Disrupters in the right place at the right time; The brothers behind Nowy Styl have thrived in the years since the fall of communism in Poland

September 24, 2013 4:43 pm

Disrupters in the right place at the right time

By Jan Cienski

Hot seat: Adam Krzanowski is chief executive while his brother Jerzy oversees the Polish factories

Over the last 25 years, Poland has been transformed. A dysfunctional country ruled by incompetent communists where people received a pittance for their work has become a wealthy and sophisticated economy – a change the Krzanowski brothers, Adam and Jerzy, tracked closely as they became two of Poland’s wealthiest men. Their company, Nowy Styl , which means New Style, is expected to become Europe’s third-largest maker of office furniture by the end of this year and the brothers are now worth more than $100m. Their company had revenues last year of 1bn zlotys ($317m) and has projected revenues of 1.2bn zlotys in 2013.Like millions of other Poles their age – Adam is 47 and his brother is four years younger – the Krzanowskis showed an early entrepreneurial streak that was strikingly at odds with the official communist ideology of the 1980s.

By the time they were teenagers, they would fly to Istanbul and fill two suitcases with jeans and leather jackets. Each trip turned a $200 profit – a significant sum when their parents were only earning the equivalent of about $20 a month working at the glass factory in their home town of Krosno in eastern Poland.

“The customs people never bothered us, although it was obvious what we were up to. The airplanes back then were filled with people doing the same thing,” says Adam, speaking from his spare office in the Krakow suburbs, across the street from the site where the company is planning to build a new headquarters.

In 1990, just months after the end of communist rule in Poland, Adam obtained a US tourist visa and flew to New York to look for work. His brother headed to Israel, where he first lived on a beach and then found a job as a kosher cook.

After an unsuccessful year in the US, Adam was preparing to go home when an advertisement in a local Polish newspaper caught his eye. A small chair-making company in Brooklyn was looking for help at $5 an hour.

He moved quickly up the ranks. After taking the place of a worker on the chair production line who had been arrested on a charge of manslaughter, within 18 months he was directing the small factory.

Adam had also become a favourite of the company’s owner, Henry Stern, an Auschwitz survivor originally from the Carpathian mountains in Ukraine, not far from the Krzanowskis’ home, who came to the US after the war.

By 1992, Adam wanted to return home and join his brother – the idea would be to make chairs just like Mr Stern was doing in New York. The two brothers took all their $20,000 of savings, to which Mr Stern added $30,000 for a 40 per cent share in the new company. Even more important than the money, however, he gave his protégé contacts with the Italian factories that made parts for chairs and a payment guarantee.

“We had a huge advantage because the Italians knew Stern so they trusted us,” says Adam. “No other Polish company would have gotten payment terms – it would have been cash on the barrel.”

Their first factory was a rented hall that had been used to store fertiliser. With their girlfriends and their mother, the brothers started upholstering chairs.

Their first sales trips involved stuffing four of their new chairs into the boot of their aged Polonez car and hitting the road, looking for furniture shops.

It was a path that was to be taken by hundreds of other Polish entrepreneurs trying to build a business in the chaos of the early 1990s that followed the reintroduction of a market economy. Private sector success stories such as Solaris, the bus manufacturer, Asseco, the software company, and Kross, the bicycle maker, have similar pedigrees, their owners having taken advantage of a wide-open market with little competition, high demand and cheap labour to start fast-growing companies.

Adam Krzanowski in his own words

“Poland is no longer a cheap place of production. In the past it didn’t matter if we had five people standing on a production line instead of spending $100,000 on a machine so that only one person would be there. It didn’t pay. Now it does.”
“It’s not possible to do what we do from China, that’s why we keep most of our production in Poland. We are doing just-in-time service with only three months from order to delivery. You can’t do that from Asia.”

“We had a lot of luck. We were in the right place at the right time and met the right people.”

After a few months, the Krzanowskis had their first big orders. New offices were springing up around the country but they were buying their furniture from importers who achieved mark-ups of more than 200 per cent. No one else had hit on the idea of making office chairs in Poland. So the brothers contented themselves with a more restrained 50 per cent, which was sustainable because of their much lower production costs.

Within a year they had made their first $1m and pumped almost all of it back into the business. “It was El Dorado,” says Adam, who serves as chief executive, while Jerzy lives in Krosno to keep a close eye on their factories.

By the mid-1990s the company was exporting to western Europe and had made a beachhead in the enormous Russian market. Other Polish furniture makers have followed, and furniture now accounts for about 2 per cent of the country’s gross domestic product. Poland is the world’s fourth- largest furniture exporter by value, after China, Germany and Italy.

Although the company was large, management was fairly ramshackle in the era of easy growth. The brothers micromanaged to such a degree that they would decided what goods were to be loaded on to which truck.

That period came to a crashing halt in 2008, when sales plunged by a fifth and the company had to lay off workers. “That forced a definitive end to our family style of management,” says Adam. “The crisis squeezed us and forced us to reconsider every aspect of the company.”

The brothers hired three professional executives, including one with experience in the car industry, and set up a five-man board. Every aspect of the production chain was computerised – with streams of information about dozens of parameters including pricing, margins and production times being frequently updated. “I can sit there and look at every part of the company,” says Adam, waving to his computer.“We stopped being a family company and became a corporation.”

Nowy Styl has also broadened its product range dramatically. It now makes plastic stadium chairs – equipping the Polish stadiums for last year’s European football championships.

The company has also gone upmarket, increasingly working to design office interiors as well as the furniture to go in them. This partly explains why it continues to manufacture in Poland in spite of rising labour costs. “We started with very cheap production,” says Adam, but the pre-eminent reasoning today is that the company is able to keep quality high and change designs swiftly, something that would be impossible if production had shifted to Asia.

Like many other large Polish companies, Nowy Styl has a growing international presence, with a big factory in Ukraine and the acquisition of two German furniture makers. Production is being kept there to retain the “made in Germany” label, but back- office functions are being moved to Poland, and the Poles are also supplying knowhow to improve efficiency.

“For some Germans it is still mentally difficult to accept that sort of advice from a Polish company,” laughs Adam.

But he is also aware that he had a lot of very good luck and that he hit exactly the right moment to start his business.

“Young people today have it much tougher,” he admits. “The market here has been tamed. In order to succeed you have to have a fantastic idea or come up with a really innovative product.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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