Fuel for success

Fuel for success

entrepreneurs by Jean Gruss | Editor/Lee-Collier

James Shaw plans to do for truck fuel systems what he did for aviation. Success comes from serving others, he says.

When James Shaw sold his aerospace components company to industrial giant Parker Hannifin Corp. late last year, the company had reached $45 million in annual revenues.

The terms of the deal weren't disclosed, but "a sizeable number" of bidders showed up to buy Naples-based Shaw Aero Devices. Parker Hannifin, with annual sales of $10 billion, won out.

The success of the sale would have been hard to envision just six years earlier. That's when Shaw Aero was forced to file for bankruptcy reorganization after the tragedy of the Sept. 11, 2001. The attacks created chaos in the aviation industry and business came to a standstill.

How Shaw managed through that challenge provides insight into his management style, which by his own description is hands-off yet driven to ward off the biggest enemy: Complacency. Success, he says, is the result of serving customers and employees above all else. It's also about communicating openly and frequently with employees and customers. For example, employees at Shaw Aero knew of the company's plans to sell itself a year ahead of time.

"It's all about the people and not about the money," Shaw says. "It's not me, it's them."

Shaw Aero's recovery and subsequent growth also gives us clues about another Shaw company that's relocating from Naples to Bonita Springs: Shaw Development. That smaller company makes components such as gas caps for trucks, motorcycles and military vehicles. "My vision is the same," Shaw says.

"The growth curve is even larger because we're going from components to systems," Shaw says. What's more, the trucking, motorcycle and military vehicle market is so fragmented that, for example, dozens of companies make bulldozers. That means Shaw Development isn't as dependent on a handful of manufacturers and the time to production is much shorter than in the aviation industry.

Shaw Aero takes off

Shortly after the terrorist attacks of Sept. 11, Shaw Aero financials fell outside the ratios that its lenders had required. Shaw had no choice but to seek protection from creditors under Chapter 11 reorganization of the U.S. Bankruptcy Code.

But bankruptcy reorganization proved to be short-lived. It lasted about four months from Sept. 29, 2001, to Feb. 3, 2002. "We visited everyone," Shaw says. The key was to reassure customers, suppliers and employees that the company had a plan to survive through the downturn.

While rivals' sales declined 20% to 30%, Shaw Aero's sales only dropped by 15% during that period. The company made a variety of components, such as lightning-safe fuel caps, fuel systems and hydraulic equipment.

The secret to such a short stay in bankruptcy reorganization: "No secrets," Shaw says. Shaw did the opposite of what many companies do when they face hard time, which is to hide and let the lawyers talk. He promised suppliers they would be paid 100 cents on the dollar assured employees their jobs were safe, telling them they'd earn a bonus if they exceeded certain targets while asking them to forgo a raise. Shaw says the company never lost a customer through that four-month period.

Shaw credits the company's board of advisors with helping him get through the downturn. Calling it "one of the best things I ever did," Shaw had created a board of outside experts years earlier. He didn't have to do that; after all, Shaw was and remains a family owned business.

"It created a discipline for the company," Shaw explains. His staff was required to make formal presentations to the board twice a year, something that kept them sharp.

Shaw didn't stack the board with friends or people who already worked for the company, such as bankers or lawyers. Instead, he got people who, in his words, "had been there, done that." They were engineers, marketing executives and even a lieutenant general in the Air Force. The board of advisors has now become the board of directors, all of whom are paid to attend meetings.

Shaw considers himself a hands-off manager, preferring to let employees succeed without interference from above. "I don't go walk through and tell people what to do," he says. He says he's happy if top salespeople make more money than the boss. "The more they earned, the more business came in," he says. "Some can't accept others making more money."

But Shaw says he does pay close attention to customers. "You've got to be there and listen," he says. "How can I make it better for him? Always focus on their needs."

He also fights complacency and does that by insisting on growth, constantly designing new devices and applications for customers. "You can't stay stagnant or you'll get buggy whipped," he says.

Shaw Development growth

Shaw Development had grown in the shadows of the much larger Shaw Aero Devices sibling. Although executives decline to cite revenues, Development has 75 employees compared with 250 people at Shaw Aero.

But Shaw Development has big growth plans. It recently bought a 50,000-square-foot building on six acres in Bonita Springs and will move its headquarters out of Naples where it has only half that amount of space.

There were few options in Collier County and the county's high taxes on new construction and lengthy permitting process made it unfeasible to stay, says Kevin Hawkesworth, Shaw Development's president and CEO who is also James Shaw's son-in-law. "We found building too daunting. It can really be dilutive to what you can accomplish," he says. "We want to keep the business lean."

Shaw Development builds fuel systems, caps and plugs for large trucks, off-road vehicles such as bulldozers and military troop-transport vehicles. Shaw's products can be found on Peterbuilt 18-wheeler trucks, Caterpillar bulldozers and BAE military troop transports. In fact, Shaw was instrumental in designing fuel systems that could withstand explosive devices planted by terrorists in Iraq.

Shaw has benefited from the construction boom in the U.S. and overseas. Half of Caterpillar's sales are from overseas, for example. Revenues have been growing at a 20% clip for the last three years and that will continue in 2008, Hawkesworth says. However, he is slightly less confident about prospects in 2009 and beyond as signs of a slowdown appear on the horizon. "Ideally it's only a one-year hit," he says. "There's still tremendous capital out there; it's just sitting idle."

That's why Shaw Development plans to boost sales overseas. Currently, 80% of Shaw's sales are domestic. "We should have a full presence in Europe," Hawkesworth says. In Asia, Shaw will focus on Japanese and Korean manufacturers. Over the next few years, Hawkesworth hopes its international business will grow to 30% of revenues.

Another avenue Shaw Development is pushing into is Internet sales. That allows the company to reach more customers and bypass some of the middlemen distributors who add to the cost of business. "It flattens our sales process," Hawkesworth says.

The key for a U.S. manufacturer is to compete on quality. "We win business by being the best or lose because we can't meet the price target," Hawkesworth says.

REVIEW SUMMARY

Company. Shaw Development

Industry. Industrial components

Key. Fight complacency and focus on growth to succeed.