CEO Leadership: Generac’s Aaron Jagdfeld looks abroad

Thanks in part to weather events like Hurricane Irene, Generac enjoyed one of its best financial years in 2011, but the Waukesha maker of generators and engines isn’t content to wait for acts of God to continue its momentum. CEO Aaron Jagdfeld is not only looking to hire more engineers, including recent college and tech school graduates, he’s looking overseas and to natural gas to “power ahead,” as the company puts it. In this Part I installment of IB’s CEO Leadership Series, Jagdfeld explains that his recent trip to China wasn’t about sightseeing, but to lay more groundwork for expanding sales beyond America and Canada. Here are excerpts from our recent interview.

IB: Last November, Generac announced that it had 400 job openings, and it held a job fair to attract candidates. You had a 90-day window in which you wanted to fill those positions. Where does that stand?
Jagdfeld: The 400 jobs that we announced last year are what we anticipated to hire over the next 12 months, with a good chunk of that being in the first 90 days. We actually did meet our plan. We brought in a combination of production-related employees as well as professional-technical staff like engineering, some sales, IT, finance, and other functions within the company as we’ve been growing. We’ve been fairly successful in filling some of those holes. There are some areas where companies like Generac are running into issues trying to find qualified candidates; engineering would be one of those areas. Engineering is a tough area to hire. There just simply are not enough engineers for the demand that companies in our industry or other industries have.

IB: Are you going to have to look at local engineering schools this spring?
Jagdfeld: That’s exactly right. We’ve already been on campus at several schools. We’ve done a number of job fairs at the individual universities here. We hope to pull more candidates as they get closer to graduation and start making their decisions about companies they are going to select. We hope to round out the balance of the engineering needs that we have.

IB: Are you talking about Milwaukee and Madison, or some of the tech schools as well?
Jagdfeld: The tech schools as well. We’ve got Madison, Marquette. We’ve got UWM as well. They all have good programs, and they all have different disciplinary areas, so depending on whether we need somebody with an electronics engineering background versus a mechanical engineering background. Each of the different schools has its area of expertise, as you would imagine.

IB: Have you been at a lot of these fairs in the past, or is this something novel that you’ve done?
Jagdfeld: This is something new [for Generac] and very related to the acute shortage that exists, at least as it relates to our needs.

IB: Part of your expansion plan is a new technical center for R&D and testing. Beyond advancing your existing suite of products, what are your hopes for this technical center in terms of your company’s innovative process?
Jagdfeld: For us, it’s a matter of building a couple of core competencies in the products that we manufacture, and in particular when you look at building engines and generators. Those products consume carbon-based fuels, and obviously carbon-based fuels have a tremendous amount of regulation related to emissions that come from those types of products. So it’s the competencies around emission compliance, the competencies around the design of low-emission products, the competencies around lowering the noise of other types of products. Noise is another type of emission that people are starting to talk about a little bit more. All those things are areas of technical expertise that we hope this technical center will help us really sharpen our edge in our industry and give people, particularly new engineers, something that’s exciting for them to hear – that the company is investing in cutting-edge technical resources so they can learn the latest set of skills associated with something like emissions, which is going to be an issue most companies will have to deal with in the foreseeable future.

Nothing is going to reverse course there. Emissions will only continue to be a greater area of focus rather than a lesser area of focus, so if you’re a prospective employee of this company and you see that we’re investing in that kind of technology, that would certainly be an attractive thing from the standpoint of what you could learn. You can apply that knowledge whether you stay with Generac or if you move on to something else at some point. Obtaining that knowledge now is a pretty attractive thing for people.

IB: A lot of your customers have to be aware of emissions as well, so does it contribute to a marketplace advantage?
Jagdfeld: Yes, in particular if we can do it in such a way that doesn’t add a lot of cost to the product. It’s one thing to make your products emission-compliant and just add the cost of a catalyst or some other device on the unit for after-treatment of the emissions, and just pass that cost along to the customer. It’s another thing to get creative in your design to meet the emissions to eliminate some costs. If you can do that, if you can deliver an emission-compliant solution to the marketplace at a cost-neutral position or a small cost increase, that gives us a huge advantage over a competitor that can’t do the same thing.

IB: You just returned from a trip to China. What kinds of business opportunities exist for you there? Are you thinking about doing more overseas because not every year is going to be a strong year for sales due to natural disasters, so maybe you can tap more into foreign markets to make up the difference?
Jagdfeld: With our strategy, we’ve got four main legs of the stool. We call it our powering ahead strategy. One of the legs of the strategy is international growth. Ninety- nine percent of Generac’s sales come from here in North America, so only 1% is outside of North America today. So we’re in a rapid mode to try to change that with investments in sales resources, through distribution, and we’re pounding the ground pretty hard trying to find opportunities, whether it be in China, whether it be in Europe, the Middle East and countries where we are trying to rapidly expand our footprint, with an eye toward particular products that are natural gas-powered. That is our area of expertise. The worldwide generator market, by and large, is a diesel market, actually. North America is a little bit different in that natural gas is quite a bit more prevalent here. It’s very cost-effective right now.

Natural gas is going to be the world’s fuel source for the next 100 years. There is no doubt in my mind that when you talk about long-haul transportation, fleets, and things like that, those are going to be natural gas-powered in the future. The infrastructure to support that is going to become evident in North America, and you will also see that in other markets worldwide, where gas is also coming into play as a tremendously cost-effective and viable fuel source; as that grows, we believe our opportunity to grow internationally grows along with it. So trips to China, trips to Europe, trips to Brazil, other countries like Russia to tap into the opportunities that exist as those markets develop is really where we are placing our bets going forward in terms of our international expansion plans.

IB: Is China interested because of its pollution issues in its population centers?
Jagdfeld: Pollution issues in China are front and center for the Chinese government. I will say this: I’ve been going to China for seven or eight years. On this recent trip, the air was cleaner this time around than I’ve ever seen it. Some of that is weather related, but I do think they are starting to get oriented around the production of energy and the production of goods, materials, and services that would lower carbon footprints. Natural gas is certainly one way to do that, and they recognize that. If you can have a power plant that runs off of natural gas, it’s going to burn much cleaner than a power plant that burns off of coal. Traditionally, most of their power comes from coal-fired plants. As natural gas becomes a better source, a cleaner energy source for them, and obviously the infrastructure that’s needed around that gets built out, that’s where the opportunity to sell other products that use natural gas, such as the generators that we manufacture, really becomes a very viable option.

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