Koa product maker cut out for business
By Dan Nakaso
Advertiser Staff Writer
Rory Otto pushed buttons on a computerized laser cutter, and within seconds turned the wood of Hawaiian kings into a kitchen trivet so detailed that some customers consider it a work of art to be hung on their walls.
Bruce Asato • The Honolulu Advertiser
Otto had planned to be out of his 6-year-old Island Collections business by now. The company engraves and laser-cuts koa wood into high-end photo albums, Christmas ornaments, chess boards and anything else Otto thinks up in his Halawa Valley shop. His products include a written description about koa's place in Hawaiian culture.
With the biggest laser cutting machine in Hawai'i, Rory Otto can produce precision-cut wooden panels at top speed at his Halawa Valley workshop. The identical Hawaiian design koa pieces will become clock faces.
An entrepreneur at heart, the 38-year-old Otto had planned to sell the business two years after he launched it, and move on to something else.
But a tough economy, a new house in Kane'ohe and newborn twin sons mean his original plan has been put off for now. Which is fine with him, since his products keep selling through 100 stores, mostly to local customers.
"Rory's a very innovative and creative guy who responds to the market," said Lloyd Jones, owner and CEO of Martin & MacArthur, which carries the Island Collections' line of about a dozen items. "Some vendors we carry have had the same products for 20 years. But Rory always has something new."
In tighter economic times since Sept. 11 and the Iraq war, Otto came out last month with two cheaper laser-cut items formed into Hawaiian print patterns — $8 bookmarks and $30 night lights. He also began producing a new, medium-priced $150 koa box.
The inspiration for Island Collections came from a business neighbor in an industrial center in Mapunapuna who churned out thousands of foot-long wooden surfboards that he sold for $1 at low-end, kitchsy Waikiki shops. Otto appreciated both the demand and profits, and believed there might be a market for higher-end products made from koa.
He may have inherited an ability to see such possibilities. Or maybe it was the stories his mother told him about his father, Ralph Otto, who died of cancer in Canada at age 35, when Rory was just 6.
Virginia Otto filled her son's head with tales of his father's business successes — including building one of the world's largest trailer and mobile home companies, Otto Mobiles, which still operates in Canada.
"Maybe it was genetics or whatever," Rory Otto said. "But I can remember the way that my mother talked about my father."
Growing up in Edmonton, Alberta, Rory was always hustling.
At 8 years old, he collected aluminum cans for 2 cents apiece and bottles for a nickel. He scored when his mother began dating a man who ran the snack shop at a raceway park, allowing Rory to scour the bleachers and garbage cans for merchandise.
On a Hawai'i vacation years later, Virginia Otto met a salesman named Tom Lineberry who brought the family to the Islands when Rory was 13.
He never got an allowance, but made enough money delivering pizzas and other odd jobs to drive himself to Kaiser High School in a Triumph TR6 sports car at age 15. He liked wood shop and auto shop, and had no interest in working for somebody else.
Otto went to the University of Hawai'i for one year, helped build a house in Alaska and then hitchhiked his way to Boston, where he enrolled at Boston College with no real plan.
At the age of 21, Otto got his first taste of business in the real world. A college friend came up with the idea for an ice cream and cookie shop in 2,500 square feet of retail space.
The business simply failed, Otto said. The carved sign for "Smoothie's Homemade Ice Cream and Cookie Co." still hangs in his Halawa Valley office.
Building image
Otto returned to Hawai'i the next year and hooked up with an old Kaiser High School buddy, Jay Soares. Together, they could redesign or build homes, so they formed their own Mapunapuna construction business, Image Builders.
In 1996, they were doing so well that they decided to showcase their work in a photo album. And they wanted it to be a nice one. "We didn't want some cheap thing," Otto said, "something plastic or whatnot."
So Otto turned a solid piece of koa into a photo album that was so well-made, his salesman stepfather wanted more to sell.
The partners began churning out solid-wood albums between construction jobs. They found a laser engraver who could cut
figures of paddlers or carve out letters. But the $200 retail cost for the albums meant they lost money for the first five months.
By the end of 1996, Otto and Soares were headed along different paths. Soares wanted out of the koa album business, and Otto bought him out for half their $15,000 investment.
They continued their construction partnership six days out of the week. On the seventh, Otto saw his future in koa.
In January 1997, Otto incorporated a second company called Island Collections, and his sole employee churned out koa photo albums and coasters from Image Builders' Mapunapuna shop.
Instead of solid koa, Otto focused on veneer, which warped less and cut costs. Otherwise, Otto said, "We had no plan."
He was paying a laser company $5 per piece, which added up to $4,000 a month. Although he was generating $60,000 a year in sales, the overhead meant no profits.
Scaling up
So Otto spent $1,700 a month on a lease option for what was then Hawai'i's biggest, 100-watt laser cutter. He moved the business to Halawa Valley, and with girlfriend Donna Bendell began showing the photo albums and coasters to retailers around the Islands. The laser cutter was running 60 hours a week to keep up with sales that had grown to $210,000 per year.
Over the next few years, Island Collections saw 50 percent annual growth, and in one three-year stretch had a tenfold jump in sales.
By September 2001, Otto decided he needed a second, faster laser. He took out a $170,000 bank loan to buy a 290-watt laser that could churn out koa products in less than half the time of the old machine.
As the laser technician installed the new machine, the Sept. 11 terrorist attacks occurred.
Biding time
Otto's sales dipped, but never died.
"There are other, similar products on the market, but I exclusively use them," said Debbie Costello, owner of Island Treasures in Kailua.
Otto has no plans to open up his own retail operation. He doesn't want to compete with the businesses that carry his products. And just one year of running an ice cream store cured him of any ideas about retailing.
But Otto does harbor a dream of selling Island Collections someday when Hawai'i's economy improves.
"It's not a two-year plan anymore," he said. "It's now maybe a four- or five-year plan."
