The Gospel According To Fatjo
Mission 1. It was a hot, muggy summer evening in Houston, and patience was growing short at an emergency meeting of the Willowbrook Civic Club. Some 75 people had crowded into a room at a neighborhood school to discuss garbage.
Willowbrook, a subdivision of 700 houses in the southwestern part of the city, and two adjoining subdivisions were finding it difficult to get their garbage collected. A private contractor who had performed the service for several years had now decided to concentrate on more lucrative routes. As a result, bags of trash were piling up in nearly 2,000 backyards.
Tom Fatjo, Jr., a 26-year-old accountant who served as president of the Willowbrook association, listened to the complaints and suggestions, then offered a suggestion of his own: "Why don't we buy a garbage truck and have our own service?" he asked.
An angry man finally broke the silence that greeted Fatjo's question: "Tom, this is a civic club, not a damn garbage company! Why don't you buy a garbage truck and be our garbage man?"
Fatjo accepted the group's lack of enthusiasm for his suggestion. But later that evening, he began to consider the other possibility -- being Willowbrook's garbage man himself -- seriously. It was the wisest thing he'd ever done.
Now, 16 years later, Fatjo is no longer an accountant. He is an ex-garbage man worth more than $5 million, the founder of the largest solid-waste disposal firm in the world, Browning-Ferris Industries Inc., whose 1981 revenues were $661 million.
Since he stepped down as the co-chief executive officer of Browning-Ferris, Fatjo has gone on to develop The Houstonian, a resort and private club designed to help business executives lead healthier and more productive lives.
But the American dream of striking it rich and then sitting back, maybe to pontificate occasionally on free enterprise, wasn't what motivated Fatjo. He was driven by an intense sense of mission, rather than by a desire for money. "There's nothing wrong with a desire to make a huge amount of money," he says, "and sure, I wanted to make some. But it was the mission that was all-consuming." He is as intense and sincere as a Bible Belt evangelist.
Fatjo was born in Houston and raised in Richmond, a small town outside of Houston. He studied economics and accounting at Rice University. While he was at school and after graduation he went to work for Deloitte, Haskins & Sells, the Big-Eight accounting firm. "Most of my work was with businesses that ranged from $500,000 to $20 million or $30 million in sales," he recalls. "I was sizing up those companies for investment, helping out with bankruptcies. I really enjoyed rolling up my shirtsleeves and getting involved with small business."
His work with small companies fired him with enthusiasm for entrepreneurship, and led to the development of a business philosophy. "I've seen so many people with good ideas and good businesses lose the opportunity because they weren't sound financially -- they didn't do the necessary planning," Fatjo says. "I saw people who otherwise would have been successful if they only had been willing to go a little slower, and people who were more interested in retaining ownership of a company than in seeing it prosper."
His training as an accountant gave him a respect for the numbers. "I believe in being conservative financially," he says. But he also knew that accountants place too much emphasis on going by the numbers in any business decision. They don't put enough faith, Fatjo feels, in the gut reactions of the business's owner. "You look at the numbers," he says, "but you have to rely on what your judgment tells you."
Fatjo was an entrepreneur-in-waiting, frustrated by his lack of involvement in a small business. So when the emergency meeting of the Willowbrook Civic Club provided him with an idea for a business, he started to check out the realities of the solid-waste disposal business.
"I took a long look at it," Fatjo says, "and it seemed like a pretty good business: There aren't any recessions -- I mean, the garbage is going to be there." The Willowbrook association paid 90 days in advance, which provided him with working capital; the equipment was easily financed, and trucks could be added one at a time.
So Fatjo invested $500 in a garbage truck, hired a few men, and the new company, American Refuse Systems Inc., began cleaning up. But not without a few unforeseen problems: "The first day we went out to collect, the truck filled up after only 200 houses," he recalls. "I'd made a major miscalculation; we'd planned on hitting 750 houses a day, and it was a two-hour trip to the disposal site." The first order of business became the purchase of a larger truck. There were also problems with labor and maintenance of trucks, but none that Fatjo couldn't handle, even if he had to work the routes, tossing trash into the back of a compactor, himself. He later recalled the experience in the first chapter of his how-to-succeed autobiography, With No Fear of Failure: "The garbage was almost up to my armpits in the dank heat of the enclosed truck bed as the driver slowed for the last stop on the route."
American Refuse earned $200,000 during its first year, then expanded into commercial collections in Houston. By 1969, the company had annual revenues of more than $1 million.
Long hours and hard work made Fatjo a success, but Houston was the right place for him to put his anything-can-be-accomplished credo to work. "People in the estern part of the country are often negative when it comes to new projects," Fatjo says. "But here, the assumption is that new things can be done. The attitude is, 'I can do almost anything.' It's a city that accepts outsiders, that judges newcomers on the basis of their talent rather than their experience or where they're from."
Houston seems to breed a kind of college fraternity optimism, an indifference to obstacles. Tom Fatjo plunged on, searching for bigger and more exciting opportunities, having accomplished his first mission -- that of becoming an entrepreneur.
Mission 2. Before expanding American Refuse into two nearby cities, Fatjo decided to study the solid-waste disposal business elsewhere: "My impression was that it was probably a hit-or-miss sort of thing and that the people who were involved in it probably weren't very good businessmen." So he set out on a three-week fact-finding trip and discovered a golden opportunity.
The disposal companies he visited were facing major capital expenditures because the federal government had stepped up its enforcement of good disposal practices. Inexpensive trucks were being replaced by big front-loaders. Many of the companies that were being forced to make these expenditures were run and owned by men in their fifties whose companies were their major asset. They were concerned about the national companies that were eyeing them for acquisition.
By the end of his trip, Fatjo's plans had changed dramatically. He no longer planned to expand into two cities; his mission had become national in scope. He and his partners started crisscrossing the country, talking to companies they were interested in acquiring. But 12 months later they had failed to make a single purchase.
Convinced that his instincts were right, Fatjo sought the advice of a friend, Lou Waters, head of the corporate finance department at Underwood, Neuhaus, an investment securities firm in Houston. Waters told Fatjo he had three major problems: His company had no financial credibility and its stock was not negotiable; it lacked proper organization; and Fatjo had no large-company management experience.
For the first time, Fatjo realized his company wasn't quite ready to move into the big time. To give American Refuse the financial depth it needed, Waters was made a partner chairman of the company. Waters then set out to solve the problems he'd identified.
Solving the problem of financial credibility depended largely on solving the problem of the stock's negotiability. American Refuse had hoped to use its stock to purchase other firms, but it was privately held and therefore offered little liquidity. The solution was to merge with a publicly held company with a solid reputation. The search for such a company eventually focused on the Browning-Ferris Machinery Co. of Dallas and Houston. Using $600,000 raised in a private placement and from bank loans, Fatjo and his partners began purchasing shares of the company. By April of 1969, they had gained control of it.
"We bought an excellent company and a stable image," Fatjo says. "The other waste disposal firms were going to need to feel that ours was a solid company -- and Browning-Ferris was. It had been around since 1913. It manufactured heavy equipment, some of which was sold to landfills, and had $4.5 million in equity, no debt, and a reliable cash flow."
Fatjo merged American Refuse with Browning-Ferris, creating Browning-Ferris Industries Inc. (BFI), and began the expansion process again. This time, the companies they approached were more amenable to the notion of being purchased. The first acquisition was a trash company in Cincinnati, which was purchased for stock and cash. Most of the companies acquired thereafter were bought through the issuance of common stock.
"Our plan was to expand geographically," says Fatjo, "and then to expand the types of services offered." To make BFI as efficient and productive as it needed to be, he realized, he needed a top-notch operating head. He chose for the position Harry Phillips, who had run successful solid-waste disposal operations in Houston, Memphis, and San Juan, Puerto Rico. During the acquisitions period, Phillips was in charge of management, Waters of administration, and Fatjo of development.
During the next two years, BFI assumed control of more than 100 waste disposal firms. The rate of growth was so rapid that BFI was forced to develop what amounted to an assembly-line process for acquisitions. The starting point was the formation of an acquisitions team within the development area. Eventually, many of the senior officials with the companies BFI acquired became negotiators on the team.
The principals drilled team members on BFI's objectives and acquisitions plan, then sent them out to locate the best companies within given geographical areas. Typically, a team member would prepare a preliminary report on a company for review by other members. Then, if the company looked good, a negotiator would visit it and assess the management capability of its owner. "One of our main concerns was that their management be compatible with our own," says Fatjo, "so we spent a lot of time getting to know each other." If all signs remained good, the owner was invited to Houston to meet with members of the Browning-Ferris management team. Additional meetings might follow, and eventually the possibility of acquisition would be broached. If the owner was interested, BFI then conducted a purchase investigation, analyzing all of the numbers thoroughly.
Finally, there would be an offer, and, generally, further negotiations. "You rarely reached agreement the first time," Fatjo recalls, "but by that time the owners had gotten to know us very well -- there had been a lot of meetings, a lot of discussions -- and they'd developed a pretty good feeling for us. As a result, almost no one said no." As soon as an agreement was reached, the legal department drew up the necessary documents, the accounting department began the process of integration, and the management section took over responsibility for all operating decisions.
The process usually took a year between the time BFI became interested in a company and the time it acquired it, but because there was so much activity going on, the company averaged five acquisitions a month. "All of my experience was with Browning-Ferris," Fatjo says, "so I can't speak with authority, but I'm fairly confident that our acquisitions program was unique."
For several years, Fatjo was constantly on the go, flying in and out of Houston to size up prospective acquisitions, make deals, oversee transitions, upgrade operations. "I was gone all the time," he recalls. "I'd leave on a Sunday night or a Monday morning, and not be back until the end of the week. Even if I was dead tired, I'd get up again the next day and get going. I don't remember a lot about my two children between the ages of three and eight. I remember the business details, but not the personal things. My personal life was totally neglected."
In April 1972, Fatjo placed an $80-million stock offering for Browning-Ferris, and in 1973 he was divorced. For the first time in a long while, Fatjo became concerned about where he was heading. "I was getting a lot of satisfaction out of what I was doing," he says, "but I had the feeling that I probably wasn't going to last more than another eight or nine years at the rate I was going. I knew that there must be a way to have that commitment and that desire to accomplish and, at the same time, be able to carry it on for as long as you liked."
He took up jogging, an activity he could do either at home or on the road. In 1973, he participated in a race at Dallas's Aerobics Center, and found that most of the other runners were business executives. He was impressed by their energy and sense of well-being, and noticed that his own health and business performance had improved. The time he had spent on physical fitness hadn't taken away from his business; if anything, it had improved it. He thought he saw a connection between physical fitness and business efficiency.
Browning-Ferris continued to grow. By 1975 it was operating in 110 cities, and had 6,000 employees and annual revenues of $250 million. Tom Fatjo had built his national company.
Mission 3. In 1975, Fatjo stepped down as head of BFI. "The company was running well," he explains. "It had strong management, was being operated on a regional basis by good people, and wasn't going through a strong growth period. There was no big need for me."
His $500 investment in a garbage truck had mushroomed into 160,000 shares of BFI stock worth more than $5 million. He had an option on 40,000 more shares.
But now Fatjo set his sights on a new goal, one that would meet both his personal and his professional needs. "I wanted to create a center that would have a positive impact on the lives of busy people, that would help them to be productive for a long period of time -- both personally and professionally. I wanted it to be a place where people could attend conventions, learn something about fitness, enjoy some exercise -- a place that would bring balance back into their lives."
But planning, building, staffing, and operating a resort and health club is a far cry from collecting garbage. "I've got to be honest with you," he confides. "From July of 1980 to about February of 1981, I can't really say that I enjoyed it -- it was a lot more difficult than trash. I'd been involved in one or two start-ups before, but never six or seven at the same time. We were in the restaurant business, the hotel business, the fitness business, the membership business. For a while I found myself out of my element, but the mission was so important that I never thought twice about whether or not we'd continue pursuing it."
The financial gamble alone was significant. The Criterion Capital Corp., which had been set up by Fatjo and several partners, became a general partner in the development of the $39-million project. "Virtually all of my business assets are tied up in Criterion, "Fatjo says. "I own about 40% of the firm."
Fatjo's new venture, dubbed The Houstonian, opened its doors in January 1980. Set in a heavily wooded area, once a private estate, in the southwest section of the city, it includes a 300-room hotel and conference center with three restaurants, 24-hour room service, and 29 meeting rooms. It also has a health and fitness center with 66,000 square feet of athletic facilities, including five tennis courts, eight racquetball courts, an Olympicsized pool, a gym, an indoor track with computerized timing lights, and a one-mile outdoor track carpeted with Astro-Turf. The Houstonian's Preventive Medicine Center has a staff of several doctors who put members through a comprehensive physical exam and prescribe programs of diet and exercise. It has given more than 7,000 complete examinations since it opened. Finally, there's The Phoenix, a luxurious women's spa run by Judy Fatjo, Tom's second wife.
"It's what God would have done if he'd been rich," goes the local joke. The initiation fee for Houstonian members began at $2,500 but has since shot to $12,500 because of demand.There are currently 2,300 members.
In its first year, The Houstonian lost more than $3 million, but Fatjo says the slow start was the result of a conservative attitude toward building the center's reputation. "Most major hotels would have come into a market a year ahead of time and done some heavy advertising," he explains. "We did virtually none; I wanted to build our reputation slowly." Occupancy of the hotel climbed from 50% in 1980 to 70% in 1981, and The Houstonian showed a $1-million profit. "Our reservations for 1982 are much stronger," Fatjo observes.
Today, The Houstonian is a vehicle for many of Fatjo's personal beliefs. He was one of the founders of the American Productivity Center, a business think tank located on The Houstonian's grounds. And 300 to 400 people have attended inspirational "Weekends for Personal Renewal" at The Houstonian, featuring religious as well as medical and business speakers. The emphasis on religion and its role in personal well-being reflects Fatjo's own thinking. "I've just always believed strongly that God was my partner," he says. "Many times, I haven't done the right thing, and I've made mistakes in business, but I've never felt that He was anything but a partner and supportive of me."
Fatjo continues to run every morning, and turned in a time of three hours and 36 minutes in the 1981 Boston Marathon. He takes a break from business to go hunting with his son, and he reads the Bible daily. Though he runs the poshest of resorts, he drives a 1971 Chevy. He seems to have found the balance between his business and his personal life that he was seeking when he turned from garbage collecting to physical fitness.
At 41, Fatjo clearly has time for more missions. He is chairman of the executive committee of Fannin Bank, the largest independent bank in Texas. He is personally involved in many of the projects of Criterion Capital, which is currently building The Houstonian Estates, a 155-unit high-rise condominium whose top-priced unit will go for $1.2 million. Criterion also has money invested in Criterion Management Co., a money management firm with interests in real estate ventures, an automobile agency, as well as Browning-Ferris Industries. For the moment, however, The Houstonian is Tom Fatjo's mission.