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Sweet Salvation
Team of Wharton undergrads introduces machinery-maker to the delectable chocolate market.
Drew Schmidt admits that he was a little taken aback when he learned that a group of Wharton undergraduates was going to tell him how to improve his metal-fabrication business.
Schmidt, after all, is 54 years old and has been in the metal business for nearly his entire adult life. His company — WM. A. Schmidt & Sons, Inc. in Chester, Pa. — was started by his father and grandfather back in 1948.
In fact, Drew Schmidt is old enough to be the father of the students who counseled him; he has two daughters in college at Princeton. But he's also smart enough not to be afraid of younger people and new ideas. So in early 2003, he opened his company to a group of 11 Wharton students, all members of the introductory Management 100 course.
In two months, they
helped him rework his marketing strategy and jumpstart his company's
growth. Thanks partly to the students' recommendations,
WM. A. Schmidt & Son's revenues grew from about $900,000 in
2002 to $1.5 million last year. They suggested, for example, that
the company,
which had long specialized in making big tanks for the power-generation
and petrochemical industries, sell not just to candy makers but also
to producers of energy bars, which have become popular among runners,
bikers and triathletes.
Before the students
arrived, Schmidt's
company was at a crossroads. Some of its power-generation and petrochemical
customers had begun looking
abroad for suppliers. The firm had recently purchased part of a competitor,
which built tanks in which chocolate makers mixed, melted and stored
their products. But Schmidt knew that the seller hadn't reinvested
what it should've in the business. He wanted to better understand
the chocolate market and how to reach its key companies.
Through a professional group, he heard that the Wharton
Small Business Development Center, along with numerous other services, collaborated
with the MGMT 100 course to provide consulting to companies like
his. Schmidt gave the SBDC a call and, a few weeks later, found himself
facing a classroom full of Wharton undergrads. None of the undergrads
had extensive
consulting experience but were provided guidance from their professor,
teaching assistants and the Wharton SBDC.
The first meeting was, Schmidt says, like a "beauty pageant." Schmidt and several other business owners presented their companies and their challenges to the management class. The students, organized in groups, then got to pick which one they'd wanted to help.
Schmidt figured he had nothing to lose, except maybe a little time. "There's nothing worse in business than thinking you can do the same thing over and over and get a different result," he says. "I didn't see the downside being anywhere near the upside."
He met with his student-consultants a few weeks later. They laid out what they would need from him and what they'd give in return. He suggested a few modifications, and the students went to work.
Allison Floam, a rising senior at Wharton who led the group, remembers being impressed by Schmidt's lack of pretense. "Drew treated us like he was on the same level as us," she says. "He was very receptive to our feedback."
Schmidt spoke with Floam at least once a week while the students were working, and they still chat every few months. He fielded frequent e-mails from team members, too. Back at Wharton, the students researched the industry and even surveyed existing and potential customers.
By early April, their
report was ready. Schmidt and his key managers traveled to the University
of Pennsylvania
to hear the results.
The students had three key findings:
- WM. A. Schmidt should expand into the energy-bar market, which was growing at 30 percent a year.
- It could increase its share of the chocolate candy market, particularly through building deeper relationships with the "Big 3" — Hershey, Nestle and Mars, the maker of M&Ms. The company whose chocolate line it had bought — McCarter — had a respected brand but hadn't capitalized on it.
- Engineers in both markets were the key to its success. As the students wrote, WM. A. Schmidt had to market to "engineers, engineers and more engineers." Engineers made the equipment-buying recommendations.
To reach chocolate-industry engineers, the students suggested that Drew Schmidt and his staffers attend more industry trade shows and that they produce a product brochure targeted to engineers. The brochure, the students wrote, had to speak the engineers' language. A student-consultant with an artistic bent even produced a draft brochure. The students also urged that Schmidt ramp up his selling efforts. Besides doing more internally, he should consider enlisting the help of outside sales companies.
The students also had examined the possibility of the firm making equipment for the peanut butter, ice cream and yogurt markets. Their research told them that that didn't make sense. They learned, for example, that peanut butter is ten times more viscous than melted chocolate, making WM. A. Schmidt's machines inappropriate. Chocolate syrup's viscosity falls between molasses and ketchup.
Schmidt guesses he would've paid a consultant $10,000 for a report of equal quality. And a consultant, he quips, probably would've been less committed to the project. "The students were so enthusiastic," he says. "They weren't jaded at all."
With only slight modifications, he has implemented every one of their recommendations.
Visit Schmidt at his plant in Chester, and it's immediately clear that metal fabrication is the kind of big-shoulders business that Carl Sandburg rhapsodized about in his poems. It requires hot torches and cold steel. The workers finish work each day with dirty hands and grubby jeans. The plant itself — two warehouse-like buildings — sits between a railroad track and the Delaware River in an industrial section of Chester, a town that's seen better economic times. The company's name, painted in big letters on the side of the main building, is fading. A pile of concrete rubble lies in the lot next door.
Step inside the plant, and the place is dim and noisy. It clatters and clangs, as the big machines bite and bend sheets of steel. On this early summer day, it's cooled mainly with fans and truck-sized doors, left open to catch the occasional breeze off the river. Workers, with masks over their faces and welding torches in their hands, cut and join the metal parts.
On the floor, sits a replacement part for a nuclear plant. In the next room, hanging from a thick chain, is the conical top for a future chocolate container. The metal itself isn't the shiny stainless steel used in car bumpers and high-end kitchenware. It's carbon steel, a dull dark gray, as tough looking as its name sounds.
Thanks to a group of Wharton undergrads, this picture of the past now has a vision of the future.
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Goergen Entrepreneurial Management Program
Wharton Small Business Development Center