CEO Roundtable: Manufacturers

Springfield Business Journal Executive Editor Christine Temple sits down with Pavel Bosovik, founder and CEO of 27North Inc., a manufacturer of expedition vehicles; Jenny Carr, CEO and president of L&W Industries LLC, which manufactures products for the railroad industry; and Chad Myers, executive vice president of SRC Holdings Corp., a remanufacturer of products for nearly all industries.

Christine Temple: You all are in growth mode. SRC is amid a 10-year, $100 million expansion across all of your companies and products. 27North, you had a grand opening for your HQ and then you announced, no, this wasn’t big enough, we’re actually going to grow again by another 300,000 square feet, and L&W, you are just busting at the seams and you have a new home there in Strafford to accommodate your growth. Tell me all about these expansions and what is driving the growth.
Pavel Bosovik: First, I would probably say election years. A lot of companies have a tendency to tighten up and kind of push back plans. So, companies that are willing to take the risk have a lot of growth opportunity. And then, specific to our industry, whenever there’s a recession, our buyers get very picky. Being kind of a really niche market and building very high-end luxury RVs like never done before has given us the success that we’ve had. In order for some of our competitors that have been around 50, 60 years to compete on our level, they’d have to completely restructure their business model.
Jenny Carr: We bought the business in 2012, and at that time they had a long history in the rail industry but the owner was quite old and decided not to invest in technologies. When we bought the company, we invested heavily in new equipment, invested in people, invested in engineering systems. That coupled with the fact that just the strong team that we have, whether it be our sales force pushing the product or marketing the product as well as the people inside the shop. I think that’s a large reason for our success and continued growth.
Chad Myers: We’re employee-owned and it’s always been about jobs and it’s been about growth. And since we’re an employee-owned company, we get to walk around with our shareholders every single day. We teach our people to expect growth. What we try to do is try to figure out how to be right even if we’re wrong. I know that may sound a little complicated, but I’ll explain. Some of the growth that you see with us right now, and you referenced a $100 million plan and that plan was to go into building some of our own infrastructure as well too, our relationships with our (original equipment manufacturers) have been so great over the 40 years, that what you have now is what I would call a fracturing in the supply chain. You have suppliers of components starting to wrap up, go out of business. A lot of that is the result of baby boomers retiring and the next generation not really wanting to take over. We have seen an enormous amount of requests come toward us to be able to satisfy some of those supply chains. We have some pretty sizable investments in (electric vehicles), electronics, and so we think that you got one president if elected, it’s going to be electric; you got one president going to be elected, it’s going to be (internal combustion engine). It’s an even if we’re wrong we’re right kind of the philosophy, we and try to look out as long as we can.
Temple: You’re in expansion mode against a more complicated manufacturing picture. You look more nationwide, the Deloitte 2024 Market Outlook finds that most manufacturing companies were in contraction last year and in 2024, just the ongoing challenges around skilled labor, regulatory frameworks around net-zero emission goals and supply chain disruptions are continuing to cause challenges. What are the headwinds that you’re facing?
Bosovik: I think you’ve covered them very well. But if you have cash and you’re willing to take the risks, I think never before there’s so many growth opportunities. The hardest one we’ve came across is talent. You’re seeing a huge generational gap between the people that are willing to work 12, 14, 16 hours even and not complain to a whole new generation that eight hours in and they’re already complaining. In addition to that, I kind of blame social media. A lot of people are wanting to do their own business and we see it all the time, employees quitting, trying to start their own thing and not working out then coming back. Then when it comes to recruiting, I recently reviewed 100 resumes and I would say more than half have people that are in a job less than two years. It makes it really hard. But once again, if you can think out of the box if you’re willing to take the risk and create a culture, I think you can overcome it.
Myers: Pavel is very close to our headwinds as well, and it’s a workforce. But I’ll go one more step further. We always try to decide when to make a big bet. And Pavel just mentioned having cash and after every recession we’ve doubled the size of our company. There are beautiful opportunities that will come out of the recession. Quantity of people is very concerning to me. There’s like 8.9 million jobs open in the country and there’s 6.5 million people on unemployment. There’s a deficit there that has got to be made up somewhere. There’s a local organization called the International Institute and they help with refugees who come through here. It needs to become something that is taken on from a state and even a federal level. Not trying to get into politics, but something’s got to change because you have some of the highest participation rates between ages of 25 and 55 from a percentage standpoint that you’ve ever had. So it’s not like there’s a lot of people that are really wanting to stay at home. It’s just we don’t have enough to participate.
Carr: Before I talk about headwinds, I think one of the reasons why we’re seeing growth that maybe not other industries are seeing is we’re in the railroad industry. We participate in Manufacturing Day and it’s always interesting to hear kids think that railroad transportation industry is dead and it in fact is booming. And of course with technology, it’s booming even more because they’re employing technology similar to Amazon where you can track your packages. I think the biggest hindrance for small businesses, probably large businesses as well, is the government regulations. One that is near and dear to my heart just because it’s really hurt us the last couple years is Section 174. All of our companies are heavily invested in research and development and probably 10, 15 years back they started giving tax credits, which we started recognizing. There was legislation that was on hold until last year, February, when they decided to pass it. What it does is it takes your R&D expenses and then it tries to allocate labor and overhead and capitalize it over four to five years. Taking last year as an example, if we made $1 million net income, we had to pay taxes as if we made $2 million. For a small business, that’s very scary.