July 2003: Volume 45, Number 7
All in the Family with Kinetico’s Prior
by Carlos David Mogollón, WC&P Executive Editor
Ask a simple question of Bill Prior and, more often than not, you're likely to get a long answer. It's not because he's long-winded. Rather, he's very thoughtful and speaks in a deliberate way that you know is from the heart.
His cadence and folksy use of language make you imagine a little how Will Rogers or Abraham Lincoln might sound—a bit deprecating, but with a sense of wit and irony. He once noted good-humoredly, for instance, that while grateful the Water Quality Association's mid-year golf tournament trophy was named in his honor, he was lousy at the game and never played.
In the same manner, he talks about getting out of the Army in the late '50s and heading a business his family had a controlling interest in for 10 years before he was fired. An avid sailor by hobby and engineer by training, he ventured off to design and make hydrofoil sailboats.
"I never built one myself that really worked," Prior said. "By the end of the year, I knew I wasn't going to make it, so I started doing consultant work… That was another business that wasn't going to work, because I never did really design anything that worked well. And, pretty soon, my reputation was going to catch up with me… But, fortunately, before that happened, Jim Horner asked me to design a valve for a water softener."
Horner, founder of Structural Fibers, was a school buddy and was so enamored of the valve he funded its development himself until his board forced him to sell out to Prior and his partner, Jim Kewley. That was nearly six years after Kinetico Inc. began in Newbury, Ohio. Today, it's still one of the biggest customers for Structural tanks.
One of the big four residential water treatment companies, Kinetico is also involved in commercial/industrial and municipal small systems. It's a key supporter of U.S. Environmental Protection Agency efforts to test point-of-use/point-of-entry (POU/POE) technology for small system compliance to federal drinking water standards, donating equipment for studies on in-home arsenic removal and winning a third of 12 recently announced federal pilot projects for municipal arsenic removal. It also supports Water For People, a non-profit agency focused on water quality solutions in developing countries. Roughly 15-20 percent of its business is international with strengths in Canada, Europe and China, and about 350 dealers worldwide.
Although never serving as president, Prior is a long-time WQA supporter—particularly the World Assembly Division (WAD). A dozen years ago, as international committee chairman, he led the creation of WAD. An analysis he wrote two years ago of changing industry needs also served as the impetus for the WQA's current strategic reorganization, wherein the traditional structure of association governance has grown to include representation for mass retail, commercial/industrial and international members. As such, Prior is considered somewhat an elder statesman and visionary for the POU/POE industry.
He admits he got a little nervous when the 1990s dealership acquisition frenzy threatened to steal away Kinetico's dealer network. But, acknowledging the emergence of other channels to market, he's convinced dealers are the central focus of the whole-house water treatment market and their professional expertise key to its ongoing success.
Before we get to the interview, here's a brief bit of background on Kinetico:
10845 Kinsman Road
PO Box 193
Newbury, OH 44065
(800) 944-9283; Fax: 440-564-9541
• Bill Prior, co-founder & chairman
• Jim Kewley, co-founder
• Keith Tompkins, president
Employees: Roughly 350 (and 350 independent dealers)
Operations: Manufacturer of residential, commercial/industrial and municipal small system water treatment equipment including drinking water filters, ROs, softeners, etc.—specializing in non-electric twin-tank systems and Macrolite™ ceramic media.
And now, for Prior's views on success and challenges in the water treatment industry, read on…
WC&P: How long have you been in business and how did you get started?
Prior: You know that's always a problem, because when is it that you started the business? Is it the day that it was incorporated, which we know? Or is it when we first got the idea to build this business and start doing something with it? Or is it when you started selling? Whatever?
WC&P: How long did it take between those three things for you?
Prior: Well, a year—something like that. Actually, the day that the company was incorporated, neither Jim [Kewley] nor I knew that it was being incorporated that day. Our attorney had sent some paperwork to the state and they went through the process and stamped it on a certain date. That was in Nov. 30 or Dec. 1 in 1970.
WC&P: You'd been in business for about six months prior to that?
Prior: Actually, Jim Horner had come to me and wanted me to design a valve for a water softener.
WC&P: Who's Jim Horner?
Prior: Oh, Jim Horner's the guy who started Structural Fibers. I'm a little surprised because he was on the board of WQA for years and was very active in our industry and built a thriving business, which obviously still exists. He was an absolutely wonderful guy.
WC&P: And that was the impetus for everything?
Prior: Well, yes, Jim [Horner] and I had known one another in school. I had been fired from my last job and I ran into Jim in a restaurant at the time and he was there with his kids.
WC&P: You know, I don't even know what you did prior to Kinetico.
Prior: Well, in theory, I'm an engineer. And I was with a little family company. Actually, I'd been in the Army first and was assigned to the quartermaster R&D command because I was supposed to be an engineer. They interpreted that as scientist, which was a surprise to me.
WC&P: Did you get a pay upgrade for that?
Prior: No, but when I got out, my family had a fair amount of stock, controlling stock, in a little company that made industrial drive systems, like gears and pulleys and that kind of thing. But none of them were active in the business, and my dad had several strokes. So, when I got out of the service, I went to work for that place. I worked there for 10 years and ran it for six years.
WC&P: What was the name of the company?
Prior: Speed Selector Inc.
WC&P: Is it still around today?
Prior: Yes, it is and still at about the same size as when I left it with about 35 people there, something like that. And they fired me.
WC&P: What did you get fired for?
Prior: Well, you hear different things. I heard a lot of things I didn't like, such as maybe I was cheating the books or just basically incompetent. At that time in my life, I was very interested in building sailboats, which would fly out of the water on hydrofoils. You've heard me talk about those things, have you?
WC&P: Actually, no.
Prior: Well, I was making sailboats and I put wings under them. The tips of the wings stuck in the water and the boat, when it'd get up to about 10 miles an hour, would actually take off over the water and fly about a foot and a half, maybe two feet, off the water. I have one right now that sails at 40 miles an hour.
WC&P: This somewhat distracted you I take it.
Prior: Well, it was my hobby, designing those things. So, maybe I spent a little too much time at that. I don't know. In any case, they fired me. And it kind of broke up the family for a while, you know. I had trouble finding another job, so I went out of the country thinking that I'd build hydrofoil sailboats. If I can finish this design and make it work, I'll make boats and sell millions of them and get rich—or whatever it is that people think. So that's what I went out of the country to do. I certainly ran out of money long before I got to the point that I could have sold one. Matter of fact, I never built one myself that really worked that well. The one that I have now is one that somebody else built.
WC&P: How long was it between that you got out of the army and started Kinetico?
Prior: I got out of the army and worked for this company for 10 years. And they fired me, I think, Nov. 7. Then, I looked for a job and, by the first of the year, I decided I would go ahead and try to start my own business. I worked a year on that and, by the end of the year, I knew I wasn't going to make it, so I started doing consultant work, designing things for companies that they would pay me to design. That was the business that wasn't going to work, because I never did designed anything that worked. And, pretty soon, my reputation was going to catch up with me and I wasn't going to get any more jobs. But, fortunately, before that happened, Jim Horner asked me to design a valve for a water softener.
WC&P: And it worked.
Prior: Well, sort of, yes. I know that Horner was really excited, Structural Fiber was not as excited as he was personally.
WC&P: When did you get out of the Army?
Prior: I joined it in '55, so maybe '57 or something like that.
WC&P: So, you were in for two or three years?
Prior: Yes, just drafted.
WC&P: So, how did you and your partner in Kinetico find each other?
Prior: Well, Jim Kewley was also a sailor. And, he had graduated form Case Tech—the New York State Center for Advanced Technology in Computer Applications & Software Engineering at Syracuse University. He worked on the newspaper there and somebody placed an ad looking for someone to sail across the Atlantic with them. At that time, Jim had never been in a sailboat but he thought this would be exciting to swim across the ocean in a 30-foot boat. So, he did. And that was just after he graduated and he'd already accepted a job with Goodyear, but they gave him six months off to sail across the ocean. And he did. When he came back, they made a big deal about his having done this, there was some stuff written and a friend of mine that was helping me make hydrofoil sailboats got Jim involved. And that's how Jim and I met. Jim went on and got an MBA while he was down in Akron with Goodyear. But, then, when Horner and I got this thing going and he got excited, Horner wanted to make this thing go faster. I said, "Why don't we hire another engineer and put him on your staff at Structural and, when Jim and I finally got this worked out and going, he could take that division over and I'll go back to inventing sailboats. It turned out, though, that his board of directors decided that was a wrong thing to do to get in the valve business, because it would compete with their customers—Lindsay Corp. and people like that. So, Horner came out one day very sad and said, "I think this is a wonderful project, and I really love the valve idea"—and so forth—but the company won't do it." I said, "Well, Horner, you're rich and I don't have anything else to do. Why don't you just fund it yourself out of your pocket?" "Oh, good idea," he says. He was rich.
WC&P: So, he helped fund the company, in other words.
Prior: Yes, his wife's grandfather owned U.S. Steel and his family owned Cedar Point and others were major stockholders. Horner was a wealthy guy. But he also was a wonderful and amazing guy. I wrote an obituary on him one time. I'm sure you guys have it there some place. It would tell you a lot about Horner. He and I then started together and we were going to be 50-50 partners. Then, I suggested that Jim Kewley have some stock and so he ended up with a slim share. And ultimately, after we got going, Horner came to me and said, "You know, Structural isn't going to let me hang on to this stock. I've got to separate myself from it." So, Jim Kewley and I bought Horner out. And I ended up with substantially more stock than Jim had, but together we bought him out. I mean I had substantially more than Jim Kewley had and Horner was out of it altogether. Horner got every penny that he'd ever put into that place out of it. And I think even today we are still Structural's biggest customer, or pretty close to it.
WC&P: Wow. Tell us a little bit about what's new about your company. We've gotten a little of the background and there's a number of years between then and now, but can you bring us up to date fairly quickly and tell us what's new at Kinetico?
Prior: I think what has maybe always been different about Kinetico is that we keep trying to get into other facets of the water treatment business. I have the general belief that each part will add to the others and I don't to just be a water softener manufacturer. I'd like to get into more parts of it. So, we are getting quite active in municipal systems, both small and medium sized ones. I'm talking about where we have a small town and they have to have a water treatment system in order to meet the Surface Water Treatment Rule or to meet the arsenic problems or whatever. We've been quite active in that kind of thing.
WC&P: I know that you've been very active in the WQA Small Systems Committee and as well with the ETV program.
Prior: Perhaps that's why I was active in that, because I thought that was a direction that our industry ought to be going and I certainly wanted to do it myself. So, I went that way. But, I never felt it was a business that Kinetico is going to dominate everybody else. I'm not all of a sudden going to become the largest company at AWWA or something like that. So, in my mind, it was a matter of making our whole industry aware that we ought to be going in this direction and all of us start going that way. And we had good technology. Obviously, we had this very unique filtration technology with Macrolite™. It is patented and we're doing very well with that.
WC&P: That's the carbon technology correct?
Prior: No, it's not a carbon. It's a ceramic media. We manufacture the ceramic media ourselves. It's very lightweight. It's not quite buoyant, but it's very lightweight.
WC&P: I wish I'd known the specifics of that because we had a couple of Mexican businessmen who visited yesterday asking about ceramics. But they were wanting to know about Doulton.
Prior: Doulton's making solid ceramic. I say solid, but it's kind of a porous material that you pull water through and it filters the water. What I'm talking about is a material that looks like very fine sand. It flows like sand. We make this stuff and, if you take a microscope and look at each little particle, it's close to spherical. And it gets all full of closed-cell bubbles so that when you put it in the water it can be very lightweight. Being ceramic, it's chemical resistant and all that kind of thing.
WC&P: If someone were to say what are the big companies in the water treatment market for this segment of the industry, they name Culligan, Rainsoft, Ecowater and you. I don't know where the positioning of that would be…
Prior: I'll tell you. Culligan is bigger than we are.
WC&P: That's a safe bet. But that means Kinetico is very well known for softeners—I've got one in my home, a twin tank system—and reverse osmosis systems. What are some of the new products we're getting into?
Prior: Think in terms of how you're going to market. The way we're going to market is through dealers. Therefore, we have to give to our dealers the tools that they need to go after the markets that they find. And that's what we're looking for. We aren't interested so much in which technologies. I mean we aren't just RO people or just ion exchange people, but what is the core of that business is what does the homeowner need to do his job. It also is a matter of what can the dealer sell to these people. And there's where you've heard me say over and over again that the dealers are never going to sell Brita-type equipment to a homeowner, because that's something you buy at an appliance store or retailer. You get sold on it on television or print ads and decide you want one of these things and you try to find the cheapest place you can buy one. There's no place for a dealer there. The dealer makes no contribution in that case. So, I don't want to be in that business. The business I want to be in, where I think the future still is, is where the dealer is making a contribution. He has to go and test the water and advise the customer what to do. And when he puts it in, it has to be put in looking at the overall problem and solving that, then remaining with those people over the life of the equipment. He should always be there available to make it work.
WC&P: I assume you're referring to rural areas and small- and medium-sized communities?
Prior: Well, if your assumption is that people in the city don't need water treatment, I think that's wrong.
WC&P: I'm not saying that. I'm saying basically the strength of where the dealer can provide "solutions" is in those particular areas whereas, historically, people with municipal water may mostly want to improve their water aesthetically.
Prior: Our strongest dealer is in a city, a major city, selling on a city water market.
Prior: Yes, my point is we sell a lot of equipment to people on municipal water.
WC&P: I guess where I was going with that—if only just to confuse the issue moreso—is that traditionally it's the rural, small-to-medium communities and the fringe areas where people had problem water. These days, however, we understand there are new regulatory requirements, advancements in analyses (to measure contaminants more accurately to ever more minute levels) and health statistics… Particularly in Phoenix, which you referred to, and other areas of the West, there's a situation where arsenic is a big deal. You've also got radium as an issue in the upper Midwest.
Prior: Remember that rust in your water is not the major selling point for selling home water softeners. Now, our people don't even particularly focus on that. We sell equipment for rusty water, but our best sale is where the water is clear—and hard. We can take out protozoa, even though they're hard to take out of the water. Our sales manager for many years was Art Weber and he always wanted to leave the "problem" water to somebody else: "Let's let the other dealer go out and worry about that. We don't want to deal with that." What's interesting, of course, is we're very good at dealing with that. That's the job. I believe that the market is stronger in more urban areas.
WC&P: Of course, that's where everybody is looking to continue to expand.
WC&P: And you've got your joint agreement with the city of San Jose, California. How's that going?
Prior: Pretty well, I don't know up to the minute what's going on up there, but they've been making money and they're comfortable with what's happened.
WC&P: This is the partnership with the San Jose water utility, correct?
Prior: That's right.
WC&P: Are there other things such as that you're looking toward in terms of modeling agreements, etc.?
Prior: I think that's a good way to go. And nobody else in the industry has really picked up on that yet. But perhaps with the arsenic problems and point-of-use equipment being used for treatment that we could go in and probably do a very nice job there.
WC&P: Arsenic is one significant issue the industry has been dealing with for the past few years and trying to work out agreements with the USEPA to make POU/POE more of a pragmatic solution for not just small to medium but also the larger communities. How do you see that playing out?
Prior: Well, we certainly expect that to happen and, in fact, are at the forefront of the whole effort. I don't know if you're aware of that or not. But if you talk to the WQA's Joe Harrison, for instance, you'll find that virtually all the EPA and NSF studies have been done with Kinetico equipment. And EPA has just funded a whole bunch more pilots of arsenic removal equipment and we'll be the largest contributor to that.
WC&P: I do believe I recall hearing Kinetico mentioned as one of the equipment donors for pilot tests in an overview by P. Regunathan of studies under way. What about new issues? You've mentioned one area where you see growth is in the small systems area. How does that fit in?
Prior: Small utilities are up against big problems meeting the regulations. They've got to do something. And I think our industry is ideally suited to go in and help them. We have the technologies and we can give them support. You find all kinds of little communities that really can't afford to have several full-time people try to operate a water treatment system. They'd love to have somebody else step in and carry that responsibility for them. I see us doing that.
WC&P: Are there any new products that Kinetico has coming out specifically? What are the latest developments being released?
Prior: I'm going to get in trouble if I start talking about stuff that we're doing before our marketing people have told our own customers, so I'll have to beg off on that for now.
WC&P: Bear in mind that this will be out in July.
Prior: Yes, well, suffice it to say that we are aggressively coming out with a stream of new products.
WC&P: Is there a particular pattern or focus of those?
Prior: Well, to better support our dealers.
WC&P: Why don't you talk real quickly about that focus? If we look at the industry, one of the organizations that might be spoken of before the others regarding dealer support would be Kinetico—the company being a very strong dealership based organization.
Prior: As you know, I strongly believe that a dealer needs to have an exclusive territory. The only way our company's going to grow is if our dealer's are successful and we need to support our dealers in whatever way we can to make them successful. When we first started, we were just thrilled to have a dealer come by and want to buy some stuff. They'd buy some of ours. They'd buy from other people. And pretty soon, we began seeing our equipment being sold by anybody and everybody. That very quickly turned into just a terrible mess, where our people thought they had their own territory and found somebody else selling Kinetico equipment in their territory against them and the price was not the same and the customers were upset and then the dealers didn't want to talk to one another. We finally decided we have to get this dealer group—the people themselves—working together. And one way to do that is to give them territories such that they aren't hurting one another and one another's territories. We don't want a dealer in one town to be competing directly against a dealer in another town.
Prior: So, we changed. We, in fact, made a decision that we would have contracts with every dealer. It's one of those things that Jim Kewley, back in those days, said: "We have a contract with every dealer now; I just don't know what it is." So, in fact, we wrote up a contract and gave exclusive territories to our dealers. And we said, "If you sell in somebody else's exclusive territory, we'll let you go." And we do that. We have always done that ever since. We do everything we can to support our dealers.
WC&P: How does that contrast with the way those types of systems have evolved with other companies in the industry today?
Prior: When we started that, other people sort of followed along—but where they really started getting away from us is when they decided, "Well, we're going paint these product a different color and sell them through the Big Box retailers or something like that." So, now, the dealer is out there trying to sell a product that the customer could go and buy essentially the same thing at a Big Box retailer operation. That takes the heart out of it. It takes the profit out.
WC&P: Particularly because they're usually buying them at the Big Box retail outlet at drastically reduced prices.
Prior: Yes. And, of course, the problem with going in that direction is the Big Box salesman doesn't know anything about water treatment. When somebody walks up to him at the counter and says, "I'm interested in a water softener," he doesn't have any of the knowledge that one of our dealers has. And so they muff the sale. They just don't do well there and they're liable to sell the wrong equipment and the customer would be unhappy and all those sorts of things… so, we just don't go that way.
WC&P: What's a major challenge for your company and how did you overcome it?
Prior: I don't know how you take 30 years and try and pick one major challenge that we had.
WC&P: Well, why don't you pick a couple instances you had where maybe the chips were down and you had to scramble to pull something off?
Prior: One of the scariest times that we had—and I don't know if this one fits—was when USFilter and Culligan were out there trying to buy everybody up and they came to us and tried to buy us and we refused to be bought. We just said, "No, we want to stay private." And then there was kind of a threat that: "If you won't sell to us, then we'll just take your dealer organization anyhow because we're buying up the dealers and pretty soon you won't have any dealers and you'll be out of business." And that was a very scary time for us. But we just decided that was the decision we'd made and, if we're going to go down, we're going to go down.
WC&P: How did you survive? I remember that because I came onboard here sort of at the tail-end of that acquisition frenzy just before USFilter bought Culligan. How would you say you dealt with it and what was your strategy? You lost a few big dealerships as I recall…
Prior: Yes, we did. The one company was USFilter that came after us really hard. Dick Heckmann actually came out to Kinetico and sat in the rocking chair in my office and tried to buy us. Then, essentially (he) told us that if we wouldn't sell to him, he would be out there buying up our dealers. And when we'd lost a big part of our dealerships—our dealer organization—he said that "then we couldn't give you anywhere near as much money for Kinetico"—that kind of scare tactics. We said no, but the very next morning we had a meeting of our officers. And I said, "You know, they're going to take some of our dealers. Let's say they took a quarter or a third of our dealers, what we've got to do is look at the company and say, 'Well, back a few years ago when that's all the business we were doing, we were making a profit then so we've got to be able to trim back and maintain a profit regardless of if they take our dealers away.' " So, that was the approach. It was still scary. We knew we were going to have to let people go and pull back and so forth. But that's what we expected to happen. And interestingly, although USFilter and Culligan went out and tried to buy dealers, they never got a Kinetico dealer until about a year later when they picked up our dealer in Columbus, Ohio. That was one of our really top dealers, a nice family dealership. And I understand because the old man that was there needed to retire and needed to get his money out of it and the family needed some way or other to get liquid and somebody took that opportunity and did it—I think they felt very badly about that. Almost immediately—I mean within hours of when they contacted the employees and told them they were selling—the employees called us and said, "Hey, what are you going to do because we're with you. We're not going with this." And that's the story that you've heard. Nearly every good employee that we had at that dealership quit and joined Kinetico. We found this out on Monday and the following Saturday we were back in business selling stuff with an office down there.
WC&P: With a new dealership?
Prior: Yes, but it was our own dealership. That turned into, of course, one of our top dealerships.
WC&P: That would seem to reflect what we hear when we hear the name Kinetico, i.e., that it's a family-style company that supports the dealer better than many of the others…
Prior: Bottom line is it's the integrity of the company that's important. I keep getting faced with such situations and I don't know what to do and then if I go quietly off to my island or on a walk or something like that, you often get a feeling in your stomach, "This is what I ought to do. This is the right thing to do." Then, you've got to just do it. And you've got to just pray that, oh, somebody upstairs is looking after you when you do it. Maybe He's not always going to help us, but that's our approach.
WC&P: From your perspective in the market, where do you see the industry going in general? We talked a little bit about small systems, but what are some other issues?
Prior: Oh, I guess, No. 1, it's really obvious that the water treatment business is going to continue. If you watch what's happening to our water all over the world, you know it has to continue. And these aren't easy problems that have to be solved. You aren't going to just buy an appliance at a Big Box retailer or something to solve these problems.
WC&P: You mentioned the world at large, so feel free to speak to a broader perspective here and talk about global operations that you do. I mean the water treatment market is not just the United States.
Prior: That's true. And, in some places, it's very sophisticated. But, of course, we think in terms of the United States because that's where we are.
WC&P: How does that factor into where you think the industry is going?
Prior: Well, again, No. 1, the industry isn't going to just collapse. You know, even with all the other economic traps and so forth, we have here, it's just not going to collapse.
WC&P: So where's it going to go? How's it going to change?
Prior: I think there will be a continuing role for people like our dealers who are experts in the field to work on specific problems. Somewhere or other, there's got to be individual, knowledgeable, trained people dealing with customers. What form that's going to be, who knows? But I think that's going to have to be out there. And right now, I think the dealer organization works very well with that.
WC&P: A few years ago, it seemed as if people were somewhat questioning whether there was going to be a role for dealers. That's somewhat moderated more recently. In that sense, you're right. People don't question whether the dealerships will continue. Rather, it's a question of how many and where they're going to be and how they're going to be positioned. Are they going to be in one narrow niche? Or are they going to be in other niches as well? In other words, they have their place.
Prior: I'm not saying that the other market paths and so forth aren't going to be very strong and successful, too. They are. They've already proved that. I'm not here to say, "Well, the dealer way is the only way." I'm just saying that it is one of the ways and it is going to be successful. And we try gradually to get ourselves into those other routes, which we're certainly doing with municipal and so forth. But I'm not going to compete against my dealers directly. I'm not going to do something to hurt them because, in that organization, we're going to pick the customers they can serve and then we're going to give them all the support we can to serve those customers. Still, those aren't going to be every customer.
WC&P: Kinetico is somewhat unique in that perspective, is it not? Among the major players…
Prior: Well, RainSoft certainly believes pretty strongly in their dealers, don't they?
WC&P: Yes. I'm speaking more toward EcoWater and, more recently, Culligan—whose latest trouble with its dealers seems to have settled below the surface of public discourse.
Prior: They've gone some different directions—that’s for sure. I don't know if they're going to continue. Certainly, Culligan is not very happy with its dealers.
WC&P: Is there one hot-button issue facing water treatment dealers or the industry that you think will have the most impact over the next few years regarding stuff like that?
Prior: Well, of course, the style we use to sell equipment is changing. I mean from the old days with Joe Slick going out and knocking on doors and high pressure selling—that's obviously changing. But I do believe that you still have to sell. You ain't going to have people read a little booklet and say, "OK, I think I'm going to take this."
WC&P: Well, we've seen a few issues affecting that as of late. One, there's the issue of financing that RainSoft's Bob Ruhstorfer raised as an emerging issue at the WQA show in Las Vegas. And financing of in-home products has come up in the past year. Some companies have developed their own in-house financing arms to support their dealers there since Household Finance, for example, pulled out. Any thoughts there?
Prior: No, I don't have anything particularly to say there. I'm not really up to speed on those problems. However, our organization seems to be able to handle that.
WC&P: Does Kinetico do some of its own financing?
Prior: I guess I'd say no. Do we actually put up our own money to finance home water softeners, no. But we work with finance organizations on that. <
WC&P: We were talking earlier before the interview about the Dateline NBC program earlier this year that riled dealers. Is there anything you wanted to comment on there?
Prior: I just wanted to say that, although that really scared us, it hasn't seemed to have any major effect on our business and probably not on anybody else's business. My dad used to say that the postman who spends his time throwing sticks at dogs doesn't get the mail delivered. And I've got to feel that way. These things happen. You can't change it. Stop worrying about it. Just go out and live your life.
WC&P: One of the things I spoke with the Culligan folks about that broadcast was them saying how they were glad to see their dealer handled the situation a little bit differently. And, again, we should acknowledge that the person who was associated with Kinetico was misrepresented as a Kinetico dealer in that broadcast. But, Culligan said they thought that situations like that behooved organizations that have dealer bases out there selling product to make sure their people were properly trained and to make sure they get update training—in other words, to police their own people in a sense. What are your feelings about that?
Prior: Well, we certainly try to do that. I think you must be aware that we have a strong certification program. More Kinetico people are certified by WQA for sales and the rest of it than all of the other certifications together in the industry—and by a substantial amount more. We use it as a major program. I think we're the only company that really uses it as a major training program. So, we have that. Our dealers are trained. But you're not going to control everybody. I would guess—and this would be fun for you to do, actually, if you could do it—if somehow or other you could get on the receiving end of sales pitches from different companies in our industry, I don't think that you'd find that certainly Kinetico isn't faster than other people.
WC&P: We should also probably point out that part of what did not come out in that program was the detail to which you had policed this particular person who was identified as a Kinetico dealer. You'd even go so far as to get a court injunction against him for continuing to try and represent himself as a Kinetico dealer.
WC&P: You'd also brought up earlier the letter from the West Virginia Attorney General's office. That should probably be mentioned as well. What did that say again?
Prior: Essentially—I don't know his words exactly—but he felt that Kinetico handled the situation extremely well. He wished that everybody in all industries handled the situation the way we did.
WC&P: Another hot-button issue we haven't discussed has been regulatory issues. California always pops to the fore whenever that comes up as well as, recently, you've got Texas and other states talking about softener discharge to septic tanks. Would there be anything you'd want to say about that?
Prior: Well, of course, the tighter the regulations get, the more opportunity there is. If the government says you're going to have to use gold faucets, then we're going to be selling gold faucets and they cost more money and so we're all going to sell more stuff. There's a tack like that which goes on. Maybe that isn't a very good analogy, but my belief is that California has very serious water problems and they're going to have to be solved by somebody. I would look to water recycling—I'm interested in that—or more sophisticated technologies to take care of those problems. And I see our industry selling those. So, that's hardly going to put us out of business. They're going to put people out of business who aren't alert to the new opportunities. That's all. But anybody else is going to find ways to handle their problems and solve them.
WC&P: The latest thing has been somewhat of a rollback in the compromise to some degree or another on California's Senate Bill 1006, in which the industry agreed to make softeners more salt efficient and go to demand-initiated regeneration recognizing the fact that there are serious water problems there. Now, Assembly Bill 334 discusses the fact that some communities are headed toward not being compliance with some of the chloride regulations on discharges and therefore they should be able to do something. In other words, there's no sense waiting for the train to careen off the tracks before they try and fix it. That's at least the latest I hear from the WQA's Joe Harrison. So, it looks as if there might be some sort of a compromise which is a compromise of a compromise in the long run.
Prior: I think we're going to have to compromise. I mean these are legitimate serious issues that we have and we've got to find a solution. And there are solutions. If we just belligerently try to do what we've always done, we aren't going to win. We've got to recognize our problems and find a way to solve them.
WC&P: Those people who are innovative like that are usually the ones that wind up with the worm in the end.
Prior: I would hope so.
WC&P: We haven't talked either about commercial-industrial. What's Kinetico's outlook there?
Prior: That is growing very nicely for us.
WC&P: How much so if you had to say percentage-wise?
Prior: I don't think I could tell you that. They don't tell me those things. But I'd say our industrial portion is growing very nicely, more rapidly maybe than the rest of our business.
WC&P: How is the business split? If you had to put a percentage on how much is residential, commercial or small systems, how do you do that?
Prior: I wouldn't tell you that. I think that's considered confidential information in the company.
WC&P: The other thing we like to put into these interviews is some sense of revenues or revenue growth. Is there a percentage that you generally have averaged in recent years that you can release?
Prior: No, we don't certainly publish revenue figures.
WC&P: Can you give me somewhat of an idea of what might be the difference between domestic vs. international business that Kinetico does?
Prior: Yes, I'd say that international is possibly 15-20 percent, something like that.
WC&P: How many employees does Kinetico have?
Prior: 350 roughly.
WC&P: And the dealer base is roughly how big?
Prior: It's got to be also roughly 350 dealers.
WC&P: That would be both U.S. and international?
WC&P: If we look at international, where are your strengths?
Prior: Canada. England. The Continent. Some in China. And then scattered around in something like 70 countries or more.
WC&P: I know Fernando Guime, one of your dealers in South America, is on our technical committee for our sister magazine Agua Latinoamérica.
Prior: Yes, delightful man.
WC&P: Let's get back to the anecdotes and one other thing we haven't talked about, which you may want to use as an example, the WQA and your involvement with it. The last question I have is whether you can tell us an interesting story or anecdote about your experience in water treatment?
Prior: We come across some silly people from time to time. We had a dealer who sold a unit out in Iowa to a lady on a farm and then she complained some time later that the water tasted bad or smelled bad. Our dealer went out and tried to check it and couldn't seem to find anything wrong. We went back and fourth and somebody got the idea that it was possibly the ion exchange resin wasn't adequately polymerized and they got samples of that and we did tests and Dow did tests. Finally, our salesman went out and said, "Where's the well." She said, "It's out back." He goes out back and there's a dug well with a dead pig in it. I don't suspect that was the kind of story you wanted, but there you have it.
WC&P: We actually had a similar story to that only the water source was a pond that the hogs would wander into and drown, looking like big boulders. Apparently, the man's wife left him over the bad water that was being drawn into the house. In any case, tell me about the WQA. You're sort of the elder statesman and many people look to you for some wisdom from time to time, it would seem, although you're always self-deprecatory about it. The association is in the middle of establishing its strategic plan and implementing a new direction. What are your thoughts there?
Prior: Well, my thoughts are that WQA was at its strongest about 10 years ago. I think it represented our industry better than it has either since or before. And that's because the industry has been changing and all that kind of thing. I mean you know all of it. I've talked about all this before.
WC&P: Never on tape, though, remember?
Prior: Yes. I think for everyone involved in the industry, it's clear that we need an industry association that brings us all together. There are many ways in which a national organization—I mean—a global association, an industry association can be very valuable. And somehow or other the organization that we put together was no longer representative of the way the industry is going, certainly from a global perspective. Virtually every significant manufacturer is doing business not just in the United States but many other countries. So, they were all international-type organizations. Many of them were selling to a lot of channels besides just the dealers. And here we are with an organization that is split with the political power balanced equally between national manufacturers and dealers in the United States. It just didn't fit. How do you convince, for instance, BWT in Austria to join this association and contribute to it. They weren't represented.
WC&P: Most Americans wouldn't be aware that BWT offers a very extensive line of products, even though the one they may be the most familiar with is the AQA Total, which is sort of an electrophysical device. But they have softeners, ROs, filters and everything else.
Prior: They obviously own Cillichemie, Permo and a whole bunch of others. In any case, it just seemed to me that WQA was getting into more and more trouble because of the internal conflicts, the power struggles and the lack of representation, problems with dues and that kind of thing. The way that had to be solved was to look at who we really are or who we want to be and structure it that way. Obviously, I've been trying to do that for years. And I think that the Strategic Planning Committee has made major strides toward getting this done. But it's not ended. The execution is going to be in the details and actually looking at each problem as they crop up—keeping in mind the vision in that in fact we're trying to unite the water treatment industry.
WC&P: We should probably point out that really what was presented at the WQA show in Las Vegas was a blueprint or an outline. And I recall one of the first Viewpoints I wrote was after they first unveiled the sections in 1997 and, at that point, there was a lot of talk from the dealers that they were going to have less clout and influence. What I wrote was that the issue then was basically who was going to step forward and take advantage of this, get organized and lead their section more effectively. At that point, the dealers really picked up their participation level in those committees.
Prior: I remember that Viewpoint that you wrote.
WC&P: In the same sense, today, this blueprint needs details and it's really incumbent upon the members to step up to the plate and provide those.
Prior: I see what's going to happen is that each existing committee is now going to take a look at what they're doing and how they interrelate to the rest of the association, then go back to the board and say, "This is how we want to fit." And I think that's where it's going to grow from…
WC&P: That sort of started at the final board meeting in Las Vegas.
Prior: Yes, it did.
WC&P: You've also talked about the organization being more of a global organization and, heaven knows, today considering the banter back and forth in Europe over standards there and Aqua Europa, it's more important than ever that there be such a strong body. Correct?
Prior: That's correct. The problems they're having in Europe and all the rest of the world are our problems just as well. And they're going to come home and sit on our doorstep eventually. We have to think globally. That means we have to include people in the rest of the world as an active part of our organization. Face it, how many people representing offshore companies sit on our board. We've got to change that.
WC&P: Do you want to say anything about Charley Poellet, who just passed away. I found it interesting that when you were discussing engineering a hydrofoil that so many people in this industry are either into sailing or piloting planes. I know Charley was an avid sailor as well, and also was very supportive of the World Assembly Division—even serving as a past chairman.
Prior: Yes, he was. Charley and Pat (Lowney) liked to be out on the water, racing quite a bit. But Charley was into a lot of different kind of sports. He was an interesting man in that he was quite modest. I don't know if you noticed at meetings and such, but he wasn't one that was liable to shoot off his mouth. When other people would get all emotional about one thing or another, Charley kept his cool and listened carefully and thought about it. And, ultimately, (he) would come to a decision and that's the way he would go.
WC&P: He'd always sort of speak softly and calmly toward the end of an issue after everyone else had spoken, that's true.
Prior: Yes. In my mind, he and Pat together built that company, K&M.
WC&P: I was surprised to find out recently they didn't own the company. I thought it was theirs.
Prior: I don't think we knew for a long time it wasn't. They ran it. Charley was president.
WC&P: To reinforce what you were saying, I've asked you at least five times whether you wanted to do an interview like this. I similarly made the offer to Charley and Pat several times. It was always the same thing—they would defer, not wanting necessarily to draw attention to themselves. Charley would say the results were shown moreso in how well their business was doing.
Prior: Yes. I never saw people that put themselves out so much for their customers.
WC&P: They did it for the WQA also. For instance, they were the driving force behind the WQRC tennis tournament fundraiser at mid-year meetings. They've always been very involved in organizing the conventions, even hosting the one in Fort Worth.
Prior: With all my struggles with the World Assembly, nobody was ever more supportive than Charley. He was always there. Many years ago, when Jim and I were first starting, we'd be at a convention and have a group of dealers and we'd be taking them to dinner someplace at a nice restaurant, which was sometimes a struggle to handle financially when you're just starting out. And come to the end of the dinner and several times find out that Charley Poellet had paid for dinner for everybody. For no reason—he didn't have to do that. But he just did, because he believed in the Kinetico team, I guess. He would do things like that.
WC&P: He will be sorely missed. Well, on that note, is there anything else you'd like to mention? Those are all my questions.
Prior: There's probably a jillion things we haven't discussed.
WC&P: We could probably talk for a few days…
Prior: Yes, how do you take 30 years of history in this wonderful industry and talk about it in 20 minutes?
WC&P: I've always found that you in particular were one of the people that was most welcoming when I came on board at the magazine.
Prior: Thank you.
WC&P: And something you said to me then has always been true—that you won't find more friendly people than in water treatment. That's true. They're very welcoming. And I assume you engender that perspective in other people you work and come into contact with as well, as a sort of thing that gets passed along or played forward.
Prior: I'd like to think that's true.
Next month in this column, read our interview with David Farley, who is president of Sprite Industries Inc. of Corona, Calif.