Entrepreneur Uses High-Tech Tools to Transform a Low-Tech Industry

Paresh Patel started his vending business with one pop machine to help pay for his college education.

Fifteen years later, Portland, Ore.-based Courtesy Vending LLC is a growing $3 million business with 20 employees and more than 1,100 machines in the Portland area. Patel says the company, which grew 10 percent last year, has the potential to someday be a $100 million business.

That's ambitious, but the entrepreneurial Patel--Oregon's Small Business Administration Small Business

Patel's business acumen has secured him loans from Wells Fargo and the SBA over the years, including a $1.4 million funding package to build a warehouse in northeast Portland.

Gordon Rodewald, business relationship manager at Wells Fargo, praises Patel's inventory- and cash-monitoring system, "which allows him to make money in an industry where other operators struggle to make money. He's very thoughtful and organized."

Patel, company president, honed his business acumen while earning an MBA and Ph.D. in organizational management and e-business.

He built his company out of necessity to pay for all that education, but never intended to make a career in vending.

Realizing Courtesy had more potential than he originally thought, Patel ramped up operations after completing his MBA at the University of Washington. He moved back to Portland, leased a warehouse and bought a small vending route.

Eventually, he purchased a larger, struggling competitor and moved to another warehouse, thanks to a $216,000 SBA 7(a) equipment loan. With a 7(a) loan, the SBA guarantees a portion to lessen the risk for the lender. Patel's variable rate loan was for 8.5 years.

That's when business took off, growing 600 percent from 1999 to 2001.

Yet as the company grew, Patel's control lessened. Drivers picked up the money and regulated machines' inventory.

"That's when I decided I had to do things to keep growing," Patel said.

In 2001, he invested $60,000 in handheld computers for his drivers to track sales and product. The data proved revealing: Drivers were putting what they liked in machines, with little variation.

Patel started varying products, which led to an uptick in sales. Courtesy Vending earns revenue strictly through machine sales; customers supply only space and power.

The computer data also allowed Patel to track sales by units per machine--the point of the actual sale--rather than unit per warehouse, as Courtesy had been doing. He automated warehouse operations as well.

With those controls in place, Patel turned his attention to another problem, security. He invested more than $150,000 in electronic locks for all his vending machines to replace the easily picked external locks. Electronic keys are personalized--one employee's key allows access to specific machines at specific times.

The system serves two purposes: It prevents theft but also sends e-mail alerts if a driver skips a machine. Courtesy Vending can address a mistake immediately, before a customer even notices.

"That's given us an edge," said Patel. In the vending business, "we know we're doing a good job if the (office) manager doesn't have to think about us."

Perhaps Patel's biggest move yet: building a $1.9 million headquarters and warehouse.

Courtesy serves private and public clients, including Portland Public Schools, where Patel serves on the wellness advisory board.

Patel believes the technologies he has implemented can thrive anywhere. In fact, be was able to buy another vending business out of bankruptcy in 2003 and make it cash-flow positive in months. His next step will be expansion along the West Coast.

The nationwide vending machine industry is a $22 billion industry, and 93 percent of operators have less than $5 million in revenue; only 3 percent earn $10 million-plus. Patel hopes to capitalize on the increasing consolidation.

JOB CREATION

Paresh Patel decided to build his own warehouse in 2004 because spaces he'd looked at for expansion had low ceilings and high loading docks that weren't a fit for his business. He also wanted "green" features such as windows positioned to maximize sunlight.

After he found 2 acres in northeast Portland, he lined up $1.4 million through the SBA's 504 loan program, with Wells Fargo as the lead lender. But the appraiser valued the 18,876-square-foot building at $1.5 million, $500,000 below its cost to build, jeopardizing the 20-year loan.

Patel says the appraiser didn't account for "green-ness" and other features such as a big, private parking lot. And there were no similar structures in the business park for comparison.

Patel pleaded his case to the Portland Development Commission, and it "saved the day," he said, approving a $300,000, seven-year loan through a tax-increment program and a $150,000 grant from an economic opportunity fund.

Fred Atiemo, business finance manager for the economic development agency, said the funding made sense because the building was in an industrial corridor targeted for economic development by the PDC. Courtesy was creating and retaining jobs that pay well above minimum wage.

Courtesy Vending LLC * Owner: Paresh Patel * 12815 N.E. Marx St., Portland, Ore. 97230 * (503) 784-1591 www.courtesyvending.com * Year founded: 1992 * Employees: 20 * Annual revenue: $3 million

PHOTO BY CATHY CHENEY