Read the case study, “Family Matters.” 

Accurate Perforating Co. punches holes in sheet metal—LOTS of holes. The company, founded in 1940, perforates 40 million pounds of sheet metal annually (and, we assume, accurately) for industrial and architectural purposes.

Accurate’s president Larry Cohen had a meeting scheduled with his bankers at the Chicago headquarters of Cole Taylor Bank, but he was not looking forward to it. The Chicago-based metal company owned by Cohen’s family had run out of operating capital. Cole Taylor had loaned Accurate $1.5 million two years earlier. When the dreaded meeting finally arrived, the bank gave Cohen two choices: liquidate the business or find a new lender. Cohen was shocked by the ultimatum. “They were basically going to put us out of business,” he says.

For decades, Cohen and his father, Ralph (the company founder), had focused on one thing: putting as many holes in as many sheets of metal as possible. They bought the metal from steel mills in the Chicago region, punched holes in it, and sold it in bulk to distributors, which then sold it to metal workshops. There the metal was fabricated and finished—that is, cut, folded to specification, and painted—and sold to manufacturers of products like speaker grilles and ceiling tiles. “We were really just selling tonnage,” Cohen says. “We stayed away from sophisticated products, and as a result we wound up in a very competitive situation where the only thing we were selling was price.”

Accurate’s business model became increasingly unsustainable due to a worldwide glut of steel, forcing prices down. The costs of manufacturing steel climbed while its prices stayed flat, shrinking once-healthy profit margins. Most competitors found more profitable niches in fabricating, finishing, and selling metal directly to manufacturers, but Accurate survived through militant budgeting. “If we couldn’t pay cash, we didn’t do it,” recalls Cohen, who was unwilling to invest in the equipment required to become a fabricator. While times were so difficult, employees built perforating machines from scratch—repairing them only when absolutely necessary—and used outmoded manufacturing processes developed by the Cohen family way back in the 1940s. Annual revenue stayed between $10 million and $15 million for more than two decades. Accurate was decades behind the competition in terms of both technology and business strategy.

Aaron Kamins was the only member of the family’s younger generation working at the company. Kamins was the 36-year-old nephew of Cohen who took over day-to-day operations as general manager. Even though decades behind the competition in both technology and business strategy, Kamins says, “There was a culture here that resisted change. Everyone was comfortable with what they were doing. We were making a living and that was that.” Kamins, who had worked on Accurate’s factory floor since graduating from college, hoped to steer the company in a new direction. With Cohen’s approval, he borrowed $1.5 million from Cole Taylor Bank to purchase Semrow Perforated & Expanded Metals, a business in Des Plaines, Illinois, that produced and sold fabricated products. He hired two of the company’s top executives, Mike Beck and Mike Zarnott, to oversee the division, along with 10 of Semrow’s 40 factory workers.

Selling fabricated metal directly to manufacturers generated $1.5 million, but Beck, Accurate’s director of new product development and engineering, and Zarnott, the company’s director of sales and marketing, had bigger aspirations. They begged Kamins to break from the 1960s-type marketing. Kamins refused, being worried about diverting too much time and money away from the core commodity business, and Cohen agreed. “Everything I said about marketing Aaron thought was rubbish,” says Zarnott, who struggled with a marketing budget of $15,000 a year— split between Yellow Pages ads and a listing in the Thomas Registry. Beck and Zarnott were not amused.

The next year brought a downturn period for Accurate. The Iraqi invasion made customers skittish. Orders fell by 50 percent. The bank “strongly recommended” that the company hire Stonegate Group, a turnaround firm in Deerfield, Illinois. Stonegate’s primary recommendation was to renegotiate payment schedules with vendors. Meanwhile, Cohen liquidated half a million dollars in personal real estate to pay overdue bills. To cut costs, the company laid off 13 of its 85 employees.

Even with Stonegate’s stellar advice, Accurate lost more than $500,000. Then came the meeting with Cole Taylor that December; the bank agreed to give Cohen a few weeks to devise a plan. He immediately began looking for a new lender but was able to borrow an additional $400,000 in loans from friends—just enough to purchase three months’ worth of steel. That meant the company had 90 days to make some serious decisions about Accurate’s future.

Liquidation seemed too dramatic because Cohen believed that Accurate could thrive with the right business model. Another alternative was to continue cutting costs and hope for a rebound in steel prices—a strong possibility due to growing demand from China. Beck and Zarnott’s idea of scaling back the commodity business to focus on selling finished metal seemed like the smartest long-term strategy. But that alternative would take huge amounts of time and money to perfect the new manufacturing process, retrain factory workers, cultivate new clients, and revamp Accurate’s nuts-and-bolts image—time and money they didn’t have.

Cohen wrestled with the most difficult question: Should he replace his nephew with a more seasoned executive? Kamins had little formal business training. Was he the person to lead a turnaround? “I worried that we would just continue repeating all the mistakes that we had made,” Cohen says. An outsider would offer a fresh perspective, but hiring a CEO would be expensive and time-consuming. Cohen felt like the owner of a baseball team with a losing manager. “I didn’t know if a new guy would do a better job,” he says. “I just knew the old guy wasn’t doing a good job.”

After reading the case study, address the questions and prompts below. 

• What is the most immediate problem for Larry Cohen, the president of Accurate Perforating?
• Describe Accurate Perforating’s current business model.
• Describe a new business model using business theories and  concepts that you believe would improve Accurate Perforating’s  profitability.
• To support the success of this new business model, what knowledge, skills, and abilities are needed from management?
• What are your recommendations for keeping or replacing Aaron Kamins as the chief executive officer (CEO)?
• Create one human resource (HR) policy that would support the growth of this business.
• Does your new business model solve the problem that you identified as the most immediate problem?
• What other actions would you recommend for this company?
• Support your responses with content from the reading, lesson, and at least one outside, scholarly resource.

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