/). In the blog entry for Mr. Twomey’s visit, I stated that “Business success is predicated largely on being ‘ready to meet opportunity’” and that “Being ready to make the most of major opportunities when they come your way…” is a function, in large part, as Mr. Twomey put it, of “having your finances in order.”

Again, as seen above with tightly controlling operations so as to maintain high product quality, what holds true for the small entrepreneur also rings true for the entrepreneurially driven global firm.

As Anthony Welty informed students yesterday, Wahl “operates on 0% debt.” The reason for this? Like John Twomey, it is to have cash on hand to take full advantage of opportunities when they—sometimes unexpectedly and with short “windows” of time to act—come your way.

Overriding Concern for Customer Satisfaction

Like all firms represented in class this semester, Anthony Welty clearly articulated the fact that Wahl is very customer-driven. This concern for customers and customer satisfaction manifests itself frequently—often as a key challenge—in the course of Welty’s duties as an international product manager.

Here, Welty spoke about difficulties faced in communicating with and understanding end product users (e.g., barbers and stylists) in the 162 nations that he is responsible for. Compounding the daunting task is the fact that Wahl products typically go through two or three levels of channel intermediaries—wholesalers or retailers who buy and then resell the products—before they reach the final customer.

Welty’s answer to the problem faced is to engage in extensive marketing research. The methodological approach taken is often what is known as ethnographic research wherein the researcher essentially lives in the midst of what they are studying. In Welty’s case, this means travelling the globe to visit barber shops and beauty salons and (1) observing Wahl products in use, and (2) personally interacting with customers—barbers and stylists—who use them. As an example, Welty discussed a 14-day trip to the United Kingdom, France, Germany, and Poland wherein 12 “innovative concepts” about Wahl product usage and consumer behavior emerged from his research efforts.

While I am tempted to say “How else can a global firm keep in touch with and intimately understand its customers?,” I know that many global firms are either unable or unwilling to do not do what it takes to know their customers as does Anthony Welty at Wahl.

Again, remember that Wahl is not your typical “global firm.” It is driven by the entrepreneurial spirit of its founder and it is—like the vast majority of the much smaller companies represented by Midwest Entrepreneurs guest speakers this semester—obsessed with customer satisfaction. In fact, although my notes are weak in this area, I believe Anthony Welty stated yesterday that one of the guiding principles of Wahl is something to the effect that when a company ceases to be focused on customers, it also ceases to be worth working for. I fully agree.

Competing for Investment Resources

This final category of “lingering entrepreneurial characteristics” at the Wahl Clipper Corporation differs from the three previous ones in that it is not something we have frequently heard from our guest speakers this semester (but, ironically and as to be described in further detail soon, it is something we will be hearing a lot about from this Thursday’s scheduled guest).

Anthony Welty explicitly described to Midwest Entrepreneurs students the manner in which he routinely competes for scarce (internal) resources as being highly similar to the manner in which some entrepreneurs compete for (external) funding from venture capitalists (a key means of usually large-scale funding for entrepreneurs unable to secure more traditional bank financing [see: http://www.sba.gov/content/venture-capital-startups-high-growth-technology-companies]).

According to Welty, successful pursuit of resources for new product development projects he directs at Wahl works much as does the process of getting venture capitalists to commit to invest their scarce resources in entrepreneurial ventures. Here, he must develop the idea and business plan and then present it and “sell it”—against an array of competitive alternatives for investment—to his supervisors. Wahl executives, like the most effective of venture capitalists, do not invest in just any idea. They seek to invest scarce resources in those ideas and projects that are most likely to lead to the most attractive rates of return (i.e., ROI/return on investment).

That wraps up another Midwest Entrepreneurs blog entry for yet another amazingly insightful class guest speaker presentation. Thank you Anthony Welty ’06!!

On Thursday, we will be honored to have as our guest speaker Mr. Larry Gerdes, who currently  serves as Chief Executive Officer of Transcend Services (see: http://www.transcendservices.com/default.asp) and also sits on the Board of Directors of the Chicago Mercantile Exchange (as well as several other companies and charities). Mr. Gerdes also possesses many years of experience as an entrepreneur in the health care services industry and is a business partner—as a venture capitalist—with Monmouth College alumnus Walter Huff (the Huff behind the Huff Athletic Center here on the Monmouth College campus). The main topic of the interactive discussion with students will be–you guessed it–venture capitalists as a potential source of funding for entrepreneurial ventures.

See you Thursday for what promises to be another great day in Midwest Entrepreneurs class!!

Regards,

Prof. Gabel

On a sad note…

As mentioned in class yesterday, Mary E. Twomey died this Monday. She is the wife of Midwest Entrepreneurs class guest speaker John Twomey (pictured above during his visit).

Mrs. Twomey’s obituary can be found at the McGuire and Davies webpage.

http://mcguireanddaviesfuneralhome.com/index.php/obituaries/item/13/16-mcguire-and-davies-obituaries

Note the last paragraph: Mary believed that, “There are no such things as strangers, only friends that we have not yet met” . It would be her wish that after you read this today you go out into your community and hug your friends and neighbors.

Please keep the Twomey family in your prayers at this difficult time.

Prof. Gabel

Our “guest speaker” in Midwest Entrepreneurs class yesterday was a very familiar face; course co-instructor Dr. Mike Connell, speaking in his capacity as President of Board of the Monmouth Country Club (MCC). Connell has held this position for eight years. The story he shared with the class differed from others we have heard this semester due to the fact that the MCC is a non-profit organization. As a result, the goals of the MCC are not stated in profit or other monetary terms. However, as was made clear by Dr. Connell during his presentation, MCC managers—like all entrepreneurs—must still creatively find ways to generate enough revenue to allow the organization to achieve its goals. As Connell put it: “The goal of every organization is to strategically use its assets to achieve its goals.”

Connell addressed the overriding theme of how to manage a non-profit by way of two interrelated examples. First, he discussed the love and glorification of golf—particularly as manifest at the Augusta National Golf Club of Augusta, Georgia (home of the upcoming Masters Tournament)—as exemplary of an organizational goal above and beyond money. Second, Connell shared with Midwest Entrepreneurs students the ongoing evolution of the non-profit business model at MCC; another organization driven first and foremost by the goal of the love and glorification of golf. Each example is discussed below, with a summative “lessons learned” section to follow afterwards.

The Love and Glorification of Golf at the Augusta National Golf Club:

Dr. Connell started his discussion of Augusta National’s goal being the love and glorification of golf by referring to golf as “the game of tradition and honor.” He then reinforced this claim by stating that it is the only sport wherein players call penalties on themselves.

At Augusta National (see: http://www.augusta.com/) the love and glorification of the game of golf is just a goal; it is an absolute obsession. While Connell shared many examples of this obsessively pursued organizational goal with students, consider the following short list.

1. The course was built in the early 1930s by legendary golfer Bobby Jones shortly after his retirement from the game. According to Mike Connell, Jones’ goal was to build “the world’s perfect golf course.”

2. The Masters Tournament, the preeminent golf tournament played annually in the  United States, is played at Augusta National (and is its signature event). In fact, in  order to maintain optimal playing conditions at the course, playing season is              severely limited; it closes for the summer after the Masters Tournament.

3. There is special and unparalleled reverence for the purity of the game of golf at the Masters Tournament. This is evident in the incomparable respect for Champions of the Tournament. Connell here discussed how (a) each year’s Tournament dinner is hosted by the previous year’s Champion, (b) Green Jackets—which are awarded only to the winner—are specially made/tailored for each participant before play begins (and the winner must return the Green Jacket to the Augusta National clubhouse after one year), and (c) at Augusta National, there is a special room that can only be entered by former Masters Champions. This keen reverence for the purity of the game of golf is also seen in the Masters Tournament’s ongoing focus on amateurism; not only is there a special ceremony and award for the top amateur player each year, but the top amateur plays with the  defending Masters (pro) Champion the following year.

4. Former Augusta National Chairman Clifford Roberts remains famous—some may say “infamous”—for being a tyrannical advocate for the purity of golf at the course. He is known best in this regard for both kicking (then-sitting) President of the United States Dwight D. Eisenhower off the course and banning U.S. Vice President Spiro Agnew for life; due, in both cases, for showing up at and playing the course uninvited.

Yes, clearly, the primary objective of the Augusta National Golf Club is not to be stated in monetary terms; it is all about the love and glorification of the game of golf.

The Ongoing Evolution of the MCC Business Model:

The love and glorification of golf is also the overriding goal that drives Mike Connell in his role as MCC’s top manager and decision maker. However, Connell pointed out to students that in order to maximize the probability of attainment of this goal, MCC has recently had to make major changes in its business model.

THE OLD BUSINESS MODEL: According to Professor Connell, MCC’s business model when he became President of Board eight years ago was closely patterned after the “standard American country club model” developed in the 1930′s, 40′s and 50′s. In this “standard model,” membership was limited and there were often waitlists to join. Would-be members had to be sponsored by existing members and there was a membership committee that investigated and voted on new members; membership votes were not always positive. The new member paid an initiation fee for the privilege of joining what were commonly highly elitist organizations. In addition to the initiation fee, members paid annual or monthly membership dues. Most country clubs provided services including not only a private golf course but also a swimming pool, upscale dining services, tennis courts and a health club. Further, members were expected to eat at the club several times a month and were prescribed a minimum monthly food purchase amount (with clubs members being sent bills if they did not meet their stated minimum). On top of that, if the club had an operating loss for the year, as was common with many country clubs, each member was sent an additional “year-end assessment” to cover the operating losses (e.g., Connell recounted that a family member of a Monmouth College faculty member once received such a bill for more than $50,000). While the overall cost of club membership was beyond the reach of most American households, many flourished because they were the best golf course in town, had the best dining available, and were an essential place to make business contacts.  Small town social life and business deals often revolved around the local country club.

However, things—socially, culturally, and economically—changed for country clubs in the United States; especially in small towns like Monmouth, IL. Nice public golf courses were built.  Good restaurants opened. Television and other entertainment options evolved to compete for limited entertainment dollars. Local businesses were driven out of the market by malls and big-box stores (and remember that local business owners were traditionally country club members).  The population became more mobile and small town ways perished in many areas. Many country clubs, including MCC, struggled financially. Many clubs went bankrupt or were bought up at bargain basement prices for other purposes (e.g., housing developments and even farming). Most small-town country club managers responded by raising dues and prices. These price increases further reduced membership and revenues; hastening the downward spiral.

THE NEW MCC BUSINESS MODEL: MCC, like other small-town country clubs, came to be faced with a serious financial crisis. One result of this crisis was that its operating loan was so large that local banks could not allow its debt to increase further. Foreclosing on a golf course is not a pleasant option for a local bank as the market of potential buyers is small. Given the financial crisis, the MCC board concluded that the old full-service, high-dues, elitist model was both outdated and doomed for abject failure. They also concluded that MCC could not compete with a newer local public course for the competitive golf dollar.

With all this in mind, the MCC board decided to pursue an unconventional business model. First, the MCC board lowered annual dues; from $1,500 to its present $900. They also began to sell a new, limited mix of often customer-co-produced services. All food minimums and assessments were eliminated. The restaurant was leased to private operators and the dining room was opened to the public. MCC began to focus on family-oriented golf; an un-crowded, leisurely paced place where women golfers and children—even family pets, to some extent—are welcome.

By this time, you are likely saying to yourself: Doesn’t all this fly in the face of the need to generate enough revenue to allow the organization to even have a chance of meeting its higher-order goal of the love and glorification of golf?

Not so quick…

As Connell explained to the class, it is not just a matter of revenue generation. It is also—and this is the focus of the new MCC business model—a matter of creatively cutting costs. Toward this end, the MCC pro shop was staffed with volunteer labor and later came to run on the “honor system” (with members voluntarily paying for the items they purchased or writing up tickets to be billed later). Snacks and non-alcoholic beverages are sold on the same system. While the Club still owns its bar, golfers are free to bring their own beer to the course (and the bar, as well as the clubhouse as a whole, is rented out to members and non-members for private parties). A retired member acted as the business manager for a salary of $1.00 a year and another member kept the books without compensation.  All of this eliminates expensive labor (i.e., wages and insurance and other benefits). While it does not “create jobs for the local economy”—something we hear often in the media as the supposed #1 goal of all political and economic activity—it does keep the MCC open (and it allows Mike Connell and the MCC to keep pursuing the ultimate objective of loving and glorifying the game of golf). Viewed alternatively, there is only so much revenue that can be generated by a country club in a small town like Monmouth and if you focus too much on revenue generation—to the exclusion of controlling costs—you are quite likely to not have a business to run for very long.

LESSONS LEARNED: Change is the only constant. Adaptation is necessary to survive. The world is a dynamic place. Businesses must constantly adapt to remain viable. Small town country clubs are not viable in a modern world of competitive entertainment choices. The primary function of every business manager is to keep its doors open by providing a product mix for which there is adequate demand at a price that enough customers are willing to pay. MCC has changed its business model in an unconventional—but, when carefully considered, quite common-sense—way.

As Mike Connell told the class yesterday: “The goal of every organization is to strategically use its assets to achieve its goals.” This holds true no matter what the goals of the organization are. Goals may be stated in profit or other monetary terms. Maybe not. Instead, the goal might be—as it is at both Augusta National and the MCC—to love and glorify golf. No matter the goal, managers—entrepreneurs and others—must creatively find a way to keep the doors open. And, as we have seen here with MCC, keeping the doors open is not necessarily just a matter of generating revenue; it can be predicated just as significantly on creatively cutting costs (while still offering goods and services desired by customers).

Finally, all this talk of business models is rather ironic given the fact that I just finished reading student “Hometown Entrepreneur” papers wherein the top regret of the nearly 20 entrepreneurs interviewed was far and away not creating a business plan or model to follow and guide decision making. Certainly, any entrepreneur seeking external funding is going to need a detailed business plan. But all others should have one. However, as the case of MCC demonstrates, not one to be followed strictly and without regard for the changing environment in which the business exists. So: Formulate and implement a formal business model/plan but know that inevitable environmental change is likely to dictate adaptation of the model over time. 

Thank you Dr. Connell for sharing the MCC story with Midwest Entrepreneurs students yesterday!

Regards,

Prof. Gabel

Note: Portions of this post are adapted from a 25 April 2011 blog post authored by Don Capener regarding a previous presentation in Midwest Entrepreneurs class by Dr. Mike Connell.

I am approaching this blog entry different than others this semester.

I always welcome student comment on both guest presentations and my blog entries, but I want this one to be dominated by comments/replies from Midwest Entrepeneurs students.

Toward this end, I will provide my very brief thoughts on yesterday’s guest presentation by last-semester Monmouth College senior Jack Donnelly (owner of both the After Dark nightclub and rental properties in downtown Monmouth). Take this and run with it… please! And remember, students, that you are assigned grades for “blog participation” (which many of you have yet to engage in).

What I saw yesterday was a story of ongoing entrepreneurial evolution. Jack Donnelly was inspired to start After Dark less than three years ago by (1) personal frustration in not having adequate local options for underage persons to party and hang-out, and (2) an entrepreneurship class he took here (taught by my Political Economy & Commerce colleague Lee Miller).

Much has happened since then. Having come here only last semester, I have seen but a small portion of Jack’s ongoing entrepreneurial journey. Most of you have seen far more of it than I.

Note that I say “ongoing entrepreneurial journey” despite the fact that Jack told us yesterday that After Dark will be shutting its doors in a little over a week. As you know, he will still be in the rental business. Also, I get the feeling that Jack has “the entrepreneurial bug” and is far from finished as an entrepreneur.

What do you think?

Prof. Gabel

Yesterday’s guest speaker in Midwest Entrepreneurs class, Dr. Mauri Ditzler, is best known to those in attendance as the President of Monmouth College. He is now known to them also for his 35-year career as a business process outsourcing service provider whose entrepreneurial journey was  (1) characterized by discover and adaptation, and (2) enabled by keen understanding of both how to motivate workers and, yes, corn sex.

I should probably address that last issue first… By “corn sex” I mean corn breeding; specifically the de-tasseling aspect of the breeding process (so as to produce the best seed corn and, ultimately, maximize yields per acre and feed the world, etc.). Also, Dr. Ditzler is from deep in farm country and his Ph.D. is in the field of analytical chemistry. He understands this serious stuff in great detail. Enough about corn sex… But if you want to know more, see: http://www.hollowaysdetasseling.com/what.htm

The roots of Mauri Ditzler’s 35-year entrepreneurial journey are found on the farm in Indiana. He began de-tasseling corn when he was a young boy. When he was 17-18 years old he and a friend decided to start a business providing de-tasseling services to seed companies.

The company Dr. Ditzler helped run until his appointment as President of Monmouth College in 2005 was a business process outsourcing (BPO) de-tasseling services firm. As discussed in class earlier this semester, BPO is an area of vast opportunity for entrepreneurial innovation via performing services for organizations previously done in-house. The BPO firm typically specializes in performing one or a narrow set of related services—like bookkeeping or customer service—and doing what needs to be done better and more efficiently and effectively (i.e., better and cheaper) than the client firm can itself. In the case of Ditzler’s company, the outsourced service performed more efficiently and effectively was de-tasseling; reaching 6-8 feet into the air and taking the tassels off selected ears of corn so as to allow proper hybrid germination and breeding. Ditzler found a niche in the corn production value-chain where he could perform a task more efficiently because of specialized knowledge, increased efficiency, learning curves and economies of scale. By focusing on the single task of de-tasseling and searching for constant efficiency improvements, Ditzler’s firm was able to increase benefits for its seed company clients, himself, and his partner and their employees; the seed company saved money, Ditzler earned profits from his entrepreneurship, and the workers had more consistent employment opportunities and higher wages.

As Dr. Ditzler told the classroom full of Midwest Entrepreneurs students yesterday, his entrepreneurial journey was one characterized by discovery and adaptation, with key discoveries and adaptations taking place most significantly in the context of employee motivation. At first, the company was a way for a teenager and college student to earn extra summer income. However, for longer than he now wishes he had, he and his partner ran the company “like 18-year olds.” While Ditzler said the business “allowed me to live the life I wanted,” it took him an estimated 15 years to really figure out how to effectively run it.

One of the things discovered over time was that he and his partner should have hired a lawyer and a professional negotiator early on to better manage their dealings with large seed companies (who had lawyers and professional negotiators and, thus, held the upper-hand in negotiations with smaller firms such as Ditzler’s). Also discovered was that the key to success for the company—after noting that they could not possibly raise their prices enough to keep up with a 10-fold escalation in the price of labor—was that he needed to creatively find a way to be significantly more efficient.

Ditzler discovered that the number one key to being more efficient in the de-tasseling business was not use of advanced technology but rather more effective motivation of supervisors and the de-tasselers themselves. But it is not easy to effectively and continually motivate (1) teenagers to engage in hard manual labor in usually miserably hot and wet conditions, and (2) adults to walk through the fields keeping track of the teenage de-tasselers in similar conditions for up to 16 hours a day (for the 30-40 day de-tasseling season each summer).

So, how did Ditzler motivate his employees? In general, he strived to bring a sense of enthusiasm to the work place. At first, he focused on the de-tasselers by creating competitions and rewarding the fastest and otherwise best performers. This, however, can only work for so long; one can only go so fast in such harsh conditions without physical breakdown.

So, the focus shifted to the supervisors. Ditzler and his partner had always understood the importance of good field supervision and had, as a result, always compensated supervisors well. They began experimenting with different supervisor-to-de-tasseler ratios. As the ratio moved from the long-time standard of 1:8 (1 supervisor for 8 de-tasselers) to 1:6 and even 1:4, Ditzler discovered that efficiency continually increased in significant fashion. He and his partner adapted and began to focus their attention on the hiring, motivation, and, most importantly, retention of the best possible field supervisors available. Eventually, they discovered it was best to outsource the hiring of de-tasselers to a state employment office (so that they could focus on their time on the all-important supervisors).

Only after Ditzler and his business partner discovered that they could not grow the business “running it like 18-year olds” and adapted to focus on better motivation of their employees were they able to truly carve out a profitable niche in the de-tasseling marketplace. Their niche was as a BPO service provider uniquely capable of effectively and efficiently managing large de-tasseling crews—of 1000 and more—that could come into massive cornfields and do all the work needed on relatively short notice across a fairly large geographic territory.

The several members of the class that personally have done de-tasseling work know very well that motivating de-tasselers—mostly teenagers working their first jobs (and brutal ones at that)—is a very difficult task.

But Mauri Ditzler did it and did it well.

He discovered and adapted and came to realize that the key to success for his business—and client satisfaction—was employee motivation. This is nothing new to Midwest Entrepreneurs students; particularly those doing research in the area of how one of the best ways to ultimately satisfy customers is to hire, satisfy, and retain good workers.

Since he became the President of Monmouth College, Dr. Ditzler has not been back to see the business that his long-time partner is still running; seeing your old love again can be a painful experience that wisdom tells us is better avoided. Over 35 years, the seed corn de-tasseling business taught the chemistry professor turned college president that the world is a dynamic place that requires discovery, adaptation, flexibility, and problem-solving skills to survive. These are the among the most important of qualities of a successful entrepreneur. Funny how these same qualities also sound a lot like the foundation of a liberal arts education.

Thank you President Ditzler for a memorable class and a memorable jaunt down entrepreneurial memory lane!

Note: Portions of this post are adapted from a 20 March 2011 blog post authored by Dr. Mike Connell after a previous visit to Midwest Entrepreneurs class by Dr. Mauri Ditzler.