Paul Neustadt: A ‘Master’ of His Trade
Tell me a little bit more about NEUCO Inc.
Neustadt: We operate a single location in Downers Grove, Illinois. Everything we do is located here. We sell in excess of $100 million and employ 134 individuals. We don’t have one specific equipment line, which is kind of unusual, but we do sell replacement parts for all equipment lines.
NEUCO is largely a family business. Can you share a little bit about its history and how the Neustadt family got involved?
Neustadt: When my grandfather started the business in 1907, it was called Neustadt Hay and Grain. He would deliver hay, grain, and coal throughout the city. They had a pull that was operated by mules, which we still have a picture of. Coal eventually was replaced by fuel oil, and the company became Neustadt Fuel and Supply, a fuel oil carrier that had trucks delivering oil to residences and businesses throughout Chicago. In the late 1950s, all signs pointed to fuel oil gradually being replaced by natural gas, because you don’t have to haul natural gas around, it just gets delivered to the house. So, my father and his two brothers, Harvey and John, decided it was time to evolve and do something different. At the time, we worked very closely with two guys who worked with a service company who’d come and clean out and service residential boilers. So, seeing that we were very familiar with replacing parts, we got into the boiler business. At that point, we became a traditional distributor. Our first major line was ITT General Controls. They made a great product but weren’t real predictable on their deliveries. When a contractor needed something from them, they’d say, “Hey, call this NEUCO company in Chicago and see if they have what you need.”
You’ve been with NEUCO for 38 years. How’d you get your start with the company?
Neustadt: I’m one of eight kids. To keep us out of trouble, my dad would bring a few of us in to work with him on Saturdays and put brooms in our hands. When I was 15, I was formally hired for summer work. Now, there were other options available for me. We had a house about an hour away, and I had cut people’s grass on the side. The next summer, I started pitching in at a nearby lake. I had my own rowboat, and I would go around to pick up the bathrooms and beaches, which I thought was a pretty cool job for a 16-year-old kid. But, then, dad offered me a quarter more an hour to come work for him, so, in essence, he bought my time. I’ve always really enjoyed the business. It’s one of those things where it stuck, and I liked it. As I grew older, there were other options, but I honestly never really explored them.
Over the last 38 years, what’s stayed the same at NEUCO?
Neustadt: Back when I started, we always tried to do what was right for our customers and employees. That holds true today. We’ll absolutely put ourselves in our employees’ and customers’ positions and use that as a sounding board for whether we’re doing the right thing. That’s something we’ve always done. Another thing that’s remained the same is our integrity. Integrity is paramount and is something that needs to be protected and worked on. That was drilled into us by my father and grandfather and is something that will continue to be emphasized for generations to come.
In your 38-year tenure, what’s changed?
Neustadt: Oh, boy — a lot. When we started out, we were a traditional distributor selling to contractors. Now, we don’t sell to contractors. We’re a master distributor, which is in between a manufacturer and a traditional distributor. We fill in the holes. For example, if a contractor has a job that requires 10 modulating motors, and he has seven, that means he needs three. Some distributors may require a minimum purchase or have a three- to four-week wait time. If the wholesaler needs that part sooner, that’s when he calls NEUCO. Now, he may pay more to get it from us, but the convenience of receiving that product and being able to get on the job and off the job in a timely manner is very important. The other thing is the internet. Our website has really changed the way we do business. It’s given us a much larger reach to distributors nationwide and has helped us immensely. While we still do a lot of what we did back then, the other thing that’s really changed is our product mix. We added in what we call OEM products and now sell replacement parts for all major equipment lines.
How did the market respond to your transformation from traditional distributor to master distributor?
Neustadt: We consider contractors our customers’ customers. That was really a foreign concept to customers when they first started dealing with us. There was a point when our redistribution business was growing, but we were still selling to contractors. I remember when a wholesale customer came in and said to a distributor who was in our office, “Bob, what are you doing here? I could have gotten you that part.” That was a moment that made everything really uncomfortable for all parties involved. My two cousins and I sat down with my dad and said, “We have to choose a side, because we’re not doing a very good job of walking on top of the fence.” We chose the redistribution side. I recall calling local companies to explain what we were planning to do. One conversation with a distributor went like this: “You have a guy who comes to the counter and wants to buy this part, and you’re not going to sell it to him?” he asked. I replied, “Yes.” He questioned, “Once I buy a part from you, can I charge more when I sell it?” I said, “Once the part is sold, it’s up to you to decide what to do with it.” Then, he asked, “So, I can make 20 percent?” I said, “Yeah.” At the time, it seemed very strange to everyone involved. We recognized we may be giving up some immediate profit but felt it was a worthwhile long-term investment.
NEUCO stocks more than 275 product lines and manages more than 204,000 SKUs. What software or tools do you use to efficiently oversee such a large variety of product?
Neustadt: We operate our warehouse on a home-grown program that we call the NEUCO system. We implemented our first computer in 1982. Before that, we had a card-index system, which worked and was accurate. We tailored our computer system to mimic that. We have a lot of horsepower in our IT group. We have modules that oversee payables, receivables, inventory control, purchasing, etc., and they all work together. It’s constantly evolving. If you compared where the program was five years ago to where it is today, it’s vastly different. I’m sure the same will be said five years from now about how it operates today.
Your N2G shipping upgrade program guarantees two-day shipping. How exactly does this program work?
Neustadt: We actually had two-day shipping before Amazon was a household name. The name N2G is a play off of Y2K, the term that was given to the turn of the calendar from 1999 to 2000. When we started the program, we considered how we could extend our reach beyond specific areas. We looked at certain regions and determined we can guarantee four-day shipping here and three-day shipping there, etc. There are other areas that are one day. Eventually, we elected to guarantee two-day shipping anywhere in the continental U.S. Some shipments we don’t have to upgrade and others we do. Now, there are some items that don’t qualify, but, by in large, most everything’s there in two days. There is a sense of immediacy in today’s day and age, and our delivery time is crucial.
Your website is one of the sharpest HVACR distribution platforms I’ve seen on the web. Can you share a little about the success you’ve had with your online storefront?
Neustadt: We were transactional before it was a thing to be transactional. We’ve tried to give our customers as close of an experience online as they could if they had called in. If a salesmen here at NEUCO can look up a model number for a customer, which we do every day, we’d like our customers to be able to do it themselves. While it’s foreign to me, many of today’s customers prefer not to talk with others. Our IT director was once a salesman for us, which is a real advantage. He parlayed that sales knowledge into our website. Distributors need to embrace the internet. It’s not going away. I don’t see how it cannot be a part of your business.
NEUCO boasts highly skilled personnel. How much time do you spend training your staff and what types of things do you focus on (safety, skills, etc.)?
Neustadt: Training is a pillar within our company. We’ll bring manufacturers in, and product training typically happens in the spring and early fall. We also encourage employees to continue their schooling. If the training loosely applies to their positions at NEUCO, we’ll pay for the schooling. We have a training room, and our training schedule is largely based on demand as well as the quality of the instructor and the instructor’s availability. Just because you know the product doesn’t mean you can teach. Additionally, we’ve been involved in HARDI for years. I went to my first HARDI event in 1982. We’ve gained so much professionally and personally from our membership with HARDI. I’d suggest that not only do you have to join HARDI, but you have to be an active participant, because that’s where the secret sauce is revealed. There are so many smart, talented people in this industry who want to share their success, and HARDI is a very good venue to do that.
What has been your greatest challenge of the last five years? What challenge do you anticipate being the most pressing over the next five to 10 years?
Neustadt: Maintaining the family culture as we’ve grown has been a daunting challenge. When we first came out to Downers Grove, there were six of us — my dad, my two cousins, myself, and our two secretaries. Maintaining a culture of six people is easy because you are the culture. We’ve since grown immensely. Maintaining that culture is a challenge and something you have to work at. To accomplish that, we host a holiday party every other year for the adults and the subsequent year for the kids. We have people who come into the company from the outside who are amazed at how we do things. When you grow up into this culture, the culture is the norm. While this has historically been our biggest challenge, I anticipate it remaining our biggest challenge for several years to come.
What’s one piece of advice you can offer new or up-and-coming business owners?
Neustadt: You need to marry a very understanding and patient spouse. I’ve been married for 34 years, and I absolutely, without question, couldn’t have done it without her.
Give us one unique fact or accomplishment about yourself that most people are unaware of?
Neustadt: Outside of cutting grass or cleaning beaches, I’ve only ever worked at NEUCO. I’ve never had another job. I’m not saying I would recommend that career path; however, it worked for me. I loved doing this in the late ‘70s, and I still love it today. While we’re doing things way differently and my role is much different, my passion remains the same.