A successful necessity entrepreneur

What is the secret of sustainable development? What business strategies and outlook have helped our company operate as a successful business for 25 years? What did it take for the Losonczi brand to become synonymous with reliable high-quality products?
In 2014, in connection with the handover of our new factory hall, Logisztikai Híradó made a personal interview with the founder of our company, István Losonczi. This interview is included below.

He liked to be an employee. Even though he has always been an engineer, István Losonczi, the founder and manager of Losonczi Kft., managed to build one of the most successful enterprises in Békés county in less than two decades. The secret, perhaps, is that he does what he loves, he is not driven by profit, and he wanted to create an amiable working environment.

The road to a perfect tool leads through a multitude of misconceived tools, says István Losonczi. To his luck, he had already passed the period of misconceived tools by the time he founded his own business. He was able to learn from his previous mistakes, and is now able to service such giants as Audi Hungária, the Paks Nuclear Power Plant or GE Hungary. Looking at the career path of Losonczi Kft. and its founder, everything seems exceptionally smooth so far. However, as is the case of all success stories that may look seamless, there is a lot of hard work and smart decisions behind the positive result.

Mismanaged privatization

István Losonczi, a mechanical engineer, started working for a tool industry company in Békéscsaba in 1981. Before that, he had been involved in the construction of the Paks Nuclear Power Plant for a total of three years. His drive to always look for new solutions soon propelled him into the ranks of the department responsible for development, of which he would become the head a few years later. It was here that he learned the profession of manufacturing cutting tools and fell in love with the making of custom-designed cutting tools.

The regime change brought privatization and a new Italian owner into the life of the company. At this point, István Losonczi stayed with the company, without even thinking of starting his own business. “I always loved to be an employee”, he says. “I did not want to become an entrepreneur.” Yet by necessity, he would go on to take a very different career path. Employing 300 people when privatization struck, the well-established and prosperous company started losing its markets and its best employees fast. According to István Losonczi, the biggest problem was that the owner immediately took the profit out of the company, turning very little back into development. This was a valuable lesson to him, which he has not forgotten since.
Also, he was less and less satisfied with the environment. He couldn’t stand being held accountable for mistakes that he could not own up to. “I soon felt that I needed a change. Every morning, I had nervous cramps in my stomach when I went to work. In hindsight, I should be grateful that it happened this way. If the situation hadn’t been this unbearable, perhaps I would still be working there.” He learned through his own experience that there is something good in everything that goes wrong.

Standing on his own two feet

He took up on a job offer in Budapest, where a trading company was looking for a technical consultant with expertise in cutting. However, it soon became clear that they only wanted to employ him as an entrepreneur, and that he was not fit for the job of a traveling agent. Thus, in 1995, he took the path of independence, and founded Losonczi Kft. with his wife. In the first years, he used to be the only employee of the company.

Initially, the company was dealing only in tool trade, which István Losonczi has always regarded as an activity taken up only by necessity. He was interested in the design and manufacture of tools, especially custom-made tools. Therefore, he started designing tools again, and tried to have them manufactured in other workshops. However, this was not an easy thing to do. This is how he finally came to the decision to expand the company, and create its own production capacity.

Not having sufficient funds, the company took out a START loan of HUF 12 million. At the time, this seemed to be a huge amount of money. By investing the loaned sum and their own savings, the company was barely able to create a simple design software and acquire a second-hand milling machine that they fitted with five axes.   These are the humble beginnings of a company that now employs 27 people, and, in March, commissioned a Studer CNC grinder worth HUF 120 million in its self-owned 1,350 square meter production hall, which meets all European standards.

Losonczi Kft. at a glance

In 2012, the company’s sales revenue was HUF 360 million and its profit HUF 44 million. Last year, revenue fell slightly due to the construction of the new hall and the relocation of machinery. However, the company expects that this year’s turnover will exceed the 2012 figures. The company currently employs 27 people and has created six new jobs through the expansion.
All the major players in the industry are listed among their clients. Some of these: Knorr-Bremse Fékrendszerek, Rába Futómű Kft.

The winner of tenders

Over the past four years, Losonczi Kft. has won six EU tenders in various operational programs (TÁMOP, GOP, DAOP), five of which have already been completed. The largest of these was the recent completion of a factory hall. The company received a non-refundable grant of HUF 100 million to use in the investment worth nearly HUF 300 million.
According to István Losonczi, the successes are clearly attributable to their partner writing the applications. They conveniently take care of all the administrative burden, he says, so that he can focus on implementation, technical content and signature. In return, he is happy to pay the agreed success fee. ”I don’t feel that I lost 6.5 million out of 100 million HUF; rather that I won 93.5 million”, which is a small but significant difference in attitude.

– Why did you choose to make custom-designed tools?

This was my job even before the regime change. Few are able to make really good custom tools, because it requires special knowledge and experience. With enough money, anyone can buy a milling machine and a design software. However, fashioning a custom tool is more of an art. It needs meticulous design; the way the clamp tip is inserted makes all the difference; and the unique edge angles needed to achieve optimal cutting must be calculated with patience. This is what I do best. This is what I like doing. And this is what the market pays most for. With a custom tool, a part can be manufactured in, say, six minutes instead of ten, and you only need one tool instead of two. Just think about how much money this will save for a car factory that produces half a million identical parts.

– How is a small Hungarian business able to stay alive in the market segment?Most of our clients are large tool manufacturers from the West, who are present in Hungary in some form. Even though they have their own custom tooling department, they are often overburdened, and sometimes they need two to three months to fulfill an incoming order. This is when they come to us, since we are able to deliver in five or six weeks. Cost is not the first consideration; what they need is speed. Obviously, the quality must be top-notch. The tool must have the same consistency whether manufactured in Switzerland or in Hungary.

– What did it take to earn the trust of these foreign companies?It was not easy. They needed a lot of convincing that we are able to deliver high quality products. My network of contacts was of great help here. I had quite a few acquaintances at different companies. However, it would not have accounted for anything if we hadn’t been able to keep our promises and make good tools. Now that we successfully established ourselves, we have earned the trust of our clients, who will remember us when needed. While, in this industry, on average only 20 to 30 percent of all offers will be followed through, this percentage is over 50 percent for us, even though we are not known for being cheap. In the beginning, it was of great help to us that we signed a contract with INA in 2000, which tied down our capacity for three years. This profit enabled us to buy five machining tools at the same time.

“(…) I only take out from the profit what is absolutely necessary;
the rest is reinvested into development.”

– Are there any technical barriers to fulfilling orders? Are you always able to satisfy demand fully?
Today, the situation is much better than in the beginning. Still, we don’t have enough money to always buy the best or latest software or tools. However, this is not as much of a disadvantage as laymen might think. Designing custom tools is more about the human factor than technology; and this is what we are very good at. I can safely say that our workers are more skilled than their Western counterparts, and staff turnover is extremely low.
And if we need a tool for machining that we don’t have since we couldn’t fully exploit, we have just the right partners to whom we can entrust a special work phase.

– You are a bona fide engineer who become an entrepreneur by necessity. What business principles and strategy do you apply to your company?I learned about the mistakes committed by the Italian owner of my former company. One of the important things is that I only take out from the profit what is absolutely necessary; the rest is reinvested into development. I still live in the same apartment we built in 1986. I don’t have a vacation home, a sports car or an SUV.
Another important principle is not to over-mystify the economic issues. I always try to approach business with the rationality of an engineer.   I always look at the income and the profit, and decide how much of it I can invest. I’m sure that we could have developed faster if we had used loans to buy machines, but I do not like to overreach. I like to finish what I have started, and I will not build a hall if money may run out halfway into the project. Also, I am proud of paying my bills on time, which is not typical among Hungarian entrepreneurs.
The final pillar of our business model is diversity. Once we established ourselves as makers of custom-designed tools, we ventured into new areas. The first of these areas was the design and manufacture of special devices for gripping workpieces. In 2005, we began making special measuring instruments for automotive suppliers that are able to check all the desired dimensions of parts in mere minutes, and record them on a computer. The three areas of activity complement each other well, and if demand falls in one area, there is a good chance we can make up for the missing revenue from the other two areas. It is partly due to our diversity that we survived the crisis almost unscathed—only the year 2009 was a little unprofitable.

– In 2004, you received the Entrepreneur of the Year Award. Is this your greatest achievement?I cannot say that I was not pleased, as I hadn’t received any honors or recognition earlier. The award confirmed that others also think that I’m good in what I do. However, I think that my greatest achievement is that I only had to dismiss a single person in 18 years, because my employees are just as dedicated to the success of the company as I am. Many of them have proudly showed their family around the newly completed hall, because they are delighted to have the chance to work here. Everybody pulls their weight without being told to do so. I managed to create a company where it is pleasant to work—just the way I would have wanted when I was still an employee.

Attila Schopp

Logisztikai Híradó 2014/2