Want to survive the bust? Use conservative business principles
M.S. Kalsi can’t tell you when the next oil bust will come, but his oil field services business is always ready when they arrive.
He started his Sugar Landbased Kalsi Seals and Engineering in 1978 to solve problems in two industries. First, he wanted to help oil companies drill deeper by improving the composite seals around drill bits, and second, he wanted to improve the reliability of highpressure valves like the one that triggered the nuclear accident at Three Mile Island.
Since then, every major oil company has bought his seals, and he’s worked for every nuclear power plant in the United States. And at 70, he’s still meeting customers at the modest booth his company opened at the Offshore Technology Conference last week.
Not many entrepreneurs can claim that kind of success, and fewer have survived the energy business’s ups and downs for so long. Kalsi attributes his good fortune to a conservative approach to business, something that many oil field services companies would do well to emulate.
In an era when publicly traded companies pile on debt during the good times and default in the bad, when many pay ridiculous wages during the boom and lay people off during the bust, Kalsi is committed to slow and steady growth.
“There have been many temptations,” he said. “There have been many large companies that have tried to acquire us. I do romance with them, but I tell them I am very happy doing what I am doing.”
Kalsi immigrated from India in 1967 and earned a master’s and doctorate from the University of Houston in mechanical engineering. Finding a job was difficult at first because as a Sikh he wore a long beard and turban that put off many prospective employers. He eventually changed his appearance and worked for several large companies before striking out on his own in 1978.
At that time, the life-limiting
factor for drill bits was their rotary seal, which would wear out in 25 hours because of heat, abrasion and pressure at the bottom of the well. He developed and patented a seal that lasts 250 hours.
When a faulty valve caused the nuclear accident at Three Mile Island, he developed proprietary software that simulates how a valve will behave during a nuclear accident. His company now tests new valves before they are used at nuclear plants.
Kalsi puts those revenues back into the company.
“Wehave invested our retained earnings in our self-funded technology and self-funded software,” he said.
As his business grew, Kalsi was careful to avoid debt. Before hiring each new employee, he makes sure the company has six months of earnings in the bank. Kalsi pays profitsharing bonuses and generous retirement benefits to encourage people to stick by him.
Kalsi Seals and Engineering now employs 34 men and women working on a variety of projects, but Kalsi still emphasizes original research.
“I don’t want a competitor, so we challenge our internal engineers to come up with better solutions that surpass our best technology every year,” he said. The company holds 35 patents and counting.
That’s no guarantee that customers will keep buying, though. Four nuclear power plants have shuttered recently, and the drilling rig count in North America has dropped by two-thirds. The oil field services industry has laid off 56,000 people in Houston alone.
Kalsi said his company’s revenue peaked in 2014 at $16 million, dropped last year to $11.5 million, and he figures the company will be lucky to hit $7 million in 2016.
“Wehave a longer-term vision, so we have a sufficient reserve to be able to ride out the downturns, which are inevitable in the oil field industry,” he said. “No one has a noose around our neck. We have funded our own research, we own our building and we have no debt. As a result, we can take a downturn for a longer period of time.”
Downturns can actually offer opportunities, he added. More companies begin to outsource their research and development, and many lay off good employees, giving Kalso a chance to hire top talent.
“Wedid that in 1982. In fact, we hired some of our champions in the company when the large companies were laying off people,” he said. His company has never laid anyone off.
Another best practice is attending OTC, where his team courts customers, both new and old.
“To cover all the small and large players, from all geographical locations, there is no other place better than OTC. We can meet a number of people we might not otherwise meet,” he said.
Oil’s boom and bust cycles are well-documented, and while not always predictable, they are inevitable. Most companies could learn from Kalsi’s example of keeping debt low, maintaining strong reserves, offering improved products and committing to good employees.
There is no mystery to running a sound business. It simply requires discipline, something that is all too lacking in the oil and gas business.
“I don’t want a competitor, so we challenge our internal engineers to come up with better solutions that surpass our best technology every year.” M.S. Kalsi, Kalsi Seals and Engineering