Going Back Up

Business was falling at Minnesota Elevator, Inc.

The Mankato-based company installs, repairs, services, and modernizes elevators, primarily in Minnesota. It also manufactures elevators and elevator parts for more than 50 customers outside of Minnesota, primarily the four major elevator manufacturers: Europe-headquartered Kone, Thyssen-Krupp, and Schindler, and New Jersey-based Otis. Minnesota Elevator builds around 600 elevators a year, specializing in customized constructions, such as particularly large freight elevators for department stores, and distinctive lifts for corporate headquarters and arts venues throughout the United States (including, locally, the Guthrie Theater).

It had been a good business for 36 years, when, around 2004, Minnesota Elevator began to fall on hard times. The company lost $2.2 million between fiscal years 2004 and 2006—$1 million in fiscal 2006 alone.

Frustrated by trying to solve the problems on their own, CEO John Romnes and his management team confided in their banker, Kent Wheelock of U.S. Bank’s Special Assets Group. Wheelock helped them connect with Rick Lowenberg, lead turnaround consultant at Minneapolis-based Alliance Management.

Lowenberg visited the company in March 2006 and began a 30-day assessment process. He found a number of problems. The first was Minnesota Elevator’s outdated and cumbersome bidding process. “The company had a sales department that would quote work in a vacuum, and then they’d throw the project over the wall to project management,” Lowenberg recalls. The project management department—and after that, the engineering department—would notice production issues with the job, 90 percent of which affected pricing and lead time, he estimates: “By then, though, they’d already be committed to a price.”

The disjointed bidding process evolved out of the pressure Minnesota Elevator felt to give its major customers quick, cheap bids. A larger elevator company, eager for the revenue that comes from a service contract, might want to submit a lowball bid on a project. Bowing to that pressure, Minnesota Elevator was bidding work at unsustainably low prices.

There were other problems as well. Minnesota Elevator had spent nearly $1 million developing “MEI University” to provide customer training—only to discover that customers were unwilling to pay for training. The company also spent more than $1 million developing a high-volume, low-margin product line for shorter structures—motels, churches, elementary schools, malls—for smaller independent elevator companies. But Minnesota Elevator discovered that major competitors already were offering those customers low-cost options.

“We thought it might be the plan from heaven,” Romnes recalls of the proposed product line. “Instead, it turned out to be the plan from the pit.”