200 Best Small Companies
Sell The Sizzle
11.01.04
Hawking big appliances to restaurants is
hot business. At least the way Selim Bassoul handles it.
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Here's how much Selim Bassoul loves customers--even the
smallest ones. Last year the chief executive of commercial kitchen equipment
maker Middleby Corp. invited Larry J. Reinstein, head of 12-unit Fresh City, to
visit him at Middleby's headquarters in Elgin, Ill., outside of Chicago.
Bassoul took him on a factory tour and talked up the latest grills, steamers
and toasters. But he also grilled Reinstein, who already did a little business
with Middleby, about his menu, from muffins to salads. "He took a great
interest in us," says Reinstein, who intends to expand his fast-casual
restaurant into a chain of 500 or more in a decade. "At one time,
McDonald's was the small customer," Bassoul points out.
No
signed contract emerged that day. But Bassoul, 47, knows he can bank on
upcoming orders from Fresh City as well as from much larger outfits like Yum
Brands (KFC, Pizza Hut, Taco Bell) and Domino's Pizza. That's why he spends
half his time meeting with prospective and existing accounts. And why Middleby
has pulled out of a deep slump. (In 1998 it lost $4 million on $132 million in
sales.) Since Bassoul moved to headquarters in 1999, the 116-year-old oven
manufacturer has racked up average annual earnings-per-share growth of 114%;
sales have gained 18% a year. The growth helps rank Middleby at 12 on our list
of the 200 Best Small Companies. Bassoul's 3% stake is worth a recent $16 million.
"I've never sold a single share," he says.
Middleby's
turnaround looked complete last year. But Bassoul still behaves as if it's an
ongoing event. "We do no victory laps," he says. In his frenzied
business, where customer loyalty can turn on a knife-edge, you've got to keep
selling, selling, selling.
Bassoul
grew up in Beirut, Lebanon, where standing still could get you killed. He
attended a Jesuit high school--among his classmates were Nissan Chief Carlos
Ghosn; Paul Saleh, Nextel's chief financial officer; and Gabriel Yared, who
composed the music for The English Patient--and the American University,
where he studied business. It was the chance to get an M.B.A. at Northwestern
University that brought Bassoul to the States. After bouncing around the health
care industry doing mergers and corporate planning for eight years, he did a
stint in sales and marketing at Premark, which also made industrial cooking
gear, before joining Middleby in 1996 as president of its Southbend division.
Southbend was an old brand of broilers, known for declining
quality. Parent Middleby was desperately selling everything from refrigerators
and slicers to, naturally, kitchen sinks. Bassoul loved the challenge and
started buying company shares as they headed toward a low of $3.
That didn't go over well with one tough customer: his
wife. "What about the kids?" she asked (they were then 6 and 8).
"I have great faith in Selim," she now notes. But selling everything,
save the house, to buy 88,000 shares made her uneasy as she quizzed him about
remaking the division.
It seemed simple: reorganize the plant and expand
product lines. He also offered 90-day full refunds and expanded
warranties--which appeared to be short-term suicide. The warranties cost $1
million the first year, but customers loved it and Southbend's operating income
(earnings before interest, depreciation and amortization) rose 75% in two
years.
His biggest selling job was inside the company. Bassoul
organized employee dinners. He pulled stunts--dropping a bag of bonus checks
from a plane and, on another occasion, delivering them in an armored
vehicle--that endeared him to subordinates. Ten workers painted the
130,000-square-foot factory for free, after-hours and on weekends.
"Selim's a good motivator," says Johnny W. Futch, a production
supervisor, who led the two-month effort. Payback: a night out with Bassoul.
The board was impressed, too, promoting Bassoul to
chief operating officer and bringing him to Elgin. After weeks of interviewing
employees and customers, Bassoul settled on a tough new strategy for the
company: get rid of 15% to 25% of the business in favor of high-margin cooking
and warming equipment. Amazingly the board didn't balk; instead, it embraced
the plan. "I said, ‘Selim, I want you to be aggressive,'" recalls
Chairman William Whitman Jr., who with his family owns 40% of Middleby (he
bought the company in 1983 and merged it with his carpet business). "‘If
you go too far, we can always pull back.'"
In his first 90 days Bassoul inflicted considerable
pain, slashing half of Middleby's 10,000 products and sending out 200 pink
slips. "When you give up $20 million worth of sales, there's a lot of
angst," says Mark Sieron, longtime manager of Middleby Marshall, a unit
that makes conveyor ovens. Bassoul also applied a salve, offering severance
packages he claims exceeded both the law and Middleby's policy of one week of
pay for every year of service. The survivors got monthly performance-based
bonuses. Bassoul promised results in a year and tied his own pay to
performance.
Middleby steadily improved, trimming losses to $1
million in 1999. The company broke into the black again in 2000. A year later
Bassoul replaced David Riley, who had hired him, as chief executive.
Now to build back. Key to Bassoul's plan was buying
Blodgett--a market leader in convection ovens, ranges and charbroilers--which
was 25% bigger than Middleby, owned by Maytag and, rumor had it, doing poorly.
Bassoul quizzed Blodgett customers, then sent a letter to Maytag. Soon Blodgett
was on the block. "We felt we could get in there and turn things around
quickly," says Timothy FitzGerald, Middleby's chief financial officer.
But the board wasn't so sure.
Several directors had lived through Middleby's disastrous 1989 acquisition of
Hussman Corp.'s food-service-equipment business. In that deal Middleby went to
court claiming that the parent had misrepresented Hussman's profitability. (The
case was settled in 1993 for $19.5 million.) Bassoul came in with his trademark
detailed research. "I felt hesitant at first," concedes board member
John (Jock) Miller III, but thought "this was the guy, if anybody, that
could make it happen." The vote was unanimous. In the summer of 2001
Middleby agreed to acquire Blodgett for $95 million, $74 million in cash and
$21 million in subordinated notes at 12% to 13.5%.
Bad timing. After Sept. 11, financial channels dried
up. "The banks said, ‘You do not want to do this,'" Bassoul
remembers. "That was a difficult time," says George Lyman, a senior
vice president at Bank of America, the lead lender. He was persuaded by
Bassoul's argument about why the deal made sense. Bassoul slept on the floor of
his lawyer's office the night before the deal closed in December 2001.
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Bassoul could now hit large accounts like Yum more
effectively since Middleby already sold ovens to Pizza Hut and Blodgett
provided KFC with fryers. Some big customers like Darden Restaurants (Red
Lobster, Olive Garden) loved Blodgett equipment, but hated the service and were
close to dropping the company as a vendor. But Patrick Hynes, senior director
of purchasing at Darden, changed his mind after Bassoul paid a visit. "He
knew exactly the problems." The restaurant chain is now a big buyer of
Middleby conveyor ovens and fryers. Bassoul also saw fresh opportunities in
smaller players. In 2001 the growing category of fast-casual dining represented
1% of Middleby's sales; today it accounts for 10%, including chains like
Culver's and Fresh City. Middleby says they, too, qualify for the same
no-quibble warranties the big guys get.
The Blodgett acquisition has helped to spur new-product
development. Middleby will turn out ten new items this year and nine more in
2005. The logic: The latest devices generate 30% of sales.
That's because Bassoul is always out there drumming up
interest. As in Middleby's energy-saving conveyor pizza oven, now in its second
incarnation. The first generation, introduced three years ago, cut energy use
by 30% and cooking time from 9 minutes to 7.5. But Bassoul says Domino's Chief
Executive David Brandon wasn't interested in replacing old ovens in his
7,500-unit chain unless new ones substantially cut his electric bill. So the
PS670 oven, out mid-2005, cooks a pie in 5.5 minutes. "I am sure the
industry pushed Middleby to work on this," says Brandon. "I can't
take credit." (Meantime, Domino's placed an order for a few hundred first-generation
ovens.) To lure Papa John's chief executive into buying the latest model,
Bassoul has offered to buy back old Middleby ovens; they will be refurbished in
Mexico and resold to developing nations. (Papa John's, while already a large
customer, hasn't yet bit.) "My biggest marketing problem is our products
last forever," says Middleby Marshall's Sieron.
So Bassoul turns to new prospects--for ideas as well as for
potential sales. Two years ago he heard from Hilton hotels that the standard
32-inch range was too small. Middleby now makes a variety of 36-inch ranges.
Potbelly Sandwich Works, with 62 stores, is testing Middleby ovens and those of
a competitor. Bryant Keil, Potbelly's chief, met Bassoul recently at an awards
function. "I think he's making sure they get the product right before
giving the hard sell," says Keil. Bassoul, naturally, is confident he'll
win the business. "Then I'll call Bryant Keil and say, ‘Bryant, what else
do I need to do?'"
Some inspiration comes from unexpected sources.
Although the industry is dominated by men, Bassoul last year assembled an
all-female focus group he credits with ideas for an upcoming self-cleaning
convection oven with an anti-microbial handle. (Those features were pioneered
on other appliances by other companies.) Bassoul says women are more practical
and insightful than male chefs, who tend to want things they don't need--more
heat, say. "It's like they have a V-6 [engine] and want a V-8," he
explains, "even though they will never be able to race it."
To get closer to his customers, Bassoul is also
refining headquarters. This year, for example, he fired all public-entrance
receptionists. He wasn't moved by cost-cutting, he says. Rather, the staff was
an unnecessary layer between clients and the company. Bassoul lists his cell
phone number on his voice mail message--twice. "Do you know how many
people tell me that's crazy?" he exclaims.
Bassoul sometimes oversells. One of his pet projects is
a conveyor broiler due out next year--put a hamburger patty on its moving belt
and it emerges two-and-a-half minutes later fully cooked. "It will most
probably cannibalize my business," says Bassoul, convinced the automatic
broiler will make burger-flipping obsolete and jeopardize $4 million to $5
million of annual sales. But he neglects to add that Nieco, a privately held
company with $20 million in sales, has carried a similar product since the late
1960s. Confronted with the facts, Bassoul shrugs, adding that his line will be
less expensive and more appealing than what's already out there.
Some efforts simply fall flat. Middleby's multiyear
courtship of a submarine sandwich chain has gone nowhere. "We're trying to
convert them from using toasters to ovens," Bassoul sighs, adding that he
has repeatedly played host--and testing site--to the company. "They were
here a few weeks ago." Seems it's a matter of cost, and Middleby isn't
willing to budge yet.
Meantime, there are plenty of opportunities to practice
his salesmanship. In late September Bassoul took a four-hour flight from Beirut,
where he'd attended a wedding, to Frankfurt, the site of a trade show. Along
the way he regaled the businessman next to him with the tale of Middleby's
transformation. "He was fascinated by our story--that there is a company
in the U.S. still building toasters, fryers and ovens," Bassoul says.
Never mind that his fellow passenger didn't buy a single stainless-steel item.
That's because Carl Bistany is president of Sabis Educational Systems, which
specializes in college prep.