Putting the Spice Back Into Li'L Guy Foods

The Mexican food manufacturer stumbles and then prospers under third-generation entrepreneurs.

Kansas City Small Business Monthly, May 2007
by Sally Huggins

 

When siblings Christina and David Sloan inherited the family business, they figured to work it for a while and then sell it and get on with their lives.

And in the beginning, that plan was working. But then the company lost a major part of its sales and the Sloans found themselves clawing their way back out of a very deep hole.

"We were so overconfident," Christina said. "We didn't think we needed things we should have because we were successful. I look back and see how we didn't think we needed any help. We didn't use any of the resources available until 2005."

Founded on Tortillas
Li'l Guy was started in 1965 by the Sloans' grandfather, Don Miranda, who opened the company after working for the Santa Fe Railroad for 25 years. He was born in the United States at a time when it was difficult for Hispanics to get beyond manual labor jobs, and he felt starting a business would be a means to a better job, Christina said. Because Miranda found it difficult to get authentic tortillas, he decided to make and sell them.

"He had the foresight. He said that someday Mexican food would be as popular as Italian food, and he was right," she said. "His personality made him successful. He would go into the grocery stores to sell the tortillas. He had to develop the market as he went. There wasn't much demand for tortillas back then. No one knew how to make tortillas. The general public didn't know what tortillas were and what you used them for."

While he was savvy when it came to tortillas, he wasn't as savvy when it came to succession for his business. He died of cancer in 1989 when Christina was 13 years old, without completing the paperwork to transfer the company to his daughter, Deborah Sloan. Deborah bought the company out of probate in 1992 and immediately set her children up to run it.

Like her children, Deborah had grown up in the business but she left it after her father wouldn't let her grow in the company the way she wanted. However, Deborah didn't want to see the company leave the family. She told David and Christina that if they would start out growing her ideas for Li'l Guy, she would gradually let them take it over and use their ideas. Christina was 19 years old and David was 25 when they took control of the business.

Grew Up with the Company
When Christina and David delved in, they weren't really doing anything they hadn't already done-just a lot more of it. Both had worked at the company while they were growing up, doing just about everything. Sometimes it was a pleasure and sometimes it was a punishment.

"If I was unruly or in trouble, I would be free labor while I was grounded," Christina said.

It could be very hot working in the packaging and manufacturing areas in the summer when it was 90 degrees outside and closer to 120 degrees on the line. But she and David learned the business from the ground up-cleaning bathrooms, picking up trash, painting, working in the office (without benefit of computers), driving delivery trucks and making tortillas.

Another sibling, Edward, didn't enjoy the management side of the business but continues to work with Christina and David, overseeing the plant and driving a delivery route. Their father, Robert, was working for Miranda when he met Deborah. He left to enter the technology industry and now advises his children on technology matters. He and Deborah continue to serve on the board of directors for Li'l Guy.

For the first couple of years under the management of David and Christina, the company grew steadily and they were confident that their plan to grow the company and move on was working. But in 2001, two companies Li'l Guy distributed for pulled out of their agreements, leaving the company dependent on selling its own brands.

"In 2001, we were very good at selling products and at customer service, but we were not marketing our own brands well," Christina said.

When Christina and David took the reins in 1996, the company had $400,000 in sales. They grew it to $2.3 million in sales in 2000, and were on target for $3 million in 2001 when the bottom dropped out. They finished that year with $1.7 million in sales.

Faced with a dramatic decrease in revenue, Christina and David came face-to-face with just how much the family business meant to them.

"We didn't realize it was so important to us until we were in danger of losing it," Christina said. "We were the third generation and we hadn't had to do the hard work to create the business. We grew it so rapidly, we didn't have a good concept, a good plan."

Working Through the Crisis
To keep the company afloat, Christina and David worked 10-13 hour days, driving delivery trucks, handling the customer service for their accounts and doing the selling. The company began 2001 with 30 employees and ended with 23. The Sloans knew they needed to keep the high-caliber employees to bring the business back to health. A few salespeople left, but they kept most of the staff.

"We learned what true loyalty was from the employees who stayed with us," she said. More than half of their staff has now worked for them for more than 10 years.

For Christina and David, the pressure to rally the company and to keep the employees was huge. Some of the employees had watched them grow up and had seen their willingness to do every job in the company.

"There were times we went without paychecks and paid our employees. Ninety percent of the time we had to put the employees ahead of us," Christina said. "We realized we had 30 lives depending on the decisions we made. I hope I never have to feel like that again."

While dealing with the loss of their distribution contracts, a lucrative relationship with Wal-Mart dwindled. Li'l Guy had worked with Wal-Mart since 1987, supplying the local tortillas the superstore carried. Thirty percent of the company's revenue was from Wal-Mart when it cut back on its purchases in 2004, Christina said.

Minority-Owned Business Certification
While there was no definitive reason why Wal-Mart reduced the amount of business with Li'l Guy Foods, a Wal-Mart representative did point out to them that they were marking on their contract that they were minority-owned and woman-owned. But without certification for either, they could not represent themselves as such.

Because she was already working long hours, Christina didn't see how she could find the time to complete the arduous minority-owned business certification process, so she returned the vendor contract to Wal-Mart with those boxes unchecked.

"I figured it surely couldn't affect our sales that much. We had a good product and good customer service," she said. But it did. Thinking that if she was certified as a minority-owned business she would get the Wal-Mart business back, she began the process. She had learned they couldn't be certified as a woman-owned business because her mother had a substantial interest but did not participate in the daily running of the company.

Through help from the Hispanic Economic Development Corporation and the Ewing Marion Kauffman Foundation coaches program and others, Christina completed the certification process.

"We had all the makings for a successful company: the foundation, heritage, passion, dedication, great employees, superior product, service and reputation. But until we opened up to the possibility of embracing outside help from the business community, we were not able to grow into our full potential," she said.

In January 2006, Li'l Guys was certified as a minority-owned business. Christina said she has learned the value of the certification and found a community of business owners that she had not realized existed. Because their company was thriving, Li'l Guy had not seen a reason to take advantage of special certifications. But she has learned that often women-owned and minority-owned businesses don't get their share of contracts and that certification helps level the field.

"I feel much more connected with the minority-owned business community now," she said. "It has been a transition period for me and for the company."

The certification process has drawn Christina into the business community where she sits on chamber committees and the Fairness and City Contracts Oversight Board for Kansas City, Mo. She was named the Mid-America Minority Business Development Council Supplier of the Year for 2007.

The certification has not helped regain the full Wal-Mart business, though. But Li'l Guys has learned to diversify. Now Wal-Mart is less than 16 percent of the company's business, as they have grown their business with local grocery stores.

Marketing Directly to Consumer
To grow the business in grocery stores, Christina and David learned they needed to increase consumer demand-the customer needed to ask specifically for Li'l Guy products. Because there are so many products competing for space in grocery stores, it helps to have consumers ask for their brand, Christina said. To help create that demand, Li'l Guy has gravitated to marketing directly to the consumer.

"We are bypassing marketing to the grocery stores and going to television commercials," Christina said.

Because of the expense of television commercials, the company started with baby steps to see what impact the commercials would have. David created sophisticated sales tracking software so the company could see exactly where its sales were and whether a commercial affected the sales.

If the company targets an area with its commercials, they can watch the sales in that area or by that specific product, and finesse their marketing budget accordingly. The software also allows them to see what happens when Wal-Mart reduces the shelf space for their products. They can see the sales go up in nearby grocery stores.

"The consumers don't just buy another brand, they still buy ours-but at a different place," Christina said.

Restaurant and Grocery Store
Another way Li'l Guy has found to reach the consumer directly is through its Mexican Restaurant and Grocery Store at the company's headquarters. The restaurant, which is open only from 10 a.m. to 3 p.m. weekdays, allows the company to test its products and recipes with firsthand feedback.

"We use our products on a daily basis. How else will you know your products and your customer base?" Christina said. "And our customers tell us 100 percent they buy our products when they go to their grocery store."

Before moving to its current location on North Topping, the company had been located off the central business district in North Kansas City where neighbors were accustomed to the smell of the tortillas baking. They had a cash-and-carry outlet there where people came in to buy bulk tortillas. But after moving, they found that the cash-and-carry idea didn't work because there weren't enough people living nearby. However, people who worked in the area often asked about the source of the mouth-watering aroma, Christina said.

So they decided to open the restaurant. Within three months, the restaurant was paying for 75 percent of the entire building's overhead, she said. The restaurant's thriving business forced them to expand, taking space from their adjacent offices. While they have discussed opening the restaurant in the evening, for now they are staying with the lunch hours only, Christina said.

Opening a catering division and the possibility of expanding production facilities are in the discussion stage. Christina said one thing they know for sure is that any new equipment they buy will be more efficient and environmentally friendly.

Moving Forward
As the company has returned to solid ground, the Sloans have hired additional staff to start handling more of their everyday duties a sales manager and an office manager. David, who oversaw the IT, manufacturing, payroll and accounts payable, and Christina, who handled sales, marketing, accounts receivable and HR, have stepped back, but not without feelings of withdrawal.

"It has been kind of like a mourning process as we pull back. There was a time when I could tell you who every customer was, what they bought, and when they bought it," Christina said. "We hired such good people, they just took off. And suddenly, we realized they don't need us anymore. It's a good thing, but at the same time it's kind of a mourning phase for us."

To keep the lines of communication open, though, they have implemented weekly manager meetings. And, they continue to be involved with the employees to make sure they understand the company's core values and where the company is headed.

Understanding the culture of the business and being involved in the community will keep the company from going back to where it found itself a few years back, Christina said.

"What happened in 2001 gave us a feeling of what it means to be an entrepreneur, what it takes. Now we can say we built the business on our backs."

And what of those plans to sell the business and move on? Those have been shelved.

Entrepreneurs: Christina Sloan and David Sloan
Company Name: Sloan Acquisition Corp, dba Li'l Guy Foods
1717 N. Topping
Kansas City, MO 64120
(816) 241-2000
www.lilguyfoods.com
Type of Business: Food Manufacturing/Distributor of Mexican Food Products
Year Founded: 1965
Number of Employees: 38
Keys to Success: "We know that when we are being an overall good company and true to our core values, sales will come."-Christina Sloan

Sally Huggins is the managing editor of Kansas City Small Business Monthly magazine.

 

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