(MAD Elevator Fixtures)
MAD Elevator Fixtures, a Toronto elevator-technology firm, has every reason to believe that its prospects are going up. The nine-year-old company—a joint venture between Mississauga-based Mainline Elevators and DMG sPa, an Italian firm—has seen its client base of elevator contractors expand throughout North America, a market that contains about one million elevators in need of refurbishing. The founding partners had invested $2.5 million in a 22,000 sq.-ft factory capable of producing a wide range of fixtures, and chose Toronto because of its size and high-rise stock.
According to managing director Steve Reich-Rohrwig, 50% of sales these days come from the U.S. The firm generates more than $10 million per year, and ranked 468th on the 2013 PROFIT 500.
So how to explain the seemingly confounding detail that when MAD decided to crack the conspicuously high-rise New York City market in 2009, it never got off the ground floor. With apologies to Frank Sinatra, if an elevator firm can make it there, surely it can make it anywhere.
Download Now!The elevator industry, however, is a complicated world, says Reich-Rohrwig, whose firm focuses almost entirely on upgrading existing lifts in office buildings and apartment tower—with modern displays, digital buttons, etc. —instead of supplying fixtures to the inexpensively-made new models installed in condo towers.
The way the market works is that property managers deal with local elevator contractors, some of them small shops; others, giants like Otis, Kone and Thyssen Krupp. But, as Reich-Rohrwig notes, the local divisions of these contractors tend to be highly independent of one another. Just because you supply components to the Toronto arm of Thyssen doesn’t guarantee you work with the Vancouver division.
When MAD entered the Big Apple, says Reich-Rohrwig, “we tried to sell to everybody.” But despite a year of hustling, the firm secured very few clients.
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Eventually, Reich-Rohrwig discovered why. New York, not surprisingly, has dozens of contractors, but almost all of them buy their buttons and panels from a New York-based fixture supplier, which had a lock on about 85% of the market. “People’s perceptions were that I’m not local,” he says. “I couldn’t drive to a meeting when [clients] call. I’m geographically disadvantaged when I’m competing in New York.”
Therefore it’s always useful to understand structural impediments to expansion. MAD’s small sales team didn’t let themselves become discouraged by the New York experience. As Reich-Rohrwig realized, the proximity problem vanished when the company started looking for clients in cities where the incumbent elevator contractors couldn’t turn to a dominant local supplier.
So in cities like Miami and Los Angeles, both of which have proven to be lucrative for MAD, the company wasn’t perceived to be an outsider because the two other major fixture suppliers—the one based in New York, and another in Arkansas—are both from out of town. “None of us are local,” he observes. “We weren’t coming out of the gate disadvantaged.”
Reich-Rohrwig learned something else from MAD’s unsuccessful foray into New York (today, just 5% of the firm’s revenues come from the Big Apple). When the company decided to target Miami, it decided to focus just on one big contractor, Thyssen. “We never even wanted anyone else.”
That approach—going deep with one client as opposed to the so-called “spray-and-pray” strategy—was strategic. Thyssen, Reich-Rohrwig says, had lots of market share with Miami property managers, and thus a health potential order flow.
The company, he explains, looks to grow a single client with highly responsive service. “I don’t want to compete on price.” For example, Reich-Rohrwig has made it very clear to the manager in charge of generating quotes on jobs that if a client calls to find out where the bid is, “that’s a fail.”
MAD also dispatches its own staff to go to work sites and do all the measurements themselves, instead of relying on the contractor’s staff; that way, the order is more likely to be done correctly the first time.
In the insular world of elevator contracting, word of MAD’s high-touch service approach began to spread. After a year working with Thyssen in Miami, Otis called and asked for a meeting, Reich-Rohrwig says. “We’re going to get that guy and service the crap out of him and everyone else will slowly come to us.”
With the U.S. market now is solid shape, MAD’s strategy is to begin to look to South America for further growth. “That’s on the radar for next year,” says Reich-Rohrwig. He knows the most dominant region is Brazil, whose megacities contains about half of all the elevators in Latin America.
But remembering his New York experience, Reich-Rohrwig has already identified a formidable structural obstacle: the 40% import duty for companies exporting into Brazil. For fixture suppliers like MAD, the tariff represents an especially high wall to scale. “It’s tough,” he admits. “We’re working on it. From an exporting standpoint, that’s the next challenge in front of us.”
