Michael Grunberg is not the typical Somerset Kentucky businessman. His finesse and style peg him as an outsider, albeit, a welcome outsider to the region. A while back, I sat with Mr. Grunberg during one of his visits to his latest investment endeavor, Somerset Energy Refining. For those of you who don’t recognize the name, this is the restructured entity that once was Somerset Oil Refinery.

Mr. Grunberg read the writing on the wall and looked for opportunities to diversify his real estate investments. In the classic recipe for success of buying low and selling high, Grunberg seized the opportunity to resurrect a broken business.

Of course success was the end game and in order for this diversification venture to succeed Grunberg needed to identify why the business had failed in the first place. The advantage that Grunberg had was capital. This overcame the challenges of previous owners who were deep in debt with little or no capital.

As with any successful business, financials and review on paper is never enough to guarantee success. A visit to Somerset was in order to seal the deal. He was pleased with what he found with “the Lake,” the summer month car shows and the energy of the community. Nothing about this investment was easy except the decision to invest.

Thanks to Somerset Oil’s bankruptcy, Grunberg was able to take this teacup refinery and apply money, discipline and talent to maximize the investment. The bankruptcy trustee had done the fat trimming and thus it was Grunberg’s job to make good business decisions.

To begin the process Grunberg retained and is hiring the proper talent. The goal is to make a profit at all levels of the barrel. Using the cumulative experience of the people will accomplish that goal. Many of the long-time employees of Somerset Oil are proving critical to the success of Somerset Energy. Both office and refinery operations personnel are considered by Grunberg to be “key personnel.” Many of the operators and maintenance workers that kept the refinery properly mothballed to prevent corrosion and guarantee safety and environmental measures were maintained were critical to closing the deal. Grunberg closed on a working and permitted refinery, albeit down for much needed repairs, deferred maintenance and upgrades.

Reliance on intellectual capital is not an anomaly in Grunberg’s business practices. In every asset purchased brokers and key personnel are important. Grunberg has benefited from the “please take her” sentiment of closing deals that ensured that important people who know the ins and outs of the business continue. Grunberg trusts and admires the intellect of others. According to him, the trick is to identify the brighter folks surround yourself and learn from them or at least listen and emulate.

Somerset Energy Refining is an 80 plus year business. Grunberg sees his role as a sometimes taskmaster and arbitrator with no need to micromanage. Probably reassuring to some of the employees is Mr. Grunberg’s philosophy that old is not necessarily bad. This doesn’t mean that there isn’t room for new technology. As the refinery looks to maximize profits, high-tech investments and technology updates will be a priority. One future investment may be wireless data valves for flow rates maintenance and a vacuum tower.

It is interesting to note that Mr. Grunberg’s greatest challenge in this business venture has been the need to mend fences. When Somerset Oil failed, regional producers needed to go elsewhere, jobbers and independent truckers filled the vacuum. That caused an increase in cost to the producers because these jobbers are middlemen. The solution pondered by Grunberg: having the truckers come into the Somerset Energy fold. Resistance is anticipated. Other solutions for overcoming the sourcing issue: rail transport from other regions, allowing the purchase of crude at rates that compete with Marathon. The business decisions Grunberg faces are challenging. His commitment to intellectual capital and his broad-spectrum thinking are equal to those challenges.

It is critical for Somerset Energy’s success to get the regional crude in. An advantage that should not be underestimated is that GM, Mercedes, Chrysler and Ford approve the gas produced by Somerset Energy. The diesels viscosity is greater than that of other area producers, making their “off road” diesel second to none.

In short, Grunberg has committed to competitive advantages that maximize the benefits of the product and the people.

I must admit to being amused by Mr. Grunberg’s stated expectation that the area would be more rural. He seemed to enjoy the duality of the region’s suburban traits and rural access. Personally, Grunberg seems to be challenged by the slower pace of business. He says, “it’s tough to keep the ADD (attention deficit disorder) in-check here.”

The location is an advantage as Grunberg works to recruit and retain talent. Thanks to the proximity of Lexington and the fact that most people enjoy living in the Somerset region it’s easy to entice people.

What does he like the best about Somerset so far? “The weather.” I think he may have even embraced the old Kentucky adage: If you don’t like the weather wait 10 minutes.”

Author’s Note:  This article is based on an interview with Michael Grunberg conducted in December 2008 and has just been released from consideration by another publishing venue.  The title is a quote from an employee at Somerset Energy Refining that Mr. Grunberg has embraced.