Meet a dentist who thought running a business on the side would be a lark
All he'd have to do, Bill Costello thought, was come up with some product, hire a sales force, buy a computer, and the business would run itself. Well, the business ran itself all right -- into the ground. At one point this dental-supply company was so directionless its sales force was trying to sell blowtorches to body shops. Considering the number of professionals starting companies these days, Costello's dilemma -- and how he responded -- is a story worth checking out. -- B.G.P.
For Bill Costello, it was easy. He had a product. He had a way to sell it. And he could still spend most of his time at his busy dental practice. In five years, he had created a $700,000 business that required him to do very little other than appear at the office a few times a week to check on orders or meet with his staff.
Like lots of people who start part-time businesses, Costello didn't think there was much difference between having a business and building a company. But the more products he brought on, the trickier it became. The more employees he had, the harder it was to know what was going on. Finally a series of jolts, some pain, and a fair amount of embarrassment began to cut through Costello's indifference to the management of his company. What ultimately saved the business was his fear of losing it.
Costello, who had grown up in western Michigan, started his dental practice in Lansing in 1970. Over the years, he noticed that patient after patient came back to him with dental bridges that required adjustments. He designed a new product to achieve a more accurate fitting, found a nearby supplier to make it, and in 1978 began selling to dentists through ads in dental journals and direct mail. At first, Costello and his wife, Betsy, addressed labels and packed boxes on the kitchen table in their spare time. But by 1983 there was no question that they had found an attractive market niche. Accu Bite Dental Inc. had become a six-person operation, a thriving little business on the side.
Still, the potential for continued growth wasn't so bright. For one thing, a competitor had recently come out with a similar product. Response to direct mail appeared to have peaked. The logical next step, Costello decided, was to begin pushing his proprietary product over the telephone. Eventually he could offer other products through the same telemarketers. Granted, it meant changing the way the business was organized -- hiring and training people, installing computers, and so on -- but those things would work themselves out.
The early telemarketing results were even better than expected -- within six months, sales were up by nearly 100%. The office, which for a time was one flight down from his dental office, was running at a hectic pace. New phones, new computers, new faces. Costello was a little overwhelmed but figured it was the price you paid for trying to accomplish a lot of things at once.
"We didn't do a tremendous amount of analysis," he says, an understatement if ever there was one. If Accu Bite had a strategy, its name was trial and error. The way the employees tell it, the place didn't even feel like a business -- it was more like a fraternity house. While Costello tended to his dental practice, the man in charge day to day was an aspiring rock musician who had been there for just a year. Most of the 30 telemarketers were still in school or recent graduates of nearby Michigan State, and nobody saw it as a place to build a career. To them this was beer money, pure and simple.
The one area in which Costello did make an investment was in the operations end of the business. He had gone out and bought an IBM minicomputer for nearly $100,000, with the idea of tracking all sorts of information, everything from customer lists to inventory.
But nobody could figure out how to get the computer to do what it was supposed to do. The managers, inexperienced as they were, didn't have any idea of the kinds of reports that would be most useful; they were barely keeping up as it was. And those in charge of data processing were equally in the dark. "We assumed we were making money," Betsy recalls, "but we didn't really know what our break-even was." And, frankly, with all the activity -- the orders, the hiring -- who cared? Not Costello. As he saw it, Accu Bite had a growing customer base, increased sales, and a spiffy new computer -- gathering a little dust, maybe, but at least it was in place.
Costello was still intent on using Accu Bite's salespeople to sell items for other manufacturers. Unfortunately, though, the big dental-products companies already had all the distributors they wanted -- which led Costello to a, well, more freewheeling approach. When Kodak wouldn't let him have X-ray film to sell, he agreed to take regular film and video cameras, which his telemarketers tried to peddle to dentists. And there was the special plastic screen they tried to talk dentists into buying to protect themselves against herpes. "We seemed to be grabbing at straws," one employee recalls. That wasn't the half of it -- Costello had his telemarketers selling a new line of blowtorches to auto body shops; later, it was a fiberglass-treatment product to boat builders.
Finally, Costello got what looked like a lucky break. In the summer of 1984 he signed a deal with a dental-supply company for an instrument that removed dental crowns. He had used the device, and he was sure his salespeople could sell it to other dentists. He was so confident, in fact, that after a brief market test, he and his operations manager plunged right in. And in anticipation of a shipment of about 2,700 units, they hired more telemarketers.
The crown remover, which they offered with an unconditional money-back guarantee, was an instant success. The most aggressive salespeople began racking up sizable commissions, and within four or five weeks, most of the units were gone. But alas, they soon started coming back. Customers had been oversold: some changed their minds, some hadn't wanted the product in the first place. By the end of October, nearly half the units were back in the warehouse.
With the surging demand for refunds -- $125,000 in all -- the company was hurting. Accu Bite had become a $1.3-million business without any cash. The Costellos managed to get a $30,000 loan from a local bank and negotiated extended payment terms with the vendor. By now, though, the fraternity house atmosphere had begun to sour. Some employees resented having to return the commission money they'd received before the crown removers had begun their return trips. They joked about Costello and the rampant ineptitude of the place. Rumors started circulating about the money the Costellos were taking out of the business, about their Mercedes and Olds 88. Betsy was annoyed: "Some of those people were out to hurt us," she says. But her husband tuned the talk out and set his sights on finding a strong new product.
A few weeks after the crown-remover episode died down, Costello, still undaunted, came up with a well-known line of diamond and carbide drilling bits for the dental market. Unlike a lot of the items he'd been selling, dentists needed drilling bits, and they needed to replace them regularly. He was determined to avoid the mistakes of the past -- the bloated inventory, the lack of focus. And, for the first time, he wanted people to feel vested in what happened. So he worked out a deal with four managers. If they sold $350,000 of drilling bits over a few months, he'd give them a special bonus -- up to $4,000 each.
They felt vested all right. In March 1985 Costello got a report showing they'd reached the $350,000 target. But Betsy questioned it. It was her job to examine bank statements, and she hadn't put her fingers on anything close to that amount. After spending several nights searching through invoices, she found that the number of orders reported were two to three times higher than what was being shipped. The payments were lower still. Accusations started flying back and forth -- even Costello couldn't ignore the fuss this time. Was the bonus incentive for orders or for payments? Nobody was really sure. Yet the message was clear: at least two managers had tried to slip one over on their boss. And they had come close to succeeding. For a guy who was hoping to turn things around, it was another slap in the face.
