These days a long-shot start-up doesn't have to go it alone
It was the unlikeliest of new ventures: an actor with little business experience sets up a company to manufacture toilet partitions. But Greg Braendel is confounding the skeptics, thanks in part to an array of heavy hitters lined up behind him. Why would Fortune 500 suppliers, fancy lawyers -- even a Big Eight accounting firm -- all be willing to help out a start-up so far off the beaten track?
Greg Braendel's accountants and consultants come from giant Peat Marwick Main & Co., which is providing its services on a reduced-fee basis. His lawyers are with the Los Angeles branch of White & Case, a venerable New York City firm; they aren't charging him much either.
In fact, nearly everyone seems to want to help out his young company. Braendel's vendors extended him credit before he had so much as a D&B rating. A nationwide network of reps and distributors are selling his wares. Du Pont and Formica Corp., which manufacture some of his raw materials, are helping him with his marketing. UA Theatres, Brunswick Recreation Centers, and the United States Air Force signed up as customers when his company was scarcely a year old.
By now you've doubtless decided that Gregory Braendel -- it's pronounced Bren-DELL -- is some high-tech hotshot with a decade's experience at Hewlett-Packard Co. Not so. He is a 44-year-old itinerant Hollywood actor, who for 20 years has supported himself with a variety of jobs while garnering a few small parts in television movies and commercials. He has no M.B.A.; indeed, he has only the barest experience in business of any sort.
Nor is his company likely to be the next Lotus Development or L.A. Gear, riding technology or trendiness to the top. Thrislington Cubicles, as it's called, manufactures bathroom partitions.
Bathroom partitions? Bear with me. We'll start at the beginning, because the saga is an object lesson in how even a start-up with an unlikely founder and an offbeat product can have a noticeable impact on the marketplace. Braendel took on a seemingly impossible task. What has made it merely difficult, rather than impossible, is a dramatic shift in the way the business world treats entrepreneurs.
My wife and Braendel had known each other as children. I first met him in 1984, on a family trip to Los Angeles. He took us on an insider's tour of Hollywood; he played a tape for us of the time he kissed Cheryl Ladd in The Grace Kelly Story. Three years later I saw him again, when he was passing through Boston. This time he didn't want to talk about acting, he wanted to talk about the toilet-partition company he was starting. From the sublime to the ridiculous in three short years, I thought -- until he began to explain himself.
Think about it, he said. Every hotel, restaurant, airport, school, office -- every public building, everywhere in the world -- has bathrooms, and in those bathrooms are stalls. Somebody has to manufacture those stalls. This is one big market.
Right, said I. And doubtless there are some good-sized companies supplying that market. Maybe so, he replied, but their stuff doesn't look like this. That was when he spread out his four-color brochures.
Yow. Like everyone else, I had conjured up an image of bathroom stalls in plain metal, gray or white, most likely with the latches missing. The enclosures Braendel was showing me hardly looked like rest-room equipment at all. On the contrary: they looked as if they had emanated from some high-fashion design studio, perhaps for use in a jet-set client's poolside cabana. These, it turned out, were the bathroom partitions manufactured by a company with the elegantly British name of Thrislington Sales Ltd.
The story poured out. Thrislington had been making and selling the cubicles in the United Kingdom for the previous several years, and had already captured an appreciable fraction of the market. Braendel's English cousin, Adrian Emck, worked with the man who had designed them, and had come to America looking for ways to market them here. Braendel -- not unmindful of the pecuniary possibilities -- agreed to help his cousin out. At Thrislington's expense he flew to San Francisco to consult with an architect friend, then back to Hollywood, where he located a company called Bobrick Washroom Equipment Inc. "My idea was to find a manufacturer, then sit back and collect royalties for 10 years or so," Braendel says. "Then I could pursue my acting career."
Bobrick wasn't interested, but told Braendel to call a nearby distributor, Stumbaugh & Associates Inc. Stumbaugh liked the looks of the product; so did the manufacturer's-rep firm that Braendel visited next. Intrigued, Braendel went to England and kicked around possibilities with Brian Moore, managing director of Thrislington. Moore took a liking to the American and came back to the States with him; together they visited other manufacturers. But none seemed just right.
Finally -- it was now late 1986 -- Braendel and Moore were sitting on the patio outside Braendel's Hollywood home. Brian, said Braendel, why don't I just manufacture the damn things myself? Bloody 'ell, he remembers Moore saying, why not? Braendel formed a company, and in January 1987 flew to England to negotiate an agreement. The British Thrislington -- which had more work than it could handle, and no time to explore alternative arrangements -- leapt at the opportunity. Braendel came back with North American manufacturing and marketing rights, with a modest royalty to be paid the parent company on every unit sold.
Greg Braendel, you have to understand, is a positive kind of guy, upbeat and likable, with a salesman's gregariousness. While waiting for his acting career to take off he had earned his living in various ways: fixing up houses, hawking floor mops at fairs and home shows, once starting a short-lived company to market lithographs. Most recently he had been working as a salesman for a company that installed cogeneration-energy systems.
Braendel is so upbeat, in fact, that the magnitude of his new undertaking may simply never have occurred to him. Add it up. He was setting out to build a company -- something he had never done successfully -- in an industry he knew next to nothing about. He would be making a low-tech product that, while distinctive, could easily be copied. To succeed he'd have to line up reps and distributors all over the country, set up and operate at least one factory and ultimately several more, persuade architects and interior designers to gamble on a new and still-untested manufacturer -- and do all this before competitors moved in on his turf. Braendel figured that he could count on his parents back in Pennsylvania for some seed capital. But he had little money of his own and little notion how to raise more.
As for the start-up team he assembled, well, an optimist would say that they made up in enthusiasm what they lacked in relevant experience. Braendel's friend Jack Dunsmoor, 42, gave up a marketing job at Republic Pictures to become Thrislington's vice-president. Dunsmoor's half-brother, Tim Haase, only 26, became manager of production, and a young actor named Bo Rostrom, 27, became marketing coordinator. Jo Strate, 63, a friend who was training director for General Nutrition Center, managed the office and kept track of the cash.
Thus was Braendel & Associates Inc., doing business as Thrislington Cubicles, born. Fortunately, this green and unlikely crew discovered it didn't have to struggle alone.
Any new business depends on multiple networks of support. Entrepreneurs need sources of capital, of professional services, of supplies and materials. They need marketing channels, and they need customers willing to gamble on a new product. What kept the start-up rate low for most of the postwar era was the weakness of such networks. Sure, you could start a company back in 1958 or 1968. But unless the word "computer" was in your business plan, you'd have to get your money from Aunt Susie and you'd have to operate on the fringes of the marketplace.
On the face of it, that situation is dramatically different today. You need money? New York City's giant Chemical Bank puts full-page ads in The New York Times trumpeting its eagerness to work with small businesses. Professional services are no sweat -- just call the Big Eight. "Eighty percent of our clients are small companies," boasts Daniel O'Brien, a partner with Coopers & Lybrand, "and our small-business unit has been growing 15% a year." If you're looking for some kind of marketing or joint-venture deal with a Fortune 500 corporation, now's the time. Campbell Soup, for example, has "several kinds of partnerships with small companies," according to its vice-president of corporate development. And if you want to sell to the big guys, they're buying. "Over the past five years, our list of suppliers has shrunk, but the proportion of small companies on the list continues to grow," says the man in charge of materials management for Eastman Kodak's apparatus division.
It's a rosy scenario for entrepreneurship, to be sure. But what's the reality? We've all seen analogous figures about the explosion of the venture capital industry, for instance -- from $3.5 billion under management in 1978 to over $30 billion in 1988. As far as most entrepreneurs are concerned, however, that money might as well be locked away in Fort Knox: only the tiniest fraction of start-ups get any of it. Similarly, it's hard to escape the suspicion that only a chosen few get access to the Chemical Banks, the Coopers & Lybrands, and the Campbell Soups of the world. All that eagerness to work with entrepreneurs? A boon to the properly credentialed and well connected. Not so helpful in the seat-of-the-pants, scratching-for-nickels situation of the typical start-up.
Or so you might think, until you heard Greg Braendel's story. In the beginning, it was only too typical.
The Thrislington concept was simple enough. About 25 companies, none large, sell ordinary painted-metal bathroom stalls, usually for $150 to $200 apiece. As rest-room users can testify, the stalls are easily etched, scratched, dented, gouged, and marked up -- and when a teenage boy decides to swing on a door the whole thing is likely to come apart. Thrislington's high-design cubicles, by contrast, would occupy a top-of-the-line niche, selling for $650 or $700 each. Their appeal would lie partly in aesthetics (multiple colors and patterns, for example) and partly in their near-indestructibility. Thrislington's fiberglass or plastic-laminate panels can't easily be damaged. Graffiti are easily washed off. The stalls' floor supports and other construction features bear as much relation to their painted-metal counterparts as a tank to a car.
With a product like that -- hey, it would walk out of the factory -- Braendel was not one to consult a map before hitting the accelerator. He quickly lined up W. H. Steele Co., the Los Angeles manufacturer's rep he had originally talked with, then jetted to England to negotiate operational details. Back home in L.A. he found a subcontractor to assemble the partitions, then flew to Pennsylvania to talk his parents into a modest investment. Working out of a makeshift office in Braendel's home, his associates manned the phones, prepared marketing materials, sought out names of vendors, wrote letters giving quotes. By July 1987 they had their first order: seven cubicles for a Palm Springs, Calif., convention center, owned at the time by Hilton Hotels Corp.
Then the so-far-typical disorder threatened to degenerate into chaos. Monitoring the quality of the assembler's work, Braendel began noticing flaws. Edges didn't fit right. Screws protruded. At the prices he was charging, he knew, he couldn't afford sloppy workmanship. But when he complained, he was given an ultimatum: give us a contract for all your manufacturing or get your stuff out of here in 24 hours. "I had a truck there the next morning," Braendel remembers. With no time to track down another subcontractor, he quickly rented some space, bought $1,500 worth of tools, and put in a desperate call to England for someone to come over and help. Sorry, was the reply, we're too busy. You'll have to assemble them yourself.
After a few 12-hour days the incipient panic subsided: making the cubicles wasn't as hard as it seemed. You cut the laminated panels to size. You edged them with a custom-designed aluminum extrusion, then fit them into a patented foot, or floor support, obtained from England. You added the stylish door latches, complete with red-and-green occupied/vacant indicator -- an essential convenience because the cubicles have no gaps between door and paneling. Tim Haase and Bo Rostrom found they had a flair for the work, and at the end of a week the group had all seven finished. They were shipped out to Palm Springs only a day behind schedule.
But that, of course, was only the beginning -- and Braendel was slowly realizing how little he knew. A natural salesman, he was comfortable winging it on the marketing front. But what if the orders began to come in as fast as he thought possible? He would need management help. More to the point, he would need money -- lots of it. Any investor other than Mom and Dad would surely want to see some credible projections. Trouble was, he had no business plan. He had no idea how to create a business plan. Nor did he have any idea what his company might be worth.
That was when Braendel discovered that his interests as an entrepreneur coincided with the interests of some very big players indeed.
KPMG Peat Marwick, better known in this country as Peat Marwick Main & Co., is a large accounting firm. In the United States alone it has 135 offices, 1,930 partners, and annual revenues of $1.64 billion, ranking it #2 among the Big Eight domestically. Like the other seven, it has traditionally provided tax and audit services to big corporations; in recent years it has expanded its consulting practice as well. All of the Eight, of course, always had some smaller clients. But the advantage to the client of having so large a partner wasn't always clear. "The same guy who handled Nabisco," confesses one accountant, "would also work with a small textile company. In that situation large accounts would often get more attention than the smaller accounts."
The sea change in the accounting profession began roughly a decade ago -- earlier for some firms, later for others. The pressures were hard to ignore. The Fortune 500 companies that were the Big Eight's traditional clients were suddenly retrenching. Newer, smaller companies were beginning to grow. And deregulation was in the air. Under pressure from the government, for example, the American Institute of Certified Public Accountants changed its ethics rules in the late 1970s; henceforth accountants could advertise and actively solicit business from nonclients, practices that until then had been considered unethical. "Rather than wait for the big companies to come calling," says Joel Koenig, national director of Touche Ross & Co.'s Enterprise Group, "the Big Eight began aggressively going after new business. A big chunk of the business they were courting was smaller-company owners."
For Peat Marwick, 1977 was the turning point. Prodded by a consulting study that pointed to small companies as future sources of growth, the firm decided to set up separate divisions to court -- and handle -- their business. Not surprisingly, the corporate culture changed slowly. "At first," says Robert A. Swan, "all we did was take our existing clients that fit the description and put them into this new 'middle market' category."
A newly minted M.B.A. who had previously worked for a plumbing supply business, Swan had joined one of Peat Marwick's Los Angeles offices in 1976, and was toiling in the vineyards of Fortune 500 clients. But he wasn't happy there, and when the opportunity arose to move into the young middle-market practice, he jumped at it. It was the right time. Stimulated by the hot new-issues markets of the 1980s, Peat's Los Angeles middle-market division grew from 3 partners in 1980 to 10 in 1988. (The firm as a whole was growing from 50 to 85 partners in the L.A. area.) Today, like his colleagues, Swan is entrusted not only with making money but with signing up small, growing companies as audit clients. When he heard about Greg Braendel, his ears perked up.
The referral came from Betty Nibler, Braendel's part-time accountant, who knew Swan from a previous project. Swan went out to see Braendel, saw some cubicles under construction, heard the story of the company. "I had never seen anything like it," he remembers. "And I thought, if [the cubicle] appealed to me it would appeal to others." Thrislington's niche-oriented strategy seemed like a smart approach; Braendel seemed like a man worth betting on. "Greg doesn't have the experience, but he has the capacity to make things happen. I figured we had a reasonable chance of a winner here."
Over the next several months, Peat Marwick Main effectively transformed Thrislington Cubicles from a pure seat-of-the-pants start-up to a young but well-thought-out business capable of attracting serious investment. First Swan conducted a Business 101 seminar for Braendel and his group, explaining the basics of company finance and valuation. Then he sent in a team to do compiled financial statements, which Braendel needed for his fledgling fund-raising efforts, and agreed to do annual audits and tax work at a discount.
Finally, Swan called his colleague Robert H. Van der Linde, a consultant and senior manager in Peat Marwick's downtown L.A. office. Would Van der Linde be interested in Thrislington? Van der Linde met with Braendel, then visited the factory; he too agreed to take the company on as a client. At Braendel's request he sent an associate in to tear apart the company's finances and projections, then prepare a full-fledged business plan.
Peat Marwick is not the only heavy hitter that has helped bring about this transformation; on the contrary, Braendel has found assistance from several unexpected sources. As with Peat Marwick, he benefited from being a persuasive guy with an appealing product. But he also benefited from decade-long changes in the American economy analogous to the change that had swept the accounting profession. Suddenly, what he had to offer was what a lot of powerful players in the marketplace were looking for.
* A prestigious downtown law firm named White & Case (no relation to this writer) took Thrislington on as a client early in 1988, vetting a private-placement memorandum and doing some trademark and logo work for a modest fee. Serendipity? Not exactly. Ten years ago White & Case wasn't even in Los Angeles; a New York City-based firm, its only outside offices were in Washington, D.C., and in Europe. Like other well-established corporate law firms it was content to service traditional clients such as Bankers Trust Co.
But big law firms, like most other professional-service businesses, have been learning to cope with -- and to grow in -- a changed economy. Recognizing the westward shift of economic activity, for example, White & Case recently opened offices in Singapore and Tokyo as well as in Los Angeles. Branching out geographically meant searching out clients that didn't already have lawyers. "In Los Angeles we came to a market that was [already] well served by other firms," explains Harold Reichwald, the partner who originally suggested taking on Thrislington. "We had to begin to build a practice -- and part of that process is to identify clients who will be significant players down the road."
* E. I. Du Pont de Nemours & Co., which manufactures a marblelike material called Corian, would once have been only a supplier to a company such as Thrislington; today it is a potential marketing partner, so eager that Braendel didn't even have to ask. Don Duffey, West Coast regional accounts manager for Corian, called Braendel as soon as he heard about Thrislington. Listen, said Duffey, why don't you use Corian in your partitions? And by the way -- why doesn't Thrislington buy national advertising in architectural magazines under Du Pont's umbrella, thereby getting the big company's volume discounts? Since Braendel had planned an extensive ad campaign, the offer would save him upward of $30,000 a year.
That the offer would be made at all reflects a dramatic change in the chemical giant's approach to the marketplace. "Ten years ago we weren't doing any ventures at all with small companies," explains Peter Walmsley, Du Pont's manager of acquisitions and divestitures, "because the ones we had done before hadn't worked out that well. But in 1984 we decided to give it another shot." Now, says Walmsley, Du Pont holds equity in at least 15 smaller companies and has "many, many" contractual arrangements with others. This change in the corporate culture, in turn, has given regional reps like Duffey a freer hand in setting up ad hoc deals. "I don't know that we'd routinely do this," he says of the arrangement with Thrislington. "But we thought they had some potential in a part of the marketplace we weren't doing much with. So we're trying to help."
* Formica Corp., which makes the plastic laminates often used in Thrislington's partitions, has mapped out even more extensive joint-marketing arrangements. Kevin Nicusanti, who until recently was West Coast regional marketing representative for the company, met with Braendel early on and developed a cooperative literature-distribution program. Then he introduced Braendel to Formica's head of marketing and other top executives. In the planning stage: a cooperative advertising program and joint-marketing to Formica's major national accounts. "We have 16 or 18 professional spec people around the country," says Nicusanti, "and if we can put Thrislington material into their hands that's pretty powerful."
And why was Formica so interested? Until 1985 the company was a sleepy division of American Cyanamid Inc.; since it contributed only a small fraction of the big company's profits it didn't get much attention and didn't make many waves. Then its managers purchased Formica through an LBO, taking it public two years later. Today, Nicusanti says, it is a different company. "We went public, raised money, reduced our debt. We got whole new marketing teams, bringing in our best guys from Europe and Asia."
Nicusanti himself has a new job: product manager for new ventures. "I've been around the country talking to lots of guys just like Braendel -- younger, smaller companies with decent potential that can use our packaging, marketing, name, our spec effort, maybe some engineering help." In effect, the search for early-stage relationships with customers has become one more point of competition in the marketplace. "I know Du Pont has done some nice things for Braendel," acknowledges Nicusanti, "and Du Pont is a head-on competitor with us."
The willingness to work with start-ups can extend well beyond the ranks of big companies. Braendel bought his aluminum extrusions, for example, from a Los Angeles supplier called MetalCenter Inc. Ordinarily, a custom buy such as his would require a sizable minimum order, cash up front. But Braendel's description of his company and its cubicles impressed credit manager Peggy Braunz and product manager Bob McCoy -- so much so that, as McCoy put it, "we sat down with our management team and made a decision to roll the dice with them." Thrislington's unusual deal: a make-and-hold program, whereby MetalCenter stocks the extrusions, shipping and billing for them only as they're needed.
Big vendors such as Peat Marwick and White & Case almost certainly don't make money on clients like Thrislington. There's no explicit discount on jobs such as the business plan or the trademark-and-logo work; it's just that the hours don't get billed, the invoices don't get sent. Van der Linde, for example, told me that he himself hadn't billed a single hour to Thrislington -- and that his associate would undoubtedly put in much more time on the business plan than would ever be billed. Still, neither the accountants nor the lawyers are extending themselves to Braendel out of charity. Both firms will have plenty of services to sell him once he's past the start-up stage. And both are establishing the personal relationships that will determine who gets Braendel's business later on.
From Braendel's perspective, the help he's received does have some costs. Even with the unbilled hours the business plan came to $14,000; he'll have to spend more if and when he utilizes Peat Marwick's expertise in computer systems, say, or executive search. And for a while, at least, he's tied in to relationships with big firms that may cost him more than similar relationships with smaller vendors. On the plus side, however, Braendel's alliances have effectively changed the complexion of his company. To my mind, what could have been just another tiny, far-fetched start-up has come, over the past several months, to look like a potentially viable business.
Not that everyone is equally impressed. Last fall, for example, Braendel presented Thrislington's modest accomplishments and ambitious plans to an "Entrepreneurial Forum" sponsored by the local chapter of the Stanford Business School Alumni Association and hosted by Peat Marwick.
As a pitchman, Braendel was at his best. He pounded a hammer on a sample panel; he sprayed it with paint and washed it off. He laid out his new business plan -- at that point only a draft -- for the audience. Members of the "panel of experts" assembled by the evening's organizers chimed in. A representative from Stumbaugh & Associates, which distributes both Thrislington and other manufacturers' partitions, testified to the product's appeal. An architect explained why he and others in his firm were beginning to specify Thrislington.
But the venture capitalists and potential investors in the audience that night weren't buying. You have no experience in the industry, he was told. Just look at your résumé! What makes you think you can manage a company that's growing as fast as you plan to? "We took a vote of five or six people after the meeting," growled one venture capitalist later, "and it was unanimous: they wouldn't get the money they needed and they wouldn't succeed if they did."
Braendel remains unperturbed by such criticism. That may reflect his eternally optimistic personality -- or it may reflect a set of facts that only a jaded venture capitalist could ignore. Thrislington's monthly sales doubled in October, doubled again in November, and hit a yearlong total of close to $300,000 at the end of December. With close to two years' experience under his belt, production manager Tim Haase had the little factory running smoothly; the company was building an average of 80 cubicles a month and had compiled an on-time delivery record of 100%. Thrislington's advertising program, though new, was already generating hundreds of inquiries monthly; one rep I talked with a few days after the meeting lamented that she could scarcely keep up with leads ("Right now I'm looking at 15 phone calls I have to return").
Maybe most important, the number of satisfied customers was continuing to grow. Kaiser-Permanente, the big health-care organization, was ordering cubicles by the dozen. UA Theatres was already up to 72. Vandenberg Air Force Base and Brunswick Recreation Centers, the bowling-alley company, were both happy with what they had bought. "Structurally, they're the best partitions I've ever seen," opined Joe Duzynski, Brunswick's regional service manager. The assistant superintendent of a school district, meanwhile, wrote the company that, after a six-month trial, Thrislington's cubicles had "no major damage, no missing doors, and graffiti had practically disappeared from the rest rooms." That installation, I learned, was in a junior high school in a low-income neighborhood. Not for nothing is one of Thrislingtons's model lines called Combat Range.
The market potential, moreover, remained huge. Test cubicles are slated to be installed at Wendy's and McDonald's restaurants, and at the University of California's Berkeley campus. Several customers -- the Wet Seal Inc. and Chess King clothing chains, for example -- were adapting the cubicles for use as dressing rooms, a big market in which Thrislington has no real competition. Then too, nearly three-quarters of the company's 1988 sales had come come from W. H. Steele, a fact attributable to Steele's early association with Thrislington and the long lead time between architectural spec and actual production. As other reps' orders begin to come in, the company should approach its 1989 goal of $2.7 million in sales.
Cash remained tight throughout 1988. Now that he had his business plan, however, Braendel was embarking on a serious search for capital: as Inc. went to press he and his advisers were developing a convertible-debenture plan designed to raise a minimum of $1.75 million, mainly from private investors. Finding such people, of course, is exactly the kind of job that would be impossible without well-connected partners. "I'd expect Greg to rely on us and his lawyers to ferret out sources of capital," says Peat Marwick's Van der Linde. "He'll get his money." Anticipating that happy result, Braendel hired a chief financial officer (an M.B.A. with 13 years' experience at such companies as Dart & Kraft Inc.) and a national sales manager (24 years' experience, including 3 in senior marketing positions with Control Data Corp.). Both were recomended by Braendel's contacts at Peat Marwick.
In the long run, prospects turn on the same factors that govern any business: how well he can manage his people and resources, how much the market likes his product, how fast the competition moves in on his turf. But he has already accomplished much. When an actor sets out to manufacture bathroom partitions, a company as far along as Thrislington is a pretty good track record.
For this, Braendel himself deserves plenty of credit. But he can also thank an economic environment that, at last, has realized the value of start-up businesses.
"You can look at the statistics nationwide," says Van der Linde's colleague Bob Swan, echoing an attitude that has come to permeate corporate America. "The innovation and the growth are coming from these entrepreneurial companies. If the Fortune 500 are all you service, you're going to be missing a lot."* * *
Research assistance was provided by Elizabeth G. Conlin.
THE LAST HOLDOUT
Will even the banks help out a start-up? Nope
"Back then I thought banks could do no wrong," muses Greg-ory Braendel, founder of Thrislington Cubicles. So, naturally, he expected them to extend lines of credit to his fledgling company.
Hah. Los Angeles's Wilshire Bank, where he did his personal banking, gave him credit only when he put up two buildings he owned as collateral. Later, when his company actually had sales to point to, he got introductions to some big Los Angeles banks from his accountants, Peat Marwick Main & Co., and his lawyers, White & Case. Such prestigious introductions, he figured, would stand him in good stead.
Hah again. Security Pa