Catholic Business Journal (CBJ): What is the history of Hercules?
CBJ: Why is Hercules a fitting name for the company?
CBJ: What is the scope of Hercules Industries?
AN: We’re unique in that we’re a manufacturer and a distributor. We manufacture sheet metal products for heating and air conditioning systems, either round or rectangular pipe, and sheet metal fittings that become part of an installation of a heating or air conditioning system. Then we also distribute from other manufacturers all the related products, the actual furnaces and air conditioning units, the grills and registers you see in homes, and the flexible duct work and non-metal products used for these units.
Hercules business model is unique in that we manufacture and take those manufactured products straight to the consumer. We have four manufacturing locations. Two are residential manufacturing operations, in Salt Lake, UT, and here in Denver; and we have a commercial manufacturing operation also in Denver at a separate address and a small commercial manufacturing operation in Arizona. Then the rest of our stores are distribution locations throughout the Western United States and the Southwest.
We move the products to those locations and distribute the products to HVAC contractors. Most of our customers are these kind of contractors who do the installation of HVAC or service and repair HVAC systems.
CBJ: What are your diversified products?
AN: The adhesives we sell are for use in the HVAC industry. When you install a system, there are natural leaks in the pipes or seals, so they use a sealant to prevent air leakage. Prior to this diversification, we made only metal components. To get into making glues and sealants was a totally different adventure for us. But when you’re a manufacturing company you’re part of that entrepreneurial innovative culture to begin with, so Hercules wasn’t afraid to take on these additional industries.
But the most important diversity we have is that we’re equally diverse in residential and commercial industries. This diversity becomes important in an unstable economy. For example, throughout the years when we’ve experienced a downturn in new home construction, the commercial side of the business tends to support the business. Then there are times we go through recessions in the commercial side of things and a lot of times residential new construction will keep us going forward.
Geographical diversification is vital as well to Hercules’s success. For example, the Wyoming location is not doing well because the oil industry in that region is not doing well, but Colorado is very strong from a construction standpoint, so it’s nice to have the geographical diversity just to weather the storm.
CBJ: Why did you diversify in the first place?
AN: There are two answers to that question. We certainly learned to appreciate it more than we ever had when we experienced the recession in 2009. Without that diversity, who knows where we’d be today? After that experience we became more intentional about maintaining that diversity. But more to the point, we’re a company always on the lookout for opportunity. Historically, every opportunity we saw to grow or expand the company we took.
We found people with expertise in the commercial market and people with expertise in the residential market along the way, and we’ve grown both elements of the business, mostly because we had that mindset that is alert to opportunity.
CBJ: Has the strategy to diversify always worked for Hercules?
AN: As with any business, when you take risks, there are failures. We currently run 17 branches and we’ve closed two because they didn’t work out. I read recently an article that resonated with me that it’s one of the competitive disadvantages that family businesses have—as a family business, the article pointed out, sometimes you hold on to assets or operations longer than you should because you have a personal vested interest in them.
You know the people in the operations and you are likely are involved in starting them up. So it’s easy to see why you might wind up holding onto them for too long. We probably have been more patient than most companies would be in allowing a branch to get on its feet. But there are times when you have to make those tough decisions. We had to close down some locations along the way that weren’t performing. But you try to make a better decision the next time around. It’s part of business.
CBJ: What did you learn from your failures?
AN: The two locations that didn’t work out were totally different scenarios. One of the bigger lessons we learned with the first location was to get more intelligence on the market that you’re looking to expand into before acting. It was bad timing on our part. We expanded on a market right before the recession of 2009, and that market we were looking to expand into was a second-home market. Of course, that was the first thing to go when the recession hit and the market turned down.
Because of the recession, there’s so much economic data out there that we can make more informed decisions about whether we’re on the cusp of a bubble or whether a particular market has growth potential. So we’ve learned definitely to look in a little more detail at the fundamentals of the market before we expand.
The other location was an unnatural fit for us. It was a manufacturing operation that was in a market far removed from us and we weren’t as familiar with the dynamics of the market in that location. The way business was conducted in that market was different than we were accustomed to, and we found ourselves fighting an uphill battle from the beginning. So again it was a matter of understanding the market you’re getting into as an important element of expansion.
CBJ: Who are Hercules’s customers?
AN: Our customers are primarily within that five state region in which we operate—Colorado, Wyoming, Utah, Arizona and New Mexico. There are odds and ends we might send to contractors outside this region through Federal Express or something like that, but our mission statement says we serve contractors in the Western United States, and we stay pretty disciplined about that that service area.
CBJ: Why haven’t you expanded beyond this region?
AN: I guess the short answer to that is that you can grow so fast as a business that it becomes unmanageable. We think there’s a lot of opportunity close to home and we take advantage of those opportunities. Over time Hercules’s footprint may expand, but we want to take the more natural path to growth and not expand beyond our comfort zone.
On the other hand, we are a growing company. It’s part of the competitive genes in our family. We like being competitive and growing. In our mission statement we say we grow to provide the tools for future opportunities. We know we need to be dynamic and keep growing so we can provide those opportunities not only for the company to be innovative and add machinery and things like that but also to keep in mind how that growth affects our employees.
We provide jobs for 470 people—that’s one of our greatest responsibilities as a company, providing a means for living for that many people. We take great pride in providing good paying jobs for a lot of people to make a living and support their families.
CBJ: Are Hercules’s customers uniform or do you see a variety?
AN: We sell primarily to contractors but we sell to the general public as well. We have to protect our contractors through the pricing they deserve based on the volume they buy from us, but it’s fun to help a small contractor or a homeowner with a do-it-yourself project. They’ll come in with a napkin and some chicken scratch drawings, and it’s enjoyable to help them figure out what they need. Those can be some of the more fun projects if not the most profitable—and they keep things interesting for sure!
CBJ: Why did you decide to join the family business rather than “do your own thing”?
AN: When we were kids, my brothers and I, working for Hercules was the easiest way to a get a job for the summer—but it wasn’t the easiest job. When we first worked here, it was sweeping floors, doing demolition and stocking products. We had some pretty manual jobs and I think in retrospect, probably more difficult than everyone else had—but there was a reason my dad and uncles made us do that basic work. We came to understand every dynamic of the business and the value of hard work, which established the seed in those years of hard work for learning about the business. Even when I was a senior in college—I got an accounting degree—I wasn’t sure I was going to join the family business or go into the accounting world.
CBJ: What made you decide to come back to Hercules?
AN: It happened the second semester of my senior year at Pepperdine University [Malibu, CA] that a position opened after the financial controller of the company we had at the time left the business. I had been praying about which way I should go in my career and it was a clear message from God that this opportunity presented itself in this area that I was studying. In retrospect I’m glad I made that decision because it adds a lot of meaning to what you do, being part of a family legacy, rather than just working a job that many people don’t find much meaning in.
CBJ: Did you have any anxiety or doubts about going into the family business?
AN: Very much so. Anybody who joins a family business has that deep down desire to prove that you can do something on your own rather than taking the easy path, as many would perceive it, by joining the family business. But ultimately being part of something bigger than myself with my family far outweighs the personal pride of being able to prove something on my own.
CBJ: Was there ever a temptation to sell the family business?
AN: People are always knocking on the door. So the temptation is always there and it will continue to be there as things get more complicated—as you get into third generation family businesses it always does. But we really value the legacy of our family business and we feel a tremendous obligation to people who have put in a career here at Hercules. So we take that seriously and know that that we would not do anything that would detrimentally impact the people who have committed a career to our company.
CBJ: Why is this sense of legacy so important to you?
AN: At Hercules, success is about the people not the brand. The company really has become an extended family, and I think that’s what gives meaning to doing business—the relationships you form with employees, and the challenges and successes you have together. So as the generations have passed and we have hired more people, that sense of the family legacy continues to grow. We do everything we can to maintain that family culture. That’s difficult to do as you grow. It’s easy to be a 30-person family business; it’s a little different to be a 470-person family business. But we maintain the values that got us here and keep growing the family culture.
CBJ: Let’s talk about Hercules’s mission statement—especially this part: “[Hercules] will nurture and maintain the culture of a family owned business in which our employees grow financially, intellectually, emotionally and spiritually.” What do you mean by “spiritually”?
AN: I’d say the premise of the mission statement is that with 470 people that spend most of their waking hours here at our company, we’ve got a tremendous obligation to provide an environment where they can be the best people they can be. There’s a publication that I’ve read that speaks to this idea called “The Vocation of the Business Leader” issued by the Pontifical Council of Justice and Peace. This document speaks to that responsibility an employer has for the human dignity of their people. The financial and intellectual elements are natural for a business but to stop there is almost a utilitarian sort of attitude—as that document spoke to.
Our approach at Hercules is that we really have a responsibility to uphold the human dignity of every person involved in the company.That doesn’t mean we’re necessarily having Bible studies every morning or offering Mass in our lobby, but we are doing everything we can to provide an environment where people can best use their talents, go home feeling good about themselves, and ultimately be in a position where they can grow spiritually as well.
That’s a bit less tangible because we’re not handing out Bibles or those sorts of things, but if a person goes home feeling good about himself, feeling productive and empowered, such a person is in a better position to lead his or her family, whether a mom or dad, from a spiritual or emotional standpoint. By including that in the mission statement we make sure we hold ourselves to that standard. Our mission statement attempts to focus on the whole person.
CBJ: Had anyone called you out on this mission statement from either within or outside the company?
AN: Fortunately we haven’t had any negative experiences related to our mission statement. The overwhelming reception we’ve had is that people appreciate someone who stands strong on his values. As we get into a discussion of our dealings with the HHS mandate, that’s the same thing we saw. People may not agree with the specifics of your religion or what you believe as a Catholic, but generally everyone respects someone who will stand for what they believe in.
CBJ: Yes, the HHS mandate. So how did you get involved in that controversy?
AN: It’s not an overly dramatic story, really. The things that the government wanted to mandate employers to cover we didn’t cover because of our Catholic faith—contraceptives and abortifacient drugs. We were faced with an A or B decision: Do we change our health plan to cover these things or do we fight it and try to maintain our religious beliefs? The easier path would have been to change our plan.
But by God’s providence we were introduced to some people at Alliance Defending Freedom (ADF) who were very much interested in helping people like us. I just happened to see an advertisement for ADF. We sent them an inquiry to see if they would be willing to take our case and they were excited to do so. We were in that position of having to compromise our faith, what the ADF believed to be a very unlawful governmental requirement.
It’s probably something we wouldn’t have been able to challenge just trying to navigate on our own through the federal court system. And so I certainly hand it to ADF, without them we wouldn’t have been able to mount the challenge. Once we met with their folks and validated the legal element of what we believed to be right, it was a pretty quick and easy decision that Hercules had to make.
We got together as a family and said we either compromise on our faith or we stand for it, and we knew the implications: the media crowding the parking lot, lots of scrutiny from the press and potentially negative publicity. We knew that from the get-go, and it wasn’t something we were looking forward to, but we would have had trouble sleeping at night if we didn’t make the right decision. So in the end, we would not be deterred from making the decision we did.
CBJ: Why was your case relatively easier than that of other companies such as Hobby Lobby?
AN: The difference between Hercules’s case and Hobby Lobby’s is that we had a reasonable judge we went before at the district court level while Hobby Lobby had a liberal judge who ruled against them in the lower court. So we won our lower court case and they lost their lower court case. Fortunately for both of us, our injunction was granted prior to theirs. Even though our district court ruled in favor of us, though, the district court Hobby Lobby happened to be in ruled counter to the judge in our case. So the clock was ticking for Hobby Lobby; they were going to have to pay some pretty significant fines if their case didn’t get overruled. Fortunately, Hobby Lobby’s case got expedited to the U.S. Supreme Court because of the monetary impact they were imminently going to face.
The Supreme Court obviously overturned the lower court’s ruling on Hobby Lobby and in so doing upheld the decision from the lower court in our case. The Supreme court used the parts of the legal brief and the judge’s opinion from our case to make their decision regarding Hobby Lobby.
CBJ: What sorts of challenges did you experience in your own case?
AN: The legal element went well, but during the process it wasn’t easy. Various family members, including myself, were doing interviews on national TV, which is an uncomfortable position to be in, to stay the least. It was a stressful time but we quickly learned that if we weren’t going to participate in the message regarding the HHS mandate and its impact on business, then we would have no control over how it was being communicated to the general public.
We quickly realized we had an obligation to participate in those interviews. Ultimately, it was a chance to defend our faith in the public square, which is one of the reasons God may have called us into that whole issue. I’ll admit it took a lot of courage on our part; maybe we didn’t know previously that we could defend the faith in the public square like that, but now we do.
CBJ: What was the response from the public to your decision?
AN: There was a lot of hate mail that came in through our email servers and in the regular mail. So as a human, I found those things hurtful to some extent, but through those kinds of challenges, those kinds of sufferings, we grow the most in our faith. I think in retrospect that’s probably the perspective that we appreciate the most. Collectively as a family it brought us closer together in our faith, and individually, we had the chance to defend the faith in the public square, which increased our commitment to our Catholic faith.
CBJ: Did you lose customers as a result?
AN: Several customers responded negatively. Mostly it was people who did a little amount of business or were somewhere down the chain in the construction industry that were very vocal about how they’d do everything they could not to give us business in the future. We knew that would be a probable implication of getting involved publically with this issue.
What we didn’t anticipate is that there were more people who were more committed to doing business with us because of the stand we took. We underestimated that part of it as an unanticipated consequence of getting involved in the issue.
CBJ: How else does the faith play a part in Hercules?
AN: I can provide a few examples. We open every board meeting with a prayer acknowledging that what we do needs to be directed by and towards God. We ask God’s intercession in everything we do for the sake of our employees, customers and vendors. It definitely starts at the top. As I mentioned earlier, when I took over as president of the company, I wanted to get more intentional about those values intrinsic to our Catholic faith.
In our strategic plan, which is Hercules’s short-term strategy, we have three core values at Hercules. The first one highlights our respect for human dignity, which is really most core to our faith. Every person, whether customer, employee or vendor, is treated with the God-given respect that they deserve; each person is given the best chance for success that we can possibly provide for them.
Second, we espouse the importance of servant leadership. We firmly expect all our managers to lead by example and to empathize with the people that they manage.
Third, we honor and uphold the common good. We would like every employee to act for the common good of all. One way we do this is by setting up compensation systems so that people are incentivized to do things that are beneficial for everybody as a whole rather than acting for their individual interests which can be counter to the company’s interests.
CBJ: Can you give an example of how Hercules encourages the common good in this way?
AN: We have zero commissions in our company; we got rid of commissions almost ten years ago because, as commissions naturally will encourage, people were driven by what business their customers give them and sometimes what branch it comes from. We would have salesmen or branches competing with one another for business and the customer winds up in the middle. Since we’re all in it to run a profitable business, we now pay everyone a certain level of bonus depending on the profitability of the company at the end of each quarter.
CBJ: How does the Metal of Honor charitable fund play a part in the company’s culture?
AN: We have always felt an obligation to give back to the community we serve and we do so as a company in many ways. But we established the Metal of Honor as an opportunity to engage our employees in community service by allowing various employees to manage it and also to extend it as an opportunity for charitable giving to our customers. Most of the charities we get involved with are organizations that our customers bring to us that they’re passionate about. Then our employees review and learn about the charities and decide whether they want to get on board with these charities. It’s a neat way to collaborate with our customers and get involved with the communities we collectively serve. Having our employees be part of that is the most important part.
CBJ: What safeguards do you have in place against giving to anti-Catholic causes?
AN: We have a couple family members who are part of the Metal of Honor—and so those sorts of organizations wouldn’t get approved.
CBJ: Other than the Metal of Honor, what other community outreach does Hercules have on its plate?
AN: One of the unique charities we’re involved in is the Christo Rey network of Jesuit-run high schools. The one here in Denver is called Arrupe Jesuit High School. Each Christo Rey school is set up to provide Catholic high school education to inner city kids. As in a lot of metro areas, Denver’s high schools have moved to the suburbs and left a void in the inner city. Christo Rey fills that void.
To go to this school, you have to be at the poverty line or below, and if you’re above that demographic criterion you can’t attend. The Jesuits fund it by fundraising half of the cost of tuition for the kids. The other half they have kids work in corporations for one day a week. Hercules is one of those businesses where the kids at Arrupe work. We might have a freshman on a Monday, a sophomore on a Tuesday, a junior on a Wednesday, a senior on a Thursday, and then rotate students on Fridays.
The program has a twofold benefit. First, you pay half their tuition for the work they give you one day a week. In this way, the students are earning their tuition through that avenue. But the other element that is interesting is that most of these students come from families who didn’t graduate high school let alone college, and so they don’t have any confidence that they’d be able to integrate in a corporate work environment.
But by getting them immersed at the high school age in corporate culture they realize they can do this, they get confidence and ultimately 99 percent of the kids at these Christo Rey schools get accepted into college, as opposed to the public schools, which would otherwise serve those kids if they didn’t have Arrupe, the same public schools which have a 50 percent dropout rate.
CBJ: Why does Hercules prefer to buy American steel?
AN: I’d be dishonest not to say that at times to be competitive we have to buy foreign steel, but we absolutely do everything we can to buy domestic. We don’t say we buy 100 percent domestic but we’re committed to buying American steel as much as we can. In fact, I talk to my counterparts around the country and they’re surprised we’re able to do that because they buy 100 percent of their steel from foreign sources.
CBJ: How can you afford such a policy regarding American-made steel?
AN: We probably pay a little premium on American steel, but from an economic standpoint we’re able to do that because by buying domestically we can keep a leaner inventory. So our inventory levels are cash flow-invested and our inventory is also less than those who are buying foreign and have to keep more inventory on the shelves because the lead times and reliability of delivery is a lot less dependable on foreign steel. It’s a little bit of a competitive advantage from stocking levels. It’s a small premium we pay that comes out of our margin, but not to the point where we’re not able to compete.
CBJ: What inspired this policy?
AN: I would suspect it goes back to my grandfather being in the Marines and being a very patriotic person. Those values have been passed on for generations. We’re very proud of our country and believe we need to do everything we can to support our country.
CBJ: As a Catholic business, how does Hercules balance its bottom line with its sense of mission?
AN: The focus at Hercules isn’t primarily on the bottom line. If you start with the end in mind, things can really go sidewise upstream pretty quickly. Our perspective has always been to focus on customer service and treating our people right, to be smart about what we do, and ultimately we’re going to be a profitable company. We have been profitable all the years we’ve been in operation.
We focus on other questions. What is a fair wage? What is a fair price for our products? I think pricing is the easier question to answer. We’re in a competitive market so we generally keep our prices competitive with other companies. I may be oversimplifying it, but that part seems to manage itself.
As for the question of a fair wage, we firmly believe in paying people what they deserve. We never want to have someone who is a bargain. I’m sure there are companies that say, “Well, we really got a bargain in that guy, given all he does and how little we pay him—and he probably doesn’t even know it!” That doesn’t fly here. If any of us believe that is the case, we’re quickly having discussions about what that person deserves. One of the competitive advantages that family businesses have from an economic standpoint is that we have a healthier long-term approach to being successful and retaining good employees.
If you’re paying someone less than what he’s worth, you’re eventually going to lose him. If you’re paying someone a fair wage for what he does, that’s a long-term strategy to retain those people who are talented. Pay people what they deserve. Hercules is well above minimum wage for entry-level workers, so that’s not really an issue for us. We feel we have an obligation to provide people a livable wage. I guess going full circle on that question, the focus at Hercules isn’t on the bottom line but on doing the right thing for the employees and customers. Do that and the bottom line shakes out in the end.
Does Andrew Newland’s story provide insight into ways that you can integrate your faith into your business plan? Have you had challenges to your faith in the professional world similar to those that Hercules Industries has had to face? Feel free to let us know in the Comments section or on our FaceBook page.
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Joseph O’Brien is a correspondent for Catholic Business Journal. He lives in Wisconsin. Profile originally ran 11/17/16. Copyright CBJ.