In Part I of our CEO Leadership interview with Aaron Jagdfeld, he talked about Generac Power Systems’ plans for growth, including growth overseas. In Part II, Jagdfeld addresses the challenges of managing growth, the role of recent acquisitions, the status of the American economy, and what he hopes is a new and more positive image of the manufacturing sector.
IB: Since you’re in a period of pretty strong growth, what’s a bigger challenge for a CEO: managing in a growth period as you have now, where it might feel like riding a rocket, or trying to deal with an economic climate like we had in 2008 and 2009?
Jagdfeld: That’s a great question, and thankfully I can give you a good answer because I’ve experienced both. I would tell you that managing growth is hard, but it’s an easier “hard” because you’re growing. The pressures of a public company, when you grow, markets like growth. Public markets in particular like growth. That takes some of the pressure off if you are growing. It creates different pressures, obviously, to manage that growth, which can be just as hard sometimes in terms of the effort needed to manage. I can tell you that on the downside, when you have an economy that pulls back, it’s a lot tougher because you feel like there is a lot more outside of your control at that point.
I can’t go out and try to fix housing. I can’t go out and try to fix big-scale economic problems. I have to figure out how to adapt the business to survive in those types of environments, when they happen. The biggest thing for us is that if we can create growth that isn’t dependent on certain weather events or something happening or not happening, certain elements of the economy happening or not happening, we have to diversify the company geographically and also from a product standpoint.
| I can’t go out and try to fix housing. I can’t go out and try to fix big-scale economic problems. I have to figure out how to adapt the business to survive in those types of environments, when they happen. |
One of the other legs of our powering-ahead strategy is to diversify some of our product lines to get into other products that are adjacencies to the type of products we manufacture today and maybe serve other industries.
As the economy cycles, generally the economy will cycle in different phases, and so if you can be spread out a little bit more, a little bit more diversified, that can definitely help reduce the downside risk that’s associated with an economic down cycle, a long down cycle like we experienced from about 2007 to 2009.
IB: I could be wrong, but I assume diversification helps explain your two most recent acquisitions.
Jagdfelt: Absolutely. That was at the core. Those two acquisitions were at the core of that leg of the strategy, the diversification strategy. Magnum Products, with their mobile products, those are products we weren’t in before, serving industries we didn’t serve before. They serve the oil and gas industry, road construction, some of the commercial construction industry directly – completely different markets through customers like United Rentals and some of the big rental houses that we didn’t service as customers, either. So very much the diversification plan, and GenTran is much the same. Again, as I said, we didn’t manufacture the products that GenTran had, so there is an opportunity there for us to be involved in a product line that serves the industry a little differently than what we do with our current product line.
IB: In terms of new products that you might develop organically, do those two companies play a role in that with their components, or is that strictly to broaden the product line outside of what you do now?
Jagdfeld: Actually, some of the products that Magnum does, you could see a situation where we use some of their technology, combined with some of our technology, to create products that have maybe a little bit of both companies. We’re looking for ways to optimize some of the synergies that may exist there, so it’s not just taking their products and selling their products through our distribution and vice versa. There actually is some development opportunity there. Maybe we could see a situation where you have a gaseous fuel generator that’s on wheels, as opposed to all their products today, which are diesel.
IB: We’d like to get your take on where the national economy is headed. Earlier this year, it looked like the economy was gaining more traction with job numbers, although these are seasonably adjusted numbers with a grain of salt to some extent, but where do you think that’s headed? The rising gas prices don’t seem to be having a huge impact just yet and there is momentum in manufacturing, where we just had a good report on output. What’s your take on where the national economy is headed?
Jagdfeld: I think it’s going to continue to be a pretty measured, gradual recovery. I think as long as unemployment remains high, as it has, that’s going to be the limiter on what we can achieve and how quickly we can achieve it. Gas prices, as you’ve indicated, even though they have now clipped the $4 [per gallon] mark, I think because people have seen $4 gas before, maybe it’s not as big of a shock this time around. But if it goes much higher, I’m concerned that is going to be some kind of limiter on our ability to grow more quickly.
One of the things with manufacturing that you said, our numbers here have continued to come in very good for manufacturing. Companies’ export business is doing well. Manufacturers that are exporting products, in particular, because of the weakness of the dollar – and I don’t think long term a weak-dollar policy is a good policy – but in the short term, it certainly has created a situation where the goods manufactured in this country are most cost effective in terms of their pricing overseas. And so what that has created is increase in demand for those products, and that has been a boon to manufacturers here in the U.S.
I know a lot of companies that I talk to in terms of manufacturers, their manufacturing business is very strong right now. They are making investments in machine tools. They are making investments in adding capacity. They are making investments in adding people, although I will say the type of jobs they are adding are different than maybe would have been added in the last recovery 10 or 15 years ago in that these companies are shifting to more automated manufacturing. We’re no different there. In order to be more competitive on a global basis, we simply have to try to find ways to lower our cost structure. The way to do that, if you have volume, is to invest in automation.
So a lot of companies that I’ve spoken to are taking that approach, and they are making investments in automation. When they do that, it makes them more competitive, but unfortunately it doesn’t create nearly as many jobs as it would have created in a recovery similar to this 15 years ago.
IB: That’s what I thought because job growth was sluggish from 2003 on. There was growth, but it wasn’t the high-velocity stuff we saw under Reagan and Clinton because technology is making everybody more productive and that’s having an impact on job creation.
Jagdfeld: All you have to do is look at the productivity statistics for manufacturers. Productivity per employee is up dramatically over the last 50 years, but even more so in the last decade. Productivity has continued to climb, and it’s technology that’s doing that. Unfortunately, what that means is that you’ve got a section of the workforce here that is unemployed today that will need to recalibrate its skill set in order to find gainful employment. It’s kind of a double-edged sword because we have this high unemployment rate, and yet in manufacturing we’re finding there is this skills gap that exists in the workers that we are looking for. We need higher-tech workers now, people who can run CNC machines, who have good math skills and who can do more than bolt together pieces of equipment. They have a higher skill level and there is a gap there, and it’s unfortunate because what we should be focused on here right now as a country is trying to retrain people to get them to have those types of skills that are much more desirable in the new type of manufacturing in this recovery that’s occurring.
IB: I’ve been doing my best to portray manufacturing in the most favorable light. It’s not dumb, dirty, and dangerous anymore. These are very highly technical jobs.
Jagdfeld: If you walked our shop floors, you’d find that these are clean, well lit. They are technical positions. Obviously, manufacturers still have a certain amount of assembly work that gets done, and there is a labor grade there that’s lower and that does that work, but there are certainly different levels of opportunity for different levels of prospective employees. But I can tell you that it’s changed dramatically over the last 15 years. It’s not dumb, dirty, and dangerous anymore.
One of the problems we face as an industry in manufacturing is that over the past 20 years, this has been called a dying industry. In particular, the technical schools, the programs have dwindled, and even at the high school level the coursework has shifted to college preparatory. The industrial arts types of classes are gone from high schools today. Getting kids interested in a career in manufacturing, and more importantly, getting their parents interested in having their kids be in manufacturing is very difficult because, again, there is this perception that manufacturing is dying, and that it’s more dumb, dirty, and dangerous than the manufacturing that is being done.
That may have been true at one point, but today it is very far from the truth. One of my roles, too, and I’m glad you’re saying that, is I’m trying to be an ambassador to manufacturing because we have to get the word out because there are great careers in manufacturing available to people. But we need people, and we need people who are interested in wanting to be part of the manufacturing industry for the long haul.
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