Case Study – Division 8

 

Background

Divison8 Inc provides glass and glazing products to commercial and public buildings. The two founders, CEO Rob Hoyt and COO Dave Vincent, each own 45 percent of the company with the remaining 10 percent held by an employee. The management team also includes Hoyt’s wife, Debra, and Vincent’s wife, Dawn.

In the fall of 2006, the company employed 34 people, was cash flow positive and profitable. Revenue had grown steadily since 2001, reaching $6.5 million in 2005 with projections for $8 million the next year. The issue was where to take Division 8 from there. The management team did not have a united view. Hoyt felt the company lacked the capabilities to grow much beyond $10 million, and his time horizon to retirement was five years rather than Vincent’s vision to work at least 10. At the same time, Division 8 was wrestling with the lack of some operational and financial control processes that had led to miscommunication, cost overruns, missed deadlines and certain projects with low or no profit margin.

“We recognized that we needed to have experienced outsiders take a look at how we were communicating with each other while also assisting in the formation of better oversight processes into our supply chain, manufacturing and accounting systems,” said Hoyt. “Being a small company, resources are obviously an issue. We were introduced to the Chairmen’s RoundTable and applied for pro bono support. We were glad to have been accepted.”

Solution

CRT mentors Ake Persson and Anita Busquets were assigned to Division 8. The first course of action was to assist the company’s management team in improving their understanding of macro accounting and operational aspects of business administration. Both mentors recommended that Division 8 engage a qualified consultant to do this in detail. Persson and Busquets also suggested postponing a planned investment in a new building until the company’s finances were better understood. “It was unclear if such a move would have hampered or helped the company’s overall goals, so we thought pushing the decision off a while would be the best course of action,” said Persson.

To accommodate Hoyt’s retirement goals, Busquets and Persson brought up the idea for Division 8 to consider establishing an employee buyout program, such as a leveraged Employee Stock Option Plan, or ESOP. Additionally, the CRT mentors recommended that the company attract a qualified outside individual who was not part of the management team to its Board of Advisors to provide a stronger level of objectivity in deciding future strategic issues.

“The roadmap was very helpful, and cleared the air internally on many issues that were in the room, but not being addressed,” said Vincent. “While the medicine may not have tasted very good going down, we were open to changes and began to implement Ake’s and Anita’s suggestions.”

Results

Within a two-year time frame, Division 8 transformed into a much more efficient entity. Hoyt, Vincent and the rest of the management team brought in the consulting firm, Strategic Momentum, to review its financial and operational control processes. The company also hired in an outside controller who helped clean up the old accounting and a new CPA to ensure the company avoids any IRS and taxation issues.

Moreover, Division 8 implemented a material handling process that allowed them to reduce expenses considerably, adding $1 million to the bottom line in 2007.The same principles were applied to processes including project management, project submittal and others aspects of the business.

The company also addressed internal communication disruptions by holding strategic off-sites with independent board advisors, owners, management team and key employees to establish a vision on how to grow the business. Division 8 also began holding educational sessions on leadership and developed management tools based on the use of leading indicators and main milestones where each person is held fully accountable for set goals and objectives. For the current management team, an executive coach was brought in to be a mirror and help the team be accountable to itself.

The most telling sign of success was in Division 8’s top and bottom line. In 2008, two years after beginning the CRT process, the company posted nearly $9.5 million in revenue while more than tripling their profit margin. “We exceeded our own expectations for this process, and are on a stronger, more profitable growth path,” said Hoyt. “Even more beneficial is the positive work environment we’ve brought back to the Division 8. It’s more fun to come to work now than ever before, and we’re so pleased we went through the CRT process!”

About Chairmen’s RoundTable

The Chairmen’s RoundTable is a non-profit volunteer organization comprised of more than 40 current and former Chief Executive Officers and 20 sponsor organizations with extensive board experience and diverse industry backgrounds. CRT mentors provide businesses in San Diego County priceless business advice and mentorship without compensation as a way of giving back to the community. CRT’s well-defined mentoring program is ideal for small to mid-sized companies at a strategic crossroad that are looking to gain an outside perspective on key business issues. To date, more than 250 local companies have benefited from CRT’s mentorship. For more information and to read about past client successes, please visit www.chairmensroundtable.com.

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