 This is Business in Hawaii, my name is Ray Tsuchiyama, subbing for Reg Baker, who is unfortunately or fortunately on a neighbor island doing business as usual and running his own firm very successfully. And now we are going to be delving into many topics with my guest, Adrian K. Hong. And he's the president of Island Plastic Bags Inc., located in lovely IAEA Honolulu, Hawaii. And before we go into it, I just want to say that small businesses really drive the economy in Hawaii, and we have a landscape of people leading a lot of firms in manufacturing, which is challenging to do. The whole world of manufacturing deal with product lines, in sourcing parts, and also dealing with people and machines. And it's really great to have a person here in a family-run business that I'm going to be really discussing the present and future of small firm manufacturing in Hawaii. And welcome to the show, Adrian Hong. Thank you so much for having me. I really appreciate it. Now, tell me about Island Plastic Bags, the firm. How did it start? Where was the idea for the firm and what was the product? Okay, so the idea from the firm came from my father, David Hong, was working for this company called Pacific Plastics at the time. And he realized he could do it better. He could do it better. He could run it better. And then he talked to my mother, and my mom's like, go for it. You shouldn't be working for these people. You should be running your own company. You should be doing this. She was the one that really pushed him to do that, and it gave him the bravery to go and take that next step. And what year was this around? It was around 1992. Okay. And so we would call him your father back then, or your parents were entrepreneurs. Yeah, definitely. They were entrepreneurs. Initially they wanted to buy Pacific Plastics out, but the deal fell through. He didn't sign the agreement, so we started our own business, Island Plastic Bags, and we competed against him for a while until it came to the point where my father sat down with Stephen Lau from Pacific Plastics and said, you know, we're competing against each other. We're getting to the point where none of us is going to make any money. We're both going to go to our business. The difference between me and you is I have an SBA loan that's coming through, and I'll have another $250,000 to put into this. And so Stephen Lau decided to sell his business to Island Plastic Bags, and we were able to go from there. So from this, you know, concentration or new entity, what was your product from the beginning and has it changed to now, 2017, and your customers, have they changed at all or have they remained the same? So our core product line is institutional trash liners for nursing homes, hospitals, hotels, restaurants, bars. A variety of products that we produce over time has changed. We offer clear food grade bags, we offer trash liners. We offer t-shirt bags now, which are checkout bags. You don't see them in grocery stores anymore, but you do see them at restaurants and other bakeries and stuff like that. So our product lines have increased. Our core of our business is still trash liners. We also are a Colgate redistributor. So we sell Colgate Pomala products that are institutional, like five-gallon drums of Pomala, not like the ten-ounce bottles that you'll find at stores and stuff like that. The supersize. Supersize. A restaurant needs five gallons. They don't need a ten-ounce bottle of... So I take it that your world of customers are B to B. You sell to firms, not to end consumers. Am I correct? Yeah, that's correct. We sell to businesses. Right. Your product line that you manufacture in Hawaii, what is the percentage that you manufacture here and what's the percentage you import for special clients or customers? It's about 50-50. Okay. And you're a plant in IAEA, how many people work there? So 17 people. 17. Yeah. So you're really a small family business. Yep, small, locally owned family business. And how long have you been president? So I've been president since 2015, so it was a pretty recent thing. I originally, my background is certified public accountant. I'm no longer in public practice, but I got my undergraduate and master's degree at University of Washington, worked up in Washington for a while as a CPA, worked in the financial accounting standards board, which makes accounting standards for the United States for two years in Connecticut. And then realized that working 75-80 hours a week wasn't really doing it for me. In terms of work-life balance, I was eating three meals a day at my desk. So I started to talk to the family back in 2012 about coming home and taking over the family business. So we discussed it. They were happy because they were deciding at that time whether or not, what their succession plan was going to be. A lot of small businesses, they hit that point where it's like, okay, the president, the owners are getting to a certain age and they need to start figuring out what they're going to do going forward. So they were happy to bring me in. So I came in as a general manager, and I had a background in financial statements, but not a background in sales or human resources. I mean, in a small business, you wear a lot of hats. So it was a really good opportunity for me to come in, not as president, but as a general manager, learn the ropes, gain people's respect both inside the company and outside the company with our vendors, with our customers, and all that kind of stuff. And then I took over in 2015. Now, looking back, and of course, in the beginning, you were with your father going out and meeting customers, and of course, being on the line and kind of figuring out problems and so forth, what was the most big concept or idea that you learned from your parents running this manufacturing organization? And from your numbers background, you said, aha, wow, I didn't know this about running, leading a small business. So the biggest thing that I got was, sales is hard. I never realized how hard sales was, because I was a numbers guy. I was working in the office on numbers, not actually going on selling things. But you make 10 sales calls, and you're lucky if you get the one or two calls back, and you get that sale. So it was an eye-opener to see how much work went into building a customer, going from a potential lead to a customer. And then it made me really realize and value our current customers. Instead of figuring out how I could get new customers, it's like, how can I serve my current customers better? How can I cross-sell to them new products and stuff like that? So it really changed my ideas about how I was going to approach growth in the company. And it really made me value the personal connections you have with your customers, because that's so important in that part of the sales. So this is all about relationship sales. Even for a small company, when you have customers and their needs, did you feel that you had to listen more or just focus on their problems? What did you focus on after a while with talking with your customers? So I always try and find out the pain points. What's not working is the bags falling inside it. When you put traction, does it sink inside? Or are you putting so much, the plastic bag so big it's hanging down all the way down the container? What's the pain point? Is it ripping? So once I figured out what the problem was, what they're using the bags for, then I can create a custom specification that meets their needs. And the great thing about being a manufacturer is you can customize the different products that you're offering. And once I create a custom specification for a customer, they're likely to stay with me, because I created something that specifically meets their needs versus a company from China or Malaysia or the West Coast. You're buying one of their four options that they have available here. They're not making a direct sales call to you to figure out what you exactly need. Jack Welch, when he was President and CEO of GE, he used to say 90% of my problems are people. He had to get the best people to run his organization and so forth. Even for a small company of 17 people, do you have issues in hiring, mentoring, training, and drawing the best out of your employees? So we definitely had a problem with, we were looking for a plant manager to help upgrade our equipment because we're reaching that point that we're going to have to invest another million or $2 million worth of into new equipment to increase our production capacity. We're getting near our production capacity at our current facility. So we had to go look outside of Hawaii because the manufacturing base is so small here that there wasn't a lot of a very big talent pool in evaluating new equipment, creating transition plans, creating capital budgets, and stuff like that. So we were very happy that we found Leonard Levy from Orlando, Florida to come out. Well, way out there. Way out there. It took a while. It was a search. How long of a search did you do? I would say it was six months to a year. Wow. And then we also enlisted, eventually enlisted executive recruiter to kind of help us do that. That's a really expensive proposition when you're a small company trying to do your business at the same time. It was an expensive proposition and it was costly, but you have to make that investment into the future. We need to start putting in new production capacity. Otherwise, I have to tell my customers, I can't tell you anything more. So you have to take that leap of faith. It's like my father and my mother did 25 years ago. You have to take that faith and say, okay, this cost is expensive up front. This equipment is expensive. We're going to spend another million, $2 million. But in the future, it'll pay off. We'll be able to grow our business. We'll be able to be more profitable, more efficient, all that. Well, manufacturing we discussed before used to be much more prevalent in Hawaii. We used to make things that we use daily or in our lives or B2B machinery and so forth in Hawaii. And of course you realize, and you may be young for this, but one of the major areas for manufacturing was pineapple cannery, and that left or that disappeared with the end of the cannery in Iwile, the end of the cannery in Maui, and also I think there was a cannery in Molokai many, many years ago. So that was one area where people learned how to make things, manufacture. And that was a lost art in many ways. And so the smaller companies have to really develop their own expertise in manufacturing. They can't rely on hiring from other firms because there aren't many firms left doing manufacturing in the cock-occles, the Iwile's or Mapuna Punas because they've been converted to housing or commercial space, and there's been a huge transformation in the manufacturing landscape in Hawaii. Definitely. So yeah, I mean we do have to build a lot of our internal, you know, we have to build up our staff, build up our training and stuff like that because you don't have as many resources as you would. Like if I was a manufacturer in Ohio, there's so many other plastic bag manufacturers that you can pull from and certain resources and stuff like that. So in Hawaii it's definitely a challenge. And we'll come back to delve more into the space after this minute. Thank you very much. Aloha, I'm Tim Apocha, host for Moving Hawaii Forward, a show dedicated to transportation issues and traffic. We identify those areas where we do have problems in the state, but also the show is dedicated to trying to find solutions, not just detail our problems. So join me every other Tuesday on Moving Hawaii Forward. I'm Tim Apocha. Thank you. I'm a licensed marriage and family therapist and I'm the host of Shrink Wrap Hawaii where I talk to other shrinks. Did you ever want to get your head shrunk? Well, this is the best place to come to pick one. I've been doing this. We must have 60 shows with a whole bunch of shrinks that you can look at. I'm here on Tuesdays at three o'clock every other Tuesday. I hope you are, too. Aloha. We are back with business in Hawaii. And I'm subbing for Reg Baker, who is our great mentor out there, promoting small business and trying to raise the level of talking about issues, challenges, facing the leadership of small businesses in Hawaii. Because if we do better, I think the whole economy does better because small business really drives growth and creating new jobs for a lot of people throughout the state. And I'm with Adrian K. Hong. He's the president of Island Plastic Bags Inc. Located in beautiful IAEA. And we are going to be talking about his other background being a CPA and whether that brought a different set of eyes to his family run business, or it really created a kind of a really drive in putting together and to his total background of numbers and really on the grounds running a company. Tell me how being a CPA was a value add when you joined the firm. So it was a great value add. It's a great basis to have. So when I came into the company, I looked at the financial statements. I could tell that we were healthy. Our cash flow was healthy. Our profitability was healthy, which is a great start. Like when you come into a family business, you don't want to go, oh my god. So it was a great position to start from. But having that experience and then going when I was in public accounting, I did audits of private companies. Going out to private companies and seeing what worked, what didn't work, what I wanted to see in financial statements is what I didn't want to see. It was a really great basis to start from. So I could look at financial statements. I could look at our monthly reports. And I started doing those monthly financial statements when I came to the company. Looking at those and saying, we're doing well. This month wasn't as good as this month. It really created a, I could see the results of what we were doing. So that was a great foundation to build on. It wasn't everything. Like I said, I completely didn't. I had to learn about sales. I had to learn about human resources. Still learning about like doing, how to make an effective performance evaluation, how you motivate your managers, your employees, and stuff. Like that's still a learning process. Now you've been involved with the young CPAs, the group subset of the Hawaii State CPA Association. Am I correct? Yes. Now one of the things that you bring to the group must be your work being a CEO of a small company. I mean, kind of a transformational kind of vision of what could be better for firms and how CPAs can work with company leaders and so forth. Am I correct? So that's what I like about the young CPAs. They're such a great, talented group of people that we all bring a lot of leadership and new ideas to the table. And they're a really great group of people. We do a lot of community service projects like beach cleanups. We go to the food bank and help package food for seniors. We do also a lot of educational events because the HS CPA likes the young CPAs to go out to colleges, high schools, talk to the high schools about our career in accounting, talk to colleges about passing the CPA exam, about resumes, how to write a resume. I really like those workshops where you can kind of help students, because a lot of them have a really great work experience, but show how to better demonstrate and display their talents and stuff like that, what they should be putting there, what they shouldn't be putting there, doing interview workshops so they can kind of iron it out. I don't, yeah, I can remember myself being incredibly nervous at my first interview. I don't know how well I did at my first interview. When I was still in college, trying to get a job for the first time, but having those mock interviews definitely helped. It's really nice to be able to do that. But most CPAs after getting a license work for independent CPA firms, am I correct? Most CPAs, some work at the large companies as a CFO kind of thing, and others go off on another track like yourself and run companies or be part of small companies. Yeah, so most certified public accounts go out and work for public accounting firms and stuff like that, doing audit, tax work. So-called big three, big five, right? These big four now, yeah. Arthur Anderson kind of disappeared, but yeah, it's the big four now. But they work for those firms doing audit, tax, forensic accounting, a lot more now in where IT meets accounting. Because you've got cyber risks now, you've got these huge accounting information systems that are collecting data all over the United States and all over the world. So you have a lot of people in that area now, too. So there's a lot of consulting work in addition to the auditing and tax now. And then you do have some people go work for the bigger companies and their accounting departments. And then you have some people like me who go into smaller businesses and more in the executive areas and stuff like that in business and industry. So yeah, the YCPA squad has a little bit of all of that. Oh, that's great. Now, based on your, in the trenches, leadership with a small firm, based on manufacturing, what is the future of manufacturing in Hawaii? How can you grow manufacturing or get more people and become entrepreneurs in manufacturing and selling products out there? What did you learn in all this? So you have to find your niche. That's what I learned. You're never gonna be able to compete with Costco. You're never gonna be competing with Amazon. You have to find your niche. We found our niche in making custom specifications, custom trash liners. You need it four mil thick for trash from foreign destinations, or you need it six mil for asbestos or this or that. We can manufacture that and we can make it a run as something as small as 10 cases. So it's that customer service. It's that being able to manufacture things at smaller runs that larger manufacturers don't wanna really touch. And where do you get the materials? When you say manufactured products, the materials coming from vendors outside Hawaii and they come and then you manufacture products at your IAEA manufacturing plant? Yeah, so the majority of our raw materials come from Yakima, Washington as recycled plastic and then we get some food grade plastics from the West Coast LA. But yeah, that's a... So you're a renewable company in many ways. So we strive to be as green as possible. We put 546 photovoltaic panels on our roof to try and generate as much sustainable electricity as we could. That generates about 20% of our electricity needs. There you go. Yeah. It's on the screen. Yeah. So yeah, we tried to get more but that was the max we could put on our roof. We use as much recycled resin as we can. It's more affordable and it makes sure that's nothing's wasted. We have our own recycling machine on premises so we can recycle any scraps that we create so we're not wasting anything, we're not taking anything from dump. Well, going back to being an entrepreneur and seeing your parents great experience and really developing a company and growing and so forth. What advice would you tell entrepreneurs if they were going to go into that and they had a product niche that they really focused on? You talked about the sales, the relationship sales, really, really a challenge out there really but to develop that skill. Anything else? I always, I would say make sure that you've got your financing behind you because people that are not new to, people that are new to businesses think that they'll make, you know, like you see the projections, they'll make money in like month three. It doesn't usually happen like that. You usually, when you first start a company and my parents will attest to this, it hurts because you're looking at the financial statements, you're bleeding cash in the beginning to build your customer base to get the products out there to work on it and stuff like that. So you have to make sure that you've got enough financing that you can survive until profitability. So great organizations, a small business administration, they do SBA loans and stuff like that. So there are banks that do SBA loans. So I mean, there are certain resources out there that are really great for small businesses. We had an SBA loan when we started that was critical. So there's opportunities or ways to get started out there and if you know where they go, you can really launch your business. Yeah, so there are resources out there for small businesses. There's in the federal space, they have set-asides for small businesses that are SBA certified. If you're a veteran owned business or a disadvantaged veteran owned business and ADA certification, their contracts are basically set aside for you and stuff like that. There are opportunities for small businesses and there are resources out there for you. You just have to take, you just have to look for them. But making sure you've got that financing behind you will make you feel, make you sleep a lot better at night for sure. Great, great advice for entrepreneurs out there who may be listening and kind of thinking about their next step. So taking your company, do you see five years, 10 years out, any plans, any visions going out there or you think the competition and the business landscape will be exactly the same? So like I said, we're looking at in the next three or four years running out of production capacity. So right now we're planning, we're evaluating different types of equipment, we're getting quotes in to put in about a million to $2 million worth of new equipment in to replace our aging equipment. It's more efficient with the electric, more labor efficient, less labor hours, and it can produce significantly more. So we're looking at becoming more efficient, more effective, spending the money on the business so they can continue to grow and continue to sell trash liners, clear food, gray bags, t-shirt bags to customers. Well, you dependent also on economy that will grow. Your customer base will be in business and even ordering more from your company. So you have to be really with your finger on the pulse of the Hawaii economy looking for the future. If it grows, your company and many, many other small companies, firms grow with it. So yeah, that's a difficult thing about Hawaii because you have military and tourism as the two major mainstays. Even my customers that are not directly within tourism, I can feel when tourism's slow because the restaurants are not buying as much bags. This is not buying much bags. Because of the fact that tourism's down, it affects other businesses in the Hawaii economy. When we look at our customer base, we try to hedge against that by selling to certain industries that will be a counterweight against that so that if tourism does turn down, we still have a core business that we can rely on. Things like medical, like selling to the nursing homes and hospitals are a part of it. And then also bidding on state business, the state of Hawaii is a large user of trash liners. And then the city and county of Honolulu, the county of Hawaii, all these places bidding on some of the state contracts. You sound like a salesperson to me. With the whole sales plan and customer kind of all lined up. That's terrific. Well, we're coming to the end of the show and I think we've had a great discussion with Adrian Hong, Island Plastic Bags president. And I think he shows the dynamism in manufacturing in Hawaii that many people really don't see but it's really out there and with hard working people to really drive the economy and make us less dependent on imports and have a thriving business for many, many small firms out there throughout the state. So thank you very much. And this is Business in Hawaii standing in for Regi Baker. My name is Regi Yama.