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November 1, 2011

Watch and Learn

Mike Petersen of Petersen Aluminum Corp. on building a team, staying competitive and remaining independent.

Mike Petersen, president of Petersen Aluminum Corp. in suburban Chicago, hates the word “culture.” He also hates the word “synergy.” Business buzzwords are easy targets for his signature dry irony—too vague, too hackneyed, too easy to throw around without saying anything. He hasn't built the business his father founded by following warmed-over advice. Rather, Petersen's success is due more to a habit of simple observation, and the ability to see an opportunity, a market direction or a bad idea, and act accordingly.

“I don't like to blow smoke,” says Petersen of his management style. “And I don't like anybody else to.” If you would like more information on his leadership style, he refers you to his mother, or his wife.

Petersen is also famous for a couple of high-profile incidents. No conversation about him is complete without the tale of his riding a Brahma bull into the National Association of Aluminum Distributors annual meeting in 1998 and having the bull, in response to the loud welcome and the popping flash bulbs, “baptize” the proceedings. There is also his opening the dance floor at the MSCI Annual Meeting in Maui wearing a coconut bra and a grass skirt. Blowing smoke, business buzzwords and taking himself seriously head the list of things Petersen doesn't like.

What he does like is the metals business, specifically his commercial construction niche. He came to work at Petersen due to his father's ill health (after majoring in history at Colgate University), but when it came time to take over, he discovered “that I was really enjoying it.”

Thirty years and 10% year-over-year growth later, he still is. When Petersen took the company over from his father, it was a single service center, generating about $6 million in revenues. Under Petersen, the company has grown to $120 million in its best year, just before the recession, and has expanded to five offices around the United States.

He talked with Forward about the foundations of his business, its growth and what's ahead for the industry.

How do you build an effective team and keep it together?

“We've done really well in finding entrepreneurial managers, family or not. If you asked them, they'd say they feel like they're running their own company. Proper compensation is one way to keep them but if you go to one of our locations, there are people who feel like they're part of a team effort. I'm really psyched about that.”

“Delegate down. I've always appreciated contrary opinions. I've tried to create an environment where they can come out. New product ideas come from the sales team in the field. If I hear I need a new panel profile from the guy in Atlanta and the same thing from the guy in Texas, I know that's something that has some legs in the entire Southern tier. If we don't answer that demand, we could be knocked out of certain opportunities. Regional managers are very key people in the company.”

“There are 15 to 20 people I would draw upon for big decisions. The final decision probably lies with me, but there's no word from the mount.”

“It's a very collegial place to work. We put off things like renovating our offices during the recession instead of laying off some percentage of our work force, as some other companies did. As a result, I would bet our people are probably even more devoted to the company than before the recession. We tend not to lose people. Slackers don't make it very far, but we manage to keep the good ones.”

How have your family and its interests been reflected in the ways you've built this business?

“I have two brothers-in-law who have been significant contributors to the company. We've gone through the second generation very successfully. We have eight nieces and nephews in the next generation, one of them working for us. I'm very pleased about that. I have two kids. I made the decision to raise them differently than I was raised. We'll see whether one of them likes this business.”

“Over the last decade there's been the question of whether to succumb to the consolidation wave. Acquire or be acquired. I certainly didn't want to wake up one day and find out we were irrelevant. Given the time I spent on the boards of our industry's trade associations, among the leaders of our industry, I was able to observe what was working and judge what was more likely to fail. So when I was finally approached by a company that was engineering a roll-up in the distribution industry, I could say no. If I had said yes, I would have destroyed our family's wealth. That was one of my better calls—my family certainly would agree—and I could make it based on what I had seen at other companies.”

What's the story behind how you broadened your business from just aluminum into steel as well?

“When we added steel, I was in sales. As a company that exclusively sold architectural aluminum, I kept looking at why we lost a deal. A lot of times it was just a matter of cost per square foot. There was no qualitative reason for the customer to pick aluminum over steel. We decided to add steel to broaden our product line and stop losing those opportunities. Once we did, we had to figure out who we would we buy it from, how many colors and which gauges.”

“The first time around, we got it so wrong we almost went out of business. We thought we were real clever by offering the first prefinished steel in dark bronze—our most popular aluminum color. But at that point, our main competitor had set the market as to color palette. They picked a different shade of dark bronze and as we weren't the market leaders (in steel) we found ourselves stuck with several thousand tons of the wrong color—a lemon, if you will. That mistake put us on the ropes but we licked our wounds, rethought our market plan and went back at it. Today, prefinished steel is our biggest product line.

“Adding rollforming was the same calculation as for adding steel. Why didn't we get that order? Because the customer wanted continuous-length panels rather than shingled ten foot hand-fabricated shapes. We had to have rollforming capability in order to do that. We got the go-ahead to invest in one rollformer from my father, and then another and another. There was no real master plan. Today we have several rollformers in each of our locations.”

“Our primary marketing goal is to build architectural specifications. We have a very diffuse customer base: architects, construction managers, structural engineers. They create demand by specifying our products. Once we're in, we then have to work on our direct customers, the subcontractors, not the general contractors.”

“We have to have extensive marketing in order to get into that market. Marketing doesn't mean anything, of course, if you can't back it up with service. It's a multi-pronged approach to get to that.”

“If you're a contractor and have penalty clauses for not delivering on time, you don't want it in four weeks, you want it in the two weeks it was promised. There's a chain restaurant opening down the street here. They have a set date for their opening. If you're the reason they're not opening on time, you won't be their supplier for very long.”

What is the importance of marketing, building an effective brand, the Internet and social media?

“Unlike most companies in the metals business, Petersen spends a significant portion of its revenues on marketing, more than $1 million a year, or about 1% of total revenues. Early on he saw the value in creating a recognizable brand.”

“One of our leading competitors was and remains Vincent Metals (now part of Ryerson). They had a product called Color Clad. They were to coated steel what we were to coated aluminum. We tried to create a brand name to compete. Over the years we have been so successful that we found more people recognized PAC-CLAD than Petersen Aluminum Corporation. Ad-Q reports and readers' surveys told us that. The brand name also gives the customer the option of going with steel or aluminum as a substrate. We've been hammering away at PAC-CLAD for 35 years now. We've built a brand. That takes a long-term game plan and consistent effort.”

“Our first marketing effort was a newsletter my father wrote. That was great until the Internet came along. We jumped on the Internet because our customer base is very driven by visuals, by their aesthetic. It has to appeal to the eye, appeal to their design sense. We've always put a lot of money into professional photography. If all you look at is our website and compare it to our competitors, you'll pick our product. It's really paid off.”

“We wanted to be the answer man for any kind of metal roofing. You have to have wind uplift testing, recycled content, clip spacing and fastener information. These are like tinker-toy projects. You have to have every tinker toy in the right order and know how to put it together. We've always looked at our own website critically. We also looked at our best competitors to appraise what to emulate, or not.”

“We advertise in 30 or 40 magazines. We used to get ad reports—who sent in the bingo card, that sort of thing. But I've always used what I'll call an intangible set of judgments to figure out what to advertise in. Which magazines are in architects' offices? Which ones treat you the best and give you good placement?”

“Now there are all kinds of online marketing opportunities. But most people come to our site by typing in our brand name. That's the end result of the full combination of 30 years of marketing efforts.”

Petersen recently added social media—Facebook, LinkedIn and Twitter—to the mix, “in order to get to the first page in Web searches. We needed the combination of things. It's challenging to keep coming up with ideas that keep you at the top of search rankings.”

What do you see ahead for the industry?

“One of our vendors was [in my office] yesterday and asked my prognosis for the year ahead. I said, 'Well, I've been wrong so far, so maybe the opposite of whatever I say.' If you look at the Architectural Billing Index, it's been below 50 since April, except for one little peak. That's not comforting going forward, but we're tracking ahead of our own projections right now.”

“The 2012 outlook for aluminum is tough to predict. The drivers of supply and demand have moved offshore. It used to be that the U.S. economy drove pricing, drove demand. A lot of that has moved to the emerging economies, China and India. That's no great insight there, but it makes U.S. market conditions harder to predict. Today aluminum can be part of a financial instrument that has more to do with a hedge to the dollar than to final industrial demand. The emergence of financial instruments like exchange-traded funds [ETFs] and similar baskets of commodity products has created an entirely new market element. ETFs, for example, have to be backed up with physical product. Aluminum is produced and stored at [London Metal Exchange] warehouses to fill these requirements. It is essentially a new market for aluminum that didn't exist before, and in my judgment it has made a hash of supply and demand.”

How would you describe the key elements of your growth strategy as it has evolved over time?

“We've probably achieved far higher results than [my father] might have expected. He was an extraordinary opportunist in his time. The thing that got us into the commercial construction niche was an acquisition he made, a company that produced anodized aluminum. That introduced us to a whole new group of customers, primarily involved in commercial construction. He did it all from a Chicago base but I was young and saw no obstacles to travel so I went and looked for opportunities.”

“Geographic expansion was the first step. Adding steel capabilities was next. Adding rolling capabilities was next.”

Navy Pier, Chicago, Illinois

“If you look at a 250-mile radius around each plant, you have a good picture of the market. We're not strong in the West. To my way of thinking, it's not as strong a metal market. If you drive around Phoenix, you see a lot of tile roofing. That's the kind of thing we look at.”

“We've steadily built our product line. We kept adding capabilities. We invested steadily in new production equipment. Our front-line sales team is out there identifying products we could sell if we had them. We've kept our money in the company and maintained a pretty steady flow of capital investment. And over time, our returns have been exceptional.”

“[My father] gave me a long leash. But he always said I wasn't a risk taker. Maybe he was trying to goad me, but in hindsight I think he was wrong. My management team brought in the steel line. We drove the geographic expansion. Those were risks, significant risks.”

“I go back to my father's mantra: Pay down your debt. Pay down your debt. He was a Depression era kid. His father lost his job and ran a tool and die business in his basement. We have a very conservative balance sheet. We live within our means. When the downturn came, that conservatism made it a little more tolerable. I believe we have competitors who were over-leveraged [when the recession started] and hence were forced to make decisions they didn't want to make.”

McCormick Place, Chicago, Illinois

“A lawyer friend of mine recently took a look at our financials and said, 'I see a lot of untapped potential.' I think he saw it as a failing. I took it as a compliment.”

“When I started, our primary markets were industrial. Now they're architectural. I drive around [Chicago] and see the projects we've done. The big swooping half wing that hangs over McCormick Place; the Harold Washington Library; the front entrance to Navy Pier. I'm very proud of that.”

“I'm very proud of where our company is right now, proud of the group of people I've put together. And I'm very optimistic about where we can take this company as an independent distributor.”