The way to solve the problem, of course, is to replace the bucket-and-mop people with trained, ambitious managers who can hold their own with the nurses and dieticians while motivating the cleaning troops. McCartney figured out how to do that, and he and Mason built a company around the solution.
You attract ambitious people to the job, he reasoned, by making it an early step in a challenging management career, not the last step in a vocation that tends to attract people without other skills or talent. And then you train those ambitious people to do things your way. "I am of the opinion," McCartney says, "that in our industry there is no talent to steal."
After Healthcare signs a contract with a nursing home, it replaces the current chief housekeeper with one of its own trained managers. The working troops technically become employees of Healthcare, not the nursing home, but their wages, fringe benefits, union agreements, and so on remain unchanged. As far as they are concerned, they still work for the nursing home. "The only difference," says McCartney, "is the management."
Even if they have had some experience, all new Healthcare managers go through 60 to 90 days of training, beginning with the basics. They clean patient rooms, then public rooms, and move on to floors. They learn to hire and train new cleaning workers. They supervise specific cleaning crews. They learn administration. After three months or so, if their evaluations are good, they will be made assistant housekeepers at large facilities.
From there, a manager might solo at a smaller home, then take command of a staff of assistants at a bigger institution. Then he or she can progress through training manager, district manager, regional manager, and, as the company's geographic expansion proceeds, take charge of a division.
"We use the same mop handles as everybody else," McCartney says. "The difference is that we can provide a better manager than the facility itself can. Our guy knows that he can move on and up. The facility's own person is stuck there, or at another place just like it."
McCartney's idea works. Last year, its seventh, Healthcare earned pretax income of $1 million on revenues of $8.2 million, from contracts with more than 70 facilities in the Northeast and in Florida. Since 1980, its revenues have grown nearly 45% compounded annually, and net earnings have expanded at an annual compound rate of 100% over the same period. Just as significant, however, is the firm's 95% contract-retention rate. In seven years, only six clients have canceled or failed to renew their contracts, one of them because it went out of business.
The limits to growth for Healthcare have not been market-imposed. "Getting new business," McCartney says, "has been the least of our problems." With the graying of America, the nursing-home industry has expanded rapidly, and facility owners apparently are impressed by McCartney's standard argument. "A nursing home may spend, say, $250,000 a year on housekeeping," he says, "so I ask them, 'If you had a quarter-of-a-million-dollar business across the street, would you hire Jim the janitor to run it or somebody with some management training?"
Nor has a lack of capital slowed the firm's growth rate; it is, when things work properly, closer than even Hino & Malee to being a cash-based business. Most client institutions, McCartney says, treat Healthcare's fees just like a payroll expense, writing checks to Healthcare weekly or biweekly, and the firm, in turn, pays its housekeeping employees. If Healthcare has correctly estimated its own costs, it begins collecting a profit from every new client with the very first payment. "When we started the company," McCartney says, "we had to be profitable instantaneously because we had no money." And now it has almost an embarrassment of capital riches: Last year, Healthcare went public, raising $3.5 million.
Indeed the only limit to Healthcare's top-line growth has been the time it takes to recruit and train managers and build the management structure. But this limit is a significant one, and overstepping or ignoring it could be fatal to the firm. "In 1978," McCartney says, "I thought we had started to lose it." Healthcare had enough entry-level managers to staff the facilities it served, but their supervisors, the district managers, were stretched too thin. Because it takes about two years to train a new district manager, in McCartney's view, the firm had to slow down. It did, adding only three accounts that year.
In 1982, Mason and McCartney imposed a-six-month selling moratorium on themselves because, once again, the business began to tax management's capacity to manage. Eight new district managers were trained that year. The company has to lose only two or three contracts, McCartney says, to lose its reputation, "so, in retrospect, that [moratorium] was probably the most important decision we've made since going into business."
The shortcuts available to Healthcare are obvious enough. It could reduce the training time for new housekeepers by hiring people with on-the-job experience. It could increase the number of facilities each district manager is responsible for, and increase the number of district managers reporting to each regional manager. It could grow by acquiring other companies that deliver a similar service and using their management personnel. Any of these options would speed the growth of Healthcare, but might jeopardize McCartney's carefully thought-out strategy. McCartney has considered them, but has decided to stick to the original plan.
Sticking to the plan is a precept that 3Com would endorse -- along with Hino and Malee's preference for caution and profitability.
In October 1980, this unusual group of entrepreneurs began approaching California venture capitalists with an unusual business plan. The group included 3Com's prime founder, Bob Metcalfe, formerly with Xerox Corp.; Charney, who is an engineer with an MBA and a law degree; and two others. The plan, instead of projecting spectacular growth and early capture of market share, predicted that the year-old company's share of the potentially huge market for computer networking systems was going to decline, from 6.5% down to 5%, over the next five years.
