Italy’s Economy Runs Through Small Business Owners like Margherita Pagotto

A major peculiarity of the Italian entrepreneurial ecosystem is that 92% of all companies in the country are considered small or medium-sized (SME). That’s 5.3 million businesses employing more than 15 million people, or around 82% of the entire Italian workforce.

Most of these Italian SMEs, particularly in industrial production, are managed by family members. Depending on how a family manages that responsibility, it can be a critical factor for both success and failure.

There is perhaps no one in Italy who exemplifies this unique dynamic more than Margherita Pagotto, the Executive Vice President of VAPSINT SRL. The company, which started in the 1960s as a workshop for producing regenerated dampers called VAP Veneta Ammortizzatori, has now been a leader in the production of gas springs, dampers, and decelerators for more than 50 years. Pagotto first joined the company at 18 years old as her father’s secretary and since then, has been a huge part of the company’s growth, expansion, and organizational evolution. In September, The Org interviewed Pagotto to better understand how VAPSINT represents the norm in Italy and to hear what advice she would have for other Italian SMEs.

1968 - Onboarding

Margherita’s father, Elio, used to be in charge of sales at the firm and wanted to hire someone he could trust to stay in the office and oversee operations. However, he was traveling a lot for commercial purposes at the time and didn’t have time to onboard anyone. Enter Margherita, who officially joined VAPSINT in 1968 as an 18-year old who had just completed her studies and was ready to start a career as a teacher. Even if totally unexpected, her vision and leadership fully shaped the future of the company and led it to long-lasting success.

At the time, the company had just six employees split between administration and production functions. Margherita wanted to make the best of her time and started shadowing employees' work, studying and learning more about administrative issues such as fiscal, legal, accounting matters.

What she remembers very well about starting is that the Italian systems at the time were really unstructured. Fiscal declarations of company earnings were written down in pencil and there was a real lack of measurement and transparency throughout the country’s business ecosystem as a whole. During those years, even if she was learning a lot and the company was successful over time, Margherita kept feeling a lack of control that she couldn’t stand. So she started a reverse engineering process focused on costs by studying the real impact that processes, materials, and human resources were having on company margins, expressing her influence on the company for the first time.

Starting to have an impact on the organization while learning something new every day didn’t change the fact that Margherita felt like she was far from the core business. She couldn’t get the technicalities of production, her employees' work processes, or their slang. Moreso, she felt alone in dealing with this. This is why from 1968 to 1976 she worked on reviewing cost management topics such as the real cost of an employee compared to net salary, all of which gave her more organizational control and security.

1976 - The Big Challenge

Eight years into her time at VAPSINT, something big happened to Margherita: her uncle, who was in charge of company production, and another employee who was reporting to Elio, both decided to leave. Not only that, but they left in order to start two different companies in the same field that were going to target the same market. Though they both failed some years later, the movement still convinced the Pagotto family to focus on workshop production. Ultimately, this gave Margherita the opportunity to finalize her 360° learning experience: she came up beside workers to learn how to varnish, stock, and organise the logistics. Finally, she was able to close the loop on the cost management and margins optimization.

Making Margherita “come down” to production, the core of the family business, enabled her to be trusted by her employees. She was listening to their point of view and learning from them all at the same time. Her attitude as a listener not only helped her as a leader, but also allowed her to turn the firm into an industry leader.

1980 - The Turning Point

Four years later, now equipped with a deep knowledge of the inner workings of the company, Margherita started analyzing the market. She was afraid that by being focused on selling a regenerated product within the auto market could represent an important business issue in the near future. Their product was suitable for old cars that could last for a long time, but she was concerned this habit would change for Italian consumers over time (and 20 years later, it did). Furthermore she knew production wasn’t scalable: to earn more she needed to produce more, and to produce more she needed more workers, which disabled any economies of scale and was also limited by space.

She felt a responsibility to her employee base, which had increased to 15 people, and the pressure of her visionary mind. What she saw back then was the need to find a new product that could leverage their hydraulic and pneumatic know-how.

By looking for a way to diversify the product and their market placement, Margherita’s skills as a listener helped her once again. At the time, many customers stopped by the firm after misreading the brand sign as “Veneta Ammortizzatori,” to ask for a damper replacement. This unexpected request allowed the company to review gas springs that had been in production for hearses since 1969. Opening their door to this new demand enabled the company to test some prototypes and then to start a new type of production. The firm was then able to commission the first custom machinery for automazing production, enlarging quantity and margins.

1980 was a relevant year for VAPSINT for several reasons. Margherita was invited to present the product at Sfortec, the first industrial fair in Milan. Presenting the new product — free stroke gas springs with locking systems and hydraulic dampers — generated very good feedback and positive word-of-mouth. More importantly, it led to the activation of the company core innovation process and the start of new prototypes development.

The activation of this nuts and bolts happened to many Italian enterprises within several industrial districts in the 80s, when family businesses were producing artisan made value items, enabling a very flexible prototyping for custom products. The competition was low, so Margherita had space and time for testing new products and arrangement with customers and was able to leverage the peculiarity of her product to enable people to better manage every kind of weight.

Also thanks to the addition of her brother Angelo in the firm, who worked on industrial production, she could focus on customer success and translating requests into a production order, counting on her complete knowledge of company processes and her employees’ skills to accelerate VAPSINT’s growth.

The Ripeness Years

In the following years, thanks to the collaborative atmosphere that Margherita fed every day and her brother's skills and support, the company evolved very quickly:

• In 1985, VAPSINT made their very first investment in a new technological production and bought a new warehouse, moving part of their now-35 employee company there.

• Between 1987 and 1990 they moved their whole automotive production to the new warehouse to manage big orders.

• In 1990, they faced an outbreak in the furniture sector and started receiving huge orders for kitchen gas springs to lift shutters up. As Margherita remembers, there were so many orders that “it felt like it was raining.” Despite their prosperous pipeline and almost 60 employees, her leadership required her to welcome every other kind of request from other industries and to keep on learning, testing, and evolving in other potential sectors.

• In the 1990's the company started to export their products abroad to Spain, UK, Brazil, and South Korea. They owned the market until 2000, when China entered the WTO and crept into their market, shooting down market prices at the exact same time Margherita invested in a new warehouse. Despite the hostile situation, she showed an admirable sense of ownership, awareness, and vision to approach the moment very pragmatically. She got back to what she had learned in the past: listen to the market, reinforce production flexibility, and understand what they could do best. And with a bit of luck, some companies that needed industrial dampers knocked at her door.

• In 2007, Margherita’s son entered the company as their Head of Sales, bringing in new skills and a fresh air to the company after graduating in management and working as an area manager at Electrolux.

• In 2010, thanks to Angelo, they developed a new product for sliding doors and welcomed decelerators to the company’s catalogue. And Angelo’s daughter, Giulia, entered the company to shadow Margherita, starting her own leadership journey within the family business.

Today

VAPSINT has a high level of sector differentiation, from automotive and furniture to vast industrial production. It now has 57 employees and only 10 of them work in the field that the company was started in, automotive. In her 52 years of leadership, Margherita has been able to constantly implement the following formula, based on the principle that sectors increase and decrease systematically:

Intercept market demand --> Research and prototype, leveraging on people skills --> Design the machinery that enables custom components assembly

The Future

When we asked Margherita what evolution she expects from the market and what tools VAPSINT has to win that evolution, she said:

“We are sure that we will always have a market, as people will always need to lift weight, move them or decelerate their move. We will make sure to invest into a systematic listening tool, in order to evolve and change with the demand as we did during our whole story.

"For sure the technological and digital innovation, mixed with the shortage of qualified workers. will lead us to introduce robots into the production.”

Lastly, as a woman who has been in a family business for more than 50 years, we asked her how to lead a family company and what strategies she might have for developing a future vision.

“To successfully manage a family business in 2020, first you must invest in the company culture. Keeping a positive atmosphere it’s crucial for staying flexible and taking the best from everybody. Moreover you need to push on an open-minded approach to stay in the over connected global market today.

“Secondly, you need to keep on diversifying: this means to avoid lock in with one industry, customer or supplier. In small business an error in not diversifying could end up with a firm default.

“Thirdly, you must understand what people are good at before giving them a role, not vice versa. As a company we value our employees for their specialties, employing them we pay their skills and we want to learn from them and engage with them.

“Finally, I think that a key factor is the company structure and modus operandi. Even if small and family businesses are used to informal communication, it is crucial to make sure that everybody respects the organizational structure. Company trust towards customers and suppliers directly depends on what everyone does every day.”

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