Fatal Attraction
Profile of a CEO, the expansion of his business, and the effect a futile acquisition had on his operation.
In building his fast-growing business, Norman Brodsky made only one mistake. Unfortunately, it was the one mistake he couldn't afford
You do it once -- "it" referring to the creation of a breathtakingly successful business -- and become convinced you can do it again. Such was his state of mind when Norman Brodsky made his one, and only, mistake: an ill-advised acquisition. While many readers will find much to admire in Brodsky's attempts to recover from his blunder, still others will choose to reflect on the hubris of a man convinced he could take an operation -- any operation -- and bend it to his will. -- R.A.M .
A guy goes to the track, puts down $2 on the first race, and wins. He bets the pile on the second and wins again. He risks that on the third, and so on. Eventually he's ahead $800,000, and -- what the hell -- lets everything ride on the last race. The horse finishes out of the money. When the man gets home, his wife asks how he fared. "I lost $2," he confides.
New York City businessman Norman A. Brodsky, a familiar figure on the Inc. how-to-run-a-small-company lecture circuit, tells this story when he shares pointers on creative financing, because it gives his listeners an insight into the illusive quality of fast growth. But the lecturer himself doesn't find the punch line all that funny: he's had it come and go just as starkly in real life.
Before it went, he had parlayed his paper fortune past $20 million; hardly one year later those same holdings had shriveled to less than $100,000. "I shouldn't have looked for as much growth as possible," the affable Brodsky is first to admit. "My aim when I started was to have the satisfaction of growing a company from scratch, but I lost sight of that somewhere along the line. I should have left well enough alone." That may seem an uncharacteristically humbling self-appraisal for those who know the man, but it's supported by the numbers: five banks, three leasing companies, two landlords, hundreds of stockholders, and more than 3,000 unpaid vendors undoubtedly would agree with him.
"If I had stayed with my company the way it was," he says regretfully, "it would be coining more money than I could possibly spend." Unfortunately, that prospect was as unthinkable to Norman Brodsky as having more shoes than she could possibly wear would be to Imelda Marcos. If his Seventh Avenue deals didn't match the eloquence of Wall Street's, certainly they were notable on their own brazen terms (indeed, were noted: see Inc., January 1987). By reverse-merging part of Perfect Courier Ltd., the modest delivery service he had started in 1979, into down-at-the-heels CitiPostal Inc., he simultaneously expanded his customer base, got rid of a competitor, and went public, all without spending a dime. So sure was Brodsky of forging a stronger-than-the-parts whole that among the terms of the intricate deal was a $6-million buyout provision of the remaining part of his Perfect Courier as soon as there was enough money in CitiPostal's till. "My lifetime security," is how he thought of it. As CEO of a public company, probably there were other uses for the money that would benefit all stockholders, but perhaps Brodsky reasoned that the sum was merited simply for his having had the chutzpah to bring the thing off.
After firing the overpaid and underworking CitiPostal crew and combining operations with his own lean bunch, the arrival of his nest egg appeared imminent. When the very first quarter showed a healthy gain, Brodsky whisked the ailing stock of CitiPostal from the Pink Sheets, where it had been languishing at $2 a share (adjusted for a subsequent one-for-four split), to high visibility in NASDAQ's active National Market, a listing for which its suddenly sound capital position made it eligible. On June 30, 1987, he closed out his first fiscal year at CitiPostal's helm with a $2.5-million pretax profit on sales of $10 million. The stock price rapidly quintupled, driving the company's market value past $40 million. About half belonged to our man in Manhattan, who in less than two years had engineered a well-endowed retirement.
Except that some hacker must have snuck in and virused the ending. On September 28, 1988, CitiPostal filed for Chapter 11 protection, barely 13 months after Brodsky had expanded yet farther by acquiring Sky Courier Network Inc., in Reston, Va. But the long arm of the court didn't reach quite far enough: back home on Long Island, even as CitiPostal shares were fetching a meager 1/16th of a dollar each, a creditor brandishing a personal guarantee grabbed every penny out of the family checking account.
So here Brodsky is at 46, short again of both capital and sleep, scrapping for sales against half a dozen other courier services in the streets of the city like he used to 10 years back. But adding insult to injury, now he has to operate according to a judge's dictate and under a committee's scrutiny -- reins that rankle the games-player in him. "I don't like having my destiny pinned to other people's decisions," the heretofore freewheeling Brodsky is given to complain.
CitiPostal's tournament-class swoon began early in 1987, when Brodsky first felt the itch to own another company. What else to do with $1.3 million in surplus capital, he rationalized to himself. To his board, he rationalized, "there are a number of mom-and-pop [courier] shops still around. Most of them are manual, but we are computerized. There would be significant economies of scale." Gathering yet more capital, he sold convertible debentures to a group of outside investors so eager to throw money into the revivified corporation that the initially intended flotation of $2.5 million had to be doubled to $5 million to do them the favor. "I was awash in money for the first time in my life," he reminisces fondly. And not only did he have all that in the bank, but beyond was untested borrowing power as well. The world of pickup and delivery was his oyster.
