But it was Shorter's decision to jump into the wide-open marketplace for running apparel that inspired his old rival to consider doing the same. In 1976, he launched Frank Shorter Running Gear. To manage it, Shorter turned to Yale classmate and former miler Rob Yahn, a Harvard M.B.A. who'd worked in the small-business division of a large public accounting firm.
"We were the market when we opened," says Yahn. "I'd projected first-year sales of $250,000 or something, and in our first three months we booked $3.5 million in orders. It was crazy." And short-lived. Within months, there was a falling out. Yahn left and "started looking around for something else to do."
Rodgers had met Yahn at a trade show, where he was ordering Shorter's shorts for his Boston store. When Yahn later heard of Rodgers's interest in doing his own clothing line, he offered his services. Rodgers accepted. He valued Yahn's experience, and did not mind in the least that Yahn had recently defected from Frank's ranks.
And so, in 1978, Bill Rodgers & Co. was launched and began producing BR running gear. Under guidelines laid down by the amateur athletic establishment, Rodgers himself was required to hold a majority share in the enterprise. Accordingly, he and his wife kept 60% of the stock. The rest was spread among a handful of others, including Yahn, Charlie Rodgers, and Russell McCarter, Bill's personal accountant and business manager for the Bill Rodgers Running Center stores. With the exception of Yahn and McCarter, none of them knew a balance sheet from a balance beam, but that hardly seemed much of a handicap. They put up $60,000 in capital and retained a New York City-based factor to handle inventory and receivables financing. Suppliers were numerous, and the market primed to explode. When it did, so did Bill Rodgers & Co.
In 1981, Rodgers won more than 20 races, establishing himself as the premier distance-runner on the planet. That same year, BRC did $3 million in sales and established itself as the hottest company in the running-clothes industry. Seizing the opportunity, it grew at a breakneck pace, pushing revenues to $6.5 million at the end of fiscal '83, $8.4 million a year later. That growth rate would eventually land the company at #29 on the 1984 INC. 500, the highest-ranked apparel business on the list. In the meantime, however, growth was putting a strain on BRC's finances. Though the company was profitable, it was not generating nearly enough cash to keep up with production demands. So Yahn had begun looking for outside capital, approaching several Boston-area banks, none of which was eager to back a narrow-niche clothing company with few fixed assets.
But one banker was receptive -- Ann Hartman, then as assistant vice-president at the Bank of Boston. Hartman, who had worked on the Running Centers' accounts, liked Yahn personally and thought highly of his business plan. Two capital needs were identified: a term loan of $350,000 to finance office improvements and new equipment; and a $200,000 line of credit to cover the more seasonal requirements of fabric ordering, finished-goods production, and marketing and selling costs.
It was not an easy sell. "The first time I pitched the loan to my department," Hartman recalls, "they turned it down." But on the second pass, in September 1980, she was able to push the package through by cementing it with a Small Business Administration guarantee. In addition, she secured a lien on inventory. "That was a concession on the company's part, true," she admits. "But when you're in a no-asset, fast-growth situation like Bill Rodgers & Co., it's hard to get credit unless the lender feels secure." For that same reason, Rodgers and Yahn also had to sign "unlimited" personal guarantees. At the time, this seemed a minor detail. Given the amount of the loan and the market value of company inventory, where was the risk?
THE FIRST SUITOR TO APPROACH BRC WAS CML Group Inc., an Acton, Mass.-based holding company with a variety of retail businesses catering to the aging baby-boom market. It made its offer in the fall of 1982. Looing back, the shareholders wish they had grabbed it, for it had long been their plan to grow the company to a respectable size and cash out via the acquisition route. But by then, there were a lot of oars in the water, and not all of them were pulling smartly in the same direction. For one thing, Bill and Ellen Rodgers had had a less-than-friendly divorce. Ellen controlled 30% of the stock, with a seat on the board. When the issue of selling the company arose, she had her own interests to assert, and assert them she did.
"CML was basically offering a five-year earnout with some cash up front," says Yahn, "but [Ellen's] attorneys were having problems with the concept. Bill's agent, meanwhile, was warning Bill about selling an outsider the rights to his name. So we started renegotiating his licensing deal, and that took a year. By the time we got [the licensing contract] resolved, CML was gone."
Yahn himself was in what Rodgers now characterizes as "an embattled position," pinned in the crossfire between the agent, Mearns; Ellen Rodgers; and Russell McCarter, who worried about growth pressures and Yahn's ability to manage them. "Rob refused to be concerned with problems," says McCarter. "He was off doing his own thing, not really accountable to anyone. I could never get answers from him. I'd worked in a lot of troubled businesses, and even though we were profitable those first few years, I knew we could have been twice as profitable. Rob just wash't keeping receivables or expenses under control, turning inventory fast enough, doing all the things the business really needed."
