Brothers help third-generation, 300-employee, Mankato family business expand into national entity.
Photo by Jeff Silker
Lewis and Clark, Simon and Garfunkel, Brooks and Dunn, Procter and Gamble, Currier and Ives, Gilbert and Sullivan.
Each male duo noted above has at least one attribute shared with the others: each developed (or has developed) synergies from their partnership to accomplish much more than each person could have individually. For instance, could William Procter have achieved such great business fame without the expertise of partner and brother-in-law James Gamble? Not likely.
And so the principle continues. For almost three decades, the Mankato dynamic duo of Kent and Kim Schwickert have been a southern Minnesota tag-team, wrestling over decisions and creating synergies that would have astonished their grandfather in 1906, the year the company began.
For example, in 1980, and weary of workers’ comp costs, Kent and Kim—along with the owners of nine other Minnesota roofing companies—lowered their costs by founding a captive insurance company, Roofing Contractors Insurance. In essence, they became self-insured. In a similar fashion not long after, Kent and Kim and a number of other roofing companies co-founded Roofers Mart, a Minneapolis-based roofing distribution company.
To top that, in the late ‘90s, Kent and Kim and the gutsy owners of nine other roofing companies around the nation co-founded TECTA America, which has mushroomed to $560 million in annual revenues and become the nation’s largest roofing company. Now Kent and Kim own almost three percent of TECTA America, and the local company—the one you know as Schwickerts—is a $40 million, 300-employee, wholly owned TECTA America subsidiary. Besides roofing, the local company has plumbing and heating/air conditioning divisions.
A person could argue Kent and Kim would never have co-founded these larger businesses had they not first learned through their own personal experience of the unparalleled power of synergy. Their mode of expansion merely has been a mirror image of their already existing synergistic sibling relationship, and from it of lessons learned and applied.
Could you give a company history?
KENT: Schwickerts was founded in 1906 as a hardware store by our grandfather. In the 1910s, he moved the company from Waterville to Mankato. For years, we had probably the largest hardware store in southern Minnesota, selling everything from paint, housewares, and snowmobiles to chain saws. Then consumer behavior began shifting. Customers were beginning to hire other people to do their work, rather than doing the work themselves. From that, over time, we moved into roofing, heating and air conditioning, and plumbing installation and service—basically installing and servicing the things we had been selling at the hardware store.
KIM: We closed the hardware store in 1971 and began focusing on commercial contracting.
KENT: Our father, Leas, a Carleton and Harvard graduate, took the business from the ’50s to the ‘80s. It had been kind of a downer for him to run a hardware store after graduating from Harvard, considering most of his classmates went on to run Fortune 500 companies. He took the company as far as he could. Kim joined the company in 1977 and I joined in 1982. At that time, our sales were $2 million with 40 employees. Now, we’re a $40 million company with 300 employees, including 220 in Mankato, 40 in Rochester, and perhaps 35 in Tampa.
KIM: Our company is like a stool with three legs: plumbing, heating/air conditioning, and roofing. We have diversified those three legs into nine divisions in Mankato. Our Rochester and Tampa operations have just roofing and architectural sheet metal. Mankato has electrical, and energy efficient systems such as daylight harvesting, photovoltaic, lighting retrofit—environmental solutions.
We have daylight harvesting in our warehouse. It looks like a skylight and magnifies captured sunlight. It’s brighter than a light bulb. Because of it, we haven’t had the electrical lights on in our warehouse in about two months on most days during daylight hours.
Is there one dominant Schwickert family trait?
KENT: We have a tendency to plan well and think things through before acting.
KIM: Some people call it anal. I call it thorough.
KENT: At the same time, we’re forward thinking, cutting edge, and usually ahead of the pack. Perhaps that’s because the pack we run with is at the head of the pack, too. The Schwickerts are conservative, mindful, and thoughtful about what we get into.
It’s one thing expanding into Rochester, it’s another expanding into Florida. Why?
KIM: In 2005, we had an opportunity through one of our TECTA acquisitions to acquire a company there. In the winter, we don’t do much roofing work in southern Minnesota. It’s too cold. After hurricane season, which runs July through November, a lot of roofing work goes on in Florida. One year, we had 50 of our Minnesota employees there. Most of them don’t mind spending two or three months in Florida during winter. The last time they went, some of their wives asked us to send them down again because they were making good money.
KENT: Our operation in Tampa is a diamond in the rough. That city hasn’t experienced a hurricane since 1935. The greatest challenge involving hurricanes is in what happens to our employees’ homes. The first priority of anyone in a disaster is to take care of their own home first. In Tampa, we can watch hurricanes happen in other parts of Florida and quickly send in support to affected areas.
Discuss how TECTA came about. The TECTA name and how it fits in with Schwickerts confuses some people.
KENT: In the late-‘90s, Kim and I were wondering what we were going to do with this company. The biggest challenge for any family-owned business is how to keep it going for the next generation. We thought we had two options: diversify our portfolio of operating businesses or get bigger at what we did best. At that time, a great deal of consolidation was going on nationally in industries like HVAC, electrical, funeral homes, lawncare service—just about everything. I had been involved as a director of the National Roofing Contractors Association and Kim had contacts in the Midwest Roofing Contractors Association.
KIM: Schwickerts was like a helium balloon hitting the ceiling and unable to rise. About ten years ago, Glen Taylor indicated he had about 85-90 percent of the wedding invitation market and knew he couldn’t gain further market share, so he moved on. In some respects, we were in a similar situation. We couldn’t get that much more market share in southern Minnesota. So how do you get bigger?
KENT: To start TECTA, in essence, we sold ourselves to ourselves. We established a value driven by EBITDA for each of the operating units wanting to be part of it. Ten companies around the nation started it. We had a third party analyze each of the companies, to look under the sheets. The enterprise value each company was given created a total enterprise value based on the total company EBITDA. Your percentage of the new company was based on your percentage of EBITDA contributed to the new company. We went to the market to finance the transaction and retained 99 percent of the company. We didn’t “cash out,” but were able to take a percentage of cash out of the financed transaction.
KIM: These ten companies were all like Schwickerts. We “dated” for eighteen months to see if the arrangement would work first. We had a lot of Type A people involved. Eventually, we decided we were able to work together and from there we all expanded and acquired other companies to begin having a truly national footprint. Schwickerts is a wholly owned subsidiary of TECTA.
TECTA seems to be a “loose” organization that allows you to keep your local identity yet lets you come together to create synergies.
KIM: Yes. TECTA’s success comes from its being able to maintain the individuality of its operating units. Yet TECTA national salespeople can say we have over 50 locations to serve you. (Schwickerts is one of 51.) Here’s another reason we helped begin TECTA: Accounts such as Coca-Cola, which has operations spread over the country, wanted to deal with only one company. So, we have a TECTA national salesperson calling on Coca-Cola corporate and when they make the sale, Schwickerts or any of the other TECTA subsidiaries end up performing the work. We want to be known as TECTA to the national accounts and Schwickerts to people in southern Minnesota.
KENT: Sometimes accounts have decision makers at both ends of the spectrum. Take Coca-Cola, for example again. You could have one Coca-Cola decision maker at the plant level and another at the regional or corporate level. Sometimes, you don’t know who’s making the decision at a particular plant. There are times when Schwickerts in Mankato has been considered an incumbent for a particular account and someone from TECTA goes out and establishes a relationship at the corporate level.
KIM: If we get in a situation where we’re asked to do a job we’re really not comfortable doing, I can make a telephone call and get expertise and/or people from another TECTA subsidiary within two days.
How large is TECTA in sales?
KENT: It’s a $560 million company, of which we own less than 3 percent. After we did the deal starting TECTA and shortly after the acquisition allowing us to run the Tampa operation, TECTA came to a crossroads. By 2005, about 55 percent of its shareholder ownership had become non-active—a number of the shareholders involved with the original formation in 2000 were retired five years later. What were we going to do? We had to have an exit strategy. Our options were to go public, start an ESOP, or find an equity partner. In 2005, we chose KRG Capital as an equity partner, which now owns 70 percent of TECTA.
Is all of Schwickerts owned by TECTA?
KIM: Yes. TECTA bought everything. Again, we want each company run independently. TECTA’s biggest success stories are when we have purchased good companies that lack sophistication. For instance, one of our ten founders didn’t think service was important. He was from San Francisco, did millions of dollars in government contracts, and didn’t have a service department. We introduced service to him and that company now does $5 million in service a year. Some companies we’ve acquired have literally doubled their net profit in two years.
Where does TECTA rank nationally?
KENT: In roofing, we’re No. 1. If not for this credit crunch now, I think TECTA could be on a rocket to $1 billion. There are 37,000 roofing contractors in the U.S. A large percentage of them are looking for some solution for the next generation.
This must have been a big risk for you to help start this company?
KIM: None of the ten founders had to do it. There were four other national companies doing the same thing at the time we started. They have all failed and TECTA is the only survivor, which we attribute to our decentralized business model. You can’t have a company headquartered in Miami telling a subsidiary in Minnesota how to price and do its business. The cultures are different. My biggest concern as we grow is that the people running TECTA could take away that decentralization. Right now, TECTA pretty much lets us run our own business in Mankato.
TECTA has 51 locations, and some of those run their operations better than others. Is there friction among members to standardize certain practices?
KIM: We standardize many practices, such as accounting. What we don’t standardize is our public image and our processes, in terms of our pricing and how we do things locally. TECTA really does due diligence when buying companies. If not good to begin with, we won’t buy the company. Then we look at what the company is doing and try to make them better. We find that companies hitting homeruns usually don’t hit them because they are better companies, but because they have certain natural events happening in their markets, such as a hurricane, tornado or hailstorm. TECTA had a $20 million company in Miami shoot to $60 million one year because of a hurricane.
Aren’t your new equity partners making some decisions?
KENT: They are fairly hands-off because they don’t know anything about roofing. They run perhaps a dozen other companies. They borrow money from pensions, invest in companies like ours, build them up, and sell. Their success has been in not telling us what to do. Eventually, I think TECTA will go public or our equity partners will sell us to someone.
Your industry, more so than others, is greatly affected by fluctuations in energy prices. For instance, asphalt roofing is made of petroleum products. Many mechanical products are made of copper—
KIM: Those work to our advantage because we can add more insulation to your building to make it more efficient. It doesn’t affect us as much as you might think.
KENT: It does spike our costs.
But what I’m getting at is those spikes do drive innovation.
KIM: Yes. For instance, we have sold a large number of light harvesting skylights to residential customers. Sometimes people have a hallway and don’t want to put an electrical light in to light it. This is tied in with the whole “saving of energy” phenomenon going on now.
KENT: Right now, Minnesotans are paying about 7 cents a kilowatt for electricity. Californians pay about twice that. When rates get that high, and combined with government subsidies, some of the newer “green” technology begins making financial sense for customers to adopt. Technology must get better, though.
You bought Snell Motors’ old building downtown. Why?
KENT: We needed another 10,000 sq. ft. Bryan Paulsen and I tried figuring out different solutions and the answer ended up being across the street.
KIM: In that building, which we personally own, we also rent space to Anytime Fitness Center and to TECTA, for its national call center. When a national account has a leak in Alabama, they call an 800 number that routes to Mankato, and Mankato calls our TECTA contact in Alabama to send out an employee. Within two to four hours, they get the leak fixed. The national call center has six people.
KENT: To satisfy a national account, such as Coca-Cola, you have to have a one-stop shop, which includes having only one telephone number for service. When Miami was having a hurricane and the telephones and power went down to a TECTA company there, we rerouted the telephones to our Mankato call center, which was answering for national accounts.
How does your business break down in Mankato?
KIM: We have residential, commercial, and service in roofing, and the same in plumbing and HVAC. Twenty percent of our business is service. Our divisions create synergies. For instance, a North Mankato account called me because of a leak problem. We determined they needed a new roof and sold them one. At the same time, the City of North Mankato had a program to provide grant money to improve buildings in the Belgrade Avenue area. The customer’s heating and cooling systems were almost 30 years old, and we were able to help him replace those with help from the grant. It went from a $20 thousand to a $40 thousand job. That all came from a roof leak our service department found.
KENT: We have similar synergies on the mechanical side. We have mechanical engineers who act as the internal engineering department for some successful companies in our region. When these companies want to tweak or upgrade, we become a partner on the design side rather than being only a contractor coming in to bid.
KIM: One of our engineers designed the mechanical aspects of the former “Midwest Wireless” building.
KIM: We did the Taylor Center at Minnesota State, every building Glen Taylor owns in Minnesota, and the new ISJ Clinic Heart Center.
What about green buildings?
KENT: A green roof has vegetation. The concept is you’re partially solving urban heat sink issues. The soil on the roof absorbs heat rather than creating more. Also, you can have storm water retention with it. It’s a very good “feel good” thing, but unfortunately, not many people can afford it.
KIM: But some governments can.
KENT: The Target Center, which is owned by the City of Minneapolis, spent $6 million on a green roof. We have a TECTA division in Washington, which had a person with expertise in Baltimore. Schwickerts helped the TECTA subsidiary in Minneapolis do the job. We draw from each other when it’s to our advantage. Another example of helping each other occurred after a hurricane in Florida when TECTA had 100 roofers getting a 14-acre Coca-Cola bottling plant back into production within days.
Kim, you have been quoted in Remodeling Magazine as saying the way to cut workers’ comp premiums is to cut losses.
KIM: In the 1980s, Schwickerts and a group of nine other Minnesota companies created a captive insurance company to self-insure in workers’ comp. Two big costs in our business are insurance and materials. Before, we maybe could get 10 percent of our premium back. With this new company, we had the potential of getting 50 percent back through better operations. To do that, you become the best in training and safety. We bring back that savings to build the business and for bonuses. First, when starting it in 1980, we had to align ourselves with safe contractors. It’s called Roofing Contractors Insurance. Much of the focus is on controlling your losses and bringing people back to work.
Will the federal stimulus package help your business?
KENT: Much of that money will benefit the residential side of our business, where people receive rebates or credits off their taxes. Where TECTA will see it is in the General Services Administration push.
KIM: What was interesting is when they sent out the book with all the potential GSA projects from the stimulus package, there was one in St. Paul, one in Iowa, and about ten pages worth in Washington D.C. Imagine that.
For each of you: the most difficult decision you’ve made in life? It doesn’t have to be in business. It could be personal.
KIM: Wow, that’s a tough one. For me, it was doing the TECTA deal. There is nothing I’ve lost more sleep over. We support 220 families in Mankato alone. How would the deal affect them if it failed? Was my grandfather spinning in his grave?
KENT: It was also the right decision.
KIM: Our dad, who passed away seven years before the deal, told us once this was going to happen. So we knew he would have been for it. But it was like selling your children. We had seller’s remorse. It was very difficult to do this deal.
Because the only thing left of Schwickerts would be the name?
KIM: Absolutely. Fortunately, with our business model, we still have a lot of local control. But at the same time, TECTA could come in tomorrow and take that away. Now, they aren’t going to do that for a number of reasons, because who else would they find to run it? Both of us have sons and daughters, and my son is in business school and wants to come back. Selling out to TECTA was the right thing to do for our employees. But it was very hard, and two or three times we almost said no.
What was the tipping point?
KENT: When realizing that if we didn’t do it, we likely wouldn’t have a better opportunity.
You two own part of TECTA, the insurance company, and the old Snell building you lease to TECTA. Do you own anything else together?
KENT: Similar to the insurance company, we helped form a roofing distribution company in Minneapolis called Roofers Mart. The original founders purchased $85 million of roofing materials from different roofing distribution companies every year. By forming Roofers Mart, we took another sliver out of the food chain.
We’re also in the hog business—God bless us right now during this tough market. We got in with the owners of Big Gain. Over time, we’ve made more than we’ve lost. We have 7,200 hogs, and it was a good way to diversify. And we have development property. For example, at one time, we owned the land around United Prairie Bank headquarters. We have other land near Home Depot and farmland where eventually people will build around. We’re also in the wine business.
Tell me more about that.
KENT: Kim is an investor, but I’m the driver. There are certain things in life you want to do. At one time, when 18, I wanted to be a ski bum.
KIM: You wanted to be a fireman.
KENT: No, I wanted to be a ski bum. Long story short, I just said, “Why not?” I have investors, but have the largest ownership and am the most passionate.
What did it feel like tearing down the old Country Pub in Kasota to build your winery?
KENT: It was actually kind of nice. (Laughter.) The building wasn’t in good shape. Talk about doing things I’m not used to doing: I was in the basement ripping out copper before they tore it down, just to salvage something. As for the winery, it has a good business plan. I am not going to run Schwickerts forever.
What kinds of grapes are you growing?
KENT: It’s a cold, hardy grape the U of M developed genetically. About eight varieties were planted.
KIM: When we have it built and have an open house, I want to be the one pouring wine. One for you, two for me. (Laughter.)
KENT: And you can carry him out the door. (Laughter.) The cream of the crop in this industry has gone out of their way to share best practices with us. You never see that in our (TECTA’s) industry.
You were involved with what happened at Phenix Biocomposites, an unsuccessful business in Mankato that originally made granite-like products from soybean flour and recycled newspaper. What happened?
KENT: We lost on both ends. We were a contractor building the building and an investor losing our investment. Honestly, I think they never really focused on one particular mission and were trying to be everything to everyone. They looked at furniture, flooring, servicing—they were all over the place. It just didn’t work.
What did you take away from that experience?
KENT: Focus on your core areas of expertise and stay there. If you want to wander off, do it after you’ve got one right.
KIM: Back in the mid-‘90s, we had more money than we were used to having and wanted to diversify. Investing in that company was a little out of the box for us. It seemed a good idea at the time. We trusted the people, but they probably didn’t do their due diligence. From the standpoint of being a contractor, you never really know if any customer will pay their bills.
Occasionally I hear people criticizing second or third generation business owners, saying they had everything handed to them on a silver platter. What would you say to someone saying that to you?
KIM: I would say they are probably pretty accurate. Our Dad told us it’s usually the third generation that screws it up. Don’t do it, he said. That was our fear. When first starting here, I worked in the warehouse and out on the road. When I came back in 1977, we had hard times, and at one point I was out changing the oil in the truck. You can get real humbled real fast. The success of this company is primarily because of the other people working here, not us. But still they need you to show them how hard you work in order for them to work hard. If you work harder than they work, they will always respect you. But if you come in on a silver platter, they won’t.
Furthermore, you have to admit at first, like I did, that you don’t know much about the business. A number of people then knew a lot more than I did. Unfortunately, people in the third generation often are afraid to admit they don’t know much coming in.
KENT: And I think we have some of that German fire in the belly. We’re very focused on making sure we succeed. We have that fear of failure.
Kim, why be a U of M hockey timekeeper?
KIM: I was a gymnast at the University of Minnesota. The sport didn’t have any scholarships in the mid-’70s, but they did help us get jobs. One of mine was being the supervisor of intramural hockey. My boss was one of the two timers for Gophers games. When his partner retired, they asked me to do it.
Your greatest thrill doing it?
KIM: Whenever Minneapolis hosts a national hockey tournament, the host team selects the timer. So I’ve done four national championship tournaments and the best was when Minnesota beat Maine. My team won and I was right there on the ice. When the U of M plays in Mankato, I root for Minnesota State. Kent, Starr Kirklin, and I helped raise the money that brought Division 1 hockey to Mankato.
Kent, you played catcher for the baseball Gophers?
KENT: I blew out my elbow junior year and had some great experiences traveling the country. I played against some great baseball players, such as Kirk Gibson and Steve Howe.
Anything you two would like to add?
KIM: Ours is a complex business. When you explain our company to people, often they are amazed at all we do, including TECTA, and the insurance and distribution companies. Much of what we have done has come about by “crawl, walk, and run”—that’s the business model I’ll take to my grave.
KENT: And we’re still involved with TECTA. If there are any mergers or acquisitions, we’re right there. I’m TECTA’s director of vendor relations, and negotiate contracts and agreements with national manufacturers and distributors.
KIM: I don’t think we would have become involved with TECTA had we not been one of the original founders. At first, TECTA had only ten companies involved. Kent and I were members of the presidents’ council. They still lean on us for expertise, especially when buying businesses.
Getting to know you: Kent Schwickert
Position: Operations Manager of Schwickert, Inc, President of Schwickert, Inc., and Vice President of Schwickerts of Mankato.
Current Role: Oversees sales and marketing, operations, and administration.
Education: University of Minnesota, Economics and Finance, 1982.
Present or past affiliations: TECTA America board director; National Roofing Contractors Association director; Mankato Area Chamber of Commerce chair, MSU Hockey Blue Line Club director; National Roofing Contractors Association vice president; Educare Foundation chair; South Central Technical College Foundation director; Mankato Golf Club president and director; MSU School of Construction Management Advisory Council member.
Getting to Know You: Kim Schwickert
Position: President of Schwickerts of Mankato.
Current Role: Oversees company planning, fixed assets, and contract negotiations.
Education: University of Minnesota, Business Administration, 1977.
Present or past affiliations: President’s Council of TECTA America Corp. member; Midwest Roofing Contractors Association Technical and Research Committee chair; South Central College director.