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Spinoff Custom Fab Solutions learns new tricks to survive the recession

“Diversify or die!” was the mantra in 2001, when the Chanhassen company was created as a spinoff from semiconductor equipment manufacturer FSI International, so it did. When the recession hit, though, it had to learn some new tricks.

“Diversify or die!” was the mantra in 2001, when Custom Fab Solutions was created as a spinoff from semiconductor equipment manufacturer FSI International.

Applying its custom fabrication and plastics machining expertise to new industries and customers, the privately held Chanhassen-based company moved into bio-pharmaceuticals, food and beverage, solar energy and disk drive markets, as well as the core semiconductor market.

But when the recession hit in 2008, the company, with revenue in the range of $10 million, had to learn some new tricks as well.

“Stay lean,” “think global” and “hire carefully” have all been added to the lexicon, according to Larry M. Vortherms, VP and general manager. Vortherms was speaking Thursday in St. Paul on a Minnesota Chamber of Commerce panel titled “Surviving the Recession: Ready to Grow.”

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As they saw orders soften, the company started adjusting.

A financial controller by training, Vortherms focused on conserving cash and maintaining positive cash flow. Management took voluntary pay cuts of 25 to 50 percent and imposed lesser cuts on rank-and-file employees. They instituted furloughs and reduced hours, renegotiated credit agreements and leases, scrutinized vendors and scrubbed operating expenses.

At the depth of the recession earlier this year, revenue was off 60 percent from the previous year. Now as they see signs of some hope, revenue is “only” off 25 percent.

The recession also forced employees to take on multiple roles.

“We’re small, we’re lean. We all wear many new hats,” Vortherms said. “If you try to do things like you did two or three years ago, you won’t survive. You’ve got to focus on service,” as well as cost and quality, he said.

With inventories low and supply chain extended, his customers are demanding shorter delivery times, making the current environment “very, very challenging,” he said. “It’s made us a better company. We realize we have to react quickly to market changes. No job is too small.”

Even a small company “has to understand you’re dealing with a global economy. The business is outside the U.S. so you have to sell outside the U.S.”

Not only are his customers overseas but so are his competitors. He recalled a bid where they could not meet the customer’s cost requirement so the product went to an Asian competitor.

The recent unemployment numbers show Minnesota unemployment continues to rise. If Custom Fab’s experience is any indication, the path to employment growth will be slow indeed.

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Custom Fab’s employment rolls had peaked at 52 and hit a low of 31 earlier this year with an additional 10 on furlough at the nadir. They were able to retain four key engineering positions with funding from a Pohlad Family Foundation grant. The foundation had created a $5 million pool in April to help small businesses retain jobs and plan for future growth.

Employment is now back up to 47, and the firm is looking to hire three key positions that are revenue-related: a designer/bidder, a quality engineer and an operations and facilities manager who will free up Vortherms, currently playing that role as well as his business management role.

He expects to see a pickup beginning in mid-2010, but as demand picks up, the company will be “careful to hire,” he explained. Instead of hiring permanent production workers, they intend to meet rising production needs with contract employees.

Vortherms passed an unexpected test in flexibility and keeping one’s cool recently when both the Minnesota Occupational Safety and Health Administration and Hennepin County Environmental Service inspectors showed up unannounced on the same day.“We made it through OK,” he deadpanned.