Volume 44, Issue 1 - January 2009

I Just Don’t Think Our Competitors Have Figured Us Out”
by Debra Levy

Q–Since you’ve been kind enough to sit for an interview in the past (see “Anatomy of a Pusher, USGlass, February 2000, page 58), let’s get into the subject that is of overriding concern right now. [Editor’s note: This interview was conducted in early September 2008]. What are your thoughts on the economy?

A–The biggest problem we have is fear. Everyone is afraid of how the effects of the economy will trickle down on to them. But remember, things keep on going. A nuclear bomb has not gone off; 9/11 hasn’t happened again. It’s real but, at the end of the day, there will be a solution and right now, there’s a lot of posturing about who is going to get what piece of the pie.

Q–Why do you think our economy is in the mess that it is?

A–It started with greed. The people who did this were making hundreds of billions of dollars, yet they weren’t producing a single tangible thing. Our system is very screwed up because of their greed. I’d love some of them to go to jail.

Q–How is Arch handling the downturn?

A–Right now, we are in a good place. We don’t need anything from the banks. Our lead bank is a strong one that was never into mortgages. We don’t need anything and we won’t for the next two years. If you need to access money, you are in trouble right now. Everyone’s afraid and they don’t know if they will disappear in the future.

Q–Would you say that Arch is unique in the way it’s weathering the financial storm? I know you have some equity partners …

A–Well, Arch is, always was, a family business. My father had partners, but he also put a tremendous amount of sweat equity into the business. His partners were primarily family and friends who were investors. Years later, a financial equity firm became our partner, but, yes, we’ve always had partners. 

Q–How are your customers faring right now?

A–It’s really rocky for some of them. Florida, Las Vegas, California and Arizona are ground zero. These areas had excessive increases in home value and that is now gone. The good operators are doing well. The ones that weren’t good operators are not doing well. It’s a very tough thing and money is a lot tighter on the street. You have to work with them and figure out how to help them survive.

Q–When does the economy become healthy again?

A–It all depends on the credit market. If there’s money available, then, yes, we get healthy. Housing will come back sooner than commercial, which isn’t even done slowing down yet. We are planning for a worst-case scenario.

Q–Have you experienced a slowdown in collections?

A–We work it pretty well but you can feel it tightening. We are going to budget for it to get worse. It has started to feel like 1991 and we are starting to see the same mistakes people made then.

Q–Such as?

A–Overinvesting in capital equipment and not working costs down while you can. I believe a lot of people over-buy equipment. They buy a piece of equipment that can do 110 percent of what they need instead of buying one for 75 percent less that can do 95 percent of what they need. A lot of egos get caught in equipment purchases.

If the strong are patient, they will get stronger. Those who can’t survive will not. Florida will be okay because people have gone out of business already. Westshore [Glass Corp.] disappeared and others will as well. We factor all this—who we think will make it and who won’t—into our budgeting. We look at who might be attractive for us to pick up if they are not going to make it.

Q–Let’s talk about that for a minute. There is a perception out there that Arch would do exactly that—swoop in as a company was going under. It’s similar to the perception that Arch’s pricing is always the lowest …

A–[interrupting] No, hold on a minute. I think that’s just their excuse when they lose business to us. “It can’t be because [Arch] is better or faster, so it must be price.” I don’t think we are the low-price-provider on most items. I just think we are better.

Q–Where do you think the perception comes from?

A–Years ago, it was true. It’s not now. We don’t want to sell on price. We built our business on relationships and loyalty. We have gotten better and we are more accepted. Our reputation has grown by leaps and bounds. I just don’t think our competitors have figured us out and I know our suppliers haven’t.

Q–Okay, let’s go back to when you got into the business full-force. I know you have a bachelor’s degree in communications and …A–Well, I took a semester off during college to decide what I wanted to do in life. I became a truck driver for Arch.

I learned a real valuable lesson: truck drivers are extremely valuable sources of information. Truck drivers get all the way into our customers’ shops; salesmen don’t always get in, but truck drivers do. They are better resources. They know who the customer is buying from, what is in their warehouse, whether it’s full or empty. I embrace truck drivers at Arch. It’s not unusual for them to get a tip from management for good information.

Q–Let’s turn to China for a minute. You’ve been a pretty vociferous critic of Chinese imports, but lately I have noticed your rhetoric hasn’t been as strong. Are you softening your position?

A–The problem is a bit less right now. The Chinese have hit their high. They are having problems shipping in a cost-efficient manner and their economy is also suffering. A lot of what they are able to do will be a function of transportation costs.

Quality is my biggest concern. Nickel sulfide inclusions are the biggest quality issue we see in Chinese tempered glass. If there’s a lawsuit against a Chinese manufacturer, who will pay? Nobody. Customers are going to find out the hard way that nobody will pay. Customers never factor in the cost of having this blow up on them. But if they had bought that glass from, say, Arch or Oldcastle, there would be a trail of responsible parties against whom they’d have some recourse. You will not find that kind of recourse with some Chinese products. People will go broke because of that. I quietly agree with Max [Perilstein, director of marketing for Arch] about this issue.

Q–There’s been a lot of discussion about fuel surcharges. How do you feel about their implementation?

A–I think the surcharge is going to go down in the first quarter of 2009 because of changes in the cost of natural gas. The problem is that the surcharge has become too high a percentage of the total cost of the product. All the manufacturers go off some energy grid that should be revised. They need to call it what it is: an increase in the cost of manufacturing their product. Suck it up and raise the price. We have fuel charges of 15 percent and that’s ridiculous. Call it what it is—a price increase!

Q–Speaking of costs, the European Union’s fines against the float glass manufacturers will affect costs everywhere (see December 2007 USGlass, page 36). Now there are lawsuits against them here in the States. What’s your feeling about this?

A–It’s really just some lawyers looking to find some business. I’m not saying I love the float manufacturers, I just don’t think they are guilty. Competitor pricing in all industries goes up and down close to the same time. That is just the way industries work. We are in a very low-margin industry and the manufacturers are sensitive to that. They change their prices frequently and respond to other manufacturers. It is not being done in lock-step. It’s not a collusion issue.

Q–There’s been a lot of discussion at industry events and even in our pages about Building Integrated Modeling (BIM). What do you think of it?

A–It’s pretty visually and it’s nice and I think if it were up to the Maxes of the world, we would be leading the charge to use it. But is it going to add value? Is it going to help me service my customer better? Will it help me sell more products? Maybe in a few years, but it’s not here yet.

Q–Arch is known for being a decentralized company and …A–That’s a bit of a misconception, too. There is an entrepreneurial spirit at our branches. The managers there run them like they were their own. We do the purchasing, the workers’ comp, the legal, the accounting, human resources from here [headquarters in Florida], so that’s centralized. We are the only true fabricator in existence that runs on one fully integrated ERP system. All our plants are similar and are set up to be similar. We are like Southwest Airlines. They only use 727s. They act and seem very decentralized but that’s because corporate has made some key decisions that make them look that way. For a mom-and-pop company, we have the best computer system, and we build the plants all with a similar floor plan. That’s our model.

Q–It’s funny to me that, at your size, you still consider Arch a mom-and-pop company. Is that the culture?

A–People who work here fit here. It’s a very paternalistic company. We love our employees and customers. But if our employees just go through the motions, they don’t last here long because they don’t fit. We believe our money is made on the plant floor. Our culture is my father’s culture. It says “we are a blue-collar business and everyone has to work hard.”

Q–Do you think solar glazing is going to lead most of the future growth in the glass industry? 

A–Let’s put it this way. We’ve been messing around with it for a year knowing there’s an industry there. It’s good to see how we fit in. Since we are anticipating 2009 and 2010 not being good years, we want to figure out what else we can be good at. But everyone is moving into it and there won’t be any money in it in the long term because it will be a commodity. And what’s it going to cost? We’ve been dabbling where we think we might fit. We think we fit in the mirror technology side.

Q–Is this a similar technology to the mirror manufacturing you do now?

A–We thought it was, but it isn’t. It took us longer than we thought it would and cost us more than we expected, but we found something we are good at. We have some solar customers and there’ll be more in the future.

Q–As one of the owners of a large family business, you must occasionally give thought to and get questions about succession. You have been doing this a long time. Do you see yourself doing this for much longer?

A–I love what I am doing. It’s a true family business. My brother, Ricky, has grown up in the business. The employees and the customers love him. He is seven years younger than me [Leon Silverstein is 48]. I have a son who is 18 now and not in the business yet. My father still comes to work almost every day. He has had friends who have sold their businesses and they died. You sell, and if retirement is not for you, then you are just waiting around to die. So I have no intention of selling. As long as it’s fun, we have no exit plans. Why sell? Money? Time? My wife works in the public schools. It’s her passion. Mine is here.

Q–Surely you’d make an attractive target for companies like Oldcastle?

A–Oh, every few years or so, Oldcastle or an intermediary calls my equity partners to chat, and they say, “Hey, you have to call Leon,” but I’d say, “No, we are not for sale.”

Q–Well, surely it can’t be fun all the time. What types of things keep you up at night?

A–The credit market and what’s going to happen next; the things we can’t control. Usually an idea, or thinking about the next thing we should do, will keep me up. Not so much fear or worrying. My dad is 73 and he went through 1991. He understands what’s happening. We have always done our best relative to the industry in the worst of times. It all becomes a matter of controlling costs.

Q–What advice do you have for our readers?

A–I think one thing for readers—from our competitors to the glazing contractor all the way down the line—is to start to learn what their costs are. One thing that helped us came about when Dad’s partners were bought out. We bought the company with financial partners, which resulted in Arch having a board of directors. This is something all companies can benefit from. You want to have people to challenge you and that doesn’t always happen internally. You don’t need “yes” people. You need people who will remind you never to do any one thing that could put you out of business. A board might help stop you from making bad decisions.

If not a full board, then get at least an advisory board, a lawyer, an accountant, a friend in business to sit around and ask you some tough questions. We made a lot of good decisions and some not so good. But the not-so-good ones wouldn’t hurt us for a long period.

Q–Can you give me an example of a bad decision you made?

A–Opening the facility in Memphis, Tenn., where we did was a bad move. [Arch has since moved.] Leasing a building due to cheap rent is not a good idea if nobody feels safe in the neighborhood after dark. Once we realized it was a bad decision, we moved quickly to correct it.

Q–You often talk about how Arch is different from other glass fabricators. Can you give me an idea of the biggest reason why you think that?

A–We have a lot more depth. We have the Cliff Monroes and the Tim Moores and lots of guys on the Glass Association of North America’s [GANA] technical committees. We have a lot of people in GANA who have a passion for it. They see their job as protectors of the industry. This may not be the most productive use of their time for Arch; it doesn’t enhance our sales. But they have a passion for it. They are looking to protect the customer. There is no such thing as an “Arch” vote. They vote for what they think is right.

Max’s fight is not an Arch fight. It’s for the customers. NFRC [the National Fenestration Rating Council] would be great for Arch. We have the money to meet it and it would give us a leg up on our smaller competitors. But was it done fairly? Is it good for our customers? No. So we are for our customers, rather than for making the testing labs rich.

Q–What would you do about NFRC?

A–I’d put up the first $50,000 for legal fees and go after them.Q–No hesitancy there whatsoever?A–None. It’s the way I feel.

Q–Thank you for your time.

A–A pleasure.

Father Knows Best

To watch Leon Silverstein as his father comes into the room is to see a tough man soften in an instant. You can see the mix of admiration and wonder in his eye as he watches his dad at every turn. Seventy-three-year-old Robert (Bobby) Silverstein is the founder of the business and still comes to work every day. A Philadelphia native, Bobby was working for Chromalloy before he decided to move back to Florida and open his own business 30 years ago. “The company I was working for was very corporate and I just didn’t fit in that environment. I came down here with nothing to see if I could make it,” he explains. “First thing I had to do was to find suppliers who would sell to me. So my wife and I drove all over the South to find suppliers and one vendor, an aluminum extruder who knew me from my past career and loyalty, gave me an opportunity to purchase from them when no one else did.

“I borrowed from a friend to live for one year in a small duplex to see if we could make it. We started from scratch in Liberty City with 15,000 square feet, a handful of employees and a truck. We had one key employee who was a handy guy and we emphasized service, service, service. We started in Miami where the service wasn’t so good. Even if we had a problem, we made doors so fast we could get a replacement out before the other guys even made their first. 

“Once we got started, we just grew. We evolved a lot and got into tempering because we were a large customer that couldn’t get service. We thought, if we couldn’t get service, how about their little customers? So we bought a furnace. You either grow or you die. That’s the way I’ve always felt.”

“My father has always been this company’s biggest fan,” says Leon Silverstein. “Whenever someone came to him with an idea, he never looked at it as how much he could make by doing it, but how much he would lose by NOT doing it. When you start with no money, it gives you a whole different perspective.

“My dad was never a guy who read documents or any sort of credit agreements. He wasn’t going to change, so that’s a burden that fell on to me. 

“In a family business, we both push sometimes,” Leon Silverstein continues, “and he let me know he’d pull it back when he needed to. But when his partners tried to push back, we pushed them out.

“He never put any pressure on me to come into the business. He tried to slow me down at different times. We had disagreements about people. He was right much more of the time than I was. Everyone comes in and talks to him and he knows who is disruptive and has to go.”

Today, Leon Silverstein and his brother Ricky both work in the business, as well as Donna, their sister, and brother-in-law Kevin Aubuchon. 

“I expect it to stay this way,” says Bobby Silverstein. “I expect it to keep growing the way it has and stay family. I am not looking to sell it, I don’t want or need a lot of money and I want my children to give their children the opportunity to run it as well.”“

Bobby loves his grandchildren and the business. He cares about the employees and wants to take care of them. We have long-term people here and that matters to him,” says Leon Silverstein.

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