Beyond the concept itself, Gerson hoisted them over specific start-up barriers. Shortly after opening, the two heard from their vendors that other retailers were pressuring the vendors not to do business with the new vultures in town. Welcome to the off-price business, Gerson said, when the two founders plunked down dejectedly in his office. He suggested that they offer their own private-label packages, rather than simply sell a specific hotel or airline at a slashed price. That way, explains Fialkow, "no one could tell whether the discount was coming from the airlines, the hotel, or the car rental. We had never thought of doing that. His advice really helped us."
In Gerson's mind, though, there was no clearer sign that they had absorbed his preaching than when the pilots at Eastern Airlines went on strike, in March 1989. The Vacation Outlet had customers who were stranded, and families packed and ready to go to Walt Disney World. By the time the two founders got on the phone to Gerson, they were already pretty set on what they were going to do. "Get home any way you can and we'll reimburse you," they told travelers who were trapped. Then they rebooked other customers on different airlines, paying the difference themselves. The bill came to some $350,000 -- forcing them to borrow more than $180,000 and nearly erasing profits for that year. "I can't make the decision for you," Gerson had said over the phone. "But I know you'll do well by me."
That they did. "They were mature enough to understand that without the customer, they were nothing," recalls Gerson. "They understood that they had to protect the franchise and that in the long term they could come out ahead as a result of a short-term whack. That kind of integrity was something very gratifying to see."
Benard-Cutler and Fialkow had taken his idea and brought it to life, expanding from the original downtown-Boston site into three other Basement stores in their second year. Consumers weren't the only ones taking an interest. The founders would soon face some even tougher choices about where else to take the idea. Naturally, they weren't about to make those decisions alone.
* * *
What Benard-Cutler and Fialkow had done was nothing short of pioneering. No, scratch that -- visionary. No one had ever before sold travel this way, applying such retail-merchandising devices as warehouse sales, during which they put the squeeze on their vendors for deep discounts and whipped up demand through heavy promotion. In one day, during the crummiest period of the year, they could land sales of nearly $800,000. These two were the most daring travel figures since Charles Lindbergh.
Or so they were told every time they picked up the phone. On one line, there might be a supermarket chain that wanted to sandwich The Vacation Outlet between its aisles. Or a low-end discount store eager to offer a dirt-cheap version. Hey, cooed another voice, have you boys ever thought of offering vacations through a catalog? During the summer of 1988, with sales from their half dozen or so stores nearing $7 million, Benard-Cutler and Fialkow began serious negotiations on two fronts: they were wrangling to acquire a major retail-travel company, and they began talking to Sears Roebuck & Co. about the possibility of teaming up. The huge national retailer planned to get into the travel business and wondered if the two could consult. "They sure were selling a heck of a lot," recalls Jack Rollins, the Sears executive.
There was only one way to navigate that vast and unfamiliar terrain: find guides. "They can save you from dead ends," says Fialkow. It didn't take long to identify Russell Epker or Harvard Business School professor Walter Salmon.
Fialkow had worked under Epker at an LBO firm one summer during law school, performing due diligence on companies being considered for acquisition. Now when National Leisure weighs an opportunity to buy or sell, Fialkow turns to Epker for advice. This past July Fialkow went to see Epker at his current firm, Berkshire Partners, about an acquisition that would turn the two neophytes into big-company executives but quick.
Epker wasn't sure that they were ready to assume that role -- and not just because Fialkow, despite constant entreaties, refused to subdue his hair. "They got enamored" of deal making, Epker says. At one point he actually had to run alongside Fialkow to get him to focus on some of the lifestyle issues: You're great at taking advice when you want to, he noted, but how will you feel working for somebody else? Will you mind traveling 80% of the time? What do you think your current business is -- and could be -- worth by itself? Have you considered the possibility that the business you are acquiring could bring down the whole company? "It was a matter of getting them to answer for themselves a series of questions that anybody could have asked," says Epker.
Anybody with the physical stamina, that is. Although Fialkow and Epker set out to trot three miles, they actually ran eight. "I felt it was important," says Epker. "One of the things I do relatively well is ask, What do you really want?"
Not that acquisition, as it turned out. Nor another that the pair seriously courted. "We were a little premature," admits Fialkow.
The Sears deal, however, hadn't been a yes-or-no proposition. "Their original role with us changed monthly," concedes Rollins, of Sears. "One month we'd say, What we ought to do is buy them; the next month we'd say, They should be a concessionaire." What Benard-Cutler and Fialkow needed, then, was a mentor who could help them analyze what kind of deal would be in their best interest.
