January 2002: Volume 44, Number 1
Part 2, Nailing It Down with Nelsen Corp.’s Dave Nelsen
by Carlos David Mogolló n, WC&P Executive Editor
The following is a continuation of our interview with Dave Nelsen of Nelsen Corp.:
WC&P: In '86, what did you start out doing with the business?
Nelsen: As I mentioned, at that time, the business was pretty small. When I came aboard, basically, in some ways, it was a new position and I was trying to figure out where I fit. At that time, we worked with a company called Flint & Walling out of Kendallville, Ind. They had a line that was meant to go to hardware stores. I think it was strictly pumps. We worked on that for about three months before we realized that most of the hardware stores out there really weren't doing much of a job in water systems. There were a few and we kept them as customers. But after three or four months of on the road sales calls and very little to show for it, we started a company called Groundwater Supply, which was basically a catalog that went over to Western Pennsylvania. And, within about 18 months, the sales dollars or revenue for Groundwater Supply exceeded Neslsen Corp. It was just the way things were structured and the way we shipped. Over time, Groundwater Supply kept growing. We recognized we had a little bit of a problem. We were basically running two different companies, which meant two different pricing structures. It wasn't long before we basically jelled the two different companies together with one logo and one company name, which is Nelsen, in one format. We kind of took the best of both companies and put them together and that began to evolve from there.
WC&P: When Nelsen Corp. first started out, it concentrated mostly on well water supplies and the water treatment aspects of that. Was there something different there that a typical Culligan dealer might deal with in a municipal setting? In working mostly on groundwater supplies vs. municipal, there's going to be different requirements. It sounds like you moved away from that municipal setting in Cleveland to be more in the rural areas where I assume you'd be dealing more with what could be termed "problem" waters.
Nelsen: Right. At the time, we'd moved because so much of our business was water well related. Of course, whenever a neighborhood or street gets city water, they get rid of every well and water well pump in that area. And, as city water began to spread to the suburbs of Cleveland, really our customer base was further south. The local dealers that we had up there began to either move or dry up because of the market. We made the decision to move down here.
WC&P: How big was the business when you decided to move?
Nelsen: I guess it was about 6,000 square feet.
WC&P: That's been a lot of building since then.
Nelsen: Yes. This is our original building. And this is I think our fifth addition.
WC&P: The 11,000 square feet going on now?
Nelsen: Right. That also will be doubling the size of our offices and remodeling those. We've got to get the warehouse addition up so that we can move some of the material that is presently being stored where the new offices will go. Once that structure is up, we'll start work on the new offices.
WC&P: Who are some of your other vendors? You mentioned Fleck, but I imagine they're wide and varied.
Nelsen: Fleck, Structural, Autotrol is a large vendor. Let's see -- Amtrol, AirMotor; you've got people like Stenner, Pulsafeeder and Flowmatic. Who else is in there? Let's see -- R-Can and Trojan. We've got over 200 vendors. We get into a lot of small ones after that.
WC&P: Have you got anything in ozone?
Nelsen: No, we haven't done much in ozone. Typically, ozone for a long time it just felt as if it was a fairly expensive technology and a lot of the ozone equipment companies work with the dealer directly. We just found that the dealers that are willing to use or apply ozone typically will do so in a fairly big way, to the extent that they normally work with the vendors direct on that. Unfortunately, like so many vendors, the way they've used the dealer base as their R&D -- we've so far steered clear of that. We just didn't want to take a fairly large water softening and filtration company and recommend a particular ozone company or unit and struggle with it and jeopardize that business.
WC&P: Conversely, UV seems to be more of an accepted alternative?
Nelsen: Oh, yeah, I mean UV we've had for quite a few years, probably 10 years. We do a nice job with UV equipment from both Trojan and R-Can; and, unfortunately, here in the state of Ohio, it's not approved. Hopefully, it will be soon and we'll be able to begin selling UV here in the state. You know, in a bigger way, but there's a good UV market out there.
WC&P: What do you look for as far as a supplier or a vendor?
Nelsen: I'd say primarily demand from the dealer base. Primarily, we stock what the dealers are asking for.
WC&P: Are there challenges in some of the things that have happened in recent years in the industry, some of the trends as far as consolidation and mergers? The one that seems to have popped up in the past year has been people noticing that the number of dealers seems to have shrunk and the Mom-and-Pops are somewhat retiring, leading to a consolidation of superdealerships. I don't know if that's something that you've noticed at all.
Nelsen: Not really. Certainly, when USFilter went through and acquired some of the larger dealers, that created quite a stir in the industry for a 12- to 18-month period. It didn't impact us as much as it did folks like Kinetico and Culligan. They had some fairly sizeable dealers that just weren't carrying their particular product line anymore. They were acquired. It forced them to make some decisions. We really haven't ourselves seen dramatic change in our customer base based on those acquisitions. I would say the real disappointment in a way is if you take some of these companies that were for the most part family owned at one point. Their philosophies and the way they grew the business is basically to work with the dealer with product development and to work with the dealer when they had produced an inferior product. Today, with some of these companies that have been acquired, everything is based on the profitability of the given month or given quarter. As we mentioned earlier, sometimes you have to make decisions for the good of your brand or the good of your company that -- from a financial standpoint -- don't make a lot of sense. But, in the long run, it just furthers your company…
WC&P: From a loyalty perspective?
Nelsen: Exactly. Everything becomes driven by the shareholders, the upper management and sometimes there's this revolving door of managers who are on their way up the corporate ladder and they're really not interested in making good decisions for 12, 18 or 24 months out. It's what makes sense today and how are we going to minimize our financial exposure over a particular problem. But, you know, that gives other people opportunities to enter the marketplace. So, possibly it's just a natural evolution.
WC&P: It may also give newer or smaller companies a chance to pick up customers or solidify their base. There's always been talk, in any instance of a merger or acquisition, of that. When USFilter was on is meteoric expansion phase and acquired Culligan, I recall some comments from Culligan's primary competitors that they were planning on taking advantage of what they saw as the market fleshing out whereby certain customers got lost in the shuffle for customer service, etc. I assume you've been able to take advantage of that as well in similar circumstances in your markets.
Nelsen: Right. I think so. Like I said, we're positioned to grow. That is one of our goals.
WC&P: Is there something else that may explain how you've been able to maintain 15-20 percent growth a year? That's growth at a pretty healthy clip unabated.
Nelsen: It is. And I have to attribute it to, one, it's been our goal to grow at that clip. We set those goals at the beginning of every year. We've also had the good fortune of maintaining our momentum by keeping people that allow us to enjoy that growth, to take care of our customers and take care of our dealers. Finally, I think we have made the right decisions as to what products to keep. Fortunately, for the most part, we've promoted some of the best products available out in the industry. And then, we stand behind those products. They're not always the best. We've had a couple vendors slip up here in the past five years, but we make sure our dealers are taken care of.
WC&P: Was there a particular instance you can discuss?
Nelsen: Well, you know, Fleck has unfortunately produced a couple of valves here in the past five years that have not performed. And it's unfortunate that those products were engineered and produced and, in some cases, are no longer on the market. It cost everybody quite a bit of money.
WC&P: You mean they were reengineered after the problems were discovered?
Nelsen: Some of them, yes. Some have been pulled completely.
WC&P: But basically, you stood by your warranties for those customers and satisfied whatever concerns they had?
Nelsen: We certainly tried to. The dealers have to know that. The dealers have to know that both the manufacturer and the OEM are going to work with them in a positive manner to remedy some of these things. For the most part, the dealers are very reasonable. It's hard to say. But you know, everybody involved bears that cost. It's extremely expensive for the manufacturer. It's expensive for us because we have to handle not only the phone calls, but all the freight involved, the paper work to get it back to the vendor. And then for the dealer, it's also expensive; because, in a lot of cases, they take a control valve and they market it, they may develop a bit of literature, they stake their reputation on it. And if the valve fails, whether it be in a small way or in a large way, they've got service calls involved. It potentially could jeopardize…
WC&P: Certain liabilities for whatever application it's being used for…
Nelsen: Exactly, for the most part, they've sold their customer a water conditioner and, if a valve happens to fail, it's a little difficult to charge them anything to replace that valve with something that works. And this is something that was unfortunate. It wasn't anything that was planned but, unfortunately, Fleck has had a few problems. I think that most of the dealers are very loyal to Fleck and they've been able to pick up a different control valve from the same manufacturer and incorporate that into their line. The other thing that it's done is made it very difficult for Fleck and in other companies to introduce new control valves. The dealers have tried on possibly a couple of occasions to incorporate a new control valve into their line and unfortunately they haven't worked, so they're more likely to reach for…
WC&P: An alternative.
Nelsen: Yes, or a control valve that's stood the test of time for them. Anybody with a new introduction, unfortunately, that uphill battle is just a little steeper.
WC&P: Well, Clack just introduced one in the past year.
Nelsen: Yes, we've got it in our lineup.
WC&P: And I think a couple others have introduced some redesigned ones recently…
Nelsen: As far as proprietary valves?
WC&P: Yes. Do you have a proprietary valve from Fleck? Is that what you're using?
Nelsen: No. We don't have a proprietary valve from Fleck or anyone else at this point.
WC&P: Where do you see Nelsen going? What's your plan for the company?
Nelsen: We've got a number of possibilities. They're all the same possibilities any other OEM has. As I mentioned earlier, I think commercial/industrial is our next move. We're going to continue to develop our current customer base. Bob's going to be a big part of that. But the commercial/industrial is our next area for growth.
WC&P: Is that something you're overseeing or is Bob involved?
Nelsen: It's a combination of people. Among our current customer base, there's demand there. So, a lot of our salespeople right now are taking inquiries that, in a lot of cases, we've got a solution for. In some cases, they get into the industrial arena and it becomes beyond our current reach.
WC&P: What do you do in those cases? Refer it?
Nelsen: Nothing. Just walk away from it.
WC&P: There's always someone else that will walk in and pick it up.
Nelsen: Yes. You have to recognize your limitations. We do get some dealerships that would like to tackle the occasional DI job. We've got enough expertise in here to give them and allow them to make a sort of educated decision whether it's something they want to do. What we need to do now is go after those companies that work with DI in a big way, or some of the larger systems. Now, some of the resources, we're going to use Bob as a resource and some of our vendors. Our vendors right now, I mean Autotrol, with its Aquamatic valve line, is involved in a big way. There's others.
WC&P: You mentioned early in the interview that one of the unique things about your company has been some of the work you've done in well water and pumps and hardware stores and things like that. Do you see that continuing to grow? What sort of trends do you see there? How do you see the company continuing to differentiate itself from competitors?
Nelsen: Well, with respect to the hardware stores, early on that was an avenue that we exhausted and, within a short period, realized it really wasn't a direction there was much potential in.
WC&P: Do you work a lot with well drillers though?
Nelsen: We do. And that particular market has become more challenging every year…
WC&P: Primarily because of what?
Nelsen: Well, it's shrinking to a degree.
WC&P: What's influencing that?
Nelsen: City water influences that.
WC&P: There was some mention I believe last year on whether the WQA would support the NGWA on federal legislation regarding the rights of well owners and not to be forced to give up their private wells vs. long pipe and funding and support of those programs. Does that play into it?
Nelsen: As far as the Water Quality Association stance on that?
WC&P: You would be, I assume, if you work a lot with well drillers, directly influenced by the type of programs that were being promoted federally that seemed to lean toward funding for extending municipal systems into smaller, more rural or suburban communities. That would cut in on the well driller's terrain and, subsequently, yours.
Nelsen: Yes. Certainly, there's been ongoing battles there as far as water wells are concerned. I guess one of my concerns is that there is an underlying demand from not all homeowners, but for city water itself. There's some areas where homeowners should be on city water. I mean the water is absolutely awful.
WC&P: In terms of iron, or whatever…
Nelsen: Yes. And there's a case to be made there. The thing we've seen here in the state of Ohio is there are a number of distributors. And on the water well side of things they refer to distributors rather than OEMS because, for the most part, they're just redistributing product whether it be from the manufacturers or tank manufacturers. But, we've seen the market shrink and the number of distributors remain fairly static. Some have diversified. Most have diversified. And as we have, we've gone the water treatment route; some have gone into irrigation -- in order to survive. One of the problems we've seen is most of those products, water wells pumps, tanks and those type of things, have become somewhat of a commodity. As time rolled on and this became more pronounced, the pricing and profit margins became less and less. The unique thing I think with our background in water systems and our product availability that we bring to the water treatment dealer is understanding of water systems and how they work and how to apply water treatment based on the characteristics of a particular water well. That sounds like there's no engineering feat there, but when you understand pump curves and water wells themselves and their construction, I think you're just better prepared to work with dealers in the application of different types of treatment equipment. All this equipment has certain limitations within which it needs to operate. And, with myself or one of my salespeople, the greater understanding of that particular water well system that we have then the more successful we're going to be in applying it and the more we bring to the table, I think, as far as the dealerships are concerned. Most of the water treatment dealers out there just do water treatment. Maybe they'll install an occasional pressure tank or something. And then, there's a fair number out there that get involved in both water well and water treatment. They take what is a full package to the homeowner. I think that's where we shine in a way is we take that full package to the marketplace.
WC&P: I've got three little questions I'd like to run by you and you can pick and choose how you'd like to answer them. One was, outside of the Midwest, are you working with any other distributors that assist you in say working in California or Florida. Second, you'd mentioned foreign sales; I was wondering if you could talk a little bit about that. Lastly, some emphasis on the WQA, issues that get play there and what your perception of those may be.
Nelsen: Well, with respect to distributors, sales beyond the Midwest, of course, the obvious reason why the greatest percentage of our base is here in the Midwest, of course, is freight cost. The competition. We're able to be fairly competitive within let's say a 500-mile radius. Then it depends upon truck lanes. Florida is pretty achievable for us because there's several good carriers that run to Florida and they're very competitive. Start to move out West, west of the Mississippi, and freight costs become an issue. Where we're able to shine in a fairly small way is we have probably two years ago made a commitment to stock a fair number of commercial valves, commercial tanks, etc. And we've done a fairly good job of getting the word out to the dealer base throughout the United States that we have this inventory. So, we pick up quite a few customers that way. They need a valve in a hurry, a large Fleck commercial valve and we normally have it on the shelf. The other thing that we've been able to do with our inventory levels is service quite a few different OEMs. I've just seen in the past year or so probably greater cooperation among OEMs than I ever have, mostly from an inventory standpoint. Pentair's lead times on control valves have fluctuated quite a bit in the past several months. And several OEMs do get caught. We get stuck once in a while without, in a position where we're low on control valves. And we've been able to work with different OEMs in satisfying some of their inventory requirements by shipping valves quickly.
WC&P: Is that filling a little of the vacuum from when some of the medium sized distributors were feeling a pinch a couple years ago?
Nelsen: From an inventory standpoint?
WC&P: I wasn't sure if it was strictly an inventory standpoint or just because of some buyouts or consolidations that might have changed pricing structures they were getting caught up in…
Nelsen: You know, Fleck or Structural or Pentair represents a huge portion of our business. The thing that they've done is I think kept it fairly clean. I know Fleck has with its pricing. There isn't a large spread between the very smallest OEM and the largest. So, a small OEM has the ability to compete, grow their business as we did over the years. And we earned our way through the brackets. So, it's not so much from I think a pricing standpoint as it is just good inventory management. If you take a small OEM who picks up a big new dealer, well it's going to tax their inventory differently.
WC&P: They're going to want to have worked out some agreements with their suppliers to meet that customer's needs.
Nelsen: Exactly. And Fleck and Autotrol produce such a wide variety of valves that it's a little bit hard to meet the demands of the marketplace consistently. It's challenging. Inventory control is challenging for any OEM. We all get kind of caught once in a while. And when lead times are out at two, three or four weeks, you've got to turn to maybe a distant competitor to satisfy that.
WC&P: Sometimes you're able to fill that role?
WC&P: What about foreign sales?
Nelsen: Foreign sales are sort of a roller coaster. I handle all that, but I'll go through weeks where I'm quoting daily different customers and then we'll hit a dry spell for a while. But it doesn't represent a great portion of our business. I would say it's 2 or 3 percent at best. I find it interesting. As I mentioned earlier, I got minors in international business and political science and I got those because I was interested in overseas both countries and markets. I find it interesting to work with those folks.
WC&P: Who's approaching you?
Nelsen: There's customers or potential leads from all over the world. We've got a large customer in Vietnam. I've seen inquiries come in from Europe and that sort of thing, but so far there hasn't been much business because of the taxes and…
WC&P: Value of the dollar, I would imagine also.
Nelsen: That affects it too.
WC&P: What about say WQA, changes there and whether it's Ohio WQA, regional WQAs or the national -- how have you perceived some of the debates that have gone on recently?
Nelsen: I guess we should stay close to home first. I've been quite involved with the Ohio WQA. I personally have gotten a lot of benefit out of my involvement and the relationships that resulted from that involvement. And I think for the most part that dealerships and other manufacturers that get involved on a local level do get more out of it than they put in. I'm sure that is the case on a national level also. I was beginning to get involved nationally. We had planned to make some headway at the Mid-Year. Unfortunately, that didn't happen.
WC&P: It was cancelled for the first time ever because of the Sept. 11 attacks. It would have been nice to host you in Sedona, Arizona, too.
Nelsen: We'll pick up the ball down in New Orleans, but it's challenging. From an uneducated standpoint, I think most associations are challenged today. Several things affect that. I think it's the vendors are doing a nice job of educating their dealer base, the affiliates like Culligan, EcoWater and Kinetico and those folks. They do a nice job with service schools and educating the dealer on their particular product lines.
WC&P: Any thoughts on improving softener salt efficiency, improving participation among local and regional WQA chapters, the Water Quality Society, etc.?
Nelsen: From my vantage point, like I said, I've been very involved on a local level with the Great Lakes WQA group…
WC&P: There's a show that's kind of struggled a bit at times too.
Nelsen: It will. It's very difficult and most of these shows are managed by a group of volunteers that may have been on the board for a year or two, may or may not have been involved in a previous show… It's a tough thing. It kind of ebbs and flows with the leadership on the board. The products themselves are a bit of a commodity. There's really not a lot of product innovation there that is worth looking at in a big way. Unfortunately, a lot of dealers underestimate the value in networking with other dealers that, as far as the value in these shows, is really where it's at.
WC&P: I would imagine that some of the relationships you've developed with say another OEM or even more distant dealers that gave you a call were because they met you at a show and they turned up short on a valve or something.
Nelsen: I would say my understanding of the industry and my relationships with different people in the industry, whether it be probably from a competitive standpoint but certainly from a vendor standpoint, most of this is the result of a trade show. From a vendor's standpoint, certainly we had a demand there. We went exclusively to the Fleck line at one point and didn't have to go to a show, but it certainly helped to attend and go to some of the hospitality suites and meet some of the key people. I don't know that I've been to a show that didn't offer something valuable to me. As a matter of fact, at the Orlando show, I met a guy who recently contacted us to become a customer. And I met Bob Matthews at another WQA event. Had I not gone to the WQA show and met up with him in the lobby at the hotel, I probably wouldn't have him with us today.
Next month in this column, read our interview with Jim Hunt, who is president of DI Water Inc. and managing partner of The Water Group, both of Amesbury, Mass.