Big-company refugees are taking over some unlikely small companies, often with spectacular results. What do they know about management that the rest of us don't?
Until Barry Merkin took over, with his Harvard M.B.A. and some 15 years of big-business management experience, Dresher Inc. was a small, profitable, and fast-growing maker of brass beds run by its founder, Max Dresher.
Max had started the company in 1945 and had run it himself since then. At one time or another, he had done every job; when a problem developed, Max was on top of it. By 1979, though, Max was in his sixties, and the time had come to sell his Illinois-based company. The buyer was Standex International Corp., a $300-million manufacturing conglomerate headquartered in far-off New Hampshire.
For a few months, Max and his son stayed on to run the company. But such arrangements seldom work well, and this one was no exception. In May 1980, Standex decided it should bring in its own man, Merkin, recruited from Xerox Corp., to take charge of Dresher. Max waited in his office, chatted amiably with Merkin for a couple of hours, shook Merkin's hand, left, and never set foot in the place again. Only three years later, Standex itself decided to follow Max out the door. It shucked Dresher by taking the company public and spinning off Dresher shares to existing Standex shareholders.
Another small business ravaged and wrecked by inept and shortsighted corporate management?
Not this time. In fact, just the opposite is true. Dresher is stronger than it has ever been, and while lots of things have changed since Merkin moved into the corner office, no one at the company is complaining:
* Burt Stewart, plant manager at Dresher's main facility, in Bedford Park, Ill., attended an industrial trade show in Chicago recently and saw what he thought was a good deal on an Italian metal-bending machine he'd been wanting. He phoned his boss, manufacturing vice-president Jim Nolan. If that's the machine you want, Nolan told him, buy it. Stewart committed the company to a $35,000 purchase on the spot. "With a Max Dresher here," he says, "I would have needed an act of Congress. Now, they trust me that much. . . . Deep inside, I feel like this is my company."
* "Things," says 30-year-old Mike Przybocki, foreman in the polishing department, "have gotten a lot more professional. . . . Before, it was always run as fast as you can. Now, things are done with some thought. When we come out with a new style, we have time to work out the engineering production."
* "Now we know our responsibilities," says Nancy Kosowesky, a secretary to Dresher's executives, "and we don't have anyone breathing down our necks."
* "When I came," recalls data processing manager Fred Burmeister, "this was a job. Now it's fun. I couldn't see myself leaving, even if someone else offered me more money."
And shareholders certainly aren't complaining. In 1980, the year after its acquisition by Standex and 35 years after Max Dresher founded the company, Dresher's sales were $18.2 million. Last year, the company's sixth year without its founder, sales rose 14% from the previous year to $31.4 million. Earnings last year were $1.9 million. A share of stock issued when the company went public in 1983 is now worth 15 times as much.
With a new man at the top, Dresher has become a different company. By and large, it is in the same business, shipping the same products to the same markets with the same managers, foremen, and workers. It has, however, undergone radical changes as a place to work, and in that sense is typical of a growing number of companies that recently have been taken over by an unusual group of managers. These managers are a relatively new phenomenon in the business world, too new even to have a name, but they are running more and more small companies. Among them:
* Remington Products Inc., which was the small and failing electric shaver division of Sperry Corp., until Victor Kiam bought it and turned it around.
* North American Tool & Die Inc., a back-street shop employing ordinary machinists and die makers who today produce extraordinary sales and profits under new owner Tom Melohn's unconventional direction.
* CWT Specialty Stores Inc., a New England fashion chain, whose formerly frustrated merchandise buyers now are having the times of their professional lives while CWT, under Jerry Gura, outpaces its regional competitors.
What makes these managers part of an identifiable group is not the kind of takeover tactics they used to gain management control of their companies. None of them is interested in asset plays, the kind of stock-and-debt shenanigans that keep paper entrepreneurs like Irwin Jacobs and the gang at Kohlberg Kravis Roberts & Co. constantly in the newspapers. Melohn and a partner bought North American Tool & Die outright.Gura and Kiam used leveraged buyouts to acquire their companies. Merkin doesn't own Dresher, which is publicly traded, but, through stock options, he has acquired a large equity position in the company.
Nor are all of these people technical geniuses in their respective fields. Gura may know women's fashion as well as anyone else at CWT, but Melohn at North American Tool & Die brags that he lacks the technical skills required to change his own license plates.
Instead, what makes them a group -- and an interesting group to watch -- is where they come from and what they bring with them to the small businesses they are running now. "Years ago," says Bob Hayes of Hayes/Hill Inc., a Chicago-based management consulting firm, "big-company guys didn't go into small companies." But these big-company guys -- Kiam, Gura, Melohn, Merkin, and it's hard to say just how many others -- have abandoned corporate careers after 10, 20, or more years of experience to run companies that frequently are smaller even than the smallest division of the corporations they left.
Melohn left C&H Sugar Inc. after losing a fight for the top job (see box, "Tricks of the Trade," page 102). Cal Hunter, who now runs Headquarters Cos. Network Systems, a business that supplies temporary office accommodations to other businesses, left the heavy-machinery industry after 25 years because, he says, "I kept getting involved with businesses that were being eroded by the Japanese." Merkin bailed out because, as he told Standex chairman Dan Hogan, "working for a big company like Xerox isn't the fun I thought it would be." Whatever a manager's reasons, says management consultant Peter Drucker, the ranks of refugees like these will swell in the future as baby-boomers start to clog the upper reaches of corporate pipelines. Or, as Hunter at Headquarters Cos. puts it, "The Yuppie glut in no-growth Fortune 500 companies will cause people to bump heads against the organization and not grow at the rate they expect."
So some of them leave, and some of those find smaller companies to run, and some of those -- like Melohn, Kiam, Gura, and Merkin -- turn out to be extraordinarily, and even unexpectedly, successful at it.
How do they do it?
Conventional wisdom has it that people accustomed to big budgets, lots of staff assistants, and the comfortable anonymity of a corporate office probably won't thrive in small businesses, in which they enjoy none of the above. Maybe the conventional wisdom is correct in most cases. But it is also true that many accomplished entrepreneurs, people who have started and built a business or two from scratch, can't (or don't want to) make the transition to manager when their companies grow beyond the point where a founder can stay on top of everything. Someone has to step in an run them.
One thing that makes men like Merkin et al. unusual -- and instructive -- is how good they are at straddling that gap. Neither start-up artists nor megacompany managers, they might be called second-stage entrepreneurs, or maybe first-stage executives -- anyway, people with a talent for taking a company through a turnaround or through the difficult transition from small to midsize. Their styles are different, reflecting their personalities, but as a group they seem to combine the acquired skills of the experienced manager with the entrepreneur's bias toward action and independence. When they put this combination to work in a small company, they create an environment that is unusual and exciting. Dresher is a good example of what can happen.
Merkin, 50, has started only one company in his career, a birthday cake delivery service that financed his room and board at Brown University, where he majored in American civilization as a schorarship student in the '50s. From Brown he talked his way straight into Harvard Business School; then, degree in hand, he went to Lestoil Products Inc. and learned to test-market consumer goods. (Neither of his two projects -- a spray starch and a mild laundry bleach in a bag that dissolved in the wash water -- tested well enough to roll out nationally.) A year after Merkin got there, Standex bought Lestoil. Later, as assistant to Standex president Dan Hogan, Merkin learned to analyze acquisition candidates. He also began running things for Standex: a paper-bag company in Puerto Rico, a pump maker in Michigan. Then he and some partners bought, ran, and eventually sold a small publishing company, a prelude to his vice-presidency at Xerox, where he headed that company's bookpublishing division. In 1980, at the age of 45, he called Hogan to ask, as Hogan recalls, "Got anything there for a bright young man like me?"
What Hogan had was Dresher Inc. Profitable, with a healthy balance sheet, Dresher should have occupied the catbird seat in its industry, an industry that Max Dresher had virtually created. The first bed maker to respond to the public's renewed interest in the venerable look of brass, he began converting his upholstered-headboard business during the late 1960s. The sales and profits this new line generated attracted competitors, but Dresher stayed out in front as the style and sales leader in the popular price range. After the acquisition by Standex, demand for Dresher beds just kept on growing. "But," says Hogan, "we were in big trouble."
The day Merkin arrived and shook hands with Max, Dresher's factory was shut down. It had been shut down for several weeks while engineers tried to solve a problem with the epoxy coating that was supposed to keep the finished product from tarnishing. The coating was peeling, exposing the bare brass.
That was just one problem. There were others. Even before the shutdown, orders had been backed up for months. Major customers like Sears Roebuck and J. C. Penney couldn't get the goods they wanted. Beds were being shipped with the wrong parts installed; that was because there were thousands of different headboard and footboard components in inventory, many of them differing only slightly, and they all had to be tracked manually. As shipment dates slipped, salespeople did what they had to do to keep customers mollified: they lied. Later, when the goods didn't arrive, they'd think up excuses.
Dresher was choking on its own success. There were plenty of people to get all the jobs done. The problem was that there was only one man to tell all those people what to do and when and how to do it. Merkin came in and, among others things, got out of his people's way. "Max," says executive vice-president Joe Geiger, "knew everything about brass beds. Barry knew nothing. Max was a taskmaster. Barry was a leader."
Merkin says the one thing Harvard Business School taught him was how to think, how to cut through the fog of detail and get to the essence of an issue. So when he is asked to tick off the important decisions that he has made at Dresher, he has to consider the question, and the list he finally makes is very short, with just three items. It does not include anything like solving the coating problem, re-engineering the product line, developing new headboard styles, or buying a new minicomputer.
One of the first big decisions was to hire a new vice-president of operations, Jim Nolan, who could get Dresher's engineering and manufacturing problems under control. (Other than Nolan, Dresher's upper and middle managers were already at the company when Merkin moved in.)
Another big decision was to put product development on hold until the plant was squared away and Dresher's credibility in the market was restored.
The third was to promote Joe Geiger from vice-president of finance to executive vice-president.
That's it. Those are the only major decisions Merkin says he has made in five and a half years. Most of the decisions that are made around Dresher every day are made by other people, because Merkin understands the fine, but critical, distinction between doing something and getting something done. Talk to people at Dresher -- to executive vice-president Geiger, to the company's independent sales reps, to supervisors, to people on the production floor -- and they'll tell you they do their own jobs. They get help when they need it, but nobody interferes, and everybody is accountable. When quality-control inspectors were eliminated, finished product quality went up because each worker inspects every piece he or she gets from up the line, and doesn't accept it unless it's perfect. "Why should I?" says one, surprised even at the question.
Behind the short list of decisions, however, is a series of almost invisible functions that Merkin seems to perform instinctively. The role of catalyst, for example.
"I really like having him at meetings," says Geiger. "You don't know what he's thinking or where he wants us to go, but he gets us to a decision through his probing and questioning. In the end, you don't know if that's where he had already decided he wanted to go, or whether we got there ourselves. . . . He's the last person to say what he thinks, but he drains us."
"One of Barry's strengths," adds manufacturing vice-president Jim Nolan, "is his ability to debate you until you're totally comfortable with your decision. He's an expert at listening. He makes you stop and address your own thinking. Then, when a decision is made, Barry is always a party to it, whether he agreed initially or not."
Merkin has managed to institutionalize his talent for listening.
Dresher invested close to $100,000 and enlisted the commitment of virtually everyone at the company for a computerized materials-management and production-control system known as MRP II. Installing a system was key to putting Dresher's manufacturing operations in long-term order, but the idea didn't come from Merkin. It started, as near as anyone can tell, with Larry Swanson, the materials manager, who talked to Fred Burmeister, the data processing manager. It trickled up to Nolan, who insisted that Dick Yargus, vice-president of sales, and Jim Schreiber, vice-president of marketing, get involved. Then Geiger and finally Merkin came in. When everyone was on board, it was Swanson who got to head the MRP task force that included Burmeister and people from every department.
There are two points to note here. The first is that Dresher's upper management got involved in the MRP discussion and co-signed on the decision without usurping the proprietary feelings of the people whose idea it was. "Nothing was forced on middle managers," says Nolan. "It started with them, so you can be sure they are going to make it work."
The second point is that everybody who was going to be affected by the system got to participate in its design and implementation. "Under Max," says Burmeister, "it was every department for itself. Now, there's teamwork." Shipping clerk Carrie Roche recalls that when it was first installed, the system always sent people to the top tier in the farthest corner to get whatever they wanted. They didn't like it."So we got it changed. Now," she says, "the system doesn't tell us where to get what we want; we tell it where we got it. We don't have to adapt to the system. It has to adapt to us. If I have a problem, I go to my supervisor and he goes to the MRP task force."
But not everything happens by task force at Dresher; when necessary, the company can move surprisingly quickly, thanks to Merkin's confidence in delegating. After the newproduct moratorium, for example, Dresher introduced a line of painted metal beds, and Nolan needed a plant to do the casting. "I found a small one for sale in Rockford [Ill.]," he says. "I wanted to buy the guy out. Barry said fine, do your own deal. I got the price, made the deal, went to the closing, and we bought it. Barry didn't see it for three months." When that plant soon turned out to be too small for the unexpectedly large volume, Nolan himself delegated the search for a new, larger plant to Joe Halper, who now manages the 94,000-square-foot facility he found in Bradley, near Kankakee, Ill.
"There's a good spirit of cooperation here," says Halper. "They tell you what they want, and how you do it is up to you. I run this plant like I would if I owned it." Running it as if he owns it means Halper usually exceeds his production targets, but it also means closing the plant if there's a problem. "I try to touch base with Jim [Nolan], but I'll do it on my own," Halper says. So will supervisors at the plant when they can't reach Halper. "I'll back the guy up," he says.
"Barry hires you to do a job," says Nolan, "and leaves you alone to do it. I have never been second-guessed on a decision. He understands what his expertise and his limitations are. He comfortably delegates to the nth degree and then stands back. . . . Of course," Nolan adds, "he is always there when you need him."
As when Bob Kushen, an independent sales rep who shows the Dresher line in Chicago, needed him. "I had been talking with Marshall Field for years," Kushen says, "about creating a gallery of Dresher products. I told Barry. He understood that it was important, and he asked me what we needed to get it done. I said, involvement at your level. Fine, he said, set it up. I arranged a meeting with the vice-president/general merchandise manager and the vice-president of store design. Less than eight weeks later, the gallery was a reality. Barry has the willingness and ability to find out what is needed to accomplish the goals, even if somebody else is setting them."
Merkin is also a conscience.
When he first arrived at Dresher, he set people to work clearing up the company's internal problems while he tackled the external credibility issue. Nobody will lie to a customer again, Merkin decreed. Don't tell them what they want to hear; tell them the truth. Merkin visited every major account to assure them things were going to get better. Then a big customer, a familiar retail name, called and wanted 10 beds shipped within 2 weeks. To do so would have thrown other orders off. "We can't do it," Merkin told the man, "but we can deliver in 10 weeks." "You're new to the furniture business, and you don't understand," the man told Merkin. "We want it in 2 weeks." "I'm sorry," Merkin told him. Dresher lost the account for five years.
"The best thing I can do for people," says Merkin "is to be a role model. . . . If I had caved in to the customer, it would have said to everybody in the organization that credibility counts for nothing."
Merkin does much of what makes him effective without appearing to think about it. At an out-of-town sales meeting, he'll call Jim Nolan's wife at home and say something like, "Your husband is really terrific, you know." He leaves little handwritten notes on people's desks -- the vice-president of sales's, say, or the shipping clerk's -- thanking them for something especially well done. Merkin jokes often, usually making fun of himself. "My respect for Joe Geiger is awesome," he said in a speech to the company one night, "and Joe has the highest respect for me. I know that because every day since I arrived at Dresher I've asked Joe if he has the highest respect for me, and he always says yes."
But Merkin's management moves only look natural because he thinks about them, analyzes them, practices and polishes them. Every year he chairs a one-week seminar on management at Harvard University for members of the Young Presidents Organization. He reads management books. "Ken Blanchard [author of The One Minute Manager] has a phrase," he says, "which is something like, 'Sneak up and find people doing something right.' People like to feel good about themselves. . . . Tom Peters's first book [In Search of Excellence] was incredible. It listed those eight things that define excellence. I read it several times. Then his second book came out and says, 'Sorry about the first book. There's only one thing you've got to know: take care of the customer.' Peters codified lots of things that I've been thinking about."
Management skills honed over 25 years don't preclude errors, of course, and Merkin committed a serious one in the process of appointing a second in command. He was never a detail man: "The average small company needs more attention to detail than a guy like Barry is comfortable providing," says Bob Hayes, who has had a consulting relationship with the company. But Merkin had the sense to know that about himself and, even if he hadn't, his vice-presidents -- Nolan, Schreiber, Yargus, and Geiger -- let him know that his frequent absences were causing a problem. Little things that needed his OK, decisions involving trade-offs among departments and so on, were piling up. The corner office was becoming a bottleneck.
So Merkin made an announcement: Joe Geiger, the youngest member of the executive committee, would become executive vice-president -- in effect, chief operating officer of the company. The response, Merkin recalls, was the loudest silence he has ever heard. He had seriously miscalculated or ignored the sensitivities of Geiger's peers, some of whom felt themselves to be more qualified or deserving. The choice of Geiger, everyone agrees today, a couple of years later, was the right one. But Merkin's gaffe in not finding a way to bring everyone affected into the decision before it was announced threatened to derail the company's progress for a brief but critical period of time.
Wall Street loves what Merkin has done with Dresher. The company has just introduced a new line of wooden daybeds in response to market demand. It is strong financially, and is holding onto its share of a growing market. Geiger is a strong internal manager, and Merkin can concentrate his efforts on customer and investor relations. There is energy, but no longer urgency, in the air.
"Dan Hogan told me the company was good," reflects Merkin, "but he said it could be great if I just came in and did my thing. It sounds corny, but to me the business of business is business. I really loved Lestoil, trying to make liquid detergents a successful business. I really loved making paper bags in Puerto Rico. I really loved making pumps in Detroit. For sure I loved publishing. And for sure I love brass beds. My job stays the same: to evaluate what's going on and why, figure out how to make it better, and get the people to do it.
"I'm not at all sure that my thing would work for other people. Other guys with entirely different styles do remarkably well. But my style has stayed the same from company to company. I make a positive assumption that everyone around is competent, honest, and eager to work to his capacity. People do tend to live up to your expectations of them.
"Max Dresher personified the entrepreneur. He had the dream, the tenacity. [But] he was too successful. The company grew too rapidly, and it got to the point that it needed more of everything institutional -- less of the entrepreneurial skills and more of the management skills."
That's what this corporate dropout -- Merkin -- has been able to do for Dresher. But what happens if Dresher keeps on growing? "We'll be approaching $40 million [in sales] this year, from $18 million just a couple of years ago," says Geiger. "We're constantly wrestling with setting up the paper controls of the big company versus just walking next door to talk; with saying you're not authorized to spend more than X dollars without a signature versus saying I'll trust you to do what you think is best. Nobody is pushing for paper controls, you just feel like you ought to be thinking about them. Barry doesn't want to take the fun out of working."
But he has no secret formula for keeping the fun in. "I'd like to take this quick-response vehicle," Merkin says, "and grow it without losing the qualities that make it quick. How? That's one of the unsolved mysteries left in the world. How do you retain the essence of what made you big once you are big?"
That's a question these high-energy corporate refugees -- Melohn, Gura, Kiam, Merkin, and their like -- will sooner or later confront. They have to keep their companies from becoming like the places they left. If Merkin can't answer it, he, like Max before him, may have to move along.