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California: News and Insight on Business in the Golden
State | LEARNING CURVE

Facing Facts Is Essential to a Business' Success

October 28, 1998|KAREN E. KLEIN

Frank Rhodes' father, Max, and grandfather, Ernst, founded the Elro Sign Co. and carved out a niche supplying wholesale plastic frames to sign makers around Southern California. When Rhodes became CEO of the family business 15 years ago, he found there were assumptions that had never been examined critically. Since Rhodes has begun asking some tough questions, the business has expanded from a mom-and-pop operation to a nationwide presence. Rhodes plans to open a fourth outlet next year in Chicago. He was interviewed by freelance writer Karen E. Klein.

I've found that it is very important to take an objective, critical look at issues that affect your business. It is tempting to avoid or ignore facts that are unpleasant or embarrassing, and it's easier to act on a hunch than it is to test something first and verify whether it is valid. But if you make decisions without looking at all the relevant facts, you'll probably make bad decisions.

When I joined the company in 1983, we had four or five employees and we were successful, but pretty low on the evolutionary scale of a business.

I started looking at the core beliefs of the company. For instance, we sold a number of small items at very low prices. There was a 20-plus-year-old belief that these sales were crucial to the company.

I measured the performance of these items and found out they were totally negligible to our overall profitability. I changed things so that we focused on much larger projects and we discontinued that line entirely. That was only one of the basic operating tenets that I found were not valid and that I had to overturn one by one.

Another thing that I've found is that it's important to assess why you are in business. We purchased the assets of a company in Washington, D.C., for a bargain. The reason we got such a bargain is that the owner had failed to honestly assess his motives for purchasing the business two years prior. His actions demonstrated that he wanted a large office, a fancy desk and the title of president.

He never learned the business or earned the respect of his employees, vendors or customers. In order to feed his huge ego, a 40-year-old company that had outstanding business potential collapsed. It would have been far less painful for everybody concerned had he just bought himself a new desk, a nameplate and a thick carpet and stayed away from becoming an entrepreneur.

Every business should look honestly at its strengths and weaknesses occasionally. We had a number of years with flat sales, during which time we tried and tried to improve our sales and marketing in-house. Finally we had to accept the very embarrassing fact that we were not good at those things.

We had increased our manufacturing and our sales had just grown in lock-step. But one of the evolutionary steps any company must take is to go from being technically competent to being a good marketer. We finally brought in outside expertise to help and we have seen a 30% to 40% annual sales growth since. And there is no end in sight.

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At a Glance

Company: Elro Sign Co.

Owners: Max Rhodes, Frank Rhodes

Nature of business: Manufacture, installation and sales of illuminated outdoor signs

Location: 400 W. Walnut St., Gardena, CA 90248

Founded: 1948

Employees: 35

Annual revenue: $3.5 million

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If your business can provide a lesson to other entrepreneurs, contact Karen E. Klein at the Los Angeles Times, 1333 S. Mayflower Ave., Suite 100, Monrovia 91016 or send e-mail to kklein6349@aol.com. Include your name, address and telephone number.

* More Small-Business coverage: C6-7

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