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Business Observer Friday, May 19, 2017 1 year ago

Act Two

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Two forward-thinking manufacturing partners weren't content with guiding one business to nearly $500 million in annual sales. Now they are at it again.
by: Mark Gordon Managing Editor

Daniel Ochstein and Earl Rahn played a game of geography in 2010, seeking a place to launch a new window manufacturing and installation business.

They had five states to choose from, per the terms of a noncompete contract with their previous window company, Cincinnati-based Champion. Ochestein's father-in-law, Alvin Levine, founded Champion in 1953. Working in corporate and regional management roles, respectively, Ochstein and Rahn helped Champion grow from about $7 million in annual revenue in 1988 to $486 million in 2007 — doubling sales every 18 months. Boston-based private equity firm Summit Partners bought Champion in 2007, and after three years Ochstein and Rahn were out of work.

But they were itching to get back to running a business, not head to retirement. “We figured we would end up in Florida someday, why not just give it a shot now?” quips Rahn. “I don't fish, I don't hunt and I don't play golf. Neither does Danny.”

Two of the five states on the noncompete — North Dakota and Maine, were eliminated immediately. Too cold. Not enough people. California, another option in the contract, was also quickly ditched. Too hostile to businesses, says Rahn. That left Louisiana and Florida.

The Sunshine State won the day.

The company the duo founded, Tampa-based NewSouth Window Solutions, and a sister business, Doers Window Manufacturing, have since been on a remarkable run. The partners started from nothing, with no space and no customers, no advertising and no brand recognition. Their office for the first few months was in a spare bedroom in an apartment Ochstein and his wife, Deb Ochstein, shared in Tampa's Channel District. With what Rahn calls “a substantial investment,” they opened for business in May 2010.

Seven years later, NewSouth Windows is a $40 million window and door manufacturing and installation business with 150 employees that's bursting at the seams. It has sales offices and showrooms in Tampa, Sarasota, Orlando and West Palm Beach, with plans to expand to Melbourne next year, Fort Myers in 2019 and Jacksonville in 2020, among other future locations.

NewSouth's model is to sell factory-direct to homeowners, while Doers works with contractors and developers for new construction and renovation projects. NewSouth, says Rahn, averages about 330 customers a month. “We are all about high-performance, energy-efficient windows,” Rahn says. “We believe we have a window for every room, for every house, for every city in Florida.”

NewSouth has about 100,000 square feet of factory and office space spread over four buildings in Tampa. It broke ground recently on a new headquarters, manufacturing and distribution facility, in the Crossroads Commerce Center, near the intersection of Interstate 75 and Interstate 4. The new 238,000-square-foot complex, a $15 million project, will include five acres of factory space under air, says Rahn. NewSouth will get a property tax break over seven years from Hillsborough County, worth about $350,000, in return for hiring at least 30 new employees at the new location.

Florida Gov. Rick Scott attended the April 20 groundbreaking for the new space, something NewSouth executives call a top-of-the mountain moment. At one point in the ceremony, recalls Rahn, there was also a what-did-we-just-get-ourselves-into moment. That's when Scott, when he saw the planned size of the new plant, leaned in and whispered to Howard Bayless, the project developer, “'Man, that's a lot of windows they have to sell.''

Learning curve

There were multiple reasons the NewSouth Window founders chose Florida, not just because it wasn't the other states. Rahn is from Jacksonville, for one, and Ochstein's son, Sam Ochstein, was studying for his MBA at the University of Tampa in 2010.

Outside family, a big reason was what the founders say was a wide opportunity. They attended multiple home shows statewide, and found a common theme. “Everyone was selling the same window,” says Ochstein, 64. “So we knew there was a market.”

The timing was right, too, in that the recession crushed the window and door industry. Rahn, 65, scoured Florida newspapers for window ads, which remains an industry mainstay for advertising. He found few companies.

Yet there were some early challenges in getting going. Florida, Ochstein discovered, has tightly regulated building codes for windows. The codes require multiple rounds of weather tests that can be timely and expensive.

“We thought we knew a lot about windows,” says Ochstein. “But we didn't understand all the obstacles and hurdles to get fully approved. We (also) learned we knew very little about impact-resistant windows.”

Impact-resistant windows are usually built with a layer of laminated glass, and are designed to shatter on impact but remain attached to the frame. Ochstein says NewSouth's windows, after some early research and development, are now some of the top products in the industry. Features in the windows include argon gas and foam enhancement; wider and deeper interlocking channels; and a unique locking system and vent latch.

“As an entrepreneur you have to be quick learner,” says Ochstein, part of the first generation of his family to go to college, whose parents ran a used furniture store. “You have to be fast on your feet.”

Different model

A regional leader in impact-resistant windows is Venice-based PGT Industries, one of the largest employers and companies in the Sarasota-Bradenton region. It had $458.5 million in sales last year.

NewSouth, stress Ochstein and Rahn, isn't trying to be, or compete head-on with PGT, which sells windows mostly through a network of hundreds of dealers and partners. “They don't want to know the end user,” says Rahn, who has known PGT Chairman and CEO Rod Hershberger for years. “The only people we want to know is the end user.”

One early challenge for NewSouth in the startup process, and finding that end user, was the company had to prove it had the right stuff to attract a variety of customers. “You can't open a manufacturing facility for only one or two retail customers,” says Ochstein.

That led to Doers, now a thriving entity with a client list that includes developers and builders in multifamily, senior living and hotels. The idea there, says Ochstein, was to experiment early on with materials and processes, then build a customer base. Ochstein has experience in manufacturing startups: He founded a patio room division and a logistics unit while at Champion.

An advantage in the startup process to manufacture the windows was the recession not only left the company with few competitors. It also enabled NewSouth to buy machines and equipment from failed businesses at pennies on the dollar, says Ochstein. And with unemployment high statewide in 2010, the company was able to grab factory employees from construction and trades. “These were people who knew how to work with their hands,” says Ochstein. “We needed to teach them how to make windows.”

Shift forward

NewSouth's first tipping point came in spring 2014.

The company did $5.4 million in sales for all of 2013, says Rahn, and by the end of April 2014 it had already hit $3.9 million. “Everybody in sales was patting each other on the back,” says Rahn. “I said, 'Danny, we have a problem.'”

Rahn and Ochstein knew they were about to have a slew of issues, from operations to delivery, keeping up with the newfound demand. Says Rahn: “We sailed into a storm.”

The company regrouped quickly. It hired more people, and by 2015, when it surpassed $20 million in revenue, Rahn says staffing levels were back to meeting the demand. The company also reinvested in equipment. One big purchase: NewSouth recently spent $1.4 million on an automated machine that can cut, wash and seal glass faster and better than ever before.

Another tipping point happened sometime last year, when the company began to grow its ranks of executives for the first time. New hires included a vice president of operations, a senior accounting officer and an official to run the product tests and test schedules. “Our major challenge now is to shift from an entrepreneurial state to a management state,” Ochstein says. “That transition has begun.”

Ochstein's and Rahn's spouses work with the company; Amy Rahn handles marketing, while Deb Ochstein oversees accounts payable and is the cash flow manager. Sam Ochstein works in operations.

Even with the growth, and move to management, Ochstein and Rahn each work hard to make sure the company doesn't lose its nimble edge. One phrase heard often at NewSouth, from the offices to the factory floor, is TD — total domination. Rahn says that's an internal phrase to always aim for the best, from accounting to cutting glass to handling warranty claims. It also helps ensure employees are moving in the same direction.

“You have to have a vision, and you have to have a strategy,” says Rahn. “But if you don't have a team to get you through the strategy, you won't go anywhere.”

AT A GLANCE
NewSouth Window Solutions
Year Revenue % growth
2013 $12.8 million
2014 $20.5 million 60.1%
2015 $25.2 million 23%
2016 $41.5 million 64.6%

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