Shoring up the foundation

By Sally M. Snell

Star Lumber of Wichita, Kan., has survived rough economic climates by adjusting its business strategy. This year, as the company marks its 75th anniversary, the family is focusing on developing the fourth generation.

Star Lumber & Supply, based in Wichita, is the largest locally owned building materials corporation in Kansas, with about 325 employees and annual revenues of approximately $110 million. The company, which is celebrating its 75th anniversary this year, is led by third-generation members Chris Goebel, 56, chairman of the board and CEO, and his cousin Patrick Goebel, 43, president and chief operating officer. Star has eight locations in Oklahoma and Kansas.

The company has navigated a rocky path since the 1990s. Star Lumber ended its venture into "box store" retailing in 1997, changed its business model from business-to-consumer to business-to-business, and survived the recent Great Recession by reevaluating its departments and closing underperforming locations. The company, which employs 19 family members full-time and more fourth-generation members part-time during summers and school breaks, is now focusing on succession planning and leadership development efforts.

"A family business is part science, part art, and a lot of emotion," says Chris Goebel. With the fourth generation preparing to take on more responsibility, Star has been working "to put a little more science in our game," Chris says.

Early growth

Brothers-in-law Earl Goebel and Bob Vosburgh founded the company in 1939. Earl, a Wichita contractor who lacked a high school education, had been buying lumber from traveling salesmen and selling it to area contractors. Bob, who had been a salesman for a sash and door company in Texas, was looking for an opportunity that would keep him closer to home. The two became business partners and opened their first store on the outskirts of the growing community. Soon afterward, Bob left the partnership to open a wallpaper store.

During World War II, Wichita was poised for growth, owing in large part to the aviation industry and bomber production. The city's population would double between 1940 and 1945. Everything was in short supply, including lumber and housing. The resourceful Goebel family salvaged lumber from refurbished boxcars and recycled bottles to fill with turpentine and oil for their customers.

In 1952, the family razed their 800-square-foot store to build a new 1,500-square-foot location. Two years later they purchased two Navy forklifts at a California surplus auction and added a 10-acre yard next to the rail yards to serve as a central storage and distribution center. When Star Lumber & Supply Co. was incorporated in 1956, the company reported assets of more than $700,000; by the 1960s, the business had reached nearly $2 million in annual sales. All of Earl's 16 grandchildren worked for Star Lumber. Today, ten third-generation members are employed in the business.

After Earl's death in 1965, his sons Bill and Bob became president and vice president, respectively. Family legend tells of Bill "pushing around concrete" in slacks and a tie, ruining the business attire in the process, says Bill's son Chris. Bob, who was known as an innovator, introduced advancements in technology that would improve accuracy and workflow.

Successful new product lines, such as carpet, necessitated the construction of a new store in 1966; its retail and warehouse space totaled 63,000 square feet. Over the next three decades the business continued to expand. The owners built a truss plant, added computerized accounting and inventory systems, and expanded operations through new store construction and acquisition of competing and complementary businesses.

Bill retired in 1989; Bob followed suit in 1990. Chris Goebel became Star Lumber's president and CEO at age 31 in 1989. Chris, the oldest member of the third generation, started working full-time at the truss mill at 14. After graduating from college, he became a licensed contractor and oversaw new store construction and renovations. Later, he moved through several sales and management positions, gaining knowledge and earning the respect and trust of co-workers and family.

Within a few years of Chris's appointment, half the company's revenues came from retail sales. The workforce was almost 500 strong. But then box stores began to penetrate the Wichita market.

Strategy shift

The Goebel family's initial response to the new breed of competition was to face it head-on. In 1993, they built a 100,000-square-foot home center and filled it with inventory that rivaled their competitors'.

But the move was ill timed. Interest rates soon rose and housing starts tumbled in the surrounding three-county area. Star's sales couldn't support the cost of the new store construction and higher-than-projected operating expenses. "The boxes make it mostly because they're full of part-time people, and that's just not the service level we were used to running," Patrick reflects.

By January 1998, Star had closed its box store to focus on service to its core customers—professional builders. In the process, the company drastically reduced its SKUs from 25,000 to 7,500 and dropped entire departments like lawn & garden. "We had to really take a very close look at what we were good at and narrow our focus," Chris recalls.

"We got really good at service—and service that pros value," says Patrick, who is the son of Earl's youngest child, Mike.

Today, about 90% of Star Lumber's sales are to professional builders. Its remaining retail sales are mostly project-oriented, such as selling and installing floors, windows and siding. "Very seldom do we sell product only," says Chris.

A change the company made in 1995—before the box store was shuttered—made detailed analysis of each profit center possible. Management was restructured into three company divisions. While some functions, such as human resources, IT and accounting, are handled at the corporate level, each division is responsible for its own sales and marketing efforts, as well as sourcing and delivery of materials. The reorganization resulted in better alignment of sales and support operations and reduced conflict between managers and their teams. "It had a huge impact on our performance," Patrick says.

Star acquired 20 more businesses between 2000 and 2004, including a truss company that specialized in commercial and multifamily properties and dovetailed with Star's existing single-family residential truss operation.

Military construction proved to be a boon to the company. When the U.S. Army First Infantry Division returned from Germany to its home in Fort Riley, between Junction City and Manhattan, Kan., in 2006, additional housing needed to be built for 9,700 troops and their families. Star Lumber provided materials down to the window blinds, including fabrication of safe rooms for each home. This contract was followed by another at Fort Sill in Lawton, Okla. Star continues to work at Fort Riley and is preparing to start a project at McConnell Air Fore Base in Wichita later this year.

Challenges of the Great Recession

Before the recent economic downturn, Star Lumber was generating annual revenues of more than $125 million. But when the bottom dropped out, home ownership in Wichita fell from around 70% down to 61%; in 2008 housing starts were at their lowest in 17 years. "Our best customer went two months without pulling a permit," says Patrick. Star's sales fell dramatically. A wage and hiring freeze was put in place, and employee training and development programs were halted.

Between 2008 and 2011, Star reduced its workforce from more than 500 to about 285 employees. "We basically stopped hiring people, except in extreme cases, and did everything we could to shuffle the team around into the best spot for them so that we could hang on to as much experience as we could," Patrick recalls. "I think that was a good call, because we are pretty strong across the board in many positions, and we have had good candidates for many of the positions internally as they have opened up."

No family employees were laid off, Patrick says, "but some members of the family have successfully sought careers outside the company."

The combination of rural population declines and an excessive number of competitors led to the decision to close Star's locations in Salina and Hutchinson, Kan., in 2011 and 2012. "There just wasn't room for us," says Chris. Even without the stores, the company continues to serve contractors in those areas by delivering from other locations.

The recession took a toll on Chris. "Even though I was only 54 years old, after 21 years I'd been through the wringer quite a bit," he says. "We were chopping and cutting and cutting and chopping and trying to survive this thing. It was tearing me up."

As the company struggled, Chris realized he needed help in making the myriad decisions that could affect Star's ability to survive the downturn. In 2010, Chris promoted Patrick, who had been senior vice president of the building materials division, to president and COO; Chris became chairman and CEO.

"I think you can observe things over time that makes heir apparents, apparent," Chris says. "You're looking for traits, and they show up, and they're there... I could see Patrick's traits for years and years, and so could a lot of other people."

Chris compares Patrick's promotion to tagging a teammate on a wrestling squad. "I reached over and tagged my teammate, [who] came in and drove us through the last couple of years of the recession," says Chris. "He made the fine tunes during the last part of the recession to reshape [the business]."

During the recession, "We very carefully adjusted our expense structure to respond to a change in demand, but we also aggressively sought out new opportunities," Patrick says. The opening of Star's Manhattan, Kan., location just ahead of the recession in 2006 led to military housing work, which produced revenues during a time when other parts of the company were struggling. Star also added a location in Lawton, Okla., during the recession to serve the military housing market there. In addition, Patrick says, the company made a strong entry into the flooring market in Oklahoma City, an area relatively insulated from the recession, in 2007. "Fortunately, all those moves led to growth and didn't result in just creating more overhead," Patrick says.

Former president Bill Goebel, Chris's father, passed away in 2006. Second-generation member Bob Goebel remains on Star Lumber's board and is very active in the community. "Chris and I usually talk with Bob to get his thoughts and give him heads-up on any major deal," Patrick says.

Because of the economic downturn, development of the fourth-generation family members was postponed, Patrick and Chris say.

"Some of the G4s in that time have gone to college and gotten married, and some of them are still doing the same jobs they were doing when they were growing up in high school," says Patrick. "We weren't really pushing them, because there was no place to put them." The eldest members of G4 are in their 30s, while the youngest are still toddlers. Nine G4s have full-time jobs in the company.

Looking toward the future

Today, Patrick says, he and Chris are trying to put some fourth-generation members in higher-level positions. "You have to put them in an area where you can carve out some accountability," Patrick says.

"You want to give them challenges and opportunities for successes," Chris adds.

The next generation is encouraged to get advanced degrees. "When we talk to them about MBAs, some of them swallow pretty hard," says Chris. "But we're not saying an MBA's a requirement just because six of our generation had MBAs. That didn't guarantee us anything." One-on-one coaching and a mini-MBA model are also on the table for those who want to advance in the family business, Chris notes.

"We just want them to be students of the game," says Patrick.

Fourth-generation member Kevin Goebel, 32, who works in outside sales, says the third-generation company managers have been rotating the G4s through different functions in the company. "We don't spend more than about a year in one position," Kevin says. During the recession, the next-generation members were moved to where they were needed most, and "stayed in positions probably longer than we normally would have, but we all understood what was going on," Kevin reflects.

Kevin, who is Chris's son, notes that he has moved "from the bottom up." He built doors and made deliveries; later, he ran those departments.

Mentoring is an important component of leadership development within the company. Kevin is being mentored by his uncle Vince Goebel, a company buyer. The relationship is mutually beneficial, Kevin says. "He can bring me up to speed on what's going on in the market"; in turn, Vince seeks Kevin's input on new products.

Kevin says the third-generation members have been asking him for advice. "I don't know if it's just because I'm getting older and figuring the business out more than I did before, or if they're just kind of looking for new ideas," he says. And as his younger cousins are starting to move up through the ranks, Kevin is serving as a mentor to them.

When it comes to advancement, being a family member has its advantages. "They've been around here forever, and they've got access to anything," says Patrick. However, he notes, "Everybody has to apply for the positions they want to be in," and family members must demonstrate leadership and initiative.

"The key non-family members are watching family members carefully, and they're handicapping us," Chris says. "We're watching the G4s to see which ones the key non-family members hitch their wagons to, because that's who our G4 leaders are going to be."

Chris is a charter member of the Kansas Family Business Forum, established in 1995 by Don Hackett, director of the Wichita State University Center for Entrepreneurship. The Goebel family has benefited from the educational and networking opportunities offered through the forum as well as the Young Presidents Organization.

Patrick describes Chris as a "student of the family business side" and credits him with doing the groundwork to perpetuate the business. "The way we've got it all set up, it could go forever," says Patrick.

The company joined the Kansas Family Business Forum at a pivotal moment in its history. "The G2s wanted to take the business a little further, [and] we were just being taken over by the G3s," says Chris. "It was a great time to take the family business to the next level."

Today, Star Lumber has 27 stockholders. Stock in the operating company can be owned only by bloodline family; spouses may own an interest in the family's real estate holdings. Owners have an opportunity once a year to invest more in the company, or sell or gift to other family members. "We're doing best practices, and we value our stock every year and have an exchange, and some things that are a little more advanced concepts," says Chris.

The company holds three board meetings and two stockholder meetings every year. The nine-member board includes three outside members, described by Chris as "CEO peers of the CEO." Mike Goebel, Patrick's father, attends board meetings in an advisory role. In addition, all active family members convene a couple times a year for information sharing and feedback.

When one family member retired from the board, she made Chris promise that her position would be filled by an outside director, because she knew "her investment would be in better hands," Chris recalls.

"I always look forward to our board meetings," says Patrick. "You can count on a good, robust discussion. It forces you to rethink everything, and it does a better job for the family. We won't make a big decision without having board approval."

In 1989, the year they organized the company as an S corporation, the family founded the Goebel Family-Star Lumber Charitable Foundation. Eight percent of the company's pretax profits are given to the foundation, which focuses on community-wide projects that help youth.

The family has been a long-term supporter of Starkey Inc., a non-profit organization in Sedgwick County, Kan., that serves people with intellectual disabilities and dementia. In 2010, the Earl and Mathilda Goebel LIGHThouse project supported the construction of three homes for Starkey clients.

This year, Star Lumber celebrated its 75th anniversary not only by publishing a history of the company, but also by partnering with Wichita Habitat for Humanity to underwrite a neighborhood, and funded construction of the community's final home.

Chris, who describes himself as a "field general" like his father, recalls a lesson he learned around the age of eight when he was helping his father and employees install a roof on a Star Lumber location. It was evening, and the hammers were flying as they tried to finish before going home. That's when Chris discovered that everyone's box of nails was empty. "If you're working a crew," Chris says, "you have to anticipate what's going to happen next and be there ahead of everyone—or the whole things shuts down."

Sally M. Snell is a writer based in Lawrence, Kan.

Copyright 2014 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact bwenger@familybusinessmagazine.com    

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July/August 2014

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