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petiti titive e en environment ironment

August 15th, 2014 Bob Swelgin President Smart Electronics & Lark Engineering

Changing hanging Ti Times.. es.. Or Not

• t

Person

• nal

al Histor

• ry
• Started acquisition of small companies in 1988 as part of Texas Instruments
• As VP and Country President of Tyco, responsibility for numerous acquisitions and

integration on global level.

• a. Ex: Patriot in Asia, built business from scratch
• As COO of Panasonic, opened facilities in China and Texas. Had to integrate quickly, as

well as cut costs.

• As CEO of American Racing, led two bolt-on transactions.
• Failed in founding of Avrio Technology.
• a. Too slow to change culture to drive “ownership.”
• b. Allowed too much to remain as is while all expedited change

What’s Next for Me?

• Kids through

gh schoo

• ol and finally off my payroll
• ll
• a. Time to use personal lessons learned and restructure my go-forward career
• No big compa

pany bureaucracy cy

• Invest

st my own money and time

• Built relation

ionsh ship ip with founde der of Smart Electron

• nic

ics s & Lark Enginee eerin ing

Our Parent Company

Secure Technology Team total Value

Secure Proprietary/Competition Sensitive

5

Wire bonding/Chip-on- Board Class 10k clean room Full RF and Digital box build Inc. Cables and Harnesses Sensor products

Your Cost and Technology Value Leader

Cho hosen sen Pa Path th

Target

• A & D- Small business consolidation ( <$5M EBITDA)
• RF- Subsystem engineering and manufacturing
• Low cost manufacturing in North America

Why?

• It is a fun industry technically. Best part of my career.
• Plenty of small companies consolidation.
• A & D industry needs cost reductions and creativity/affordability.
• Asia is getting expensive for manufacturing. Mexico will be affordable solution.

Ap Appr proach/Plan

• ach/Plan
• Develop

loped ed model el- Built t team to execu cute

• a. Researched technologies and markets
• b. Ensured strategy supported customer level objectives and filling the gaps
• Recruit

uited equity y and debt to make acquisi uisitions ions

• Keep on top of market- EW, ISR
• a. Follow customer strategies to differentiate the new company
• Found companies to acquire… Built relationships with founders of Smart Electronics & Lark

Engineerin eering

• a. Bought in non-competitive arrangement
• No investment bankers involved

Execution ecution

• Hit the groun

und d runnin ing

• a. Integrate quickly
• b. Acquire quickly
• c. Engage the workforce
• d. Create confidence and ownership in full team
• Execu

cutio ion- 100 day plan with focus us on cust stomer mers s and employee yees

• a. All hands meeting to explain “go forward” plan
• b. Restructure compensation to focus on “pay for performance” to create ownership
• c. Create more entrepreneurs within the company
• d. Common marketing approach

Execution (Cont’d)

• Engage

e custome tomers s into

• workforce

force- Create te custome tomer ownership ership

• Explain

n custome tomer value ue to all employee

• yees- They are not “bad guys”
• Show

w continu inual l improv

• vem

emen ent t in all areas

• Develop

lop and sell l value ue contrib tribut ution ion differen erent t than peer group up

• a. Internal and External

Ma Marketing rketing Str trategy ategy

• “Stick to the Knitting”!
• a. Focus on aerospace and defense- small high end specialty industry
• b. A & D area = EW & ISR
• Exploit
• it the custom
• mer

ers s we know

• a. Sell top to bottom (Me to President & V.P)
• b. Sell bottom to top (Program manager & reps to buyer & engineer)
• c. Get foot in door at one division and expand presence
• Make it difficu

cult lt for custome

• mers

s to say no

• a. Build team to show well
• b. Invest a little in visual aids and cosmetics
• c. Show “organization” and follow through

Marketing Strategy (Cont’d)

• Starts

s at Home

• a. Professional in all we do
• b. Dress in office- No t-shirts or dirty jeans
• c. Care for customer during visits. Let them know we love

them

• Visitor parking clearly marked
• Upscale the lobby
• d. High quality proposals supporting competitive pricing
• ”Borrow” shamelessly from customer best practices
• Increase

ased d value propo position sition

• a. Never a “one trick pony”
• b. High Value solution provider

Energizing nergizing th the e Pe Peop

• ple

le

• Involv

lvem ement ent and personal al impro rovem ement ent

• a. Education
• State offers free basic classes (ie: English, math, Spanish, Vietnamese)
• Comm

mmission

• n pool
• l organ

ganized zed

• a. Percent of each dollar billed goes to pool. Distribution based on >92%

revenue attainment (to budget)

• b. Anyone with customer contact partakes quarterly
• c. Salaries adjusted
• Sales team = 50% of commission pool
• Program managers = 20% of commission pool
• Management share goes to group contributing most to prior successful quarter

(ie: mfg, QA, purchasing)

Energizing the People (Cont’d)

• Monthly “rewards” luncheons
• a. Every month the team hits target- Free lunch for entire company
• b. Quarterly awards to “Recognized contributors”
• c. “Suggestions” implemented are rewarded
• d. Every employee gets 90 day review to be sure objective is clear

and what is rewarded

• Not length of service

Educ ducation ation and nd Ta Tactics ctics

• Explan

anat ation ion to all of their contrib ibution ion to success ess

• Openness

ess is expected cted- opin inion ion sought ht

• a. All executives expected to MBWA
• Change

e is encourag aged ed

• a. Physical plant adjustments (Paint, walls, chairs, tables, carpet)- Something visible

every 4-6 weeks

• b. New logos, websites, signage

Education and Tactics (Cont’d)

• Simple

le Things ngs; ; Added as rewar ard for r succe cess of busines iness

• a. New refrigerator
• b. More microwaves
• c. Better coffee
• d. Personalized shirts and smocks

(Craigslist and Ebay are great sources)

• Explain

ain requirements uirements to employe loyees.

• es. Off

ff to pay for r work rker ers personal nal improv rovem ement ent sessions:

• a. Program management
• b. Microsoft office
• c. English
• d. Public speaking

(Employee needs to invest their personal time for this to work)

Education and Tactics (Cont’d)

• Openness

ess with customer

• mer
• a. Knowledge in what we build
• b. Accept customers suggestions and offerings (Seek opinions)
• c. Customers may not be right but they are never wrong
• Video
• screens

s mounted ed throughou

• ut factor
• ry for improv
• ved commu

munica ication ion

• a. Quality summary
• b. Production requirements
• c. Progress to target
• d. Newsletter
• e. Customer product news
• f. Customer visits
• g. WIP status- updating every 5 minutes

Res esults ults

• Compa

pany ny grew >25% in y year one

• a. Expect 20% growth in year two
• b. Primarily expanding same customers
• Turnover

er almost

• st non- existent.
• nt. Happy and contribu

butin ing g workfor

• rce

ce

• Absentee

eeism ism rare

• Workforce and customers see benefit of “Team” approach
• Employ

loyees ees engage e with custom

• mer

er and feel part of success ess (and failure) e)

• Customers respond very positively and “perceive” a stronger organization

Results (Cont’d)

• We get unsolicite

licited d calls s from employ loyees ees at competi petitor

• rs

s looking g for jobs

• Costs

s stay low

• a. We are a low cost producer in California!
• Margin

ins s = 2x 2x o

• f industry peer group- Stron
• ng

g focus s on cost drivers

• Select

ctive ve techn hnology

• logy advan

ance ces s continu nue e to differen entiate ate

• a. Develop roadmap- execute- tell customers

Results (Cont’d)

• We listen

n to custom

• mers- Tell them where we are going
• a. Tell them when we achieve our commitments!
• Backlog
• g is now greater

r than revenue at close se of acquisition sition

• a. EBITDA is >2x pre close
• We are now conside

idere red d for long term contrac acts s equal to the size of the compa pany