Pacific Northwest Magazine
A Man, A Fence, An Empire
BENJAMIN BENSCHNEIDER / THE SEATTLE TIMES
BENJAMIN BENSCHNEIDER / THE SEATTLE TIMES
BENJAMIN BENSCHNEIDER / THE SEATTLE TIMES
CORPORATE EXECUTIVE Rick Preble operates out of a Bainbridge Island shack built on a pier over Rich Passage. There is no indoor plumbing. The two "outhouses" sit on a deck just around the corner from the building's main entrance. Inside, a warren of small rooms is stuffed with computers and desks, calculators and extension cords, coffee makers, space heaters, exposed insulation, ramshackle shelves and innumerable samples of the products he sells.
It's hard to imagine a less prepossessing headquarters for a company that had $15 million in sales all over the country last year, with operations in Maine and China as well as here. "Dana and I used to joke about it," Preble says with a laugh. (Dana is Dana Smith, until recently his partner.) "Like when we got it to be a $10 million company. He was working in his chicken barn in Maine, and I was working on a dock with an outhouse. And we'd talk every morning — we'd joke about it." He looks around the office, and laughs again. "I mean, I've never had a customer out here!"
A native of Maine, Preble speaks with a beguiling accent and is a gifted storyteller. The stories he tells about developing his company from a garage operation into a huge — and still growing — corporation with a reach deep into the biggest big-box stores in America makes for an entertaining and instructive yarn. It is also an object lesson in what can happen when the restless American entrepreneurial mind happens into the right market niche at just the right time.
Someone could make a killing.
THE CLIMB TO a top spot in an emerging industry all began with a chance encounter. Preble had moved to Seattle in the 1970s to take a job with Colonial Cedar, a lumber company. On a business trip in 1989, taking a walk in Portsmouth, N.H., Preble came upon a garage/workshop with a little pile of Colonial Cedar's boards outside its door. Curious, he knocked on the door. Dana Smith answered. "I asked him to show me what he was making, and he brought me into this little closet, with all these different shelves on it, and there were probably four or five styles of these ornamental postcaps that he was making. And the quality was beautiful — all handmade, sanded, just very nice."
Smith explained he had recently hired on to build a traditional New England picket fence for a homeowner. When he looked into the classic design, he discovered that the posts had decorative caps on them. He also discovered he couldn't buy them anywhere and had to make them himself.
By the time he rigged up machinery and labored to make the 20 he needed — a time-consuming and expensive "pain" — it occurred to him that other fence manufacturers must be running into the same problem. So, he thought, why not try manufacturing them in quantity and selling them to fence companies?
A year after setting up shop, Smith had $30,000 in sales — double what he had expected.
Preble was intrigued. He was going to Boston the next day to a trade show, and wanted to see if he could generate interest in Smith's postcaps. The two decided they could sell the things for $15 each. (At that price, the postcap cost only slightly less than the post did — a telling indicator of the potential for decorative touches in the emerging home-improvement market.)
Two days later, Preble had taken $129,000 in orders. "That," Preble says, "told me that this thing had potential."
AMONG THE THINGS that make entrepreneurs different from those of us who couldn't sell ear muffs to a Minnesotan is their view of the world as a place where opportunity lurks. Preble couldn't help but notice he could buy into Smith's vision cheap. "At Colonial Cedar, we had all these waste products that were 5 feet or shorter," he says. "We couldn't sell it for hardly anything. So I figured out that if we could boost the sales on this guy's product line, we could get rid of all our waste. It was a way of recovering expensive wood fiber. So the owner of Colonial Cedar and I offered to make a trade: Of our short, clear-cedar pieces for two-thirds of the business.
Dana agreed. And Maine Ornamental Woodworks was ready for prime time.
Taking advantage of a Maine economy that offered little in the way of employment or economic expectation — the cost of goods and labor there in the late 1980s was light years less than in most of the country — Preble and Smith set up a network of carpenters making postcaps in their garages and barns and being paid by the piece. By 1993, Maine Ornamental had annual sales of $2 million.
The allure of postcaps to builders is obvious. To Seattle builder Doug Johnson, "The concept is great, because typically the top of a cut 4-by-4 (the size of a standard fence or deck post) is not attractive, and it's vulnerable to decay. Any time you have a flat wood surface where water can sit and not drain off of you are open to decay. And trying to do on-site carpentry or finish detailing that precise and cabinet-like is difficult. So prefabbing these parts in a factory with light, dry conditions makes all the sense in the world."
But Preble and Smith found themselves confronting enormous change in the home-improvement business: Builders were making up an ever-smaller share of the market. When Maine Ornamental was established, home-improvement products were marketed primarily to contractors. But those stores were losing out to new stores selling directly to "do-it-yourself homeowners seeking to improve the value of their properties," in the words of Lowe's, one of the nation's two leading sellers to that market.
In Lowe's — which in 1994 had 350 stores — Preble saw a powerful retailer for his products. "We recognized that Lowe's marketing campaign was geared more toward women than the traditional contractor, and we had figured out by then that the ultimate decision on our product line was made by women. Lowe's made that decision years ago. They redesigned the interiors of their stores and provided women a much more comfortable shopping experience than was traditional at warehouse stores. You walk into Lowe's, the colors are bright, they're feminine, and they really do a good job of lighting up the product. Versus the traditional warehouse store being designed for a lumberyard feel. And Lowe's advertises on television that way: They advertise more the products that target women rather than the price of 2-by-4s."
Lowe's agreed to include Preble's postcaps if they could have exclusive use of the Maine Ornamental name, and if he and Smith refrained from selling directly to customers through the Internet. Preble readily agreed. (Maine Ornamental products are sold in other stores, but without the company name, and odds are that when you buy a postcap anywhere, it is one of theirs, as the next-largest competitor last year had sales of only $1.5 million.)
Preble parted ways with Colonial Cedar, whose owner was opposed to the move into Lowe's, and devoted himself full time to "taking Dana's postcaps on the road." The move into Lowe's (and, subsequently, Home Depot) vaulted Maine Ornamental into a whole other category of company. "Our opening order was the largest order we'd ever gotten," says Preble. "I mean, it was over half a million dollars."
Within two years, Maine Ornamental's annual sales, half of which were through Lowe's, hit $6 million.
Preble began to see previously unimaginable market potential. There are 1,175 Lowe's stores in the U.S. now, and more than 1,900 Home Depots. Together, the two chains open 250 new stores a year. For Maine Ornamental, which sells two postcaps per Lowe's store per day, the sales numbers can sound ridiculously small until you do the math: In 2005 the company sold 857,750 postcaps through Lowe's.
Moving up to this level forced Maine Ornamental to change from "a postcap program to a marketing program," Preble says. That's because the business moves from an offensive posture, where you are evangelizing for a new product, to a defensive one, where you are fighting to keep an established market position.
"We had had to get into Home Depot to prevent someone else from going in there and competing with us," he says. "And now we had not only to be a leader in our industry but also keep competition away." To that end, Preble and Smith began sitting down every year and "looking at each one of the products we had in the market, and asking, 'If someone's going to come after us and make our product better, what would they do?' Then we do it ourselves. That way, you're a moving target. The philosophy is, the day you stop moving, the day you get lazy and say, 'Oh, we can stay with this same product line another year,' is the day that somebody's going to nail us right between the eyes."
As a result, Maine Ornamental now makes a mind-numbing array of postcaps — 230 versions in 2005, in various sizes, shapes and designs, and from materials including wood, copper, composites, vinyl and glass, including "Tiffany." "And," Preble exclaims, "we got more comin'!"
PREBLE VIVIDLY remembers meeting a man named Tom Swope in 1999. Swope told him he could supply Maine Ornamental with better postcaps at less cost by manufacturing them in China. It was an encounter that would lead Preble and Smith to make the most wrenching decision of their business lives.
"The guy had samples that were gorgeous," Preble recalls. His first reaction, however, was not excitement. "Swope was telling me that I was on his radar — that if we didn't buy from him, then he'd make postcaps and undercut us and go to our customers. What that flagged in my mind was, 'Wow, people are looking at us.' Because we really didn't have any competition at that point."
Maine Ornamental chose not to go into partnership with their putative benefactor. Instead, they made the agonizing choice to move their manufacturing, by stages, to China. "The problem was, we realized that if we didn't move to China, all of our jobs would be at risk," for the only way Maine Ornamental could keep a China-connected competitor from eventually selling a better postcap for less money, which would put their company out of business, was to set up operations in China first.
By moving there gradually, using Chinese labor to take on their rapid growth rather than replace the jobs and workers they already had in place, Maine Ornamental was able to "replace our lower-end-paying jobs with marketing, management, higher-end, inventory-control jobs, so that we still have the same amount of employees that we had when we made this decision. It's just that everyone here now has a better job."
According to University of Washington business school associate professor Kathy Dewenter, who is also faculty director of the school's Global Business Center, Maine Ornamental's experience is typical. "The choice for many companies like this is, 'Do I go to China, or do I go out of business?' And it does not necessarily mean fewer jobs here. Just a change in what the jobs here are."
Because the drive in China is to employ as many people as possible, and because the quest for efficiency in this country calls for mechanizing as much manufacturing as possible, Preble discovered that he could make far better, more durable and more beautiful postcaps with Chinese labor. "A little tiny company like ours, that's got a niche product, that's exactly what the Chinese are looking for."
Outsourcing to China has allowed Maine Ornamental, for instance, to replace machine-driven fasteners with high-end glues that hold together longer. Then there was the superior workmanship. On his first visit to his Chinese factory, Preble was stunned to see "like five guys working together, sanding a single postcap." This, too, says the UW's Dewenter, is typical. "The kinds of jobs that are outsourced like that are those that require a lot of detail work that is difficult to mechanize. Outsourcing is typical of products that have fine workmanship."
It is not, she continues, a simple matter of America's loss and China's gain. People think about those whose jobs are lost, "but they don't think about the people who keep their jobs, the new hires, the consumers who get a better product for less. Plus, you have these people in China who are employed and potentially buying U.S. exports. And you have the shareholders in the company that stayed in business. The pain is concentrated, and easy to see and point to. But the gains are diffuse across many, many people. . . . When economists go out and add up all the little gains, the total value is much bigger than the loss."
For Preble, his first visit to the Chinese factory was an eye-opener in other ways. "There is this guilt thing that people lay on you about exporting jobs to China. But when I went there, it kind of changed my whole reaction to that."
There were 160 employees, mostly adults. "And when we were leaving, they put on a very emotional ceremony, where they brought out this made-up collage on one of the walls of the building, with pictures of all their children. . . . What we found out is that these were the first jobs people ever had, the first opportunity they had ever had in their life to make any money. They'd never made any money — and, you know, they had tears in their eyes."
THIS PAST JUNE, Preble and Smith sold Maine Ornamental for $8.5 million to Universal Forest Products, a $2.45 billion wood-products corporation that is now adding finished-product companies to its arsenal.
The move allowed Smith to retire and Preble to stay on as president but relinquish the day-to-day management duties so he could concentrate full time on filling the world with postcaps.
Now Preble is working on Europe. Occasionally, he'd phone in from various ports of call during his first trip there last fall, and the conversation would always start the same:
"Rick! Where are you?"
Fill in the name of a country.
"What're you doing?"
Back in his corporate headquarters on Rich Passage, reflecting on his 26-year ride, Preble chuckles. "I can't believe I made this much money selling such a silly little product," he says.
And what does he think the potential for growth is?
"Oh, it's unlimited!" he says, laughing like a man who still can't quite believe that that little pile of wood outside a garage door led to all this.
Fred Moody is a Bainbridge Island freelance writer. Benjamin Benschneider is a Pacific Northwest magazine staff photographer.
Copyright © 2006 The Seattle Times Company