|
Startup
finds a profitable niche in consolidating industry
by
Donna C. Gregory
Virginia Business
January
2005
Seventeen
months without a paycheck is not a risk many people
would take to start a business. But that time of uncertainty
didn’t deter three former employees of Reynolds
Metals Co. from finding a niche in the fast-consolidating
aluminum extrusion industry. By focusing exclusively
on selling to metal suppliers instead of end users,
Service Center Metals has grown from a small startup
in Prince George County to a company that expects to
see more than $40 million in revenue next year.
The
secret to SCM’s rapid growth is found in its name.
SCM supplies metal service centers with extruded aluminum
products, which are then sold to everyone from mom-and-pop
machine shops to major corporations like Boeing and
General Motors.
In an industry that has recently experienced mass consolidation,
SCM has captured the attention of wholesale aluminum
suppliers nationwide who are feeling a squeeze on profit
margins. “There are less selections,” says
Bruce Yarde, co-owner of Connecticut-based Yarde Metals,
one of SCM’s major customers. “Service Center
Metals brings an independent into the realm of competition,
and usually competition will keep the pricing competitive.”
SCM’s primary competitors are large, integrated
aluminum manufacturers that make a wide variety of products.
“As a result, they have large corporate staffs
and the related overhead expenses,” says Chip
Dollins, SCM’s vice president of operations. “To
compete in the soft alloy extrusion market, you don’t
need that kind of overhead. In addition to high overhead
costs, most, if not all, of our competitors operate
older plants that are not designed for small batches
and high production rates.”
All former employees of Reynolds Metals Co. —
the Richmond-based aluminum company that was acquired
by Alcoa Inc. in 2000 — Dollins, Randy Weis and
Scott Kelley saw an opportunity in the consolidation
trend to create a company with a focus on quality, cost
and service. “We wanted to start a whole new culture
without the baggage associated with an existing facility,”
says Kelley, SCM’s president.
The strategy, which forced the three men into months
of uncertainty, has paid off. SCM turned an operational
profit within seven months of producing its first aluminum
billet in July 2003.
The uses for aluminum extrusions are nearly limitless,
says Kelley, who likens SCM’s plant to a large
Play-Doh factory. Raw aluminum logs are fed into a furnace,
which heats them to 900 degrees. Utilizing 3,100 tons
of pressure, SCM’s press can then compress the
softened aluminum into about 400 shapes. The aluminum
is cooled, cut to size, straightened, and aged in an
oven. After it cools, it’s ready to ship.
“We’ve been able to sell everything we’ve
made since we’ve been here. Next year, we’ll
ship about 30 million pounds,” says Kelley. The
company’s extrusions are used primarily in the
machinery, electrical and transportation markets.
But success did not come without some challenges; namely,
finding investors in 2001 who would sink capital into
a new manufacturing venture when the industry as a whole
was declining. After several failed attempts to secure
capital, the company founders scaled down their initial
business proposal, and in the wake of the Sept. 11 terrorist
attacks and the technology bust, investors finally saw
the project’s validity.
Eager to recruit industry, Prince George County’s
enterprise zone enticed the partners to locate Service
Center Metals’ plant in the SouthPoint Business
Park. “We were able to get state funding, which
was critical,” Kelley says. SouthPoint’s
developer signed on to become an equity partner in the
company and offered a turnkey design for the new facility.
The business park’s location was a key selling
point. “From a logistics standpoint, this is a
great area,” says Kelley, referring to SouthPoint’s
proximity to Interstates 85, 95 and 64.
The availability of a knowledgeable metals work force
was another factor that helped Prince George beat out
other competing localities in Tennessee and North Carolina.
“There is a tremendous amount of aluminum talent
in Richmond because of the presence of Reynolds Metals.
This is a real asset to a startup company,” says
Weis, Service Center Metals’ vice president of
sales and marketing.
Return to Virginia
Business - January 2005 |
