Permanent marker: Xenetech etches new path to come back from recession

As president of engraving systems maker Xenetech, Guy Barone has spent years learning how to make a mark. After all, the company's laser and rotary engravers can etch a design into just about anything, from cups and clothing to wood and stainless steel. But Barone wasn't prepared for how deeply the Great Recession would carve into Xenetech, slashing its workforce and revenue and forcing the company to restructure its business model. Barone didn't know it would take years to recover from the downturn, that only now would Xenetech approach prerecession sales.

The biggest problem for Xenetech, aside from a customer base that had stopped buying, was its distribution network. Xenetech granted distributors exclusive, multistate territories but didn't require them to meet sales quotas.

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"That was a formula for death, a formula for failure, as far as I'm concerned," Barone said. "We knew that wasn't a good structure, but it had worked for us since our beginning."

So Barone delayed. Then the recession struck. Suddenly, distributors that had been racking up annual sales of $1 million or even $2 million were booking a tenth of that. Xenetech was still paying generous commissions to distributors, so much so that distributors made as much as the company on every part or piece of equipment sold in their territory. But Xenetech had no leverage to push distributors to sell more equipment.

There was no more time. Xenetech had to change. Barone sought advice from the Louisiana Small Business Development Center and Director of Ready Supplier and Economic Gardening Scott Uffman.

Typically, the small and midsize companies that go to the center have problems with accessing capital, having sufficient cash flow, understanding financial statements, improving staff performance and making strategic decisions. Lots of times, companies are "satisfactorily underperforming," Uffman said, and lots of times that's because the CEO is wearing nine different hats and is so busy working that he or she doesn't have time to work on the business.

Xenetech was different. The company had more than 7,000 customers worldwide, an excellent reputation, a talented technical staff and leadership who wanted to improve.

Uffman's analysis showed Xenetech needed to restructure its distribution model and its overall sales process. The challenge was identifying the industries and customers that provided the greatest return. Uffman put Xenetech with the Louisiana economic development department's Economic Gardening program, which provided customized data and helped identify new, potentially lucrative customers.

Ronald Reagan once said the most terrifying words in the English language are, "I’m from the…

With lots of help from Uffman, who Barone said could not possibly have been paid enough for all the hours he worked, Xenetech also took its sales in-house. The company now uses SalesForce.com, a cloud-based software product to manage its sales and customer relations.

Before the recession, if a lead came in, Xenetech forwarded it to a distributor. It was up to the distributor to make the sale.

"But now, we're working those sales leads. We're generating the quotes. We're following up on the quotes. We're closing the deals. We're shipping the equipment," Barone said.

Under the new sales structure, Xenetech gets the same return from selling one machine that it did by selling two.

On this day, Barone has fielded calls from Rolls-Royce, a jet engine manufacturer in Bristol, England; a production supervisor at the Ralph Lauren facility in High Point, North Carolina; a mailbox manufacturer in Dallas; Wichita State University's Economic Development Go Create; and a distributor in Australia. The tally from those calls: more than $100,000 in sales for four systems shipped to three countries. Barone also has given out half a dozen quotes to government agencies, trophy shops and a sign company.

None of that activity would have taken place without the sales/distribution structure changes, precipitated by the recession and developed with help from LED's Economic Gardening program and the Louisiana Small Business Development Center and Uffman, Barone said.

Xenetech also shifted its product development strategy. Before the recession, customers would often buy a new machine and toss the old one. During the slump, customers began looking for cheaper ways to increase their productivity. Xenetech began offering upgrades of existing equipment. The upgrades allowed customers to update at one-third to half the cost of a new machine.

"And the good news for us is that we were able to have higher margins with some of that," Barone said.

But surviving the Great Recession started with two keys: perseverance and then more perseverance — by the entire company, from Barone and his sister, majority owner and chairwoman Kathy Hoffpauir, to the remaining staff.

"Show up every day," Barone said. Believe it will get better. Pray. Keep working on your core competencies and execute the new plan.

"We'd already felt a big loss when my brother-in-law (Jay Hoffpauir) died. He was really the brains behind the operation back when the company started, software development, hiring the right technical people, growing the company. And he died in 2000 of cancer," Barone said. "So if we could overcome that, we felt like that in spite of the fact that we had a big challenge here, we could do pretty well."

Xenetech's revenue hasn't quite recovered to prerecession levels, Barone said, but the company expects to far surpass its previous high in the next 12 to 18 months. Five years from now, Xenetech expects revenue will be 50 percent higher or more than before the recession.

Barone said he wasn't comfortable providing specific numbers, other than to say the company is maintaining sales of under $10 million.

David Papell, an economics professor at the University of Houston, said he knows nothing about Xenetech, but it's not surprising that it could take years for a company to recover from the Great Recession.

The National Bureau of Economic Research dates the recession from late 2007 to June 2009. By that time, the U.S. unemployment rate had swollen to about 10 percent.

"So, basically, the end of the recession is the worst time. The wording is unfortunate because you think, 'The recession is over; things should be good,'" Papell said. "But the real answer is, 'The recession is over; things should be getting better from the worst place.'"

Barone said after Xenetech hit the ditch, the company had to work through the nightmare of figuring out how to manage the same size customer base with about half the staff.

"We're a small business, but we've got to act like a big business. We've got research and development. We're constantly writing software, developing hardware, developing electronics, coordinating that with the vendors," Barone said. "We've got to do tech support for customer service."

Customer support may involve answering questions or emailing directions or videos on how to replace a part or cope with changes in the operating systems of Intel or Microsoft. Windows 10 has generated an amazing number of phone calls, for example. Installing the new operating system wipes out the registry, which means Xenetech's customers have to call in for a new unlock code.

Still, all of those service contacts — customers call on a weekly or monthly basis — have helped strengthen Xenetech's ties to clients and also boosted sales. Last year, most of Xenetech's sales came from existing customers. This year, much of the company's business is coming from new customers who have been referred by existing clients.

The company's current backlog is 60 machines ranging in value from $7,000 to $50,000.

"Marking on parts, trophies, plastic tags for electrical contractors, stainless steel tags for offshore and industrial use — all those types of applications are growing," Barone said. "It seems like there's more and more need for marking and personalization."

Follow Ted Griggs on Twitter, @tedgriggsbr.