[00:00:03] Speaker A: Welcome to Fernway Insights, where prominent leaders and influencers shaping the industrial and industrial tech sector discuss topics that are critical for executives, boards and investors. Fernway Insights is brought to you by Fernway Group, a firm focused on working with industrial companies to make them unrivaled. Segment of one leaders to learn more about Fernway Group, please visit our
[email protected] dot hi, this is Nick Santhanam, CEO of Fernway Group. Welcome to our next edition of FernBA Insights podcast. Today our guest is Mister Bob Larry, founder and president of Captive Air Systems. A graduate of La Salle University and a US army veteran, Bob's journey has been fascinating. He grew up in Harrisburg, Pennsylvania and has been entrepreneurially minded since he got his first job on a bread delivery truck at age eleven. After attending college and opening a fiberglass manufacturing business, serving in Vietnam and starting a family, he founded Captive Air in 1976 with $1,300 of capital, all of his money. Today, Captive Air is a leading manufacturer of commercial kitchen ventilation equipment and a manufacturer of commercial h vac equipment as well. The company has over 1000 employees, 90 sales offices in the US, and sales north of $500 million. However, Bob is more than just a businessman. He's a champion for children's education and a school choice advocate. He's the founder and chairman of Franklin Academy, the St. Thomas More Academy, and the Thales Academy. In 2007, he was awarded the Ludwig Vaughan Misses Entrepreneurship Award for entrepreneurial success and devotion to the free market ideal. He's also the author of the book Entrepreneurial the path from Startup to Market Leader, which we'll talk about later in the podcast today. So with that, Bob, welcome. We are excited to have you and we're looking forward to having this conversation.
[00:02:18] Speaker B: Nick, it's a pleasure to be with you here today.
[00:02:20] Speaker A: Thank you, Bob. So let's start off by talking about Captivair. Let's talk a little bit about what the company is and what it does. I think most people know, but it'll be great for the audience to get more color from you.
[00:02:31] Speaker B: Captivair is a manufacturer of commercial kitchen ventilation systems and over the last 40 years, commercial kitchens have become much more sophisticated, cleaner, cooler, nicer to work in the and we're also an emerging company in the H Vac business, producing a new technology called DoAS Direct Outside air Systems, which provide heating, cooling and humidity control for any type of commercial building.
[00:02:59] Speaker A: So I would presume that this is a stable business. Obviously you need H vac and ventilation all the time. How has Covid impacted your business? Bob both from opportunities and challenges.
[00:03:11] Speaker B: Well, initially, Covid impacted us with a small sales decline, maybe in the 10% range. We were able to keep our factories working continuously, so they didn't have a huge impact. So near term, in 2020, we had a sales loss. But then as we moved into 21, sales began to pick up. And by the end of 21, we had the highest sales gain in the history of the company. So our sales gains were over 50%. So Covid was two extremes, slow and ultra fast. We did have some challenges in 21 related to hiring employees. We were able to work through that, and we're now at all time peak production. So typically when adversity strikes captive air near term, we have some problems to work through. Longer term, we always end up as a stronger company.
[00:04:07] Speaker A: So, Bob, let's talk about this. As you said, you sort of had a sales drop, and now you have an all time sales increase. I mean, two extremes. Two ends of the extremes. What have you done to address these? And I'm going to call both of them a challenge. Right? I mean, obviously when revenues drop, it's bad, but when also revenue goes up like this, you have to manage the supply chain, the labor market, the incentives. Can you talk a little bit about how did you manage the two extremes of challenges?
[00:04:30] Speaker B: Two things that may be instructive. So we decided in April of 2021 we would pay the price necessary to keep steel and components coming in the door. And that included going to Taiwan to buy stainless steel, to paying premiums for components coming in the door, which means our gross profit is going to drop near term, but we're going to be able to serve our customer. The second thing that we did was as these orders ramped up so rapidly, we asked all of our R and D and engineers to go back into the plant and actually physically work and lead. And it's kind of interesting to see when these engineers come into plant, they have enthusiasm, they have ideas, they want to fix things. And the production workers love it because we have all this assistance coming in here, and everybody in our team can do this work. And the whole process actually worked quite well. So we were able to jumpstart production and meet the needs. Even though our lead times now are longer than they've been in the history of the company, we still can squeeze orders and move things around to satisfy our customers. So we react in real time and we do what is necessary to keep that manufacturing plan humming.
[00:05:47] Speaker A: Very interesting, Bob. Maybe we'll talk a little bit even without the COVID context. I mean, when you and I met, you were talking about the big changes happening in the commercial food services sector, and obviously Covid has accelerated a lot of them. For example, the emergence of new models like Ghost kitchens, new delivery platforms like DoorDash and Uber Eats, increasing demand for technology solutions like remote monitoring, remote maintenance, and the list goes on. I'm sure you'll add five more, which I don't know, how are these disruptions, and maybe I should not even use the word disruption, but I'll use it, how are these disruptions impacting both the sector, but also captive air?
[00:06:23] Speaker B: In particular, if you went back when we started in the H vac industry, you had a large number of manufacturers supplying components, and professional engineers would put these together, and mechanical contractors, but many times they were not fully compatible. And there's also what we call dynamic effects. Everything does what it's intended to do. When you put them all in one building, you get some unusual outcomes. So gradually, over a 40 year period, what we decided to do was to be a full integrator, which means we make every product related to the H vac, the delivery systems, the kitchen, ventilation, the controls, the monitoring of these devices. So as a new challenge comes along, we look at that total building and we design a system that's going to meet the intended needs. Whereas in the past, and even today, you have people that can do a portion of that job that makes it way more complicated, particularly for new industries that dont have experiences and maybe dont know exactly what they need. So the short answer is full integration, 100% responsibility for the outcome and continuity for as long as that building exists in terms of service and support.
[00:07:41] Speaker A: So Bob, you've been in this industry since 76, and as you said, you've always been leading the changes and you've been driving the changes. So maybe this will be an easy question for you as you look into the crystal ball. What are your top three predictions, or one prediction for this segment, how this will evolve over the next five years?
[00:07:57] Speaker B: Well, one is, if you look at these, we'll call them component manufacturers, whereas they've been able to survive in the past with integration. First of all, these components tend to be, over time, components and or technologies. They're moving toward obsolescence. So what I see in the future is companies that understand the leading edge technology and are full integrators and take 100% responsibility for what they're doing will win. If you think of the iPhone, how many technologies disappeared because of the iPhone? Well, if you look at H Vac industry, many of these manufacturers products will no longer be needed based on new technology. And it's the primary reason why captive air over the years has always looked to be on the leading edge, because otherwise you're moving toward obsolescence and possibly going out of business.
[00:08:51] Speaker A: Fascinating. So, Bob, now I want to take a little bit of a detour or a little bit of a change and talk about your journey today. You've had a fascinating story. Tell us about your journey of founding captive Air in 1976 as an installer of fire separation systems, and then making the change, making the evolution now to being the leading manufacturer of commercial kitchen ventilation systems. I mean, I think anybody and everybody, wherever they turn around, they see captive Air's logo in any of these large installation systems. Tell us how you made the journey. What was the journey like?
[00:09:22] Speaker B: One of the things that I thought early on is to recognize that I didn't have the skills to run a larger company and that I would have to develop those skills on a daily basis and that the company would have to grow both in technology and capabilities on a continuous basis. So we deployed the idea of Kaizen continuous improvement. I also, and this would be fits and starts. I tried to convince the employees we're always running on the bell lap, so we're running as hard as we can go all the time. And for some people, that's not what they want to do, but that's what captive air does. So every time we made an advance, we look for the next advance and think about a company growing as compound interest. At times it seems to be moving slowly, but over a 40 year period, you can accomplish a lot, but you have to have that growth mentality. We have a fanatical focus on the end user. We're our own worst critics. If we have a technology that's good but not perfect, we're dissatisfied with it. We're looking for a better technology.
And that process took a long time for various reasons. You have industry people that slow you down, you have code requirements, you have laws, you have everything essentially tries to create inertia. And very often markets are, they're satisfied with inertia, and it takes the power to overcome that inertia. So captive era is that power.
It almost relates to the laws of physics, the way we operate.
[00:10:58] Speaker A: So, Bob, let me actually ask a follow up question. Right? As you said, inertia is comforting, right? I mean, what you did yesterday, you can do today. It feels good. Why don't you like inertia? Why do you say keep changing? I mean, I get the, I like the end product, but changing inertia is really hard. How do you get yourself, your team, your broader team, to say, what I did yesterday was not good enough, and today I have to do completely something different.
[00:11:20] Speaker B: We built that culture over time. For myself, personally, I'm never satisfied unless it's perfect. And I could look back in the eighties and the nineties, and I could always list these imperfections. So I'll give you an example. In 2002, we had a young engineer, Bill Griffin, who's now the president of captiv era manufacturing, and I wrote a list of ten things that I didn't like about the commercial cooking goods we were producing. He added three more items on that, and I said, it's our job to correct every single one of those items in the next design. What took us two years to roll it out, and we corrected twelve of 13 for technical reasons. One of the issues we couldn't resolve, but we didn't throw it out. Five years later, we resolved that issue with higher tolerancing equipment and a slightly different approach.
So the second thing is, I said to bill some years after that, every three to four years, are you willing to take the products you design with your team and take a critical look at them to find out if there's anything we could do better? He said, absolutely. I'll join you all anytime you want to do that. So we have this process of self criticizing, and essentially, we're never satisfied with ourselves, and that's what gives us that push. So we always think like, I'm deficient, I have to do something about it. My products are deficient. I don't want them to be deficient. Even little things. If you look at the doors on our h vac units, their ten x, what industry doors are, they're insulated, they're quiet. They come off and on. They don't have any fasteners to open. You just open them with a handle. That's something that we dreamed about. It took us maybe three or four years to get it resolved. But for the technician working on that product, it's a great joy, and to us, it's a great satisfaction that we can bring that quality level to the market.
[00:13:17] Speaker A: So, Bob, just building on that, furthermore, how do you get that balance between being perfect versus getting a product out to the market, which the customer can use, and then give you feedback to make it perfect? Because, as they say, the perfection is the enemy of good. And sometimes a lot of people start doing it, but they never get to the end line.
[00:13:35] Speaker B: We use the physics theory of diminishing returns.
We know that you can never achieve absolute perfection, but we're always pushing toward perfection, and there comes a point in time with the product.
This is the absolute best we can do at this point in time. Three to five years from now, we've been able to do a better job due to new technologies, new thinking on our part. I have a physicist friend of mine, that's doctor Bajan at Duke University, and he says that evolution is pushed forward with sparking, with pushing with new ideas.
But at a given point in time, if we've done everything we know how to do, we don't have that sparking. We've exhausted all the sparking we have, but that will change in two to three years. So we're very defined as to the way we approach product design, product review, and it's working quite well for us.
[00:14:34] Speaker A: And I remember, and we'll come up to talk about your book, Bob. I mean, you have a quote in your book, right? Fail fast, fail cheap. I think that also ties in very well because you're sort of learning, you're making mistakes. But once you know you made that mistake, move on so that you don't make the same mistake twice.
[00:14:49] Speaker B: Right. One of the things that I try to push is we continue to move forward despite chaos. So Covid is chaos. We're still moving forward. Our plants are going to be open, people are going to come into the office, we're going to serve our customers, we're not going to be slowed down by anything that happens in the world. So maybe the theory is you can either be in control of your own life and your own company, or someone else is in control, and we don't want someone else to be in control or some event to be in control.
[00:15:18] Speaker A: Very true. Very true. So, Bob, tell us a little bit of what attracted you towards this industry, this business early on. I mean, obviously, you're an army veteran. You started out, I'm going to say, in a non h vac, non ventilation side of the business. What made you believe that you could transform this into what it is today?
[00:15:37] Speaker B: When I started installing fire suppression systems into commercial kitchen ventilation systems, the thing I immediately noticed is the process was slow, it was arduous, and the outcome was it may have been accidentally acceptable, but very often the kitchen ventilation systems didn't work well. So you had effluents going into the kitchen. Kitchens were hot and uncomfortable, you had negative pressure in the buildings. So I began to write these things down.
And very early on, back in late 77, I felt confident that we could do a better job than the industry, and we could integrate over time. Now, the challenges were formidable but doable. And this is probably a thing. You can have a pilot, you can have a entrepreneur who's got pie in the sky and approaches something that cannot be done. That's a waste of time.
So in this case, obviously, over time, with the right technologies, I knew we could make vast improvements. So staying with that process for a long period of time is what made it happen. Most people at some point in time become satisfied with themselves or what they're doing, and then they don't grow any longer. If you look at our top engineers, we're always dissatisfied with what we're doing all the time. And that dissatisfaction leads to that sparking and discussion and forward movement.
[00:17:05] Speaker A: So, Bob, you're obviously the CEO, the founder of Captive Air. This is a company very well known, where customers are all praised for the company's product quality, service, lead times. But this is not the only thing you do. You're also passionate about education. Tell us more about the work in that space. So nothing to do with heating and ventilation. Now about educating young minds.
[00:17:26] Speaker B: You know, I was lucky to grow up. I went to catholic school for 16 years, and without that education, there's no way I could be where I'm at today. So our family had a very high value of education. So one of the things we noticed with operating the plants, many of these individuals were intelligent, they were good people, but they lacked the education they needed. And as a result, they struggled with their job, but also they struggled within their families. So in 1998, I opened a charter school.
And my thought was, the schools are so bad that it would be impossible for me to be worse than them. So the bar was pretty low. And one of the things I did, I heard some pretty good teachers created a spirit of core and said, look, we're going to educate every one of these students. We're going to care about them like they were our own children.
And so we opened up year one with about 160 students. And charter schools were unknown in North Carolina in 1998. But people saw there might be something better here, and they moved toward it. Also, since I had already a reputation in the community that helped jumpstart the school over time, I used the exact same process where teachers feel like, well, aren't we doing enough for you? And I said, you're never doing enough for me. I'm going to push, push, push to get a better outcome. And as a result, over these last 20 years, these schools have improved dramatically. We have some amazing students coming out of our schools, they're becoming more and more well known and I. The other thing that we're trying to do and are doing is huge impact on families, on communities, on the way people think about education.
[00:19:14] Speaker A: Fascinating. That's fascinating Bob. Education and H Vac, two important topics. I'd like to switch topics now Bob, at Fenway as you know we continue to see a lot of small businesses, especially family owned business that struggle with driving growth and profitability in a sustainable way. What would your advice be to such companies based on your experience on captivare? I mean obviously as you said you started in 1976, today it's north of 500 million and growing, doing very well. But unfortunately thats not the case for a lot of private family owned companies, smaller companies, they grow, then they plateau out at some number. Pick a number. What would your advice be?
[00:19:49] Speaker B: If I look at companies that I know of and founders that I know they continue to grow and they do their own thinking. So you can hire lawyers and you can hire financial people and you can have board of directors and you can have all this stuff but that's really not going to make the company continuously grow. So individuals have to develop their personal capacity and they have to develop capacity among the people that they hire to continuously move to higher levels. Otherwise they flounder. Maybe they have too many family members, maybe they take too many vacations. I know entrepreneurs that I've known several, that as soon as they start making some money they take more vacations, they pay less attention to the business and all of a sudden the business is floundering.
So if you're going to run a business it takes tremendous dedication but you have to run the business. Nobody else can run that business for you. You have to develop your own philosophy at your own level of thinking. I just met with a gentleman who's probably my age and has created just a tremendous business and in an hour you can quickly see why he's so successful. He's thinking, he's growing, he's learning and he's not encumbered by all the things you might learn in b school or what you might hear on the news. They are independent thinkers who seek the truth and eventually find the best answers.
[00:21:14] Speaker A: Bob, maybe switching slightly related to that access to the right talent and capacity and capability is a big challenge these days. I mean you hear about the labor market being hot. But more important or more pertinent is especially when you look at the us industrial base, manufacturing base, there is an amazing shortage of talent. What have you done to one, get the talent to your company and grow them. And what is the learnings? You can share with us about that?
[00:21:44] Speaker B: I think if you look at all the senior people here, every one of us is a teacher, so we spend an enormous amount of time trying to teach and develop our people. We had a meeting yesterday with HR, and the topic was, how can we make that experience of working in our manufacturing plants better for that individual and better for their families? Whether it's healthcare, we provide them with shirts and shoes. We have a weekly luncheon provided to all employees in the company. All the manufacturing plants, we try to give them a fair number of days off. If they don't use their days off, we buy it. We try to maintain a lot of flexibility. At the same time, we require a high level of discipline. You have to come to work every day. You have to be on time. You have to have an orientation toward quality and individuals like being in an environment that's productive, where they are perceived to be treated fairly, where people will listen to their ideas, even if they're not enacted. They're listened to and considered, and where senior management can walk around the plan and talk and know their names and talk to them and hear their concerns. All those things are really important in the long term, as opposed to just go in your corner and make something and follow the rules, where it's not a pleasant environment to be in. We also have, since we're in the clean air business, all of our plants now have doe as units, so they have a continuous flow of outside air. We keep the plants neat, clean, orderly, well lit, nice lunchrooms. So we're doing everything we know how to do, and we will continue to improve that experience over time.
[00:23:22] Speaker A: Fascinating. Another thing that we've observed, especially family owned businesses, that they take a lot of pride in their culture.
However, it's not easy to sustain that culture over the years. How have you managed that at Captivair? I mean, every time you talk, I can sense that culture of self learning, growth, pride. I mean, the list goes on. How do you do that?
[00:23:44] Speaker B: I think working on spree decor within the culture is something we do continuously. We listen to people. I tell people first, come in the company, I do presentations to them. If you're frustrated, send me an email. Tell me why, we'll do something about it. Speaking to them, no hierarchy. Okay, that's one thing. Okay. Any of us at the top level, matter of fact, this happens periodically, so there'll be a problem on Sunday morning or Saturday night. Who's on that? Our top people are getting it. Some other people may be on vacation, are not available. We're going to be available. We're going to do it. So we proved to them we're willing to do anything. We're willing to go in the plan work, we'll go on sales calls, we'll go on roofs, we'll handle customer problems. That builds the spirit of core that our organization is very flat. We're all engaged in servicing the customers and individuals are going to have the greatest satisfaction from serving their customer. When you have a great outcome, there's no greater experience in your lifetime or you make a beautiful, high quality product.
Our production employees are very proud of that. So doing it has to be continuous. You can never let up. So if you're sleeping for a year, you're losing. You got to be paying attention and improving or you're actually, you're going backwards essentially. You may not realize it. So this mentality of continuous growth has to be on your mind at all times.
[00:25:15] Speaker A: Interesting, very interesting.
So Bob, as you know, at Fernbay we pride ourselves as being an engaged investor and operator, meaning we put money, but we also work very collaboratively with companies, help achieve their I plans, not only help exceed their plans. One of the things as we saw this is we see there's a big gap in the trade skills in the US. Electrician, plumbers, your name on. And so we have actually, we have launched an effort to bring a bunch of individuals, bring up senior executives, companies together to close this trade skills gap in the US through training programs both addressing the demand and supply, so that over time the supply demand imbalance can be closed.
You've always had a deep interest in education.
Any advice you'll tell us on how do we make these training programs or not even training programs, this effort better so that two years from now, Bob and you and I are talking, I can say, you know what, Bob? We launched this effort and we have trained 100,000 electricians, 200,000 plumbers, 300,000 roofers, and now we really have all the talent we need in the US to have a very sustainable, vibrant industrial community that we didn't have or which we started to develop three years ago.
[00:26:32] Speaker B: I think that for too long companies have looked to the government to take care of this process.
So government's pretty much thrown out vocational education, so they're obviously not doing that. There's certain things you can learn disciplines in school, in the classroom, you can learn math, you can learn something about physics, et cetera. But specifically, whatever that company does, it's better to learn on the job. We've been through these ideas of they can go to the community college and they can learn this stuff and then come into the plant. It's never worked for us. Think about if you wanted to lay bricks, would you go to community college or would you go work with a professional bricklayer? If you were working with a really good bricklayer, in pretty short order, you'd begin to learn the trade. So the specifics of any company have to be learned on the job. And companies have a very high incentive to develop those individuals where someone in a community college or any school, they're just going through the motions. It may be abstract, et cetera. So I think that two things, I would send them to school to learn some basic disciplines, but then I would take it on as an industry. I would take that challenge on internally and not expect anybody else to do it, because I think if you expect someone else to do it, you're going to be very disappointed, particularly in this market.
[00:27:50] Speaker A: So, Bob, I want to. This is a fascinating journey. Fascinating thought. So thanks for your time. But I want to sort of close off by asking not about the company you run, not talking about the schools you have started, but about the book you wrote, entrepreneurial life, the path from startup to market leader.
Given your experience, given your journey, it was a great idea to pen it down. But obviously, writing a book takes a lot of time, takes a lot of effort, and usually that's not the first thing I would say. Most CEO's or entrepreneurs say that's what we're going to do. Tell us about what got you motivated to write the book.
[00:28:26] Speaker B: My mentor was doctor Bill Petersen, who was an austrian economist. He was both a colleague and student of Ludwig von Mises at NYU in New York. So we had this relationship over a 20 year period where he taught me economics. But free market economists love entrepreneurs, and they're just, they're paired perfectly. So Bill Peterson encouraged me to write the book, and he helped me do some edits during the process. He actually died. But I have to give him credit, and credit's actually in the start of the book there. What I did was work on it on the weekend. So Saturday morning I'd get up early and I'd work on it. It ended up taking longer than I thought because I had so many editors helping me, it slowed down the process. So one thing I learned was editors can be challenged from a technical standpoint, so they understand the language, but they don't understand the technology, and they may not understand that entrepreneurs think entirely different than other people. So something they may say, they may be written down they think is wrong is actually exactly what that entrepreneur is thinking. So those are the things that I learned. And if I had to write a future book, I think I could do it quicker and more efficiently, and I certainly intend to do that.
[00:29:46] Speaker A: So, Bob, that was going to be my last question. You stole a little bit of my tando. What's your next book going to be about?
[00:29:51] Speaker B: It's going to be about all the things you must know and probably did not learn in school, something along those lines, and maybe you learned a little bit. But, for example, some things are very, very important. This idea of kaizen continuous growth, the idea of sparking an evolution moving quicker, the idea of the fact that you have an education, that's great. It's a starting point. It's not an ending point. People will give lip service to that. But most people don't do much beyond that point in time. The really good people are very effective learners. They're continuously learning. They're willing to accept criticism. I actually encourage people to criticize me, anything that I do because that's how I learn. And I look at these individuals as angels because they provided me with some information or knowledge I didn't have. So all those things take a certain amount of humility and purpose in life. So my purpose is to serve, to grow, to have the largest contribution I can. And that's my joy of life. That's what I like to do with that.
[00:30:57] Speaker A: We'll wrap up this podcast. Thank you, Bob. Thank you for your time. This was extremely helpful, extremely insightful. Thank you and have a great day.
[00:31:04] Speaker B: It was a pleasure to be with you today.
[00:31:12] Speaker A: Thanks for listening to Fernway Insights. Please visit fernway.com for more podcasts, publications and events on developments shaping the industrial and industrial tech sector.
