In retirement, the founder of Canada Sponge, Alexander Gerolimatos, was asked about the important methods and important people which shaped his business career during his 40 years as President of the Company.

 

 

Q:   Can you explain your ‘hub production’ model?

 

A:   When in business with Albert Molson, any issues of growth and space were addressed by him and could easily be incorporated in his facilities. After purchasing his share of the business, I understood that I was not merely a business owner, but a property owner and landlord as well.

 

This was important as to how to grow the business. In essence, was one 100,000 sq.ft. building, for example, more or less valuable than 10 buildings of 10,000 sq.ft. each or 20 buildings of 5,000 sq.ft. each? As a property owner, the small properties always carried a premium value and consequently, my goal as time went on was to acquire smaller buildings. Why? As my business grew, I could occupy more buildings displacing the tenants. Were business to be reduced, I could rent out the buildings to new tenants. As a business owner, I would never find myself under the pressure of “overhead”, which often causes businesses to make poor choices.

 

There was, of course, a cost of intercompany trucking, moving laminated material, for example, to the cutting facility and thence to the packaging facility. There was also an issue of coordination and supervision but I had good long term employees. The cost of moving material from facilities I accepted as a cost of doing business. It was offset – and more than repaid – by the appreciation of real estate values over time.

 

It was a re-working of the multi-national corporation’s application of “hub” production, but on a smaller scale. In the end, my eye was fixed on the bottom line, which can come from a variety of sources, including real estate.

 

Q:   You ran a sheltered workshop for the disabled for many years – why?

 

A:   I always believed that private enterprise ought to have a social component. The first companies were organized by citizens to accomplish a specific task – one that could be better accomplished by a group of citizens working together. My thinking grew out of that organically.

 

Today very large corporations have foundations or make donations which we see on the naming of buildings recognizing their contributions. In my business, we chose a small scale way of making a social contribution, which was to offer a sheltered workshop for the disabled.

 

I believe there is a tremendous amount of self esteem and self worth that a person can derive from putting in an honest day’s work. It is an enriching experience albeit it at a cost. The changing and more extensive regulations brought in by government, with presumably the best of intentions, has regrettably increased the costs of such an onsite workshop that it has had to be discontinued after so many years much to my regret.     

 

Q:   Who are the 5 persons who have shaped or influenced you in business the most?

 

Lawrence Kert – I met him first in 1946. He thereafter acted as the company’s solicitor. He had been called to the Bar in 1920. He was one of the pioneers in law being an early Jewish lawyer. He was a founding member of the B’nai Brith Lodge in Toronto.  

 

What I valued most was his wisdom. Often, a person doesn’t need to be told the right answer, just to be reminded of what the wrong choices are, and thereby realize what the right answer is. He kept me from harm through his wisdom. Not making mistakes can be a powerful contributing factor in a person’s life.

 

My regret was, as he was Jewish and was buried accordingly, I was absent and unable to pay my respects to this wonderful man at that important moment. My advice is to surround yourself with good advisors in business and personal matters, lawyers, accountants, doctors, dentists, and let them look after you as you in turn look after them.

 

Albert Molson – If I have become a successful businessman, then Albert (or Sonny as his friends called him) deserves the credit. If you wish to know of the man, then remember that he and I were partners for 18 years.

     

That should tell you about the honesty and integrity of the man. How many business relationships do you know of where partnerships either do not last or end badly. Since I acquired his shareholding, there have been times when I have been about to make a misstep – and I catch myself with the simple question – would Albert have done that? 

 

Phil Glassman – Albert Molson had a young relative and asked me if I could give him a job. Well, in Phil’s first 18 months, the business exploded. He was an incredible salesmen. He sold what we had – and what we didn’t have. He just say, ‘then buy it’. One day he came to me and said that with starting a family, marriage and children, he felt he had to go out on his own. I remember my reaction was to reach out to shake his hand and wish him all the best as he was now going to be competing against me. I said that whatever happened, we ought to stay friends. We did.

 

I wish I could claim to have taught him the business; he was such a natural – and such a hard worker – that I believe he would have succeeded in any business he went into. 

 

Steven Taylor – I met Steven through Paul Roth and perhaps Steven thought I just liked him because his middle name was “Gerald”. He had a marvelous economy with words. If I used 10, Steven, used 2. Understanding the tax regime any where is a challenge for any one, and his advice and guidance over the years I always appreciated. Too many people realize too late that they need good, honest counsel. I was fortunate to have had that advice early on.

 

Fred Lythgoe – I had met Fred when he was a vice president of sales at one of our customers. He was a natural salesman. He had the unique ability to always be impeccably turned out. He had an ease and skill in negotiating with customers that I admired. He got the appointment and he closed – the two attributes necessary for a successful salesman. Once he had gone out on his own, I was gratified that he agreed to present my product and he was invariably always successful.  

 

Q:   What device or thing would you recommend to young businessmen/women starting out?

 

A:   Employee Stock Ownership Plans (ESOP) – if our economic system is to survive, it must also change. True capitalism and free enterprise do not really exist given the level of state intervention in not merely the Canadian economy but in business across the Western World. US President Reagan proved with his disastrous bailout of the S & L’s in the 1980s that saving failures only adds to the nation’s debt, rescues unworthy but well connected people and prevents the natural rejuvenation of business which comes after bankruptcies.

 

The idea that some thing or some one is to big to fail is non-sense. In real free enterprise, the failures ought to be plowed under, just like a farmer does with certain crops, to rejuvenate the land.

 

Either capitalism will move – in the future – more toward feudalism, where the disparity between the haves and the have-less or have-nots will grow, or it must become more inclusive – ESOP. It essentially means giving everyone a ‘piece of the rock’, or a vested interest in economic activity they are engaged in. Otherwise, if they are totally excluded – disenfranchised – and they ultimately become disassociated, then our society – and economy - will ultimately become more disfunctional.

 

The usual stumbling block for ESOP is the issue of control or alternatively, the issue of sharing the proceeds. If you can engage people to become more self-motivated and more efficient, I would tell you that the benefits outway any of the supposed costs.

 

Indeed the American Revolution was based on the very notion of the necessary connection between the ‘taxed’ and the ‘taxor': “no taxation without representation”. Applying this basic American principle to late 20th century capitalism is necessary in order that our economic system survives, grows and does not go down a very dark path towards a revival of feudalism.

 

I do not claim any insight here. In the 1960s and 1970s Winnett Boyd spoke passionately about ESOP. I heard one of his speeches in Toronto, Canada, and I was convinced.

 

Q:   What are the future trends you see in your business?

 

A:   Either there will be a flight to quality – or to the lowest possible price.

 

With the emerging economies of the Far East, Korea and China as examples, at some point, they will be able to organize themselves and utilize their lower costs to challenge manufacturing in Canada and the US. In such an emergence, the new competitors will neither care nor be concerned with quality – only with the financial return.

 

If those companies in the sponge business do not collectively set and maintain standards, then substandard product will overwhelm the marketplace, consumers won’t be able to distinguish between a ‘good’ and ‘bad’ sponge, and in the end, consumers may just switch to using rags as the quality of the entire business will have been corrupted by substandard product.

 

What will the sponge industry do? The multi-nationals in the business will not see this coming, and even if they did, they will be arrogant enough to believe that it won’t hurt them – but it will. The owner/operators won’t care for a different reason. Generally, I have found the entire business to be populated by ‘small minded’ people. They have spent their entire lives hunting for a saving of a tenth of a cent here or there and consequently and quite naturally, none of these people have ‘vision’. If there are such ‘visionary’ people in this business, they are the exception. So regretably I see ‘the lowest price is the law’ – to borrow the phrase – winning out.

 

The challenge for my successors will be to recognize the trends early, identify niche markets and service them well. In summary, look at what the competition is doing - and is not doing - then resolve that there has to be a better way – and execute it.

 

Q:   Will the multi-national or the owner/operator prevail in your business?

 

A:   Recently, 3M purchased O-Cel-O. Although part of General Mills, it was really operated by Joe Grieco as an owner/operator. (Whether Dupont appreciated it or not, Dupont was very fortunate to have had such capable and innovative people as Bob Klann and Art Gieb running their sponge plant in the 1960s.) Indeed General Mills, Dupont and Kimberly-Clark all once owned sponge manufacturing companies that they have since disposed of.

 

In the medium term, I believe that the multi-national will appear ascendent. However, the sponge business is really the type of business that requires an owner/operator. The multi-national may be able to easily add (as compared to an owner/operator) a few sponge skus to broaden their product offering, bundle a group of products with an over-riding discount, fund new production facilities or engage in esoteric research. The weakness of the multi-national is what I call a lack of “institutional memory”.

 

When a business is acquired, the purchaser generally keeps existing key personel on to learn the business. In other words, ‘they make a copy of the original’ and if the copy is somewhat unclear, the old hands are still there to clarify the picture. But 20 years out, the multi-national has replaced all of its original take-over personel many times over and the previous owner/operators are long gone. In other words, ‘they have made a copy from a copy from a copy from a copy’.

 

What has been lost over time, through this ‘copying process’ – regardless of how good the technology may be to ‘copy’, is the institutuonal memory of those people who had, to build the business from the beginning, to solve the problems and issues as they arose. The new people 20 years out find themselves confronting new problems, in fact recurring problems, for which they have none of the reference markers from the company’s manufacturing past.

 

In summary, I would predict that 20 years from now, when I have long since departed, 3M will be encountering all sorts of manufacturing issues on a continuing basis. While regulations and technologies may have changed over 20 years, the manufacturing problems remain the same. There will be an absence of institutional memory to resolve these issues.

 

The financial resources of the multi-national, the power to deflect failure and sideshift systemic issues will enable the multi-national to survive. But 40 years from now, I would predict the resurgence of the owner/operator as the multi-national takes a critical look at its deployment of capital, the implicit costs of its commitment and concludes (which they could have concluded decades earlier) that their own bottom line would be stronger if they offloaded the manufacturing issues and merely maintained a marketing alliance with a manufacturer run by a more engaged/devoted owner/operator.