Words from the Wise
Most founders say that their businesses would never have been started had they taken anyone's advice. Joel Benard-Cutler and David Fialkow -- who've turned mentors into a competitive advantage -- wouldn't have started theirs without it
For the two founders of National Leisure Group Inc., it was definitely not a standard business meeting. Missing were some favorite rituals: no windup gorillas clacked across the table, nobody offered a refreshing selection of Tootsie Pops. "They were really down," recalls Samuel Gerson. "I had never seen them like that. They felt as if the world were coming to an end -- and it was."
In just four years Joel Benard-Cutler and David Fialkow, 33 and 32 respectively, had built their discount-travel company into a roughly $35-million entity. Talking about it, they often made success seem inevitable, the appropriate reward for two childhood chums who had made the transition to business partners.
But on that particular evening, last January 17, neither had much to say as they marched -- slouched, really -- into Gerson's office just after 6:30 p.m. The war in the Persian Gulf had started less than 24 hours earlier. Gerson, the chairman and CEO of Filene's Basement Inc., a $400-million chain of off-price retail stores, had nurtured them from the start, financially linking his company with theirs and pounding into their heads the difference between a low price and a bargain.
Now the pair plunked down under the watchful eye sockets of Gerson's prized wall decoration, a cow's skull. For once, it didn't have the longest face in the room. "This is a very humbling experience for us," Fialkow began, his voice uncharacteristically shaky. "We've always come to tell you that our business was off the charts. We're coming here now because we don't know how we can survive this as a company." Sales had been softening since December, and for 1990 National Leisure had registered sales 20% below those of the year before. But as gulf hostilities commenced, so did an even steeper drop. That Tuesday's $160,000 in sales had shrunk to $92,000 by Wednesday and $78,000 by Thursday. That was 60% lower than the year before. And such ugly prospects as chemical weapons, terrorism, and a bloody ground confrontation led Fialkow to conclude that the war "would set us back at least two years."
After sitting quietly, Gerson cranked his voice to disruptive decibels. "Pick your heads up," he ordered. "You've got a great business. Even if you have to do some painful things, what you have done is still extraordinary." Now that he had their attention -- and probably that of everyone else within five blocks of his Wellesley, Mass., office -- Gerson proceeded to hammer a new lesson into their craniums: figure out what you have to do to protect your business, do it now, and "sooner or later, people will start traveling again."
They spent the next hour or so discussing what such a plan might entail -- tactics such as cutting employees, bearing down on vendors, and closing stores. "You guys are survivors," Gerson repeatedly reminded the two founders. When they looked unconvinced, he abandoned his supremely confident demeanor. Two and a half years earlier, he recalled, in the midst of "the most difficult days of my corporate life," as the Basement's parent company was under attack, he and his partner had engineered a leveraged buyout of the Basement. "When you think you are going to lose your business, you can't sit there and let it happen," Gerson said. "You can't."
Fialkow and Benard-Cutler wouldn't. Gerson's suggestions and his faith in his protégés had revived their will. "My job with them was to try and perk up their spirits," says Gerson. "I wanted them to run out of here."
They left that night with enough ideas, and energy, to make responsible decisions. "They felt pretty decent about themselves," says Gerson. He had fulfilled his role as a mentor.
The rest, as always, was up to them.* * *
It has been said, most memorably by former president John F. Kennedy, that "victory has a hundred fathers" -- or about as many as National Leisure does, if you count mentors in the tally.
The resource that Benard-Cutler and Fialkow, National Leisure's president and vice-president, respectively, have created is not as formal as a board of directors nor as balanced as an advisory board. Though the two men have some broad criteria (see "The Art of Being Mentored," page 5), they simply look for people who have something useful to impart. Some, like Gerson, have a clear stake in National Leisure's success. Others are former employers or family contacts. Leo Kahn was just someone Fialkow and Benard-Cutler decided they wanted to know. They had seen a profile of Kahn, cofounder of both a successful supermarket and an office-supplies chain, in a local magazine. So Fialkow wrote to him in November 1987. Now they get together at least twice a year. "I give them my honest opinion," says Kahn, 74. "Free advice doesn't cost you anything unless you take it."
Benard-Cutler and Fialkow traffic only in advice that requires no checkbook. Although some of their dozen or so mentors are consultants who would otherwise be pricey, they are usually glad to help. "I am more likely to create time for them than for a paying client," says one. He and the others do so because the two have a rare trait: an open mind. "If David and Joel tell you they think something is a good idea," says Gerson, "they'll try it."
That doesn't mean that they want others to tell them how to run their business. They don't even seek a consensus; the mentors never convene as a group. "That wouldn't be much fun," warns Leonard Schlesinger, an associate professor at Harvard's Graduate School of Business Administration. "When you are trying to dispense wisdom, you don't want to compete for airtime." His sensitivity underscores the intimacy of these relationships: though these entrepreneurs and their mentors talk about business, the real connection between them is more personal. "Sometimes, I feel as if I have been a father to them," says Jack Rollins, 54, executive assistant to the chairman of Sears Roebuck & Co.
The pair's talent for making others feel like fathers extends from their willingness to behave like ever-youthful sons. While meeting to talk business, whether with a mentor or not, they play catch with an inflatable globe or crack each other up by breaking into impersonations. Touring their offices, you half expect to find a bunk bed.
Beyond that, though, the two are so enthusiastic about their business and so eager to improve, that it's hard not to find something endearing about them. "When I look at them, I smile," says Gerson, 49. "They are where I wanted to be at their age." Kahn says his kinship with them derives from the fact that they, too, "were aware of a large market, and they found a creative way to reach it." Russell Epker, 49, general partner in a venture capital firm, feels an affinity for them because he himself had a mentor early in his career.
The same cannot exactly be said of Benard-Cutler and Fialkow. For all practical purposes, these two had a mentor even before they had a career.* * *
Most entrepreneurs brag that their businesses would never have been founded had they taken anyone's advice. The very existence of National Leisure, though, can be laid at the impeccably housed feet of one Samuel Gerson.
Gerson began thinking about offering travel in his Filene's Basement retail stores in early 1986. To mesh with the Basement's off-price image, it needed to be a discount travel agency. Most people knowledgeable about the travel industry responded to Gerson's exhortation, "Talk to me about off-price travel," as if he were asking about package tours to the Bermuda Triangle. Except Ted Cutler, a businessman whose trade-show-exhibition company includes an interest in a wholesale-travel club. He mentioned that while in law school, his son, Joel, had cofounded Last-Minute Travel Co., a small agency in Allston, Mass., that sold more than $1 million a year in very cheap trips to students and others with unduly flexible schedules. He explained that the younger Cutler and a friend, Fialkow, had recently attempted unsuccessfully to buy a travel agency.
Benard-Cutler and Fialkow had an idea they were anxious to try out. The concept, which they soon shared with Gerson in his office, grew out of the different work that each had done since law school. Toiling at his father's company, Benard-Cutler noted an oversupply of airplane seats and hotel rooms. Fialkow had been analyzing retail businesses for venture capital firms. He couldn't help noticing the dominant trend: specialty retailers that focused on a narrow range of products, squeezing the best deals from a handful of vendors.
The two entrepreneurs planned to adapt that strategy to travel. Selecting a limited number of hotels and destinations, they would buy in bulk to get better prices -- even guaranteeing those vendors a specified level of annual volume. In return, they expected the best prices, superb service, and generous co-op advertising dollars. They would spend that ad money "screaming louder than anyone else," says Benard-Cutler. Unlike typical travel agencies, which waited for consumers to drift in, they planned to drive customers in by trumpeting great deals on prepackaged itineraries to such interchangeably sunny spots as Aruba and Jamaica. Most sun worshipers, they figured, would simply grab the best deal.
Gerson saw a clear fit -- and not just conceptually. "You could put them in an area that was not very good selling space," he says. The pair spent much of August 1986 drawing up a business plan for The Vacation Outlet Filene's Basement Inc., which would be a division of National Leisure Group, which also included the two branches of Last-Minute Travel. They soon agreed to a deal whereby the Basement would collect a portion of the 487-square-foot store's revenues.
Even before they nestled in behind the handbag department of the downtown-Boston store, Gerson encouraged Benard-Cutler and Fialkow to work with his executives on design and advertising. Over marathon breakfasts, Samuel DePhillippo, Filene's Basement's senior vice-president of marketing and merchandise planning, shared demographic data. "They had to understand that our customers are people who could afford to pay more but don't," he says.
Benard-Cutler and Fialkow may have known that, but it took some time before they managed to incorporate it into their merchandising. After The Vacation Outlet opened, in November 1986, "price for us was like a drug," concedes Benard-Cutler. It was the only way, they thought, to carve a niche in the crowded market. Gerson kept pushing value. "We're not cheap here," he lectured them. "We offer outrageous savings." Instead of selling a $499 trip for $299, he said, they ought to be offering $999 trips for $699. The difference was this: consumers who were attracted to the very cheap trips were just looking at price and wouldn't have any loyalty. And they were even less likely to tell friends and coworkers about The Vacation Outlet. To Gerson, it seemed painfully obvious. "You guys are thick," he would yell. "You just don't get it."
Gradually, Benard-Cutler and Fialkow began mixing deluxe hotels, all-inclusive resorts, and cruises into their offerings. With Gerson's help -- "Mostly, he just let us watch how he did it," says Benard-Cutler -- the two entrepreneurs began figuring out how to balance the delicate equation of price and value.
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.
They mentioned their quandary to a friend, a second-year student at Harvard Business School. In January 1989 he introduced them to Walter Salmon, a professor of retailing. "They are obviously hardworking, eager, and personally attractive," says Salmon, 60. "One is inclined to help these people." When the two entrepreneurs talked about Sears, Salmon recalls, "there was a mistaken euphoria. In a young company, you always worry that enthusiasm exceeds prudence and control. It's a tricky little balance." Salmon told the pair about the school's field-study program, under which his students could volunteer to spend a 12-week semester helping them. The students would scope out exactly what kind of travel business Sears ought to consider -- discount or last-minute? unmanned kiosks or traditional storefronts? -- as well as offer recommendations on the kind of deal that seemed desirable. Salmon had his own ideas, too. The best way to scout out Sears's intentions, he repeatedly advised them, was to make some sort of interim agreement. "I urged David and Joel to get Sears to start writing checks," Salmon explains. "When someone starts writing checks, people ask, 'Hey, what's that check for?' That would accelerate the development of a final arrangement."
In August 1989 the two parties settled on what Fialkow terms a "quite lucrative" consulting agreement. "We kept imagining what it would be like to have Sears's resources behind us," says Fialkow. "But Walter would ask, 'What happens if Sears one day decides it wants out of the travel business?' He was very analytical."
Spending time with Sears executives forced Benard-Cutler and Fialkow to face some difficult questions. Chief among them: How's business? Their standard response, honed through hours of practice, was that business was, well, good. How good was it? Shhhh . . . listen to those phones. But the more detailed the questions got -- How much do you spend on training? Which draws best, direct-mail or newspaper advertising? -- the more the two risked being frozen in an eternal shrug. "The kind of analysis we had done for Sears, looking at their customers and at their systems, was better than what we had done for ourselves," says Fialkow.
It didn't take a planeload of perspective to sense problems. They hadn't been able to close the books on 1988 because "our record keeping was a bleeding ulcer," says Benard-Cutler. And profitability had been a more infrequent visitor than they might have liked, popping in and out but never staying long. The same was true of employees, who rarely stuck around.
National Leisure had to get better. And the founders knew of only one way to do that. "This is a laboratory for good ideas," says Fialkow. "And we don't assume that those are ours."* * *
The best mentors ask the right questions. From the start Len Schlesinger made it clear he was vying for that league. Here is a partial list of questions that he asked Benard-Cutler and Fialkow during his first visit with them, in early 1990: What figures do you look at every day to tell you how you are doing? What are the company's key performance measures? How do you motivate your people to make sales? What's your conversion ratio?
"They looked at me as if I were from outer space," recalls Schlesinger, who had been recommended by Salmon. It was hardly an alien experience for Schlesinger, who teaches service management at Harvard Business School.
The pair had focused mainly, and magnificently, on the top line. But the business was maturing, and the time had come for them to add a new concern to their already-long list: profits. "The issue is this," says Schlesinger. "How much money is being left on the table?"
To get an idea, Schlesinger performed a simple calculation: he took the number of inquiries and divided it by the number of bookings. It turned out that not even 6% of all calls resulted in bookings; nearly 16 out of 17 callers did not buy vacations there. Forget outside opportunities, Schlesinger soberly informed the duo. "You can maximize the opportunity you have right here."
Like the mentors before him, Schlesinger shined the harsh light of quantitative thinking into the dark corners of what Fialkow calls "instinctual" management. By asking two salespeople to log the calls they took, for instance, he discovered that 30% of the callers were folks needing more details about the trips they had already booked. Meanwhile, potential new buyers were left, steaming, on hold. That led Benard-Cutler and Fialkow to create a checklist so that salespeople would do a more complete job the first time around.
"We looked at how much we did at the end of the day, but we never looked at how much we could have done," admits Fialkow. Schlesinger, 38, became the voice of profitability, beseeching them to see things from his point of view. When the two told him they planned to start a travel club, for instance, Schlesinger said he thought it was a great idea. Then came the killer questions: Do you have something of genuine value to offer? How would it affect the core business? What does the profit model look like? "For a long time we were in business to build a business," says Benard-Cutler. "Now we're looking at making money."
For the first half of this year, Schlesinger -- who, like Salmon, has deployed some of his students to work at the company for course credit -- has been working with Benard-Cutler and Fialkow to isolate the critical measurements that chart company performance. Next, he expects to help them incorporate what they learn into day-to-day operations. "He's given us a whole new approach to problem solving," says Fialkow. "He loves to brainstorm with us."
Indeed Schlesinger does, because it provides him with an opportunity to reiterate his strongly felt message: "My best advice is that this is a gem of a business and they haven't come close to exploiting the potential of it," he says. "That's my gut. But they get what they pay for."
Of course, they don't pay a cent. "We could never afford the brainpower he gives us," says Fialkow. "At times, it's like going to a shrink."
That means that sometimes what Schlesinger -- or for that matter, any of the mentors -- has to say is painful. Their meetings with the National Leisure founders aren't just pep rallies; mentors have talked to them both harshly and convincingly about pulling away from joint ventures (Schlesinger), postponing geographical expansion (Gerson), and hiring a chief financial officer ("They all told us to do that," notes Benard-Cutler). Sometimes a mentor's job is simply to shake them and hope they wake up in time.
So it was this past January, when the war broke out. Gerson reinvigorated Fialkow and Benard-Cutler; after leaving his office, they hunkered down in a fish restaurant and drew up plans for managing a business that stayed flat instead of growing 50%. The next day Fialkow called Schlesinger. Schlesinger talked the founders though their P&L, scrutinizing every cost. Act right away, he said, so you can get through this and pick up market share.
They stopped remodeling four stores; they laid off 11 salespeople (roughly 10% of employees); they tightened and tweaked here and there. "It hurt," says Benard-Cutler.
But it worked. Although 1991 seems to be a year in which the industry is going nowhere, the company expects sales to increase about 25%. "What we have done is just a smorgasbord of things people have told us," says Fialkow. "We just try to keep learning from every person we meet."
If they keep growing, though, they may not have time to meet as many people. "When you get bigger, it gets difficult to find time to listen," says Gerson. Stuart Moldaw, a retired venture capitalist who can be counted among their mentors, cautions that "when you are a young man you listen pretty well, but then you start to think you know all the answers." Adds Leo Kahn, "All businesses are details; I've told them that." But the two founders of National Leisure aren't particularly worried about losing touch. "Not us," says Benard-Cutler.
His partner twirls a lollipop inside his mouth. "It'll never happen," Fialkow adds. "Because if it does, one of these people is bound to tell us."
THE ART OF BEING MENTORED
HOW TO PICK THEM . . .
Here are some of the questions to ponder when evaluating potential mentors:
* Is that person ready to share? Typically, young entrepreneurs on their way up simply don't have the time -- or ego -- to offer helpful advice. But people who have reached a certain level of material success get personal satisfaction from seeing others succeed. "We never go to a big braggart," says Joel Benard-Cutler, National Leisure's president.
* Can that person understand your business? If you are an entrepreneur, a surgeon probably isn't the best mentor. It helps to have some connection. Mentor Leo Kahn, for example, hasn't run a travel agency, but he has run low-margin, labor-intensive businesses.
* Does that person have credibility? "The mentors may say all sorts of obvious things, but hearing them from someone who has been there means something," says David Fialkow, National Leisure's executive vice-president. For the most part, National Leisure's mentors have run companies themselves and have battled many of the problems Fialkow and Benard-Cutler now face.
* Will that person share your values? National Leisure's founders love to talk about how they gave up six-figure salaries to start and build their business. If, after hearing about their long friendship and their serious investment, a potential mentor suggests quick-hit strategies such as going public, that person probably doesn't have much to offer. "The guys we've talked to have had similar goals," says Benard-Cutler.
. . . AND HOW TO MAKE THE RELATIONSHIP WORK
Some tips for keeping mentors enthusiastic:
* Respect the mentor's time. "There's nothing that says these people have to sit down and chat with us," notes Joel Benard-Cutler. That's why he and David Fialkow ask only for a quick breakfast rather than a formal meeting. After that, they get together with mentors about once every two months.
* Be straightforward. "We are not looking for any capital, nor are we marketing our company for sale," Fialkow wrote in a letter introducing himself to potential mentor Leo Kahn. Kahn called the pair shortly thereafter. "With them," says Russell Epker, a venture capitalist, "there's never any hidden agenda."
* Shut up. Let the mentors do the talking. "We just ask questions," says Benard-Cutler. They show their seriousness about listening by actually implementing some of the ideas they hear. "That's the greatest compliment of all to someone," says Fialkow.
* Pay promptly. Not in money, of course. But in gratitude and feedback. "There have been a number of times when they have gone different routes from those I suggested," says Epker. "But they'll call and say, 'We just wanted you to know we did it this way, but we still appreciate your input.' " Sometimes mentors even get feedback from a third party. "I'm always running into people who say, 'David told us how you helped him.' "