"He was getting ready to hire eight or nine salespeople but didn't yet have a product. On our side, we had a product but essentially no resources. What we needed was time to concentrate on design and perfect our manufacturing processes. So we agreed to sell our products exclusively through this wholesaler, who would become our sales and marketing representative."
Portable Air contracted to buy at least $30,000 worth of Neoterik's product each month, about 150 respirators, and Vaughan eliminated the need to establish an in-house sales staff. He was quite pleased. The deal "was an easy way to ensure that we brought in some money," he says. "The surface analysis indicated this was a good thing to do." And for six months the arrangement worked beautifully. In the late summer of 1983, however, it disintegrated. The principals of Portable Air had run into financial and legal difficulties.
"In a matter of 10 days," Vaughan says, "I realized something was seriously wrong. We had a receivable from them of nearly $150,000, because they were running us about 90 days late. They were our only customer, and now there was no way they could pay us. So suddenly we had no cash and no salespeople. What we did have was $80,000 worth of payables. Having used up our start-up cash and our $70,000 credit line, we were essentially bankrupt.'
Vaughan and Wiggins sat down stunned, angry, and bewildered. Are we in this business or are we out? they asked themselves. Vaughan wanted to hang tough, but he also had his family to consider. His wife, Jolanta, was a homemaker; they had two young children. "I had to go to her and say, 'Look, there is no paycheck,' " Vaughan remembers. "I involved her in the whole process. We decided to draw no money whatsoever, but just knuckle down and see if we could turn this around.'
Like many a strapped entrepreneur before him, Vaughan stripped the family budget to a war footing. There would be no money for new clothes or frills. A $6,000 savings account was earmarked for mortgage payments. As for groceries and other necessities, they borrowed that money from Jolanta's parents.
"It was one horrendously difficult period," he reflects. "I went without pay for 10 months. If I were to say we were paupers, that'd be wrong -- we weren't. We were able to feed the kids, keep them comfortable and cozy. They still had toys at Christmas and their birthdays. We're a very tight family, and this just cemented it. I think that the warmth and the hugging that went on is the kind of thing that makes a lot of this possible.'
Determination played no small role, either. "Jolanta believed in it because I did, and I was able to keep going because she supported me," Vaughan says. "It was absolutely symbiotic.'
Vaughan took his decrepit Buick on the road, scouting for new customers. He ended up at a Con Edison nuclear plant on Long Island Sound. Vaughan learned that it needed respirators almost identical to those he'd sold to Three Mile Island. He could construct them from parts already stockpiled. "What I then had to do," he recalls, "was find a distributor to finance the job the way we wanted it financed.'
He found one, a Maryland company called Radiation Service Organization (RSO), and struck a deal -- RSO would pay Neoterik as it delivered the gear. The Con Ed order ultimately brought in $120,000. Searching for more capital, Vaughan turned to a small-business investment corporation, a venture firm called Suburban Capital Corp., in Bethesda, Md.
"I said, 'Look, guys, I have something going here. Come in and put a debenture into this company so we can keep it going.' And that's what they did. It turned out that Suburban Capital's president had spent some time as a welder and had been exposed to industrial fumes. The need for adequate protection just clicked with him immediately." The firm invested $350,000 in Neoterik, adding another $300,000 a year later.
It was about this time, late 1983, that the asbestos-abatement industry took off, and Vaughan quickly spotted the opportunity. Asbestos workers needed the kind of respirator Neoterik specialized in and constituted a much larger market than radiation workers. "That's when we got onto the growth path that's brought us where we are now.'
In retrospect, Vaughan says, the Portable Air fiasco taught him an important lesson. "The things I did wrong were so clearly wrong that it makes me wonder why I did them. I had always thought that even if this [Portable Air] arrangement didn't work out, I could take the wholesaler out and deal directly with the distributors. Logically, you'd expect that to happen. But it doesn't work.
"As far as I'm concerned, it is imperative for a young manufacturing company to stay very, very close to its customers. If you put anything in the way -- however beneficial it may appear -- it's going to hurt you. Unless you sit there on the equipment user's doorstep and listen to him, you'll never be in the right place at the right time.'
* * *
When You've Bet Your Company on a Process that Fails
Company: LifeCore Biomedical Inc., Minneapolis
Rank: #94
Founded: 1965
Sales: $3.6 million
Profits: $144,000
Business: Manufactures and markets high-purity biomaterials
CEO: James W. Bracke
Age: 42
As corporate crises go, LifeCore Biomedical Inc.'s looked terminal. James W. Bracke, the 42-year-old scientist-turned-CEO, likens it to "that first brush with death, when mortality suddenly has a different realism for you. It made me understand," he says, "that the line between victory and defeat can be crossed quicker than you think.'
In 1984 victory had seemed close. A newly installed, million-dollar fluid-handling system would enable LifeCore to realize the vision Bracke had brought to it three years earlier, becoming the only commercial manufacturer of a material it had nursed through nearly four years of R&D. The material would -- the company hoped -- become a major medical commodity. LifeCore even had its first big order in hand, from Cilco Inc., a subsidiary of a giant pharmaceutical concern, which had committed itself to a substantial annual purchase.
