Recharged Featured

8:00pm EDT May 26, 2009

Today, Doug Marcille tells his story only in terms of the days he was just about sure his company was going to go out of business.

The first such day came at the onset of 2003, shortly after Marcille joined U.S. Gas & Electric Inc. He’d come aboard the company as chief financial officer because he loved the business model at the natural gas reseller, but it didn’t take long to see something was wrong.

“The retail end at the time was really kind of a mess, to say the least,” says Marcille, now the company’s president and CEO. “The company was selling fixed-price contracts that were underwater, the market had moved against those contracts, and the company wasn’t hedging or doing any other risk management, so I actually closed the retail gas business on the fourth day I was at the company.”

Marcille did what he could, fixing the retail gas model and slowly building the company back up. But, just as he thought things were going to turn, he got a knock from the SEC in the fall of 2003, which started an informal inquiry into the way additional capital was raised using private placements in 2002 and early 2003.

“I’d never had a knock on the door like that before, and I did not know what would happen,” he says. “You can imagine getting that knock and thinking it’s the end of the world.”

It very nearly was the end of the world for USG&E. The company had sales of less than $2.8 million in 2004, as it was crippled by a standstill agreement with the SEC. Marcille had to completely retrench, cutting the company from 50 people to just two by 2005. Suddenly the lonely top executive of a two-person company, Marcille had to grow the company organically.

That process wasn’t easy, but Marcille started by making the personnel cuts to keep USG&E alive and then slowly built it back up on the backs of known talent. As he started to get the company above water, he leveraged his good relationships to spark growth.

Make the cuts

Shortly after the SEC knocked on the door, Marcille realized that he had to make some drastic cuts internally and externally.

“The first thing we did was fire about three-fourths of our customers,” he says. “And the reason we did that was because in this business, revenue really lags, the cash conversion cycle from selling the gas to collecting the cash is longer than the payable cycle. We knew that if we got rid of some of our customers it would create positive cash flow.”

Once he got through that, he had to deal with another tough decision: letting people go. If you want to come back to life, sometimes you have to run with a skeleton crew. Even though the people at the company were legacy hires, Marcille still struggled with the process. In the end, he cut from 50 employees to less than 10 on one Friday.

“That was a very drastic maneuver that was very important for us to have credibility with the SEC,” he says.

It also gave the company more ability to acquire new customers after the original plan to generate cash.

“So we downsized the operation from about 50 to 7 or 8 people,” Marcille says. “We got rid of customers to generate cash flow going forward for a few months, and we used that cash to start acquiring new customers at a very slow rate because we could only afford a certain amount of customer acquisition costs, and used the money that we weren’t using for customer acquisition cost to pay our drastically reduced overhead, so this is classic checkbook, razor’s edge management.”

Marcille says a quick break with nonessential personnel is best for everyone involved. And who, exactly, is essential personnel when you have to run at roughly 20 percent capacity? It’s those people who understand the core things that have to be done to keep your business alive — those with an understanding of regulations, legal issues or other matters that, if handled incorrectly, could sink you.

“One of the most important things was to make sure there were people, even if it’s a skeleton staff, who understand not only the business but also the regulatory environment,” he says. “That was a critical priority, and actually, frankly, it was more important than sales at any given point in time because we could go out of business either because we lost our license or we incurred a substantial fine because we took our eye off the compliance ball — whereas we had a certain customer base at that time that was generating gross profit and we could manage that gross profit and not spend more than that.”

Build with known talent

As he learned how to handle the absolute essentials of the business, Marcille eventually cut the company down to two people by the start of 2005: his CFO and himself. He kept the company alive by moving from vendor credits to a factor (for which he was paying 48 percent interest, given the company’s troubles). By year’s end, USG&E was still operating at a loss, but was up to $9.6 million in sales and Marcille began to slowly add people.

This was a tricky process, because the company was still hanging by a thread. Marcille’s recommendation for how you can survive a cycle like that doesn’t include hiring industry experts.

“We started layering in other people that we knew and had worked with in other companies,” he says. “And that process was also very important to our survival because we had critical functions that needed performed as we got bigger, and we obviously weren’t able to do all of those functions ourselves, but we couldn’t afford to make any hiring mistakes.”

It sounds counterintuitive to build a business up on people you know, regardless of industry experience, but Marcille says that’s the No. 1 priority.

“We started this without knowledge or experience, but that wasn’t as important as knowing the talent that I had around me,” he says. “We were hiring the person we thought they were. So what we did was we outsourced the industry-specific things we needed, such as our natural gas supply chain or the EDI function that we needed in order to exchange information between us and the utility.”

That’s not to say that Marcille just hired anyone he’d ever worked with. He’d probably worked with thousands of people in his career, but he says you have a feel for those with the necessary skills for the ultimate challenge.

“The way I thought of it was, there were many times that there were people that I really wished worked here,” he says. “And I held off approaching them until I was comfortable that there was enough substance in the company and there was enough of a possibility that we were going to continue before I approached them.”

Marcille used that philosophy to get through 2005 and 2006. With the close of the informal SEC investigation — USG&E settled the case without admitting or denying wrongdoing — the company grew to $23.3 million in sales but was still relying on a factor, now at about 27 percent interest. To keep up, the company had to grow or die.

“When you’re going to do that, it’s very important to keep a lot of things within the company moving forward on parallel tracks,” Marcille says. “And if any one of those critical areas gets too far ahead or too far behind, especially when you’re extremely thinly capitalized, you’re courting disaster. So one of the things that we were able to take off the table was personnel, because we knew that we had the right people.”

B uild credibility

The SEC nightmare may have ended, but by the end of 2006 Marcille was having another one of those moments: The company factor unexpectedly let him know USG&E bumped up against its borrowing limit. Though the company would turn in nearly $53 million in sales in 2007, survival only came because Marcille hit the pavement and met an interested New York Stock Exchange-graded business development fund that became a controlling shareholder.

Marcille says there’s a lesson he learned along the way that will help you during a crunch: Create reliable relationships with employees, clients and creditors by keeping close tabs on what you say you’ll do and reminding them of whether you did it or not and why.

Marcille had leveraged his relationship with the vendor to build a relationship with the factor, so this time around he asked the factor to be his resource. The factor became his top recommendation based on the company’s follow through on promises. To this day, he keeps close tabs with that factor and makes him a part of company events.

The effort to build credibility also means documenting and keeping promises to your employees.

“I have to do everything in my power to keep those promises so that people know when I’m telling them other things about what the future possibilities are that I have credibility,” he says.

Marcille used that strategy with employees throughout the process of rebuilding. It wasn’t easy asking former co-workers to jump on a nearly deserted ship, but he came bearing employment contracts.

“One of the ways that I would prove our worth is I’ll put the money on the table in the form of employment contracts,” he says. “All the executives here have really favorable employment contracts. And what that does is it creates a reciprocal commitment and that’s key, so employment contracts have been a very big part of giving people comfort that their efforts are going to be respected and that the company has loyalty to them and that generates loyalty to the company.”

He brought people in on the promise of enjoying the potential fruits of their labor, giving employees an ownership percentage.

“I don’t think you can argue against the formula that, as the senior executive, I would rather have a much lower percentage ownership of a much larger company than own 100 percent of a smaller, less profitable company,” he says. “So spread it around; share the wealth so people know there’s an upside.”

Marcille also keeps track of everything he told people coming in about the company and their role. Whenever he makes a new plan, he puts it next to previous plans so things on the agenda don’t disappear. He never deletes any e-mail, and he uses any downtime to sort them by person to make sure he’s either delivered on every promise he’s made or both parties know where they stand.

“I’ll go back to the earliest e-mails for them, which sometimes goes back to the hiring process, the initial job descriptions, or even just some of the back and forth on issues that you forget you’ve either conquered or you’ve embedded into your business model or you’ve forgotten about,” he says. “So you can say, ‘Jeez, I remember saying this to Joe and, yeah, we did it’ — or, if we haven’t done it, ‘We’re working toward it.’”

When the 2008 numbers came in at USG&E, Marcille no doubt had a good, long look through those e-mails. The company had grown to 75 employees and the days of 48 percent interest and SEC queries were just story fodder. The happy ending is 2008’s financials: The company reached more than $106 million in sales, more than doubling the previous year’s numbers.

Marcille isn’t ready to concede victory, but he can admit now that those near-death days make for a pretty good tale.

“It’s a good story,” he says. “But the day the shareholders get a return on investment, it will be an amazing story. Right now, I think it’s just a very good story.”

How to reach: U.S. Gas & Electric Inc. (888) 947-7880 or www.usgande.com