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How We Make More Money With Fewer Products

By Eric Edelson, Co-owner and Vice President, Fireclay Tile, San Jose, Calif.
Early 2009 was a tough time for the building industry, Fireclay Tile included. At its peak the tile manufacturer was a $3 million business, but the recession halved that and caused serious cash flow problems. That year, I joined the company and started working with its founder, Paul Burns, to help turn things around.

I immediately noticed two problems: a manufacturing process with very high overhead costs, and an excess of products that weren't core to the company's business.

Fixing these problems wasn't easy. The solution -- returning to the company's core values -- involved consolidating our manufacturing, shrinking our workforce, and cutting product lines that some customers really appreciated. But it seems to have worked: Our sales for 2010 were around $1.8 million, and our profitability is up, even though it continues to be a difficult time for our industry.

Adrift from our core values
Paul Burns, who founded Fireclay Tile in 1986, is a scientist by training and has a deep passion for product development. But while he's great at developing products, he wasn't always as good at selling those products. Paul believed that offering more choices would lead to more sales, and therefore more profits. In reality, that wasn't working, and the problems with that approach surfaced during the recession.

The broader problem was that the company had strayed from its core competencies and core values. Fireclay Tile's focus is custom-made, U.S.-manufactured, sustainably-produced tile. But some of its products weren't completely in line with that focus. For example, a surfacing material we called Jellybeans consisted of small pebbles made out of recycled glass and re-claimed stone. But the materials were imported from Taiwan, which meant the product didn't meet our "U.S.-made" criteria and didn't generate as much profit as other products

We decided to discontinue Jellybeans and other product lines that didn't fit our core values. In choosing which ones to cut, we thought about how we wanted the company to be perceived once the economy turns around and business improves. We also asked for feedback from our customers, both by using online surveys and by talking to niche customer segments directly. In the end, our decisions largely came down to our gut intuition about the future of the company and the financial realities we were facing.

The results of slimmer offerings
Our decision to shut down certain product lines was very difficult for a small segment of our consumer base, and some of them are still upset with us. But we put a lot of effort into clearly communicating the changes, and we found that the majority of customers cared most about our core tile products, and not as much about the ones we cut.

Though we lost some sales in the short term by cutting some product lines, we'll realize significant benefits over the long term. Reducing our product offerings allowed us to downsize operations by closing one of our two factories and moving all of the best employees to the other. These two moves helped us improve lead times, quality, and consistency. By consolidating our manufacturing we were able to cut overhead costs by a lot -- though it involved cutting our workforce by 15%. And by moving away from importing, we were able to avoid the inventory issues that many importers have had in recent years. Now that we manufacture all of our products in-house based on consumer demand, we can be extremely nimble and responsive, and we're never out of stock.

Growth returns
The changes we made over the last two years have helped our sales recover and improved our profitability. That's freed up money for us to invest in the future of the business: We recently acquired a U.S.-based glass tile manufacturer. Now we'll be able to expand our offerings to include a glass tile line, while remaining consistent with our brand. We've also hired five new employees.

From here on, we're going to make sure that every decision we make and every product we offer is in line with our core values. We believe they reflect the future. Sustainability and local production are only going to become more important in years to come, and this business has been practicing those values for a long time.

Eric Edelson is listed on Fireclay Tile's website as the "Business Guy." He was previously in charge of finance and business development at Nuun & Company, a producer of sports beverages. Before completing an MBA at Stanford University he worked at Lehman Brothers for four years.
--As told to Zack Anchors

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