For this mess, he had agreed to pay the prior owners nearly $3 million for noncompete agreements? Better to have let them compete and to go broke in a week.
To two airlines alone, the business owed more than $1.2 million, an obligation that had to be cleaned up lest overseas service be forced to shut down. It would have helped if that pile of receivables were easily collected, but a large amount was from foreign clients impossible to dun from mid-Manhattan. In one capital lease, the new company was on the hook for $15,000 a month for a sophisticated phone setup it didn't need. "That system could have run Boeing aircraft," Brodsky moaned, blaming the leasing outfit for slick-talking his inept predecessors. "How can you sell a company that in '85 didn't even have its financial statements up-to-date a piece of equipment that far exceeds its needs, then loan $750,000 against it? It blows my mind!" And his checkbook: there was $550,000 still to go. Brodsky asked the lessor to let him stretch out payments. "They'd be foolish not to go along," he calculated, "since they'd only get a dime on the dollar if they junked it as collateral."
None of this was covered in management texts. "Sky Courier was too different a business [from CitiPostal]," he admitted. "Where we were labor-intensive, they were vendor-intensive. It will be a snowy day in July before I expand into an unfamiliar field again," he swore to himself. No matter what steps he took to cut costs as you're supposed to, his kept coming out wrong. Going for broke, he wiped the old sales slate clean and hired an entirely new team -- and sales dropped. When he curtailed drivers' time-and-a-half plums, they sulked and slowed down. "Never cut anyone's salary," Brodsky decided. "Terminate them instead, because they're not the same employee." So he terminated them instead. But to keep the specialized operations running smoothly, he got rid of only two or three at a time. No go there, either. "An ax hung over the rest of their heads, and that didn't help."
In the midst of the struggle, fax machines came on strong, Brodsky complained. "That alone didn't kill us," he grants, "but it did drive a nail into the coffin." Another nail was pounded in by Brodsky himself. "When my company was smaller, I ran every single aspect; I listened to other people, but the ideas were mine and I enforced them. As you get bigger, you can't do that. I took over a company that was twice our size, and I was in trouble every day, so I let the healthy part of the business slide away. What happens is you don't pay attention to basic things."
Within 13 months he had gone through almost $10 million "like water." One day his fellow managers came in and insisted CitiPostal couldn't survive any longer: we're flat broke and can't make payments, they advised their leader. "Look, some things you have to pay to stay alive, but there are lots you don't have to," Brodsky snapped. "From now on, I'll approve sending out the money." Among those deemed skippable were the landlords of Sky Courier's Virginia facilities, who already had unrented space on their hands. "They're caught in a bind," Brodsky saw, "so they can't kick us out." Similarly, one leasing company had already taken the profit out of its loan and sold it to a bank. "If they have to turn around and pay back the bank," Brodsky figured, "they have a serious problem, so they have much less leverage with me."
However intricate, the tactics of delay get you only so far. "We were burdened with such tremendous debt that we couldn't get out from under it in time," Brodsky at last conceded. He had to find more capital. And, miracle of miracles, he found some in an investor willing to buy a $1.5-million promissory note as part of a deal for some stock options. The payment was to be made on October 19 -- wouldn't you know it, Meltdown Monday. When the market plunge worsened and the check had yet to arrive, Brodsky's attorney fretted that the buyer might have elected to wait. "Ask him to wire the money," Brodsky instructed. "That would be an insult," advised the lawyer. "Then insult him."
The sum arrived on schedule, but it didn't stem the falling tide. CitiPostal's theretofore reliable core business, which in large part catered to suddenly-out-of-work financial printers, now decayed. "Here we are, stretching out our payables and getting banks to loan us a bit of extra money, and along comes the Crash," Brodsky bemoaned his fortune. The sales slump caused a reduction of CitiPostal's lines of credit, and the capital crunch continued.
Well, things could be worse -- and sure enough, they were. One fall day Brodsky got home and his wife asked how he was faring. "What do you mean?" wondered Brodsky. "All these certified letters came," said Mrs. B., showing him a stack some three-dozen thick, "and each of them says you have 60 days to find a new bank." A lender with whom he had been factoring receivables for four years had launched the barrage to notify him that it was shutting down its asset-based lending division; Brodsky had two months to pay off the $2.7 million he owed. Every CitiPostal subsidiary was a recipient of the identical document, addressed to the missus as cosigner of the notes. "At least they could have called on the phone," he cursed, "and talked to me personally."
Eventually they extended that courtesy. The bank's workout department dogged him like a loan-shark enforcer: Mr. Brodsky, you have only 25 days left, 15 days left. "Our earnings are plunging, and we're supposed to find a new bank?" Mr. Brodsky hemmed, not expecting an answer. The bank answered, however: "If you don't pay it back, we'll put you out of business." And well it could. On December 31, 1987, CitiPostal's balance sheet showed $5.5 million in equity and more than $41 million of current and long-term debt. "I am in trouble," Brodsky recognized, "and there's no way out."
