Mike Crotty, president of Spirit Services, believes everything happens for a reason. For him, the economic downturn was the catalyst for a company restructuring, which will better ensure long-term health.
It wasn’t, however, without cost — a lot of turmoil, family fallout and heartache.
“If I can help other companies in any way not go through what I had to go through, that’s what I try and promote,” Crotty says, who is the fourth generation to lead the business.
Crotty even spoke about his experiences with family legacy costs and a lack of succession planning at the Conway Center for Family Business, and is now counseling several other companies.
A strategy to save the company
Spirit Services, which provides uniform rental, industrial laundering services, and corporate apparel and promotional products with logos, has a long history.
Originating in 1934 as the Van Dyne Crotty Co., the business started in Dayton. Family disagreements eventually led to a split and move to Columbus.
As leadership moved from the second to third generations, little was done from a legal standpoint to transition the company. Succession planning just wasn’t discussed.
Crotty said things were going well and Spirit Services, which the company was renamed in 1999, was growing. No one wanted to rock the boat — even as a sense of entitlement and what he calls the family tax compiled.
But when the economy tanked, Crotty had to step in as president — his father was semi-retired at the time — to make difficult decisions.
“When we set out with a strategy to save the company, most of our advisers were like, ‘There’s no way you’re going to pull this off. There’s just absolutely no way,’” Crotty says.
First, he says, Spirit Services unloaded real estate and carried those losses forward.
Crotty negotiated Spirit’s Lehman Brothers debt down, and sold off half of the company, dropping down to seven locations in the Midwest. He knew parts of the company would be valuable to a strategic buyer.
“We not only successfully paid off all of our debt with the capital we raised, but we also were able to get about $2.5 million of debt forgiveness in the process,” he says. “There were some striking positives out of this, and now we have a company that’s much smaller, much easier to manage.”
Eliminating family expense
Then came the hard part — decreasing family costs for the new company size. Stockholders could no longer get compensated for very little contribution; salaries and costs needed to be realigned.
“We wanted to keep portions of our business alive and running, and we needed to eliminate as much of the family expense that we could,” Crotty says. “Unless we had some sort of binding document in place, everything was suspect.”
But Crotty didn’t want to tackle family legacy costs — and detonate family relationships — until he knew Spirit Services had a fighting chance to survive.
“Everything came to fruition as we planned,” he says. “We executed it flawlessly. It was wonderful.
“Then it was time to have those difficult conversations. And unfortunately for me, it fell squarely on my shoulders,” Crotty says. “It took a lot of resolve, and a lot of heartache and sleepless nights.”
As relationships fractured and family members pointed fingers, Crotty says his biggest worry was that he’d done it all for nothing. That the company would still fail.
Today, now that he’s come through the worst of it, Crotty says his advisers tell him they were skeptical.
It wasn’t that they didn’t think he could sell half the company or raise capital to pay off the debt. It was the family piece, because many of these issues were bubbling over for years.
“We’ve ignored those for so long, they just didn’t believe we were ever going to address them,” he says.
Clear communication, planning
Looking back, Crotty sees areas for improvement that Spirit Services hopes to manage better in the future, especially if Crotty’s sons become involved.
The most important thing is clear communication and clear succession planning, because no one wants to talk about the elephant in the room — family costs that hurt the business’s future. Also, family members who aren’t involved in day-to-day operations must be apprised of company performance.
Clear expectations have to be communicated — what’s going to happen, when it’s going to happen and why it’s got to happen.
“I use the analogy of the ‘127 Hours,’ where we had to basically cut off our arm to survive,” he says. “But the family members that aren’t involved in the business didn’t understand.”
He suggests holding structured family meetings of substance a couple times a year to help fill missing gaps about the business.
Also, Crotty says if you’re still talking at all, you have a chance.
“It’s not too late to have a family meeting. The first one is probably going to be ugly, but if you stay consistent and keep the message as business-focused as you can, you can probably pull out of this,” he says.
And it’s worth it, because Crotty feels confident about the future of Spirit Services, which is growing into a new area — school sports spirit wear.
He also believes family businesses are more fun to work with, more genuine, have happier employees and provide an ability to pass on generational wealth.
“I’m not losing sight of that,” he says, adding that’s why he wants to help others.
“I’ve had a couple meeting with a couple companies, and I think I’m making an impact. I hope, I am. I hope they are taking my story to heart. But at the end of the day, they still have to act.”
