When Bad Economies Happen to Good Companies

Some of the CEOs of this year's Inc 500 companies are experiencing their first-ever period of slow growth. Here's how they're managing their way through the tough times.

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Management

Here's how Inc 500 CEOs are managing their way through the tough times.

Talk about painful wake-up calls. The youngest chief executives of this year's Inc 500 companies are experiencing their first-ever economic decline. But even the more seasoned CEOs on our list have had a rude jolt. During the recent boom, their biggest problems were caused by getting too much too soon. Now the trouble is suddenly too little of everything.

Ah, but Inc 500 CEOs are a quick and resourceful bunch. Facing adversity, they've done whatever was needed, no matter how difficult, to save their companies. Some laid off employees. Others shored up funding. Still others changed their focus, either internally -- looking at how their company was organized -- or externally. For all, there was much to be done. Now these CEOs have new strategies in place and new war stories to tell.

Take Al Wasserberger. Looking out on his company's Christmas party last December, the 34-year-old CEO couldn't help feeling a pang. Just one year earlier, his software-services firm, Spirian Technologies Inc. (#62), in Chicago, had launched a major product after reporting the best financials in its five-year history. The company celebrated richly, flying its employees and their families, as well as some customers, on an all-expenses-paid trip to Disney World in January 2000. But midway through that year, many of Spirian's customers abruptly halted projects, throwing Wasserberger's company into a cash-flow crisis.

By Christmas 2000, even though Spirian would draw record revenues of more than $8 million for the year, Wasserberger had restructured the company. He adopted a new business plan focused on profits and let go of 11 employees. The day of the layoffs was the hardest of his career, Wasserberger says, adding, "These people's kids call me Uncle Al." To help keep costs down, employees celebrated the holidays that year with only a potluck supper held in the office.

Though Spirian helped large companies deploy Windows 2000 and other software, with the downturn customers were scrambling to reduce costs. Speedier software deployment -- Spirian's claim to fame -- was no longer closing sales. For Wasserberger, the new mood in the industry had come like a bolt from the blue. "We didn't recognize this whole change was coming," he says. "Suddenly, we had to change to a message that you could use our services to cut costs."

Fortunately, Spirian had recently launched a subscription service that could be pitched as a way to lower costs. The service let customers pay a monthly fee to have Spirian manage their software applications. Spirian's sales team quickly shifted its pitch, telling prospective customers that the service could reduce their technology expenses by up to 50%. The new strategy worked. Prospects were receptive.

"Could we have trimmed costs so far that we required no outside funding? Yes. But we didn't want to do that. It's not good for morale or the value of the business."

The time was also right for Spirian to push a recurring-revenue product. Wasserberger had learned that while customers will often put new projects on hold indefinitely, they tend to retain monthly services. "We had project customers and subscription customers," Wasserberger says. "The first group disappeared almost entirely, while the second group had no change."

During the tough times Wasserberger continued his drive to raise funding. "Growth requires capital," he says. "Could we have trimmed costs so far that we required no outside funding? Yes. But we didn't want to do that. It's not good for morale or the value of the business."

In 2000 Wasserberger had raised $2 million from a group of investors and sold 8.5% of the company for an undisclosed amount. In January 2001, he secured another $7 million from an investment consortium.

Throughout 2001, the 70 remaining Spirian employees have focused on cutting costs. One of them suspected that the company was spending too much on health insurance, and the hunch was later confirmed by an outside health-care consulting firm. A few changes in coverage reduced Spirian's health-insurance costs by an impressive 34%.

With the memory of the lavish Florida trip still fresh in their minds, Spirian staffers have learned to spend carefully. "In hindsight, the Florida trip wasn't the greatest move," says Wasserberger. "Now no one buys a paper clip they don't have to buy." The upside: everyone at Spirian has grown so accustomed to belt-tightening, it no longer requires a second thought. This year Spirian is on track to return to profitability.

Never far from Wasserberger's thoughts these days is what he calls the "feed number" -- the number of employees, plus dependents, his company is responsible for feeding. He keeps that number -- currently 134 -- pasted to his office wall, where it serves to remind him how difficult it was to lay off employees he had been close to. Still, Wasserberger says, "sometimes it's good for a business to go through an economically challenging time. We're a better company because of it."

Plan B: The Sequel

For Dan Turner, this is downturn number two. His first came in 1996. Two years earlier Turner, then a recent college grad, had founded a Web-development business in the basement of his parents' Washington, D.C., house. He called it Turner Consulting Group (#332), and he staffed it with some 15 far-flung college students and other virtual workers, to whom he paid a flat hourly rate. He built a decent business developing sites for federal agencies.

But that came to a halt with the congressional spending debate of 1996. "Our business went down overnight," says Turner. "We had no money for seven months. I laid off the entire company."

Not long after that, the feds got their act together, and the money started to flow again. To Turner's surprise, none of his former employees had landed jobs since being laid off. Instead they had survived on contract work and savings, many of them waiting for Turner to get back on track. Turner hired them all back as part-time and full-time hourly employees. He also paid for their health insurance premiums and for other benefits -- even for the part-timers. Business took off again, and this time Turner diversified his clientele, adding nonprofit agencies as well as small businesses. By the start of 2000, Turner's company had eight clients for projects ranging from $50,000 to more than $1 million each. Revenues in 2000 hit $2.5 million.

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