Volume 35, Number 2, February 2000

 

Anatomy of a “Pusher”

Up Close with Arch Aluminum’s Leon Silverstein

by Debra Levy

wpe2.jpg (13955 bytes) Leon Silverstein has grown up in the glass and metal industry. He currently serves as  president and CEO of Arch Aluminum and Glass Company which his father, Robert      Silverstein founded in Miami in 1978. His grandmother was the youngest daughter of     the Perilstein glass family from the Pennsylvania area. From a single truck and a handful  of employees, Arch has grown to 17 branches across the U.S., including a thriving        export business. Most recently, it opened a branch in Phoenix and purchased the manufacturing assets of Coolidge Glass of Wisconsin (see article, page 28).

Arch purchased Amarlite Architectural Products in early 1994. The company owns ten tempered glass manufacturing facilities, insulating lines across the country, a laminating plant now in operation (with another due to start manufacturing shortly), two mirror manufacturing plants and an aluminum powder coating facility. Many credit Leon with the company’s rapid growth. Ever insightful and willing to say what he thinks, Leon Silverstein sat down with me for an “industry legend” interview on February 2 during Glass Week.

 

So, tell me about yourself.

Well, were do I start? College? Business?

No, just start at the beginning.

I was born in Miami and lived there until I was13. Then my family relocated to Philadelphia. My Dad was in the glass and metal business even then. He was with a company you probably never heard of —Chromalloy.

No, I remember them. They went out in the early 1980s, didn’t they?

Yes, he worked for them for five years before he started his own business. I was there until I went to college at 18. I went to Northwestern.

Why did you pick Northwestern?

They had a good engineering school.

So you have an engineering degree then, I would not have expected ...

No, no, I don’t. It’s a long story. Right before I was to start college, my Dad got tired of Chromalloy and the whole way it was going there and decided to start over from scratch. So he picked up and moved the family to Miami and started over—started Arch from scratch in 1978. We went from a ten-room, good size home to a three bedroom condo. That was the last time I had a bedroom in my parent’s home. He had two kids in college and couldn’t pay for it anymore. So when people think I have it made, or I don’t understand what it’s like to live paycheck-to-paycheck, they are wrong. I appreciate everything and take nothing for granted.

I had to tell Northwestern I couldn’t afford to go anymore. They were great. They said ‘if you want to study here, we will help you finish’ and they did. Through scholarships, grants and loans, I got through.

But no engineering degree?

No, I took six months off when my father moved the business for the first time. Afterward, I wasn’t sure I would go back at all. But then I decided to, but I wanted to make up the time I’d lost, without staying in school longer. So I transferred from the Engineering School to the School of Communications. Can you guess why? What reputation did the Communi-cations School have at your college?

That it was easy ...

That’s right (laughs). It was easier than engineering, so I thought I could double up on courses and still graduate when I was supposed to. In those days, when you transferred from one school to another, you had to go for an interview, and I was going from engineering to speech. But I learned a good lesson from it. I was interviewed by the Dean of the School of Communications and she asked me why I wanted to transfer . I told her it was easier and I wanted to graduate faster. Now, no one wants to hear their school is “easy.” She almost didn’t accept me. So I learned sometimes it’s easier and better if you keep your mouth shut and don’t always tell people what they don’t want to hear.

But you have a reputation for telling people what they don’t want to hear?

Well, this is a business run on egos. Just look around here (at Glass Week). How many under 30 people do you see? As an industry we don’t attract great talent. We don’t develop great talent. As an industry, we don’t pay well. We can’t get them and we can’t hold them. This is not rocket science.

It’s tough for me to decide when to say something and when to keep my mouth shut, but as I get older, I’ve learned to keep my mouth shut more.

Well, you got in trouble here (at Glass Week) last year. People thought you were trying to tell them how to price product at the open meeting. What happened?

I don’t think people even understood what I was trying to say. Some of them just didn’t listen to the question. They just didn’t understand what I was asking. I was saying that pricing does not have to be a collective thing, that you could set your own prices to be what you needed rather than to look at what your competitor was doing. But it was totally misunderstood. I am not even going to that session this year.

Let’s get back to when Arch was founded. It must have been a culture shock to move from Philly to Miami.

It was. My Dad was 43. I have two sisters and a brother and we were all starting over. Mom designed the logo herself on a napkin one night at dinner. I still remember that.

Dad went on the road to see every supplier he wanted to work with and asked them to sell to him. Some said yes. Some said yes and reneged when they got pressure from his prior company. There was a lot of pressure put on people not to sell to us or buy from us. Some said no outright.

I bet you still remember which said what.

Oh yes. We are extremely loyal to this day . . . and there are some people that it took a very long time for us to do business together because of it.

Do you think that accounts for where the ... would it be fair to say the ‘dark cloud’ around Arch comes from?

Oh, I know it’s there. But it’s been disappearing quite rapidly. Our own reputation has improved through our dealings with customers and competitors. Prior to this, I know what people say. There had been rumors about our financial stability, rumors about us. But I think they came mostly from competitors and suppliers who were trying to cut us down in the old days. Our company will do $150 million in sales this year. We have been in existence for 22 years and we have been profitable every, single year. Every, single year. True, some years have been more profitable than others, but we always been profitable. In the old days, we used to tell people that my Dad’s partner had won the Pennsylvania lottery and that’s how he could afford to do this. It was easier for them to accept that rather than the fact that he was just a good businessman.

What about the reputation Arch has as an aggressive price cutter?

Not true, not true (voice rises). I contend that it is not that we cut prices, it is the other guy in anticipation of us coming into a market who cuts prices. It’s a vicious cycle. We announce we are going into a market. We set our prices. Sure, we know what the competitor’s doing. But between the time we announce and the time we open, everyone else’s prices have dropped. Did we do that? No. Are we blamed for it? Yes.

Look, people have to look at their own costs in order to price their products. This industry spends too much time looking at what their competitors are charging instead of figuring out what they should be charging based on their costs. No one can figure out this industry.

Do you think that’s why people coming in from outside the industry have such a tough time of it?

Yes, they will take tried and true examples of models that work–pricing, operational, whatever and try them in the glass industry, where they won’t work. They can’t figure it out. They walk around saying ‘why can’t I make money?’ and then they leave.

We get a really bad rap for selling cheap. Yes, there are times when we get aggressive, when we have a new plant in an area we want to take market share. Doesn’t everyone do that? But the competition overreacts and ends up going way lower than they need to.

They work from this belief that if they don’t let us get any [business], then we will go away. Ridiculous! We go into an area to stay. We will build on and play to a competitor’s weakness. Our competition won’t. It’s just easy for them to blame us than to do what it takes to compete.

What’s the toughest part of the business right now?

The mirror industry is the weakest, no doubt. In order for it to get better, some people are going to have to disappear. And that’s another problem with our industry. Suppliers help prop up weaker companies. They help them when it would be better to let them die a natural death. That’s what needs to happen with mirrors in order for it to get healthy.

If I asked you what you think the industry’s biggest flaw is, what would you say?

One flaw is our manufacturer’s rep system. How many mirror manufacturers, for example, have reps who make more money on the sale of a unit than they do? It’s nuts. We have one or two reps because we inherited them over the years. But our reps have ZERO leeway as far as pricing goes. They have ZERO, absolutely no ability to effect pricing. That is done at a corporate level.

So how would you tell a company to compete against you?

I’d tell them to do two things: to spoil the hell out of the customer and to focus on manufacturer efficiency. We are not any more knowledgeable than most of our competitors. We just make the customer feel more comfortable. We try not to do anything to lose their trust. Eighty percent of customers are loyal. Twenty percent will beat you up over the head about price and we, as an industry, are not smart enough to lose that order. I would
figure out how to get two or three percent more for your products.

Does your Dad still work?

Oh yes, he’s in there everyday. He signs every check. He reviews most bills. He catches stuff the rest of us miss. He is the conscience of the organization.

Yes, but doesn’t working in a large family-owned business have some problems?

Some, yes, but we are all pretty good about it. We have a clear chain of command. The others (other family members in the business including a brother and brother-in-law) know the chain. We follow it. We respect it.

Ever take it home with you?

Yeah, we do. We talk about it outside the office, but no one seems to mind.

You said your Dad is the conscience. What would your nickname be?

I’m the .... I’m the pusher. I’m the driver. When we put the tempering furnace in 13 years ago, my father came to me and said ‘one of us has to know everything–and it’s not going to be me. So you will have to learn everything.’ And I have. I try to know more about the company than anyone.

Let’s talk about the Coolidge acquisition for a moment. How did that deal come about?

We had heard that the Canadians [TCGI] were going to buy it. I was wondering what they were going to do with the manufacturing part, so we called them and they said to call them after the deal was closed. Then the deal fell apart. We called our banker, our banker called their bank and said ‘we are serious and have the financial wherewithall to close the deal. We could wire you the money today if the deal was done.’

Why did you want it so much?

It’s a good location. The equipment is first-rate ... it’s all about two years old. It’s well-equipped. We did due diligence and liked what we saw. We also saw a good bunch of people who were ready to embrace us.

Gee, I heard that the Coolidge trucks were literally out on the road that day and when the truck drivers went in to make their deliveries they were told the company had closed.

The first time, TCGI’s people were there with their laptops running numbers on the deal. Everyone expected the deal to go through. Somewhere around mid-day they didn’t like what they saw, so they closed their laptops and went home. In fact, when we were picking up after doing our diligence a number of employees came up to us to ask if we were going for good or coming back.

What areas do you plan to service from that location?

About 150-200-mile radius and west to Minneapolis.

How’s the customer reaction so far?

Too soon to tell. A lot of people got burned [when Coolidge closed]. They had jobs in progress and got hit with charge backs and a loss of credibility. It is going to take awhile to build confidence up.

You called yourself “the pusher” before. Pushers always follow a policy of manifest destiny. They have to push toward something. Where are you going next?

We purchased and opened Arch Aluminum of Phoenix two months ago. That didn’t get any press at all. We can now service the West Coast.That location has been successful already, mainly because one of our branch managers moved there and is doing a great job.

There’s lots of consolidation going on and there are lots of companies that fit our profile–mid to large fabricators tired of explaining to banks what they do, or looking to grow the business bigger. These are the type of companies that interest us.

Every time you go into a new location you have a new culture to which you must adapt. How can you do that successfully?

Every place is different, but there are similarities in culture. We don’t like or allow our supervisors to berate employees or treat them rudely. There is no excuse for that. We also don’t look at customers on an order-by-order basis. We look at them on a customer-by-customer basis. We work with the customers that use us loyally.

So what are you going to do when you retire?

[Laughs]. Well, my wife says I should be a college professor–that wouldn’t be too bad.

What does your wife do? You said you got married young.

My wife is in education. She is busy all the time and does a great job. We have three children, two girls 13 and 10 and a son who is nine. I’m the one who usually learns from them. I just love them. I’d have ten kids if I could, but I married a nice Jewish girl so that’s not about to happen.

Getting married young made me too serious, though. When I was in my twenties, I was already into work while my friends were still out there having a good time.

Okay, I have just a few more questions. Is there anything you’d like to tell our readers. Here’s your chance to ‘spin” some info?

Other than the types of companies we are interested in acquiring?

Yes, and the fact that reps have zero price negotiation ability. I got those. You spun those right at me. Anything else?

Yes, we are definitely a for-profit business. We have a profit orientation. We will continue to grow in sales and locations this year. We value loyalty from our customers and employees. We stand up for what we believe in and try not to hurt ourselves. Some of our competitors may be smoother, they may be more polished. But they can’t do what we can do and they can’t do it as quickly. We are building a facility in Akron, Ohio, and look forward to participating fully in that market. But I guarantee you, prices will be cut 90 days before we even enter it and we will be blamed for it ... but I won’t complain too much.

Years ago, I was more of a hot head. I might have said more of what I thought. But it’s a function of experience and age, and I’ve learned to be a bit calmer.

Thanks a lot.

Thank you. This wasn’t too bad.

 

Editor’s Note: This interview took place at Glass Week the day before manufacturers roundtable (see Glass Week article, page 72). True to his word, Silverstein did not attend, causing moderator Jim Bradford to quip at one point that “I wish Leon was here just to spice things up again.” Indeed.


USG

Copyright 2000 Key Communications Inc. All rights reserved. No reproduction of any type without expressed written permission.