Search:

News

4/18/08 Dave Heidenreich gives Keynote Address to Ohio Employee Ownership Conference

printer friendly

“...Why would you want to turn your employee-owners into venture capitalists?”

Dave Heidenreich, Chairman and Chief Technology Officer, EBO Group

Keynote 22nd Annual Ohio Employee Ownership Conference

Friday, April 18, 2008

I was asked to share with you some of the things we have been doing to reinvent our company these last five or six years, and to turn our employee owners into venture capitalists. First, I would like to introduce you to EBO Group. You have known us for most of our association with ESOPs as PT Tech or Power Transmission Technology. We became an ESOP in 1990. We have 62 employee owners. And in 2006, we changed our name to EBO Group for reasons that you will understand by the time I finish.

What do we do? In the first couple of years in business, we solved a major problem in underground coal mining machinery. We figured out a way to absorb the shock loads in the cutter head drives, increasing the safety, reliability and productivity of the machines. That led us deep into the underground mining industry, developing clutches and brakes for all manner of machines.

We decided as long as we were underground, we might as well tackle tunnel boring machinery, and we developed a hydraulic clutch that was used very successfully through the ‘80s and the ‘90s. The biggest privately owned civil engineering project in the 20th century was a tunnel under the English Channel. All the machines and the main drives were equipped with our clutches. If you have watched Extreme Machines on the Discovery Channel, many of those machines are equipped with our product.

We came above ground in the 1990s and started developing products for the steel and other heavy industries. We really like big, ugly, awesome equipment! Throughout the 1990s mining, steel and tunneling accounted for over 90% of our business. If we look at our sales for the first 20 years through 1998, we only had two down years, but then we hit 1998, and globally things started to change. Jobs started going overseas. We had customers going out of business faster than we could develop new products to replace them, so we started looking like a lot of companies in Ohio that were focused on rustbelt industries.

Two or three years into this cycle, we figured trying to grow our business in a declining market was not the smartest thing we could be doing. So we decided to focus our efforts into growth markets. The first growth market we went after was recycling equipment—big machines that grind up waste for landfills for biomass. We developed a system that connected engines up to 1600 hp to the grinding head that does all of the work, and we went from being a very small player six years ago to dominating, with 90% of that market. Again, you see our love for big, ugly, awesome equipment!

In 2002, the employee owners of PT Tech did something extraordinary. They became venture capitalists. They started a new venture in a new market with different technology—we founded Transmotion Medical. We hired the right people. We gave them the tools they needed to develop medical chairs that convert into stretchers for procedures in hospitals and surgery centers, and in five years, they have gone from nothing to the premiere product in the market.

We discovered that our employee owned culture was an awesome place to start new ventures. By the way, the recycling market and medical market now account for more than half of our business. Instead of following the trend of a lot of Ohio manufacturing companies, especially those focused in the rustbelt industries, we will come close to tripling our business in a five year period by focusing on new markets and by launching new ventures.

So why would you want to turn your employee-owners into venture capitalists? Faster growth—if you’re not happy with the growth that you have, maybe you should be looking at doing something like this. Greater profits—we have definitely seen greater profits focusing on growth markets and doing some reinvention. Job creation. Excitement—there is definitely a lot of excitement when you start something new within your organization. Diversification—if you are stuck on one market and riding the cycle of that market, diversifying can definitely help. It can especially help out in the shop where peoples’ jobs are dependent on a steady flow of work. By stretching, by diversifying, you can switch the shop employment from one side of the business to the other side, and we have seen a real benefit in doing that. But the number one reason, the thing we all love, is to watch our stock grow, and it is a great way to grow your stock value. These are all good reasons for thinking about starting a new venture within your ESOP.

Most new ventures fail as they go through the process of imagining, incubating, demonstrating, market entry and finally, growth and sustainability where you are actually making money. Each of these phases is packed with places where the project can fail, and most do. But ESOP companies have a natural advantage that no other way of starting a company has.

Number one: A lot of them have excess capital. Where are we going to spend our money next? ESOP companies have an existing business structure that can support an entrepreneur or an entrepreneurial team working on a new project. Typically, ESOP companies exhibit teamwork well above what a normal company has, especially if you have a collaborative, participatory program in your ESOP.

But here is the magic. When you start a new company within your ESOP, every ESOP participant has a piece of the action. They have a natural desire to see this thing succeed that provides exceptional support for those trying to start a new business. We found with Transmotion Medical that we could send the two people we had start this business anywhere in the company to get any kind of help they needed, and they got it freely with great enthusiasm. The odds of success of starting a new company within an ESOP should be significantly better than in other places. Typical incubators in old factories, incubators in university settings, new ventures within non-ESOP companies cannot match this list of advantages.

Where do you find ideas for new ventures? Universities—we ended up finding some technology out at Bowling Green State University that had not been commercialized, and we partnered with them to do development. NASA in Cleveland has an office that looks for people to commercialize ideas they have come up with. We are actually collaborating with NASA and the University of Toledo on a new offshore wind turbine project where we will be making a couple key components.

Venture capital conferences—we are just beginning to explore this avenue. Jump Start is a group in northeast Ohio that is supporting the idea of venture capitalists coming together with entrepreneurial people trying to get companies started. They are supporting the entrepreneurs in many ways, including bringing them the management expertise they need. We have had some discussion with Jump Start and they are interested in working with us as an incubator in future projects.

Contact your local economic development people; they know what is going on in the community. They can be a source of ideas. But do not ignore your own employees. The idea for starting Transmotion Medical did not come from the top. It came from a new employee who left a company that had been closed down in our community, and he said, “You know, you guys could make the same stuff that our company did—medical equipment—and the guru that knows how to do it is looking for a job.” That was the start of Transmotion Medical. The number one place innovation comes from is the employees. This is not ESOPs, this is just in general. Now, if you have an ESOP company, you should really be listening to your employees. Before I leave that subject, you should note that whatever you do in looking at new ventures, you should make sure they align with the strategic plans for your business.

Funding—how do you fund new ventures? For five years we funded all our new venture work with our employee owners acting as our venture capitalists. We have done it successfully, and the growth we have had has been challenging financially, but it is a good challenge. Venture capital and angel capital is something we are beginning to explore. The federal government has Small Business Innovation Research awards to help develop new technologies and new businesses. And the State of Ohio funds new technologies, especially new technologies that will create significant jobs in the state.

We have been involved with power and energy since the beginning of our company. About four years ago, we recognized that the fastest growing part of the power and energy industry was renewable energy, so we started studying how to participate in that market. Two years ago, we founded Innovative Power and Energy Storage Solutions (IPESOL). At the same time, we recognized that PT Tech was no longer the proper umbrella organization for the direction we were headed, and we changed our name to EBO Group, which stands for Excellence By Owners.

The results of IPESOL have been four patents pending on some interesting solar technology and a book called Exponential Solar. It is the first book that really shows how renewable energy ultimately replaces all the fossil fuels we use and the importance of energy storage. In writing the book and learning about the renewable energy market place, we stumbled upon a technology at Bowling Green University that had not been commercialized and we felt it would play a very important part in the future. So we partnered with Bowling Green, and went after state funding through the Ohio Advanced Energy Program. Lt. Governor Lee Fisher, who was the keynote speaker last year, last month announced a million dollar grant to EBO Group for the development of our third new venture in the last six years, Triton Hybrid Drives, which is developing hybrid drive systems for commercial vehicles that will ultimately be plug-in hybrids for many kinds of urban vehicles.

We emphasize employee ownership in going after grant money, and I really think the state has become very aware of the economic importance of supporting ESOP organizations. In Ohio, we seem to be somewhat of a pioneer in the concept of launching new ventures within an ESOP.

In five years we have gone from a rustbelt company serving declining markets with declining sales and declining stock value, to a fast growing company developing products that the world needs for the growing energy and medical markets. The employee owners made it happen. They became venture capitalists, reinvented our company, positioned the company to be awarded our first government grant, and take on incredible challenges with amazing teamwork to make EBO Group an exciting, rewarding and fun place to work.

That is our story. I hope this might encourage you to at least explore the idea of starting new things in your company. Certainly, the idea of reinventing yourself to compete in the global economy is an important thing. You are all involved in a very exciting employee ownership community that has great support around Ohio. I wish you all great success. OAW