Paradise Lost

How one thriving bootstrapped company is trying to maintain its original identity in a time of rapid growth.

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System Connection's Rick McCloskey wasn't the first founder whose company thrived on bootstrapping-nor will he be the last to learn how easily, and sometimes irretrievably, a bootstrapping culture can slip away

Even the modest comfort of Rick McCloskey's office embarrasses him, so he quickly explains that the desk came from a failing law firm and the new partitions were bought at cost from an office-furniture dealer that wanted a showplace in Utah for prospective customers to visit. The dealer paid for the wallpaper and wainscoting, too, and prints for the walls. Still, McCloskey thinks maybe he should have taken some decorating tips from Sam Walton, one of his heroes, whose company's offices were often made of unfinished plywood. He worries that System Connection's decor sends the wrong message to workers, contradicting the bootstrapping frugality that the company profited by in its early years, that it lost as it grew, and that it must now revive.

In the beginning bootstrapping was easy. It wasn't even a choice. When McCloskey started the company (first known as Dare Systems International), in late 1985, he was 27 years old and freshly arrived at Brigham Young University, in Provo, Utah, after converting to the Church of Jesus Christ of Latter-day Saints -- the Mormons. He was also essentially penniless. But he'd worked in California's high-tech industry long enough to be startled by the prices he saw people paying for computer cable at BYU -- $30 for stuff that cost $6 wholesale. And he figured he could sell enough cable at $16 to make more than any student job could pay him.

He began to buy small quantities of cable (or switch boxes or IBM cards or modems or other such paraphernalia) on a net-30-day basis, posting flyers on campus to advertise his wares and selling COD. "I was living like a student," he says. "And my overhead was so low, I could get deals." After he got married, in April 1986, he could travel to Salt Lake City to sell, while his new wife, Kim, fielded phone calls from a desk made of boxes and a particleboard plank in the kitchen of their tiny, inventory-clogged, one-bedroom basement apartment.

In 1987 McCloskey was joined in the kitchen by his high school friend Bob Sorensen, also a California high-tech refugee and also a convert to the Mormon church. "Rick is very much a penny-pincher, and I'm the same," Sorensen reasons. "I knew we wouldn't squander anything." Cash flow -- the fruit of McCloskey's frugality -- allowed them to buy larger volume from overseas at lower cost and better terms. The company took off: $600,000 in 1987, $1.4 million in 1988.

If they needed any bootstrapping inspiration along the way, the System Connection founders could turn to Mormon history. When the young church could no longer afford wagons to bring settlers to Utah from the East, 3,000 made the journey on foot, pulling handcarts behind them. The huge Mormon Tabernacle building is held together with wooden pins because nails were so scarce in the new land. Just as Utahans today invoke those stories as they face subtler social challenges, so do the managers and employees at System Connection address the challenges of fast growth by invoking their own early days.

There were the trips McCloskey made to Long Beach, Calif., where he picked up packages of cable from Taiwan, to save further shipping. And the night he ran out of gas in transit. With the needle edging toward empty at St. George, Utah, near the Nevada border, McCloskey pushed on to Las Vegas, where gas was cheaper. At 2 a.m., seven miles from Vegas, the truck died. He woke up Sorensen, who was sleeping in back. "Rick thought that if we could just push the U-Haul to the top of the hill, we could coast in," Sorensen recalls.

Or the time Sorensen and Dale Erling, now director of marketing support, set up the warehouse in Philadelphia -- the two of them building all the shelving, Sorensen spending nights in a sleeping bag on the warehouse floor and showering in a health club.

And there was the controversy over the three-hole paper punch that Sorensen bought a few days after he started full-time. "I was pretty upset," McCloskey remembers, "because we already had a one-hole punch." When Vonnie Koutz started as the fourth employee, in March 1988, Sorensen told her to save the tiny circles of paper that the paper punch made, joking that McCloskey used them as Post-its.

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