Open for Business: Advice from entrepreneurs on starting and maintaining a successful aviation business

Open for Business

Advice from entrepreneurs on starting and maintaining a successful aviation business

By Michelle Garetson

August 2000

Some people believe that as long as someone else is signing your paycheck, you're replaceable, so why not open your own business and be the boss for a change? Being your own boss has a nice ring to it. You're in charge, you call the shots. But, what does it really mean to be the head honcho and more to the point, what does it take, mentally, physically, and financially, to get an aviation business started? Three aviation business owner/operators, in various phases of operation, including one who just opened for business in June of this year, have offered the following caveats and confidences to those who might be considering navigating the sometimes turbulent path to business ownership.

"You have to be a risk taker," advises Michael White, Sr., CEO of RAPCO Inc. in Hartland, WI.

White started RAPCO, Inc. (Replacement Aircraft Parts Company) in 1981, in the basement of his house with a partner. His primary employer was Cooper Aviation, an aircraft wholesale distributorship in Chicago, IL, where White served as a parts salesman who piloted a company plane to call on FBOs, customers, and prospects.

Michael Brown, owner of Brown Aviation Tool of Oklahoma City, OK, agrees. "You have to take risks and not be too afraid about taking those risks. I started very young, didn't have a family or mortgage to worry about, and knew that if I failed, I still had a skill to fall back on to get me a job. You can't just wake up and say, 'I'm going to open my own business.' An example I give to people is that it's one thing to own a donut shop - it's another thing to live off of the donut shop."

Timing is everything

"Timing is important for starting a business," says White. "During a boom time, it's hard to get something going, but if people see that some of their fixed costs are going up for reasons they can't control, such as rising fuel prices, they start looking at their controllable costs and they'll start looking at alternative sources."

He continues, "I've always had that entrepreneurial spirit, and I wanted to do it. It's always logical that you stick with the field that you're working in. I knew the aviation parts field for 10 years, and in that time, I could identify at least 100 items that would be good, viable replacement parts because they'd be easy to make and relatively easy to get FAA approval on."

However, White didn't go full-time with RAPCO until he had at least 15 different parts to offer. He got his finances in order, had a supportive wife who worked outside the home, and he partnered with another gentleman, Gary Gaylor.

"It's easier to start a manufacturing business than a service business," says White, "because you can usually keep the overhead down. We started in my basement, which kept costs down."

Perceptions are important

White adds, "Even though you may start your business out of your basement, you still need to project a professional image. You have to give a bigger company image than what you may possess at that time until you can grow to a size where you can flash a photo of the business with your sign out front."

What to name the company is very important and shouldn't be taken lightly advises White. "We were convinced that we didn't want to use a family name or something like 'Mike and Gary's' as these suggest mom-and-pop-type operations. You'd never be able to shake that perception, so we had to have a big, commercial-sounding name."

Tool time

Michael Brown has been building his image as a specialty tool supplier for a number of years, starting with driving to repair station after repair station and selling from his truck, to renting a very small office near the airport, to a larger facility, and ultimately to the company's new offices in Oklahoma City. Brown has developed Brown Aviation Tool Supply through mail-order and online sales.

In the late 1980s and early 1990s, a downsizing trend in aviation resulted in a surplus of tools and the timing was right for Brown to begin his business. His specialty was in sheet metal, and he began buying tools, mostly cutting tools, from a company in Wichita, KS. Brown would bring extras back to sell to other mechanics. Eventually, he would take advantage of any opportunity to buy surplus tools. He bought as many as possible as there were very few places to buy specialty aircraft tools.

"Timing was good with the surplus tool market," Brown remembers. "I got a hold of a listing of repair stations and bombarded them with a crude brochure mailer. My inventory was kept in my dining room." Brown adds, "I always knew that I wanted to own my own business. Now we sell new tools exclusively, and we are one of the world's largest distributors for Sioux and Zephyr tools."

Cleared for takeoff

While RAPCO and Brown Aviation Tool Supply have been in business for a number of years, what's the reading on the new business barometer in today's aviation marketplace?

Apparently, it's a favorable one for a newcomer to the entrepreneur arena, Jim Freeman of Helicopter Specialties Inc. (HSI) in Janesville, WI. Helicopter Specialties Inc. officially opened its doors in June 2000, but it was the culmination of more than a few years of planning. Freeman, owner of HSI, has an Avionics degree, is an A&P with IA certification, and a pilot. The bulk of his experience in helicopters came from his years of working with OmniFlight. His staff boasts a wealth of experience as highly trained engine, component overhaul, sheet metal, and avionics technicians. Most all of them have A&P with IA certificates and several are commercial pilots.

When OmniFlight moved operations from Wisconsin to Dallas, TX, Freeman was one of many who chose stay in Wisconsin. He went to work for Woodward Governor in Rockford, IL, but always wanted to be his own boss and had started a wiring business.

When asked how he finally made the decision to gather the Wisconsin OmniFlight personnel who stayed in the area and start the company, he replied, "Frustration, mostly. There was a lot of talent and experience left in this area after OmniFlight moved to Dallas. Geography and experienced staff are our biggest selling points," says Freeman. "When OmniFlight left, there was a huge void in the greater Chicago metropolitan area for a full-service helicopter facility. By being able to offer the customer a location closer to their homebase, it saves them time and gets them back in the air, making money again." He continues, "Right now, people in the Midwest have to go great distances for major service capabilities for their helicopters, and they could be without that aircraft for a month or more. Our location would help them cut that time by a large margin."

"As for the staff," explains Freeman, "the Small Business Development Center's representative that I was working with said that I had the best situation by having the expertise already in place. He said a very high percentage of the people starting up a business have grand ideas, but don't know how they're going to make those ideas happen."

The business of business

Quite often, the hardest part of starting a business is getting started. Legal people need to be consulted; bank managers need to be convinced you're worth the risk; and insurance underwriters, a big hurdle in aviation, need to be negotiated. Freeman needed a business plan to present to the bank, so he got involved with the Small Business Development Center (SBDC) at a local university. The SBDC can help with legal issues, business plans, and other concerns for potential and present entrepreneurs.

For Freeman, the trip to the bank proved to be an eye opener.

"You have to present a business plan," explains Freeman, "but I about fell over when the bank manager told me that he could have helped me more if I would have come to him for the loan when I was still with Woodward Governor. Now that I was out on my own, even with a major contract and experienced staff, it would be too much of a risk."

More hurdles

Freeman's next hurdle was obtaining insurance for the business, and it proved to be a big one.

"The thing that almost made me decide not to go through with this was insurance. A year and a half ago, I started getting quotes. Today, that quote has more than doubled. I received many varied opinions from underwriters with one requiring a $20 million policy on a $2 million aircraft. I couldn't afford the premiums, and I eventually ended up with a policy from Lloyd's of London that I could afford."

Liability insurance has long been a critical issue for aircraft technicians and business owners alike and continues to be so.

According to White, "Twenty years ago, product liability insurance was not at the level that it's at today. It's a big deal now - you'd be out of business if you didn't have it today. Product liability insurance is a limited market. Ours goes through Lloyd's of London. You've got to sit down with them for at least a half a day to show them what you do and mainly show them what you don't do if you have stuff made by vendors, so they can understand what liability you inject into that product. It's worth your time to sit down with the insurance underwriter."

Michael Brown expands on the liability point. "It was much harder when I first started with the insurance issue. The word 'aviation' sends up a red flag when dealing with underwriters. We had to ultimately accept a policy that we would not sell anything that becomes a part of the aircraft. This is the reason why we don't sell safety wire - it violates our insurance policy."

New prospects

Over and over, business people will tell you that networking in the industry is important in growing a company. Previous employment experiences can provide leads as can attending trade shows, trade association meetings, and reading trade publications. All three entrepreneurs have developed customer bases and continue to prospect new clients by finding and creating opportunities to promote their business.

RAPCO has increased in size and scale every year through the addition of products and services.

"We just kept adding products and adding products. We bought an overhaul process specification for vacuum pumps as I thought that would be a good business to add to our base. My partner and I went for training to learn that business and basically, this new business doubled our sales. Today, the overhaul of pumps probably represents 45 percent of RAPCO's sales," claims White.

Brown feels his web site www.browntool.com has certainly been an asset. "Three years ago, we were one of the first to offer online ordering," explains Brown. "Now everybody's offering it, but we knew back then that it was necessary to provide that service to our customers. We are still mainly mail order, but the web site offers another medium to reach and service customers."

HSI's first contract, to completely customize a 12-year-old Messerschmitt helicopter for the Milwaukee Regional Medical Center (MRMC) for use in Flight for Life operations, came on a mechanic's recommendation. Freeman, a former relief mechanic with OmniFlight, had worked previously with the maintenance staff on the MRMC fleet. When MRMC's mechanic left to take another job, he recommended Freeman to the board as someone who would do a good job for them. MRMC's prior contracts with OmniFlight and confidence with Freeman's work gave them the comfort level needed to award the contract to HSI - so much so, that they were amenable in paying some expenses up front to get the project rolling.

Freeman's years as a relief mechanic as well as a helicopter pilot have afforded him the opportunities to meet a variety of people. This database has provided him with many prospects to approach now as potential customers.

Where are they now?

Today, RAPCO boasts two 14,000-sq.-ft buildings in Hartland, WI, and a 10,000-sq.-ft. building in Monroe, WI. In addition to its other products and services, RAPCO now manufactures small and large pumps from scratch as a new product and can now offer rebuilt as well as brand new.

In 1993, RAPCO launched Fleet Support Service, which now has 15 employees. RAPCO Inc. has 30 employees. White has recently retired but remains RAPCO's CEO. His sons, Patrick and Michael J., are the president and vice president, respectively, and White is happy with what they've brought to the business.

"I didn't have all the marketing skills and engineering skills that are necessary today," says White. "I have a tech school background as an electronics technician and I worked at Motorola prior to joining Cooper. My son Patrick was a double major in Business and Finance and he brought the business expertise to the company. Michael J. has a degree in Electrical Engineering and flies F-16s with the National Guard. He is also our FAA liaison."

In February of this year, Brown Aviation Tool Supply moved to an 8,000-sq.-ft facility in Oklahoma City, OK, and is located less than a half mile from the main entrance of the Will Rogers World Airport.

Though the focus of its business is mail order, Brown does have a walk-in facility with six employees. Michael Brown is currently looking for another salesperson. "I like to be out selling and meeting with customers," says Brown, "and I don't want to be tied down with the office management tasks."

Freeman's contract for the medical center's Messerschmitt is presently underway. He says this is what will make or break the business as it is their inaugural project. In its former life, this helicopter had been used for oil rig work in the Gulf of Mexico. Freeman and his staff of two full-time technicians, along with several part-time employees, will completely strip the inside of the helicopter, configure and install a custom interior, as well as provide airframe, electrical, and avionics upgrades, and give the aircraft a new paint job. The work has been bid to be done in three months and to include more than 3,000 man-hours. Pretty ambitious, but Freeman claims that everything has to be done perfectly as this is the benchmark by which Helicopter Specialties Inc. will be measured in future bids.

HSI hopes to obtain repair station status and several manufacturer's service center approvals in the future.

A little advice

It has been said that if you want to make a small fortune in aviation, start with a bigger one. Starting a business requires a lot of effort and expense in both time and money. Those with aspirations of making huge profits in the aviation industry quickly or ever should heed the advice of Michael Brown:

"Being an entrepreneur requires skill, much like an artist or a singer requires skill in order for them to succeed. You have to accept that you'll be living lean at first and that you have to put any profits realized back into the business - no living large until the business is well established. It's a 24-hour-a-day, 7-days a week effort to own your own business - no matter what industry you're in. You are constantly thinking about it, evaluating it, and planning its future."

Resources:

Brown Aviation Tool Supply Co. Oklahoma City, OK 800-587-3883 or 405-688-6888 www.browntool.com

Helicopter Specialties Inc. Janesville, WI 608-758-1701 e-mail: jimhsi@ticon.net.

RAPCO Inc. Hartland, WI 262-367-6210 www.rapco-rfs.com

Excerpt from the "Facts About Small Business 1999" report published by the U.S. Small Business Administration, Office of Advocacy in Washington, DC.

• Small businesses with fewer than 500 workers employ 53 percent of the private nonfarm work force, contribute 47 percent of all sales in the country, and are responsible for 51 percent of the private gross domestic product.

• New business formation reached another record level in 1998. An estimated 898,000 new firms with employees opened their doors - a 1.5 percent increase over the record 885,000 in 1997.

• About three-quarters of new business owners are also employed in a wage and salary job at startup and 60 percent of new firms begin at home (U.S. Dept. of Labor, SBA-sponsored research). About 21 million Americans - 17 percent of all U.S. non-agricultural workers - are engaged in some entrepreneurial activity, including both full-time and part-time entrepreneurship (SBA-sponsored research).

• A recent Advocacy study, E-Commerce: Small Business Ventures Online, show more small firms using electronic commerce.

• The share of small firms with access to the Internet nearly doubled, from 21.5 percent in 1996 to 41.2 percent in 1998.

• Small businesses using the Internet have higher revenues, averaging $3.79 million compared with $2.72 million overall.

• For 78 percent of small business owners, the major reason for having a web site is to reach new and potential customers, and 35 percent maintain a web site.

• Cost is small business' major barrier to the adoption of e-commerce.

• E-mail and research (finding new customers) continue to be small firms' most popular uses of the Internet.

• Small firms are projected to have earnings in e-commerce sales of $25 billion by 2002.

Visit SBA's Office of Advocacy on the World Wide Web at http://www.sba.gov/advo/ for a complete listing of economic research and regulatory comment letters.

Other available SBA programs and services include training and educational programs, advisory services, publications, and financial and contract assistance. The SBA has offices located around the country. More information is available at http://www.sba.gov/regions/states.html. Or, consult the local telephone directory under U.S. Government or call the Small Business Answer Desk at 1-800-U ASK SBA.

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