A common business model for industrial technologies is that of one – off projects. A one-off project is a single solution made to a given specification of functional requirements within a cost constraint. These projects are means to flex technical prowess, and each one is satisfying to the team that develops it. But one-off industrial technology projects are produced by companies that typically have no brand identity, no contact with end users, and no understanding of a customer-based value proposition with attention to the experience of use. This kind of project-based company faces operational hurdles, both with the constant need for acquisition of new projects and with the internal needs to juggle people and resources to meet delivery dates. At the same time, no equity is being built. The company possess capabilities but no repeatable income stream that generates profits for company growth. This kind of company works to keep up, not get ahead.
The alternative is to focus on repeatable business and develop products and services that can be reproduced or even mass – manufactured. Here, technical prowess would translate into complete product proficiency. An example of a company that has successfully made that transition is RedZone Robotics. Previously a custom robotic project shop, RedZone robotics will be the company to resolve Sal’s indigestion and high blood pressure caused by his sewer rehab company.
Founded in 1987 out of the robotics technologies developed at Carnegie Mellon University, RedZone went into Chapter 11 bankruptcy in 2002. Although RedZone’s technology was state-of-the-art, its one-off project business model was not. The key words in the markets for robotic technology are “dangerous, dirty, and dull,” and RedZone had especially focused on the dangerous. Prior to its bankruptcy, the company built high-profile, one-of-a-kind robots for tasks where humans could not or should not go. For example, RedZone developed robots to help clean up Chernobyl and Three Mile Island.
Current CEO Eric Close and his investors acquired RedZone Robotics while it was in Chapter 11 and brought it out of the bankruptcy process. Close says he “loves bankruptcy.” He should. He has been dealing with it for nearly a decade. But he doesn’t get companies into bankruptcy—he gets them out. Close is a turnaround specialist. He buys companies in bankruptcy and turns them into profitable enterprises. In his short career, he has bought four troubled companies. These companies were either on the brink of bankruptcy or already in bankruptcy when he took control of them and turned them around. According to Close, bankruptcy has its advantages, providing “great bargains” if chosen well. The problem with starting a new company is that it is hard to develop technologies, infrastructure is expensive to buy, and it is hard to get the first customer. Close says that companies in bankruptcy can get you through these first hurdles. They come with technologies that they have developed but could not turn into profitable revenue streams. They come with facilities and equipment where that technology was developed. oddly enough, they usually have happy customers.
Happy customers may seem like an oxymoron for a company in bankruptcy. But, according to Close, these companies often have a small customer base that they have given a lot of attention to. They must, because it is their only hope for sales. Surprisingly, suppliers are not a significant roadblock either. Although some may stop doing business with the company, many are happy to maintain the account and are pleased to see new management trying to turn the business around. Even though the company has normally defaulted payment on its obligations to the supplier, most suppliers want to retain the company as a customer. If you can convince suppliers that you will be a stable customer going forward, they want to work with you.
The big problem with companies in bankruptcy is the employees. Many are disgruntled; morale is down. The culture is a negative one based on a long period of cost cutting and a stifling environment. often, these employees may be technically talented but may not be team players. So the task is to reinvigorate the employees.
RedZone was one of these companies. Close purchased RedZone in June 2003 and became its president and CEO. The “bargain” he got was some of the most advanced robotics technology commercially available at that time. His challenge was to turn RedZone from a project-based company into a product-based company. How could he use the impressive technology basis to produce an assembly-line product, one that could be produced on multiple runs, if not mass – produced? As he searched the social, economic, and technological (SET) factors looking for trends, he realized the $120 to $200 billion possibility in sewer rehabilitation in the United States (and two times more worldwide in developed countries). More than 600,000 miles of small-diameter sewer line exists in the United States alone, and a significant percentage is more than 50 years old. The vitrified clay pipes are beginning to crumble and clog from debris and tree roots. Sewage is leaking into the environment and finding its way into streams. All that sewer line will need to be repaired in the next 40 years. This is a great opportunity for robotic technology.
Close’s business plan was as good as his reputation, so he had been able to attract funding. But he had two other major challenges.
One was to motivate employees, to get everyone in the company focused in the same new direction, and the other was to make an impact in an industry completely new to RedZone. The solution for both was to connect the vision of the robotic product with the company’s vision. Close wanted a product where service, product performance, and interface all smashed current industry standards, a product that would achieve fantasy status. This is the only way that sewer pipe rehabbers like Sal would leave behind existing equipment to buy the RedZone system.