Lee Anderson Ė John F. Cade Entrepreneurial Award Winner Acceptance Speech

 

I am honored to receive the John Cade Entrepreneur Award. I credit my family and military background for influencing the choices Iíve made.

 

Growing up ďAndersonĒ and being an only child was a challenge. Our two children will tell you that being an Anderson hasnít changed much from the days when I was a child. Apparently, itís in the genes.

 

I was born in 1939, prior to World War II, and things were hectic in the United States. My father, Reuben Anderson, was a plumbing contractor. He had an eighth grade education and started his plumbing apprenticeship at age 14. He knew the value of hard work and the importance of an education. I had a loving family, much discipline and a wonderful education.

 

My family had the luxuries of a summer home, a nice car and a membership at the local Country Club. I grew up with the importance of a strong work ethic. I understood that Saturday was a work day, the office was a place of shrine, the warehouse was invented so young adults would have a place to work on Saturday and summers were created so that ďAndersonísĒ could hold down a summer job. I never complained about the work ethic. As we say today, ďIt was what it was.Ē

 

My parents were strict and they had guidelines Ö you ate what was served, respected your elders, and followed the family rules. I think their guidelines prepared me for a life in the military and business.

 

In my day I never heard of a ďtime outĒ or ďtry some to see if you like itĒ options that occur in todayís family structure. Quite frankly, I donít think ďliking itĒ had anything to do with eating. The meals in our home were healthy and I grew like a weed, reaching 6í3Ē by the eighth grade.

 

My size encouraged me to play sports. As I approached the end of my junior year in high school I applied to colleges that appealed to both my athletic and academic abilities.

 

Although my dad and I had a good relationship, there was a forty-year age difference. The first and only big disagreement we had was the debate of where I should attend college. My choices were Harvard and Dartmouth for their academic prestige and USC strictly for the football -- being a Trojan enticed me. My dad had other ideas. My dad thought I should go to West Point. He glamorized the notion of playing football for West Pointís coach Red Blaik. Although I liked the idea of playing football for West Point, I was intimidated by its educational structure and regimentation.

 

This was the first time in my life that my Dad and I strongly disagreed. He actually stopped talking to me. I finally ďgave inĒ and decided to attend West Point. My exact words were Ö ďIf it makes you happyĒ and I signed on for a B.S. in civil engineering, a seven-year commitment to serve in the United States Army, three years of active duty and four years in the reserve.

 

I can honestly say that my military years were some of the best and most influential in my life. I was 22 years old, had the opportunity to lead a group of men and take responsibility Ė an experience unparalleled in any other career. I credit my military background for any leadership qualities I may have achieved. I would have liked to have served a full career in the military. Duty, honor, country. Unfortunately my dad had a heart attack and he wanted me to return to Minneapolis and get involved in the family plumbing business. Again, I had other ideas. I had just been promoted to captain and was very proud of the bars on my shoulder. But being an ďAndersonĒ doesnít allow for such idle time. He said, ďWell, itís time to come home and get to work.Ē So home I went and thus the beginning of my 38-year business career.

 

I returned to Minneapolis in June of 1964 with energy and a will to succeed. My father was in the plumbing contracting business and it had always been assumed that I would follow in his footsteps. Sort of the ďAmerican Dream.Ē He believed that there were two important requirements to success and security. First you had to learn a trade. Of course that would be plumbing. Second you needed to belong to a fraternal organization and in his case that would be the Masons. I set about to do both.

 

My father had a small company in St. Paul that was in the pipe insulation and sales business called Asbestos Products Inc. (API). It was his suggestion that I cut my teeth there before I embark on the more weighty aspects of the plumbing contracting business. The company had a net worth of $60,000 and consisted of 13 people. I was full of questions and I suspect a bit aggressive. After two months the president of API threw his pencil box at me and said, ďHere you run the damn thing. I suspect you will anyway.Ē

 

My career path was straight vertical. One day Iím in sales and the next Iím running the company, although it was a very small company. I had always seen myself in that role but certainly not so quickly. I think it was a blessing in disguise. That first year formed the basis for my life today. I met my wife, Penny, and we were married in June of 1965. She has been a very instrumental part of my life and a very important part of our companyís growth. She was there to entertain when called upon and to socially interact with employees, vendors and customers. I never met a person who didnít like Penny. Her high energy and personality have been undeniable assets to our companyís success. I believe that success can be attributed to your spouse. Success in business is a team sport and it doesnít stop with the office; it continues into oneís family life.

 

API grew slowly at first with limited capital and a small staff. It really wasnít until 1985 that we made our first major acquisitions. Since that time we have built our group of companies into 23 separate company units with revenues of close to $800 million with an average return on equity over the past 15 years of over 20 percent. This year we were able to make the Forbes list of 500 largest private companies and although volume doesnít account for much in my mind, it was a nice milestone.

 

I really want to talk about my philosophy of business as well as some axioms Iíve developed over the years. But first I want to bring into the picture a second parallel business that developed over the same general period between 1978 and 1997. I had several friends in the banking business and they all seemed to be doing very well. In 1978, I had an opportunity to buy a bank in International Falls for book value plus 10 percent. This particular bank had a return on assets of 2 percent, a number that only a few banks are able to achieve. Over the next 20 years I bought 18 more banks in central and northern Minnesota. Some from the RTC during the '80s and others from retiring owners. I did the whole thing by leveraging up the equity in the Bank Holding Company. Little did I know at the time what was about to happen to the pricing of banks. We never paid more than book value plus 50 percent. In 1997 my son suggested that I look at selling the group to a major bank. Iíve never been a good seller having spent all my life buying. It was a tough decision for me and there were some emotional hurdles to deal with. Financially, it was the time and the thing to do. We sold $700 million in banking assets for nearly triple our equity. Taking Wells Fargo stock in trade and then in six months watching the value of Wellís stock double. It was an enormous amount of money and I can only shake my head and remember the adage about being smart or being lucky and if given the choice, always choose luck.

 

I donít have an M.B.A. in business. I wish I did. My career started out so fast that there just wasnít a good time to do it. I admire and respect those who avail themselves of this opportunity. Some of the observations and opinions Iíve acquired over the years are probably textbook. Others are probably pure ďAnderson.Ē Iíll let you decide if any of it is worthwhile.

 

It occurred to me years ago that there are good businesses and bad businesses. A bad business doesnít mean one that doesnít make money. It does mean itís one that takes an incredible amount of effort and time and if everything works like clockwork; you can eke out a living. What are some examples of good businesses? They are businesses that have franchise value, easily bankable, good pool of talented people, values for both buying and selling and in market demand. Examples would be banking, real estate, financial services and energy related. The last group is an example of a mega trend. We are in a period in America where we are experiencing a loss of capacity to generate energy. I am encouraging our companies to expand into this market as quickly and as extensively as we can. Mega trends donít last forever, thatís why they are called trends. The early bird here will definitely get the worm. Fifteen years ago, we were studying the demographics of America and it became evident that people were moving to the West and in particular the mountain states, where it was predicted the population would increase up to 10 percent per year for a number of years. For a specialty contractor, this had a significant impact. We opened or acquired 15 offices with the next five years in the mountain states and we were right on. Construction has not stopped yet. My advice is to watch for paradigms and mega trends and be prepared to move quickly.

 

On the subject of people, there is much to understand and everyone will have their own opinion. Here are a few of mine. I will take loyalty over pure intelligence. Show me a loyal employee and I think I can develop the skills they need to be contributors. People at API donít leave. I know a good compensation package comes into play here but I also know that if employees arenít happy they will leave even with good money on the line. Iíd rather hire a "fast nickel than a slow dime." Enthusiasm is paramount. High energy can be directed. Incentive in the form of job security, job promotion and financial rewards cannot be put aside. In todayís market you better be prepared to pay what you would have paid if you knew the employee was about to leave your employ. Donít make the good employee ask for a raise and communicate often about his/her future. Make sure the good ones know there is a plan for them in the future of the organization. To not do this, is risking their leaving. When a valuable employee leaves, make it a positive experience. Offer advice and counsel and always leave the door open for a return. Many great employees will have changed jobs at least once in their career. Make sure their third change is back to you. Some of our best and most valuable employees left for a short time and came back even more committed then before they left.

 

Organization: I believe in the "one feather" concept. Namely, one boss, thatís me and Iíll only wear one feather. I hate to see organizations with 200 vice presidents and everybody traveling here and there and taking the valuable time of the guys who are really making it happen. Keep the strength of the organization at the front line. Decentralize where and when you can. Now many of you will say that only works to a point and then you have to build a more complex organization to keep the business functional. I wonít disagree completely with that argument but it wonít be on my watch. I hope to hit $1 billion in sales and then change my ways. Iím not suggesting we donít have a staff. We have all of the functions of treasury, accounting, human resources, informational services, and IT. The point Iím making is to hire the very best company managers you can, appoint them president and cut the traces. On the subject of acquisitions, many of our acquisitions involve owners who want to sell earlier in their careers in order to have money to invest or to raise their standard of lifestyle. We encourage this type of purchase and have dealt well with it by letting the previous owner run his business like he had prior to sell. We donít change the name. We donít put our ďbugĒ on his stationary. We donít hold meetings in his office. We do have a few rules and we do meet off site but we will never do anything to make it apparent that he no longer owns or runs the business. This is called Ego Rule #1. Ego is not a bad thing as long as it doesnít affect team play.

 

On the subject of teamwork: Teamwork is everything at API, next to loyalty. An employee who isnít a team player has to go. We have had to terminate some really high-performance individuals because they wouldnít be on the team. Itís hard to do but itís like honesty and morality. If you know itís lacking you have to deal with it. Oh yes, and the sooner the better.

 

We are in the specialty construction industry. We are the second largest supplier of Life Safety Services in the United States and the largest in Canada. We hope to continue to grow in this market. As mentioned above, this is another of those mega trends, that is just not going to go away. We just opened our 100th office and as long as people have a public awareness of safety, we feel we will have a strong market place.

 

In closing, I want to leave you with one idea. Life is like climbing a ladder. You can get off on any rung and live an enjoyable and productive life. Not everyone will go to the top rung and many should not go there. On the other hand, there are more opportunities today then there ever have been. I encourage those whose intentions are to climb the ladder that they work for a company that doesnít hide their ladder in the closet -- where it is always in view and discussed openly.

 

Thank you again for this wonderful award. Iím not entirely sure I deserve it. Like I said, there has been a lot of luck involved in my life.