I am fascinated by people who buy troubled businesses, then fix them and make them profitable.
Gaston "Gat" Caperton's story is compelling because Caperton, the son of a former governor, fixed a sickly furniture company in little (population 610) Berkeley Springs, W.Va., two decades ago and runs it to this day.
He didn't sell it to XYZ Corporation or a private-equity firm. He didn't break it up and liquidate the parts.
Caperton has owned Gat Creek furniture, which manufactures beds, chairs and tables from Appalachian cherry trees and sends them across the country, since 1996.
"There's not many people crazy enough to manufacture wood furniture in this country these days," Caperton said. "We're a little crazy and have enjoyed most of the ride."
It took him all of an hour to decide to buy the ailing furniture factory.
It was spring 1995, and Caperton, eager to test his business chops, was touring the Tom Seely Furniture company in Berkeley Springs.
"I decided I wanted to buy a small business next in my life," said Caperton, now 50. At the time, he was analyzing businesses for real estate mogul Sam Zell in Chicago while working on a master's in business administration at night. "I thought manufacturing was different and cool. I wanted to find a small manufacturing business I could buy."
Enter Tom Seely Furniture. It was a $10 million-a-year business founded by a 75-year-old former airman with World War II's Flying Tigers. And it needed rescuing.
"The manufacturing process was a disaster," Caperton said. "The factory wasn't clean. There was a lot of sawdust around. But it was dirty in both senses. Inventory was all over the floor. Stuff wasn't organized. There were piles of works-in-progress all over."
Caperton was an hour into the tour when he had his diagnosis.
"If you could fix the manufacturing in this operation, make it leaner and more efficient, you could generate a lot of cash to pay down the debt and have a profitable business," Caperton said later.
The target was $3 million in the half-built, unsold furniture and raw materials lying around the factory. Reducing that by half and keeping it that way would throw off $1.5 million in cash that would be used to reduce the debt.
At the end of the tour, he turned to Seely and said that he would move to the community and run the business in a way that Seely would be proud of.
Caperton had one other demand: He wanted Seely to finance the $4 million purchase price.
"One, I didn't have enough money," he said. "And two, if he would not finance me, I would think the business was a ticking time bomb. I would walk away."
Seely agreed to a five-year promissory note for about $3 million. Caperton borrowed and put in his own money to fund the rest of the purchase. He became the owner of Gat Creek furniture in January 1996. The name came from a back-yard creek he and a brother splashed around in during their childhood in Charleston.
Caperton went to work cleaning up the business. He instituted a practice called "lean manufacturing" that was popularized in business circles by the Japanese.
"In lean manufacturing, you try to eliminate everything your customer does not pay you for," he said.
In other words, make the stuff as efficiently as possible and get it out the door to the customers.
Electrical costs were shaved.
Floors were swept, and then the sawdust was used to power the heating system.
New clamps were bought to cut in half the time it took to make some pieces.
He modernized the shop with spray booths and baking ovens. He installed dust collectors that kept the air clean.
Furniture was built one piece at a time on order so that it didn't sit around, waiting for a buyer.
"If you can build stuff one at a time as efficiently as 10 at a time, you get rid of inventory and become far more cost-competitive," Caperton said.
Within a year, he saved his $1.5 million and used it to pay down his debt. Almost exactly according to plan. The company was soon growing 10 percent a year and turning a profit.
Gat Creek now employs 140 workers at $20 an hour, including health care, a 401(k) match, holidays and vacation. Gat Creek sells $18 million worth of tables, chairs and beds annually.
The factory turns a six-figure profit. Caperton said he takes a salary and a dividend from the profit. He owns 75 percent of the company. The rest is owned by a brother who lives in California.
"We make a bit of money," Caperton said. "It's not Apple."
Caperton is fanatical about keeping costs down and keeping production lean. He tries to keep only $200,000 in cash on the balance sheet so he is not squandering resources.
The company sells nothing online. It has a network of 200 traditional furniture retailers (that's how I heard of them).
Gat Creek manufactures furniture products for brands such as Room & Board. Another big chunk is for specialty customers such as the Hershey Hotel, for which Gat Creek builds 60 to 70 rooms of furniture each year.
Gat Creek's gross profit margin is 15 to 20 percent.
"We build something for $500 and sell it for $600," Caperton said. About 95 percent of sales are bedroom and dining-room furniture.
Caperton grew up in a business family. His father is Gaston Caperton III, who built a successful family-owned insurance company into a national business. Caperton III sold the business and entered politics, serving two terms as governor of West Virginia from 1989 to January 1997.
Young Caperton's mother was the late Ella Dee "Dee" Caperton, a former Miss West Virginia and unsuccessful candidate for West Virginia state treasurer. After divorcing the governor, Dee Caperton moved to France, where she ran a small hotel.
Gaston Caperton IV attended Davidson College in North Carolina, graduating in 1990 with a degree in economics before going to work for Zell, who had made a fortune in real estate and buying and selling companies.
"Sam loves to take people who are smart and hungry and throw them into a pool and see if they can swim," Caperton said.
Much of his six years with Zell involved working with his portfolio of manufacturing businesses.
"I spent a lot of time on the road going in and out of these companies," Caperton said. "They made building products, electrical products, nuts-and-bolts manufacturing. I got to see a lot of different businesses and how they ran." He saw the right way to do things and the wrong way.
His application to the University of Chicago foreshadowed his ambition. It included an essay titled "I Want to Own My Own Business and Create Jobs in West Virginia."
His father, the governor, had a suggestion.
"My dad said, 'I was in Berkeley Springs years ago when I was campaigning, and went through a furniture factory. The guy who owned it was old, so why don't you give him a call?'"
Young Caperton phoned Seely in early 1995. The factory owner mistook the son for his father, the governor.
"I said, 'I'm not the governor, but while I have you on the line, let me introduce myself,' " Caperton recalled.
He set up an appointment, took a day off from his job with Zell and made sure he did not have a business school class that evening. Caperton flew to Washington and drove two hours west. He met Seely after lunch for a factory tour.
And that's how he came to save the little furniture business in Berkeley Springs, W.Va., and the 140 or so families whose livelihoods depend on it.