HATTIE: Hi, and welcome to SMALL BUSINESS SCHOOL.

Grab a pencil. You'll want to take notes if you're interested in growing a business or even starting one. I'm Hattie Bryant. From Madison, Wisconsin, a place with plenty of cyclists on the roads, comes this program about growing a business that had become stale. If you want to take your bike with you, you need a rack. That's what Graber Products builds.

Most of our 30 minutes every week is spent in our Master Class. We believe the highest level of learning takes place in a mentoring relationship, not a formal classroom, and a master class is a way for us to be mentored. A master class is led by a person with experience, not simply book knowledge. Join Chris and Sara Fortune in the small business Master Class.

(Voiceover) What a perfect day. What a beautiful place. Cyclists from all over the world come to Wisconsin to experience hundreds of miles of paved roads, not only in the city but in the country, too, free from traffic. In addition to the smooth country roads, Wisconsin offers well-connected bike trails that offer some of the most scenic, and historical, views in the state.

If you have a bike, you have to have a rack. Graber Products makes some of the world's best racks right here in Madison, Wisconsin.

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Employee #1: We're going to take your new receiver hitch mount, slide it into the receiver, like so. Now, we’re ready to take the bike and set it up on the rack, all the way to the back. Set the bike in the cradles of the Bat Wing … HATTIE: All right. Employee #1: ...slide it forward so you've got the saddles of your wing supporting your seat tube and the other saddle supporting the top tube. Take the strap across the top, nice and tight.

HATTIE: This is a very easy little notch. It's like a hook and eye system, sort of. Very nice. Very simple.

Employee #1: Now you've got support across the top so the bike doesn't bounce. You also have support across the bottom, so it doesn’t sway.

CHRIS FORTUNE (Owner, Graber Products, Madison, Wisconsin): Consumers want a product that's user-friendly, and so do our dealers. This drives us to supply products that are very user-friendly. You know, the bicycle industry is a booming industry. It's a great family sport, it's a low-cost recreation. People love taking their bikes on vacation and go out and ride as a family. And we want to provide them the transportation system to get them where they want to go, safely and securely.

Whenever we develop product, there are three musts, and it's very simple and very basic. The racks must stay on the car, the bikes must stay on the rack (we don't want to scratch or mar the car), and it's critical to get the people where they are going, safely and securely. We do a pretty good job of that … our warranty rate is less than one-quarter of a percent.

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HATTIE: (Voiceover) Sara and Chris Fortune bought the company in 1989 when it had 24 employees and $3.3 million in sales. Today, they employ 60 people and have tripled the sales.

SARA FORTUNE (Owner, Graber Products): I always knew that he'd work hard. He put himself through college. He worked while we were engaged. He worked nights, student-taught and then got his studying done. He was just the kind of guy that always worked. I don't really think I've ever had any real doubts in where he wanted to go. Every job he took on, he succeeded.

CHRIS: When we looked at businesses to buy, we had a scope of what we wanted and what we didn't want. I really felt that I was driven to develop a product or get into a situation where we had an opportunity to develop a brand. I knew I didn't want to get into the retail environment. And I didn't want to stay in distribution because I didn't feel that you had control of your own destiny. I think there's tremendous value in developing a brand, and when we looked at Graber as a company, we felt they had a great reputation in the marketplace. We visited stores and did some market research, talking to the dealers to get a feel for what was going on.

And the market was expanding. They had some tremendous opportunity if they had just focused on the resources that they had, and they didn't do that. The two gentlemen—one was 68 and the other one was 75, wanted to move on with their lives. They were trying to maximize their balance sheet and their profitability at the risk of the future of the business. There are three types of people and three types of companies: There are companies that wonder what's happening, companies that watch what's happening and companies that make things happen.

And these gentlemen were wondering and watching what was going on out there. They had a good nucleus of people when we bought the business. They had a good reputation in the marketplace as being honest and honorable people. That was important to us. You know, part of our business culture states that we want to be honest and do the right thing in the way we approach our business and our customers. And they had that going for them.

HATTIE: So you didn't have to undo...

CHRIS: Correct. But the image of Graber in the marketplace was more of a nuts and bolt manufacturer. From a development and design standpoint, things had leapfrogged where Graber was positioned in the market. Whenever you have competition obsolete your own product, you're in a big danger zone, and that's what was happening to them.

HATTIE: Did you start with a bank loan?

CHRIS: Yes.

HATTIE: OK. And did you get your venture capital from one bank?

CHRIS: Yes, it was from the Associated Bank, and they're great people. You know, business is very cyclical, and it isn't always growth and prosperity. You have some rough times along the way, and it's very important to find someone that's willing to work through the good and the bad times with you. We found somebody.

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HATTIE: What are your top business issues?

SARA: Innovation. Product development. Go beyond what is out in the market--don't copy somebody else. Innovation builds market recognition.

HATTIE: So now, Bob, explain to me what this is.

(Voiceover) Everyone at Graber talks about innovation. Chris's dad invented the Bike Bank, which Graber is selling worldwide.

BOB FORTUNE (Chris Fortune's father): You open the lid like this, and place your helmet, your fanny pack or whatever gear you have, into the locker and lock it.

HATTIE: So how did you think of this?

BOB: Well, I read an article in The Wall Street Journal about the cyclists starting to commute. The problem was that when they got to their destinations, they had no place to store their personal belongings, and they were concerned about the bike. This locks the bike and secures your personal things.

HATTIE: What is it like to have your dad around this place?

CHRIS: It's just great to have him around. You know, he's dedicated and committed to getting it done, and it's just a pleasure to have him around. My dad's my best friend, and it couldn't be any better than that.

BOB: You couldn't ask for much better than that, could you?

CHRIS: This is Brian Butchen. Brian has been with us 17 years. He is an extremely talented toolmaker.

HATTIE: Are you constantly innovating?

BRIAN BUTCHEN (Employee): Yes, we're constantly innovating. You have to be.

HATTIE: (Voiceover) Chris and Sara took advantage of the University of Wisconsin Stout’s Manufacturing Technology Transfer program to help improve efficiency.

CHRIS: And one of the elements that they focused on was cellular manufacturing. With cellular manufacturing, quick-change tooling is a very important aspect. For example, in our business each time you touch a part, it costs about 5 cents. So Brian developed a tool that when the press came down and hit the part, instead of hitting it twice, it only hit it once.

BRIAN (demonstrating process): This way, we're taking a raw tube (you can see it's not formed or punched in any shape or manner) It takes it from the round tube, forms this U-shape into it to fit into the receiver of the hitch.

Unidentified Employee #2: And basically, I just bent the tube down in there.

BRIAN: Then you go into the next stage, poke the tube sideways, and it punches the holes.

HATTIE: And you built the tool that does that?

CHRIS: Right. Brian built the tool. Cellular manufacturing has done several things for us. One, it's improved the quality of the parts because we have a much smaller production run. Two, it's reduced our work in process inventory, improving our efficiency by almost 25 percent.

HATTIE: How is that different from an assembly line?

CHRIS: Well, it's very similar to an assembly line. However, some assembly lines are set up to feed parts that have been processed in an operation outside the assembly line, whether that be in an assembly line set up in a different part of the company or parts that have been brought in from outside of the company. With the cellular manufacturing, everything is processed right here.

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CHRIS: We approach business a little differently. We try and limit our number of vendors. We have one major tubing vendor with whom we have formed a true partnership. We don’t go back and forth, saying `Hey, we need a cheaper price here or we need this or that.' We sit down and develop a strategy with them, and we're honorable in the commitments we make to them.

HATTIE: So rather than having three or four suppliers on that one product who are always competing and never knowing if they're going to get the business or not, you selected one and said, `We're committed.'

CHRIS: We're committed. And they're sharing technology with us, too. We send engineers to work with them to try and get an understanding of how we can do our business better or perform manufacturing at a higher level. We've really adopted a win-win philosophy here. In my younger years as a manager, I wasn't always that way. You know, I thought you had to go out and win at all costs. However, I realized that didn't necessarily produce a long-term gain. I made some mistakes along the way that have helped me make better decisions in my business.

HATTIE: Oh, in your old age of 44, you've mellowed out?

CHRIS: Well, I was a branch manager at 30 years old, running a $3 million or $4 million company. And, you know, you develop a win-at-all-costs attitude. I’ve found that's a very short-term approach to life and business. Over time, you really hone your approach to life.

I have a great mentor, my wife's father, Phil Hendrickson. It's great to have somebody like him to guide you and influence your life and give you certain goals and values to run a business.

HATTIE: Was he a small business owner?

CHRIS: He was a business owner and a manager of a business. He took a business from $500,000 to $150 million. I watched him do that. When we bought our business eight years ago, I asked him to be on our board. He is really the person I go to for advice. He's my mentor. It's great to have somebody like that, someone who has been there, done that; someone you can trust.

HATTIE: How did you develop your board?

CHRIS: We selected people that we knew. Our banker, Bob Atwell, is on the board. He is a tremendous resource. He understands our business and we have a very honest and open relationship. Our corporate attorney is on the board, as well as my father and Sara's father. We also have somebody that was the president of a bicycle company. He is a great adviser. Whether you have a board or you have people around that you can use as a resource to validate what you're trying to get done, it is important to have input from people you know and trust.

HATTIE: Or to say, `Well, Chris, you're crazy.' Has the board ever said to you, `Oh, my gosh, don't do that'?

CHRIS: Yes. We were looking at buying another company, and we went through the whole analysis. The board didn't feel that the timing was right and so we listened...

HATTIE: And you respected that.

CHRIS: Absolutely. Not that I didn't feel that there was great value or opportunity, but you have a board for a reason. You'd better listen to these people.

SARA: Chris goes out and visits the dealers. You know, here's the president of the company, he goes out to the dealer and talks to them. I bet he knows 90 percent of the people he's met anywhere in the industry. He remembers their names. He focuses on the people all the time. For example, this spring Chris brought in six of the top dealers for a two-day session at our family cottage in Door County.

They had good time to blend and build the relationships, which I think Chris is really strong at, but Chris also asked them to focus in on what the user is going to want. Chris asked them, `What are you missing in your product line that we can accomplish for you?' The dealers were asked to list the priorities of what we have and what they want to see. Their input was sought on where we should go. We use their input in product development. Their input guides us in making the product they want; the product they want to sell.

HATTIE: And out of these six people, only two of them at that time were your customers.

SARA: Yes, and the other four were accounts that we didn't have. Just within the last few months, that's how long it took, the four dealers who had not been selling our products said, `We'll take your product. We value what you're doing.' And that is relationship building. Chris is really outstanding at the relationship building in the industry.

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HATTIE: What do you think it takes internally to be able to shoulder the risk of business?

CHRIS: I think a lot of it is attitude, a "never-give-up" attitude. And it's just keeping your head down and driving through the hard times, because if you look up, you may lose your head. As a business owner, for you to be successful, the biggest thing is to never give up -- never, ever give up.

SARA: When we bought the business, we were hit with a patent infringement. Chris went to the previous owners and said, `We got this. It's not settled. We feel like it came before the purchase.' And they settled easily. It was all calm. We thought it was gone. Business thrived, we developed. We added a new product to get our name back out into the market, and it did very well. And then, about 18 months later, we got another letter saying we were infringing. And we thought it had all been settled, because it was on the existing patent.

And what I've learned in that short time--well, it ended up being about four months--I learned that this bigger company knew exactly what they were doing. We went to trial in March. It was a simple, tiny part of a patent. We went to a jury trial. Everything that we said--what we were told wouldn't happen, did happen. In the end, we lost 10 times more than we thought and had to cease to produce in the spring. I really believe the big company wanted us out. They saw us at that time as a challenge to them, and they thought, `Let's snuff these guys out now so we don't have to deal with them in the future.' And the bankruptcy issue was brought up.

HATTIE: So you lost $1 million in that scenario.

SARA: Right.

HATTIE: And when you lost $1 million and also had to shut production down, you said to yourselves, `All right, what are our choices?'

SARA: Right.

HATTIE: And bankruptcy was a legitimate choice.

SARA: And probably the number one choice for the people around us, saying, `This is the way you'll survive.' But that's also the relationship with the bank we had.

Chris--once again, it's the value in Chris. He's a survivor, end of the story.

Chris and I sat down and talked, and bankruptcy just wasn't an option. I mean, there's something that grates wrong in it.

CHRIS: We looked at bankruptcy, but we didn't feel that was morally or ethically the way to do it.

SARA: And the bank also supported us and said, `OK, this is what we can do to help, this is what we're going to require of you.' So we've been carefully watched. It was a bad time for us not only in the money issues, but it was the moral issues. For me especially, I was just dumfounded. I believed in people so strongly, and what they were saying.

CHRIS: We've been through the valley of death, and the way we've come through is our commitment to get through it and our determination to get through it.

HATTIE: Were you ever scared when you were in the valley? CHRIS: Sure. HATTIE: Did you ever think, `Well, we may not have the wherewithal to pay...'

CHRIS: It was never an option. We had to find a way to be successful and make this thing work.

HATTIE: (Voiceover) In Sara and Chris, I see soft hearts and strong backs. What a combination. It's obviously working.

The turnaround came quickly. Something really exciting happened.

CHRIS: Saturn had approached us in August of '95 and they were very interested in the Saris roof rack system. We'd been working with them over the last two years, doing testing and validating the program. They've chosen us, over the largest competitor in the world, as a supplier for their roof rack. It was due to product innovation and their willingness to work with a smaller company.

Employee #1: I don't think I've seen a rack any easier than this to install on a vehicle.

Unidentified Woman: Now will I have to adjust it each time I put it on? Employee #1: No.

CHRIS: (Voiceover) We are the exclusive supplier of a detachable roof rack system for Saturn today.

Employee #1: The nice thing about the rack is that it is totally adjustable, so we can position these legs wherever we want them. If you are behind a car carrying bikes on real cheap racks, you will see the bikes and the rack are actually moving back and forth as the car travels. This one won't do that because you've got support in six different places.

HATTIE: (Voiceover) Sara focuses on the people part.

SARA: I kind of make sure they're OK, more on the personal side. I love to talk, so I'm out there wondering what's going on with them, finding a lot of things out. There's some employees that will come up and spend a lot of time with me, you know, just talking, and I usually get a hint of the reason they're around.

HATTIE: Right. Well--and don't you think that is part of the reason this is all working? SARA: Right. I do. HATTIE: And that every employee here feels comfortable to come tell you anything they want.

LB

HATTIE: The slogan at Graber Products is `Make ourselves obsolete. Invent the new products before a competitor can.'

By working with the University of Wisconsin, Chris has tapped into the minds of an innovation and manufacturing team that helps business owners streamline the production of new ideas. He has given employees the tools and time to innovate, and he himself focuses his own attention on innovation.

The day after we were with Chris, he was on a plane to Italy to meet a designer.

When Chris and Sara bought Graber, they bought a solid business with a good reputation, but the sales were flat. The employees were dedicated, but the company needed fresh energy to start growing again. The energy has come from Chris and Sara, but also from the thrill of bringing new products to the marketplace. Before your sales go flat, start innovating.

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(Voiceover) Just as so much manufacturing has gone offshore, this business could have headed that way, but Sara and Chris are determined to keep Graber alive and all-American.

CHRIS: Part of the thing that drove me to pursue this business was that I saw so much manufacturing going offshore. I just felt that there was a decline in America, and that it was very important for us to re-establish our manufacturing base. You know, you talk about the service industry and the retail industry, and I really feel that we can build product domestically and compete internationally with the right design and development, and we're doing that. Right now, we're not only in the United States but we're in 20 countries internationally. And we can do that. Two of our largest competitors, Yakima is down in Mexico now and Thule is out of Europe, and we feel that we can compete with them.

SARA: It really does take a survivor--that really describes Chris--and support from people around you. I think Chris and I are really lucky because we give on both sides. Sometimes it takes us awhile to figure that out, but we give on both sides. I'd say most small business owners really give a lot of their lives to that business to make it successful. And that's part of the risk.

CHRIS: It is really important as a business leader to carry the torch and continually communicate your values to the company, the vision of your company to your employees. You know a person by the trail he leaves and the people they hang with, and it's very important.