Steve Lyon spent 25 years at Hughes Supply, the Orlando building materials distributor later acquired by the Home Depot and rolled into HD Supply. During that time, he amassed a considerable understanding of South Florida’s construction market, ultimately managing a 70-employee branch with $50 million in annual sales.

But when a trio of private equity firms bought HD Supply for $8.5 billion last year, Lyon says the one-time family atmosphere at Hughes began to give way to a more corporate environment, where decisions came from the top down.

That’s when he responded to a feeler from WinWholesale Inc., a Dayton, Ohio-based distributor with a unique business model in which each local company president acquires up to 40 percent ownership of the business. Lyon liked the idea so much that he jumped ship to become president of Orlando Winnelson, the local operation of WinWholesale’s plumbing supplies arm (WinWholesale divisions also distribute HVACR, electrical, industrial, water works, electronics, industrial fasteners, tool and pump products).

“The business model, once we learned about it, was a big draw,” Lyon recalls. “I could see the writing on the wall, that [HD Supply] was going through some changes that I didn’t want to be a part of. We didn’t know anything about Win until about a month before the process. Had I known about the model before, I probably would have done it sooner. The opportunity to have ownership in what you do was a big draw, [along with] the support of a huge corporation behind you.”

The business model gives each local president great incentive, says Tampa Winnelson president John Knab, who also joined WinWholesale after a lengthy career at Hughes/HD Supply.

“It’s the skin in the game. It’s your investment,” Knab explains. “When part of your profits come from protecting the assets of the company, [people] look at it from a different avenue. If they can help grow your business and grow the company, they’re going to do whatever it takes—anything they can do to service customers and go above and beyond. Coming from a public company where you’re a number, that’s the difference here. You’re not a number, you’re part of the game.”

“A lot of times, it’s hard to explain [our model] to people because it is unique, but when people get it, they really get excited,” says WinWholesale president and CEO Richard Schwartz. “They say, 'Geez, we didn’t know this existed,’ or, 'Why didn’t we hear about this 10 years ago? What’s the catch?’”

Part of that confusion is due to the singular structure of the business model, which Schwartz says is based on “equity partnerships.”

“We share ownership with the local corporations,” he explains. “There’s a very well-developed, well-honed management structure that supports it all. There’s a process so that all the companies can be compared with each other at all levels, such that it’s cost-effective to run an organization that has all these separate legal entities and owners.”

Jonathan Skelly, of PCE Investment Bankers in Orlando, says the WinWholesale model straddles a line along the risk/reward continuum, between the high-risk/high-reward independent distributorship and a lower-risk/lower-reward opportunity at a larger operation.

“What’s neat about the WinWholesale model is it’s sort of a happy medium in the risk/reward scenario. There are still areas that make it different than if these guys went and started 'Bob’s Supply House.’ WinWholesale’s somewhere in the middle, where you’re an owner and the risk is considerable, but you do have some support and the ability to tap that knowledge and bring in some cost savings,” Skelly explains. “The other thing that’s neat about their model is they offer so many [product lines], whether it’s PVF, HVAC, plumbing or electric.”

For the parent organization, the model offers the advantage of what Skelly terms “an ownership society.”

“If you’re a branch manager and an owner, you’re going to treat the business differently. You’re going to watch your expenses, keep the place more tidy, take an active role in the hiring and firing decisions,” he says. “When you’re an equity holder, there’s a much greater incentive to drive profits.”

For the local branch president, the advantage lies in having the might of a large corporation behind you, Skelly adds.

“The ability to open a branded company branch and to leverage what WinWholesale has created in terms of brand name, purchasing, back office support—there are some potential cost savings as opposed to if you try and go do it on your own,” he notes. “It allows you to go in there and run your business and not worry about benefit plans and which [IT] system to choose. It builds an ownership society and really gives you a stake in the business.”

But those advantages don’t come without a cost, Skelly cautions, citing the requirement to run the business according to company procedures.

“It’s essentially a franchise model and you don’t have full control over how you run your business,” he says. “They’re probably a bit more flexible at WinWholesale, [but] you’re not in full control because there are guidelines you have to follow. There might be something about the model you don’t like, but you’re forced to follow it because those are the rules of the game.”

Schwartz concedes that there are corporate procedures each branch president must follow, but says the company still leaves the bulk of the decision-making to its local presidents.

“A lot of companies and other organizations push down responsibility and push down decision-making, but I think our organization does it in a different way. You have an owner under every roof in the organization,” he says. “We so passionately believe there are certain things that can only be done locally. Taking care of customers and taking care of people, that is best done locally, and there are things that are best done centrally.”

And with the opening of a new distributorship amounting to about a $1 million proposition, the WinWholesale model offers a much lower buy-in hurdle, Schwartz adds.

“If you ask people, 'What’s the American dream?’ they want to open their own company,” he explains. “The thing that makes our model so unique is the cost of entry is not prohibitive. For the average experienced person, who has some wholesaling knowledge, it’s within reach for them to have a piece of ownership. We don’t want it so low that a person can skip over it, they need to have some risk, but they don’t have to have the kind of capital in the bank to open a brand new wholesale operation.”

WinWholesale traces its history back to 1875, when Nils Olas Nelson founded plumbing supplies manufacturer/distributor N.O. Nelson Mfg. Co. (NONCO) in St. Louis. But unlike similar firms of the day, when the company realized it had to choose between manufacturing and distribution, the latter won out.

Fast-forward to March 21, 1958, when NONCO’s Pueblo, Colo., branch was gutted by fire, prompting management to lay off employees and offer the burned inventory at a discount. A Darien, Conn.-based company called Primus Inc. stepped into the breach, partnering with three of the ex-NONCO employees to reopen the business. Three days after the fire the N.O. Nelson Co. of Colorado was formed, with a leased warehouse, a profit-sharing plan and employees calling on customers. It was the first location for the entity that became WinWholesale.

The company grew steadily until, in 2005, it acquired Newport News, Va.-based plumbing and HVAC distributor Noland Co., which was founded in 1915 by Lloyd Noland.

Schwartz says that purchase expanded WinWholesale’s geographic footprint.

“They were occupying wonderful areas of the country, a very well-known and very good brand in areas [where] we did not have a lot of presence,” he recalls. “I had known Lloyd for some time and respected the company. I felt that it added a lot to the organization.”

There was an ancillary benefit that wasn’t apparent until the deal closed, Schwartz adds. Because Noland was a public company, the buyout negotiations were confidential, meaning WinWholesale’s senior management didn’t get a chance to meet many Noland employees prior to the deal.

“You don’t grow a great company like Noland without great people,” WinWholesale COO Monte Salsman notes. “One of the things it’s really meant is that commitment and obsession with customer caring. There’s been great alignment with the cultures there.”

Schwartz notes that the Noland integration was challenging, as it required the incorporation of a more conventionally structured business.

“They’re more of a traditional, top-down organization,” he explains. “We do have two compensation models now, where there’s potentially less risk/reward on the Noland side. That empowerment has worked well in Noland, so we’re aligning the business models, but it took a while.”

Salsman, who at 1½ years’ tenure calls himself “a relative newcomer,” says the core underpinning of the company’s structure—giving employees some skin in the game—is what sets it apart.

“This organization wants people to get wealthy, really and truly wants people who can perform well and get results to get wealthy,” he notes. “That is so different than most organizations that say, 'This organization exists for the headquarters.’ … If we help people to achieve their potential, that’s huge, that’s very, very different.”

That’s why WinWholesale offers an extensive portfolio of back-office support, including a comprehensive online training program, IT and financial services, human resource and marketing support, risk and credit management and customized, modular balance sheets that provide a snapshot of each local company’s financial situation and, combined, deliver a complete picture of the parent corporation’s finances.

“When you have a unique business model, you have to develop systems that support that model. You’ve got to develop them internally,” Schwartz says. “You can’t support this business model without tremendous integration and tailored systems that can manage unique applications.”

That highly sophisticated IT system means hiring and keeping technically skilled programmers and tech employees.

“Our expectation level for IT has always been very high,” Schwartz says. “We have adapted our systems to be strong in areas that we think are important to driving our business models and our philosophy. … That’s one of the advantages of supporting and writing your own software. We can drive [the development process], based on our own company’s unique needs and the demands of our 500-plus local company management teams. They’ll tell us what they think is inefficient and what they need. We develop on our schedule, as opposed to being subservient to an outside supplier.”

The Noland buyout also contributed some new IT processes, he adds.

“Noland brought a lot of great ideas and processes to us. We’ve added a lot to our systems that were transferred from ideas and pieces of their systems,” Schwartz says.

Another important factor is consistent employee training, which Win looks to achieve with a three-pronged approach: A procedures manual culled from best practices refined over the company’s 52-year history; Intranet-based learning modules; and face-to-face training sessions at regional facilities.

“We’ve found that in some of the more routine requirements in back-office procedures and inventory management, we can get that information delivered consistently using our Intranet site,” Schwartz notes. “As a 'Baby Boomer’ CEO, I’ve been saddled with this horrible problem of having to deal with the generation that hated computers and didn’t know how to type, along the whole continuum to people who won’t touch paper. [With] young people joining the organization, the expectation is online learning. If you’re going to recruit these young people, you better deliver the training that way, because that’s how they’re used to learning.”

But the online portion is only one facet of the training options available to local management teams.

“Anything you want to learn ... you can go to that procedure, click on that process and learn everything about it,” Tampa Winnelson’s Knab says. “[But] if you need to go beyond that, you can call corporate support and get a real person on the phone within the first or second ring … who can give you answers, or if not get someone to give you answers within moments, not days or weeks.”

The third prong of the training program, the procedures manual, is “the heart of the company,” according to director of corporate communications Steve Edwards.

“What wholesalers do is really the same across the board, so by creating a process manual that’s 52 years old and constantly updated, you can find a procedure on just about anything to run your business,” Edwards explains. “Any issue or process there might be questions on, you can find out about in the online manual.”

But even the most effective training regimen is useless without employees to follow it. Schwartz says finding that talent is an ever-present challenge.

“The ideal kind of person would be a person who knows his business, who is a very good businessperson who understands all the aspects of the business … and who is sitting there in his office saying, 'I’d love to go out on my own, but I don’t have the money,’” Schwartz notes. “Those are the guys who are ideal for our model, with an intimate knowledge of the local market, saying, 'I’m willing to risk that, because I know I could turn that into way more money.’

“We’re constantly trying to find new ways to uncover the type of wholesaler that we want to add to our ranks. We have opportunities, there’s plenty of room for growth,” Schwartz says. “I don’t know what the answer is, but we’re always trying to find ways to look for people who have the entrepreneurial spirit.”

The downturn in the economy, especially in the residential construction industry, hit WinWholesale’s top line last year. Sales were down 8 percent, to $2.4 billion, compared with fiscal 2006, but Schwartz maintains that the economic climate represents an opportunity for the company.

“The economy is very tough, but I’m excited to work in tough times because it makes the organization a lot stronger,” he explains.

“One of the benefits of our structure is that local understanding of individual markets. Our guys, historically, have done a great job of diversification. While residential construction has certainly declined, commercial construction is still holding up. That diversification and knowledge of local markets really helped us,” adds communications director Edwards.

Orlando Winnelson’s Lyon agrees, saying the downturn actually provides a little breathing room for his fledgling business.

“For us just starting out, you have a little bit of room to breathe while you get started, so it makes it a little easier that you’re not just inundated with more than you could ever do every day. The economy will grow with us,” he says. “People think you’re crazy for opening a business with the economy [down], but I think it’s an opportune time to set your anchors. The downside is it’s competitive. Everybody’s scrambling for everything they can get.”

That said, Lyon knows he has to deliver on the opportunity to own a stake in his future.

“What intrigued me was just the whole business model from top to bottom and the ability to make more income,” he says. “I have an ability and an opportunity to make what I always felt I deserved. Now, it’s, 'Be careful what you asked for,’ because now you get to prove it.”