Introduction to the Entrepreneur of the Year judges and the selection process.
Our second annual company-building awards
It felt like the start of a new school year. On a crisp fall day, Inc.'s nine national Entrepreneur of the Year judges convened in the conference room of a Boston hotel. All looked fit and tanned, and each carried a clean pad of paper and a sharpened pencil.
Clearly, these students came to learn from one another. Early on, they decided on a format that tested their persuasive skills; instead of dryly nominating their top three candidates, they opted for going category by category, making impassioned pleas for their top choices. And they employed any rhetorical devices they could muster.
"Why get on the Titanic when the QEII is on the next dock?" implored one judge, sensing that the group was drifting away from his candidate. There was even an old-fashioned filibuster. "I'm sorry, did I go on too long?" asked one judge, observing the others in a collective state of catatonia.
The group followed its instincts -- wherever they led. Among the issues: Can you be an entrepreneur only if you started the business? Is there a crucial distinction between an entrepreneur and a manager? One judge even dragged out the dictionary's definition of entrepreneur. "Who cares what the formal definition says?" complained another. "Does this person really represent what we want?"
Not that such abstract questions always dominated. There was plenty of deal making. One judge, after watching a favorite candidate sink, muttered to a neighbor, "You pulled out on me." There was even a hint of voting irregularities. "Are you from Chicago?" asked one judge of another who accidentally voted twice.
Cabletron Systems Inc. -- which the judges applauded for its fast growth and its quick decision making -- began its rise back in June, when the company was given a regional award. It was one of 281 companies honored regionally -- selected from more than 2,600 applicants. The process had started with a four-page application and a follow-up due-diligence visit by Ernst & Young professionals.
Each region had its own judges selected by the joint sponsors -- Inc., Ernst & Young, and Merrill Lynch. From there, INC's senior editorial staff reviewed the applications of all the regional winners and chose the 11 honorable mentions and the 17 finalists.
The nine national judges, who met in September, were selected by Inc. and charged with choosing winners in four categories: Master Entrepreneur, Turnaround Entrepreneur, Emerging Entrepreneur, and Supporter of Entrepreneurship. They also chose -- of course -- the Entrepreneur of the Year.
The national Entrepreneur of the Year judges gathered in September to make this year's final selections. They are James McManus, founder and chairman, Marketing Corp. of America, an advertising, market-research, and consulting firm based in Westport, Conn.; F. Kenneth Iverson, chairman and CEO, Nucor Corp., a steel and steel-products manufacturer headquartered in Charlotte, N.C.; Paula George, founder & CEO, The SoftAd Group, an interactive advertising, sales, and marketing agency based in Sausalito, Calif.; B. Thomas Golisano, founder and president, Paychex Inc., a payroll processing company in Rochester, N.Y.; Donald Burr, founder, People Express Airlines Inc.; Harry V. Quadracci, founder and president, Quad/Graphics Inc., a printer in Pewaukee, Wis.; Bernard A. Goldhirsh, founder and chairman, Inc. magazine; James Koch, founder and CEO, The Boston Beer Co., a brewing company based in Boston; and Dan Garner, national director of entrepreneurial services, Ernst & Young.
Manny Villafana, Helix BioCore Inc., Minneapolis
"Everybody asks me the same question," grouses Manny Villafana, chairman and CEO of Helix BioCore Inc.
What mystifies observers is this: How is it that he actually enjoys a process that most people find frightening? Villafana claims he likes to start companies. At last count, the 50-year-old had started four businesses, which now employ more than 2,500 people.
Villafana formed his first venture, Cardiac Pacemakers Inc., in 1972. Now part of a division of Eli Lilly & Co., Cardiac Pacemakers posted sales of $200 million last year. When its board rejected an idea for an improved artificial heart valve, he said, "OK, fine, I'll take it." In 1976 St. Jude Medical Inc., now a $200-million company, was born.
From there, Villafana departed to manufacture a new laser catheter through GV Medical Inc. He left that company in mid-1987, when he and management "had differences on which way the company should go," he says. It has yet to head in a profitable direction. His latest venture, Helix BioCore Inc., designs and manufactures production equipment to grow mammalian cells for the pharmaceutical and biotech industries.
All of Villafana's companies are based in the Twin Cities, and all are public. They share other attributes as well. He has avoided venture capitalists. And his first hire at each company has been an employee who serves as materials manager. "You need someone who can find basic things, like desks and suppliers," says Villafana. "And I have someone I can trust." He also works hard to build teams. "I'm not afraid of putting the best and toughest people together," he says. He's been known to warn managers whose egos get in the way: If you don't shape up, you'll blow your chance to make a million bucks. "You'd be surprised how all of a sudden they become good working guys," he says.
Villafana has no formula for figuring out whether a company will succeed. "If the technology grabs us," he says, "we pursue it." That pursuit changes each time. "I won't say it gets easier to start a company," he muses, "but you know where to waste less time."
Master Entrepreneur Runners-Up
Winston Chen, Solectron Corp., San Jose, Calif. Don't tell Winston Chen that the electronics industry is in a slump. Under the 12-year tutelage of this Taiwan native and IBM veteran, Solectron Corp. has grown at a sizzling 67% compound annual rate -- from $450,000 in sales in 1978 to $205 million in 1990. Despite numerous downturns in the computer industry, the contract manufacturer has been profitable for five of the last six years.
Ralph W. Ketner, Food Lion Inc. Salisbury, N.C., In a business of paper-thin margins, Ketner discounts every item in his stores 6% to 10%. It's a nip-and-tuck philosophy that requires ruthless efficiency. Ketner looks for savings within the operations -- from using fuel-efficient trucks to recycling cardboard. That adds up to a chain that's 33% more efficient than average. In 1989 Food Lion had profits of $140 million on sales of $4.7 billion.
Joel D. Tauber, Tauber Enterprises Southfield, Mich., Joel Tauber has built a $500-million powerhouse manufacturing scrap metals, plastics, fasteners, nuts, and bolts. After a 1986 leveraged buyout, he took a 20% stake in each of his company's three divisions and gave their managers 80% ownership. His approach has won him the loyalty of a cadre of talented managers, whom he credits with the impressive growth of his company.
Steven J. Hamerslag, Micro Technology Inc., Anaheim, Calif.
When Steven Hamerslag explains Micro Technology Inc.'s growth, you'd expect him to cite arcane technical achievements. Not at all. "The asset of this company is the relationship we have with customers," says the president and CEO.
With his former boss Raymond Noorda, chairman and CEO of Novell Inc., Hamerslag, 34, bought 80% of the dying company in 1987 and set out to launch a whole new enterprise. He quickly developed a product to protect classified data that needed to be stored in vaults. MTI grabbed more than 80% of that market, propelling revenues from $4 million to $17 million in his first full year. Hamerslag expects sales to hit $85 million this year.
To keep his latest software product in line with customer needs, Hamerslag came up with the Adopt-a-Customer program. Each engineer working on the product kept in touch with two customers, continually bouncing ideas off them.
The company also holds what it calls The Knights of the Roundtable sessions twice a year. Made up of a cross-section of customers, the advisory group hears confidential presentations about what the company is working on, and makes suggestions of its own. Afterward, company executives come up with products based on what they've heard. Hamerslag spends about 35% of his time visiting customers and never misses a roundtable. "Listening starts from the top," he says.
Emerging Entrepreneur Runners-Up
Richard E. Brooks, ChemDesign Corp. Fitchburg, Mass., After 21 years at Polaroid Corp., Brooks left to start ChemDesign, a specialty chemical company, in 1982. The company's fast growth won it a spot on the Inc. 500 in 1988, and sales reached nearly $40 million in 1989, with a gross margin of 32%.
Robert W. Macdonald, LifeUSA Insurance Co., Minneapolis. In 1987 Bob MacDonald left a secure position as president and CEO of ITT Life Insurance Co. to establish LifeUSA. In its second full year, though the life-insurance business was in an upheaval, LifeUSA had annualized premiums nearing $300 million, with net income of $2.5 million.
Pleasant T. Rowland, Pleasant Co. Middleton, Wis. In 1986 Rowland invested $1 million of her savings to develop an innovative approach to the toy market. She created three dolls, each based on a different historical period, to make learning about history fun for children. Marketing dolls, books, and accessories through catalogs, she went from start-up to sales of $28 million in three years.
James M. Temple, Case Logic Inc. Boulder, Colo., In 1984 Temple, then 28 and a professional skier, founded Case Logic, a maker of cases for audiotapes and videotapes, with little experience and even less capital. Profitable from its first month, the company's sales hit $17 million in 1989, up 26% from the previous year.
Tom Tyrrell, American Steel & Wire Corp., Cuyahoga Heights, Ohio. In 1986, Tyrrell, a former salesman for Bethlehem Steel, and a group of investors purchased three U.S. Steel plants in what was reported to be a $40-million deal. After losing $9 million two years ago, American Steel had a whopping $6.5 million in profits on sales of $209 million in '89.
Scott L. Holman, Bay Cast Inc. and Bay Cast Technologies, Bay City, Mich.
It sounds like a Frank Capra movie: against a backdrop of takeovers and leveraged buyouts, Scott L. Holman struggles to save a moribund foundry from the scrap heap. By dint of persistence, he builds two thriving enterprises with combined sales of $12 million.
The story begins in 1978, when Midland-Ross Corp., a giant conglomerate, paid $8 million for Bay City Foundry Co. As interest rates soared and a recession bore down, the foundry dove into the red. To be close to the operation, Scott Holman, who became general manager in 1981, took up residence above the offices. In 1982 the foundry lost about $2 million on sales of $8 million. By 1984 losses stood at roughly $500,000.
Holman made a bid to buy the company in 1985. Cobbling together funds from the Small Business Administration, the state of Michigan, and a bank, plus $100,000 of his own, he offered Midland $2.8 million -- asking that it take back a $500,000 note. "They laughed at it; they were asking $3.2 million," he says. Finally, after a year and a half of shopping around for a buyer, Midland returned to Holman. On the verge of signing an agreement, though, Midland went through a leveraged buyout. New management, predictably, put the deal on hold. Then in the late fall of 1986, a decision came down: either cough up an all-cash deal, or we close the place right away.
Undaunted, Holman offered one final option: he'd take the work in process, the raw material, and enough equipment to finish the castings -- normally a three-month job. At the end of three months, he'd pay Midland $148,000 out of his earnings. Midland consented. The next day, Holman rented a building, hired 17 people through a temporary agency, and Bay Cast Inc. and Bay Cast Technologies were in business. Within three months he had not only paid up and made a $400,000 deal for the rest of the company's assets but also had $400,000 in accounts receivable for working capital.
The new company's sales hit $3 million in 1987, its first year, and are projected to reach more than $12 million in 1990. Profitable since the first month, Bay Cast's earnings exceed the industry average -- as does the company's productivity.
"We're giving the area an economic and psychological boost," says the 49-year-old. "If what's happening here encourages somebody to take a risk and be successful, that would be wonderful."
Turnaround Entrepreneur Runners-Up
Rodger Dowdell Jr., American Power Conversion Corp., West Kingston, R.I. When Dowdell took over as CEO, in 1985, APC was nearly dead, having invested much of its capital in the weak solar energy market. Under his management, APC has become one of the leading companies in its industry, incorporating its technology into the rapidly growing LAN market. From 1985 to 1989, sales rose dramatically, from $967,000 to $35.4 million.
James F. McCann, 800-FLOWERS Inc., Bayside, N.Y. In 1987 McCann acquired 800-FLOWERS, a toll-free ordering system tied in with a national network of florists that was losing $400,000 a month. McCann focused on marketing innovations with programs like Club Remember, through which customers can preregister important dates, and numerous tie-ins with corporations.
The company is now profitable (earning $750,000, pretax, in fiscal year 1989) and has grown in sales from $1.5 million in 1987 to $12 million in 1989.
SUPPORTER OF ENTREPRENEURSHIP
James Blanchard, Former governor of Michigan
In a state that always symbolized the heart of big business, two-term governor James Blanchard made it nearly impossible for a promising start-up to go hungry -- for risk capital, skilled labor, or even sound advice.
An activist by nature, Blanchard put together numerous public-private partnerships to create an entrepreneur-friendly infrastructure. His restructuring began back in 1983, when he implemented a plan to invest 5% of the state pension fund into a venture capital pool.
Two years later Blanchard broadened access to capital by creating the Michigan Strategic Fund. Through a variety of programs, the fund helps make private investors' money available to companies that wouldn't necessarily appeal to venture capitalists (because they have no obvious exit strategy) or to banks (because they're too risky).
To encourage banks to become slightly more daring, the fund set up a special insurance program, essentially offering a cushion against riskier loans. Since 1986 banks have made nearly 800 loans, most of them to the exact niche they tend to avoid: 40% of the companies have revenues of less than $100,000, and 20% were start-ups. And the state's money has worked hard: every $1 of public money has yielded $18 worth of loans.
If the banks still aren't interested, the state offers entrepreneurs one other option: BIDCOs (business industrial development companies). These new financial institutions are designed to fill the gap between bankers and venture capitalists. Again leveraging state money, the state has helped set up seven so far, with total capitalization of $40 million. With several more in the planning stages, BIDCOs will create about $400 million of investment over the next 10 years. The state's share: $15 million.
Besides money, the state has set up programs to provide small manufacturers help in making technology decisions and developing a skilled work force. Such services, delivered through the Michigan Modernization Service, are free. And the state's Growth Margin program offers consultants from the private sector to start-ups at more than 50% off -- complete with a money-back guarantee. "State government can't get people to want to be entrepreneurial," says Peter Plastrik, president of the Michigan Strategic Fund. "But it can provide budding entrepreneurs with the tools to make it happen."
Supporter Of Entrepreneurship Runners-Up
Robert P. Kelley Jr., SO/CAL/TEN.Bob Kelley wants to see Southern California become the country's next high-tech mecca. As president and CEO of SO/CAL/ TEN, a peer-mentoring organization, Kelley has helped raise millions of dollars for entrepreneurial ventures from San Diego to San Luis Obispo. Through conferences and workshops, he has assisted CEOs in finding advisers and developing their management skills.
Douglas Drane, Mort Goulder, Dick Morley, George Schwenk, The Breakfast Club, New Hampshire. Alternately referred to as "angels" or "adventure capitalists," these four have invested individually or as a group in several companies annually, spending roughly $300,000 a year over the last four years, and have encouraged others to invest as well.
They are entrepreneurs investing in other entrepreneurs. Sticking primarily with common-stock purchases, the club has helped to pump some much-needed lifeblood into the New England region.
Richard S. Worth, R. W. Frookies Inc., Englewood Cliffs, N.J. Worth founded Frookies, a marketer of a fruit-juice-sweetened, no-cholesterol cookie, in 1987. To overcome the difficulty of getting shelf space Worth developed a freestanding display unit at which point-of-purchase premiums such as T-shirts, jackets, and watches are also available. He completed an extremely rapid national rollout with a minimum of advertising and slotting fees.
Consumer reaction was overwhelming. After just two years of sales, Frookies has already surpassed its five-year sales projection ($10.5 million), grossing $17.3 million with only 12 employees. And the company is profitable to boot.
Robert Hawk, Spaghetti Warehouse Inc., Garland, Tex. After buying (along with 10 partners) Pier 1 Imports and taking it public in early 1969, Hawk poured some of the proceeds into launching a moderately priced Italian restaurant. To keep costs and prices low, he located the first of his 15 restaurants in a derelict building in an inner-city neighborhood. An unusual strategy for any restaurant, but one that worked repeatedly for the restaurants he opened across the East, South, and Midwest. In most cases, Hawk selected a neglected site, renovated it, and drew business into dying or dangerous downtown areas.
Hawk's company has created 1,500 jobs, and annual sales have grown to $36 million. He has sustained 25% compounded growth over 18 years and netted profits of about 7%.
Lionel Sosa, Sosa & Associates, San Antonio. In only eight years Sosa & Associates has grown 600% to become the largest advertising agency in San Antonio and the largest Hispanic agency in the country. In the past two years Sosa's agency has won such coveted accounts as Coca Cola USA, Burger King, Anheuser-Busch (Bud Dry and Bud Light), American Airlines, GTE, and Westinghouse. With 1989 billings in excess of $60 million, the agency expects to hit $70 million in 1990.
So how does Sosa do it? By approaching the explosive Hispanic market intelligently. He doesn't stereotype Hispanics or lump them together. And his strong commitment to the Hispanic community is apparent: he does a great number of public-service announcements gratis and has endowed scholarships for college-bound Hispanic students in San Antonio.
William T. O'Donnell Jr., Sierra Tucson Cos., Tucson. William O'Donnell was on the fast track headed for a brick wall. For 12 years he worked his way up the management ranks at Bally Manufacturing -- all the while wrestling with his growing dependence on alcohol, marijuana, and cocaine. Finally, in July 1983, he decided to break the cycle and set himself on the road to recovery.
Inspired by the experience, O'Donnell acquired a small dude ranch at the base of the Catalina Mountains outside Tucson in 1984 and set up a treatment facility, which became Sierra Tucson. In 1989 revenues reached $18.4 million with profits of $5.9 million. Meanwhile, the company has achieved a national reputation for the efficacy of its programs.
Larry Joel, D&K Optical, Louisville. When one-hour service came to the optical business, D&K didn't act fast enough and lost money. Company founder and president Larry Joel learned his lesson and turned D&K into a company that has used technology to gain market leadership in almost every phase of operations.
D&K's fully integrated computer system includes point-of-purchase terminals at each store linked to a mainframe at the headquarters. Each day's activity is transmitted to the mainframe, which updates accounting, management-information, and lab-production programs. Founded in 1982, D&K has 176 company-owned and -franchised stores in 18 states and annual sales of $52 million, making it the sixth-largest optical retailer in the country.
Lisa G. Renshaw, Penn Parking Inc., Baltimore. In 1983, when Lisa Renshaw was just 21, she met the owner of a troubled downtown Baltimore parking lot and offered to work for free, in exchange for equity. The owner left town soon after, taking the loan of $3,000 that Renshaw had taken out in her name. Renshaw stayed, renegotiated the lease, and convinced the garage owner to lower the monthly payments so she would have a shot at breaking even.
She got there by doing most of the work herself. She built the business by greeting customers daily, handing out fliers, promoting heavily to Amtrak riders who used a nearby station, offering carpooling assistance, and giving free car washes to anyone who parked in her lot for five days. The lot's occupancy rate increased from less than 10% to more than 70% in three years. Today she has four lots, garnering a 20% margin on annual revenues of $715,000.
Fred Ricart, Ricart Ford, Columbus, Ohio. Like many car dealers, Fred Ricart likes to star in his own ads, singing campy parodies of well-known songs, like "This Van Is Your Van, This Van Is My Van" and "Whole Lotta Dealin' Goin' On."
Although Ricart believes that his performances have helped his company's sales, another major factor is control. Whenever potential customers visit or call the Ricart showroom, what they are looking for is logged into the company computer, as are all service, part sales, and accounting data. Ricart checks this information daily to keep tabs on customer demand and make ordering decisions. The dealership reports that 43% of its visitors purchase cars -- more than twice the national average. With sales of $232 million, Ricart Ford claims it is the nation's largest retail dealership.
William H. Willoughby, Cleveland Track Material Inc., Cleveland. Willoughby founded CTM in 1984 by purchasing a division from his former employer, Alloy Engineering. CTM produces the joints that are used to connect sections of railroad track. Capital investment for steel fabrication can be massive, but Willoughby has kept costs down by buying all his equipment at auctions.
Despite having many employees who were illiterate, Willoughby chose not to centralize management but to give employees a great deal of autonomy and accountability to customers.
CTM has made a profit from its inception, and profits have tripled over the past two years. Over the same period, sales have risen 68%, to $7.7 million. CTM is now the nation's leading supplier of compromise rail joints.
Henry Scanlon, Comstock Inc., New York City. When Scanlon, a photo-agency manager, and photographer Tom Grill founded Comstock, in 1975, selling stock photography was an aftermarket business. But Comstock introduced a new concept: spend the time, resources, and energy to build a custom inventory from scratch.
Using free, high-quality catalogs to put its inventory in the hands of advertising agencies, publishers, and graphic designers, Comstock created a new market for stock photos. The company backed its concept up with good service -- staying open long hours to be available to West Coast clients and making sure orders arrived within 24 hours -- and with a unique pricing structure that made its stock accessible to clients in all budget ranges.
Today Comstock has an inventory of more than 2 million photos, making it one of the largest stock companies in the world. In 1990 the company, which started with a capital investment of $7,500, had revenues of $9.6 million.
Thomas G. Stemberg, Staples Inc., Newton, Mass. In 1985, after 12 years in the grocery-chain industry, Tom Stemberg founded Staples and changed the face of the office-product distribution business. Before Staples, selling office products was a business dominated by low-volume, high-margin retailers. But Stemberg, now 41, saw an industry ripe for the superstore concept targeted to small and midsize businesses and to people who worked out of home offices. Deciding against a gradual ramp-up, Stemberg opened three stores within a year and got a stranglehold on market share.
Employing deep discounting, quantity buying, and a no-frills approach, Staples was able to offer its customers savings of about 50% compared with other retailers. In just its fifth year the company had earnings of $6 million on sales of $182 million, representing growth of nearly 100% over the previous year.
James W. Ake, Electronic Liquid Fillers Inc., LaPorte, Ind. James Ake may have provided the perfect blueprint for growing a company. In 1981 he owned and operated a liquid-packaging plant. The in-line and rotary fillers, cappers, and labelers he had to use were complicated, costly, and constantly breaking down. Ake, who has an engineering degree from Penn State, began to look for a better way. Using parts purchased at a local hardware store, he built a crude-looking but effective charcoal-lighter filler. He expanded the design and soon Electronic Liquid Fillers (ELF) was born.
ELF employs a simple "erector-set" system that allows it to have its inventory 70% assembled, to be completed after delivery at the destination plant. That's why the company can offer prices 10% to 15% lower than its competitors', guarantee 10-day delivery, and ask for no down payment before installation. And that's why sales have doubled every year since 1981. In 1989, sales reached $10.7 million with pretax profits running at 20% to 25% of sales.