When Frank Sands graduated from Harvard Business School in 1963, it was hard for him not to feel an overwhelming sense of opportunity. The business world was in the throes of an expansion and merger spree that saw companies, both large and small, devouring competitors and noncompetitors alike. The unquestioned assumption of the day was that growth would not just solve problems, it would also ensure success.

Yet in Frank Sands's case, his academic orientation and the business atmosphere that fostered it, were to prove nearly fatal for Sands Taylor & Wood. The family-owned, Boston-based company had sold the same type of unbleached, unbromated, high-protein wheat flour throughout New England since 1790 the year of George Washington's inauguration. In 1963 when Sands joined his father at Sands, Taylor & Wood, the company was a profitable, $3-million operation that relied exclusively on the uniqueness and solid reputation of its sole product, King Arthur Flour. Within five years, Sands had embarked on what turned out to be a decade-long round of acquisitions that would see sales shoot up to $45 million and the number of employees climb from 20 to 160.

Today, 15 years later, Sands, Taylor & Wood is once again a small operation, with sales of $3.5 million, and it produces its long-standing product, King Arthur Flour. The company narrowly escaped going under, warehouse space that had once been full of baking ovens and 10,000-gallon corn syrup tanks is now empty, and Frank Sands is a much wiser man.

Sands's long, cyclical odyssey from success to near failure and back began in 1968, when his father retired from Sands, Taylor & Wood and Frank became company president. That same year, there were 4,500 mergers in the United States, a 50% increase over the previous year, but still far less than the 6,100 that would be registered one year later. Sands himself wasted no time. Within months of taking over the company, he had paid $300,000 in cash for Allied Bakers Supply Co.'s assets, a marginally profitable bakery-ingredients supply distributor in Cambridge, Mass.

Sands justified his acquisition in two ways. His company distributed King Arthur in both family- and larger-size bakeries, but family flour consumption was declining. At the turn of the century, over 90% of all flour usage in the United States was family flour, that is, smaller bag sizes bought by consumers in stores; by the end of World War II, that figure had dropped to 40%, and by 1968 it had dropped even further, to 8%, where it has since plateaued. Sands was convinced he should pursue a wider share of the bakery market and sell not just flour but other bakery ingredients as well.

Sands also took note of Allied's faithful customer base. He figured he could penetrate the bakery market faster and easier by absorbing a supplier that had existing relationships with retailers. "By picking up those customers, we telescoped a penetration that would normally have taken five years into 60 days," summarizes Sands. "Making it work meant turning over sugar faster." He began turning it over so fast, in fact, that he recouped his initial investment in 60 days. By the end of the year, sales had doubled to $6 million, and 15 new employees were added.

The company now had two operations, and the would-be flour mogul immersed himself in the business, working 14 hours a day, seven days a week. By the early 1970s, Sands concluded that he could run a more efficient organization and save considerable money by manufacturing some of the goods he was distributing, instead of buying from a middleman. In 1973, he purchased Joseph Middleby Jr. Co., a 100-year-old manufacturer of fillings and toppings for pastries and other baked goods located in South Boston. Joseph Middleby had a reputation for quality, but its three manufacturing plants hadn't been upgraded since the early 1900s, and the company was losing money. Sands laid out about $300,000, most of it cash, for the company's assets, which included beneficial tax losses. Company sales leapt to $12 million.

Then, in 1975, Sands bought H. A. Johnson Co., another bakery supply manufacturing business whose primary asset was a block-long, two-story, 140,000-square-foot manufacturing plant and warehouse in the Boston neighborhood of Brighton. On the surface, it looked as if he had struck a sweetheart deal. Johnson was a money loser, and its owner, Aerojet-General Corp., a giant California aerospace company, had neither the qualified managers nor the inclination to save it. Sands obtained a $2-million bank loan to pay for a company that Aerojet had originally bought for $4.5 million. Johnson produced 14 different product lines, including toppings, fillings, glazes, and extracts; with its addition, Sands, Taylor & Wood boosted sales from $12 million to $25 million within two years.

Sands quickly consolidated the sales, production, trucks, and customers of the two companies into a new, wholly-owned subsidiary renamed Johnson-Middleby Co. The parent company's profit margin soared. Sands says the company's meteoric growth did not trouble him at the time, and, indeed, its performance during the first two years after forging Johnson-Middleby was remarkably strong. In 1976, it earned more than $400,000 after taxes, which was a record. And 1977, while less spectacular, showed an aftertax profit of about $250,000.

Sands, Taylor & Wood now offered a comprehensive line of products and ingredients to such customers as bakeries, candy and ice cream stores, hotels, restaurants, prisons, hospitals, schools, and other institutional food industries. In addition to King Arthur Flour, the company sold every other edible ingredient a bakery uses, including sugars, syrups, toppings, flavors, icings, breads, cakes, doughnuts, muffin mixes, and a wide variety of fruits, extracts, and pastry fillings. Sands was going strong.

Those years were significant for Sands in personal ways as well. Divorced from his first wife, he married his old college sweetheart, Brinna Baird, herself divorced with three children. Together, they decided to distance themselves from a business that was taking up the majority of Frank's time. Sands made serious plans to give up day-to-day operation of the company and move to an 85-acre farm in Norwich, Vt., near Dartmouth College, his alma mater. He recruited an outsider, William O'Connor, as general manager, with the intention of retiring as president and having O'Connor succeed him.

O'Connor, 50, a native Australian, had been vice-president of food service at The Gorton Group, a fish-processing company in Gloucester, Mass. He was brought aboard a conglomerate that was highly leveraged, fast growing, and in the hands of a president preparing for semiretirement in the backwoods. Sands wanted to adopt the role of chairman of the board, and check in on his growing conglomerate every month or so. In the meantime, the Johnson-Middleby operations, antiquated and long neglected, needed infusions of capital for major renovations. In fact, the entire company required more capital for increased operational expenses. O'Connor arranged a $3.5-million working-capital loan at 1.5% over the prime rate, which then hovered at 8%.

For Sands, it still looked like clear sailing. Commodities needed for the company's operations, such as sugar, cocoa, wheat, and soybeans, remained cheap. Interest rates were stable. Profits appeared certain. At the time, in late 1976, when asked about new markets, Sands was quoted in a regional business magazine as saying: "We are nowhere near saturation, even in the baking industry."

But in 1977, Sands made a move that plunged the company into quicksand. He submitted a bid and won a two-year distribution contract with a buying group for nearly 200 Dunkin' Donuts Inc. stores in New England. The bid was about 80 cents per unit, which meant that Sands, Taylor & Wood would receive that amount for every bucket of syrup, bag of flour, or case of coffee it delivered. Over two years, this was supposed to amount to $18 million a year. Operating costs were expected to amount to roughly 75 cents per unit, but Sands reasoned that although profits would be marginal (they turned out to be nil), he would still improve cash flow, double his volume, and consequently strengthen his bargaining position with his suppliers.

To handle the added volume of goods, the company bought a lease on a warehouse in Andover, Mass., and transferred its corporate headquarters there. The warehouse had to be refitted, a fleet of trucks had to be rented, the Dunkin' Donuts distribution system had to be mastered. But the company had reached almost $45 million in sales, and Sands never lost his optimism. He made yet another acquisition in 1978, paying less than $100,000 for Goodhue Products Inc., a $300,000 maker of frozen bread dough. He even toyed with the idea of putting out frozen dough under the King Arthur name. The scheme never materialized, though, because shortly after the Goodhue purchase, things started to unravel.

In the late '70s, the company was clobbered by three concurrent developments in the national economy. First, commodities prices, which had been depressed, began to turn around, and such essential ingredients as sugar doubled in cost. Second, the energy crisis hit. "When we bid on the Dunkin' Donuts contract [in 1977], gas was 60 cents a gallon," says Sands, noting that one of the major expenses for a distributor is gasoline. "Two years later, it was $1.20." Finally, interest rates began an upward trend that almost brought the company down. In 1981, Sands, Taylor & Wood exhausted its line of credit, prompting the banks to raise interest on the $3.5-million capital loan from 1.5% over prime to 2% over prime. The company found itself paying 22% interest on a loan it had first obtained at 8%; payments had risen from $200,000 a year to $750,000.

Meanwhile, the company was pumping about $2 million a year of its increasingly scarce capital into the distributorship just to keep it running. Operational costs had mushroomed, and it took $450,000 a week merely to fund receivables. The company was losing around $150,000 a year on the deal.

According to Peter Linneman, professor of finance at The Wharton School, over-reaching is a common mistake made by entrepreneurs who seek diversification. "Too many small businessmen overestimate their expertise," he says. "Their company experiences rapid growth and suddenly they think they can do anything. Just because you know flour doesn't necessarily mean you know dough, and just because you know dough doesn't mean you know doughnuts."

In 1978, in the midst of this turmoil, Sands took off for Vermont. The company lost $130,000 that year, the first substantial loss in its history.

Sands remains defensive and unrepentant over his decision to move. "My family came first," he says. "And it still does. Maybe if I had stayed everything would have worked out. But sometimes, you just have to say the hell with it and summon the courage to do what you want."

Nevertheless, the loss shattered Sands's sky-is-the-limit ethos, and he finally realized that the company was out of focus. Cost-cutting measures became imperative. Sands, Taylor & Wood immediately closed Goodhue's inefficient and aging manufacturing plant, saving $60,000 a year in upkeep. An outside manufacturer was contracted to produce the same goods under specification, and the products were then passed to Goodhue for marketing and distribution. He also tightened control of inventory management by trimming down the distributorship's inventories. And, he retired a large part of the company's crushing bank debt by selling off the Andover building and moving back to the old building in Brighton.

Still, it was obvious that the crisis called for harsher measures, so Sands hired out side managers and solicited advice from students working under the direction of his former mentor at the Harvard Graduate School of Business Administration, Ray Goldberg. The first thing they told him was to get rid of the Dunkin' Donuts distribution side of the business and concentrate on manufacturing. In 1979, to no one's dismay, the Dunkin' Donuts distributorship was dropped.

Of Sands, Goldberg says, "Frank was an apt pupil, and what he did made sense on paper. He wanted to minimize cost by adding more products to a distribution line and minimize risks by diversifying those products. In reality, the savings made by adding products were offset by being burdened with new items that weren't unique.

"The company's biggest strength is the uniqueness of its flour, the way it appeals to the naturalness that more and more consumers are searching for. But Frank diluted his genuine advantages by expanding. I have to give him credit for being wise enough to see his mistakes and rectify them. Now, he's going back to basics, and the market is going back there with him."

While laboring to keep the company going, Bill O'Connor went hunting for a financial expert who could help find more cost savings. He found William Walsh, a comptroller at International Minerals & Chemical Corp. Walsh jumped into the fray with both feet.

"It was a nightmare," Walsh remembers. "Most commodity vendors demand prompt payment, with no ifs, ands, or buts. I spent 70% of my time on the phone with vendors, trying to get extended terms. Most assumed I was lying and would never pay them. There was one guy, a fruit supplier, to whom we owed $800,000. He called on me one day to say he was going to try to put us into bankruptcy. We eventually worked things out, but, I tell you, this company was almost over the brink. We didn't fear bankruptcy every day -- we feared it every hour."

The company managed to show a small profit in 1979 of less than $10,000. But the cash squeeze remained relentless. In 1980 Sands, Taylor & Wood posted a loss of $170,000. As Sands puts it, the company was still "discombobulated."

Surveying the wreckage from his bucolic retreat, Sands could see that the rest of his acquisitions had to go. "That was the value of living up in Vermont," he says. "You could see it from afar. And I just said, 'This is ridiculous. I'm gonna sell everything."

Sands continued to distill Sands, Taylor & Wood to its core. He liquidated the remainder of the wholesale bakery supply and distribution end, which did roughly $12 million in sales, and in 1980 sold it to Nutmeg Bakers Supply Co., in Beacon Falls, Conn. The sale freed up cash the company had invested in inventory and receivables, and wiped clean a $200,000 loss. With all modes of bakery distribution gone, the company focused on its 200-year-old cash cow, family flour. Sands kept his home in Vermont, but took over again as full-time company president, and commutes to Brighton at least once a week.

In 1981, O'Connor and Sands sold the " Johnson-Middleby division to L. Karp & Sons Inc., a Chicago-based manufacturer and distributor of bakery ingredients. All of the division's inventory and assets were liquidated and sold to Karp for the same amount they had originally cost. According to O'Connor, that divestiture was one of the hardest decisions of his life.

"Karp moved the plant to Chicago and laid off close to 80 out of the 100 people employed there," he says. "Frank and I knew that was going to happen, and it was very agonizing for us both. Some of these people had been with the company for over 40 years. I still feel very sorry about the dislocation we caused in their lives." Even sacrifices like these, though, did not prevent the company from losing close to $1 million that year.

Undaunted, Sands sloughed off his one remaining acquisition, Goodhue Products, in the spring of 1983, selling it to Bill O'Connor for about $125,000. The long roller-coaster ride from diversification to divestiture had finally ground to a halt.

"We're now reaffirming the qualities that distinguish us from the others," says Sands, "the qualities we've had since the beginning." The company has launched an aggressive advertising campaign to spread its all-natural gospel, spending about $150,000 a year on radio and magazine commercials. Sands's wife, Brinna, has taken charge of consumer relations, and New Englanders frequently can hear her on the radio, espousing the wholesomeness of King Arthur Flour. By flaunting the intrinsic merits of its product, the company has rediscovered its identity and reversed its decline. For the latter part of 1982 and all through 1983, the ledger numbers were back in the black.

King Arthur currently accounts for 25% of the New England market, compared to 6% in 1963, placing it third behind General Mills's Gold Medal and Pillsbury's Best brands. In the 10-to-25-pound bags, King Arthur outsells Gold Medal and Best combined two-to-one. Although national consumption of family flour has leveled off, the industry continues to be a scrappy one. Private labels, which make up about 10% of the market, are constantly introducing natural brands in attempts to cut into King Arthur's turf. But Sands is less of a worrier these days. "We have tradition, and we've gained trust," he proclaims. "No one can touch us."

The natural-foods industry is growing at about 15% a year, and Sands, Taylor & Wood, having prefigured that boom, is positioning itself to ride the wave. Sands may have learned the limits to growth, but his competitive instinct remains strong. Last year, the company introduced a stoneground whole-wheat flour that has already captured 50% of the market, an impressive blitzkrieg into potentially rich territory. In addition, the company recently hired a new food broker, Morris Alper & Sons Inc. in Framingham, Mass., which has increased distribution of King Arthur Flour in its current market area and is helping it move onto grocery shelves in metropolitan New York and surrounding New Jersey areas. "Right now those states amount to only a very small percentage of our sales, but we have a foot in the door," he says. "Laying the groundwork will have to go slowly, and it will be a year or so before we make any serious inroads. But it will pay off in a big way. That market is twice the size of New England."

Despite Sands's close brush with disaster in the late '70s, he hasn't lost his enthusiasm for both new markets and new products. "I've gotten that preoccupation with growth pretty much out of my system," he says, "but I get itchy from time to time. I still have ambitions for my company."