Success the Small Way

Small companies must overcome unique challenges to succeed in the scrap industry. Fortunately, there are some resources—such as ISRI—to help them along.

By Kent Kiser

Large companies may get the headlines and Wall Street’s attention, but they aren’t the driving force behind the U.S. economy. That distinction goes to small companies. According to the U.S. Small Business Administration (SBA), there were about 23 million small businesses in the United States in 2002, representing 99 percent of all employers. Small businesses also employ 50 percent of the private workforce, provide about 75 percent of the net new jobs added to the economy, and account for 41 percent of private sales, SBA reports.
   In short, small businesses are the foundation of the U.S. economy—and the scrap recycling industry. In ReMA alone, small companies—those with annual gross sales of $5 million or less—account for about 50 percent of the association’s 1,215 member firms.

Being a small business has its pros as well as its cons. Aside from the ever-present threat of bankruptcy—there were more than 38,000 small-business failures in 2002, SBA says—small operators face a host of other personal and professional challenges. Fortunately, there are also many advantages to being small. Here’s a look at both sides of the small business coin, with a focus on the resources—such as ISRI—that small scrap operators use to succeed.

It’s Great to Be Small
There are both personal and commercial benefits to being small. A big personal benefit is that small businesses usually have a family atmosphere, whether they’re family businesses or not. “When the number of your employees isn’t much bigger than the size of a good-size family, then there’s a camaraderie that becomes almost familial,” notes Marty Forman of Forman Metal Co., a small processor in Milwaukee. 
   With few employees and few corporate barriers between management and staff, it’s easier to get to know employees. “I like having a personal connection with each of my employees, that’s a really big deal for me,” says Lois Young of Skagit River Steel & Recycling Inc. (Burlington, Wash.). “We know them, we know their families.” Troy Hess of Mahantango Enterprises Inc. (Liverpool, Pa.) echoes her sentiment, stating, “I think being a small business is more personal.” At his rubber recycling company, for instance, his mother bakes two cakes for every employee’s birthday—one for the staff and one for the employee to take home. “They really appreciate that,” Hess says. “It’s just special.”
   Similarly, Forman notes that he’s included in the major life events of his staff, such as births and weddings. Like family, he has paid for classes so some of his eight employees could learn to read. He has helped others open their first checking account and get rid of bad debt. In short, he says, “I’m able to stay on top of their needs.”
   Such familial relationships are not only rewarding on a personal level, they also translate into “some kind of loyalty, which you can see in part in low turnover,” Forman observes. Also, as Lois Young adds, “When you need them to step up—because of market conditions or some other type of crisis—they will do that because there’s a personal connection.”
   Many small scrap recyclers extend this personal-relationship ethic to their suppliers as well. “At big companies, the owner isn’t going to have a one-on-one relationship with the head of every supplier,” Forman notes. “He may send someone infinitely qualified to meet the supplier’s needs, but it’s not the business owner speaking to the business owner. The advantage that I have is that I can represent myself personally to the business owners.” This is especially beneficial when the supplier is also a small business. As Forman explains, “A salesman for a big company can come in, look at the supplier’s scrap, and make an offer, but he can’t share the rest of the small operator’s experience.” 
   As for operational issues, small scrap firms say they have a few edges that help them compete, such as:
Minimal Bureaucracy: Less management hierarchy and bureaucracy means “decisions can be made in a much more timely fashion,” Young notes. “You don’t have so many chains to go through. Plus, you don’t have public shareholders that you’re accountable to.” Less bureaucracy also means that “we’re able to communicate and respond immediately to questions from our customers and staff,” says Manny Bodner of Bodner Metal & Iron Corp., a 25-employee recycler in Houston. This yields more productive operations for the company and better service for its customers, which leads to the next operational advantage …
   ‘Laser-Like’ Customer Service: Small scrap operators say their smallness enables them to be more focused on and more responsive to customer needs. “Small guys are used to dropping everything and focusing like a laser on a difficult situation that arises,” Forman says. “I can basically focus all my attention on meeting the customer’s needs.” As Troy Hess adds, “We’re able to provide top-notch service to customers. Our customers aren’t a number. They’re a big part of our business.”
   Providing top-notch service sometimes means going above and beyond customary service standards. Hess, for instance, says his company has cleaned up tire piles for customers “at cost” as a goodwill service gesture. Forman recalls providing special weekend container service for a customer who needed to resurface his facility. Such service helps ensure customer loyalty, even when larger competitors approach the customer. “Most of the time,” Forman says, “that customer is going to remember what I did for them.”
Tighter Cost/Operations Management: In small companies, costs and operational issues are simply easier to track and manage, says Troy Hess. “We’re efficient, and I think we’re more reliable because of that.” Forman agrees, noting, “I probably can get a truck to a factory and get a load back to my facility for less money by being more on top of it.” To Jim Bly of J&M Enter-prises (Artesia, N.M.), it simply comes down to this: “Because we’re small, we’re able to keep an eye on everything. In larger firms, there’s more potential for things to slip through the cracks.” 
   Better Margins, Less Inventory Exposure: What small recyclers lack in tonnage they make up for in better margins, says Bly. Handling less volume can actually be an advantage, he adds, in that small processors often don’t hold significant inventory, so they’re less vulnerable to market volatility. 
Flexibility: Bly loves being a small business, in part, because he has the flexibility to “change things up”—that is, he can decide to process scrap metal one day, paper the next, and tires the next based on market conditions or his preferences that day. This flexibility has given him a competitive advantage in tough times, he says, because he could focus just on materials that would make money.
   Being small also affords the flexibility to look for niches and “offer a service that bigger companies may not be able to offer,” says Manny Bodner. “You fill that void, and you create a lot of opportunities in there.”

Dealing With the Downsides
Benefits aside, being small does have its disadvantages. For starters, small companies have few employees, which has several negative effects. When you have a small staff, for instance, “it can be a huge blow when you lose an employee because you don’t have a lot of others to pick up the slack,” notes Jim Bly.
   Also, most small companies can’t afford to employ specialized staff to cover safety, human resources, environmental compliance, and so on. As a result, existing employees—and the business owner—must wear many hats. It’s the typical jack-of-all-trades, master-of-none situation. Troy Hess, for instance, oversees hiring, sales, operations management, fabrication, and other tasks in his company. Marty Forman adds, “I’m forced into the role of knowing a little bit about virtually every single aspect of my business without ever having the leisure to become an expert at any single one of them.”
   For Peter Kramer of The Greenfield Recycling Co. Inc. (Greenfield, Mass.), a small scrap brokerage firm, “the issue is not so much that you’re wearing many hats and you don’t have time to do all of it, the point is that your competitor often does. That’s the real crux of it. It’s not the fact that being small is hard, it’s that being small can put you at a disadvantage.”
   After all, small firms must abide by the same regulations and business requirements as larger firms, but they have fewer resources to address the problems. “You must split your time a lot more,” says Lois Young. “Your resources can be spread a lot thinner, so you have to prioritize what issues to focus on. You’re always operating on a priority list.”
On the operational side, small firms face some imposing competitive disadvantages. As Kramer puts it, “The larger companies can do everything the smaller companies can do, but the smaller companies can’t do nearly what bigger companies can do.”
Processing Limitations: Small firms, for instance, are challenged due to their limited processing capabilities. As Marty Forman asserts, “You can’t be an eight-person company with sales of $2 million and go buy a 7,000-horsepower shredder, yet not having that shredder makes me thoroughly uncompetitive in certain respects in the industry.” As a result, Forman says he must constantly figure out “what I can do to add value for my customers to make up for not being the guy downtown who has the shredder.”
   Even when small recyclers desire to handle more material, “there are potential contracts you can’t handle because they’re too large,” says Troy Hess. The volume of scrap, for instance, could simply be too large for the processor’s physical plant or too far away geographically to be cost-effective to handle. “The whole yard issue is a problem,” Young says, noting that space is such a premium for many small operators that they can’t spare the downtime to redesign it, even to expand their business.
   On the brokerage side, small brokers don’t have physical operations backing them up while “almost all” big brokers do, says Peter Kramer. “It’s kind of like Fort Knox,” he explains. “The big brokers have ‘gold’ on the floor backing up their trades. Smaller brokers don’t, so it’s hard for them to take positions. They’re much more limited in what they can do commercially because they lack the actual tonnage to back up their trades.”
Low Volume: Another challenge is that many small recyclers “never have quite enough volume to market the material in quantity,” notes Lois Young, “so you either have to market it in mixed loads, which isn’t the best price, or you have to save it for a long time and worry about the market volatility.”
   On another volume-related note, Jim Bly points out that consumers might not pay him as much as they pay larger suppliers because “they aren’t as reliant on my material. Because you’re small, you don’t have the leverage to negotiate prices on your material. That’s a problem, and that isn’t going away unless you get bigger.”
   In the brokerage niche, bigger companies can go after one or two percent margins thanks to their big volumes, Kramer says. If the big company brokers $5 million in a month, it can afford to make one percent—or $50,000—on that business, he notes. “A small company, though, can’t survive making one percent on $100,000 of business in a month,” he says.
   Small brokers face another financial limitation in that they generally can’t “take on the receivable risk that larger competitors can take on,” Kramer says. “Bigger companies, for instance, can carry a consumer to the tune of six or seven figures. Smaller companies can’t do that.”
Transportation Tribulations: Transportation is a hassle at times for all scrap companies, but it can be life-threatening for small firms that can’t afford their own truck fleet. Jim Bly recounts how he had to wait three weeks for a truck to ship a load of OCC. That load could represent a quarter of his gross revenue for the month, so any transportation delay can seriously hurt his bottom line. Lois Young adds that Skagit River can only afford to operate a small fleet of trucks because its scrap supply isn’t constant enough to support a larger fleet.
Capital Matters: According to Manny Bodner, “larger firms, especially public companies, can have access to more capital and financial opportunities than smaller firms. Smaller firms must be very creative in ways of acquiring capital.”
The Insurance Burden: While all scrap companies face skyrocketing insurance costs, premium increases can have a disproportionately hard effect on small operators. For Marty Forman, providing a fully-funded health-care policy for his employees is “the biggest single stumbling block that I face as a small business.”
   Skagit River shops out its health insurance coverage and has been “real fortunate in getting a fairly competitive rate on that,” Young says. Even so, she adds, “the health care costs have gone so high that this year we really considered whether we were going to have to charge employees back.” 
No Room for Mistakes: Every business can make mistakes, but mistakes don’t affect every business the same. “If big companies make a mistake, they can get over it,” says Peter Kramer. “If a small company makes a mistake and loses a customer, it’s going to hurt them a lot more.” In short, small firms have more to lose since they have fewer customers.

Small-Time Success
Considering the above challenges, how does a small firm make it in the scrap business?
   Aside from leveraging the advantages noted earlier, they largely rely on various organizations to keep them informed, connected, and viable. These organizations can include chambers of commerce, local and state recycling groups, small business organizations (such as the National Federation of Independent Businesses), transportation associations, and national/international recycling associations like the National Recycling Coalition, the Bureau of International Recycling, the Association of Postconsumer Plastic Recyclers, and—of course—ISRI.
   Given their time constraints, however, many small operators “don’t have the luxury of actively participating in a lot of different organizations,” says Peter Kramer. “It often comes down to picking one that best serves their business.” In the case of those interviewed for this article, the choice is ISRI.
   For Kramer, ReMA is “where I find my suppliers, my consumers, it’s the organization that best protects me in the regulatory and legislative environments. That’s why I’m a member and why I participate in ISRI.” Marty Forman holds a similar view, asserting that ReMA “has been probably the biggest single thing that has developed me as a businessman over the years.” His company has been a member of ReMA and its predecessors for 26 years. He joined in 1978 to take advantage of the association’s truck insurance, which saved him enough in premiums to pay his dues.
   Today, ISRI’s insurance program—now called RecycleGuardsm—continues to give scrap firms a reason to join, but it is far from the only reason. When asked, small recyclers and brokers list many reasons why they find value in ISRI:
Networking: In a relationship-based business like scrap, networking is invaluable, so it’s no surprise that small firms consider this a top benefit of ReMA membership. Through chapter meetings, national board/committee meetings, its
annual convention, and more, ReMA provides the forums that enable small companies to make new contacts, learn from their peers, and pick up important industry information.
    “You glean ideas,” says Jim Bly. “You hear how other people have managed to be successful. Our business has improved over the years, and a lot of it has to do with the ideas I’ve picked up at ISRI.”
   For Lois Young, networking in ReMA keeps her up-to-date on important news, trends, and developments in the industry, keeping her a step ahead of her non-ISRI competitors. The exposition at the ReMA convention also gives scrap operators “face time” with the major providers of equipment and ser-vices to the scrap industry, says Marty Forman.
   Many small firms note that networking in ReMA has helped them achieve greater success. Before he joined ISRI, Bly says, “knowing where the markets were was a big problem. ReMA has allowed me to meet consumers, so now I can sell directly to mills or the larger brokers serving the consumers directly.” Lois Young tells a similar tale, noting that networking in ReMA revealed other marketing options for her material. In short, she says, “attending ReMA meetings has led to a different market strategy for our company.”
Safety and Environmental Resources: Since most small scrap operators can’t afford to have safety or environmental experts on staff, they have turned to ReMA to fill that void through its videos, newsletters, manuals, and more. “ISRI provides the tools to help ease the burden in specialized areas like safety and environmental compliance,” Manny Bodner asserts.
   Jim Bly can vouch for the value of ISRI’s safety resources. His firm joined ReMA in 1995 after two employee injuries. “Thanks to ISRI’s safety seminars, publications, and videos,” he states, “we haven’t had a single worker’s comp lost-time accident since then. That has saved my company a bundle.”
   ReMA provides equally valuable resources in the environmental area, including its comprehensive Environmental Operating Guidelines. The association is also creating a quality, environmental, health, and safety standard for the scrap industry. This standard—named RIOS (for Recycling Industries Operating Standard)—will be “designed for every member of ISRI, but it can be especially helpful for smaller members,” notes Bodner.
Education and Training: Though small recyclers find it hard to take time away from their businesses, they say the time is always worth it when attending ISRI’s educational seminars. That’s because such events are designed to provide take-home value that scrap professionals can use to make their firms more successful.
   Marty Forman found such value in ISRI’s metals identification seminars. Jim Bly sent an employee to ISRI’s cargo securement workshop. Others have attended or sent employees to ISRI’s operations forum, commodities roundtable forum, annual convention, and more.
   In addition to providing specialized training and information, ISRI’s events can help improve the general professional skills of attendees. Troy Hess, for one, credits ISRI’s meetings with helping him improve his communication skills. “Being in a small business,” he says, “we didn’t have a lot of exposure to professional forums like ReMA conducts, which has helped me personally in our day-to-day operations.”
Industry Representation: One of ISRI’s main roles is representing the scrap industry’s interests in the legislative and regulatory arenas on the local, state, federal, and international levels—and protecting those interests whenever necessary. In the 1990s, the association battled Superfund injustices, winning a victory with the passage of the Superfund Recycling Equity Act. More recently, ReMA has fought efforts to impose export controls on copper and copper alloy scrap, among other issues. “Having my interests represented in Washington is a big benefit so that unfair national issues can’t come up and affect my business,” says Peter Kramer.
   The above points provide a glimpse at why small companies become—and remain—ISRI members. While each firm has its own reasons, all agree on one point: You can’t get the full benefit from any association unless you participate in it. “If you give just 10 percent, you get back 100 percent,” says Manny Bodner. “Anyone who has been involved understands that dynamic. You only get value by seeking it.”
   Many small companies may resist participating because they feel their voice is less important than larger firms. The truth is that “your voice is as important as every member in our association,” Bodner states. 
   Still, how do you persuade small companies to join ReMA and get involved? They simply have to jump into the association water, Bodner says. The experience may feel new and different at first, “but once you’re in, you’re glad you’re in,” he asserts. “You’ve got to take the plunge. You’ve got to say, ‘I’m a part of this industry. I want to be a participating part. I don’t want to be just a bystander.’” 

ISRI Council Focuses on Small Firms
In April 2002, ISRI’s board of directors formed the Small Member Task Force—since renamed the Small Business Council—to address the needs of the association’s small member companies (those with less than $5 million in annual gross sales).
   The council has several goals, including identifying and addressing the issues unique to small scrap companies and increasing small-member participation in ISRI’s governance and chapter activities. To help achieve those goals, the Small Business Council has established an outreach program focused on improving communications with small members on both the ReMA chapter and national levels.
   Within ISRI, the council will “advocate on behalf of small member companies before the ReMA board in developing policies and procedures for the industry, especially regarding regulatory and operational issues,” says Peter Kramer of The Greenfield Recycling Co. Inc., who chairs the council.
   In addition, the council exists to help small companies better manage their day-to-day challenges, in part by giving them a forum to discuss issues and voice their concerns. The council, for instance, offers four open meetings a year—two at the ReMA annual convention and one each at the summer and fall ReMA board/committee meetings.
   To learn more about ISRI’s Small Business Council, contact Amy Carey, director of chapter relations, at 202/662-8538.

Kent Kiser is publisher and editor-in-chief of Scrap.