Recession? For Chanhassen firm, that was springboard to success

When he saw the recession looming early in 2008, Chris Berghoff assembled his management team to deliver what he calls his "John Wayne speech."

"I've got good news," said Berghoff, founder of Control Products Inc., a Chanhassen company that designs electronic controls that form the innards of restaurant equipment, heating and refrigeration units and medical diagnostic equipment. "There's a recession coming, and it'll give us a great chance to show just how good we are as managers."

Whereupon, the group began to develop a plan that not only would keep the business alive and well through the recession, but also lay the groundwork for record growth as the economy recovers.

Let's start with the numbers: Before the recession, Control Products' sales peaked at $25.9 million in 2007 and nearly matched that total in 2008 before tumbling to $21.3 million last year. It was a 17 percent drop that might well have opened the red-ink spigot.

Except that "the plan" helped hold the decline in pretax profits to a manageable $450,000. More important, it primed the business for a 2010 sales run that's headed for a record $36 million, 69 percent above the 2009 total and 39 percent above the previous high.

The strategies involved might have come right out of the lecture notes Berghoff used during more than 20 years of teaching business strategy, executive management and entrepreneurship at the University of Minnesota and the University of St. Thomas.

First, there were the incentives designed to expand the client list even as the economy tumbled: The sales force was offered higher commissions for bringing in new business, and somewhat lower payments for orders from existing customers.

Berghoff credits these two moves with adding 30 new clients to the roster.

There's more: In a counterintuitive move, the company enlarged its engineering staff by 30 percent even as the economy worsened.

The objective was to expand Control Products' line of proprietary products, which includes electronics to control the ovens, fryers, coolers and other equipment in restaurants, the sterilization and diagnostic equipment in hospitals and laboratories and the water, power and temperature alarms that alert customers with a telephone call when problems arise.

The payoff from the hiring binge was more than a dozen new products, including wireless water and temperature alarms, security cameras that can be accessed online and, the hottest item, a water and temperature alarm that uses cell phone technology to contact clients when difficulties occur.

Of course, the plan also included the usual cost-cutting maneuvers, but because of the ensuing 2010 growth, the pain was minimized.

And in mid-2009 Berghoff and his management team took a 10 percent pay cut, double the 5 percent reduction imposed on the rest of the employees. But in June the company not only restored previous pay levels, but rebated all of the pay employees had given up during the recession.

Profitable change of direction

Founded in 1985, Control Products started out focusing entirely on developing proprietary products. But in the early 1990s a manufacturing executive asked the company to develop a customized control for one of his products, inspiring an exceedingly profitable change of direction.

Developing proprietary products is an expensive proposition, Berghoff said. So the notion of having someone else pay to do the engineering on products the company sells was irresistible.

And remunerative: Custom-designed products, with their higher profit margins, now account for about 80 percent of total sales. Thus, if 2010 sales reach the level Berghoff is projecting, the custom business will generate nearly $29 million.

"Our biggest clients were looking for lower costs for their equipment sold in Europe and the U.S.," he said. But more important, many of them had plants in China to serve the growing number of American fast-food restaurants opening there, which made a Control Products presence imperative.

In short, the ultimatum was clear: "Either we'd locate a plant in China, or they'd find someone who would," Berghoff said.

Control Products started with a 16,000-square-foot operation that quickly reached capacity. So, in January, the company will move into a 52,000-square-foot facility nearby.