John Strelitz, president of paper broker Streco Fibres, in Virginia Beach, Va., looks for deals such as buying scrap magazine stock and selling it to the gift-wrap market. Strelitz's best deal, though, is one he made for two promising salespeople.
Looking to diversify, Strelitz spun off a second company, Pyramid Paper Products, which warehoused and processed paper in Hot Springs, Ark. He gave Robert Hortman and John McMinamin, two young guns with vital industry contacts, each a 20% ownership stake in lieu of commissions or big salaries. The two, then 33 and 38, drove Pyramid's sales, but also got more responsibility for running the business.
"Being part owners made them smarter about purchasing, collection, the quality of accounts, and cash flow," says Strelitz. "They acted like partners."
Five years later, when Pyramid was up and running, Streco reabsorbed it. "Start out by planning when to take over the spinoff company before it begins to compete with its parent," cautions Strelitz. In 1997, Streco hit $13 million in sales.