A large number of U.S. fiber company presidents woke up on Jan. 1, 2002, looked in the mirror, and said, ”I don’t have a business plan.” For the previous two years, business was crazy good. At OFC in 2000, a supplier asked me how we were doing. I said “Great. We doubled sales in each of the last two years.” The gentlemen looked at me very concerned and said, “Really. What’s wrong?” His company had grown 6x over the last year, and others were hitting 10x. FOC was lagging.
It was a time of allocations. All of the big suppliers were sold out of their capacity, and they limited their entire output to a very few of their top customers. Everyone else had to go elsewhere (“the spot market”) to find what they needed. Raw fiber, cable and connectors could not be had. Corning refused to take orders for fiber, even when placed for delivery 9 months out. Cablers were running 24/7, 3 shifts, and turning away more business than they were doing. They would not take new orders. Makers of polishing machines refused to make plates for SMAs and other non-telco connectors; they were making too much money producing the same thing over and over to interrupt for short runs. One connector company for whom FOC was a franchised distributor would sell us only assemblies, tools and termination kits. Another quoted 52 week lead times and prices that were about 2x the norm. Neither would sell us connectors. They kept their production for a few very big customers, and for their own assembly production.
The crash started late in 2000. A few companies were struggling as their backlog dried up, their customers were going out of business and their receivables were being strung out. FOC continued to do record numbers each month, and I laughed (“not my problem”), gloating that we were immune because we focused on the specialty market and would not be hurt by a downturn in the telco area. Then, on July 1, 2001, our sales disappeared. Shortly after was Sept. 11, which provided a swift kick downward to the whole process. Sales in Sept. 2011 were 37% of what they were in March 2011. Because FOC’s sales were spread out over many customers buying small amounts (very different than the business standard 80/20 rule: 20% of customers provide 80% of sales), I always said that if we lost our top 10 customers, we would survive. Well, it happened. The top 10 just fell off the earth.
For companies that made equipment – splicers, polishing machines, test sets – volume orders were largely non-existent, and the competitive landscape was crawling with a devastating new class of competition: used equipment on eBay and other sites. For the few with money to spend, good product could be had for pennies on the dollar. Of course, there were no guarantees or service, but few were going to pay full price when they could buy multiples for less and just keep what actually worked.
FOC did survive, although by a hair, and through the aggressive support of our banker, who managed to keep his bank’s credit analyst from calling in our loan and shutting us down. The analyst’s words were, “these guys are toast.” Although FOC continued to lose money most months for the next 2+ years, we slowly managed to sell off our bloated inventory to generate cash and pay the bills and crawl out from the crush of bank debt. I continued to receive my salary, but loaned most of it back to the company, since we had no other source of cash. Also, one of our big customers who was in trouble negotiated a time payment plan with our supplier that resulted in FOC receiving monthly commission income.
We did have a plan for surviving the crash, although it was admittedly bizarre to many, including our bank. Through the entire downturn, FOC continued to aggressively advertise our key brands, AngstromLap® and AngstromBond®, with full page, full color advertisements in key fiber magazines. And while the magazines themselves were shrinking due to decreased ads, it meant that FOC’s ads were more noticeable as one of a very few. Because we had our own graphic designer/photographer on staff, we changed the content and design of the ads much more often than other companies, who typically pay agencies and therefore ran the same ads for months in a row. We maintained staff levels needed to provide the same strong customer service as before, and did not lose a single one of our technical experts. This was a contrast to at least some of our suppliers, who no longer answered the phone, and insisted that orders be placed only via email, and only on certain days. Technical support at many companies just vanished. On top of all this, FOC was “religious” about paying our bills on time, and continued as one of the best payers that most of our suppliers had.
The strategy was “act like nothing’s wrong.” By maintaining an aggressive stance in the market, and by aggressively supporting customers with technical expertise, in spite of our own struggles, FOC not only survived but thrived.
“If we survive this downturn, we will emerge a stronger company and a leader in the fiber industry, eyeball to eyeball with the big boys.” I am pleased, and admittedly very lucky, to say that this has happened. Thanks to all of you for sticking with us.
Follow Neal @NealWeiss_FOC