Conversation Series: Bill Foley, LESCO

Currently, stock sits at $22.25 per share. It’s at an all-time high and reportedly growing faster than the NASDAQ itself.

In four years, Bill Foley, president and CEO of LESCO Inc., has taken the Rocky River, Ohio-based company from sales of $145 million to $312 million. Over the same stretch, the number of service centers has grown from 90 to 215. Perhaps most importantly, the management of LESCO has been fully revamped to instill service first and foremost, leading to the LESCO mantra, "Customers for Life."

In the following exclusive interview with Lawn & Landscape magazine, Foley reveals his strategies, thoughts and fondness for the professional lawn and landscape industry.

Q. What are some of your greatest successes in your 4-year term at LESCO?

A. The most important thing is that we’ve grown the business. We finished 1992 with sales of $145 million and we finished 1996 with sales of $312 million. In four years, the business has more than doubled.

Secondly, we’ve built an organization of people who are professional managers who can lead us into the next level of growth and can take us where we want to go strategically around the country. Product quality has changed significantly. Specifically, our consistency in product quality has been enhanced in both soft and hard goods.

And, finally, we put into place a foundation for growing our business that we believe is going to be really exciting. There have been a lot of additions to the management process along the way like improved systems, plants, logistics management and service. We're really blessed with a can-do culture.

Q. Is it difficult as an outsider, so to speak, to bring some of these visions to reality?

A. LESCO has grown significantly in a short period of time. Growth is probably three plus, almost four times the industry average. Anytime you go through that kind of rapid growth, transitionally, there are lots of issues to address. We’ve grown from primarily an entrepreneurial environment to a corporate environment requiring different kinds of management practices. I will tell you it hasn’t been a straight line and it hasn’t always been easy, but the foundation that Jim [Fitzgibbon] and Bob [Burkhardt] built here was sound from the beginning.

It was all built on a strong work ethic and a real commitment to the customer. Once you start off with that as the foundation, a lot of things are easier to come by. But, as you get bigger, you need more controls, plans, budgets and better systems. Those are things we’ve been able to do that weren’t in place that needed to be in place if we were going to survive for the long term. It’s been a lot of work, but a lot of fun, too.

Q. In the first quarter of 1996, LESCO stock was at an all-time low. What’s changed in the last year? Has your focus on expense management paid off?

A. Strategically, when I first got here, one of the things we tried to do was build a blueprint for the service centers. We added 70 stores in 24 months. That cost us a lot of money. What’s changed is that many of the investments are starting to pay off. The investments in infrastructure are primarily completed. So we don’t really need to invest incremental dollars. Every time we grow a dollar in sales it takes less G&A support to be subtracted from that dollar so you’ll see more fall through as income.

We’ve also focused more on costs and cost management. We’ve tried to improve our margins where we can, and we’ve walked away from some sales that we might have taken in the past that were not as profitable as they should have been.

In fact, we’ve dropped from offering about 40,000 products to offering about 5,000 over the last four years. Many of them were parts and products that we no longer manufacture. At the same time, we added 105 new products in 1996.

And LESCO stock is at an all-time high. It’s up 50 percent since February 1997. It has taken a long time to get in a business position to perform this way. If we execute our strategy, this is just the beginning.

Q. How do you balance the needs of your customers against the needs of the stockholders?

A. It’s always a challenge. Trying to manage for all of the interests and all of the constituencies that influence a business is never easy. When you’re trying to go through the implementation of a fairly complex strategy, it’s even more challenging. Then you throw in weather, urea shortages and all the other things that have happened over the last few years and it gets even more complicated.

In fact, 1997 is really the first year we’ve had normalized weather conditions where we could really demonstrate our capacity to perform. As a business manager, I’m far less interested in quarter to quarter – although that’s very important – than in making sure our strategy is implemented properly. I really don’t serve the shareholders’ interests well if I respond totally to quarterly pressure. I have to be able to execute a strategy because that’s how we create real long-term shareholder value.

Q. LESCO has a slogan, "Customers for Life." Do your customers understand what you’re driving at?

A. I think they’re beginning to know. First of all, it’s not an end game – it’s a journey. "Customers for Life" is found conceptually throughout our strategic plan in terms of how we look at our physical assets, how we look at the company and how we build our systems. We started down that path because we weren’t satisfied. We wanted to make certain that if we were going to commit to the customer then we were going to allocate the necessary corporate assets and investments to make that part of our business management stronger, every day.

What does that mean? Attitudinally, we want to make sure that everyone understands that customers come first. It’s part of our training, how we spend money for the future and, for us, it’s about getting a little bit better everyday.

It's two years plus since we began the concept of "Customers for Life," and we’re still not satisfied. We want our customers to get whatever they want from us whenever they need it. We want our products to be easy to buy, easy to handle and easy to use. If we can do that, we think there’s a value for the customer.

We also see it in terms of our shareholders and our associates. We want them to come here – to be customers for life – and to develop a career path for them. I don’t believe this journey will ever be complete. I don’t know that we’ll ever be as good as we would like to be, but I can tell you that it consumes a great deal of management horsepower.

Q. Your strategic plan calls for 600 service centers around the year 2002. Those centers, along with your Stores on Wheels, are the cornerstones of the LESCO business. What’s the strategy behind them?

A. Service centers and Stores on Wheels are unique approaches because they take a product and the inventory close to the customer for easy access. That’s really an important differentiation for us. The other approach is selling directly to the end user, which differentiates us in many respects.

The fact that a customer can drive his or her truck in and out of our stores in five minutes is a real important benefit. Add to that the fact that we take the Stores on Wheels right to the golf courses and the superintendent. As a result, we take inventory to them. That’s a service you don’t typically see in this industry. There’s no question that those are critical components.

What we’re trying to do now is add other features and other benefits that continue to differentiate our business.

Q. How is the MTD Products Inc. joint venture going to make LESCO a stronger company?

A. First of all, we’re excited because it allows us to bring exciting manufacturing technology with sales and marketing expertise together to bring some innovative new products to the marketplace. We think we can continue to drive the business forward through innovation. That’s going to make us a stronger company.

We have a 50/50 joint venture that is designed to build world-class equipment for the commercial turf industry. We’re going to pool our collective intellectual capacity and bring some pretty neat products to the market. It’s a critical part of our future.

Our equipment business has grown, but we want to bring out fresh new products so we can attempt to create new ways for the end-user to get better results. I think we have the ability to pull that off.

Q. It's an interesting time in the green industry. Why is MTD interested in growing its presence in a saturated commercial mower market?

A. There's a lot of consolidation going on in every industry, and people are trying to find scale and the ability to influence the customer base. Something that helps us is the fact that we sell direct. Our customers can walk in and see LESCO product on the shelf or on the floor and run it out back and try it. We have very direct access to how our customers perceive our product every day.

That feedback system helps us design, develop and engineer equipment that meets the needs of the person who actually does the work. We’re very close to the customers from an attitudinal perspective. We know what they like and what they don’t like. We know what works and what doesn’t. We know what they think of our products relative to the other products.

MTD is a terrific company. A lot of people don’t know it well, but the management is first rate. Culturally, we’re very closely aligned; we have the same objective to grow the professional turf business. I think, but I don’t know this to be a fact, that consumer business is starting to flatten out from a demand standpoint. There’s a movement to have someone else care for your lawn because time is a valuable commodity. We make great partners, to say nothing of the fact that we’re only 20 miles apart.

The LESCO line will be moved. All of our equipment and hard goods will be manufactured in a new facility in Streetsboro, Ohio, which we took possession of June 1. Production started six weeks later, and we’ll be fully integrated by the end of the year.

Q. With all the world-class technology available today, is there a mower or aspect of a mower that hasn’t been addressed?

A. That's a great question. I think lots of different companies have different approaches and concepts, but I don’t think anybody has blended it into the super mower. And I think that’s clearly what we need to be thinking about. The product needs to do a number of things. It needs to be cost effective, easy to maintain, easy to operate, powerful and do a great job.

I think everybody has a piece of the answer, but I don’t think anybody’s changed the game significantly. There’s some interesting concepts out there. We have to really think out of the box and try to look at all of the elements of each of the competitive products and try to fold them into one.

Q. LESCO offers a strong mix of hard and soft good products. Can one industry supplier truly be a full line product, service and education provider?

A. We can do it today at 215 locations. That’s the foundation of our business. The idea is really simple. If you’re a customer, we want to have everything you need when you walk in the front door. Whether it's blades or belts or 2-cycle engine oil, spark plugs, insecticides, fertilizers, etc. If you need it in this industry, we want to be able to provide you the products you need.

It's not easy, and it’s not for everybody. It’s the combination of hard goods and soft goods that is a challenge. When you throw in the complexity of a broad cross-section of chemicals, manage and grow 32,000 acres of seed in Oregon, manage the genetic development of seeds, develop a 52-inch hydro drive, a 20- hp walk-behind mower, sell hand-held power tools and carry a line of golf accessories — that makes it a fairly complex business to manage.

And then when you’re also vertically integrated — producing 55 percent of everything you sell at your own factories — that makes it even more complex, but it’s also the strategic difference that makes us somewhat unique in the marketplace.

Q. How will the business of providing lawn care change in the next 10 years?

A. The first thoughts that come to mind are the continued emphasis on environmental care, product stewardship and understanding and using products properly so that both customers’ needs and the environment are properly protected.

Secondly, I believe the industry will continue to see an increase in demand primarily driven by changing demographics. The aging population will continue to create increased demand for our products and services, which bodes well for the next 10 years in terms of creating opportunities not only for entering the business but also for achieving continued growth.

Further, I believe there will be increased regulation and certification required of lawn care applicators as the industry works to improve its image as well as the quality of the products and services provided to the end consumer.

From a product development standpoint, I think new (control product) technology will continue to come to the floor which will be applied in increasingly lower rates and will continue to require sophisticated understanding of the its use to make certain that these materials are used effectively.

Q. Working at The Scotts Co., did you ever think you’d sit in this chair? With your consumer background, will LESCO enter the consumer side of the business?

A. I never had a clue. I remember sitting in managers meetings and listening to the guy who ran the professional business talk about this company in Cleveland. We’re very different companies, but we’re good competitors. I still have a lot of friends there.

I’ve spent 27 years in business, 22 of it in consumer product divisions. There are days when I’m tempted, but it’s important that our focus stays on the professional market. I’m going to push those feelings aside.

Q. Who are your mentors? How have they helped you formulate your business strategies for LESCO?

A. Two people come to mind. One is Le Herron, 76, who is on our board and who is the ex-chairman of Scotts. He’s had an incredible influence on the way I think. He’s helped me become a better CEO, and he possesses an insight and intuition that are just phenomenal. The other is Bob Fowler, president of IMC Global, who was president of Rubbermaid when I was there. He has tremendous operating skills and a management style that I think is pretty terrific.

Q. Where will LESCO be in five years?

A. We think we can open 600 service centers. We’re going to continue to expand in golf. We’ll continue to expand internationally. We’re currently doing business in 35 countries. We’ll continue to bring fresh new product to the marketplace through the joint venture and in fertilizers, chemical products and new seed. We’ll continue to try to get better every day in taking care of customers’ needs. Bringing service closer to the customer is an important part of our strategy. It’s who we are. So we’re going to continue down that path and try to hone it and make it better a little bit at a time.

Look for LESCO on the Internet at www.lesco.com.

The author is Publisher of Lawn & Landscape magazine.