When Scott Flanders took over as CEO of Freedom Communications Inc. last January, there was a pent-up desire to move the family-owned company in a new direction.
The company derived 97 percent of its $1 billion in 2005 revenue and almost all of its profits from the newspapers and television stations it operates, but customers’ news and information-consuming habits were rapidly changing. No longer was the traditional daily newspaper or 6 o’clock news broadcast the main source of information. Internet news sites and alternative publications were taking market share.
The company’s long-term prospects were at stake. With so much of Freedom’s revenue tied to what are generally declining markets, the company had to make some sobering assessments of its business model.
“Short-term performance would have continued to be strong, but the long-term position of the company would have gradually weakened as the long-term trends of our readership moved its time from print to interactive without the company investing into where they were spending their time,” Flanders says. “So over a longer period of time, as our audiences erode, advertising dollars would have migrated away from us, and the business would have moved into cyclical decline. What I’m trying to do is not run the company for a day or a week or a month but for the next generation of shareholders.”
For Flanders, the answers weren’t going to come out of his experience or from his thinking but out of the minds of the company’s employees. And the managers at Freedom Communications most of them below the senior ranks were Flanders’ greatest asset when it came to devising a new strategy to redirect the company.
“I think the No. 1 thing is to tease out of the organization where that organization believes it should go, to not assume that just because you’re brought in as a change agent that your ideas are the right ones or that ... just because you’re brought in, the organization doesn’t know where it needs to go,” says Flanders. “It just needs new leadership, focus and energy to unleash that.”
Flanders gathered a team of the company’s executives, those who had been identified as thought leaders, to hammer out the company’s new direction.
“The first thing I did when I came on board was [I] polled the executive team the top 50 executives, cross-divisional, multidisciplinary associates from around the company to brainstorm and bubble up ideas about what our future opportunities were and what the obstacles to achieving those were,” Flanders says. “I brought in a facilitator to help guide that team because I wanted to extract from the organization what it thought our future should be. I fully expected to have to bring in external consulting help to flesh out our strategy, but, in fact, the team had the strategy, and it just needed to be unlocked.”
Declare the future
While it was the group that would come up with the plan, it was Flanders who would provide the goal.
“I fundamentally believe that the job of leadership is to declare the future, and I set it up at the beginning,” says Flanders. “I stated that my vision for the business is that we obtain the leading share of audience and advertising sales in every market we serve by 2010. I wanted to make one bold statement, and I challenged them to process that statement, determine whether they agreed with it, and if they did, to spend 12 weeks laying out for me what that was going to take.
“I believe there are two types of knowledge, that which you know and that which you know how to find the answer to. What we tried to do is unleash that creative and innovative passion that our people have, make them understand that I’m looking to them for the answers, that it’s their responsibility. One of the things I said to them is, ‘I’m your leader, therefore, I must follow you.’ It’s my job to extract from the organization its best ideas. Where I contribute value-added is where I help provide the filter of prioritization and gain the board’s and shareholders’ support for resourcing those initiatives.”
While the process of gleaning ideas from the group of 50 managers yielded a robust field of possibilities, there were far too many to implement them all. Flanders says his role, while his knowledge of Freedom Communications was still limited, was to provide a filter for the concepts to determine which of them should be implemented first.
"They developed a comprehensive plan that, as we went through the financial filters and did a risk-adjusted cost-benefit analysis, some of the initiatives were rejected because they were too expensive for the potential benefit,” Flanders says. “And so we ended up with a few percentage points of lower growth, but at about $100 million less investment.”
To sort through everything, Flanders applied a simple concept.
“One of my philosophies is, ‘What’s the fastest way to money?’ and it has been a guiding principle for me,” says Flanders. “In every case where I’ve faced two options, two alternatives, and I chose the one that was more strategic than the other which meant it was less remunerative in the short term I’ve ended up regretting it. We’ve applied that filter because it aligns with my declaration of the future, which is capturing the leading share of audience and advertising dollars.”
The group came up with four areas where Freedom Communications should be investing its resources and capital: interactive ventures, making acquisitions in core markets, improving operational efficiencies, and focusing more on customers and less on short-term financial performance.
With the four areas identified, the next step was to take action.
Flanders says taking the initiative on investing in interactive was spurred by discontent in the ranks over the company’s sluggish activity in online ventures, a response to early ventures that flopped. The reluctance to enter online ventures cost the company dearly.
“Our interactive revenue is half of our industry peers’,” says Flanders. “The company has underinvested in the Internet over the last three years, which was a reaction to the company being an early adopter and losing money in ’99 and 2000, and then shutting down those investments in 2002.”
Flanders didn’t waste any time setting up an interactive group headed by its own president, with a target of staffing it with 57 employees in the next year.
“To me, in order to keep the momentum and to preserve the credibility that we’re going to act on their recommendations, we have to move,” says Flanders. “The challenge was that it wasn’t economically feasible to pursue everything that was teed up. Even if it had been, it wouldn’t have been realistic to pursue everything at once, so we’ve had to prioritize, forgetting the economics, and interactive was what everyone said had to be No. 1.”
When it comes to making acquisitions, Freedom looked to create a position of leadership in the marketplaces it serves. For example, in broadcasting, the company is following a strategy of creating duopolies, or establishing two stations on two different networks in markets where it already operates and divesting of properties where it doesn’t anticipate being the leader in audience share and advertising revenue.
To achieve operational efficiencies, the company looked at establishing buying power across all its properties.
Freedom was a company that was decentralized and had not benefited from the scale of the enterprise. It had 16 different medical plans and no centralized purchasing for anything other than newsprint.
In each case, the local properties, some as small as $10 million, handled all of their own purchasing for telecommunications, energy and office supplies. The strategy group recommended that the company seek ways to leverage its size to reduce costs.
“As we have a need to invest in advance of generating revenue, because much of building out of our strategy will require investment, this team believed correctly that there were tremendous efficiencies that we could capture in our enterprise that could be turned back into investments that would ensure our tomorrows,” says Flanders.
Focusing on customers
As part of its strategy to focus more on customers, Freedom invested $15 million to launch OC Post, a subscription-based tabloid newspaper, first distributed in August in Orange County.
"One of the things that emerged out of our strategy work is the biggest reason that our subscribers churn out is not because of the price or the lack of value, it’s just that they don’t have the time to read a full newspaper every day, and it annoys them when they pile up,” says Flanders. “That’s certainly not our entire audience, but those are the customers that we’re losing. So, it became clear in Orange County, our biggest market, which represents 40 percent of our profits, that we needed a second product because the existing Orange County Register is highly relevant it serves 300,000 households very well but there’s another 700,000 household that we’re not reaching.
“It’s already capturing advertising dollars, it’s already capturing audience, it’s aligned with our strategy. It’s increasing our presence in Orange County, where we’re already the largest advertising generator, but there was a risk of losing share because of the households that we didn’t capture with our core product.”
While it’s a sound strategic investment, Flanders says that making a commitment to a new print product sends a powerful and energizing message to the company’s 7,000 employees.
“You talk about how (to) maintain energy,” says Flanders. “Well, launching a new product in a world where everyone’s bemoaning the demise of newspapers sends the message that we’re going to be proactive. We’ve decided as a company that we hear all the challenges of print, but we believe a lot of those challenges are because print hasn’t remained relevant to the changing needs of its customer base.”
Flanders says that while the company’s willingness to invest in new initiatives is a prerequisite to its success, it would not have been possible to construct an effective strategy without the depth of talent at Freedom Communications. Money is cheap, but talent is invaluable.
“Financial capital is inexpensive in today’s efficient market,” says Flanders. “Rarer are talented people who are committed to success, and finding those and supporting them is how you generate outsized returns for your shareholders, creating an environment that attracts and retains those people, that supports their instincts about what your customers will respond to.”
HOW TO REACH: Freedom Communications Inc., www.freedom.com
A pediatric oncologist by training, John Blank had to help people deal with a lot of bad news during his medical career.
As a health plan executive, Blank had to help Unison Health Plan face the fact when he arrived in 2004 that there might be trouble on the horizon for the managed care company. “When I came here, we were a Pennsylvania company with virtually all of our business in Pennsylvania, with 95 percent of our revenue and 99 percent of our bottom line coming from the Pennsylvania Medicaid program, and we’ve been very successful with that,” says Blank, Unison’s president and CEO. “But we were so Pennsylvania-focused that, like any business that has one major customer and the Medicaid program in Pennsylvania, like any other state, has challenges in financing and changes in the politics of the state that change direction or emphasis that it was a concern to me that we were so focused on one state.”
When you depend on one product and one source for all of your income, your fortunes rise and fall with those of your customers. And if they decide to turn off the tap, you can be in a real fix. So Blank, a 20-year veteran of the managed care industry, knew that Unison with 2005 revenue of $713 million and anticipated 2006 revenue of $1.2 billion had to do a couple of key things to grow and avoid a potential catastrophe. It had to expand its product portfolio, and it had to reduce its reliance on Pennsylvania’s health coverage program for low-income residents. “So my major challenge and focus was to move from being a very large mom-and-pop company into a much more diversified one, and instead of a centralized management, starting to move decision-making and management processes out to the organization,” says Blank. “So now we’re in five states with eight different product lines. We’re over $1 billion in revenue, and Pennsylvania still accounts for about 60 percent of our revenue, but as we continue to grow, it will be a decreasing share. “My goal is to get to a point where no one state, no one customer, is more than 20 percent to 25 percent of our total revenue.”
Leveraging core competencies
“The first thing we did here was to look at our core competencies, what is it that we do really well, and how can we leverage those core competencies to go into other markets,” says Blank. “One of the questions was, ‘Gee, we’re really good at the Medicaid business in Pennsylvania. What are the other things that we can do to take advantage of those core competencies?’ “The first thing was, what diversification can we get into just in Pennsylvania?”
Blank says Unison Health Plan was positioned well to expand in Pennsylvania, because, unlike commercial insurers, it has deep experience in running government-sponsored plans. “The regulatory and reporting challenges of government programs can really stymie you if you’ve been used to dealing as a commercial insurer,” he says. “So we took that expertise and said we can probably apply that expertise to other government programs, like Medicare, and we moved into Medicare last year. We had a large number of Medicaid members in Pennsylvania that were dual-eligible that moved right into our Medicare program, so we have about 15,000 Medicare members in the state. “That wasn’t geographic diversification, but it was certainly diversification by product line.”
Blank expanded the plan with contracts for several other programs, including the adult basic plan, a subsidized program for low-income adults and a subsidized plan for children of low-income families. While they were beyond Unison Health Plan’s traditional business line, they were well within its core competencies. “One of the things we’re good at when you look at our core competencies is we work very well with government programs, we understand the ins and outs of government programs, we understand the regulatory issues,” Blank says.
Introducing structural change
Blank knew that expanding business across multiple states meant the structure of the management team would have to change. “One of the big things we had to do was regionalize,” says Blank. “So we could no longer have one finance team, for example, or one legal resource, because legal issues, and even the reporting issues, are dramatically different in each state. You would drive people crazy.”
For instance, because individual states have specific regulations and requirements, some individuals who once had responsibility for one function had their focus narrowed to a more specialized area of that function. Blank says that created some discomfort, because it was perceived by some as a reduction in their responsibilities.
To allay those concerns, Blank redefined the nature of each team member’s responsibilities. “When you move to that segmentation, there’s a sense of, ‘I don’t have as big a job as I used to have’ ... and I think that was both good news and bad news for people,” says Blank. “It took less explaining and more reassurance that this is not a reflection on you, it’s just a reflection of how the company has grown, and that’s the good news. We’ve got to get a new model because the old model doesn’t work. “We were clear that the complexity brought about by growth would require specialization. In that regard, we talked about responsibility getting narrower and deeper.”
Because expanding the plan’s geographic reach and product lines meant expanding Unison Health Plan’s work force, it was important to Blank that new management team members coming in to the organization knew that the change was going to be comprehensive and that they were prepared to handle it. “This is probably the greatest challenge and the most difficult to articulate,” says Blank. “The best approach is to be almost brutally honest about the challenges and the opportunity, clear discussion of how one deals with change, what kind of experience they’ve had with that and if the change created anxiety. If they don’t admit the anxiety of these situations, I’ll almost always pass on a potential team member. “The issue for me is not ignoring the difficulty of these situations, but rather, how do they harness it to be successful?”
Blank says that in a business where so much rides on single transactions and the great deal of effort that goes into pursuing them, it’s easy for team leaders to feel a letdown when they fail to get a contract. Part of his role is to make sure that they don’t get discouraged and, instead, learn from the experience. “The other piece of it that was important was to reassure that failure is to be expected,” Blank says. “You’re going to kiss a lot of frogs to find a prince, is what I’ve been telling them. Georgia is a good example. We went out and spent about a year building a network infrastructure and didn’t get the business. “Well, there are a lot of good companies that didn’t get the business. It’s not something to be ashamed of, it’s something to learn from and something to continue to strive for. But it’s very tempting to say, ‘We didn’t get that business, what’s wrong with us?’ So you have to be a cheerleader around that.”
Blank says that when there’s good news to report, it’s usually others who deliver it. A plan president, for instance, will be the messenger when a new contract is landed. But when there’s bad news, when things haven’t gone well, Blank is usually the one to break it. “I think it models for folks that it’s OK to make mistakes, and it’s important to acknowledge when things haven’t gone so well,” Blank says. “The most important thing to do when things go badly isn’t to find out who’s to blame but find out how to fix it to make sure that it doesn’t happen again. “It’s just information, it’s not a character assassination. I think it does send the message that taking accountability and it starts with me is what is expected of leaders. The issue is not that failure is bad but that it has to be managed. You have to balance it with holding people accountable, setting goals and reasonable expectations.”
For example, Unison bid on a Medicaid contract in Georgia, a large state with more than a million Medicaid recipients, but didn’t get the deal. While it was a disappointment, Blank took it in stride, preferring to examine the results to determine what the plan should do to hedge its bets on future bids. “We realized that there are worse things than not getting a contract, primarily getting one that you are not totally prepared to manage,” says Blank. “We focused our energy on how we would have implemented this and used the experience to prepare us for the next opportunity.”
The exercise paid off, paving the way for subsequent wins in other states that have bolstered the plan’s enrollment and accomplished some of the diversification that Blank was seeking. “That preparation and a frank review of the opportunities for improvement led us to be able to successfully win our next three proposals,” says Blank.
Learning from the wins
While taking careful stock of a losing effort to figure out why you didn’t win the business is critical in any organization, Blank says taking a hard look at successes can be just as important, instructive and lucrative. One of the company’s huge successes a contract it secured with the Ohio Medicaid program got as close an inspection as did the loss of the Georgia bid. “When we won the Ohio bid, I did a post-mortem on what we did that worked,” says Blank. “When we didn’t get the Georgia bid, I did the same thing, and people expected that. When we won the Ohio bid, I said, ‘Let’s sit down and see why we got that.’ People were shocked, wondering why we were scrutinizing something that was successful.”
But Blank’s instincts were right. It turned out that there was a section of the bid where the plan hadn’t scored as well as it should have because it had misinterpreted what one of the questions was asking for. That attention to a successful bid, it turned out, was as important to landing future business as a self-examination of a failure could be. “The next time, we corrected and did even better in the next region that came up for bid,” Blank says. “So I think it is as important for folks to say we always have to be looking at how we’ve done, how we could do better. You can’t just say we won the game, let’s not worry about what we didn’t do.”
And it’s not that Blank doesn’t believe that an organization shouldn’t take time to bask in the glow of success. “You need to celebrate and take the time to pop open the champagne, but you also need to look at what is it that we did that didn’t work, and I guarantee you if you take your successes and you analyze them, you’re going to find two or three things we could have done better,” says Blank. “That’s a striving for success that I think translates well.”
HOW TO REACH: Unison Health Plan, www.unisonhealthplan.com
“It wasn’t clear what our products were,” says Moskowitz, chairman, president and CEO of Ceradyne Inc. “Nothing was very clear except for this idea that we were going to make advanced technical, primarily nonoxide, ceramics. One of these materials, boron carbide, is the lightest, hardest material known to man, and it stops bullets, but at that time, that was just a research phenomenon.”
Moskowitz turned that technology into a business that now makes armor, products for use in the energy industry, internal parts for diesel engines and bearing parts for windmills.
The company hit $1 million in revenue 1976 and grew slowly but steadily, hitting the $25 million mark in 1987. But its volcanic growth spurt began in the current decade, with an eightfold growth in revenue from 2001 to 2005. In fiscal 2005, the company posted $368 million in sales, and Moskowitz says that this year, Ceradyne should pass the $600 million revenue mark.
Here are some of Moskowitz’s secrets to success.
Lead by example
Moskowitz says his belief in the promise of the technology helped to sustain him and the company through its darker times, although often at the cost of personal and financial sacrifices.
“In the early days, there were difficult times, and I was really 100 percent dedicated to Ceradyne, sometimes at the sacrifice of myself and my family,” says Moskowitz. “That means there were many times I didn’t take a salary. There were times I borrowed money to give to the company, and as recently as the early ’90s, I loaned the company money to get through a tough short period of time.”
But Moskowitz is convinced that his commitment to the company was persuasive enough to keep some key people on board, people who might have otherwise jumped a listing ship.
“People saw what I was doing and felt that there was something to it and stuck with the company in the rough times,” Moskowitz says.
Leading by example is the first step, but you still have to recognize the contributions of others.
“I believe other people’s commitment is predicated on setting the right example, rewarding performance in a clear and timely manner, and providing nonmonetary recognition,” he says. “At Ceradyne, I have tried to set a good example as it relates to dedication to the company as demonstrated by a good work ethic and open management style.”
Ceradyne employees are rewarded quarterly with cash bonuses based on after-tax earnings. Additionally, many of the senior managers and executives have been granted incentive stock options. The company also gives nonmonetary awards for employee of the month and perfect attendance recognition.
Get personally involved
Moskowitz continues to take an entrepreneurial, hands-on approach to the business and looks for the same kind of spirit in the people he brings into the company.
“I guess I am always looking for people that have at least some of the values that I feel helped me build the company to one of the strongest growth companies in America,” says Moskowitz. “This usually means an entrepreneurial-fueled drive that may be considered from the old school, but I still believe is necessary.”
But unlike some entrepreneurs, he doesn’t believe in micromanaging in most cases and has delegated responsibility out into the organization.
“Micromanagement can drive those who are micromanaged crazy,” says Moskowitz. “However, in a well-defined, very specific area, if you’re the best, then go ahead and micromanage; it’s probably in the best interests of the company.”
Where Moskowitz is most hands-on is at the marketing end of the business, where he says his technical expertise and knowledge have been critical to Ceradyne’s success. It not only convinced him of the value of the technology and fueled his persistence, it also gave him the wherewithal to convince his customers of its worth. CEOs, he says, add significant value to their organizations when they can be at the head of that effort.
“I’m really a ceramic engineer,” says Moskowitz. “I think that’s important. I really know what we make. I like to do marketing, and now I deal at very high levels, both within the U.S. government and in the private sector.”
While it’s not unusual to find CEOs at smaller companies closely involved with customers, Moskowitz finds it every bit as important for him to be at the front of the marketing effort today as it was when Ceradyne was a $20 million company.
“I’m going to have a meeting with the CEO of one of the largest corporations in America in two weeks,” says Moskowitz. “In that meeting will be the vice president of research and development for this giant $23 billion company. And what we’re going to be talking about is not only the relationship between Ceradyne and this other company, but why there has to be a relationship, and the only reason why has to do with our technology.
“And when we get into that conversation, I’m not going to say, ‘I’m going to bring in Dr. so-and-so who’s going to explain it.’ I’m going to explain it. And at this high level, I know it will be effective. That’s not in 1990, that’s in 2006.”
Still, Moskowitz acknowledges that micromanagement has its limits, usually in proportion to a manager’s abilities.
“You just can’t be that smart, have excess energy to burn and know everything,” he says.
Moskowitz says the challenge in a large, rapidly growing organization is to make sure new positions are added so that they coincide with the expanding responsibilities that develop as the company grows.
“At some point, say $100 million in sales, your personal zeal may not be enough,” says Moskowitz. “It’s time for organization, structure and a few more top executives to join you at the top. It often becomes obvious when it is necessary to delegate additional responsibility and authority.
“The first indication is simply one of growth, where you or your current staff just simply do not have the time to do the job. Of course, this is obvious. However, I find that people often will continue to take on responsibilities when there really should be additional delegation.”
And while he values a well-conceived organizational chart, Moskowitz says the true strength of a company resides in the talent, character and will of its human resources.
Says Moskowitz: “If you don’t have the right people, you don’t have a company. I know that in this day and age, it’s very in to say if you have a certain structure and you have the right procedures, that a lot of people can fill various roles. I believe there are people who have a certain zip, a certain level of intelligence, a certain work ethic, a certain level of integrity, and they become everything.”
Moskowitz says that finding the right people is, at best, an inexact science.
“I believe that there is almost no perfect way to select new key employees,” he says. “Therefore, the most effective manner of filling open positions is from within, if possible. Sometimes it is necessary to recruit from outside the company. I personally have had successes and failures using search firms, recommendations from colleagues, or even open solicitations.”
Moskowitz is wary of references, advising CEOs to do their own investigations of candidates, particularly for top positions.
“Often, references offer meaningless praise,” he says. “The only path that has a higher success rate is to do it yourself. Check out references yourself, interview candidates yourself, and the higher the level, the more your personal involvement.”
How to reach: Ceradyne Inc., www.ceradyne.com
Lykins prefers to spend his time out in the field, working on a deal or gathering market intelligence that he can use in his business to stay a step ahead of his competitors.
“I’m not big on sitting behind the desk,” says Lykins, president and CEO of Lykins Cos. Inc., a fuel provider that also leases vehicles. “I’d much rather be riding around with one of our sales reps or visiting a customer on a site.”
Lykins says he loves making the deal, whether it’s building a new facility to house vehicles, buying a competitor or selling a lawnmower, something he did when the company was in the lawn equipment business for a time.
An entrepreneurial attitude, says Lykins, is a necessity, not a choice in a business that earns its share in pennies on a gallon, even when oil tops $70 a barrel. He keeps that spirit fresh by encouraging his managers to take responsibility for their business segments and keeping his eyes and ears trained on the industry.
“We’re in the channel of trade between a major oil company and the consumer, so we have to be entrepreneurs every day,” says Lykins. “I think just by default or evolution or whatever, we have to be entrepreneurial to survive, because we operate at such high volume and low margins.”
Lykins encourages an entrepreneurial approach by making sure that managers have plenty of latitude to run their divisions autonomously.
“Our company’s always been very big on, if we’re going to give you the responsibility, we’re going to give you the authority,” Lykins says. “We give each of our division managers entire P&L (profit and loss) responsibility and we preach to them that they should run their division like their own business. Obviously, while I look at daily numbers and I look at everything you should be looking at to see how everything’s going and I’ll give them my opinion, I kind of tell them, ‘It’s your division, you run it like your own business.’”
But keeping that entrepreneurial engine humming isn’t always easy. Lykins acknowledges that a business leader has to have plenty of energy to tame the competitive spirit that can flare up within a company of people whose ambitions for the business can cross over into each others’ areas. To quell those potential conflicts, Lykins steps in and makes the sometimes hard decisions.
“I have some divisions of my company that are run by very driven, very profit-minded and very dedicated people, and sometimes these people, in fighting for their divisions, I have to step in and kind of make a decision, whether transportation is going to make a little more money or is wholesaling is going to make a little more on this,” says Lykins.
The Lykins Cos., known as a jobber in the trade, has two principal units that cover a wide swath of the fuel transport industry; the broadest is its wholesale business that crosses 14 states. The Lykins Oil Co. supplies branded franchises with all grades of gasoline, diesel fuels and kerosene. Its wholesale and commercial divisions supply businesses, farms, and local and federal governments with their fuel needs, including bio-diesel.
Lykins Transportation Inc. provides petroleum transportation to the parent company and serves as a common carrier, providing petroleum transportation services throughout the tri-state area for a variety of other petroleum companies and businesses.
A third business, D&L Leasing Inc., with a fleet of approximately 250 vehicles, provides daily, weekly and monthly leases on cars, trucks and vans.
To keep the product flowing, Lykins Cos. maintains vendor relationships with five refiners BP, Shell, Marathon, Exxon and Clark.
“Because we’re so diversified in it, I have relationships with several different oil companies on several different levels,” says Lykins. “So while one of my competitors may be dependent on one company to get his supply from, and due to post-hurricane supply problems he was in trouble, I had 20 different places where I could buy petroleum.”
The entrepreneurial imperative has taken Lykins Cos. into business ventures that at first blush may seem outside of its core business. It has been in the lawnmower sales business, owned a lumberyard and for a time provided lawn care services. In most cases, the ventures were a way to either develop or maximize underutilized resources or to indirectly acquire a business related to its core activities.
Lykins says that there is a rationale for entering all of those businesses, even if it’s not readily apparent.
“For example, the lawn care business was an offshoot of trying to find something for our heating oil drivers to do in the summertime,” says Lykins. “The lumber business was because we wanted to purchase a competitive jobber because he had access to the Union 76 brand at the time and we didn’t, and the only way we could buy him was to buy everything he owned, both companies.
“The lawnmower business was trying to take a gas station we owned that wasn’t doing much and spark some life into it.”
But the real growth has come in the acquisitions Lykins Cos. has made over the past few years in its core business, enough to help boost its revenue from $238 million in 2003 to $464 million in 2004 and more than $748 million last year. It’s an industry that’s consolidating, says Lykins, and has been dominated by small, family-owned companies that are being swallowed up by their larger competitors. That has meant a lot of opportunity for consolidation for Lykins Cos.
“Typically, it will be somebody we know, knew my mom or my dad, or may be buying from us or we may haul for them, and they’ll say, ‘Look, I’m tired of it, I want to get out of the business, I don’t have a next generation to take over,’” says Lykins.
But simply buying up competitors isn’t enough, particularly in a business with such thin margins, Lykins says.
“You want to grow your gallons profitably,” says Lykins. “When we look at somebody as a prospective acquisition, are we growing where we already are and basically taking a competitor out of the market, or is it into a new area, an area we want to get a foothold in, we want to be there, and it’s easier to buy something outright rather than go in and try to start from scratch.
“We evaluate each acquisition by what they’ve done in margin, in their customer levels over that last three years and we have a formula we work out on that, and then just a simple fair market value, typically based on assets.”
Lykins keeps tabs on what’s going on in the business by listening to people on the front lines for tips that can point to an opportunity or give a heads-up to what’s going on in the industry.
“The best sources of intelligence in the jobber channel trade are truck drivers,” says Lykins. “They get lined up at a pipeline or a terminal somewhere and they all start talking, and then you’ll talk to the driver and he’ll say, ‘Company A or Company B, one of them is going to buy the other. You’ll say that’s never going to happen, they hate each other, and then three days later, it happens.’”
Lykins keeps a close eye on the industry by staying active in trade groups related to his business. The market data he gleans from those associations is invaluable, he says, both in identifying opportunities and spotting ways that he can improve his operations and management.
“I serve on a lot of industry boards,” Lykins says. “I’ve been very active in the National Petroleum Marketers Association. I serve on BP’s strategic task force and I talk to other people in the industry a lot, and see what they’re doing, where the industry’s going. What are the new trends, what does BP or Marathon or Exxon think is going to happen with supply in the next three years, how are we going to handle the ultra low sulphur diesel regulations that we’ve had pushed on us.”
A few years ago, Lykins joined a study group of his peers who operate in other parts of the country and don’t compete directly with each other. They meet regularly and share their concerns, their financials and their business issues. They’re all friends, says Lykins, but nobody pulls any punches when it comes to sharing their views about how their fellow members are running their businesses.
“It’s 14 other guys that run jobbers, some bigger than ours, some smaller,” says Lykins “For 45 minutes during those three days, these guys are all focusing on my financials, my company, decisions I’ve made over the last quarter and asking really hard questions. And these are guys that you can’t B.S. too much; they know the business.
“We share our number with each other every month. If I’ve got a specific problem, I can send an e-mail out and say, ‘I’ve got this happening, what do you think, what’s the direction to go in?’ It’s a great thing, the best thing I’ve ever done. One of the things I’ve learned is I’m not smarter than those 14 guys put together.”
The group was instrumental in convincing Lykins to get out of the convenience store business last year. At one point, it operated 24 stores with gas pumps. The group told Lykins should either get out of the business and use the capital elsewhere, or grow it to take advantage of economies of scale.
“If we were going to get serious about that business, we had to put some serious capital into it and grow to 50, 60 or 100 stores,” says Lykins. “What we looked at was, do we want to put our capital into growing 50 stores, or do we want to do what we’ve done very successfully, which is work with independent operators and help them grow. Obviously, we’d rather work with independent operators and help them grow. It didn’t fit where we had had our growth and where we felt our future growth would be.”
Lykins says within a couple of months, he decided to sell off the stores. For the Lykins Cos., he was able to hold onto the best part of the business by striking agreements with the new owners to supply it with fuels.
Lykins’ entrepreneurial outlook may very well be ingrained in his DNA. His father, Don from whom Lykins, his CFO and a cousin acquired the company last year started the vehicle leasing business and still keeps his hands in it. Lykins says he’ll continue to look at other business prospects. And fear won’t deter this inveterate entrepreneur, who says he grew up in an atmosphere of risk-taking.
Says Lykins: “You grow up with ... sitting around the kitchen table and you hear dad tell mom he had a lien put against the furniture today so he could buy a truckload of tires.”
How to reach: Lykins Cos. Inc., www.lykinscompanies.com
When Gary Graves came on board at La Petite Academy Inc. as its COO in 2002, the company faced a multitude of financial and accounting woes.
There were problems in meeting all the requirements of its loan covenants. Its auditor had found some slack in its internal accounting controls, and it had to restate earnings for a couple of years — all bad omens for a business that, while not a public company, held public debt and had the burden of meeting reporting requirements under the Sarbanes-Oxley Act.
But as difficult and critical as it was to get those troubles behind it, Graves says there was another issue that was even more crucial when it came to the company’s long-term survival and success.
“The people side was most important,” says Graves, who became president and CEO of the early childhood education company a few months after arriving at La Petite Academy. “In all my life, while certainly having access to capital and having the financial resources are important, most of the constraints that I’ve seen have been people-related, not having enough good people. I could have all the brilliant ideas in the world — which is not the case — but I learned a long time ago to surround myself with very capable people and let them do it, obviously creating boundaries they can operate in and letting them go out and do their job. Then you get a lot of leverage throughout the system, because then it’s not just the CEO who’s the person who’s saying turn left or turn right.”
La Petite Academy, owned by J.P. Morgan Partners since 1969, was headquartered in Kansas City, Mo., until May 2002. That month, it was relocated to Chicago by the previous management, where it expected to find a deeper talent pool to run the company and a more centralized geographic location.
But of the roughly 250 people in the corporate headquarters at the time, only a few relocated to Chicago. Graves says it was a poorly executed move because the company hired temporary help that received minimal training to fill the Chicago positions.
“So we had a very chaotic back office support center operation for about a year,” says Graves. “I came on board and inherited a fair amount of contractors and temporaries, and we went about creating a real company.”
While La Petite had its share of problems, Graves dug into the literature about the industry and surmised that it also could have a pretty promising future. Research told him that the industry was a viable one, and that it was trending toward professionally managed preschool versus unsophisticated daycare operations and unlicensed providers.
Despite that research, the previous team seemed to have lost its focus, venturing into noneducational businesses geared toward working families.
“The plan I put in place returned to its original focus: to provide the best educational experience for children age 3 and up,” says Graves.
Graves saw two areas where he could improve La Petite’s long-term performance: getting the best people in the right positions to manage the company and improving the product offering to meet the expectations of its customers.
“I knew this was a people-intensive business, and that I was good at building strong teams and keeping them in place,” says Graves.
He looked at the people issue at La Petite and overlaid his prior business experience on it. Graves hadn’t come from a background of education or daycare or any other business that on its surface looked much like early childhood education. But while La Petite is in a fairly specialized business with challenges that most others don’t face, Graves saw strong parallels to previous businesses he had worked for.
La Petite Academy, with 13,000 employees and 649 academies, displayed some striking similarities to those businesses and could benefit from the same structural and operational strategies that he had accumulated during his career. He had worked in businesses where strong controls were needed to manage individual business units — similar to the way academies function — where cash is collected at the sites, profit margins are thin and much of the workforce is young and in lower-wage positions.
“My background up to this point has been in multi-unit, geographically dispersed businesses, and they’re not very glamorous or high margin,” Graves says. “I was in the foodservice business when PepsiCo owned the restaurants, with Boston Market as they were coming up and with a company that owned and operated parking garages and other multi-unit businesses. They lend themselves to folks with a strong controls background and understand how to make similar boxes deliver similar results, and we went about getting those kinds of people on board.
“You’re not going to see leapfrog technology or anything like that. It’s one of focusing on the basics, and that’s what we hired people for and got them in to do.”
Revamping the field
Graves started by revamping a key field position, that of the district managers.
Each district manager had 17 schools, and some of their territories stretched across several states, making it difficult to reach each academy frequently enough. Graves reduced the number of academies that each had responsibility for to 12 and weeded out underperformers, creating a need to hire people to fill the vacancies and the newly created positions.
But when he began recruiting, he didn’t look for people with industry experience.
“Two-thirds of the people we hire have other multi-unit experience with companies like Wal-Mart, Best Buy, Starbucks, Disney Stores, so in my vernacular, they’ve seen the movie before,” says Graves. “We can teach them what they need to know about early childhood education from a management and leadership perspective. It’s a lot harder to teach them how to manage geographically disbursed boxes that are supposed to execute the same mission and manage all the controls and customer service aspects of it.
“We’ve been really successful by bringing in that layer of blood.”
And fortunate, as well, says Graves, in that there is a rich supply of talent available to manage the academies. Managers involved in multi-unit supervision in many industries work in a demanding environment that puts them on duty almost without a break.
“If you’re a multi-unit operator in the foodservice business, that’s a seven-day, 24-hours-a-day industry these days,” he says. “That’s an incredibly difficult job. We can be very competitive against the industry from a salary and lifestyle perspective. While our district managers work incredibly hard, we’re not open for business on Saturday night or Sunday.”
Graves rebuilt the field audit team, which monitors financials and record-keeping at the academies. District managers present their business results three times a year to Graves and the senior management team. It’s a balanced report that includes evaluation of financials, customer service and human resources.
Graves says that the district managers have made improvements at the academy level.
“They, in turn, have upgraded the people that report to them, what we call the academy directors, the people that run the schools,” says Graves. “So a big part of the turnaround plan was improving the people and giving those people an improved curriculum to execute.”
Graves initiated new a bonus program for academy directors, scuttling one that allowed them to earn incentives without necessarily improving their performance. Now, directors get a quarterly bonus tied to bottom-line performance at their schools. Items such as new equipment or facilities improvements ahead of schedule are also offered as rewards.
Because La Petite Academy has no long-term contracts with customers, the company has to sell itself every day. And to give directors more of a sales orientation, they receive training that helps them sell the merits of the academy to prospective clients.
To keep tabs on how well the directors are presenting to potential customers, La Petite instituted a secret shopper program, in which district managers are called by individuals posing as parents checking out prospective early childhood education programs. The results of those engagements are used to help directors do a better job of fielding such calls and explaining the benefits of enrolling children in La Petite Academy.
Bolstering the curriculum
Noting that the trend in early childhood education was moving toward a model more focused on education than on simply daycare services, Graves scuttled initiatives that the previous management had begun that were more related to the care model.
Graves built a 12-member curriculum development team, most with classroom experience and master’s degrees, and came up with a more advanced curriculum called Journey designed to help children prepare for kindergarten. Since 2003, La Petite has invested more than $2 million in its Journey curriculum.
That investment appears to have paid off, as an independent education technology company evaluated La Petite Academy students and found that, on average, they nearly doubled the expected developmental gains in math and early literacy skills two years running. Revenue for fiscal 2005 was $394 million, up from $391 million in fiscal 2002. EBITDA has nearly doubled, from $17 million to $33.7 million, and the company has gone from a $58 million operating loss to $19 million in operating income in that same time period.
Graves’ practices what he preaches when it comes to running a multi-unit operation. He spends considerable time on the road, visiting academies and holding town hall meetings with employees, where he explains the business side of La Petite, why it invests in some areas and not in others, and fields questions, often tough ones, from the La Petite work force.
“Sometimes they’re softballs, and sometimes they come in hard, right at your chin,” says Graves, but he insists that he needs to be visible to employees, even if it’s just for brief meetings.
“I’m out in the field a lot in this business,” says Graves. “You have to be. You can’t be a coach if you can’t see the players.”
How to reach: La Petite Academy, www.lapetite.com
From the time it was founded in 1988, CorVel Corp. had experienced an unbroken string of profitable years and growth, which might explain, at least in part, why it didn’t heed the warning signs that it might be in hot water.
After all those winning years, it proved hard for Gordon Clemons, chairman, CEO and one of the founders, to face the possibility that the company was headed for a losing streak. Worse, Clemons had a tough time at the outset deciding that the conditions that conspired to slow CorVel in its tracks weren’t likely to reverse themselves.
CorVel’s revenue slipped from $305 million in 2004 to $291 million in 2005. It wasn’t a precipitous drop, but net income also fell, from $16 million to $10 million, and there were signs of trouble before that, as well.
“For me, I think the biggest challenge as a company has been the last three years when, for perhaps more than one reason, our business got more difficult,” says Clemons. “We went through 15 years of good times, and I think you have a tendency, perhaps, to take it for granted.”
Clemons says that he’s not certain why the critical trends in his business have gone the way that they have, but he knows how they’ve affected CorVel, a company that manages workers’ compensation claims and provides other managed cares services.
Put simply, CorVel earns its revenue, for the most part, by managing workers’ compensation claims for large employers, insurance companies and third-party administrators. So when claims levels are high, CorVel got a lot of work. When claims levels fall off, so does the workload.
Normally, during tight labor markets, when a lot of people are working, the volume of claims tends to rise, and when unemployment is high, the number of claims decreases. So when the economy began to bounce back after the last recession, Clemons had every reason to believe that the number of claims would rise again, allowing CorVel to sustain its 15 percent annual growth rate.
But history wasn’t about to repeat itself. For a variety of reasons, including porous U.S. borders that allow undocumented labor into the country, off-shoring by some industries and reform of the workers’ compensation laws in several states, including California and Colorado where CorVel has a significant presence claims volumes didn’t bounce back in the post-recession period.
“Historically, we had been having for about eight or 10 years a 2 percent decline in workers’ comp claims, starting in about ’92,” Clemons says. “I think productivity gains and other things, like a shift to service, were creating that sort of underlying negative trend, which I think was probably going to go on, we thought, perpetually.”
But an unusual and disturbing trend began to take shape. Instead of a slow, steady decline in the number of claims, the line began to drop off sharply.
“Starting three or four years ago, claims started going down 10 percent or 15 percent a year, a very big change,” Clemons says. “Claims are half of what they were four or five years ago.”
Add to a fast-shrinking marketplace the effect on CorVel of compliance with the Health Insurance Portability and Accountability Act and the Sarbanes-Oxley Act, and it’s easy to see why the company’s net income took a beating. Clemons estimates that legal and accounting costs have increased 14-fold as a result of those two legislative acts.
But even in the face of the negative trends, Clemons found it difficult to face the need to change.
“I’ve learned that I exaggerate the amount of change I’m being asked to make, and I have a very hard time changing,” say Clemons. “In business, I think I’m changing a lot, but an outsider might say, ‘I don’t see the difference.’ So the hardest part to accept was we had to let go of some things.
“We believed in constant growth; we had set our incentive plans for constant and perpetual growth. Everything about our business process was focused on more is better, and letting go of that was tough.”
He was slow to react to the need for change because the recession seemed like a brief bump in the road for CorVel, Clemons says. History had shown, too, that there’s a lag of about 18 months between the start of an economic recovery and an increase in workers’ comp claims filed, a fair reason to wait out any slump in the near term.
And CorVel was in good financial shape, with substantial cash on its balance sheet and no debt.
Facing the new realities
Ultimately, however, the trend lines were undeniable. Clemons says at first, the company simply tried to work harder, a strategy that proved flawed because the problem wasn’t grounded in a lack of effort but in the fundamental changes that were occurring in the industry.
“I’d say that eventually, we realized that we needed to do some short-term things to address the need to balance expenses with revenue,” Clemons says. “I think it took us a little bit to recognize that having a goal of 15 percent a year growth was no longer the way we should run the business.
“We needed to not give up on that in the long term, but in the short term, we better batten down the hatches and start bailing water.”
Clemons decided to adopt measures to stem the tide in the short run as well as prepare the company to focus on its core business of managing workers’ compensation claims. The plan called for cost-cutting, heavy investments in technology to both increase its business and optimize operational efficiencies, and development of new products to offer clients. Instead of trying to break into new markets, it would introduce new products to existing clients.
As an example, CorVel launched a disability management product that could be readily marketed to its existing customers.
“In our case, our strategy is to meet an ever-increasing number of the needs of claims managers or claims decision-makers in workers’ compensation,” says Clemons. “So we do go into new services where we struggle to learn what we need to do, but we stay pretty tightly focused on our customer and their needs, and that’s worked pretty well for us.”
The company didn’t cut back on its investments in the business, instead plowing back a larger share of its revenue into software development and systems. Field operations converted from a legacy medical review system to a Web-enabled version. The company implemented document management, converting from paper claims handling, and converted most of its processing to incorporate scanned images and optical character recognition.
“We have just hung in there persistently to try to continue investing in our business,” says Clemons. “For instance, our corporate overhead was 8 percent of revenue. We were always proud of how low it was. But in that 8 percent, about 60 percent of that was in software development and systems.
“During this downturn, our corporate overhead has jumped up to 13 percent of revenue because we have refused to cut our systems expenditures and we had to pay for the added Sarbanes-Oxley costs. So we just did that even though it fought very hard against the need to try to hang in there on earnings per share.
“That hurt us in earnings in the trough, but we just persisted on that so that we let the earnings fall more than they might have if we had cut back.”
That aspect of the plan at times made the board skittish, and Clemons often found himself persuading its members that the plan was sound. He says one hurdle that the directors had to confront was the high bar for fiduciary responsibility that Sarbanes-Oxley imposes on boards, so facing reductions in earnings was a tough pill to swallow.
“I think Sarbanes-Oxley has scared the heck out of a lot of people, and it scares boards of directors because they have to show that they’re addressing their fiduciary responsibilities,” says Clemons.
CorVel also cut staff, mostly by attrition, but some of the cuts came from paring back in its branch offices. At its peak, CorVel employed 3,500; today, its head count stands at approximately 2,600.
But those cuts could have been much deeper had Clemons decided to eliminate branches and centralize operations. Instead, CorVel invested in technology to make its 120 branches more efficient. It converted from paper processing to document management and implemented a substantial amount of artificial intelligence to manage and automate the work flow in the business.
Face-to-face contact has proven to be a competitive advantage and branch offices are a key component.
“We still believe in a field sales force and field branch offices, so we still have the largest number of branch offices of anybody in our industry, and the others have gone to centralized operations,” Clemons says.
“The value of having a branch office in Syracuse is that we sell to people in Syracuse.”
Clemons decided that CorVel had to stop chasing low-margin business to catch market share. Instead, some customers had to go.
The company gave up trying to hold price down to hang on to volume. Half of its business is a commodity called case management, and Clemons says he just accepted that the company had reached a point where it had to raise prices to get adequate margins, even if it meant losing some customers.
“We started to, for the first time in our history, accept that there were some customers we couldn’t afford to service,” Clemons says.
While Clemons has to be cautious about making predictions about CorVel’s future performance Sarbanes-Oxley is still in play, after all he has reason to be optimistic. While revenue for fiscal 2006 was down to $267 million from $291 million the previous year, net income dropped only $368,000 compared with the $6 million it had fallen the year before, and gross profit increased 1.6 percent.
The third and fourth quarters produced earnings per share that were improvements over comparable periods in 2005.
Says Clemons, “I think we’re headed toward a time where we are going to feel at the other end that we’re glad we stuck it out.”
How to reach: CorVel Corp., www.corvel.com
The TandemHeart pump helps alleviate that dilemma, taking over the pumping function of a patient’s heart and buying time for physicians make better diagnoses. But CardiacAssist Inc., the company that developed and markets it, found time running short to satisfy investors looking for a clear exit strategy.
As an R&D company that hadn’t produced any revenue in the six years since it was founded, the board of the 50-employee company decided in 2002 that a change of direction was in order.
Enter Michael Garippa, a lifelong health care industry professional who was hired by TandemHeart as CEO to turn the company around by shifting its focus from the laboratory to the shop floor and sales team. Garippa’s approach was simple but direct: Pare operations, focus on its single most-promising product idea and get FDA approval, then find and convince the right customers physicians at major medical centers to buy it, use it and talk it up.
Hospitals using CardiacAssist are on track to triple their use of the device this year, and Garippa anticipates engineering a 10-fold increase in production capability by 2008 to meet demand.
Smart Business spoke with Garippa about how he turned the company around and revved up sales.
What was the biggest challenge you encountered at CardiacAssist?
The company mindset was originally to do research and development engineering. Now we have to be a production company. The company never had a sales force, never had a price list.
The biggest challenge is to become commercially viable and then profitable when your first eight years in existence were designed as a research and development company to lose money and burn money.
When you came on board, what changes did you make to turn CardiacAssist around?
We had to turn over some staff, bring in some people who had worked at bigger companies, understood the growing pains and improve our financial systems, improve our supply chain, make pump improvements so it could be more easily manufactured, take it from 80 steps to 40 steps.
We made the decision to outsource the control device that runs the pump and have that built somewhere else, and made decisions to outsource cannula manufacture with a company that does a half a billion dollars a year in cannulas. We made decisions about what we could do internally. So the board, along with management, helped make decisions about the easiest way to grow the company rapidly with the least risk.
How did you get the revenue engine started?
In ’04, I spent a lot of time on the road with the biggest hospitals in the country, and when they agreed to buy it, we then started a sales force that produced $3.5 million in sales in 2005. That same sales force is now bigger and will do $8 million or $9 million this year.
The tipping point for that was when 10 or 15 hospitals, who were not heretofore part of any of our clinical trial efforts in one year, agreed to bring it in. They just said, ‘We believe what you’re saying, we’re going to buy it, we’re going to use it.’ They created the next 50 customers.
How are you keeping the revenue stream flowing?
By spending time with the industry leaders, like Texas Heart Institute and the Mayo Clinic and the Cleveland Clinic, I found a paradigm for promoting the product that could easily be translated to good salesmen, and the good salesmen are able to do now exactly what I learned how to do.
We had to find ways to bridge ‘We’ve never seen anything like this before.’ Once we figured that out and some safe, clear ways to make a presentation, I’ve literally been places and in five minutes, I’ve been stopped and someone says, ‘Get him a purchase order, we have to have this.’
What’s the challenge as you continue to grow?
We have shareholder obligations, we have shareholders who have been with us for 10 years and we have to do the right thing for them. Now that we’re successful, there are more opportunities than there ever were, and finding the right one for the employees, the shareholders, the product is not always clear. It’s a good problem to have.
How to reach: CardiacAssist Inc., www.cardiacassist.com
That kind of work ethic has helped Hall and his partner, Robert Gregory, executive vice president and co-founder, build Ace Mortgage Funding into a 700-employee, $116 million business. The company deals primarily in refinancings, a segment that has taken off as credit card debt has ballooned and consumers who have plowed a large portion of their assets into real estate continue to take advantage of the equity in their property and modest interest rates.
But hard work alone hasn’t been enough. Along the way, Hall has had to learn to hire the right people and to delegate responsibility to them as the company has outgrown his ability to have his hands on everything.
And while Hall believes that leading by example will help the company grow leaders and, in turn, grow the business organically, he’s got his eye out for acquisitions in disciplines related to the mortgage or financial industries.
Smart Business spoke with Hall about the value of communication, leading by example and his copious use of e-mail.
Communicate, communicate, communicate. I have been called an e-mail stalker at times. I frankly communicate daily with everyone via e-mail and usually give a weekly summary of new business and results, as well as a goal of what we are trying to do for the month.
I try to outline the core things to be focused on as well. We set our goals every month versus quarterly or annually, which means every month is a contest to hit goal. We try to communicate any changes or updates to everyone as quickly as we can.
When people know where we are going, they get behind it. It gets down to having winners that want to make it happen, whatever the goal that is set. I think many times, things with companies can get way, way off track before anyone even knows they are off track. Then they don’t even know how they are going to get back to the road. Frequent updates are, in my opinion, the key.
Lead by example. Without question, I try to lead by example, particularly when it comes to being positive and working hard. I think it is very hard to ask people to do things when you are not willing to do them yourself.
Leaders are really leaders when people want to follow them due to seeing how they operate. Probably the biggest thing is work hours and being available. A lot of the times, for the branches we have offices on the West Coast, and at 8 o’clock there, it’s 11 o’clock here I’m going to be available and actually putting in the time to be available to solve problems.
What I’ve noticed is the vice presidents that run our branches, they know that they can get ahold of me that late at night, and they’re going to work hard for me when they know that I’m working hard. I just don’t believe that, over a long period of time, people are going to work hard for somebody who’s not going to work hard.
Hire the right people. The principal qualities we look for in people are a positive attitude and high energy level. Did you ever meet a super successful person who is depressed all the time?
We look for people who, historically, have been successful at everything they have done sports, school, family and other jobs, and people who, in the interview, are not about bashing their former employers but rather talk more about the things that were done right.
Delegate. I’m probably the worst delegator. I’ve had that on my list for improvement a long time, but what we did was we felt a lot more comfortable when we got people into some of those roles.
We watched them very closely at the beginning. The people who run those departments are better at doing it than we were. We were wearing way too many hats at the beginning. When you’ve got 20 employees versus the company we have right now, letting go at those early stages is very hard. But if you do have the right person and monitor them closely at the beginning, until you get comfortable with it you don’t have to monitor them for a year but for the first two weeks or a month, just to make sure they’re doing certain major things the way you’d do them, so you know they’re OK.
Frankly, I’m not sure how my business partner, Robert Gregory, and I did all those functions for the first year or two. They and their teams are just better at it than we were. Now, on a daily basis, I’m involved primarily with the big or problem items and how to implement or fix them using the teams that are built up.
Consider multiple growth opportunities. Internally, due to our aggressive growth plans, we are constantly watching our offices to find top-level loan officers that are not only good at production but also at compliance, being positive and product system knowledge.
They have already become leaders within the office and are helping many of the new loan officers excel. Our goal, if it matches with what they want, is to open an office around them.
Externally, we are looking at more deals that match up with the overall financial services concept, including other title company acquisitions.
How to reach: Ace Mortgage Funding LLC, www.acerefi.com
He founded Galerie in the 1980s, and since then, Ross has taken his company in a direction that is far removed from that single simple candy item. Indeed, he’s created a niche he calls innovative confectionery gifts, products that combine candy with other giftware and serve the whims and needs of mostly big box retailers such as WalMart and Target.
His creative approach has helped the Hebron, Ky., company to grow into a $72 million a year enterprise that employs as many as 1,500 during peak production seasons.
Ross acknowledges that his success hasn’t been all his own doing, and he credits a reliance on outside advisers and executive coaches, and a willingness to delegate operational responsibility to his senior management team.
With no shortage of opportunities, Ross says one of his biggest challenges is knowing which ones to take and which to pass on. And those decisions, he contends, are best made with the help of an informal network of trusted advisers, often other business owners.
Ross spoke with Smart Business about how he selects the right opportunities, the right people and the right advisers to grow his company.
Create a clear, simple vision. We always had a vision, mission and values statement, but when we were growing, we outgrew what those things were. So we put out a new one, which people didn’t really understand. So we went and did it again, where we made it very simple, and we spent a year really working with people, communicating it.
That’s why we say we make innovative confectionery gifts. We went from trying to be all things to everybody not just being innovative confectionery gifts, but gifts, confections, just trying to please the client by giving them everything they wanted to being more focused.
Do your best at your best. The bigger you get, the harder it is to grow, so I think that the most important thing is focus on doing it best, being the best in class at what you do versus being all things to everyone.
I think we have learned as we’ve grown that we’ll be more successful, our clients will be happier, we’ll be more profitable if we focus on what we’re best in the world at versus being good at a lot of things. We’ve got to focus on how do we do it better and better.
Our goal is not to be a commodity but to be a niche.
Know when to say no. You make a bad decision, it can put you out of business. I call it conservative risk management, having the discipline to say no.
You get a thousand opportunities and you want to do every one. You’ve got to have the discipline to evaluate them, say yes, say no, so you’ve got to get outside help to make those decisions.
Tap the experience of outside advisers. From Day One, I always had an outside group of two or three advisers that I could rely on when I didn’t know what I was doing. As the company grows, you get into uncharted territory.
The advisers will change as you grow because you’ll outgrow them. Get the right people to give you the coaching and the input to help you make the right decisions.
To be a good leader, you’ve got to spend time outside the business developing relationships with owners of other companies that can help you, not just relying on your professionals but also on people who have experienced what you’re going through.
Hire for qualities, not just competencies. We look for people who are trustworthy, who believe in trust, who have integrity. We look for people who want to be team players, not out working on their own but actually want to be part of a team.
We look for people who have courage, who want to become better, who want to be challenged and be pushed versus just going to work and going home.
We look for people who want to win. We look for innovation. We’re an innovation company, so we’re always looking for new ideas.
In the old days, it wasn’t like that. We hired people who had experience in our area. Today, we’re actually more interested in the individual and the contribution they can bring as a person versus their skills. We’re able to train them to understand our business, but you can’t train integrity, you can’t train courage and a desire to learn.
Move from entrepreneur to leader. As the company grows, it becomes more complex. You’ve got more facilities and more people, you have a responsibility to provide job security for the people who work for you.
Your No. 1 asset is your staff, so you really don’t have a choice. Either you get out of the business, or you learn how to manage it. So I had to learn how to make the transition from entrepreneur to leader.
I’ve always led the business, but when it’s smaller, you have control over what’s going on. As you get larger, you have to give up control and have more disciplined processes, so I decided to hire somebody from the outside to teach me how to be a better president. So instead of yelling and pushing, you focus on debating and rewarding and being clear on direction.
Engage teams to solve problems. We have what we call critical success factors. We have a five-year strategy that we redo every year. We look at it, we update it and we set very specific critical success factors that the company has to meet.
Each department has a team or we have cross-functional teams that determine what we need to do to meet those critical success factors, which will make sure we meet our objectives for the year. Last year, for instance, we needed to improve our forecasting, so we had established a critical success factor and in it, we had very specific measures about how to automate our forecasting processes, the disciplines we needed to forecast more accurately.
Now, a year later, we have an automated forecasting system that’s easy for the sales group to enter data and a tool for operations to be able to evaluate if we’ve put together the disciplines and processes to make sure it’s happening correctly.
How to reach: www.galerieusa.com
That’s an oversimplification of what the president and CEO of PhotoMedex has done to grow the Montgomeryville medical products company, but not by much.
When O’Donnell came on board six years ago, he shifted the focus of the business from products for cardiology to those for plastic surgeons and a new treatment for skin disorders. He has also acquired two companies to add both product lines and experienced sales and technical personnel to the PhotoMedex competitive arsenal.
The fast ramp-ups have resulted in rapid sales growth, with revenue reaching $28 million in 2005 and expected to hit $38 million this year. O’Donnell says that growth has been key to both attracting and retaining talent.
And while acquisitions are a part of his future strategy, O’Donnell says he’ll be selective about the companies PhotoMedex acquires, making sure that both the people and the product are a good fit.
Says O’Donnell: “We have to make sure that we focus like a bullet in flight on the products we have at hand and that we don’t get carried away with growth for growth’s sake.”
Smart Business spoke with O’Donnell about the challenges of building a business and how he attracts top talent to his company.
What has been the greatest challenge in building PhotoMedex?
One of the most challenging things is to recruit the type of talent that you need. You’ve got a small company in a region that’s flush with opportunities, so PhotoMedex has to rise above the rest and sell its cutting-edge technology.
The laser for treating psoriasis and skin disorders is a brand new idea. So the initial quest was to get out there and be heads above the crowd with new technology and try to get that talent. That’s the most difficult thing.
Once you’ve got your initial management team in place and the technology surrounded by strong intellectual property, then what you want to do is surround it with the key opinion leaders in your field, and we’ve got the who’s who in dermatology, patents and the management team.
How did you develop your work force?
After the research and development of the product was completed, we hired a sales organization, and that sales organization was very small until we knew that the product was ready to be launched in a larger way. Then what we did is bought a company called ProCyte Corp., and that brought a whole line of specialty pharmaceutical products for dermatology and plastic surgery.
They also brought an entire sales and marketing team, 25 direct salespeople and seven direct marketing people. So you can see how the company evolved from your basic development stage company with that acquisition, which led us to the commercial phase.
Once we knew that the product was going to be developed and the salespeople started selling it, we bought a company called Surgical Laser Technology in Montgomeryville, a very successful laser manufacturing company.
It was a high-flying laser company. They were making most of their products for the operating room. Once we knew that XTRAC was going to be successful, we made the acquisition of SLT, and they brought another 150 people into the company.
How have you attracted top talent in a competitive market?
A lot of people think they’d like to get trained by the large companies and then get out. And we pay competitive salaries. We don’t pay much less than the large companies, but the benefit we give our employees is that they have stock options in a small and growing company, which can be very valuable, and they can make an impact much quicker here than they could at a large company.
At Boston Scientific as their product manager, it took me nine months to change the label of a product from white to blue. Here, we can do that this afternoon.
It’s one thing to attract talent, but how have you managed to retain it?
One of the things I’m most proud of with PhotoMedex is that very few people have left the company since its inception six years ago, even through the original phase of starting the company. Very few people have left, not even a handful, and we have over 200 employees today.
It’s because, I think, that they clearly understand the vision, they see it demonstrated every single day that we have the ability to do what we say we’re going to do. We promise and deliver as much as we can, and that kind of credibility with the people that work for you is invaluable.
Six years ago, we had zero sales, this year, $38 million in sales, next year much more than that, so they really believe that we can be a $200 million medical device and specialty pharmaceutical company.
How to reach: PhotoMedex, www.photomedex.com