When duo bet big on Modern Bin, everybody won

An entrepreneurial pair with deep pockets rescued a Minneapolis vendor of material handling equipment that was about to be liquidated, and they rejuvenated sales.

About two dozen employees and spouses from Modern Bin The Material Handling Group will board a Sun Country jetliner on Friday and fly to Las Vegas to spend the weekend at the Treasure Island hotel and casino.

Their employer will be footing the bill to the cheerful tune of about $8,000, plus meals.

Why? "It was me and my big mouth," said Mark Sutich, 50, president and co-owner of the Minneapolis-based vendor of lockers, parts bins, conveyor systems and ergonomic work benches, among a catalogful of other warehouse equipment.

When he and Tom Tagtmeyer, 44, acquired the faltering company in April 2004, a business that had peaked at $15 million in annual sales in the late 1990s had been hammered down by a lengthy recession to $75,000 a month -- an annual rate of less than $1 million.

The owner, weary of battling the cyclical nature of the industry, had decided to retire and was liquidating the company. Most of about a dozen employees had been laid off, and relations with vendors and clients were frayed.

So, in an effort to resuscitate morale, Sutich got up at an employee meeting in mid-2004 and promised to sponsor the Las Vegas trip when monthly sales hit $500,000. Given the depths to which the company had sunk, he didn't figure he'd be digging into his bank account quite so soon.

"I knew they'd do it," he joked. "It was just a matter of whether I'd live long enough to see it." He saw it in September, when sales hit $520,000.

By the end of October, year-to-date sales had reached $3.6 million, on track to hit about $4.5 million by year's end -- more than double the $1.8 million generated in 2004.

It's a performance that earned Modern Bin a selection as one of nine companies to be honored this month as "Small Business Success Stories of 2005" by Associated Bank and Twin Cities Business Monthly.

So who are these interlopers, both of whom readily admit that they know next to nothing about the industry? They're a pair of chronic entrepreneurs who met as Little League coaches in Mendota Heights in the mid-1990s.

Sutich, who said he has never worked for a company he didn't own or have a piece of, started a St. Paul company in the early 1980s that delivered pharmaceutical supplies via leased airplanes and vans.

Later, after selling the courier business, he and his father-in-law started a Fridley company that stored records for corporations and law firms. The business grew to more than $4 million in rental fees on 600,000 boxes of records by the time they sold it in 1999.

Meanwhile, Tagtmeyer had his own thing going: An IT specialist, he started a company in the mid-1980s to market proprietary loan-processing software to mortgage banks. And in 1998 he co-founded a nonprofit company that guaranteed and collected on student loans.

But it was a company they started together in 2000 that provided the cash to turn Modern Bin around. Called QBS Inc., it was what Tagtmeyer called "a phenomenally profitable" software development and IT consulting business that grew to annual revenue of $2.8 million before it was sold in 2003 for several million dollars.

(By that time they also had started a company to market proprietary records-management software that earns about $100,000 in license fees. And they later became principals in a $2.5 million small-business investment fund.)

More than $500,000 of their QBS proceeds went to expand Modern Bin's inventory, and another bundle went to nearly double the sales staff, to seven. Commissions also were boosted, and pay and benefits were improved all around.

Equally important, the owners realized that Modern Bin had so many vendors -- more than 200 -- that it was too small a customer for any of them to be able to negotiate discounts and other favorable terms. So they trimmed the number of key vendors by more than half and negotiated favorable pricing and strategic partnerships for marketing their products.

The payoff: Their equipment costs declined more than 6 percent in little more than a year.

The partners also added technology, including hardware and an upgraded accounting system at headquarters. And now they're preparing to invest in radio frequency identification chips, the latest technology in inventory control.

In the process, they determined to transform the company from a local vendor into a regional player. To that end, in March they opened a sales office and warehouse in Milwaukee and a sales office in Green Bay and began negotiating to acquire other vendors in Iowa and the Dakotas.

The goal: to get sales back to the $15 million peak by the end of 2007.

In short, the two brought financial management experience and a handy pile of cash to Modern Bin, which they judged to be in a good position to capitalize on the industry's imminent recovery.

As for their lack of knowledge about the equipment business, "we have people working for us who understand the industry very well," Tagtmeyer said. In fact, Sutich added, one condition of their acquisition agreement was their ability to rehire key employees who had been laid off.

What are people saying about mortgages today:

Rates on 30-year mortgages edged down last week to a seven-month low. Mortgage-giant Freddie Mac reported Thursday that 30-year, fixed-rate mortgages fell to 6.3 percent, down slightly from 6.31 percent two weeks ago. It put rates at the lowest level since they were at 6.24 percent the first week of March.

Bank of Hawaii, Central Pacific Bank, Territorial Savings Bank and Wells Fargo Home Mortgages all cut their 30-year mortgage rates to 5.75 percent this week.

Most people think of a mortgage as a means to an end. After all, you buy a house, not a home loan. But a mortgage is much more than the path to homeownership. It is a financial instrument that must be managed, just like any other financial investment.