all started with a missing saw blade.
Portions of this article are excerpts from "Forbes" Magazine
April 14, 1980.
Folkerth was a "closet woodworker" back in 1971. By day he was
a stockbroker at a Merrill Lynch office in his native Dayton.
But come nightfall, a 38-year old Folkerth was down in the basement
doing clever things to pieces of wood. One day, as chance would
have it, he brought home a radial arm saw he'd gotten a real bargain
on. All it needed was a new saw blade. Then he learned why he'd
gotten a real bargain: The saw and the saw blade had been out
of production for six years.
this might have made some men kick the machine and feel stupid.
Not the young Folkerth. He'd been reading his home mechanics magazines
faithfully and he knew that his saw as a "Sawsmith," made by the
same people who gave the world the "Shopsmith," a top-of-the-line
multipurpose tool well known in the closet woodworking set since
the end of World War II. So there must be a juicy little spare
parts business to be had. That was sort of a knee-jerk reaction
for anyone from Dayton with its innumerable machine shops and
extensive metalworking know-how. It wouldn't cost much to get
into the parts business, Folkerth figured-maybe $5,000 to $10,000,
which he could easily borrow. He could even do it in his spare
all, he was familiar with the business his dad ran - a fair-size
machine shop in town.
Folkerth charged off and contacted the company that had abandoned
the Shopsmith product line back in 1965. They said they'd be happy
to sell him the rights to the Shopsmith line and the tooling for
it for, say, $250,000. Now that was quite a bit more than Folkerth
had bargained for. After all, Folkerth was a broke broker.
But John Folkerth found it an irresistible challenge. "I said
to myself, 'Here's your chance, baby!'" he recalls. "Now - did
I have the guts to look myself in the eye for the next 25 years,
going into Merrill Lynch and wondering why some little old lady's
dividend didn't get to her, always thinking, 'you got your big
break and you didn't have the guts to try it'? I read all those
articles in Forbes about turnarounds and men who'd built great
businesses and I always thought if I had the opportunity I could
do that. Well, here was my opportunity. I didn't have the guts
not to do it."
But not quite as crazy as you might think. For one thing the demand
still seemed to be there. Folkerth found a thick stack of mail
from woodworkers and hardware store owners, all wanting to know
when the Shopsmith tool was coming back on the market. For do-it-yourselfers
it has always been a dream machine, ever since clever Hans Goldschmidt
invented it in 1946 - a combination table saw, lathe, horizontal
boring machine, disc sander and vertical drill press all in one.
It was at once a significantly cheaper package than the equivalent
machines would cost individually, and one that required far less
space. By 1971 there still wasn't anything like it on the market.
Reviving the old hardware store distribution system seemed quite
possible. Folkerth had carefully canvassed 50 of the old hardware-store
distributors from various areas of the county, seeking their advice.
On the basis of that, he drew up an elaborate business plan, full
of the kind of cash flow projections he knew sophisticated investors
would demand. As for the machinery to make the Shopsmith, there
were enough tools and dies to crank out 25,000 MARK V units a
year plus a fair amount of the newer Mark VII's and Sawsmith's.
Folkerth, his wife, three children and a mortgage notwithstanding,
rolled the dice. He borrowed $5,000 and offered to buy a one-year
option on the business to give himself time to raise some more
money. "I didn't tell them that I didn't have any money!" He says
with a loud laugh. It took the lawyers four months to hammer out
that option, which Folkerth felt had to be ironclad if he was
ever going to use it to persuade people to go in with him on the
deal. Once he got the option, Folkerth quit Merrill Lynch and
set out to raise capital.
first it looked like it might be smooth sailing. Almost immediately
a local Ohio manufacturer named John Scarbrough offered to joint-venture
the deal, leaving Folkerth with a 10% equity stake. Folkerth thought
he could do better than that and politely turned Scarbrough down.
Then things took a turn for the worse. It took Folkerth five months
to find a bank that agreed to sponsor him (on Scarbrough's recommendation)
for a $350,000 Small Business Administration guaranteed loan if
he could raise $150,000 in equity. Now, for a broker of ten years'
experience you might think that would be a simple task. But it
wasn't. The next pitfall Folkerth encountered was filled with
red tape. In order to peddle a new issue to 25 or fewer "sophisticated
investors" Folkerth had to become a licensed broker-dealer, and
that took him four more months. "That was almost a killer," he
says. "If it had gone on another two months I don't think I could
have held out. I have five Master Charge cards and two Bank Americard
cards with nice $2,500 limits and I pushed them right to the hilt.
I had a second mortgage on my house. I guess you either go into
this all the way or you don't go in."
When the dust finally settled and the new Shopsmith was born in
March of 1972, President John Folkerth wound up with a 56% equity
stake in the company in exchange for $18,000 worth of personal
loans now charged to the company. One year later the first Shopsmith
unit came off the production line. Two years later John Folkerth
was in clover, or thought he was anyway. "We were on top of the
world," he says. "Our quality was good. We were shipping to about
200 dealers. And we were making $10,000 a month."
"When we got our physical inventory at year-end we found out we
were $220,000 short, says Folkerth. "We had been under-costing.
Every time we produced a unit we were marking our inventory down
by $200. We should have been marking it down by $400. So instead
of the $120,000 profit we thought we had, we wound up with a $109,000
was catastrophe. "It almost put us under," Folkerth concedes.
"We were really up against the wall. We were more than technically
bankrupt. We were way under. I spent the next four months holding
hands and signing personal notes." How could Folkerth possibly
have made so basic a mistake when he'd worked for years as a supervisor
in this father's machine shop? Simple. The one thing most machine
shops have very little of is inventory. Unaware of how crucial
tight inventory control is in most businesses, Folkerth didn't
bother with the usual timekeeper and inventory clerk. He just
assumed that if a normal shop operates at 85% efficiency, then
one that was just starting probably ran at 70% efficiency. But
it was the year of economy-wide materials shortages and Shopsmith's
true efficiency was down around 45%.
agility born of desperation, Folkerth managed to juggle his debts
just long enough for Shopsmith to produce its way from under during
the remainder of 1974. But as 1974 unfolded still more trouble
surfaced. "Many of our dealers were using the FISH method of accounting-First
In Still Here," he quips. "It was obvious that without some sort
of factory demonstration they just weren't going to sell our units."
But how could marginal Shopsmith get the needed crowds without
ruinously expensive advertising? How about demonstrating the MARK
V in shopping malls?
guessed it. The idea worked like a charm. Oh, the local hardware
stores that were carrying the Shopsmith machine didn't like it
one bit. After all, those mall demonstrations were in direct competition
with them. But so what? They weren't selling many machines anyway.
Shopsmith not only demonstrates the MARK V in mall shows, but
also at home shows, as well as state and county fairs.
publishes a catalog offering a variety of woodworking tools and
accessories, as well as producing four direct mail promotions
a year offering Shopsmith owners discounts on products carried.
"We strive to keep our customers happy and have a Customer Service/Technical
Support staff ready to help you five days a week", says chairman
has been a very challenging twenty-plus years for Shopsmith. But
it is very gratifying to know that the Shopsmith family has grown
to over one-half million since 1946- the year the first five-in-one
multi-purpose tool was invented- to today!"
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