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State Supply thrives by focusing on the small but critical parts needed to maintain steam heat systems
Patrick Lombardo, CEO of State Supply, a family-owned, 76-year-old boiler room supplies wholesaler, is a big fan of technology—19th century technology. His 21-employee St. Paul (Minn.) company posted record growth last year, bringing in nearly $10 million. It had a single item to thank for its good fortune: the steam trap. These softball-size valves stop steam heat from escaping a building and recirculate water back to the boiler once the warmth has exited through the radiator. Steam traps fell out of favor in the 1940s, but old buildings have hundreds, even thousands, of them, costing up to $1,000 each.
Steam heat may be antiquated and full of annoyances, but for the institutions that rely on it—such as embassies, army bases, public housing projects, schools, and prisons—its economy makes it a necessity. Of the hundreds of companies that once manufactured steam traps, only a handful are still in business. That means anyone maintaining a radiator heating system faces a jigsaw puzzle when it's time to find a part—unless they call State Supply, which prides itself on being a one-stop shop for this specialized hardware and calls itself "America's Steam Trap Super Store."
In the early 1990s, State Supply's revenues were down about 14%, to $1.8 million, says Lombardo. The 53-year-old Patrick, with his brothers James, 49, president, and John, 39, vice-president, owns and runs the company his grandfather founded in 1933. State Supply had always sold a range of products to Minnesota institutions, but fast-growing conglomerates, eating up third-generation family businesses that were ready to cash out, were offering prices up to 25% lower than what State Supply could afford. "We needed to figure out a way to survive," Lombardo says. "We needed to find a product line, a category—something—that we could do well. Something the big guys wouldn't go after." And preferably, something that didn't require much cash or warehouse space.
Lombardo realized steam traps were the answer during a lunch with the building maintenance chief of a Twin Cities school district. The maintenance chief said that fixing a broken steam trap could require a half-dozen separate orders. "In one facility you may find six or seven different brands and repair parts, put in over the past 60 to 100 years," explains Bill Nesbitt, vice-president at Barnes & Jones, a steam trap manufacturer in Randolph, Mass. State Supply already sold some steam traps, but it had to go to a variety of manufacturers to get the parts. Lombardo decided to put them all under one roof.
State Supply started by taking out a $100,000 line of credit to buy steam trap inventory. That reinvented the business in more ways than one. Lombardo's father's generation, which ran the company at the time, balked at the idea, especially since State Supply had never had any debt. But Patrick and his brothers presented a solid business plan using what they thought were conservative sales estimates. They got the go-ahead. "The leadership passed the baton to the new generation," says Patrick. "It showed courage and trust on their part, and my brothers and I are forever grateful." Within a few years, State Supply became the top steam trap seller in the U.S., with 20% of the market. Its revenues have since quintupled, to $9.4 million, while its customer base has grown from 1,000 in the Midwest to 6,000 worldwide.
An important step, Lombardo says, was sending out a catalog filled with detailed illustrations of steam traps to every school district north of the Mason-Dixon Line. State Supply also promised same-day shipping, which means a lot when a building has no heat.
Next, State Supply explained to catalog customers how much they could save on fuel if they maintained their steam traps, something they may not have done for 50 years. Lombardo says a wide-diameter, high-pressure trap can waste $700 a month if it's not maintained, and some utilities, via the federal stimulus program, even offer rebates for steam trap repair. "We had to show them what their dollar loss was, multiplied by the thousands [of steam traps] they may have in a large facility," says Lombardo. To do this, the Lombardos held free three-hour seminars every month in St. Paul. They expected 40 people at the first seminar, but 100 showed up—followed by fire marshals. The company also spends heavily—$80,000 in the past year—on pay-per-click search engine ads on keywords such as "steam heat." In 2008, 20% of sales originated online, up from 10% two years earlier.
Now, State Supply is hoping to replicate its success with another specialty line: Bell & Gossett water pumps, which are small, costly items used in heating and air conditioning systems. State Supply is also selling the 2,000 pump repair parts that no one else seems to be stocking deeply. State hired a factory-trained Bell & Gossett technician to handle customer service for the line, helping to make State Supply the go-to supplier for messy situations involving the pumps. "It fits what we're trying to do perfectly," Lombardo says. "We like to sell small stuff, and it's a product that, when it breaks, [the customer] cannot delay the purchase." That sounds like a good business idea for any century.
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