2007 Virginia Small Business Success Story of the Year, Western Virginia FinalistFebruary 01, 2008 12:01 AM
by Phaedra Hise
For Virginia Business
Crumbling infrastructure generates scary footage on the evening news, but it’s a growth niche for Magnetic Technologies Corp. The company designs, services and manufactures dry electrical power transformers for industrial use. More than 5,000 units are in service around the world, including the massive transformers that regulate electricity flowing from the power grid to the New York City subway system.
“I like to call it ‘heavy tech,’” says President Thomas Hough. “Forty years ago you would have bought a transformer from GE or Westinghouse, but both are out of that business.” At the same time, the power transformers installed from the 1950s through the 1980s are reaching the end of their useful lives.
That leaves Magnetic Technologies with a specialty niche that’s fairly immune to overseas competition. Not many companies want to pick up the tab for shipping a 750,000-pound transformer. Plus, engineering skills required on replacement jobs are precise and not easily given to outsourcing.
Still, repositioning an old-line, industrial manufacturer for growth hasn’t been easy. Hough has reorganized the company, added another location and survived a copper heist by that dealt the company a $300,000 loss.
Magnetic Technologies was started in 1985 by two engineers, Otis Wright and Richard Mosley, and their wives. Hough, a customer, was approached about buying the company in 1998 after Wright fell ill and later died.
Hough quickly learned about the challenges that come with repairing and replacing transformers. Many of these units are huge — about the size of a small garage. Plus, they are wedged into tight spots, such as sub-basements. Since the units are too awkward or heavy to move without blasting away sides of buildings to gain access, Magnetic Technologies measures them, develops replacement parts and installs those on-site.
“Very few companies will do custom work like that,” says customer Randy Roberts, of the H.B. Miller division of H.B. Frazer electrical contractors in Philadelphia. “They’re the only ones who will rebuild a transformer in the field with custom coils, and that’s the reason we use them.”
By late 2005, Hough began to notice the potential for serious growth in the repair business. However, the company was struggling to keep up with its existing workload. As president, Hough felt stretched to the limit: structuring all bids, overseeing accounting and solving manufacturing problems.
Meanwhile, losses began showing up on the company’s books. Without inventory systems in place, it was impossible to find the source of the problem, says Hough. To move his company to the next level, Hough realized the need to hire additional managers and create a more professionally structured operation. “It was a struggle at first,” he recalls. “I had to do some real soul-searching.” Customers and shop floor workers were used to speaking with the owner. But his managers finally pushed Hough to distance himself from day-to-day operations. “Now I’m not allowed to talk to customers,” he laughs.
Implementing an inventory system pinpointed the cause of the losses — a team of employees was stealing giant spools of copper wire used for rewinding transformers. The nation saw a rash of such thefts in the past two years as prices for semi-precious metals spiked. The employees went to jail.
The company’s restructuring freed Hough to focus on long-term strategic planning. Last year, he opened a new location in Louisville, Ohio, a move that provides ample space for the company’s repair business.
Since buying the company, Hough has increased the staff from four employees to 85, moved the company into a 80,000-square-foot facility in Wytheville and boosted annual sales revenue from $1 million to $12 million. Clearly, he has a knack for making something old new again.
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