A Chat with John Economaki, Founder and President, Br
© Profile of Success, Catalog Success magazine, March 2006
Interview by Matt Griffin
Catalog Success: When was the catalog established?
John Economaki: Bridge City Tool Works began with a single space ad in the November/December 1983 issue of Fine Woodworking.
CS: What is your primary merchandise?
JE: A proprietary line of non-powered, precision woodworking hand tools.
CS: What is your annual circulation?
JE: We no longer produce a "catalog" per se. One of the realities we faced post 9/11 was the contraction of our market. Today we mail several smaller 16-to-32 page offers with total circulation less than 1 million pieces.
CS: How did the company/catalog get started?
JE: I had a career as a furniture designer/maker in the 1970s and I was doing rather well. Then all of a sudden I developed double pneumonia and through that healing process, I was told I had to find another line of work. I had made my own tools, designed tools, because I used to teach school, and I designed tools for the kids to make. And I thought, I can't be the only guy who likes to work with well-made tools.
So I took an ad out in a magazine in 1983 for two tools. The ad cost $2,700; it was a one-third page vertical, and I received about $2,700 in orders. I was ecstatic because I was so naive. I thought I had broken even, until I realized I needed to make the things. It was enlightening. I didn't make any money on it, but it was really encouraging to know there were indeed people who were interested in that. As you might imagine, for every order I got, I got 10 requests for a catalog and when you have only two items, it's hard to put together a catalog. So I quickly decided to put together three more things and took the $2,700 I got and reinvested that into a catalog concept, which really, basically, was a card for each tool, which was ridiculously expensive. But the cool thing was that my customers liked it; it was different. We just sort of snowballed.
Simultaneously, in 1983 they had the first of the consumer woodworking shows in the country. That was in Chicago, which I didn't go to. But the second one was in Pasadena, and I did go to that one. At that time, we were in business for maybe five months. I sat down there at a table and just took orders. I took about $6,000 worth of orders at that first show, and I just decided at the time, this was a great business and I needed to focus all my energy on it. My wife worked at the time, and I wasn't taking any money out, and we went our first year and made $30,000 worth of sales in 1984. And then we went to $100,000 in 1985, $600,000 in 1986, $1.2 million in 1987, $3.2 million in 1988. We just kept going up and up.
CS: What has been your greatest career challenge, and how did you deal with it?
JE: There have been two, the small business banking issues created by the Savings and Loan debacle of the late 1980s, and the economy post-9/11.
In 1991, I had a $600,000 line of credit at the bank, and they called me in to talk about the line of credit, so I went in. And they said, we'd like you to pay it back tomorrow. I laughed. I just laughed. Because it was right after we had mailed our catalog. I said, "You've got to be kidding me." So they started putting the screws to me, and I had never had any experience like that. As you might imagine, we have a really high-end expensive product, and so we have a lot of high-profile customers, or we did at the time. And I just said that we weren't going to pay it back. And that got me into a situation where I wasn't able to mail a followup catalog.
So I wrote a letter to all of my customers saying, "I don't know what's going on, but this is the truth and I don't know if we're going to make it. If we are, I can't do it by myself. For all of you people who after hearing this are still inclined to order anything from us, in four months, I'll design a tool and make it exclusively for sale to those people who found it a cool thing to support us through this 'barn-raising' as it were."
One of the customers that we had was Andy Rooney. His son was also a woodworker. He was working down at ABC in Los Angeles, and he called me and said he was grateful to get a copy of the letter and they were putting a story together that talked about the impact of the savings and loan debacle on small business in America. He said they knew there were over 200,000 companies that were put out of business because of this unilateral decision by the federal regulators to not let the banks go the same way as the savings and loans. And he wanted to know if we wanted to be the lead-off story on the ABC evening news with Peter Jennings. I said, "Sure, I don't care."
So they came up here with a team, and they were up here for a few days. Anyway, that's old news. We made it through that bump and it actually refocused the company, in terms of let's just really pay attention to our core group of customers, that tent pole group, so to speak. And that's what we've been doing the last 13 years, making really cool stuff and trying to cater to those people who really are enthusiasts and not spending a lot of our money trying to get a lot of new people on who don't care as much. As I mentioned, we are in a contracting market for a lot of reasons. That's how I got started.
I solved this problem by being honest with our customers regarding our precarious chances for survival and continuing operations with borrowed money from some very good friends. We did manage to float an SB-2 offering and raised approximately 1 million dollars to replace this debt.
Sept. 11 is a different story. What happened at 9/11 is that we were doing great. In fact, we were forecasting our best year ever. And we were in a 20,000 square-foot facility on the second floor of an old building. And we had all this old CNC equipment (computerized numerically controlled manufacturing/milling machines) sitting on wooden floors. And we were having trouble getting all the output from these machines that we wanted, because they were basically sitting on a trampoline in those conditions. It's expensive to move a manufacturing facility, and we had just grown and grown, so we had a lot of stuff. So, we found a place, and we entered into a lease, and it was going to cost about $250,000 to $300,000 to move the facility. Well, I put together a short-term loan proposal with my bank, and said, here's how we'll repay the funds. It was structured as a short-term note. We moved in January of 2001.
When 9/11 happened — and I knew from the first Gulf War, which by the way compounded my earlier problem with the savings and loan — I knew that was going to impact us. Because we don't make anything that people need, we make what they want. And I call it the CNN affect. If there's something unbelievable happening on CNN, my phones aren't going to ring. I just know this.
I was on a bicycle trip at the time, and I said to my buddy, "This is going to kill my company. It's an absolute death sentence." I got back from the bike trip on Sept. 14, and the girls in the call center said they hadn't gotten a call for two days. I said, "Nothing?" We had never had a zero-sales day in the history of the business. I mean, we had had low days, don't get me wrong, but never a zero day. And we had six in a row. I actually called the phone company and had them check my 800 lines to make sure they were working. It was just bizarre. I knew it was going to be a problem.
The first thing I did was call the bank and say, "I've got serious issues with my loan covenants. What's going to happen is that Christmas isn't going to happen here. I can tell you this." I told them I wanted a meeting with them in a week, but meanwhile I'm going to do my housekeeping here. So we laid off 85 percent of the staff, and we're a small business. We had 50 employees at the time, and before the month was out, we were down to 13, and that was a stretch. Our sales dropped 90 percent. ... Then the bank told me, don't worry about it John, we're giving everyone a 30-day grace period automatically. And I told them we were seasonal, and 30 days wouldn't do squat. That's not going to happen.
I've always had an upfront and honest relationship with all of my banks. I asked if we could restructure it as a long-term note, and take it out of short term, and they said I couldn't do that. So in January, a few months later, they called me up and said we needed to make progress on this note. I said, tell me how I'm going to do that. I showed them my daily and monthly sales and asked them how. They told me it was my problem.
Finally they told me they were going to sweep my checking account. I said, "Why not just lock the doors?", because I don't have a lot of patience with people who don't understand business. They don't understand that everything's at risk. I'm the biggest loser of all if I don't fix it. What's the point of adding even more pressure? You're doing everything you can. Finally, one of my board members went to the bank and said he didn't feel I was being dealt with properly because we were a 20-year old business with a great track record. But their hands were tied. It's a federally regulated business. So we went into that cesspool of trying to work things out. Then in June of 2002, I met with a shareholder committee and said we were disbanding the corporate charter and handing the keys to the bank.
Then they told me they were going to sell the business to try and recoup their assets. So, my board of directors got together and put an offer on the table to the bank. It said, we'll buy the assets from you (the bank) but every week you delay, the offer diminishes by 2 percent. So what happened is that the bank paid me, my head manufacturing guy, and our head customer service person to come to work every day. And I work, I design all the products. I continued to do what I did. And our customers quite frankly know that they always have to wait for what they buy, because we're a made-to-order business. So we did that all the way through October. And then the bank came back to one of the board members and said okay, we'll take this offer, and they lost hundreds of thousands of dollars by waiting so long. It was rather stupid on their behalf. So, the new parent company was based in Iowa, set up an LLC and hired me back. And it was fairly transparent to our customers what we went through. We never talked about it, but I had floated an SB2 offering in 1994, so we had about 800 shareholders with an average investment of $700. We raised about $1 million on that deal. All of those guys lost their investment, and I lost my investment, which was hundreds of thousands of dollars.
Sept. 11 changed people's lifestyles. And you probably know this from your dad, but when you go out into your shop, you have no time consciousness. So, if you're a son or a wife and you want to spend time with them, they're in lala land. It's a time-intensive pursuit, and it's fairly selfish unless you're doing it for other people. It causes a lot of solo time, and while life doesn't get any better than that, if you have a family, it adds pressure. And 9/11 caused people to rethink that togetherness factor. That caused a shift.
The other two issues is that we now have the first generation of Americans who probably were exposed to any kind of manual training in high school. If you study human behavior, most of the things you're passionate about happen before you're 21. The seeds are planted before you're 21. So if you're not exposed to wood shop or metal shop or home ec[onomics] or print shop — or any of those hands-on things —you're statistically not going to be interested in them when you turn 40 and have some discretionary funds. So, we're dealing with that. And the other thing is, when I started out 24 years ago, cable television had just gotten started, but there were no cell phones, Internet — in fact, the PC had just come out. You didn't have any of that electronic stuff. And today when you add all that stuff up, it's a couple-thousand bucks per year. And when you're falling into the $40,000 per year income range, that's a chunk of change. Basically, 10 percent of your take home pay goes to those things if you have a cell phone and Internet and cable. The thing that boggles my mind is that iPods have only been out a few years, and they're on generation six. The electronics industry is doing a marvelous job of fishing money out of our pockets, and I don't think anyone realizes what it all adds up to until they realize they can't do anything else.
CS: What are you doing now to maintain that stability of the business and retaining those essential customers?
JE: I looked at essential business here. Our essential business is developing and producing proprietary products. If there is a single element to why we last, it's that we don't have any competition for what we do. We wanted to be the best. We are the best. I really have a great sense of pride that history will look back and say, "Look what these people made. It's still here 200 years later." We're fairly certain we've reached that level. I say that because I know a few people who are making full-time livings buying and selling our used products on the Internet. It's finite, there's not a lot of it. I looked at our shipping and fulfillment, which we had done in house, and got out of that part of the business. I found a company to do that. I looked at manufacturing, because that's what we did. We designed it and made it. I looked at that and said, But do we really need to make it? Isn't it possible to find another way to get this stuff produced and not go to China? And we don't have the volume to do that, anyway. So I found some shops that were willing to contract and make our things. And actually, the quality, which we had been known for previously, is better. And I don't have to deal with the manufacturing guys. I don't know if you know anyone who knows how to program a CNC machine, but those guys will leave without warning for a $.05 an hour raise. Those things get kind of wacky. They're not long-range thinkers. And that's not always a negative thing, but it is a difficult thing for me to manage. What we've also been known for is our marketing and how we market. So, I said let's focus on those core things we do best. Let's conserve our assets where we can.
Now our fulfillment facility is more efficient and better. And when you do the math — and in the direct marketing industry, math isn't overly burdensome, but it's sneaky math — when you go in and look at what it really costs you to ship and fulfill a package, and you get a quote and the guys says he'll do it for $9, you're going to pick and pack for $9? On the surface, I look at 20,000 to 30,000 boxes going out of here every year. That seems like a boatload of money, but when you finally do the analysis, you realize that's actually a pretty good deal. And they're getting at some economies of scale that we'd never be able to reach on our own. And not only that, they have cheaper rates with FedEx and UPS and other shipping guys that we can't get because we're too small. Shame on me, but it took me 20-some years to figure that out. But, when you bootstrap a business, you don't have those options. You fulfill your orders in your basement, and when you get kicked out of your basement, you have to hire someone else to do it. It just evolved to the point where it became something I didn't want to do. And I wanted to minimize my financial risks from a management standpoint by not managing it. I wanted to know that I didn't have a guy stealing me blind. Now, if I have an inventory shortage, I get paid for it, instead of eating it. And there's no such thing as inventory growth. It only shrinks.
CS: So what do you do in house now?
JE: We do all of the proprietary product design, which is primarily my responsibility. I'll sit here and conceive of products, and we'll talk about manufacturability. And at some point in time it's time to put that project into production. I start a chain of events whereby that thing will get components, and I'll schedule it and it'll go to whoever will do the final assembly. All of the marketing is done here at our facility. We do use outside graphic artists, but we write our own copy and take all of our own calls and manage customer service.
CS: You've said you don't think of your books as traditional catalogs, but how many mailings are you doing per year?
JE: We do about six of those "sneak preview" books every year. I don't know how familiar you are with the math in direct marketing, but we look at the economies of scale on a modern printing press, with eight-page signatures. It only take two pages for us to sell a dead-blow mallet, but when you look at what it costs us to send two pages versus 12 pages or 32 pages, you realize you need the longer book. We still have a product line we like to keep in production. So, while we don't have a big book in production any more, we created this 24 or 32 page book, 80 percent of which is proprietary products, and the rest at the back is just cool stuff that I like. And my customers over the years have come to find out that I don't recommend junky stuff.
As a side story, I'll tell you that in 1972, I was watching "60 Minutes" and Morley Safer interviewed this guy and his son who invented this paper airplane that flew like no other paper airplane. And Morley Safer launched this airplane in Central Park in New York City, and when his seven- or eight- or 10-minute piece was over, the plane still hadn't come down. So I thought, "Wow!" He said that after the commercial break they'd show us how to fold it. So, I'm a 22-year-old guy, and I got a whole bunch of paper, but it went way too fast. And that was that. But then in 1988, I was in a bookstore and I see this paperback book called "The Paper Airplane Featured on 60 Minutes." I thought that was the most genius title I'd ever seen. So I bought it, and it was that airplane and it worked great. I said, I'm going to put this in my catalog. We sold 25,000 copies.
CS: Those guys got lucky.
JE: Yeah! And the publisher told me that for a specialty paper back publication like that, 25,000 sold is bestseller status. And we did that on our own! Here's the copy I wrote, "Don't buy this book unless you have a ladder."
CS: What is your current biggest business challenge, and how do you plan to resolve it?
JE: The avocational woodworking marketplace is contracting, and postage rates continue to rise. This imbalance is problematic from a prospecting viewpoint and is certainly challenging. A significant creative effort will need to be expended by all of us in this industry to survive.
For the past 25 years, our school systems have methodically eliminated most non-college prep offerings. This exposure typically bodes well for those who enter their 40s with discretionary funds and avocational needs. We now have a generation of young people who are work adverse and really do not know how things work — or care. This correlates with the decline in specialty interest publications and subscriptions which currently plague our industry. I don't see this niche market regaining the momentum of the 1980s, which means we have to be smart and conservative in how we allocate our marketing dollars.
As a niche company, I don't have many concerns with competitive pressures within this industry, but the economic pressures created by the perceived "need" for cell phones, cable television, computers and related peripherals, high-speed internet access, digital music and photography, HDTV, and other entertainment costs — most of which did not exist when we began — creates a big dent in the discretionary budget.
Woodworkers as a group are wonderful people. They're honest, they're just great people. I think they might just be the last group of honest people on the planet. One character trait that they have, though, is this pragmatism. They're overly pragmatic. And here we are with these tools that are so nice, that some people initially at first are afraid to use them. So in that regard, we're an anachronism. That's a marketing barrier that has to be brought down. For younger people, too, they say, "Well I can get a tri-square at a flea market for $3, and you're charging $80." I say, "I know. Our tools aren't for everybody. You either recognize the quality that we provide or you don't." I'm not going to have that argument.
Our philosophy here from a marketing standpoint is that to address those concerns, what I have to do a better job of — and this has always been the case — is relaying to people the idea that tools, by definition, aren't being used the majority of the time. So my theory is, is there not a function that can take place while they're not being used? Could they not sit there, and due to their form and their manufacture and appearance, couldn't they be part of the process of getting someone to do their very best work. Couldn't you gain something from a tool that's not being used? I believe you can. But then there's this group that just says you don't need to spend $80. I say,"Yeah, I know, but I don't have to spend $250,000 on a Lamborghini to know it looks cool." I wouldn't say it's not needed. But it's this pragmatic mindset that tends to reject things that aren't as dumbed down as you can get. For my core group, that's not a problem, but for the bulk of my potential customers, that's a stumbling block.
CS: What are some key points to your success?
JE: Obviously, I am unfazed by relentless negative indicators. Really, all I care about is that our customers like our products and continue to enjoy the process of doing business with us. We create what we make, so that is immensely enjoyable.
In all the people I know who've started businesses, there is an element of tenacity that overshadows common sense. I actually think that sheer willpower — that you're going to make it happen — is important. And you're not going to do it alone. Most people who are successful are riding on somebody's shoulders, whether that's a wife or their family or whomever. Someone is pushing them. Having a purpose.
I honestly can say that I never got into this business to make money. I got in this business to make a difference. I just thought for the time that we have on this planet, how many of us actually say, I want to be remembered for doing something? As opposed to being one of the 6 billion placeholders. I thought that I just wanted to make a really cool tool, and I'm really lucky if people want to buy it. I was thinking then, how do I get them to see it, and touch it and whatnot.
Quite frankly, there's an element of luck to all successful businesses. I would say the first element of luck for me was that in 1982, the IBM PC came out. When I first started running my ad, I was keeping notecards. I had a shoe box full of notecards in three months, and I knew that wasn't going to work. That was a disaster, actually. I'm up at night writing out cards and sticking them into a box and alphabetizing them, color-coding them and then dealing with the catalog requests — which initially annoyed me, because only one in 10 catalog requests had actually sent a check for a tool in with their request. I wanted more with checks!
Being fair with people. We've always tried to behave. One of the big problems I had with the bank is that here we are; we've got this world-class product and then on a business level, we weren't able to behave in a world-class fashion with our customers. Part of that came from being undercapitalized, but I just think that if you're fair and honest and straightforward and [communicate] in a manner that's consistent with what you do, that's a positive thing.
CS: What goals do you have for the catalog now? What will you do to get there?
JE: We really have to redo our Web site. It's old, and we're missing many opportunities. The day is coming when we will cease using snail mail as our primary marketing medium. Our biggest change will be a more comprehensive effort to educate, which fuels the demand curve. We certainly have no visions of grandeur, which is likely the healthiest way to grow this business.
The little formula that we've got going now, with new product introductions and "sneak previews," people get excited about that. There's always something new coming out of our facility. I think that's what we're known for right now. This is an exciting thing for people. You probably don't know this yet, but when you get to be about 45 or 50 and you've been working your tail off, and you've got your house and kids, most guys go, "Now what?" And guy's aren't notorious shoppers. This is a pretty common thing for me. At Christmas time, when I go shopping for my family, I usually end up buying a bunch of stuff for myself. I don't go shopping very often, and when I do, I see things I want. Then you bring it home and everyone's upset with you because you didn't tell them you wanted it. But I didn't know I wanted it until I saw it.
CS: Have you done anything then, toward new customer acquisition?
JE: Well, a little bit. We're doing a little bit of missionary work. I'm now starting to believe in computer-aided design programs. We're trying to get out there to designers. But then you still get down to the, "How's it going to get made?" question. There's just been a lot of erosion in the market. It's still fun though. We're doing some e-mail/Internet marketing, referral marketing, pass this on to a friend, viral marketing sort of thing, I guess you'd call it. We're not doing a lot in print any more. The flyers/books that we make, 80 percent of those go to buyers. The circ[ulation] is fairly small. The remaining 20 percent, we're try to get this prospect cell to work. Our best efforts have come from compiled lists. We work with Abacus, we're still able to prospect profitably with Abacus. We don't risk much anymore, though. I used to do a 5,000 name desk cell, and if the numbers came back black, I'd order 100,000. I didn't bother with all of those statistical significance rules. I wanted to grow fast, so I ignored a few best practices. And I think those were good decisions. It worked. But now I won't do it anymore.
CS: Have you had any mentors?
JE: Yes, many, but only one in this industry - Herschell Gordon Lewis. We've never met, but he understands the power of writing for the direct market channel, and I devour his suggestions and insights. I think everybody in this industry should read his books and columns.
CS: Why is that?
JE: If you're in the direct marketing industry, what do you have to get people to make your phone ring? You've got images and you've got words. The image is probably of less importance than the words. I'm shocked that people don't spend more time trying to make the words more important. I really anticipate looking forward to what Lewis has to say. I feel like no one knows how to write anymore. If you don't know anything, you're probably not going to read Herschell Gordon Lewis. I look at writing as a craft. I like Hemingway's quote, "If it was easy to read, it was hard to write." That's so true. When you look at what your market demands from you, you have to write something you know they will read. I like reading my own stuff.
CS: What's your definition of success?
JE: I am one-half of a parent team that can claim two intelligent adult children who are living and leading responsible lives. I'm a guy with two kids, and they've caused me no problems, and they're self-sufficient for the most part. I think that's a huge deal. Looking back, there's nothing more important to me than that. It's a scary world out there, and to know that they can find their way around, that's a big deal to me. Do I think that someday my son will want to make stuff? I think he will. He's starting to see that I'm not the nerd he once thought I was.
If you want to limit it to business, I say that in 150 years, I think there will be people who still cherish what we've made. Looking backwards at what people cherish now, I can't see that not happening. In the history of woodworking tools, there hasn't been another company who's done what we've done; consistently make a product of the caliber and quality we've made. Maybe that's over the top, but I don't think so. I think that the joy of something well made is an important thing.
CS: What about the catalog business appeals to you?
JE: Early on, the simple act of receiving money in the mail was alluring—then the bills started to arrive, so that became less enjoyable. I truly love our customers though. The vast majority are smart, successful, passionate and darn interesting.