Dashboard: No Text Book Can Prepare You for This

Welcome to another 21 Hats dashboard. I'm Lauren Feldman and I'm here with Carla Tropman who is owner of a contract manufacturing business called Electrosoft. Uh a business that's based just outside of Philadelphia. Welcome back, Carla. >> Thank [music] you. Thank you for having me, Lauren. >> Oh, my pleasure. Uh, Carlo, you were on this podcast a little over a year ago when we talked about the opportunities and challenges of operating a family business and about your excellent book uh, called Dark, Dirty, Dangerous: Building the Vibrant Future of Manufacturing. A lot has happened since then over the past year. As you recently, [snorts] >> you're agreeing with me, I think. >> Yeah. [laughter] as you recently wrote in a in a very moving post on LinkedIn. Uh in that post you wrote uh and I'll quote you, "Yesterday's advisory board meeting crystallized something I've been wrestling with. Leading a manufacturing business in 2025 means navigating contradictions that would make most business textbooks explode." What were you referring to? >> Well, I think at the time I was really, I guess, in my feelings. uh we had the board meeting I felt a little beat up mainly because sales hadn't done what they what I hoped they would have done what we had forecasted and there was a lot of things contributing to that and on the other side I had people coming to me saying oh you're in manufacturing all these things that are going on must be great for you and and I hoped they would be but in that moment it they were not great >> when you say you felt a little beat up did you mean you felt beat up by your bored >> a little, but that's what I that's what's that's what they're there for. >> Well, that's what I was going to ask is not every business, you know, [snorts] small or, you know, midsize chooses to have a board. Um, how [snorts] long have you had one? >> I would say uh five years. Four or five years at this point. >> And are they um independent? Are they other are they business owners? Do you pay them? So they are independent. I do pay them and a few were business owners. So one is my fractional CFO. So she's an kind of like exeicio but I do take her advice. The other was my CEO coach and she knew the strategy and could help with um you know it was important for her to sit there so that we can bring that back into our strategy sessions. Then uh when I first took over the business, I brought in an organizational psychologist so he could really help us focus on people. And then there's um a gentleman who owned a company in this industry of electronics contract manufacturing but had a successful exit. And then last was an is an M&A attorney because you're looking at targets at the time um or even buying a building and ways to acquire assets in the future. So, I'm curious what one of the contradictions that you mentioned in that LinkedIn post was kind of being pulled in one direction by your numbers and in another direction by concern for your employees. Uh, I believe you'd lost a uh an important client and you were trying to figure out how to deal with that. And I I think as you put it, you you felt the the kind of textbook answer is to reduce costs um maybe even lay off people, but there were reasons you didn't feel that was the right uh response for you. Um [snorts] for do I have that right? And what did your board think of that? >> We very very close. Um, I didn't lose the client, but we lost a lot of business because our internal the internal person of that company that would rally behind us unfortunately had passed away suddenly. And so when you lose your advocate inside of that company, it's really hard to bounce back, especially when it's unexpected. And it's a company that consistently transitions um folks around to different areas or different commodities that they're buying. Um, and with that, it was our number two client and we still do business with them. The question for me at that point was they my board was saying, "You have to do something to stop bleeding cash." Well, I spent a lot of money training these employees. It's something if if they were just hourly employees that you can just get a temp in here and there, it would be a lot easier. We're talking about advanced manufacturing, people who can look at schematics and blueprints and bring to fruition what that engineer had designed on paper. And you can't find people like that uh randomly. So, I just I couldn't I couldn't just let people go and they would have these skills and it would ultimately go to a competitor or whatnot. So, we're trying to do whatever we need to do in order to maintain that advanced manufacturing staff. >> And was that a convincing argument to your board? >> I think they understood that of course they but I've learned with other companies when especially when it's a family business. Um, a lot of these people have been with us for over 10, 15 years and the thought of laying them off and and you know, maybe that's what makes family business so much different because we think emotionally, which isn't always great. But also, if you were to look at family businesses versus um, businesses that are owned by private equity or what have you, family businesses tend to look at the long-term play as opposed to the short term. we don't have investors to satisfy. Um, so we can make decisions however we really want to, which is why I have a board to make sure that I'm not leading too much with heart. >> So to some extent you were going against the suggestion of your board here. How uncomfortable was that? >> Well, they said it's not a fiduciary board, so I don't have to take any of their advice, right? But I'm but because I admire them each person on that board, [snorts] um I feel like I can take them aside and talk to them about why I'm making these decisions. And there's some people that probably could be let go. Um a lot of companies use these times as an opportunity to let people who aren't really brought in on the culture or haven't really produced in the way that they thought. It's a moment to let them go. And we've definitely looked at that, but also during that time period when I wrote that post, we decided to go to a 32hour work week and that was different to have a 20% drop in production for and we said pick whatever day you want, but we needed to stop bleeding cash and we did that for about a month and then work picked back up. >> Well, I'm glad to hear that. Um, when work picked back up, did you go back to a a 40-hour week? >> Yes, we're we're still at a 40-hour week. >> You know, there are a lot of companies that are going to a 4-day work week. Um, and most of them probably are not manufacturing companies, but I I'm curious. Was there Did you learn anything from that experience that kind of piqu your interest? >> Um, yeah. I learned that it really frustrates people when they more so the younger folks than the older folks. the younger folks that want to climb the ladder and do more. Maybe they want to move out of their family's home or they want to buy a new car. They can't. That working 30 hours a week, taking 20% away is impactful to them. And so, because we have five generations across uh our workforce, we are very mindful that the folks that have been with us for a long period of time, some of the older folks, they have an idea of what's going on because they've lived through it. They live through many iterations of a downturn. So they've seen that you go into it and you can come out of it. But sometimes when you walk into a company, a small business, people look at it as a microcosm and they don't look at the aggregate. So they know what's going on theoretically in the economy, but when they're when they go to work, they don't think about it. So when we have to cut down to 32 hours per person, it almost looks as if they blame you as the employer that you didn't do enough. And that's hard. >> Interesting. I was going to ask you if they were aware that you were having this kind of internal debate, but I guess if you cut back hours, um it became very clear to them. >> Yeah. I mean, as many of the um older generation had said, they were like, "Well, we were wondering because we knew we were slow, and I was able to back them into the reason why." So, I've always tried to let folks know why we're doing the thing that we're doing. Um, I let them know the company wasn't going anywhere. We did have work available. It just wasn't available within that time frame. Our customers didn't want to take early delivery on the parts that we had. And um some parts were actually out of stock and we couldn't work on them. We worked the job as far as that we as far as we could, but we couldn't work it anymore. So it left a lot of idle time. >> I guess if uh work picked back up, it's pretty clear [clears throat] that you made the right decision. >> Yeah. You know, I really rely on my management team to help make those decisions. I let them know where we are from a financing perspective and how far I'm ready to go with it. But um I think they also think with their heart as well because they want to get the work out and they want to do a good job and your desire to do a good job looks different depending on where you are in an economy. So sometimes doing a good job is about making sure that we have we can keep the lights on and maybe it's more uh doing a little bit more than you would. When you call a customer and you're having a conversation, you're asking, "Hey, what's going on over there? you guys picking up just in just getting a little bit of intel from us. So, it's a different way of doing business in the last year than I've had in previous years. >> I have a feeling there are other uh issues that you've confronted over the past year other than this one uh client customer. The tariffs, for example, you mentioned them um in the uh LinkedIn post. Uh, ostensibly the tariffs were designed to help companies like yours, people who manufacture right here in the USA. Were the tariffs in any way helpful to you? >> Uh, not yet. Uh, well, I just didn't know. [laughter] Mainly because um, what happened is that we knew tariffs were coming but just didn't know how they were going to arrive. >> I don't think anybody knew that. >> Right. So, having gone through it the first time, the first iteration, we just we were ready for that. we weren't ready for the second. >> When you say the second iteration, um the the first being April 2nd, the Liberation Day announcement, and then the the roll back, or the are you referring to the second being when the tariffs were applied to raw materials? >> I'm speaking to the first Trump administration when they rolled out tariffs. >> Gotcha. They didn't really go away during the Biden administration, but during this ne this current administration, they've come on so heavy in a way. And maybe it's the erratic nature of the announcements that have just wrecked everyone's nerves in a sense because now for me being in electronics, everything we buy comes from Asia. All of the and I know that we're trying to build chips here, but until then all of the design engineers that we work with buy all of their part or buy all their parts from foreign manufacturers. So we are just taking up the raw material, the bills of material and bringing it in based on how it was designed so that we could bring it to fruition, manufactured it and put it back into their supply chain. And it was hard because it was across a lot of different companies. My background is in supply chain logistics and I reached out to a few friends of mine because I know they have way more money in the companies they work for and I asked them how are you bypassing the tariffs? Now at the time they were like oh we're going through India like we're making a stop in India because it hadn't the tariff hadn't hit India yet and so they were finding the loopholes to get back [laughter] to get their product with very low tariffs. Well, I don't have anything floating on the ocean as far as parts for the work that I do. So, it's a different it was different way of having a conversation with our clients because it's like, "No, you quoted this price and you should hold this price." And my push back was, "Well, I don't I'm not your design engineer. So, if you could design it with a part that does not come from overseas, you'll be in a better position." And I think that we really both tried to work that out. And I say both, I mean all customers. But it's still what it did though was cause everyone to stop purchasing everything and so they could reassess and see if they needed to redesign. So basically we had a quarter of very very low orders and that really hit us hard. >> Can you remind us uh what kind of work you do and what kind of raw materials you were purchasing from Asia? >> Sure. So Electrosoft is an electronics contract manufacturer. So we don't have a product. We sell the service of building electronics for you using our expertise and our sales staff. And we work in the industrial and defense sectors. And we're putting together their printed circuit board assemblies, cables, wiring harnesses, box build enclosures, panel assemblies, anything electronic, we can build it. Um we'll buy all the parts and bring them into our facility, manufacture them, and send them right into your supply chain. And this year marks our 40th year of doing that kind of work. >> So you said you had a very difficult quarter. [snorts] Did things improve after that? >> They did. I think that if that quarter was the same as the others, we would have been fine. But it was that plus the other company that um the buyer was who had passed away um that was an impact. So that was also his passing was a reminder of how we as business owners need to embed ourselves within a company so that if something happens or if that person takes another job that you still have another advocate on the inside for you and I learned that recently through a program that I was a part of and there was an amazing professor ammeritus Ben Shapiro who has all this wonderful work if you look him up in the Harvard Business Review um he has amazing case studies and articles about what how we need to um market the company, how we need to be really embedded in companies in order to maintain those relationships regardless of who's there or not. >> You mentioned relationships in that LinkedIn post. I'm going on memory here, but I think you suggested that they they've kind of deteriorated that you used to uh have closer relationships with clients and now at the first sign of trouble, it's more, you know, what can you do for me right now or this is over? Do I have that right? >> You know, I don't recall that. I I mean, it's been quite a few months since I've written that. I honestly have, you know, to be honest, I have great relationships with all of our suppliers. Um, I mean, the company does, but my staff does. I mean, there's no um issues per se, but I know that when things are panicked, it's like, what are you going to do for us? And I think that's any customer because we went to our vendors and said, "What are you going to do for us?" [laughter] Because really, nobody knew what to do in that moment. We just knew it was going to be more expensive to do business and who was going to absorb that cost because it's supposed to go the tariff would go to the country. And recently I was um in Washington DC and had a meeting with the deputy treasury secretary and I mentioned what small businesses were going through with the erratic nature of the tariffs. And the response was well we're going to get that money. It's going to be so much better for our economy here in the US and uh and the American people. And it's like I love it. I think that's great. But right now it's really not helping us. So >> what were they telling you? It's going to be better. Why? >> Because and and my dad used to teach me this when I was really young. Imagine sitting with your dad and he says, "Yeah, well, we're not going to buy this car because of the trade imbalance." And he was really honest, like he was very transparent about how he felt about the economy. and that the trade imbalance meant that all these countries could pour in all of their products for very little money and was putting American manufacturers out of business and being very cognizant of that he was cognizant of where he spent his money and so he would never buy a car that was not an American car. So the imbalance, this is just on a macro level of the president coming in and saying it's not fair for everyone and dump all of their cheap goods into the US. So we need to charge and make it equitable and we want American economy to get better. [snorts] And you know, and I'm speaking from a bipartisan point of view being in defense manufacturing, that's just where it is. I just listen to the words and see how it impacts my company. So I don't feel one way or the other. I do feel that um there have the imbalance has been in place for so long and I go to Detroit quite frequently and I see a lot of abandoned buildings and even in the city of Philadelphia a lot of abandoned buildings being torn down because there's no one there manufacturing in factories and we have outsourced one of the best ways to grow an economy to other countries because they can do it at a cheaper price. But it's put us in a position, it's very much an unintended consequence. So I would say that their response was more so that this is better for us because it will help grow the economy. But the people who are affected by these these choices are the small businesses like mine >> who might not be there when it does finally help the economy. >> Absolutely. That's the fear. >> Have you in any way come to terms with the tariffs? Are you now in a position where you can operate comfortably? >> No. Well, so right now it's a cash flow problem in general. So, we're working with the bank to see what we can do. Um, and I love the advice I was given a long time ago. It's like it's better to have a relationship with the bank so that when you need something, you can get it as opposed to trying to establish a relationship with a bank when you need something. So, being able to call up my banker cell phone and tell them, "Hey, this is what's going on. I know everyone is getting crushed, but look, I have all these contracts coming down the pike. Help me keep the lights on and we can pay it back." Um, and what has not gotten better is well, well, this is what we're doing. We're doing a little bit of a pivot. Um, we're looking into industries where money is flowing and in doing so, we hope to establish new relationships, which we've already started. Um, but I wish it would have been more organic as opposed to rushed as it is right now. >> Are those new relationships with uh potential customers in different industries than you've worked with previously? >> No, we're just expanding our defense footprint a little more than industrial. We used to for me it makes sense to have bring it up a little bit more and make it 50/50 as opposed to right now it's it's not even 20%. >> Got it. I ask in part because in in that LinkedIn post, you also mentioned uh kind of a contradiction of the textbook advice always being to develop an area of expertise to specialize in something, especially for a smaller business. But when you're struggling with that business, the need can be to just get more business wherever it is and forget about specialization. Mhm. >> Did you resolve that tension? >> Well, we reached out to folks who we told them that the order quantity, they didn't meet the order quantity um because we we now have flexibility to do more because we just don't have the work, but um I I don't know that it's always going to be the best use of time still. Uh, I spent a lot of time having my upper management team train and be able to bring our people, our staff on the floor up to par for some of the certifications that they need. A lot I put in. So for them, for example, I allow the staff to decide how they want to progress along and make more money. It's a stairstep model. They have to be more valuable to us by the time they have their next review in order to get more money. It's not, hey, I've been here for 365 days. Can you increase my my salary? It's also I learned how to solder for, you know, J standard and I've learned how to do defense cables and now because we can put uh more work in their lap, they are more valuable to us because they took the time to build a skill. So now we can reward them for that. So this is a you can't do that really when you're busy because you don't give everyone the time that they deserve. >> Sure. >> But I you know what is that thing that's saying don't um don't let a good crisis go to waste, [snorts] >> right? >> So we're we're trying to pivot the way that we think or what I heard today a friend say swivel uh a little bit and see what we can do to become better to take on more aggressive projects that require more specialty. So we're trying to still niche down into what we do with custom and prototype uh manufacturing. >> You mentioned that excellent program that you took uh and I think you mentioned marketing specifically in that context. Have you have you changed your marketing uh significantly as you look to uh develop uh different customers? >> Uh a little bit. We we've not jumped into it yet. I had um a woman, she's like a well-known um marketer through Oglev and I said, "I can ask you a question." She's like, "Yeah." And I told her about the company and she looked at my logo and she said, "Ectrosoft, I don't even know what that means. Like, what does it do?" And it made me think like, "hm, maybe they think we're a software company, which we used to be. We used to it used to be electromechanical assemblies and software. We would design the manufacturing the electronics around and the I can't even think I can't [laughter] speak. We would design the electronics or the industrial product go oversee the manufacturing and we would uh do the software. So that's Electrosoft made sense for that. But now I'm thinking is Electrosoft a good name? It should say something like Electrosoft manufacturing. Perhaps that is helpful. So those are the things we're thinking through right now. How do we position um the company going forward? Because there's a lot of things that are changing right now within manufacturing, the products that need to be developed specifically in defense that are really a national security crisis right now and we feel that we have the expertise to meet those needs and so we're going to pivot ourselves in that direction. Can you give me some sense of the size of the business, your number of employees, and if you're comfortable, the revenues? >> Well, we are uh well, I really don't talk about the revenue, Lauren. Um >> understood. >> Yeah. But we're we have 25 employees right now, this is down from 32. And um with some of the work that we're getting quoted, what we are quoting right now, I can see us growing back up to um about close to 40 um by the summer if we can uh land the business in time. >> So, it sounds like you're pretty optimistic about 2026. >> I'll be optimistic when the order lands on my desk. [laughter] Well, you do see a [clears throat] path toward increasing uh headcount. >> Yeah. Yeah. If the order comes through, we will definitely have a need so we can meet their deadline. But I think that um you know, as a business owner, sometimes people don't they don't realize how we're the ones staying up at night talking to people trying to figure out how to make things go back to normal when you're in some type of crisis. And for me, I try to be very honest and optimistic about the future because I don't see it the company going away. There's still people that come and want to have us do the work for them. [snorts] Um I one of the questions that we asked, we did a branding exercise is if Electrosoft were a car, what kind of car would we be? And I asked I wanted to ask that question because I wanted to see if they saw us as like a clunker or you know a cheap little you know kickound car that still worked or you know a Lamborghini right? Uh, and a lot of them said that they looked at us at the time it was uh like it one of the new electronic vehicles like technical and uh sleek and and fast and able to just they make a good impression. That's really what they were getting at. And so I always wanted to make sure that we maintain truth behind the way they saw that for us. And I hope that um I know that we'll continue to do that because that's because they think of us that way. We want to live up to that expectation. >> Interesting. Carlo, when uh we spoke a year ago, we we talked about your book and and in your book, you predicted a a vibrant future for manufacturing. Do you still see that on the horizon? >> I do. Um it just depends who's going to be running the manufacturing companies. Is it going to be private equity because they've snapped up a lot of the companies that people couldn't find buyers for because they could bid higher? Are they going to be run by um families? Are they going to be run by people who have left workforce and decide to buy into manufacturing? That I'm not sure about. I don't know who's going to be leading that. But I know that manufacturing will still be vibrant. >> Does it matter who's running it? >> I think so. I think that um I think we forget sometimes that a majority of the largest companies on the earth are family businesses and um it's very necessary to build generational wealth and through business ownership that's how a lot of people have been able to do so. >> How often do you hear from private equity firms wondering if you're ready to sell? >> Weekly, daily, [laughter] all the time. calls, texts, like how do they even get my phone number? But they found it. Um, but we're not going anywhere. We're going to stay a family business. >> Carla Tropman is owner of Electrosoft, a contract manufacturing business outside of Philadelphia. Carla, thanks for taking the time. I really appreciate it. >> Thanks, [music] Lauren.