Supply side Growth

Supply side Growth

manufacturing by Jean Gruss | Editor/Lee-Collier

Raymond Building Supply rode the residential-construction boom in Southwest Florida. In the midst of the downturn, it's planning for the rebound.

Duane Swanson is fond of saying he'd rather be lucky than smart.

But most would agree that Swanson, 67, the owner of Raymond Building Supply in North Fort Myers, has been both lucky and smart.

Swanson built Raymond Building Supply into the second largest residential-construction supplier in Florida, behind only Cox Lumber Co. of St. Petersburg in the latest survey by industry tracker ProSales. The company manufactures and sells roof trusses, doors, windows, lumber, millwork and storm shutters to homebuilders.

Raymond Building Supply rode the residential construction boom of the last 10 years and doubled revenues every three years. The company's sales reached $270 million last year, up from $38 million in 1996.

If Swanson is worried about the current downturn in residential construction, he doesn't show it. Swanson forecasts Raymond Building Supply will reach the $500 million sales goal five years after the current residential downturn ends. "I refuse to leave this place until we reach a half a billion dollars in sales," he says.

Like so many successful entrepreneurs, Swanson has taken bold steps to increase sales, including piling up large amounts of debt at times to buy new equipment and expand the company's facilities.

"The secret is to make money," Swanson deadpans.

The 24-hour deal

Swanson was 38 and living in Minnesota in the mid-1970s when he got the entrepreneurial itch. He scoured the country looking for a company to buy. "My wife said 'It sure would be nice if you could find something in Florida'," Swanson recalls.

At the time, Swanson had four children. Today, Duane Swanson II, 35, is the company's chief financial officer, and Mark Swanson, 33, purchases materials.

A Minnesota broker told him about Raymond Building Supply in Fort Myers and he boarded a flight to Southwest Florida on March 21, 1978. By the next day, he had made a $20,000 deposit to buy the business. "I had no idea how I was going to pay," Swanson says. At the time, Swanson's net worth was $200,000 and $60,000 of that was in cash.

So using Raymond's assets, he borrowed enough from the bank to buy the business from Joe Mazzola for $800,000. Mazzola, now 80, is Raymond's principal purchasing executive. He mortgaged the company's assets and he says the receivables gave banks comfort that he could repay. "The first full year the company made in profits what I paid for it," Swanson says.

Still, it took guts to buy the business so quickly. Swanson closed on the sale of his house in Minnesota before the Raymond Building Supply purchase closed.

Preparing for the housing boom

When Swanson bought the business in 1978, Raymond Building Supply had $6 million in sales. It grew steadily through the 1980s, acquiring lumber companies in Naples and Port Charlotte.

Swanson says the company has been profitable ever since he bought it, making it easier to borrow and expand. At one point, Swanson says his debt-to-asset leverage ratio was as high as 17-to-1.

By 1996, the company had grown revenues more than six fold and was starting to outgrow its eight-acre facility on Old 41. Swanson realized that the residential market was going to grow faster, as national homebuilders started infiltrating Southwest Florida. "I foresaw significant growth, but I did not foresee the level," he says.

Raymond Building Supply raised about $5 million by issuing industrial-revenue bonds with help from Lee County. These bonds, called "private activity bonds," are tax-exempt securities sold to investors and the seller may use the proceeds to pay for construction, new machinery and land purchases.

As a result, these bonds typically carry below-market interest rates because they serve an economic-development purpose. "That was the most positive thing we've done," Swanson says.

Over the next several years, Swanson acquired about 50 acres off Bayshore Road in North Fort Myers, he built a 75,000-square-foot storm-shutter manufacturing facility in Fort Myers and invested heavily in new technology and equipment. Raymond Building Supply now has 700,000 square feet of manufacturing space on 80 acres. Its salesmen are equipped with the latest wireless laptops so they can provide customers with the latest information about their orders. The company's accounting department has also invested in technology so that payments and billing can be done over the Internet.

As the homebuilding boom reached its peak in 2005, Raymond Building Supply employed as many as 1,000 people. The company won the business-expansion award from the Horizon Council in 2006, a group of business executives that advises the county commission on economic development issues.

Taking advantage of the downturn

As the housing boom was cresting, Swanson decided to build a new roof-truss manufacturing plant. "Our truss plant is as automated as they get in the world," Swanson says. The equipment cost nearly $7 million and it started operating in January 2006.

Looking back, Swanson says he likely would have delayed buying the new equipment if he had known the residential construction market would come to such an abrupt halt in 2006.

But Swanson isn't worried. He says the residential-construction market will rebound and Raymond Building Supply will be ready to capture more market share as competitors scramble to ramp up. Already, he says he's heard from homebuilders that their customer traffic is increasing. "I foresee having to build a third truss plant," he says.

What's more, Swanson says his balance sheet is strong enough that he can acquire struggling competitors. He says the only debt the company carries is $3 million remaining on the industrial revenue bonds. SunTrust is its lead bank.

"We're looking at some companies like us and companies that provide other products," Swanson says. "We have the cash resources."

Although he won't say which companies he's targeting and what other building products he might start selling, Swanson says there are substantial opportunities in the Florida Panhandle. He says there's considerable waterfront land yet to be developed, providing opportunities for builders for years to come. "Land costs are reasonable up there," he says.

Already, the company makes aluminum and vinyl window frames in Hamilton County on the Georgia line. The facility there measures 80,000 square feet on 20 acres and Raymond Building Supply is the county's second-largest employer.

Raymond Building Supply also recently acquired eight acres in LaBelle in Hendry County, east of Fort Myers. Swanson says rural inland counties are going to grow as land availability dwindles in coastal counties.

Of course, Raymond Building Supply has had to temporarily adjust to the declining residential construction market. The company now has about 800 employees, down from 1,000 at its peak.

In the end, Swanson says, customer service is going to help the company manage through the downturn. That means helping builders better manage costs by designing windows, doors and trusses that are less expensive and offering rebates where possible.

"Customer service is king," Swanson says.

REVIEW SUMMARY

Company. Raymond Building Supply

Industry. Residential-construction supplier

Key. Continuous reinvestment in people and equipment will ensure success.

Successful rewards

Duane Swanson has a simple rule for success: Treat your employees as you would want to be treated.

One way he does that is by showing them the money.

Every employee at Raymond Building Supply in North Fort Myers has an opportunity to earn a monthly incentive bonus for meeting a target. Further, a majority of employees can earn a monthly safety bonus if their department is accident-free.

At the end of the year, employees are eligible for another bonus that can total as much as half of the monthly incentives they've received in the year.

In 2005, Raymond Building Supply paid its employees more than $3 million in incentives. "That's been very key to our success," Swanson says.

Benefits don't stop there. The company also matches 50% of an employee's contribution to a 401(k). Raymond Building Supply contributed $410,000 in 2005.

-Jean Gruss