Industry Profile: Electrex.
In many ways, Electrex is not unlike other cable and harness assembly manufacturers. Their products, processes, quality standards and even their customer base will sound familiar to those who read the Industry Profiles in each issue. But there is a remarkable difference. You see, Pete Ochs fashioned the business around a model of stewardship, rather than ownership. Randy Johnson, Chief Sales and Marketing Officer for Capital III, the holding company that owns Electrex, sat with me recently to discuss the history of the business and the unique umbrella under which it exists.
Pete Ochs bought and sold many businesses through the 1980’s. An investment banker, he became somewhat of a turn-around expert; making strategic purchases of businesses, building them up to a profitable status, then selling them. In 1991, Pete was presented with the opportunity to purchase Electrex, a small harness manufacturer owned and operated by a gentleman named Bill Rexroad.
As Randy described, the company was in a small 25’ by 75’ facility with eight employees and about $800,000 in annual sales. “Up until this time,” noted Randy, “Pete had never considered keeping a business long term and building a company culture.” Electrex was the first company Pete chose to develop under a group that eventually became Capital III.
Randy described the vision Pete had at the time as pursuing organizational excellence while serving people, stewarding resources and honoring God above all. If it sounds like a mission statement, that’s because it is for Capital III holdings. Pete believes a business should create more than just economic capital, so he created an organizational model around just that. We’ll delve more into the other holdings of Capital III later in the article.
(Core values at Electrex, Inc.)
As Pete has pulled back from many of the day-to-day activities of Capital III in favor of building Enterprise Stewardship (a consultancy teaching other businesses how to adopt a stewardship model), I didn’t get to speak with him directly. But he described one of the main ways Electrex has lived out these values in a recent podcast. Electrex had risen to about $3 M in sales by the early 2000s. Following a brief setback after 9/11, the company began to flourish once again. “We had a rapidly growing manufacturing company in the small town of Hutchinson Kansas, and we happened to have a maximum and medium security prison there.” Pete recalled. “We could not hire enough entry-level manufacturing people, and so we resorted to hiring work release inmates.” These were folks who were nearing their release date and would be bussed to Electrex during the day, then returned at night.
It worked out great for a few months and Pete approached the warden to attempt to bring in more workers. “He said, ‘Well unfortunately I don’t have any, but if you can figure out a way to move your business behind the walls of my prison, I’ve got 1,200 guys ready to go.’”
The timing couldn’t have been better for the warden as well. Most prisons have areas of industry where inmates typically work. It’s usually work for the state like making license plates, furniture and fixtures for other prisons, and other items not typically found in the business marketplace. Kansas was shutting down the operation at the Hutchinson prison, so the warden had 20,000 sq. ft. of manufacturing space. “Within 30 days, we moved a portion of the business inside the walls of a maximum-security prison,” Pete recalled.
( Harness build inside the Hutchinson Facility)
In most prison work programs, inmates make a meager wage that may go toward use in the commissary. But that’s not the case with inmates employed at the Electrex prison facility. “We pay the market wage for manufacturing,” Randy instructed, “and it’s set by the state of Kansas.”
It creates a win for the prison system, the taxpayer, and the inmate, as 25% of the wage goes towards room and board. Another portion goes towards a victim’s fund, and to pay fines and restitution for the things that landed them in prison. But a large portion is placed in a savings account for their eventual release from prison. “It’s one of the biggest causes for individuals going back to prison,” Randy lamented. Most inmates exiting the prison systems in the U.S. do so with no means to buy groceries or find a place to live. “These critical savings allow them the resources to start a new life, and now with marketable job skills.”
It’s not just work that Electrex/Capital III brings to the prison system; it’s also a spiritual endeavor. “We developed a Spiritual Life Center in the facility that is nearly completed, Randy cited. “It serves as what most people think of as a church. It’s nondenominational and open to all religions, with a lot of transformational things going on there.”
Electrex has also started “TUMI” – a seminary level, 3-year program – graduating individuals within the prison to serve as mental health triage support. “There’s 2,500 guys in that facility,” Randy noted “and few resources to address mental health issues.” After a long day working, seminar graduates visit with fellow inmates in need of mental health triage.
You might be curious about what affect this all has on folks who work for Electrex in the prison program. Nationally the recidivism rate is 70%. “Seven in ten people who get out of prison end up back…why?” Randy asked, “Because they haven’t got work skills, they have no money, and they haven’t turned their lives around.” In the state of Kansas, due in part to the partnerships with private industry, the recidivism rate is 35%. “Well the recidivism rate for people who go through our program is only 8%,” he emphasized.
This statistic provides purpose to Randy and the whole team. “People who may not be so interested in wire harnesses are blown away with what’s going on in these people’s lives. It’s a great example of living the principles of economic, spiritual and social capital that Electrex is built on. We’re not only providing great harnesses to our customers, but we’re having a real impact on the community where we live, and that’s the social and spiritual piece.”
Electrex’s revenues have grown significantly and they now have about 500 employees. They have facilities in Fresnillo, Zacatecas Mexico and, of course, at the medium and maximum facilities in Hutchinson. They build wire and cable assemblies, battery cables as well as complex control panel builds.
Like a lot of harness houses, the company started out as a build-to-print manufacturer, but that has evolved. “We serve OEMs who are producing complex electromechanical platforms like harvesting combines, large cranes, or equipment designed to put a pipe under a river. These are highly complex machines with a wide variety of configurations and revisions.” Randy noted.
These customers are experts at building machine functionality, but they don’t necessarily maintain a team of electrical engineers who are experts in optimizing the electrical harness system performance. “And that’s where we excel.” he explained. “We’ve got a team of engineers and technicians who have deep experience optimizing wiring systems for a wide variety of complex, specialty equipment.”
The handling of information between hydraulics, actuators, control systems and human interface components requires very specialized, high value harness work, as Randy pointed out. That’s really Electrex’s core competency. “If you think about GPS links, auto-navigation and other complex features; these electrical systems are becoming the highest value components on many different platforms. How do you integrate all of these complex systems while minimizing downtime and avoiding launch issues?” It’s a complex task that Electrex has been built around. As he stated, “These systems aren’t spacecraft, but that they are much closer to spacecraft than they are to household appliances or other simple electrical platforms.”
It is not a surprise that most of Electrex’s new business is from word-of-mouth. “We’ve got a reputation in the industries we are in, and we get a lot of inquiries from companies we’ve never done business with,” Randy said. They also get referrals from component suppliers with whom they are allied because they provide something unique either in reliability or functionality. “When you’re a straight shooter, you do business the right way, and you have the kind of design capability and skill set that we are blessed to have, you’ll always have new opportunities,” he proclaimed.
Other Capital III Ventures
In addition to Electrex, Capital III is also the holding entity for Seat King, a manufacturer of specialty seating for the turf, mobility, agricultural, and specialty transportation sectors. They also operate Rio Energy, an energy development company building hydro power generation in Honduras. Enterprise Stewardship is a leadership and organizational development endeavor committed to developing virtuous corporate leaders. Capital III is also involved with Trinity Academy, a Christian School in Wichita, as well as many other community outreach activities, some of which they publicize and some of which they don’t.
Making an Impact
Randy certainly hopes this article generates some conversations about how to provide a better harness supporting increasingly complex machinery. But more than that, he and the management team at Capital III hope it will spark the interest of other business owners or CEOs who would like to have an impact on their community beyond just making money and supplying jobs. “That’s the message we want to spread,” Randy said. “I always encourage people who have an interest in community impact to join us via teleconference, or come visit us and talk about how to develop a faithful commitment to managing the profit entrusted to you.”
If you’d like more information on setting up your business dedicated to these principles, visit capitaliii.com. You’ll find inspiring videos that tell the story, as well as other resources to help in your endeavor. You can also contact Randy Johnson at [email protected]