Rags to Niches
When Southern California’s aerospace industry went into the tank in the early ‘90s, John Stead and John Schoolland saw an opportunity to do a little bottom-fishing.
While other companies were busy sacking employees and whacking budgets, the makers of specialty aircraft tools snapped up some troubled competitors in anticipation of the recovery ahead. They moved aggressively into foreign markets to offset slumping domestic sales. They even managed to expand their U.S. client base in the depths of recession, while the salespeople at some rival firms had seemingly given up.
“While they were sitting around, I was calling on their customers,” said Stead, a native of South Africa and a principal in Camarillo-based Omega Technologies Inc. “We did a lot of legwork we knew would pay off when things turned around.”
Contrarian thinking and tenacity paid off for Omega, which last year posted net income of $414,000 on revenue of $9.6 million. Foreign sales, which accounted for nearly 25% of that total, have grown nearly 1,000% over the last four years. That performance caught the attention of the Los Angeles district office of the U.S. Small Business Administration, which will name Stead and Schoolland the region’s Exporters of the Year at an awards ceremony next month.
High tech and biomedicine may grab the headlines, but Omega and other SBA winners this year are making their marks in old-line industries such as aerospace, travel and food service--a reminder that traditional fields still hold promise for creative entrepreneurs. Resilient business owners who understand how to capitalize on change can flourish regardless of whether their industry is emerging, growing or stagnating, experts say.
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“There is a lot of opportunity in so-called non-glamorous, no-growth industries,” said John Rooney, president of the Van Nuys-based Valley Economic Development Center, which provides entrepreneurial training and technical assistance to small businesses in the Los Angeles area. “They are ripe for innovation simply because things have always been done a certain way. Entrepreneurs who can re-engineer how the business is done, find a unique niche or somehow break the mold are finding real success in industries others overlook.”
For Omega, that meant shrugging off the recession-induced malaise gripping its industry to concentrate on building foreign sales and preparing for the anticipated recovery of U.S. aerospace.
“We had the same information as everyone else,” Schoolland said. “The difference is that we acted on it.”
Tadako Newman, winner of the SBA’s local Entrepreneurial Success Award, likewise used adversity as a springboard to take her travel agency to the next level.
The wife of a retired foreign service officer, Newman purchased a small travel agency in the late 1980s, figuring the couple’s globe-trotting qualified them to run a travel business. They were in for a rude awakening.
“It was a nightmare,” recalled Newman, now president and chief executive of N&N; Travel & Tours Inc. of Redondo Beach, which does business under the name Galleria Travel. “I wasn’t sure what we had gotten ourselves into.”
The Newmans had entered the industry just as rapid consolidation was making it harder for small fry to compete. Through sheer determination they doubled revenue to about $1 million annually by the early ‘90s, but profit margins were shrinking. The couple realized they had to do something dramatic or get out of the business.
“We had to take a chance,” said Irv Newman, who manages the Redondo Beach office. “We had nothing to lose.”
They set about learning the painstaking but profitable business of federal contracting. The U.S. government spends hundreds of millions of dollars annually on employee travel, making a portion of that business available to small and minority-owned firms.
Today the Newmans run the travel operations at six military bases, including Edwards Air Force Base near Rosamond, Calif. Last year revenue topped $29 million, and the agency has grown so large that the Newmans no longer qualify as a small, “disadvantaged” business for contracting purposes.
Making the leap wasn’t easy. Euphoria over winning their first big contract in 1994--a $5.7-million deal with Travis Air Force Base in Fairfield, Calif.--was followed by panic when the couple realized they didn’t have the working capital necessary to support the increased business.
They maxed out their credit cards, drained personal savings and borrowed from friends while pounding the pavement to find a banker who would lend on the government contract. Union Bank of California finally came through with a $400,000 SBA-backed line of credit, in part because N&N; had found a way to distinguish itself from the pack.
“There are a lot of travel agencies out there, but not a lot that deal with the government,” said Clinton S. Faltermayer, vice president of Union Bank. The Newmans “developed a niche and a particular expertise that set them apart.”
Travel is one thing. But how does one rise in the bagel business, where outlets are now spread thicker than cream cheese?
If you’re stepbrothers Stephen Brody and Anthony Roberts, the SBA’s 1998 Entrepreneurs of the Year for the Los Angeles area, you stick to the wholesale side.
Carson-based Southland Bagel Co., which was founded in 1983 with a $500 loan from Brody’s mother, last year posted $135,000 in net income on sales of $4.8 million. The majority of those sales came from school food service and other government institutions. Their products include fresh bagels, frozen meat-and-cheese-topped bagel pizzas and sandwiches, specialty breads and traditional pizzas.
Southland Bagel’s lone flirtation with retail sales ended back in 1986, when the company’s first and only bagel outlet burned to the ground.
“It’s just as well,” Roberts said. “Instead of four gas stations on every corner, now it’s four bagel shops. . . . It’s tough to build a name that way.”
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Anxious to get some practical business experience, the stepbrothers launched the business while they were still twentysomething college students working part time at Brody’s father’s Sherman Oaks bagel shop. There they came up with a recipe for a “pizza” bagel, a sliced bagel topped with tomato sauce and grated cheese.
They enjoyed modest success peddling their creation to local catering trucks. But their real break came when the Los Angeles Unified School District ordered 24,000 of the things. Brody recalls pandemonium in the back room of the bagel shop as they sliced and prepared all those pizza bagels by hand.
“They might as well have said they wanted a billion of them,” he recalled with a laugh. “It was an unbelievable order--$12,000. Wow! We were really in business.”
That youthful enthusiasm turned out to be an asset. While some young entrepreneurs say their inexperience hurt them in the beginning, Brody and Roberts used it to their advantage.
“We weren’t shy about asking potential customers to help out a couple of young kids,” said Brody, now 40. “There are people out there who want to do business with you because you show gumption and initiative and innovation.”
That is, until you grow large enough to become a threat. Going head-to-head with the big guys is now the challenge for Southland Bagel, which is looking to expand beyond school cafeterias and government contracting to serve hospitals, restaurants, airlines and other general food-service clients.
That turf is hotly competitive, so the partners are banking on product innovation to keep pace. They’re currently tinkering with recipes for fruit-flavored bagels, rolling out new bagel sandwiches and developing a new bagel product for a large restaurant chain.
“The next five years are critical for us,” Brody said. “We hit it big with pizza bagels, but products like that are rare.”
N&N; Travel is facing much the same challenge. No longer eligible to compete for government contracts earmarked for small businesses, the agency will bump up against some of the biggest names in the travel industry in its bid to win future government business.
Still, Newman is unfazed. She knows overhead for the 50-employee agency is lower than that of bigger firms and figures N&N; knows the government contracting ropes as well as anyone.
“We can do it,” she said. “We may not be the smartest people in this business, but we work very hard and we don’t give up.”
The biggest potential threat to Omega’s thriving aircraft tool business is an oil crisis or a war that would ground air travelers and send fuel prices up. Despite recent rumblings out of OPEC regarding price increases, those possibilities look remote for now.
Still, Stead and Schoolland are continuing to explore new foreign markets and expand their product lines to prepare for turbulence in their industry.
“Turmoil creates opportunity,” said Peter Cowen, head of Peter Cowen & Associates, a Westwood-based advisor to early-stage companies. “There are always ways to capitalize. Successful entrepreneurs figure out how to do it.”
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Southland Bagel Co.
Principals: Stephen Brody, president; Anthony Roberts, vice president
Business: Makes bagels, meat-and-cheese-topped bagel pizzas, sandwiches, flavored breads and traditional pizzas.
Headquarters: Carson
1997 revenue: $4.8 million
1997 net income: $135,000
Number of employees: 60
1998 regional SBA award: Entrepreneurs of the Year
Key strategy: Cracked the school lunch program with a hot-selling pizza bagel and avoided the retail bagel wars.
Entrepreneurial advice: If you’re a young entrepreneur, use your age to your advantage by demonstrating hustle and enthusiasm. If you can get the job done, people will take you seriously.
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Omega Technologies Inc.
Principals: John Schoolland, president; John Stead
Business: Manufactures specialty aircraft tools
Headquarters: Camarillo
1997 revenue: $9.6 million
1997 net income: $414,000
Number of employees: 57
1998 regional SBA award: Exporters of the Year
Key strategy: Expanded overseas and bought out troubled competitors during the 1990s recession in preparation for industry rebound.
Entrepreneurial advice: Never lose sight of the big picture. To export successfully, deal exclusively in dollars, extend credit only to established clients, choose experienced sales reps based in that country, visit your foreign customers at least once a year. Remember, if export customers want mediocre service, they can get it a lot closer to home. Promise excellence, then deliver it.
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N&N; Travel & Tours Inc.
(doing business as Galleria Travel)
Principal: Tadako Newman, president and chief executive
Business: Full-service travel agency that operates the travel concessions for half a dozen military bases
Headquarters: Redondo Beach
1997 revenue: $29 million
1997 net income: $258,000
Number of employees: 50
1998 regional SBA award: Entrepreneurial Success Award
Key strategy: Pursued government travel contracts earmarked for small businesses.
Entrepreneurial advice: Ask for help. The SBA and professional organizations have lots of resources available to assist you, so use them. Take a chance. If your industry is changing, you’d better do likewise. Most important, don’t give up.
