Bouncing back

John Randel’s first rubber manufacturing factory went up in smoke, but he clawed his way back, and has made a great success of his second enterprise, A1 Rubber. He tells his secrets to JACQUI WALKER.

John Randel, the founder and chief executive of recycled rubber manufacturer A1 Rubber, lost his first rubber manufacturing business through a factory fire.

After suffering depression and losing almost everything, he came back stronger and wiser to build a bigger and better business that now turns over $7.2 million and employs 25 staff. He tells Jacqui Walker about coming back from the brink and how A1 Rubber has got an edge over the international competition.

 To listen to the lunch with John Randel, click here. To download this mp3 file and listen to it later, right-click this link and “Save target as…” to your computer (Macs; option-click).

Jacqui Walker: Your company makes commercial flooring, matting and protective rubber surfacing for playgrounds and sports facilities. One of your biggest competitors is Malaysia, where labour is 20 times cheaper. How are you, an Australian manufacturer, staying competitive with imports and international competition?

John Randel: We build our own manufacturing equipment. We build it to minimise the requirement of labour so we process over 500 tonnes of recycled rubber every month, and we do that with 25 staff, so you can really see that the equipment is the key to it. You can build machines and processes with lots of staff requirements or you can innovate as much staff out of it as you can – and that was our objective.

So a factory in Malaysia doing a similar thing, how many staff would they have?

I don’t know for sure, but I know one process here that we have employs two people and turns out six tonnes of product a day, and the process in Malaysia which I was advised by their chief executive employs 12 Nepalese workers to produce four tonnes a day, and they are paid I think it’s $US10 a day for their labour.

And so you’ve obviously had to invest a fair bit in technology.

Yeah, it’s more big equipment… everything’s a volume game here in Australia.

You can actually make twice as much product with a big machine than you can if you built a small machine. So we tend to over-engineer everything and make it bigger than is needed, and therefore you can have a lower cost base from a labour perspective because you can make twice as much as anybody else. So our machinery is certainly the biggest in the world for what we do.

Well that puts a fair bit of pressure on you I would have thought in terms of the sales and marketing functions. Once you’ve got that sort of capacity you need to be selling.

I think a lot of manufacturers actually work, or the intention is to work, around the clock. Twenty four hour shifts and being a private business I can tell you, my intention is never to work around the clock if I can get away with it. I like manufacturing for eight to 10 hours a day, so in actual fact the machinery is doing a job in eight hours that generally you would build it that it would do it in three shifts.

So it costs more up-front, but we minimise those costs because we have invested heavily in our own engineering facility here so we manufacture all our own gear.

So obviously there’s no margin on it. That also gives us some intellectual property protection because you can’t buy these things off the shelf. You’ve got to build them too and that’s a bit of a barrier to entry for other competitors in Australia, and it certainly helps from an overseas competition point of view because they can’t buy the machinery either that we’re building.

Your first rubber manufacturing business started in 1990. What was the product and what was the niche you saw there?

Generally back then we were into manufacturing some basic products out of recycled rubber. We had a small wireworks business and one of our products was wire baskets and we used to make basket liners out of the recycled rubber that were very successful. We used to sell them to all the nurseries.

And I decided to then get into the raw material manufacture because obviously being more vertically integrated that was what I wanted to be. We wanted to be a manufacturer.

It all made sense so we went into manufacturing the recycled rubber. We built all our own gear there as well. It was very successful that business.

But in July 2000 you had a massive setback. Can you tell us what happened?

We were operating one day and we had three shareholders and one of them was actually operating the plant that afternoon and a little bit of an oversight on his part, walked away from a potentially serious bit of equipment and unbeknownst to him it had ignited.

Anything to do with granulating rubber can get hot and it basically ignited and caused a factory fire and it just so happened to be at the same time that he walked out to his car to get some tools. So he wasn’t there to actually put it out and by the time he got back it was just way too big and we destroyed an 800m² factory and all the gear and the smoke that came out of it pretty well covered the whole of Logan City.

It took about 30 minutes and the whole place was totally destroyed. It was pretty devastating.

Was that the end of that business?

We tried to rebuild it. We got paid some insurance money, which wasn’t quite enough because every time you rebuild something you want to do it better. So we ended up trying to rebuild it and actually ran out of money. We decided that the writing was on the wall and the best way was to just exit the business so all partners sold out to a firm down in New South Wales and each partner went their own way.

We actually stayed in the rubber business but went back to, instead of making raw material, went back into making some basic products.

Did you do that straight away or was there a bit of a period where you couldn’t believe this had happened?

Absolutely. It was certainly a period of depression. It was sort of like when we built that plant because we actually physically built it. We didn’t actually just borrow money from the bank. We used our own income and stuff so you put a lot of your own hard cash and time into it.

Worked till midnight building things and to see it all go up in smoke in 30 minutes was pretty devastating.

So I found after I dealt with all the legal aspects of the fire and it was all sold and done with, that I really went into a bit of a depression mode and really couldn’t go back to work.

I actually had to sell my house and we went and rented a property on the water with the money we had and tried to get over it. And so I learnt to drink vodka straight during the middle of the day and it wasn’t looking really good.

And I think we got down to about $3000 left in the bank account. I was sort of forced to go back and do something because had no income, no job.

The only asset we had, I had a little industrial factory that I’d kept, and I had $50,000 equity in it and I decided that I’d sell that and use that money to restart.

So we put the factory on the market and it sold the same day, and I took that $50,000 and reinvested into some rubber equipment which I’d made myself and we started up again in 2001.

So was making that decision to start again and having a focus that got you out of that depression?

Absolutely. I needed that focus, there was no doubt about it. I just didn’t really care actually.

I had a no-care attitude which was “no matter what you do, it can be taken away” and really was forced to go back and do it. And once I’d actually got back into it, the old entrepreneurial skills come back out and I decided this time not to take on any partners and do whatever it took to do it myself with my wife. And we did.

How have you funded the growth without business partners?

Very carefully. We were very lucky. We had some pretty fast growth and it was a very profitable little business.

Because we’d focused on building, the first machine we built was very efficient. I could actually operate that myself and make some very decent profit margin out of it. And we ended up renting a property, an 18 acre property and I worked from home.

I had a shed at home and so we had low overheads and no staff, and I basically worked 12 hours a day to get it up and running. So you can make a fair bit of money and therefore fund the credit you’re offering people, which was certainly the challenge.

The first year was $400,000, so it was a balance between offering some people credit and obviously offering discounts to be paid up front. We did that and it was tricky. Like walking a tightrope.

Other than the fact that you decided not to take on business partners, what else did you learn from the first time around that improved the business the second time around?

Not a lot. We’ve always had a good business strategy. Anything we seemed to conduct ourselves in was reasonably successful. The biggest flaw with the first business was exactly shareholders, that was the biggest burden.

Having partners that actually… because everyone puts their hard earned money into it they all expect to run it and therefore there wasn’t a clear management in the business so that was the biggest lesson. There is no doubt about that.

We certainly had a great business model back then, it just so happened, and it would have been successful. It just would have been frustrating all the way. Obviously removing partners it actually is far less frustrating. You’re only responsible to yourself. So yeah, we had that same business model back then and it’s the same business model we went forward with, just in a different way.

Who are your clients now? Where are you selling to?

We were a wholesale manufacturer so we don’t sell to the public. Our clients are large installing companies. They do children’s playgrounds. They do commercial flooring.

They’re all local companies?

No, we’re Australia wide. We do export to New Zealand, Singapore and the UK and we just did a big show in Germany where we expect to really start to pump a lot of product into Europe.

And what are the challenges for the business now? I mean fire is one. I’m sure you’ve got that under control now.

Yeah, I always say I’m the best person to run a recycling plant now because I know how quick they burn and therefore I know what’s needed to prevent it, and I must say my fire certifier is always very impressed because we’ve got so many fire extinguishers and sprinkler systems and fire detection equipment; he just thinks this place is wonderful and so does my insurance company.

But going forward certainly – really just keeping coming up with new products. Innovative products – that we’re keeping the service levels up there.

I think that the bigger we grow I’ve also learnt that it really doesn’t matter how good your equipment is, it’s how well you can manage people.

So one of the next challenges is actually how I can step away from the day-to-day operations on the floor because I’m not much of an office man. I do tend to be on the floor a lot because that’s where we make or break profitability, actually in manufacturing so I find keeping out of the office is good for me.

So do you have a general manager there?

No I don’t. I’m the managing director and general manager and I’ve always found it difficult to let the reins go and that is part of my next challenge is to actually do that.

Do you think in some sense that may be successful because you know that production process so well?

I think that part of the success of this business it’s actually very simple when people buy from us or place an order with us they know it gets delivered. It gets delivered in a good quality bag so you can install it in accordance with the specifications, they get paid, and they make money out of it.

And when they do that they realise that hey, that was all pretty simple and they can do it again. And so what they do is they become to rely on a guaranteed supply source of a good raw material and a good… and deliver it in a good manner.

If they can make money from it, this is all of our installers, they’ll continue to do so because they need to make money too, so the more people… it’s funny because as their businesses grow and expand they turnover staff, those staff in turn who get turned over become new customers in their own little businesses.

And it just keeps growing and growing and it seems the more people out there installing and using the product, the more word of mouth, and it actually organically grows quite considerably.

I’m just astounded that we do very very little marketing at all in this business. It’s all word of mouth.