Assets And Liabilities

For the CEO of a fast-growth company, yesterday's strength may be today's weakness.
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Consider the transformation of Graydon D. Webb.

Five years ago, Webb painted the steps and finished the carpentry work on his first G.D. Ritzy Inc. (#12) restaurant; then, on opening day, he flipped burgers and scooped ice cream. Today, Ritzy's chairman and chief executive officer wears fancy shoes with his expensive suits and talks so Wall Street stock analysts.

Or consider Lorraine Mecca.

In 1979, Mecca hired her cousin, who was unemployed and owned a van, to help her start a microcomputer wholesaling business. She did the inside work. He delivered the goods. Last year, under Mecca's management, sales of Micro D Inc. (#38) hit $114.3 million and its payroll numbered 197.

Usually we look -- and often marvel -- at how far the companies on the INC. 100 have traveled in so little time. From idea to upstart to institution, each built an organization and began to exert an influence on events and people in its community, its market, and beyond. Apple Computer Inc. changed the world before it was five years old -- and, it should be pointed out, before Steven Jobs, its prime founder, turned 28.

But behind the numbers used to meter the company's growth and change -- sales attained, market share gained, employees hired, acquisitions made -- stands, usually, a single soul. He, or she, hasn't built the company alone, of course; he has put together a team. And each team member may be brilliant, penetrating, decisive. But the individual who has had to energize the company, to absorb, judge, and direct the enormous changes it has undergone, is still that one person. If the changes wrought in the company impress us, how much more impressive is the founder's capacity to have dealt with it all, from painting the steps to romancing the stock analysts?

"I've had to mature," says one CEO. "When I first started this thing, I was 30, but I wanted to act like I was 25 to show [employees] the energy that it takes to start a business. Now I'm 36, but I feel my responsibility is to act like I'm 50."

"I used to be a leader to the people in the company," responds another, "but now I'm just an enigma."

"How have I changed?" answers a third. "Let me count the ways."

Last fall, this magazine began to do just that: to examine the ways in which heads of INC. 100 companies have had to change as their companies grew. For starters, we called these CEOs on the telephone -- an admittedly blunt instrument for probing such delicate matters -- and asked how growth had changed relationships between them and others in the company. Virtually all the answers focused on communications.

That may not be surprising. Of course, it is harder to stay in close touch with hundreds of people than with two or three, or even a dozen. "It's embarrassing for me," said a frustrated company head, "not to be able to call people here by their first names. I haven't even been in some of our 25 offices."

"Communications," however, isn't only a logistical matter. Logistical barriers can be overcome by holding a beer blast, starting a newsletter, scheduling a retreat. Rather, when CEOs say communication is a problem, they are frequently thinking of other, more fundamental, issues.

A manufacturing company on this year's list, whose managers asked for anonymity, suggests what is at stake. After seven years of growth, the company's top management was still lean, and two of the founders were still heading it up, one as CEO and the other as senior vice-president. But things were nonetheless going to hell, and had been for several months. Everyone knew why; no one would say.

One day, the CEO, the senior vice-president, and the number-three manager got together, as they frequently did. Only this time, one of them finally ventured, "Look, I think we've got a problem with the vice-president for operations." The CEO, to the surprise of his mates, admitted, "I've kind of felt that way for a long time." And the third one eventually suggested, "Don't we just need to fire him?" For a moment nobody said a word.

"That," says one of the three present at the meeting, "is a very, very unhealthy condition. If you can't get together and call a spade a spade . . . I mean, who the hell were we kidding? We were a 200-person organization, an $18-million company. We got to a point where we were just kidding ourselves. We were communicating, but we would avoid communicating the obvious."

The company fired its nonperforming operations chief. Then, less than a year later, the CEO was asked to leave as well.He was an excellent design engineer and a tenacious entrepreneur, the company's board decided, but he wasn't a good chief executive. He couldn't cope with the complexity created by the company's growth, and either he didn't know it or he wouldn't admit it. The communication structure was fine -- but the company had outgrown the leadership capacity of the man at the top.

It is issues like these that worry CEOs. When you get off the telephone and pin them down in person, as I did with five of the current INC. 100 founders, you find that "communication" is just a enphemism, or a quick and convenient answer to a simplistic question. What really costs them sleep, even the slickest, apparently most self-assured of them, are the fundamental problems of leadership, of knowing how their jobs are changing and understanding what needs to be done today as opposed to yesterday. And underlying these problems is the nagging, lurking question of whether they will be able to keep up with the change and growth in the companies they founded -- and if they can't, whether they will have the insight to know it and say so before someone else has to tell them.

Graydon D. Webb knows how to make ice cream. He developed, with some help from his grandmother, the recipe for the ice cream sold in his 89 G. D. Ritzy's restaurants. And he figured out how to create the unique texture of the meant in a Ritzy's hamburger: Unlike the mushburgers some other fast-food chains sell, Ritzy's burgers let you feel the meat in your mouth. Webb's well-upholstered frame is testimony to the interest he takes in taste, texture, and quality control in general.

I ate with Webb at a G. D. Ritzy's in Columbus, Ohio, where the company is headquartered and where he opened his first restaurant in 1980. Columbus is to fast food what Silicon Valley is to microchips. First there was White Castle, whose founder moved himself and his company's head offices to Columbus in 1934. Wendy's, Bob Evans, and York Steak Houses all have their headquarters in this otherwise unimposing city. If your fast-food concept can make it in Columbus, apparently, you are on your way to greatness.

On this particular day, Webb toured the freezer locker and the chill locker and talked to the floor mopper and the store manager. Then he ordered one of everything: a cheeseburger with the works, a hot dog, chili, a grilled chicken sandwich, fries, the steamed vegetable dish, a peanut butter and strawberry-jam sandwich, a soft drink, and 6 (out of 16) flavors of ice cream. The chili wasn't hot enough. (He had a word with the manager.) The chocolate fudge ice cream was gritty -- too old, he said. (Another word with the manager.)

So far, so good. Management by eating around keeps people on their toes, and it keeps Webb in touch with the product. But Webb has also been known to walk into a Ritzy's and tell the manager to change the way he cooks burgers. One day he ordered that the stores be repainted green from their current white. That is not so good.

What saves Ritzy's from Webb's understandable impulse to fiddle spontaneously with his own company are the managers he has hired. "Graydon," says Bill Zych, employee number three and now a self-described jack-of-all-trades around the company, "is an idea man. The toughest part is when he has an idea he believes in 100%, and you gotta say, 'Graydon, that's an idea, but it's not necessarily reality. Let's research it.' For example, I told him, 'No, Graydon, we won't paint the restaurants. We'll paint the model first." We painted it, and it looks terrible."

"We need Graydon's ideas to flow," says Bill Coleman, hired as chief financial officer in 1983 and now a possible heir to the president's chair. "Where he has improved is that when he wants to make a far-reaching change, he now starts through the system. We don't want him walking into stores and changing the way they make hamburgers, and he's done a lot better recently. We all try to help him. If Graydon goes to [marketing vice-president] Tom Santor now, Tom will say, 'Graydon, is this something my boss or somebody else needs to know about?"

Like Webb, Michael Wayne has learned something -- not everything -- about the CEO's job in a fast-changing company.

For 10 years Wayne sold IBM products, and was often the top salesperson in whatever division he worked. In 1977, a friend told him about a start-up company, Zefflamb Industries Inc., that had conceived of a plastic liner to protect the painted beds of pickup trucks from the inevitable nicks and dings that come with use.Zefflamb found someone to make the liners and asked Wayne to sell them. Pickup trucks? Wayne didn't own one himself, "and I didn't know anyone with a pickup, but I looked at the numbers and saw that there were 25 million of them on the road and that they sell 2 million a year. I thought if I could sell liners to just 1% of the people buying pickups, I'd be successful."

Within a couple of years, Wayne had left Zefflamb and was selling his own liners. Then he started a company to manufacture them; he bought a plastic company to supply raw materials; he started a trucking company to transport his product; and eventually he created his own chain of wholesale distributors. All these companies are subsidiaries of Durakon Industries Inc. (#39), whose next foray may be into retailing. In just seven years, Wayne has moved from selling office products to being top man at a vertically integrated notech consumer business. Last year, when he took Durakon public, Wayne became a multimillionaire at the age of 39.

But Wayne still wonders what his job is. "Occasionally," he says, "I ask my secretary to bring me expenses for a John Doe salesman. If they're in line, I decide we're doing a pretty good job. If they're out of line -- well, for example, one salesman had stayed at a Hilton for $85, which I think is ridiculous. . . . So I wrote to the sales manager and told him to remember what our guidelines [Holiday Inn or equivalent] are. . . . A few years ago, I knew what a stapler cost, what our telephone bill was. If we got screwed by Michigan Bell, I'd get on the phone to them. . . . It's hard now to have other people in charge of those things. I recall when our monthly [phone] bill hit $1,000. I was sure that we weren't using MCI or our WATS lines enough. Now, the bill is more than $20,000. I'm sure I could get in there and reduce it by one-third. . . .

"It's hard for me to ignore those things. But sometimes I think to myself, would the chairman of IBM be doing this? I try to think, how would he be spending his time? Would he be checking on some salesman's expenses?"

"Entrepreneurs," observes John Bambery from his vantage point as Durakon's chief financial officer, "don't have much hesitancy in delegating responsibility, but authority becomes a problem. They like to meddle. It's hard for guys like Michael, who have personal wealth at risk, especially newly rich people. In Michael's case, we're talking $20 million to $30 million. There's a tendency for them to feel like you've invaded their bank account. They're trusting you with their money. It's not irrational reasoning. . . . [But] he doesn't appreciate the value of staff. You make a liner, you sell a liner, you collect the cash. Hell, any jerk can reconcile the books."

"The biggest change Michael has had to make," says David W. Wright, Durakon's executive vice-president, "was to learn that maybe somebody else can do things as well, maybe even better, than Michael Wayne."

These comments aren't so much indictments of Wayne's shortcomings as they are frank recognition of the progress the boss has made and how far he has had to come. "Michael's still growing," says Bambery. "He told me recently that the $10,000 decisions are getting a lot easier. It used to be the $100 decisions. I know he's struggling. He has to be."

If it is hard for founders to keep track of what their job is from day to day, it is also hard for them to keep track of what their friends' jobs are -- or, more to the point, what their friends' jobs should be, or whether their friends should have jobs at the company at all. At the anonymous manufacturer referred to earlier, one founder had to engineer the ouster of his friend and co-founder, the CEO. It was not pleasant. Graydon Webb at G. D. Ritzy's had to deal with his cousin -- and the cousin, management employee number two Rob Felty, had to deal with him.

Felty started at Ritzy's answering to the chairman of the board, Webb. Since then, Felty says, he has been group vice-president, then vice-president of franchise sales, and is now the head of research and development. "The saving grace of my working relationship with Graydon," Felty says, "is that I've been able to go in and close the door and say to him, 'Okay, Graydon, we're either going to cut the tie or we're going to be better working partners.' I haven't always gotten my way, but we've handled it like adults. . . . I really feel respected by my colleagues here and by the chairman. The past six months have proven to me that if you don't perform here, you'll be out. I'm still in."

There was a time at Ritzy's, acknowledged by everyone I talked to there, when Graydon Webb's reluctance to play the bad guy -- combined with a corporate treasury bulging with the spoils of a public offering -- meant that people stayed on who should have been asked to leave. That, as Michael Wayne at Durakon learned, can sap a company's strength.

Wayne himself was Durakon's first employee. Its second was someone we'll call Fred. "When we were buying our lines from the outside supplier, "Wayne recalls, "and they were shipped into us at a public warehouse, Fred and I would go over and check them out, and if they needed more trimming, we'd scrape them ourselves and make them just right. As we grew, he handled more of the warehouse operations. Fred was good at taking directions, but he couldn't do much on his own. Eventually, he moved into the sales department because I was on the road and he was getting all the calls anyway.

"Well, he stayed in the sales department, and as it grew he kept getting moved from one place to another to try to find a job that he could do. It wasn't my problem in that there were other people who came in over him who he reported to, but they sort of left him alone. Finally, though, they confronted me. 'Is this guy always going to be here, and do we just have to work around him? He doesn't do anything and he's creating problems with other people.' Finally, I said you gotta do what you gotta do. I'd lost touch with him, and the people he was reporting to felt that they just had to put up with him because he was an original employee and would be here forever."

Fred was given six months' severance pay and a credit line to start his own Durakon distributorship, but this was not an isolated incident, says executive vice-president Wright. "Sometimes Michael shields people. 'Well,' he'll say, 'he's been here a long time.' I have to be the one who says, 'This guy can't do the job."

Wayne has come a long way. He swears that 18 months ago he didn't know what "earnings per share" meant; now he runs a public company that earned 93? per share last year on sales of $27.8 million. And if it appears that I have been picking on Wayne by citing more of his idiosyncrasies than those of other CEOs, it is only because his managers seemed at ease talking about the boss. "Most people," says Wright, "see him as a very certain, very decisive person. In most cases, he is. But with top management, he's not above saying he's not sure."

And the issue Wayne admits to being most unsure about -- more than salespeople's hotel bills, or how much to delegate, or how to handle longtime employees who can't keep up -- because it underlies all of those issues and more, is the uncertainty he shares with every other CEO I spent time with. It is the problem of knowing himself, of being the judge of his own capacity to lead. "I'm chairman and president," he says: "The question I'm wrestling with, we're all wrestling with, is, Should I be looking for a president who has the experience of running a $100-million or $200-million business, or do I want to continue to wing it?"

Graydon Webb, on the same subject, says, "There's a certain point you get to when you say, 'All right, Graydon, it's nice that you know everything about your business, but it's too big for you.' One of the biggest things I've had to wrestle with in the last year is, At what point do I back away and let the company perform?I could be as much a part of the problem in our growth as anything else."

Webb has already hired -- and fired -- one president, whom he found to be "too structured" for G. D. Ritzy's frantic growth rate. So has Lorraine Mecca of Micro D, the Santa Ana, Calif.-based distributor of microcomputer hardware, software, peripherals, and accessories. Webb insists that he is ready to let go, to turn operations over to someone else and turn his own energies to creating new restaurant concepts for the company to pursue. Mecca doesn't seem so sure.

Micro D's first president, for example, was not its CEO. Mecca retained that title and its prerogatives. "It was selfishness on my part," she says. "I was not ready to give it up. It was hard enough not to be president anymore." In early February of this year, less than a month after her president's departure, Mecca's plans for replacing him were still vague. People who know Mecca suggest that she is never vague when she is firmly committed to a decision.

The changes in the company and in the chief executive's job both cause and reflect changes in the CEO's personal life. Graydon Webb's father, a Kentucky Fried Chicken franchisee, was generous with his cash. He also collected cars, and young Graydon, according to stories told, drove a Rolls-Royce while attending Ohio State University. So the four-door Buick he drives today is no big deal. It is not suddenly having money that unsettles Webb, but being a public person in a town like Columbus. "It's a goldfish bowl," he says, and he keeps a check on his public partying. He used to play keyboard and sing in a local rock band. Now he just sits in form time to time, worrying that the image of a rock musician is not one the chairman of a public company should cultivate.

Michael Wayne is just a little touchy about the Mercedes-Benz he drives in Lapeer, Mich., deep in the heart of General Motors country. "It's really the cheapest car to drive," he says before being asked; explaining such matters as resale value.

Lapeer, 30 minutes east of Flint, lacks Houston's tolerance for ostentatious displays of newly acquired wealth, but even if it didn't, Wayne would feel awkward spending lavishly. We ate dinner at Korby's Family Restaurant, where the liver and onion plate comes with soup, bread bar, salad bar, and dessert bar, all for $3.99. After Durakon went public, Wayne bought a new house, but he is sensitive about revealing what he paid. "Mike's a sudden success," says Gary Ferguson, who was Wayne's boss at IBM and now works for his former salesman. "I don't think he's comfortable with it yet.It's too new."

It has been a long time since Wayne personally had to trim the plastic truck-bed liners Durakon manufactures, and he retains no nostalgia for selling. "I think how difficult it would be for me to have to go back and do the things I used to do," he says. Wayne is a different person now; he has grown. "When I left IBM, if somebody had asked me if I could be chairman of the board of a company and responsible for directing audited financial reports . . . and developing corporate objectives, I'd have said, 'No, there's no way I could do that.' If there had been an ad in The Wall Street Journal, there's no way I could have applied for the job. . . . But being in the job, I was forced to learn all that stuff as I went along. . . . My job is easier now than when I first started the company because then I was doing everything."

Lorraine Mecca, who like the other CEOs has plenty of money, finds that the costs of doing her job are not trivial. "If you want to be a success in business, then you have to give up something, and it might be either your home life, your children, your social life, or your emotional life. There's not time for everything. You can be mediocre at everything, but if you're going to be really good at any of those choices, you have to give up some of the others. Me, I have a housekeeper who spends more time with my children than I do. If I were not married, there's no way I would ever meet and develop a relationship with a man. I have very little time for my spiritual life. I don't have a civic life. And I do very little with friendships -- anything that doesn't have to do with business. I don't have time to cultivate relationships that aren't profitable."

But the rewards, aside from money?

"My world," Mecca says, "is much larger [than what] my life might contain. If Micro D did not need me tomorrow, I could do or be anything I want, because now I'm only limited by my own imagination. . . . I made a New Year's resolution to get to know some people who don't know anything about computers."

Last updated: May 1, 1985




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