Setting the right tone Featured

9:35am EDT July 22, 2002
Tom Pons strongly adheres to a quid pro quo approach to doing business. So when friend Dick Granger, the majority owner of cellular company Roach Reid, needed some help, the owner of The Cuyahoga Cos. Inc. opened his checkbook.

"We believed in the buddy system, so that anything he could do to help me in business he would do, and I did the same thing," Pons says. "Dick got into some financial problem and that started a scenario of my lending money and it would be returned and I would lend.

"Then it got to a point where I would lend and the money didn't return, but then he needed more help so I lent more."

Several hundreds of thousand of dollars later, the 90-year-old Roach Reid, which started out selling dictating machines, was a lost cause and the fate of Pons' largesse was in doubt.

"I can remember very vividly saying, 'Dick, I know more about your company today than you do. And when I run the numbers and how many people you're trying to pay, out of making one sale, there's nothing left. You've spent it all and then some. So the math doesn't work,'" Pons says.

Pons' only chance to get a return on his investment was to buy the company and turn it around. But that wouldn't be easy.

The downfall

The problem, as Pons saw it, was pretty simple: Each sale cost Roach Reid more than it brought in.

Too much middle management and a poorly designed compensation structure sent the company into a vicious tailspin. The more it sold, the deeper it went into debt and the more it needed to borrow.

Faced with the prospect of losing his business, Pons saw only one alternative.

"In the mid-'90s, his situation got more critical, and at one point, he was asking me to buy the business," Pons recalls. "I looked into it and came close to doing that, but he had some minority stockholders who didn't like the idea. They ended up nixing the deal. Fortunately for myself, I had taken the proper steps to protect my interests where there were legal documents prepared and signed that covered my butt."

Then the minority stockholders discovered that Granger had pledged some of his stock to another lender.

"They found out then that they, as the minority stockholders, all of a sudden had majority control of the company," Pons says. "They fired Dick and then turned around and put the company into Chapter 11 bankruptcy. They operated under Chapter 11 for a little over a year and could not come up with a plan that could pay me back monies owed me and get out of bankruptcy.

"The bankruptcy judge put the company into Chapter 7, which was liquidation. I was able to negotiate with the trustee to purchase the assets in order to try and save my investment."

The rise

Pons now had the company, but success was far from assured.

Roach Reid's employees were accustomed to payroll problems. At times, they were paid normally, and occasionally, when they did receive checks, they bounced. Pons took steps to smooth the transition weeks before he officially received control of the company.

"People who were there then, a lot of them knew me because of my association with Dick over the years," Pons says. "I guess there was a certain comfort level because of the business success I've had in Cuyahoga Companies, and took my word that it was going to be (OK)."

But knowing that good will and being a nice guy can take you only so far, Pons took steps to take care of Roach Reid's employees even before the bankruptcy trustee allowed Pons his opportunity with the company.

"Before the deal was consummated with the courts, I put up payroll money so that we wouldn't lose people in that transition period," he says. "I was paying employees, I think, for probably six to eight weeks before the transaction finally closed. (That) gave them a comfort level that here, I didn't officially own the company, was working toward that, but was paying them."

With a sales force in place, Pons turned his attention to the issues that got the company in trouble in the first place.

"I got the costs in line better and put together some inventory management programs," he says. "In general, it was the case managing inventory and the coming and going of it. And if people became nonproductive, rather than continue to pay, unfortunately, you get that situation where you cut some people loose. Cut your losses."

Then he turned his attention to the pay scales.

"(I) formally changed the compensation structure for all, because it wasn't working," he says. "If this company were to survive, that, too, was a no-brainer. It had to change. Did people like it? No. But in most cases, they learned to live with it."

Another change involved the sales territory. Granger opened an office in Mansfield, one that from the start was a money loser.

"It was nonproductive, (and) bleeding the company," Pons says. "After trying to make it work for a year, (I) threw the towel in on that. We don't operate in that market any longer. And now, of course, in time we've added a second location, by doing phones out of our Lakewood office, as well as the office in Solon."

It's been four years since Pons turned Roach Reid into Cuyahoga Wireless, taking over the company in an effort to get back the money he'd put into it.

"Certainly there was the initial concern, the fear of the unknown," Pons says. "But being that the business was relatively simple, the basics came down to, you have to sell phones. Of course, there were times when the morale was so low prior that people got into doldrums and weren't selling. That compounded the problem.

"Being in sales all my life practically, it was kind of a no-brainer that if you sell and you sell enough of the product and your expenses don't exceed the income, then it should be a self-rectifying situation. And it was." How to reach: The Cuyahoga Cos. Inc., (216) 228-4700; Cuyahoga Wireless Inc., (440) 248-2880

Daniel G. Jacobs (djacobs@sbnnet.com) is senior editor of SBN.