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How One Small Business Broke into an International Market with Zero Experience and Very Little Capital
Mark Morrison, the general manager of Cypress Creek Hardwoods in Austin, Texas, tells how the business broke into the global lumber market by meeting face-to-face with potential buyers in China, and driving throughout the Eastern U.S. to meet hundreds of sawmill operators in person.
By Lisa Monroe
Date Posted: 10/1/2014
How One Business Broke into an International Market
Mark Morrison, the general manager of Cypress Creek Hardwoods in Austin, Texas, tells how the business broke into the global lumber market by meeting face-to-face with potential buyers in China.
Logging had long run in Mark Morrison’s family, so it seemed natural that he’d go into the industry after graduating from Oregon State University with a business and forest products degree. But after only a year and a half working for a large plywood company, he decided there wasn’t much future in it for him at that time.
It was the 1980s, and the country was in a recession with 21% interest rates. People were not building houses so Morrison decided to work in the tech industry instead and made a good living there for close to three decades.
More than 30 years later, he is currently the general manager and sole employee of Cypress Creek Hardwoods based in Austin, Texas. In only two-and-a-half years, Morrison has built face-to-face relationships with both buyers in China and suppliers at sawmills in six states in the United States.
A few years ago, as the high tech industry was on the downturn, his good friend and fellow businessman, Stuart Shaw, had been encouraged by employee and friend, Barry Hersh, to enter the lumber business. Morrison was first skeptical and thought it was all just talk. Shaw owns Bonner Carrington LLC, a company that builds affordable, high quality multi-family housing in Texas.
Neither Shaw nor Morrison was up to date on the lumber industry. But Barry Hersh had previously worked as the chief accountant for Austin Hardwoods before joining Shaw’s company.
“I knew how the industry worked since I grew up in it, but it had been so many years ago,” said Morrison. “The original plan called for a traditional lumber yard that sold hardwood for cabinet makers.”
Eventually all the talk led to action, and Shaw hired Mark on a trial basis to see if there was in potential for a new business. “I got in a truck and drove around Texas meeting face-to-face with cabinet makers,” Morrison said.
What he learned was that the field was crowded with many competitors already, for a new start-up; the capital requirements to hold and buy the necessary inventory, plus time delay of accounts receivable for the target margin were also not compelling.
However, his time spent on doing research wasn’t all in vain, because what he did learn was that there was a huge demand in China and elsewhere overseas for North American lumber.
“It’s a lot easier to chase demand than to try to create a new market for something,” said Morrison. Plus, he realized that they wouldn’t have to tie up as much capital if they could serve as the medium between suppliers in the United States and buyers overseas.
They had the demand, and realized the ability to learn how to conduct business overseas was really all about managing risk and complexity. At the same time, they wanted to limit their start-up capital and cash exposure.
Their business today revolves very much around mitigating risk on both the supplier and buyer sides. On the one side, many American businesses, which are small and family-owned, are apprehensive about selling products overseas, especially to Asian countries. For one thing, they’ve heard horror stories about suppliers who never got paid or whose wood was left on a receiving dock in port because of a price drop with a buyer who refused to accept the load, explained Morrison.
On the other side, many Chinese buyers don’t feel like they get consistency in wood quality, and in fact, they often feel like they get cheated in general in terms of quality.
“We decided to focus on small family-owned sawmills without the time and resources to go over to China,” said Morrison, but he and Shaw knew they needed to go to China themselves. They knew from their own business experience that they’d have better luck meeting potential Chinese buyers face-to-face, rather than over the Internet, which is how many international lumber brokers do business.
“There’s a ton of credibility that comes from creating a relationship with both your customer and your supplier,” he said. “You may not get a premium for it, but you earn the right to be taken seriously, and in the process gain consistency.”
Going to China
Now on his seventh trip to China in less than three years, on Morrison’s initial trip over with Hersh, the two intended to find small businesses in China that needed North American lumber for their products. They wanted to find businesses comparable to the small sawmills in the States that didn’t know how to sell overseas – Chinese business owners that didn’t know the complexities of buying from overseas.
They also had the idea of trying to market a species native to Texas that really has no major or international markets, the Texas Honey Mesquite, and possibly Texan Pecan as well.
However, it didn’t take very long for them to realize they needed to switch gears on both counts. In fact, to this day, Morrison admitted, the business hasn’t seriously marketed mesquite, even though it’s something they still want to pursue marketing once their business is more established.
And as for selling to small Chinese businesses, the two realized the very first day in China that it just wasn’t going to be very feasible, at least not while getting the business off the ground.
Prior to going to China, Morrison and Shaw had contacted the U.S. Chamber of Commerce, which they found to be helpful, as well as any other kind of trade organization that they thought might have resources they could use.
“The U.S. Chamber has offices in China and literally has staff there whose job is to go out and find buyers for you,” he said.
However, their biggest find was meeting Michael Snow, the executive director of the American Hardwood Export Council (AHEC), at his national office in northern Virginia. Morrison said Snow seemed impressed with their initiative to introduce a whole new species (mesquite) to the international market. AHEC was a “phenomenal find,” he said.
Snow put them in touch with John Chan in AHEC’s China office, and the two met with him on their arrival. “He is the guru of hardwood lumber throughout Asia,” said Morrison.
After meeting with them, John gave them what they requested, the names of some customers to call on face-to-face. They had requested to meet small business owners, but John also gave them a couple of additional names, recommending that they may want to try them.
He was wise and must have known, said Morrison, that their contacts in small business wouldn’t give them the results they were after, so he’d recommended the names of several larger lumber distributors.
The small businesses didn’t have the means or resources in logistics, for example, to even get the load off the dock, or to navigate the complexities in their own country, said Morrison. “They were dependent on the larger distributors, just as in our own country.”
“When we called on prospects within the official Chinese timber market,” which Morrison describes as being like a network of huge warehouses with 300 or so roll-up doors. He added, “Our butts wouldn’t even hit the chair and they were asking about price.”
It was very evident they had absolutely no interest in mesquite, or any new species at that time. Morrison realized they’d have to take a lot of time to develop a market for that wood, and they were just too small to do that right away.
“However, the distributors liked that we were on the relationship side, driving around in a truck looking for new suppliers. Part of the value proposition was when you buy from large aggregating companies, they buy lumber from many different and various sawmills, then bring it into one business, which results in extreme variations in quality.”
Morrison said they explained to the Chinese that despite lumber grading, the quality of lumber is a lot more specific to a particular mill and region, than it is to grade. For example, there’s a big difference in on-grade lumber from southern Mississippi and that from northern New Hampshire.
“We stated the obvious, that they didn’t know what they were going to get as far as quality was concerned in the traditional business mode, and as soon as we said that, the Chinese sat up in their chairs, and said, ‘You know you’re right. We hate that.’”
Morrison said they offered the Chinese a chance to have more control over quality by explaining that if they liked the wood they got from a particular sawmill, they could have the option of continuing to get wood from that same mill in the future, thus eliminating some of the issues with inconsistency they’d experienced in the past.
Meeting Sawmill Owners Throughout the East
To connect with suppliers in a personal way, Morrison hit the road in his pickup truck and set out to visit small hardwood mills to find potential suppliers who might be interested in trying the Chinese market, much like he had connected with the end-user customers in China.
“Part of the pitch was to diversify,” said Morrison, who said he’d show up at each mill in his truck, usually dressed in jeans, never a business attire. He typically visited three suppliers in a day, and tries to establish relationships. The only requirement was that they could produce kiln-dried lumber.
And just as the value proposition for the Chinese was that they could get their supply from the same mill if they liked the quality, the proposal for the sawmills was that they could get repeat business from the same buyer in China.
They might not get as high of a price, for the ultimate sale has to cover overseas shipping, but in the long run, they could turn over more lumber, and have a consistent market for it where there was a strong demand that was going to continue into the future. They also wouldn’t have to worry about the risk, as Cypress Creek Hardwoods would assume the financial risks by paying the mill first, just like the mill’s typical domestic customers would. Cypress Creek also would handle logistics, sending a container right to the mill for the wood.
“We concentrate on the ease of doing business and take the risk out of it for the Americans, plus we’re sitting there in their office and traveled all the way from Texas just to speak to them,” he said. Even those not interested in doing business showed a certain degree of respect for Morrison’s approach.
In the past two and a half years, Morrison said he has made close to 10 road trips, each lasting two weeks, and has visited around 200 mills. He now works with 6-7 of these sawmills on a consistent basis. They are located in Kentucky, Wisconsin, Virginia, Arkansas, Mississippi and Alabama. He also does sporadic business with others.
Of those mills, for about half, it was the first time they’d exported, and for around 80%, it was the first time to China. Some had exported to Europe in the past.
“You have to find an American who understands the importance of diversifying their customer base,” said Morrison. “A lot of these mills are multi-generational and were used to selling to the same furniture manufacturers that their dad or their dad’s dad sold to, but now the furniture manufacturers aren’t down the street. They’re in China or Vietnam.”
Looking back to the past six years, about 20% of American hardwood mills have gone out of business, he explained. “If you stayed in business, you more than likely had some mix of your market that was export.”
While the sawmills Morrison visited seemed to appreciate his face-to-face method as much as the Chinese, many were still apprehensive about selling to China, he said. “Americans have a lot of pride, as they haven’t historically needed markets outside the United States.” However, China is a large country with large demand so “why wouldn’t you go and try to figure that out?”
A Unique Perspective
By getting to know both the suppliers and buyers face-to-face, and building professional relationships with them, Morrison finds himself in a position to observe how each side thinks and rationalizes.
“The weak area for the Chinese is that they are almost handicapped by their focus on price. There are some that are willing to pay a little more to get quality, but not a lot more,” he said.
Whereas for Americans, it’s that they tend to be short-sighted. Some will sell to the Chinese market until they get a slightly higher price, and then drop the Chinese for the highest bidder. “We’re over here worrying about quarterly profits,” while the Chinese are planning for growth for the next 100 years, he said, and that’s going to hurt us in the long run.
“I can offer suppliers consistency, but they can’t be short-sighted,” he said.
They need to focus more on turns instead of jumping at a better price. Morrison commented, “Mills need to ask, ‘How many times can I turn my product?’ and not just ‘How much can I get for this single load?’”
“While going to the small guy in China didn’t work, the relationship piece did work,” said Morrison. Through this export venture, Morrison has learned that the business can be somewhat up and down. In a good month, Cypress Creek ships 30 containers overseas, and in a bad month, as few as 10.
Mitigating risk on both ends has worked well, and having insurance has worked. “We insure our accounts for 95% of invoice including shipping through the Export-Import Bank,” he said.
And by the way, Morrison has been paid slowly at times but he has yet to be completely stiffed for a load. Having good contacts has proven to be invaluable. Morrison stated, “AHEC was a godsend – Mike Snow and John Chan – those guys gave us a lot of direction.”
Keeping an open mind, being willing to learn and being flexible enough to switch gears when needed are some of the key factors contributing to the success of Cypress Creek. So what’s in store for them in the future?
Morrison said that the business needs “to diversify into additional factories, along with current distributers” on the buyer side. “We also need to broaden the market outside of China and diversify species.”
Since the business began, it has been focused on selling all hardwood lumber, no plywood or veneers. The exporter’s focus has been on what Morrison calls the “bread and butter hardwood species” – red and white oak, ash, poplar, cherry and walnut.
Maybe in the future they’ll even have time to concentrate on selling a little mesquite.