It’s Not a Circuit-Board Business. It’s an Asset

Introduction:

This week, special guest Karla Trotman explains, step by step, how she has managed to navigate the challenges and opportunities that only a family business can offer. Karla grew up around a manufacturing business, Electro Soft, that her father started, but she never intended to make a career of it. Instead, she found success in corporate America, but over time, she also came to realize the true wealth-building power of owning a business, any business. “It’s not a beauty salon,” she says. “It’s an asset. It’s not a shoe-shine store. It’s an asset.” That realization sent her back to Electro Soft, which thrilled her father. They agreed to work together for three years after which he would retire and she would buy the business. And that’s pretty much what happened—although, as Karla tells us, thanks to some family dynamics that had to be negotiated, the transition didn’t take three years. It took 11 years.

— Loren Feldman

Guests:

Karla Trotman is CEO of Electro Soft.

Producer:

Jess Thoubboron is founder of Blank Word.

Full Episode Transcript:

Loren Feldman:
Welcome Karla, our special guest today. It’s great to have you here. I think we all know that family businesses can be a little crazy, but they’re kind of all crazy in their own way. You’ve written a terrific book about your family’s slightly different brand of crazy. I don’t mean anything insulting by that. Again, all family businesses are that way.

Karla Trotman:
Very true.

Loren Feldman:
Your book is called Dark, Dirty, Dangerous: Building the Vibrant Future of Manufacturing. First, I’d like to ask you, why did you decide to write the book?

Karla Trotman:
Well, obviously, having a family business is—it sometimes can feel like you were the only person in the world going through something crazy, and I didn’t know a lot of people who are people of color who owned businesses. And what makes that unique, why I mentioned people of color, is because we tend to have networks, but our networks aren’t those that are within the entrepreneurship circles. And so, we tend to feel very alone, and people of color are one of the fastest growing demographics starting businesses. And I really wanted to be helpful.

One part of me also was very attuned to the fact that the Black wealth gap was ever widening, and entrepreneurship is one of the best ways to create generational wealth. So with my seat at the table, my experience, I wanted that to be almost a gift to the community. But also, you know, the selfish part of it, in a sense, is I really wanted to build authority for Electro Soft. So it was two things: I wanted to do something good, the altruistic side of it, but I was really still growing the business, and when the opportunity came to write something that was an authority piece in manufacturing, I jumped at the opportunity.

Loren Feldman:
You mention in the book that Black family businesses tend not to transition from one generation to the next. I think that’s kind of true in general of family businesses. Do you think it’s even harder for Black family businesses?

Karla Trotman:
Absolutely. I mean, you just look at the numbers around access to capital. It wasn’t that my parents just handed me the business. I had to actually go and obtain a loan and buy them out. And part of that process was, even though I had years of experience, assets, and money, I still couldn’t get everything that I needed in order to secure the business. And we had to use some other creative ways to do it. So, access is definitely one of the things, and the other is the education around it. You think you have to have exactly the amount of money in your pocket that it costs to buy a business. And it doesn’t work that way.

But the other part that I see is that, you know, Mom may have a beauty salon or some business that you’re not interested in, because they did that in order to send you off to college and have a great career. And you almost feel as if, “I don’t want to run a beauty salon.” But the educational piece of it is that we’ve not taught one another is that: It’s not a beauty salon. It’s an asset. It’s not a shoe-shine store. It’s an asset. And how do we then put somebody in place to run it, generate income, so that we’re not just working for a paycheck, but we have a combined source of income from both the business and pursuing the career that we love?

Loren Feldman:
Let’s take a step back. Tell us, what did Electro Soft do when your father started it? And when was that?

Karla Trotman:
My father started Electro Soft in 1986. He has degrees in electrical engineering and math, also in computer science. So he was in a field of doing instrumentation, writing software for blood-analyzing equipment in a corporate setting. And they decided to get rid of the entire instrumentation division.

And while he was figuring out what to do, someone reached out and said, “Hey, you know anybody that can build cables?” And he said, “Sure, I’m not doing anything. I’m trying to figure out my next step.” So he then built the cables on the kitchen table. And the guy loved them and asked for more. And he got one of the women who was laid off that worked under him, and they both made cables on the kitchen table. And the rest, as they say, is history, because honestly, he wasn’t trying to start a business in manufacturing.

Loren Feldman:
How did it go from the kitchen table to a real company with employees and customers?

Karla Trotman:
Well, Electro Soft is an electronics contract manufacturer, so we don’t have a product. We sell our time and expertise to companies that are interested in outsourcing their manufacturing, or they’ve had a surge in orders and they need that type of support. And these companies tend to maintain stateside manufacturing. They’re not making cell phones or anything like that. It’s mostly a high mix, lower volume. So doing bench-top electronics, we’re doing on the kitchen table, then to move to the garage, because my mom wanted the kitchen back.

And then, being in Pennsylvania, uninsulated garages tend to be cold in the winter, we wound up going to an incubator space. And there were a couple of hops, and each year, my dad didn’t think that he was going to stick with it, because they really weren’t making any money—until, I guess, the end of the third year, they started making money. And I mean, this is after taking a second mortgage on the house to see if it was going to work. And I think once you take money out of the bank and take that mortgage out, you really do want to make sure it works.

Loren Feldman:
And risk the house.

Karla Trotman:
Yes, exactly. They bet on themselves. When they started making money, they really knew that they had something there, but honestly, there’s no pictures of the earlier days of Electro Soft because we didn’t think it was going to be around.

Loren Feldman:
And did you grow up in the business? Did you work in it when you were a kid?

Karla Trotman:
I did, as a young child. I was about 10, and I started, and I would cut wire with wire cutters and a ruler and just measure out the different colored wires that were needed for the assemblies. Or I would help my dad when he was running printed circuit boards through a wave-soldering machine and catch them on the other side.

And so I know how to do all of those things, but I was still conditioned to go to school and get a degree and go and have a career. There was never any pressure to work in the family business. And quite frankly, I didn’t think you could make money in small business. I didn’t think that there was any money in small business. I thought—in order to live well—you had to get a corporate job. So it was a little bit of a miscommunication in schools, whereas now, everybody knows that entrepreneurship can be a lucrative direction to head in.

Loren Feldman:
Did you think that because your father was struggling with the business, or because he didn’t really share with you that it was doing better than you thought?

Karla Trotman:
I think all of those things. Most of the people who we knew who had businesses—because at that point, my father’s network of entrepreneurs started to grow—everyone really lived below their means. They weren’t flashy, spending a lot of money, or had big homes or anything like that. So I’m thinking, “Good lord, these people are really struggling here.” And so we tend to equate those visual cues to bank accounts, as opposed to really talking about what the numbers are.

I mean, my parents were never flashy individuals in the first place. We were living off of my mom’s salary while my dad was building the business. So, that was just the way we lived. And I always thought that we didn’t have much, but they were putting everything into the business as their investment. So for me, I mean, I think that’s the unfortunate thing about school, at that time. It felt like school was like a pipeline for corporate America.

Loren Feldman:
You did go into corporate America. Tell us what you did.

Karla Trotman:
Yeah, so my undergraduate degree is in business logistics, and I worked for retailers such as IKEA, Gap, a company that Honeywell ultimately purchased. And I was doing supply-chain logistics. And I liked the career, I liked the travel, and I did what I thought I was supposed to be doing.

Loren Feldman:
You wound up, I believe, starting your own ecommerce business at some point. What prompted that?

Karla Trotman:
Well, I think all of that was part of divine intervention. When I was traveling and working, I had gotten married. We had our first child. And I was having a very difficult pregnancy, and at the time, nobody really talked online about these things. Like, there was no real Facebook presence. You couldn’t buy everything you wanted off of Amazon. So ecommerce was just starting out, and I decided: Hey, I need to find products. So I used my degree in logistics to identify products around the country, around the world, that women who were having difficult pregnancies were utilizing, and a lot of these products weren’t readily available because they were lacking in distribution.

A lot of them were mompreneurs who were home, and they made a couple of products, and they figured out really beautiful packaging, but weren’t widely available. And there was no huge network to distribute them. So I was one night online, on a discussion board lamenting about pregnancy, and I was the go-to woman that knew all the products to help women. And I couldn’t answer all the questions, so I created this online store for women to go to and buy while I was doing my logistics job during the day. And a lot of the women would do the shipping of the products. So people would come on, they would pay, and then I would tell the ladies where to ship the product and pay them. And it was basically drop shipment, which I knew very well in logistics.

But during that time, I had to learn search engine optimization, inbound marketing, what blogging was about, how to really freshen up your content and keyword research, and things that everybody seems to know now, but at the time was really new—about how to, quote-unquote, fake the Google algorithm. And so I was really self-taught and working with other mom bloggers to really understand the landscape, and it helped my business have a worldwide clientele.

I had done a gifting suite for the Golden Globes, I had celebrity clients, and it was growing really rapidly. I also was doing spots on local television because of that type of reach. And I realized, at one point—because I then had my second child, because I started the company while I was on maternity leave—and I was at work, and I realized I should be helping my family. Because legacy started to have a new meaning. So I should be helping my family by taking all this knowledge as the internet was changing the way marketing was being done, and the industrial sector of manufacturing had not yet made that turn.

Loren Feldman:
Did you ever give up your corporate job and do the ecommerce full-time?

Karla Trotman:
No, no, I didn’t. Like, I still felt that I needed to be in corporate America. I had these great benefits, and I traveled, and I liked logistics. I liked doing that work. And then as my kids got older, I just wasn’t really interested in the baby piece of it anymore. I was like, “I don’t want to see anything related to pregnancy or children ever again.” So my interest changed.

Loren Feldman:
Were you able to sell that business, or did you just shut it down?

Karla Trotman:
I shut it down. Honestly, Loren, that’s, again, a learning curve of, “Well, who do I sell it to?” I didn’t know you could go to a business broker to have it sold. I thought you just shut the lights off and roll the carpets and call it a day, especially an ecommerce site. And then I just wasn’t interested in it anymore. So, it was definitely a lost opportunity.

Loren Feldman:
So it sounds like working in the corporate world didn’t completely turn you off. There were aspects of it that you clearly enjoyed. What got you thinking about going to work in the family business again?

Karla Trotman:
It was making my own money from my website. I realized, “Hey, these small businesses are actually bringing in some good money,” and that working in corporate wasn’t the only way to be successful. And the more I looked into small business and started talking to people, I realized that there’s so much opportunity. It just depends on the level in which your business is operating. So, my family’s business was always a lifestyle business. They loved it not being so high impact that it was causing them sleepless nights. They were able to handle all the expenses. It was a great staff. My father could take as many vacations as he wanted. And so, he ran it just like a lifestyle business. He was not really trying to grow it.

So, this is also around the time where a lot of companies were looking to de-risk out of Asia and bring the supply chain closer to home. And they just weren’t really sure, because we’re talking back in the ‘60s, ‘70s, when everyone went overseas to take advantage of cheap labor that all the manufacturing jobs had left the U.S. So that’s why people, now that manufacturing is hot again, want to bring their products back over. But it’s really hard to ramp back up when, for so long, companies were overseas. So now there’s a shift, and I saw that shift starting to happen, and that’s really what caused me to think differently about a new challenge.

Loren Feldman:
Could you define for me what you mean by the term “lifestyle business”? Because I think I understand what you’re saying, but I think that term sometimes is used in a demeaning way, to sort of suggest that people aren’t serious about running the business. And I don’t think that’s what you mean.

Karla Trotman:
No. Obviously, in the beginning, you want your business to be highly successful. And my father had grown a business from the kitchen table. So he was at the point where—and we’ve got to remember this is a man who, when he was in high school, he was talented in math and science and was told the only thing you can do is either be a teacher or go into the military. So he’s very much a self-taught person. And the fact that he had created a multi-million dollar company and paid off everything that he ever owed money to, he didn’t have this additional drive to make it some multinational corporation. He had created an entity that—

Loren Feldman:
But it wasn’t a hobby either.

Karla Trotman:
It was not a hobby. He made money. He made good money. He just knew that the amount of work required to take you to the next level, he just really wasn’t willing to do. And he didn’t want to, because he had reached a level of success that he just had never seen for himself. And I think that that’s okay. I think that’s a lot of companies, especially because most companies don’t make a million dollars. I mean, most companies are making $100,000, if that.

So the fact that he was doing well for himself and had a full staff and could hire friends and their children, it was a good place for him. That’s where he saw himself. And I think sometimes we get wrapped up in the imagery of entrepreneurship where you’re constantly pitching and you’ve got decks. And you’re talking like, you know, barely sleeping and traveling the world. That’s not the real deal for most companies. Most companies are not living like that. A lot of businesses are lifestyle businesses, and it isn’t until they get an infusion of cash through private equity and they’re trying to go public, that things take a harried approach.

Loren Feldman:
Was your father thrilled when you started to express interest in coming into the business?

Karla Trotman:
Absolutely, he was. He was going to sell the company until I expressed interest.

Loren Feldman:
How close did he come? Was he actually looking around for a potential buyer?

Karla Trotman:
Well, manufacturing is very much in demand for a lot of buyers. I think I get at least an offer suggestion every week from someone who’s interested in buying us.

Loren Feldman:
That’s a nice thing.

Karla Trotman:
Yeah, it’s great. And he had built a company that he didn’t have to be at all the time, so he had put all the systems in place so he could have gotten a high multiple, if he did decide to sell. But he really did want to keep it in the family.

Loren Feldman:
That said, as I read in your book, your transition, I believe, lasted 11 years. Do I have that right?

Karla Trotman:
That’s so embarrassing, but, yeah, it did.

Loren Feldman:
Tell us about that.

Karla Trotman:
So, whenever you deal with succession planning, what the previous generation is looking at is their own mortality. They’re thinking, for some reason, that, “You don’t want me around anymore. You’re sending me out to the pasture.” And it’s really not the case. It’s just that I was ready for myself to move into that role.

I had left my corporate career to do it, and I was at that age of being over 40, which makes it a little bit more difficult to find a position that will be able to meet your lifestyle needs and the level of success that you’re at without it being troublesome. So, it was just a pivotal moment for me in life. And with the promise of three years, I was fine with three years. But after that three—

Loren Feldman:
The promise of the transition was it was supposed to take three years?

Karla Trotman:
Correct, that was the first thing. So I said, “So Dad, I want to take over the company.” He’s like, “Oh, that’s great. I want to retire in three years.” I was like, “Okay, I can do three years. We can work together.” And three years came and went. And then I said, “Hey, three years.” He’s like, “What three years?” I said, “Your retirement has come. It is time.” And he’s like, “Uh, yeah, I need three more years.” I’m like, “Okay, that’s fine.” And so that went on until I started to come to the realization that: He’s going to drag this thing on forever.

So I started doing a lot of research about family business transitions. And one of the books that I had come across was Hug Your Customers by Jack Mitchell. And in that book, he talked about having family meetings. And I said, “Oh, that’s great. We’ll start to have family meetings, and that way he can see what it would be like if I worked with my brothers, and we can get everyone on the same page.”

And I also had reached out to a company that was used to transitioning family businesses. I actually knew the office managing partner, and asked him to come in and help us. And we did a third-party assessment of myself and my brothers to see who would be most primed for leadership, if we should go and all three run the business, like how it was going to work out. Just to kind of push him along, give him a little bit of a nudge. And he just really kept throwing the brakes on at every point. But it was important that I picked somebody—that managing partner was somebody I knew who could go toe-to-toe with my dad. Because he’s former military, I knew he could walk right over anybody and almost bully them, but I knew that this gentleman was not to be bullied. So that was really helpful during that time period.

And then I also realized that my dad wasn’t going to just one day say, “I dub thee CEO.” I had to show him, and be CEO. So I just started making CEO decisions and really taking over the direction in which I wanted the company to head, because he wasn’t really even there anyway after a while. He was spending a lot of time on the golf course, which he should, and really enjoying life, which I wanted him to, but I also was ready to move forward. So that whole time period took 11 years.

Loren Feldman:
Had you been doing okay in the day-to-day? Obviously it’s one thing when he’s not there, but you still have to be agreed on the general direction you’re headed. Did that go relatively smoothly?

Karla Trotman:
Oh, yeah, he didn’t care. I mean, it wasn’t like I said, “You know, we’re now going to make cleaning fluid.” It was just directionally, as far as the structure of the company, contracts we would go after. It was all great business moves. We very, very rarely disagreed on any decision. [Loud Noise] By the way, that sound is my production, if you can hear it in the back. [Laughter] But it was a great relationship. And I think, to this day, we still have a professional relationship, in the sense that we rely upon one another. I still ask him for advice about the business. He asks me my thoughts on different things, and it’s built on mutual respect.

Loren Feldman:
What do you think kept him from letting go then, if he wasn’t there that much and you agreed on the important stuff? Why did it take 11 years?

Karla Trotman:
I think because folks now see that when people stop working, they tend to fall apart and have a lack of purpose. And then they pass on. I think he just didn’t want that for himself, even though he’s very active, and he’s very healthy as well. For him, he just said, “I’m not ready.” And, “This is mine. This is my thing I started. I’m not ready to leave.” And you see that a lot, and they’re not willing to—almost in a way that my dad, when he did transition, was like, “Okay, here’s the business. Don’t touch anything. Just, you know, put it in neutral and let it coast.” [Laughter] And I said, “No, that’s not how we’re going to do this.”

But again, the respect level—and during the time of that 11 years, I also went back to school and got my MBA—not that it taught me how to run a business, at all. But what it did take me through was a lot of case studies, and really helped me think about how I wanted to grow the company—if we just wanted to do that slow accretive growth or we wanted to do acquisitions. So during that time period, we had done an acquisition, which was something we had never done before.

Loren Feldman:
You instigated that?

Karla Trotman:
I did, I did.

Loren Feldman:
And it went well?

Karla Trotman:
It did. It did. He had said to me before we went into the final meeting, “How confident are you in this purchase?” I said, “Fifty-fifty.” He’s like, “What do you mean fifty-fifty?” I’m like, “Well, we spent more money on dumber things. I think that it will probably work out.” And that was my level of confidence, because I had seen people buy companies, and they didn’t have a deal team, and it worked out. And then I’ve seen companies that were way bigger than ours that had an entire deal team, had investment bankers, and that thing could not work no matter what they did. So, I really felt that we had done really great due diligence in that whole process. It was me and our CPA, and the things that we were able to salvage out of that company still make us money to this day.

Loren Feldman:
Your transition was also complicated because of your brothers—I believe they’re two younger brothers—and what role they might play. Can you tell us how that sorted out?

Karla Trotman:
Yeah, all three of us did work for my family. We had three different education levels. My one brother is three years younger, the other is 10 years younger. And it was just a different level. We all had three different levels of dedication. And for me, even when I was young, my dad always said to me, “Don’t go into business with anyone who has nothing to offer.” So every time I would be in a position where someone wanted to work together, do something together, I’ve always thought about that: “Don’t go into business with somebody who has nothing to offer.” So, I started to look at my brothers as potential business partners, not just my brothers.

And when I assessed that piece, and after the independent assessment that the transition team had done, I realized that I did not want to work with them. I loved them. Part of buying your family business is that you get independently assessed on all of your assets. And all the asset base was coming from me. And when it came to doing a deal with the bank, they want everyone’s resume. Well, my resume was the only one that really could stand up as someone who was primed and ready to take over a business. And what I had said to my dad was, “You said, ‘Don’t go into business with somebody who has nothing to offer.’ It looks as if I would be doing everything, putting up all of the risk, and writing a check back for 66 percent of the net proceeds. That doesn’t sound like a good deal to me.”

Loren Feldman:
66 percent because the three of you would each own a third?

Karla Trotman:
Yes, correct. And I say that because, oftentimes, with family businesses, they want to split everything evenly. Even if they didn’t do that, if they said, “Oh, well, you can have 50 percent,” and they can split 50 between the two of them, and still, to me, it’s like the math just wasn’t mathing for me. And it wasn’t that I wanted to take over everything. I just really wanted it to be fair to me as well, and I never take a deal for anything that I would hate myself for. That’s always been my philosophy. And my dad thought about it, and he’s like, “You know what? You’re absolutely right.”

Loren Feldman:
Did he say that right away? Or did it take him a while to reach that?

Karla Trotman:
It took him a while because, obviously, he had to think about it. And then, that’s where the transition team was great, because this is not the first time they’ve heard something like this. And they said, “Fair and equal are two different things.” So you can be fair, and it doesn’t have to be split equally in the way that you think. You can make it fair by giving assets on it from a different asset class. So whereas I had to go to the bank and put up all my assets, and I’m working right now in what would be deemed as a quote-unquote inheritance and paying the bank off, my brothers will ultimately receive a check as part of their piece of what I ultimately ended up paying for my inheritance.

Loren Feldman:
When you were figuring all of this out, did you have this difficult conversation with your brothers?

Karla Trotman:
I did.

Loren Feldman:
How’d that go?

Karla Trotman:
I’ve always been a straight shooter. I’ve tried not to be mean about it. And I think that’s the benefit of also having those family meetings, because a lot of things came up during those meetings. Like, one of the questions I asked was, “What is happiness to you? What does the future look like for you?” And it was never a future painted with this company in mind. To them, I believe, and from talking to them, it’s like they felt like it was a sense of duty. And I said, “I’ve never felt a sense of duty. I could have left and done whatever I wanted to do.”

But for them, they’ve always felt drawn to it because they felt they had to be there, which is unfortunate, too. With a lot of people who have family businesses, they feel like they have to be there, and so they’ve tailored their lives according to that, as opposed to really living the lives that they wanted to live. And I was determined to never do that. And that was just my own personal mindset. I know with my one brother in particular, I think he felt a little bit more free from having this burden. Because, for me, I said, “You should do what you want to do and not have to have this as a thing.” So he works here, kind of like freelances part-time, so he’s able to pursue other things that he’s interested in.

Loren Feldman:
Oh, that’s great. And the other brother, did it work out with him as well?

Karla Trotman:
Ultimately, it did not work out. And sometimes you have to ask people to no longer be there. And a little bit of it was a healing process, but I ultimately—and we’ve not really talked much about it, but I was just very, very honest. I brought my dad in to really have a conversation of why I had to do the things that I needed to do. And I still really love him. I love both of my brothers. It just wasn’t—sometimes you make decisions for the benefit of the business and not the benefit of the family. So, that’s the hairy part of family business.

Loren Feldman:
It’s hard, but it sounds like it basically worked out for you.

Karla Trotman:
Yeah, I mean, you’ve got to be the person who makes the hard decisions. You know, I let a lot of things linger for a long time, and I think it caused the culture of the company to suffer. And then it also caused the employees and the management team to think that there were sacred cows in the company, and there really weren’t. I think I was trying to honor my parents moreso than maintain sacred cows. And when it came down to it, I needed to make sure that the company was okay.

Loren Feldman:
So, as you said, your father didn’t just dub you CEO. You had to buy the business from him and get a big loan to do that. How did that go?

Karla Trotman:
Well, you know how anything would go. I was scared to death having all this money. This is the biggest loan I ever had. And also, it happened in January 2020. So weeks later, the entire country, the world, shut down. And my husband and I had bought our forever home. So, it was like a double whammy for me.

Loren Feldman:
You had a mortgage on that home, too.

Karla Trotman:
Correct, correct. So, yeah, it was a lot more fear because of the Covid situation. And it’s not like a downturn in the market, right? You know, you can wait out a downturn. You can wait out some economic indicators telling you things. But this was something, like, we didn’t know. Was it the end of the world? Nobody knew. And I spent a lot of sleepless nights, and I was doing the sleepless nights by myself. My dad’s like, “Oh, it’ll be fine.” And I think that when you’ve been in business for over 30 years, you’ve seen a lot of things. But I said, “All due respect, Dad, you’ve never seen a worldwide pandemic in your 30 years.” So, that was scary.

Thankfully, at the time, banks were a lot more lenient, and they were like, “Oh, you cannot pay us for three months, but we’ll still charge you. You’ll still accrue interest, but you don’t have to pay us for three months,” so all I could see was accumulating debt. And I didn’t want to let my employees go at the time, because we looked at our employees as family, because they had families as well. They had bills. And that was one of the things, at the time, that I really started to understand: the differentiation between what small family businesses are able to do versus large public corporations with corporate boards. On one side, if you look at the data, large corporate entities tend to look more short-term. So when you compare them to us, they make really solid numbers in the short run. They’re able to meet the market expectation, shareholder value. Those are the things that they’re looking at.

But when you look at the long-term, family businesses are able to make decisions looking farther ahead on the horizon. So, they tend to care more about the people. They’ll take the short-run hit in order to take care of their people. And that’s what we did, and knowing those things was really helpful for me, because I’m like, “Am I being a fool by not letting these people go? Am I being too sentimental?”

But no, we have always been a company that took care of our people. We’re under 50 [employees], so we do a lot of things that we would be mandated to do if we were over 50 employees. We cover 60 percent of their health care insurance. We pay 100 percent of their dental insurance. We do a lot of things because it’s the right thing to do by people. And in turn, most of the people who are here have been here for a long time, and they are very dedicated to Electro Soft.

Loren Feldman:
Can you kind of give us a snapshot of where the company stood in January of 2020 when you took it over—how big it was and what kind of work it was doing?

Karla Trotman:
So in 2020, we were around 26-27 employees. Because of the nature of our work, we always have had a lot of the same customers or similar customers. So our top 10 or so are our consistent base. But then we also have companies that kind of float out for a couple of years and then float back in. So they may try doing something like outsourcing to Mexico to do a near-shore, or try to go over to China, and then they’re like, “Oh, that didn’t work,” and they come back. And then someone else comes in and says, “Oh, you should go to Mexico.” And they go, “Okay, well, we tried that.” Then they do it again, so that it’s like a cyclical thing for us.

During 2020, we still had the contracts, but it started to dry up, a lot of the work. We had people who were mothers who had to be home for their children. The ones who had kindergartners had to sit there at the computer with them. We couldn’t really bring them in, because we’re a light manufacturing facility. So that was difficult, trying to figure out how that was going to work. And we did take a slight dip in ‘21 because people were still unsure, and we just started going back outside in 2021.

So, since then, every year since, we’ve been 20 percent year-over-year growth by maintaining a smaller workforce, around 30 employees, because we’ve really worked on systems, a lot of integration of systems, and really trying to put things with a stronger process so that they could run more efficiently. Everything is about being as efficient as we can with the number of people that we have, but I would love to hire more people. That’s also been an issue, just in manufacturing in general. So this year has been all about creating employee pipelines with partners who are doing some pre-apprenticeship training for manufacturing.

Loren Feldman:
I assume you were able to get a PPP loan or maybe an EIDL loan as well. I’m curious, just because you started with a considerable amount of debt, how did that go for you?

Karla Trotman:
Honestly, Loren, it all worked out. You know, a lot of prayer and managing our debt as much as possible. So even though we had material during Covid, in that time period, we were able to negotiate our customers paying for the material. As far as people, we did take advantage of the Cares Act and whatnot. Even though I didn’t pay the bank for one month, right after I realized I didn’t want to accrue that interest and just not pay, we just picked everything back up. I have not ever been in arrears with anyone. And I think part of that too is that cash flow. I always knew that cash flow was the blood of a business, and that’s just good business practice.

Being able to really understand my financial documents has been very helpful. My board of advisors that I created in 2021 was amazing. Well, I created it in December 2021. They kicked off in the first quarter of 2022, and that was one of the best decisions I ever made. We’d never had an advisory board. And then I brought on a fractional CFO to help us make better decisions around money. So, yes, I had a lot of money out in the street, but thankfully, PPP—and then the Employee Retention Credit that ultimately, when they changed the rules and allowed you to utilize that—was extremely helpful.

Loren Feldman:
Do you pay people to be on the board?

Karla Trotman:
I do, but it’s basically nothing that would change their lives. [Laughter]

Loren Feldman:
How often do you meet?

Karla Trotman:
We meet quarterly. So, the board: I went to, I’m part of Ernst & Young’s entrepreneurial ecosystem. I was in their inaugural class of the Entrepreneurs Access Network. That program is for Black and Latino and Hispanic businesses. Because they’ve had Entrepreneur of the Year, then they created Entrepreneurial Winning Women. And then they created this third program that was just kicking off in 2021.

While I was at their Strategic Growth Forum, which is their annual gathering of that entrepreneurial ecosystem and where they announce their national Entrepreneur of the Year winner, I met a woman named Phyllis Newhouse, and she’s an absolutely incredible woman. She is the first Black woman to bring a company public via SPAC. So, she didn’t do the traditional IPO route. She did a Special Purpose Acquisition Corp and raised $200 million in like two weeks over Zoom during Covid. And within 89 days, she rang the bell and her company went public. She’s a force.

She was at the conference. I had the opportunity to sit with her, and she’s like, “You need an advisory board.” She gave me the pieces that I needed. I put the board together, and by really looking—oh, I read a book, too, about boards. I have a CEO coach who I started with in 2019 leading into taking over the business. And the book that she gave me really broke down the different types of boards, like the difference between an advisory board and a fiduciary board. And so I had an idea of what a board was.

What happened is, when Phyllis and I sat down, she’s like, “These are the players you need on your board. So how long will it take for you to do this?” I said, “Oh, I’ll work on it for first quarter.” She’s like, “You have 90 days.” And I definitely didn’t want to let Phyllis down. I created that board in 90 days. I right-sized all the players. There’s five roles, and they were all a little bit of blind spots for me. And we met. I had the financials. I mean, I was very nervous. I didn’t know what a board meeting would look like. But what it did was, I had people who were seasoned executives giving me the opportunity to see my business in different angles, in ways that I just never saw it.

One of the beauties of a board is that you get to really tell your story to people and have them buy into the future that you want for the company. People can say no, obviously, but if they are really engaged with what you’re trying to do—and in my instance, the story was that I had taken over my family business; I’ve never met anyone that looked like us, as far as being a family of color in electronics manufacturing, a Black family—because of that, a lot of people come to us inspired to be in STEM. We’ve allowed a lot of young people to come and work with us over the summer who have gone off to be amazing executives and engineers, and some who stayed and worked with us. And we just really want to be part of another strong American story about manufacturing. And that I saw tremendous growth for the company.

And if people like you, they want to be a part of that story. Being paid is like the least of their concerns, especially the two gentlemen who I have who are tremendous. And they both have exited their careers, and they’re just enjoying retirement or semi-repurposed lives, doing other things. And they want to help. And when you have people who really want to help you succeed, those meetings are absolutely amazing.

I had a gentleman on my board who had a successful exit from his companies. He’s had multiple companies. So, he had his final exit, and he’s really able to think about how to have strong multiples of EBITDA. What is the product that you’re having? How do you create value in your business? And those are things that you don’t have just sitting behind your desk, or reading one book here and there, or taking a class. It’s really surrounding yourself around strong professionals.

Loren Feldman:
So, what do you see as the future for Electro Soft? Do you still think of it as a lifestyle business?

Karla Trotman:
I have this vision of not just Electro Soft, but an entity that is owned by me, by the family business, that is doing at least $100 million. Now, we’re far from that, but I will tell you that putting that out in the atmosphere and really taking steps to create joint ventures and mergers, which is what we’re working toward, it allows me to really think bigger than just being able to pay the bills or meet the demands of the quarter.

It helps me really visualize: Who are the players that we need on the Electro Soft team in order to get there? How much funding will we need? How will we be able to access that capital? And it has me asking more questions and getting me closer to that target. And it’s actually really energized me, in a sense. It feels like a new purpose, especially because I know how meaningful it is to be a woman in the field that I’m in. There aren’t very many, especially as owners, and I really look forward to being a strong example so that more women will enter manufacturing.

Loren Feldman:
I’ve, over the years, talked to a number of entrepreneurs who have set similar goals. Actually, $100 million is a pretty common one that you hear, and a number of them are, today, pretty open about the fact that that was a mistake for them—that they were too focused on a round number, and it got them in trouble. They did things that they were sorry they ended up doing. Have you thought that through? Do you worry about that at all?

Karla Trotman:
Oh, yeah, I always worry about every decision being the wrong decision. As far as the $100 million goal, I try to only do things that make sense for us. As far as having the team that I have, with the advisory board, the other networks that I’m a part of with the EY ecosystem, I have alignment with the goal in which I’m trying to head.

I say $100 million because that’s almost like the guiding star. The goal, really, is to expand the footprint of the company. $100 million would be great. More than $100 million would be great. I think that if you have the endurance for it, also if you have the right people and the right team to get you there, I don’t see it as something that we wouldn’t hit, quite honestly.

Loren Feldman:
Can you give us some sense of where you are now?

Karla Trotman:
Well, I’ll say this right now: I can’t really give you much now, but I’m in the process of working on a project that will get us there faster than I thought. What I mean is we’re expanding in different areas of the country where manufacturing is a lot stronger—not that it’s not strong here, but right now there’s a focal point on it and there’s a need for electronics manufacturers and it doesn’t exist. So we’ll be filing a need, a current need, that will help Electro Soft get to its goal.

Loren Feldman:
Will that require you to take on partners, investment dollars?

Karla Trotman:
Yes.

Loren Feldman:
Are you fully comfortable with that?

Karla Trotman:
I am because it won’t be Electro Soft taking on that. It will stand as its own entity.

Loren Feldman:
But Electro Soft will grow in the process?

Karla Trotman:
Well, Electro Soft will be underneath a body of other businesses. I’ll be able to take business from these entities and funnel it to Electro Soft in order to help Electro Soft grow as well. It’ll be part of its own ecosystem.

Loren Feldman:
And you’ll retain full control of your business?

Karla Trotman:
Yes, Electro Soft will always be owned by me.

Loren Feldman:
Have you started to think about what the next transition would be and how you will handle it when perhaps your kids are or are not interested in the business?

Karla Trotman:
Absolutely. Even though I speak in vague terms, one of the things I do know is that I probably will not be the one running Electro Soft, that there will probably be somebody in my place who’s able to steer it in the direction in which we’re headed.

Loren Feldman:
And why do you say that? Why would you make that choice?

Karla Trotman:
Because I think one part about being an entrepreneur that I’ve learned is to be able to actually enjoy life and to be able to focus on the other projects that we’re working on. I can’t do that just running Electro Soft. And I always think about, “Am I the best person to be running it?” And I think there will be a time where somebody else needs to step in to take it to the next level so that I can focus on the other projects.

And so I think about that for my children, even though they’re 16 and 18, that there’s different time periods where they can’t run the company, at this point, if something were to happen to me. And what happens then? So, we would have to hire a president anyway to run the business, that we would have to have a board that has fiduciary duty to the business and to be able to help advise them in their decisions and know what’s going on with their business. So, I think about that all of the time. Right now, at 16 and 18, there’s not much they can really do.

Loren Feldman:
Is it important to you that your kids have the option of taking over and running the business, if they so choose?

Karla Trotman:
Yes. I would love to give them the option, but I also want to give them the same option my parents gave me, which was the no-pressure option of picking whatever I wanted to do in life.

Loren Feldman:
My thanks to Karla Trotman. I really appreciate your taking this time, Karla. Thanks for sharing your story, both here and in your terrific book, which is called Dark, Dirty, Dangerous: Building the Vibrant Future of Manufacturing.

Karla Trotman:
Thank you, Loren. I appreciate you.