Apart from traditional accounting, a CEO works out his own equations for success.
Forget budgets, quotas, and expense accounts. Larry Stifler has figured out which numbers really matter
Larry Stifler loves numbers, but not the ones you think. It's true, he'd say, that conventional accounting techniques don't measure what matters -- but find the right numbers, the ones that express the relationships that make your company work, and numbers will be the best management tool you have. He'd say his company proves it. Let's see. -- T.R.
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She won't enjoy reading this, even though she said it: Evie McFadden, the woman who runs the largest single department of Larry Stifler's six-year-old weight-loss company, can't balance her own checkbook. Or organize her calendar. And she doesn't begin to know how to draft a budget for her department or manage within one. But Stifler doesn't care.
The people working in Stifler's more than two dozen field operations don't have the foggiest notion of how much money they spent last year or how much they'll spend in the year to come. Again, Stifler doesn't care.
Here is a company that has, on average, tripled its sales every year since its founding in 1983; a company that in 1989 generated roughly $50 million in revenues and solid profits; a company with penny-pinching cost controls, checks on every facet of its operation, and impressive growth projected and planned for -- and still not a budget in the place.
Stifler doesn't care about budgets, and his people don't plan in dollar amounts, yet it would be hard to imagine a company that relies for its management any more than Stifler's does on numbers or one in which compensation depends more on profitability. He and his employees -- all 290-plus of them -- quantify everything they do. "Larry," says McFadden in hyperbolic understatement, "is a numbers guy."
What you notice right away about his numbers, however, is that they aren't straight dollar amounts, or at least very few of them are. Mostly he uses ratios -- the measure of one thing with respect to another. It's these ratios expressing relationships, not the counting of dollars per se, that give Stifler, his managers, and his employees useful information -- with emphasis on the useful -- about what they do.
With Stifler, says Julie Povall, director of operations, the ability to see relationships in terms of numbers is a "sixth sense."
Meaning what?
Meaning he has a way of looking at a company that is difficult for him to explain, but, says Povall, "He can't understand why everyone doesn't see it the way he does."
Stifler, a man who claims 49 years but looks no older than 30-something, holds a Ph.D. in behavioral psychology. As a kid, he says, he used to perform math tricks in his head on the stage -- complicated long division, for instance. Until 1979 he taught everything from college math to psychopharmacology, lecturing in his field at Boston University and Harvard. Then he got involved with a company that was making a lot of money running kidney dialysis clinics.
The company wanted to move into the weight-control business, which appeared then to be, ahem, an expanding market. American couch potatoes were sprouting at astonishing rates. Fitness was still a fad for the relative few. The company created a division called Institute for Health Maintenance (IHM) and hired Stifler, hoping that as a behavioral psychologist he could figure out how to help people keep the weight off once they'd lost it. Almost anyone, apparently, can shed pounds, but staying thin requires the dieter to learn a new post-diet behavior. So, as Stifler and others who were there then tell it, the company created a program that combined for the first time a medically supervised VLCD (for very low-calorie diet) with an extensive patient behavior-modification and support program. It was supposed to get patients slim and keep them that way. Stifler thought his program was good, and so did his employer, which began to market it. But soon Stifler and, eventually, most of his IHM staff resigned -- not because he didn't think the diet plan would work, but because Stifler believed the business wouldn't. "We differed over how to make it profitable," he says.
IHM and Health Management Resources Inc. (HMR), the new company that Stifler founded, were alike in many respects. Both thought of their customers as medical patients rather than packaged-goods consumers. Both targeted clinically obese individuals who were willing to enter an expensive and intensive medically supervised program -- not do-it-yourself or casual, post-holiday dieters. Both prescribed a fasting period during which patients consumed nothing but the liquid-diet supplement each company sold, followed by a months-long "refeeding" period and maintenance program in which patients learned how to handle real food again.
The differences between the two companies, however, were significant. The most obvious one was crucial. It was the point over which Stifler and his employer had parted company. He had argued, he says, that IHM should not create its weight-loss clinics as freestanding competitors to hospitals, health maintenance organizations, physician group practices, and so on. Instead, they should run them in cooperation with existing medical establishments. Preferably, the clinics should use the institutions' own physical facilities and their personnel. He showed his superiors a mathematical model he had worked out that demonstrated his contention. The model showed, he says, that a diet company could never generate enough patient revenue to cover its operating costs as well as amortize the high start-up costs and pay the maintenance expenses of freestanding diet clinics. IHM opened freestanding diet clinics nonetheless, but Stifler's model, apparently, spoke the truth. The company abandoned the weight-loss business after a year and a half of losses.
