March 2001: Volume 43, Number 3
Both Sides of the Fence with Water Tec International’s Leigh DeGrave, Part 2
We continue now with our interview with Leigh DeGrave of Water Tec International...
WC&P: Now, talk to me about -- if you could -- some factors affecting you. What are pressures facing a business like yours, either growth pressures, issues you may have faced that you had to learn to overcome and how you did those things?
Degrave: In the past six or eight months, our biggest challenge has been that we've moved into a new facility. Making sure to find a facility that would not only meet our current needs but be something that we could also grow into...
WC&P: This is the Mexico City facility?
Degrave: No, that's actually here in town. I don't think you've been here to the new site yet. The new facility is on a three-acre site. It's convenient to both interstates [I-10 and I-19], less than a mile actually from both interstates on a major street in town. It's actually on Irvington. It's about 25,000 square feet. We're on a rail spur. We want to not only accommodate where we are currently, but be able to grow so we still have close to two acres we can expand on.
WC&P: How big was the previous building?
Degrave: It was about 15,000 square feet. It was by the TEP power plant at Alvernon and the freeway. We actually had two offices because retail was separate too. Now, we're all combined into this facility.
WC&P: Where was the retail office?
Degrave: Twenty-ninth Street and Swann, so pretty centrally located.
WC&P: Did you build this new building on the three-acre site?
Degrave: No, this was existing.
WC&P: What was in it before?
Degrave: It actually was a warehouse for pants. It was a clothing warehouse. It's a beautiful building, really nice. We moved in September 1, 2000.
WC&P: What kind of growth are you dealing with on an annual basis?
Degrave: Mid-triple digits.
WC&P: That's got to reflect in many ways the quality of product you're putting out, right?
Degrave: We hope so. And the challenge like at most places is just finding good help and we've been really fortunate in that.
WC&P: How do you approach your product development? Do you go for certifications, Gold Seals, NSF Marks and the like?
Degrave: No, although as far as how the computer system is set up, in the near future, we're focusing on ISO and probably NSF certification on products and a lot of those things. Our focus up to this point has mainly been just in accommodating the growth and listening to our customers to find out what things we need to do to keep growing in the direction we're going.
WC&P: When we talk about the products you're making -- you're doing softeners, RO, UV and filtration systems -- what kind of a split is there on that in where your efforts are and which is growing faster than the other?
Degrave: That's a tough one. It's real, hard to be honest with you, to even kind of do forecasting because things are growing that fast.
WC&P: With triple digits, that's not hard to fathom. When you're growing that fast, there's a lot of management issues that come into play to make sure you don't overgrow yourself or your able to keep up with the growth. How do you deal with that?
Degrave: I think a lot of things. No. 1, the principals in the company, the people that do the day-to-day making of decisions are pretty young people who have a lot of foresight and are focused on putting a lot back into the company because we're in it for the long haul. I'm the oldest decision-maker and I'm 34.
WC&P: You're president, correct?
Degrave: Yes, as far as the local business in Tucson. Mexico has their own management team.
WC&P: How is that split?
Degrave: I'm president of both Water Tec of Tucson and Water Tec International. My wife though is really the one who manages and runs the retail portion. My focus is mainly on Water Tec International, which is the manufacturing division of the company.
WC&P: What's the Mexican company called and who heads up that?
Degrave: Water Tec de Mexico. My father, Richard DeGrave and Lupita DeGrave.
WC&P: What's Michelle, your sister, do?
Degrave: Michelle, her primary thing is just basically to keep up and maintain the computer system.
WC&P: She's got a lot of experience in that?
Degrave: She's learning. She's kind of the controller. And she watches the money end.
WC&P: You've got to have somebody close do that.
Degrave: Oh, yeah, and there's nothing like having your sister do it.
WC&P: Does she give you your allowance once in a while?
Degrave: Oh, yeah, every now and then.
WC&P: Talk to us about transitions that have happened in the industry in the last few years and how this may have made things easier or harder for you, if you could.
Degrave: I think the big challenges is obviously we're an independent assembler and, in an age where there's a lot of combining and alliances being made, it can make it real challenging for the independent. An independent has to stay much more focused and really keep a close pulse on the industry. We have to react to change much faster. That's where our market is.
WC&P: Can you give me an example of how that's been the case?
Degrave: We notice that a lot of our customer base are people that wish to have something a little specialized, maybe wish to have something manufactured in their own particular way. This is vs. a larger company that may say: "This is our offering; pick from it." We have to be somewhat specialized and be able to turn it over quicker. And we have to really be able to react to a customer, be real meticulous in how an order is processed and maybe watch for the little things that a larger company may overlook.
WC&P: Can you think of an example of a case where that occurred and offer any details?
Degrave: We deal with a fair amount of companies. To give you an example, there's a retail company in Phoenix called High Peaks.
WC&P: Oh, yeah, I know them.
Degrave: Do you know Marc LaPlante?
Degrave: Well Marc is the type of guy that he wants a particular piece of equipment for a certain job built a certain way. He'll want a certain option or something special. If he needs to have something built a certain way, he knows he can call us and ask us about it and we'll do it for him without questioning why he wants to do it that way. We'll accommodate him.
WC&P: He worked on an article we ran on the project done at the Boy Scouts Camp Geronimo up near Payson and the Mogollon Rim.
Degrave: I read that. He's a very detail-oriented guy. He thinks things out very thoroughly. When he comes up with an idea he wants to do, he knows that we'll deliver it and build what he needs done.
WC&P: You mentioned trends in the industry and there has been a lot of consolidation, particularly a few years ago when it was going on so quickly it was difficult to track. It's still going on today with some strategic moves by certain players. I've been told by others this tends to puts pressure on the mid-level assembler/distributor in terms of allegiances or where they're getting their supplies. Do you have some significant suppliers that you work with?
Degrave: Yes, I think we deal with the people that we need to in the industry. In other words, we're dealing with people that are the true manufacturers. We're going directly to those people. We're kind of bypassing that middle layer. Just the fact that, like myself, I've been doing this since I was 4- or 5-years-old. You kind of know where things are made or manufactured. And I think you get to the point that you know when you need something, you know the contact for what you need to get. And I think that makes a big difference.
WC&P: Who are some of your key suppliers? I recall hearing that you were one of the biggest buyers for at least one company. It may have been tanks.
Degrave: You know a lot of those companies will say things off the record. But Pentair is a big supplier of ours. Osmonics is a big supplier. We use a lot of Fluid Systems. We're a very large Goulds Pumps distributor.
WC&P: When you're working with these suppliers do you expect a certain relationship to assure you're clients are being serviced in the best way possible?
Degrave: Yes, definitely, and I think we probably gain maybe a little more respect from a lot of the suppliers. We may not be as big as some other OEMs that are out there. But we're cultivating a market that is relatively new. And I think that gains us a little more respect because we're blazing a new trail here.
WC&P: Talk to us a little bit about that. I know proximity is one logical reason for why you go after the Mexican market, but what's been your focus there?
Degrave: I think the big thing in Mexico is to be able to have a good supply and inventory of product available to the dealers in stock. It's very difficult for the average business. Again, a Mexican company isn't like what people think of as a business here often. Many owners work out of their homes or are relatively small companies. And many of them can't afford to have a large inventory of product. Therefore, we've kind of accommodated that by having the inventory available to them in a timely fashion. And we've made it a very broad inventory with a wide array of products.
WC&P: That means you also have to be able to be more responsive in the manufacturing process.
Degrave: That's where the challenge is. They're accustomed to having that product available to them. So, what we've done is basically here at the manufacturing end, we're the ones that take the brunt of everything. We're the ones that have to make sure we can deliver it timely. We have to make sure the order goes out of here basically perfect. You start getting into a lot of issues if you ship something wrong. It gets held up at the border or whatever.
WC&P: I was going to ask if there are a lot of issues just in getting things into and out of Mexico.
Degrave: Yes. Fortunately, we've done it for... you're looking at over 10 years. It's been a long learning curve. Ten years of it and we still haven't mastered it.
WC&P: It's kind of interesting that in the past week [at the time of the interview] it was announced that Mexican trucks would be allowed onto U.S. highways as a result of the NAFTA arbitration ruling, which is going to open up things a lot more. What are your thoughts on that?
Degrave: Sure, although with the new president, I think hopefully they'll come up with some alternative transportation.
WC&P: Bush or Fox?
Degrave: Vicénte Fox. That's right. Part of our placement of where our location is we're right off a rail spur and that played a big part in our deciding to be where we're at. One of the things that is in Fox's plans for the future is to improve alternative transportation in Mexico. Now, everything is truck. And trucking is very expensive, especially in a country that is long and narrow and has a lot of mountains.
WC&P: Sixteen hours is a long time to get something from Tucson to Guadalajara.
Degrave: One of Fox's real major goals is to build up the railroad infrastructure.
WC&P: Do you see any production in Mexico?
Degrave: We have no intentions of doing that.
WC&P: At this point?
Degrave: No. Sure, people have questioned it before, but there's no intentions along those lines.
WC&P: Is it easier to maintain quality control here?
Degrave: Yes, more quality control and, at this point, our customers are happy with what we're producing. It may be a little more expensive because we're using U.S. labor and I don't intend to be on the low end of the spectrum as far as pay anyway. So, I'd rather have something built well with no issues. When you're talking about shipping things across borders with duties and things like that, it better work when it gets there. Warranty calls are a little expensive otherwise.
WC&P: The group of dealers as far as the custom market, how do you approach that? You're working through other dealers but you're also going through special builders.
Degrave: As far as manufacturing and the wholesale portion, we don't actually deal with builders per se. We basically just use the appliance channel. They're the ones that are actually dealing with the builders. And I would say that most of it, as far as cultivating or growing our domestic market, is by word of mouth.
WC&P: If you were to look at the American market vs. the Mexican market, what's the growth like?
Degrave: On the U.S. side it's not as fast. It's growing at a pretty good clip, but it's not near what the export portion is.
WC&P: What would be a pretty good clip?
Degrave: I would say we probably see 70-80 percent domestic as far as the manufacturing portion.
WC&P: That's still nothing most dealers would sneeze at, when you consider it.
Degrave: Yes, there's people that tell me I should be really happy that retail's growing at about 25 percent annually. I guess that's good. It's better than the alternative.
WC&P: You can't satisfy some people.
Degrave: And I think our core of domestic dealers are older established dealers that maybe appreciate that, when they have a question or issue, we can support some of their answers or solutions.
WC&P: How far and wide are these dealers?
Degrave: The Vegas area is very big for us.
WC&P: It's been the fastest growing metro area in the country for some time now.
Degrave: Yes, it's a very good area for us. We don't do quite as much in California because there's a number of OEMs in California. We do ship into New Mexico, Nevada and obviously Arizona.
WC&P: Utah and Colorado?
Degrave: Yes, not a lot. Nevada and Mexico is where I'd say we do more.
WC&P: I was just thinking Denver is growing pretty rapidly as well, but Denver also has a few domestic OEMs as does Salt Lake City too.
Degrave: Exactly. And I think again, our market is really -- like I said -- established dealers. You can always get something a little bit cheaper when you're selling commodity type stuff. You know what I'm saying, Fleck valves and things like that. But it's like what support can you give them as far as technical support when they're out in the field and maybe experiencing a problem: "Hey, I've been in that situation before and here's what I had to do."
WC&P: And reliability that the person you're dealing with is going to be there for the long haul.
Degrave: Right. Obviously, I get some flack because we do wholesale and retail. I'll have somebody say to me: "Oh, I talked to another OEM and they said you've got a retail outfit." As if that's bad... I say: "Yeah, I do have retail. The company evolved that way." And I think if anybody would have been in the same situation, they would have gone the same direction." But in a nutshell, it's: "Yes, I do have retail. It's in Tucson. Don't come to Tucson." We're not anywhere else. The strength of our retail is any product we ship, it has no inventory. Anything that we manufacture, if there's an issue that comes up -- we see it there first. Thus, we have like an extra built-in layer of quality control.
WC&P: Because you're servicing and installing the same equipment that you're manufacturing.
Degrave: Yes, we're probably installing the day after it was made or within a very short turnaround time. And you know, my field guys that have been out there, they know their stuff.
WC&P: Talk to me about the breadth of expertise because, with the breadth of things you're doing, it seems like you would have to have a broad range of expertise available in the company, correct?
Degrave: Oh, yeah. I mean combined, the people we have in the company are WQA certified in some form or another is about six individuals. And then you also have over 200 years of water treatment experience combined as well.
WC&P: Evans Benz used to be with you, correct? He's a private consultant now.
Degrave: Yes, I think he just does some stuff on the side.
WC&P: What are some of the people that you'd like to name that might be known in the industry?
Degrave: A lot of these guys are folks that have worked with me for years, so I don't know that too many of them are really known industry-wide. But there's my stepsister, Elizabeth Starks, who handles everything as far as supporting the Mexican customers.
WC&P: You'd also mentioned that you've got six people that are WQA certified. What's your take on the WQA and transitions going on there and how that might dovetail or not into what your company is doing?
Degrave: I think they do a lot of good things for the industry as far as educational and some of those support things. Hopefully, they'll see more input as far as likely consumers down the road and giving them direction as to dealing with somebody who's a qualified water treatment professional. Those are the things that I think are the important -- the educational end and being that go-between between the consumer and end-user for a dealer and OEM.
WC&P: Any opinions as far as say the aspects of the Water Quality Society or the Commercial/Industrial bent that they've been going on the past few years? Supporting issues such as salt efficiency standards in California to ward off softener bans or the chlorine issue that's emerged more recently with respect to the state and certification for health vs. aesthetic claims?
Degrave: Again, I think it is important for them to kind of keep a pulse on government agencies and what direction they're going. I think they do play an important role in that.
WC&P: Where is Water Tec going to be in five years? You've got 50 employees now. How many did you have a year ago and how many do you foresee next year?
Degrave: As far as employee-wise, we've probably grown 30 percent or so in the last year. In five years, I envision we'll still be hopefully on our same site. I hope we won't have outgrown that because I don't know if I can handle moving again. We really look forward to our office in Mexico City. I think that's going to be a very important warehouse center for us, not only just for Mexico but maybe also into Central and South America as well. We kind of see our growth just continuing in the south and still maintaining decent growth domestically. We're definitely going to remain independent. You can take a lot of knocks, but that's always priority one as far as our focus.
Next month, we'll interview Bret Petty, president of Indianapolis, Ind.'s Aqua Systems Inc. A $12 million assembler, distributor and dealership that's more than doubled in size in the past four years.