Graduation Day

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One Saturday last May, Smith and Maxima's top managers gathered in the company's sixth-floor conference room to begin what would be a long weekend of planning. They developed a document that was very revealing of the company's problems.

The plan determined that Maxima would "position itself to be a nationally known, publicly owned provider of information products and services by 1988." Maxima had no specific niche, such as management of electronic records, in mind; instead, its target was an enormous market, hundreds of billions of dollars wide, already populated by such players as IBM, TRW, and Computer Sciences. Under Smith's plan, Maxima would offer everything from data collection, analysis, and retrieval to hardware, software, and the integration of both in a system.

The planners conceded, though, that the company still had to "develop an effective marketing capability." But until recently, there were no senior marketing people among the firm's top executives. The company has just recently developed a resume file, a file of contract proposal prototypes, and a system of tracking federal work needs in its field. And Maxima, the information-service company, didn't even develop its first computer-graphics presentation until August 1986.

The new plan also called on managers to develop competitive rates. Until this year, according to deputy chief operating officer Mark Morein, the company would charge the same rate to manage a building as it would to help design a computer system. Finally, managers were exhorted to "identify the unique characteristics or strengths of Maxima" so as to develop a program "to differentiate [the company] in the marketplace."

By the time the planning meeting was held, Maxima had already formed an acquisition strategy that raised questions about what product it was selling. The first purchase, Maxima Quality Services Inc., manufactures word-processor and computer printer ribbons and distributes computer supplies. Up to that point, Maxima had never been either a manufacturer or a distributor. The second acquisition, Maintain Inc., based in Baltimore, does what its name suggests: fixes computers. Maxima had never before been in that business, either. Both companies had sales of less than $500,000, and both were unprofitable.

The third purchase was Swift Mailing Services Inc., a direct-mail operation with sales of about $1.3 million. Its client list and huge assembly-line space at $3.25 a square foot appealed to Smith, who hoped to capture a large portion of the area's mailing and fulfillment business.

On July 1 of last year, Maxima bought two companies. One was Business World, an Entre Computer Centers Inc. franchise in Springfield, Va., with sales of about $2.5 million. The other was Technassociates Inc., in Rockville, Md., another graduating 8(a) company with some $10 million in government contracts in the scientific and health information-management fields. Smith says he was attracted by the quality of the company's technical management and its contracts in agencies -- such as the National Institutes of Health -- that Maxima hadn't penetrated. Finally, on August 1, Maxima snatched up the assets of a company that owned two more Entre Computer stores.

Maxima had purchased six companies in little more than a year. "We've acquired about a $20-million revenue base for about $2.5 million," said Paul Jones, the company's former chief financial officer. "If it works, we are bright businessmen. That's a good deal."

If it works. As fiscal 1986 came to a close, Maxima's revenues were at $36.3 million, $4 million below projections. Net profits were $146,000. Auditors were several months late in closing the books because of problems with Maxima Business Systems, a company created from the August purchase. "The situation was not as it was presented," says Smith of the liabilities Maxima had inherited with assets. Of its commercial acquisitions, only Maintain turned a profit.

Smith won't say how much capital Maxima has poured into its acquisitions. What may be more critical than the capital, though, is the management expertise needed not only to run a group of unfamiliar businesses, but to turn them around as well. Already, management is spread thin in the home operation. Though Smith said last summer that the members of his top team, the fourth in eight years, were "the people I'll take to the dance," the dance ended abruptly when Paul Jones, who was responsible for the acquisitions, resigned in February. There are other critical gaps. At one management meeting, for example, the opening of a new California office was postponed until a key manager could be moved there seven months later.

All the pressure has taken its toll. After months of 100-hour weeks, Smith last fall felt a twinge in his chest and was rushed to the hospital. His doctors ordered him to take a month off. He lost 15 pounds.

As he lay in the hospital, Smith must have been thinking about the big difference that nine months could make. On New Year's Day, he had been the federal government contractor of the year. Now he found it hard to even get in the government doors that had been held open when Maximum was in the 8(a) program; larger companies were blocking the way.

"I can give you all the Josh Smith optimism in the world, but the fact is, Maxima is largely an unknown," he says. "This company cannot afford to make new mistakes as it grows. We are entering the arena of the giants, and we had better be ready, because they eat people."

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