Raj Shah helped MS International grow into a leading supplier: Focus on Leadership - March 2017

Interview by Kemp Harr

Alongside his father and brother, Raj Shah, president of MS International, runs one of the largest tile and stone importing operations in the country. Founded in 1975, MSI started in stone, adding tile nine years ago, and currently handles 38,000 container loads of product annually through 25 distribution centers across North America. Flooring now accounts for nearly half of the firm’s revenues.

Q: Why did you decide to pursue a finance and economics major at University of Pennsylvania’s Wharton School of Business?
A: The family business was started from our home and continued to operate from our home until I was almost 12 years old. All family vacations were planned around visits to granite quarries, factories, graveyards (as our business was granite tombstones when I was a child) and customers. Both of my parents were in the business full time, along with a few of my uncles and cousins. This meant my brother and I heard nothing except business talk. Our parents were immigrants, which taught us a lot about saving, investing and taking calculated risk, and they came to the U.S. with only an education, common business sense and the will to grow. We wanted to formalize that thought process, and a strong finance and accounting background would enable that. I ultimately applied to the University of Pennsylvania, as it was the best business school in the country. Somehow, I was lucky enough to be admitted. I was enrolled in both pre-med and business my first semester, but organic chemistry lab was at 8 a.m. and finance courses started at noon, so you can guess why I went the route of finance.

Q: At what point did you decide that joining your parents’ company was the right career move, versus continuing your investment banking role with Lehman Brothers?
A: I really enjoyed my seven years on Wall Street with Lehman Brothers. I had an internal goal of becoming one of the youngest vice presidents the firm had ever had. Once I achieved that goal, I realized that I didn’t want that role, which is basically a sales job. I wanted to be involved in all aspects of the business from operations to finance to marketing. I wanted to build equity for our family through my labor and not be at the whim of public markets or corporate personalities. And most of all, I felt enough risk was not being taken. I started looking at what would satisfy my wish list for the long run. It turned out our family business at the time had all of the right foundations built for scale, and the building products industry was just starting up the boom cycle of the early 2000s. Finally, my girlfriend at the time (who is my wife now) lived in Los Angeles, and I lived in New York City, so we needed to make a decision. We decided joining the family business would be the best decision, and it has turned out to be true.

Q: How do you split the responsibilities between you and your brother?
A: One of the most important aspects of having a long-standing business is making sure you have backup plans or succession plans in place. It has been really important to our family and MSI that we both know how to run all aspects of the business so that it can withstand any losses of individuals. Between my father, brother and myself, there is a lot of overlap, but we generally take on initiatives or areas of the company that we are most passionate about. We are lucky enough to sit right next to each other so our speed of decision-making is extremely quick. I joke that our board meetings happen daily at lunch. Our customers, vendors and employees have truly appreciated the speed and lack of bureaucracy involved in the decision-making process at MSI.

Q: What is MSI’s core competency and core differentiator?
A: Our biggest differentiator lies in our mission statement of making surfacing products more affordable and accessible. As a company, we are laser focused on increasing the total size of the pie rather than simply taking our share of the pie. The hard part is we expect to do this without sacrificing profitability of our vendors or customers. This means we are hard at work engineering ways to make surfacing products available to all homes in North America. The best way to do this is through volume and all of the efficiencies that come along with volume. MSI is continually looking for ways to remove waste from the system, but also engineer products such that we can bring the price of a specific look down for the end consumer.

For instance, we lowered natural stone costs by taking the waste product of slabs and making tiles, prefab counters, mosaics, pebbles and even products from marble dust. We have introduced high-end marble looks in quartz and porcelain through the use of digital technology, which has been a game changer. And we introduced many tools for our customers and consumers to view slabs from their home or visualize what it will look like on their counter, which ultimately reduces the cost of the design process.

We don’t spend time on projects that are not within our skill set. Internally, we say that we will die of indigestion before we die of starvation. All employees are expected to have a “what not to do” list. Finally, our team works hard. We are proud of the team for their passion which leads them to work long hours and even Saturdays.

Q: How do you identify suitable manufacturing partners, and how closely do you work with them?
A: First and foremost, we are looking for vendors that are hungry and believe in the same core principles as MSI. We then partner heavily in terms of financial help, volume purchases, forecasting, etc. We are on the ground with the manufacturers and quarries to work together to reengineer processes. Our vendors are always looking for ways to invest in programs with MSI, knowing that the ultimate goal is for long-term volume creation.

Q: In 2008 and 2009-during the last recession-you chose to expand while most other firms were pulling back. What made you so sure these investments in infrastructure were sound business decisions?
A: We knew that building products follow economic cycles, so long term the right investments would pay off. In addition, our marketshare was relatively low in a very fragmented industry. MSI also increased its addressable market by entering the quartz and ceramic tile markets. We are extremely well capitalized, so it seemed like the right time to take advantage of opportunity. In a deep recession, “affordable and accessible” are the main ingredients to survive. The last recession also provided us some gifts: interest rates fell to zero, changes in tax laws enabled aggressive investment, the U.S. dollar significantly strengthened, great talent became available, and the price of investments dropped. Looking back, we wish we had done more at that time.

Q: How do you manage potential channel conflicts by not selling consumers directly or allowing an e-tailer to sell your products at reduced margins?
A: All aspects of the business, from purchasing, sales, marketing, logistics, etc., are structured for high volume. Due to this structuring, MSI is not set up to handle consumers directly. This is where our customers excel. They understand the consumer much better; they are staffed to handle the consumer; and their marketing is suited for the end consumer. MSI’s job is to get our customers the best products at the best prices with the best logistics, and let them work with the consumer.

Interestingly, we have found that the e-tailing channel has become extremely competitive. As differentiation is very difficult online versus brick and mortar, we have found that if you are not on the first page of Google search or have a built-in customer base, it’s very difficult to be successful. The companies that have the best strategy are ones that have a strong brick-and-mortar presence as well as a strong virtual presence. Due to this, we are increasingly seeing e-retailers not able to work at extremely low margins and remain profitable for the long term.

Q: How do you ensure that the products you source are going to be popular?
A: MSI has a full design/trend team that works tirelessly to bring the right products to market. As a company, we are focused on what will sell in volume. We do not focus on specific niches or customer types where the volume may be small. We also look for products that follow more long-term trends rather than what may be considered flash trends. And we use a lot of data to understand which products to bring to market, looking at color, size, finish, style and pricing to make decisions. In many cases, we perform tests with products and perform consumer research using geo-fencing and other technological options to confirm our product choices.

Q: In what new directions do you want to lead the company?
A: The economy continues to improve, and it’s nice to have some tailwinds when it comes to the building products sector. Our belief is that we are in this for the long term, so all decisions we make need to benefit the consumer, our customers, our vendors and our employees for the long term. For now, we believe that we can increase the size of the pie of our current product lines by staying true to our affordable and accessible mission statement. In addition, our marketshare is still relatively low, so we will continue with our current business strategy for the foreseeable future. Over the short to medium term, our goal is to continue to make it easier for customers to transact business with MSI, so we are pushing hard on geographic expansion as well as many digital strategies to better connect the entire supply chain.

Q: What character traits do you look for when hiring new resources at MSI?
A: We are seeing a highly volatile international macro economic scene, changes in the supply chain, changes in products, changes in trend/design, changes in how technology is used and changes in how our customers want to interact. All of this means that we cannot hire experts today, as the requirements for tomorrow maybe different. We are looking for teammates who are adaptable, self-motivated, data-driven and passionate. With those traits, teammates will be successful regardless of how the business environment changes.

Q: How do you balance your time between work, family and recreation?
A: I’m lucky, as MSI is really the combination of all three. It’s a family business, and I love what I do, so it’s the intersection between work, family and recreation.

Q: What challenges do you face? What do you worry about when you think of the future?
A: MSI has been more successful than we thought it would be. That said, we still believe that we are only good. We want to be great, but to do that, I have two major worries. First, as we get larger, will the disciplines that brought us here stay in place or will the team loosen up on those disciplines? The second is complacency. As we continue to pass every milestone and goal we have set up, we worry about becoming complacent in the future. We want to always remain hungry and pushing as hard as we can. Our team has a large responsibility, as MSI is either directly or indirectly responsible for the jobs of approximately 120,000 people worldwide. We cannot afford to become complacent, as there are too many people dependent on us.