How Cynthia Kaye led Logical Choice Technologies through a tough banking challenge Featured

8:01pm EDT April 30, 2012
How Cynthia Kaye led Logical Choice Technologies through a tough banking challenge

Cynthia Kaye’s company, Logical Choice Technologies Inc., has been on a fast-growth track for many years, and since its business is education-based — the company provides schools with educational technology such as interactive whiteboards, teaching software and the like — its revenue stream is highly seasonal. Those factors have created a sometimes bumpy ride for the Lawrenceville, Ga.-based company, particularly with regard to its banking relationships.

Logical Choice went through one especially rough stretch four years ago during which it bounced its accounts from one bank to another to a third bank within about a year’s time. The problems were rooted in changes in the management and business philosophies of those banks. As a result, Kaye’s company got stuck in a precarious spot and had to lay off more than a dozen employees just as its annual busy season was bearing down on it.

“That was an extremely tough challenge for us,” Kaye says. “We had been with the same bank — we’ll call it Bank A — for about seven years, and they had a change in management and decided they didn’t want a lot of fast-growth companies in their portfolio anymore. It had been a good partnership, but then they had a shift. I’ve seen this happen before. I’ve run this business for 18 years, and there’s a pattern — when there’s management change at a bank, there’s a new philosophy that comes in. And every bank has its own risk tolerance for different types of businesses.

“So they said, ‘Cynthia, we’re in no rush, but our new management doesn’t want too many fast-growth companies right now, so you might want to keep an eye out for new banks.’ It was nothing serious; we hadn’t missed any loan covenants. So we said, ‘All right, we’ll keep that in mind.’”

The negative news from her company’s longtime banking partner surprised Kaye.

“It was a little weird,” she says.

Other banks started calling on Logical Choice, and after a few months, the company moved its business to another bank that had been courting it — Bank B, as Kaye refers to it. That relationship went swimmingly for about nine months. But in the first quarter of the following year, as Logical Choice moved into its annual slow season, the relationship began to sour. Kaye says she thought Logical Choice had been very clear with Bank B about what to expect in terms of the seasonality of its business.

“Our company sells to education clients only, pre-K through college, so by nature we’re a very cyclical business,” she says. “Bank A had been used to this and had no issue with it. And we explained it to Bank B: ‘Here are our financials. Here’s how it works. This is very normal.’ They seemed to understand it.

“Then nine months into our relationship, we hit our slow season, and the numbers started going down. January was bad. February was bad. That month we got a call from the bank. They had changed analysts, and as I’ve learned, different analysts have different levels of risk tolerance. And they said, ‘We’re moving you into our workout group.’ They put restrictions on us and said you’ve got to make X profit with the next 30 or 60 days or we’re pulling your line of credit. Now, our line of credit is in the millions. If they pull your line of credit, you’re done. This stunned us. We had been very upfront with them.”

Logical Choice was less than two months from the start of its annual busy season, and in order to meet Bank B’s stipulated profit target, the company had to lay off 14 employees — out of a total of about 200 that the firm employs.

“The majority of them were key to our continued growth,” Kaye says. “We had to lay them off immediately to meet our profit numbers, so the bank wouldn’t do anything drastic.”

About a month later, Logical Choice’s customer service representative at Bank B, who was extremely unhappy with the way his employer had treated Kaye’s company, left that bank and took a similar position at another bank — Bank C.

“He felt so bad about how it had been handled that he resigned,” Kaye says. “He went over to Bank C and convinced them to come in and take us over. So Bank C came in and said, ‘We believe in you. We’ve seen your history, and we’re going to take you on.’ So they did.

“Then we went forward and had a record sales summer,” she says. “It was nuts.”

Pull together

Guiding her company through the bank revolving door and layoff ordeal was one of the toughest challenges Kaye has faced in the 18 years that she has led the company.

“It was traumatic,” she says. “I really had to overcommunicate with my people about what was going on — being honest but not fearful. You know, ‘If we pull together, we’ll get through this. It might be painful, but we’ll get through it together. And here’s what’s happening. Here’s the plan.’ They really need to hear the plan.

“I had to keep the communication updates going, and everybody really rallied. It was terrible to lose those people. Eventually we were able to bring some of them back. But there were some we couldn’t bring back because they’d already gotten another job. Having to let go of good people when you know it’s not necessary because you’re just going through a regular seasonal downturn — that was painful.”

On top of that, there were uncertainties about the transition, about having a new bank and doing business with new people and new personalities.

“It was tough because it distracts you,” Kaye says. “Instead of focusing on your customers and your sales, you’re distracted working behind the scenes, having to let people go, meeting regularly with the bank, putting together documents. And you’re having to do these things weekly. So it’s a distraction from just focusing on your regular day-to-day business with your customers — and then having to constantly communicate with my staff: ‘Here’s what’s going on. Thank you for all you’re doing. Let’s rally together.’ It puts an extra burden on you. But you do what you’ve got to do. And in the end, we wound up with a much better bank. We’ve been extremely pleased with them.”

Nurture relationships

An important learning point that Kaye and her leadership team have taken from the ordeal is the importance of cultivating a strong relationship with your banker. And it’s best to try to nurture those connections as far up within the bank’s chain of command as possible.

“One of the biggest things we’ve learned from this is that you need to try to get the relationships as high up as you can go in the bank — not just your local rep,” she says. “You need to know all your analysts, your senior analyst, your senior analyst’s boss. If you can get to know the president, even better. That way, once you know them well, you can help your local rep fight with you, if it comes to that.

“Now that we have a new bank, we make it a point to know everybody, all the way up to the president,” Kaye says. “They’re great people.”

Cultivating relationships with other banks in addition to your regular bank is equally important.

“It’s always good to have relationships with two or three other banks while things are going well,” she says. “We learned that the hard way, too. Keep those relationships up, because when something happens — and eventually something will — you’ve got some other friends that you’ve developed relationships with. Different banks have different appetites at different times. So don’t lose hope if something like this happens. Start talking to your other banks, let them know what’s going on, and be upfront with them. Eventually you’ll find another bank that will work with you.”

Another point Kaye says she has learned is that it’s important to instill discipline in your company’s business dealings and to avoid becoming complacent when things are going well.

“You have to structure your company to run lean in the good times as well as the off times,” she says. “Sometimes when things go well for a long time, you can get lax in your discipline. You might have a few more employees than you really need. And then when times get tough, you have to scale back. Now, sometimes that will happen anyway. But if you can try to stay disciplined during the good times, it will definitely help you in the bad times, because it’s just a matter of time when those are going to hit. It’s not if; it’s when.”

Work toward balance

A related challenge Logical Choice has faced is one that all companies whose revenue is seasonal must grapple with: how to generate more balanced revenue throughout the year. Years ago, Logical Choice served corporate and government customers as well as schools, and that helped to minimize some of the feast-and-famine revenue extremes. But the company later decided it made more sense to concentrate its efforts solely on the school business.

“Because we’ve decided to focus on our education customers, our business remains very seasonal, so we have to contend with that annually,” Kaye says. “We think about it all the time. The problem is that I want to lead something that I’m passionate about. At one point, we had a corporate division and a government division in addition to our education division. That was fine and good, but my heart was always in education. It distracts you — you have to help your corporate customers and your government customers, and I felt we were not giving 100 percent to our education customers. So we decided we really just want to be an education company who’s making a difference in the lives of teachers and kids throughout the country.”

A new group of products that Logical Choice is developing could help level out the company’s revenue because the products have consumer appeal, Kaye says.

“Something’s happened recently that over time might help fix [the seasonality issue],” she says. “We’ve invented and developed our own software package called Letters Alive. It’s really cool.”

Letters Alive is a supplemental reading program that teaches literacy skills with alphabet cards on which animals spring to life via a 3-D animation technology called Augmented Reality.

“I took a portion of our profits and we brought in programmers and a leader, and I said, ‘I don’t know what I’m doing, but I think if we can make a cool product with a one-year curriculum, we can really help kids learn to read.’ And that’s how Letters Alive was developed.”

Logical Choice is also developing a related product line.

 “It teaches reading, and it’s got interaction and games to reinforce skills,” Kaye says. “These products have potential consumer market attraction beyond just their educational appeal, so we think this will help smooth out our cyclical business — over time, of course. It won’t happen overnight.”

HOW TO REACH: Logical Choice Technologies Inc., (770) 564-1044 or www.logicalchoice.com

 

THE KAYE FILE 

NAME: Cynthia Kaye

TITLE: Founder and CEO

COMPANY: Logical Choice Technologies Inc.

Born: Smithtown, N.Y.

Education: Bachelor’s degree in elementary education from Florida State University, 1987

What’s the most important thing you learned during your years in school?

Before I graduated, I did an internship teaching a fourth grade class for three months. The classroom had an Apple II-E computer, but they didn’t know how to use it because the Apple II-E was brand new. I had learned how to use it during my last year in school. So I got the kids excited about technology, and it increased their writing scores and their reading scores — everything went up because I used the computer all the time. And that’s when I decided that’s the type of work I wanted to do.

Tell us about an early job you had and an important lesson you learned from it.

I took a temp job in Manhattan one summer during college. It was phone and reception work, and I hated it. It was not my calling. I realized then that I have to do something that I’m passionate about, that’s going to make a difference, so that I’m excited to get up every morning. That was a wakeup call for me.

Do you have an overriding business philosophy that you use to guide you?

Be kind, and be gracious and forgiving. Not that I’m good at doing these every day, but it’s something I aspire to. People matter, and I’ve pulled that into our culture in this company. Our core values are teamwork, respect and support each other, have honesty and integrity, be the best at what we do, work hard but have fun, and have happy customers.

What traits do you think are most important for a CEO or business executive to have in order to be a successful leader?

Being persistent and having vision. And your vision has to be bigger than yourself. It has to be something that people will want to rally around.