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Rules of Engagement

A close-up of a company that understands that the most important part of an alliance is the people involved.

Strategy

Jim Nichols may have discovered what those fashionable theories about alliances leave out: people matter most

On a June morning in 1979 Jim Nichols looked out the window of his new house and watched a business idea rise up from the ground.

To anyone else, it might have looked more like a domestic horror. And Nichols himself didn't immediately grasp its moneymaking potential: after all, what he saw was that the ground was oozing and bubbling as the result of a failing septic system. Nichols, a plastics-design consultant who had recently moved to Old Saybrook, Conn., pulled the name of Sid Holbrook from the yellow pages. Holbrook made his diagnosis quickly: Nichols needed to replace the part of his septic system that allowed waste to flow safely from the tank and into the soil--an underground, gravel-lined trench laid with pipe, called a leach field.

As Holbrook described the problem Nichols pondered the financial consequences; not the $1,300 it would cost to restore his backyard to terra firma, but the fortune he could make coming up with a more reliable alternative. "Being a guy, I was out there watching that backhoe, and Sid and I got to know each other a little bit," recalls Nichols. "He was a very unusual man for a septic contractor." Holbrook, as it turned out, possessed the kind of broad thinking that Nichols appreciated. Nichols himself was a habitual tinkerer. "We could probably come up with something better in plastic," he mused. Holbrook was intrigued. "I could see that Jim was looking at the problem through the eyes of an inventor," he recalls. "I told him, 'When you're serious about that, come to me, and I'll help you raise the money to do it."

Maybe Holbrook meant it; maybe he just wanted his bill paid promptly. But Nichols kept dropping by to see him, showing him various designs for a septic chamber composed of plastic. "He was very persistent," says Holbrook. "But I was never really impressed until he showed up with the design for the Infiltrator." Today Holbrook and nine other private investors (none of them venture capitalists) own 35% of Infiltrator Systems, the $50-million manufacturer of septic chambers that Nichols started eight years after that initial conversation.

It might appear odd that it took Nichols so long to start Infiltrator Systems or that Holbrook didn't just tell him to scram after stamping his invoice "paid in full." But Nichols offers a simple-sounding explanation: "He and I formed a relationship." To understand what he means by that, it's important to know that Nichols takes such ties very seriously; his ability to not only form but also manage a web of what he calls "relationships" has been the key to growing his business. What's more, it may very well prove to be Infiltrator Systems' most effective competitive weapon.

No, Nichols isn't alluding to strategic alliances, corporate partnerships, joint ventures, or any other fashionable form of entanglement. What he's talking about are relationships that start with a spark of common interest and that could eventually result in an agreement to share proprietary technology or in an exclusive distribution arrangement--even Nichols himself never knows how they'll turn out. That's part of what makes his relationships different from the kind of "partnerships" that have become so common in recent years: he doesn't start with an end goal, be it reducing development costs or getting to market quicker. Nichols keeps foremost in his mind what all those contractual contrivances too often downplay: the role of people. Rather than mapping out the shape of the deal, he's most mindful about finding folks who believe in what Infiltrator Systems is trying to do.

It may sound charmingly anachronistic at first--akin to proclaiming the manual typewriter the next great productivity tool. And it's true that Nichols isn't under the same competitive pressure he would be in a fast-paced industry like telecommunications or health care. But he faces daunting challenges: Infiltrator Systems will gain market share only on the strength of its ability to overcome resistance to replacing a decades-old technology.

Nichols's approach is more systematic than it sounds: he homes in on individuals, figures out how he can become part of the way they do business, and then sticks with them; the companies they work for are almost secondary. (For details on his approach, see "The Partnership Track," below.) "People always have latitude in their decisions, and when you're in a gray area, you'll have a much more positive result if you've established a relationship," he reasons.

Obviously, Nichols's relationships are forged with the long haul in mind. What he does is, quite simply, missionary work: having found a disciple--be it an investor or a supplier or a customer--Nichols counts on that person's spreading the word. The people with whom Nichols forges relationships are apparently aware of his expectations, and they live up to them.

If that sounds abstract, consider the words of Dean Ryan, the banker who lent Infiltrator Systems $2 million for a mammoth piece of equipment in 1990. "We are in a risk business, but with Infiltrator we felt we knew what to expect," says Ryan, a senior vice-president of giant Fleet Bank. "They always provided us with so much information: forecasts, budgets, performance, state approvals." Or, as Nichols puts it, "We had always done what we said we were going to do."

Elementary, perhaps--but the rigor Nichols has brought to sustaining relationships has enabled Infiltrator Systems to make the kind of progress he had only glimpsed on that morning in his backyard nearly 20 years ago. More than that, his particular definition of relationships has informed every aspect of the business.

FINDING MANAGERS
Scouting for Qualities, Not Credentials

Nichols has no preconceptions about where or how he might encounter the right "partner." Fancy titles and impressive corporate affiliations have little effect on him; an individual's achievements, goals, and intellectual capital are much more likely to strike a chord. He had recognized admirable qualities in Holbrook, and he also saw them in his sailing buddy George Haines, who, in 1984, had approached Nichols for some midlife career advice. He was a veteran in the financial-services industry, had spent some time as a manufacturer's rep, and was at a crossroads. Nichols saw an opportunity. "George had skills that were complementary to mine," he recalls.

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Donna Fenn

Inc. contributing editor Donna Fenn is the author of Upstarts! How GenY Entrepreneurs are Rocking the World of Business and 8 Ways You Can Profit From Their Success (McGraw-Hill, 2009). Both this blog and the book examine the ways in which GenY is changing the entrepreneurial landscape with new approaches to starting, growing, and managing their companies. Learn more at http://www.upstartsrock.com/.

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