The Rest of the Story

In the February 1990 issue of Inc., Drix Niemann recounted his family's search for the ideal business. Here, nearly two years later, he describes the dark side of his American dream

Author's note: In March 1989 I began a seven-month odyssey, searching for just the right business to buy. [See Inc., February 1990, " Buying a Business."] I was 37 and not a novice: I had previously cofounded and run a regional magazine, started another magazine, run a public-television network, and, most recently, been chief executive of an independent TV-news company. I specifically made the decision to buy, not start, a business. I felt I was not in a position to risk everything at this stage of my life. I didn't want to spend a year at something and have it not work. I didn't want to make the emotional commitment I knew a start-up entailed. I didn't want something that would take tremendous time away from my wife and three young daughters. And, most important, I didn't have a Big Idea for a new business, anyway.

At the end of May -- several lawyers, accountants, and bankers; 17 business brokers; dozens of blind box ads; and numerous dead ends later -- I met with a broker and the owner of a 26-year-old security/access-control company, Automatic Door Specialists Corp., in Laurel, Md. It felt right. Sales were near $2 million, cash flow was pretty good, the owner -- Peter Klosky -- was retiring, and the company was highly leverageable.

We signed a letter of intent in July, at which point I decided to devote all my time and energy to closing the deal. Over the course of the next two months, I undertook extensive due diligence, including in-depth discussions with the senior employees; a thorough review of three years of financials, the checkbooks, and the payables and receivables files; a two-day visit by my accountant; and a grueling physical inventory that lasted another two days. The company's warts turned up faster than I could count them. For one thing, I learned that once Klosky had finally made the decision to sell -- the company had been on and off the market several times over the previous five years -- the business had gone into a tailspin. Sales had fallen by more than 50%, to less than $1 million. Several key employees had left, and those remaining were demoralized. The company was losing money.

On the other hand, there was still a good possibility that the company could rise again. Several remaining employees were extremely talented and well-thought-of. The customer list, although it had suffered some attrition, still included numerous large and prestigious companies and federal government agencies. Better yet, the company was on a lot of Rolodexes and was constantly getting calls to bid on jobs. There were still some decent product lines, at least enough with which to start the rebuilding effort. In the end my wife, Judi, and I decided to go ahead and buy the company after getting Peter Klosky to cut the asking price in half. We felt confident that we knew everything it was humanly possible to know about the business; there would be few surprises, which would likely not be the case with another company. We closed the deal in October 1989. This is the rest of the story.

Never, but never, I thought, had an owner known so little about his business. Or been so totally at the mercy of his employees. Here I was, having owned my company for six months, and I still had only the most rudimentary understanding of automatic doors and gates, parking equipment, electric locks, card readers, and other security/access-control equipment.

The staff knew it. Sometimes they would draw a problem on the blackboard for me. "See, Drix, we've got a master-slave gate here, and the slave gate isn't closing. When I pushed in the contactor with my finger, the slave gate closed, so the problem had to be that the contactor coil wasn't pulling in. I traced the wire and found that the slide-on connector had come off and the coil wasn't getting any power. You understand?" Sure.

By far the most humbling event of the day occurred when there was a service or installation problem and one of the techs would call to get advice from Howard Ballenger, our director of operations. If I happened to answer the phone and Howard was not in, the techs knew I couldn't help them. I'd ask what was wrong; there would be a moment's hesitation. I knew they were thinking, Drix knows nothing, but he does own the place, so I suppose I should at least tell him the problem.

They'd describe the situation. My response? "Try to beep Howard or Darvin." (Darvin Brothers is our field supervisor.) "Otherwise, I'll have Howard call you when he gets back."

What's more, I barely even knew what business we were in. I had thought we were in the security/access-control industry. It turned out we were kind of a subset of the construction industry. I had never had any desire to be in construction or anything remotely resembling construction. Yet, as often as not, we were not dealing directly with the ultimate customer. We were dealing with a general contractor or an electrical contractor or a security consultant or an architect. And that person usually would determine which subcontractors to use based on one thing and one thing only: price.

That was doubly true of government work. A government agency that wanted, say, a new automatic sliding gate simply went out and got three price quotes. The lowest bidder got the job. There was no selling, no trying to convince someone of the merits of your product or your company. So either you lowballed your bids to get the work or you didn't work. Guys who worked out of their cars or basements ("trunk slammers," as they are called in our industry) and who subcontracted everything out beat us regularly on price.

One of the things I thought I was bringing to the company was marketing and sales expertise (as well as a total commitment to customer satisfaction, and an ironclad guarantee that we would stand behind our work). I hadn't known enough to delve into the intricacies of the bidding and decision-making process on jobs. And everyone from the former owner on down had said that what the com-pany needed in a new owner was a knock-'em-dead salesperson/marketer. Wrong. What the company really needed was someone who knew enough about the industry to figure out how to shave that last 4% or 5% off the bids, which had been Peter Klosky's long suit. To my chagrin, I realized that as far as most customers were concerned, we were selling a commodity, not a service. But I couldn't, or wouldn't, do business that way.

We had several strikes against us in a commodity-like market. Unlike the trunk slammers, we were committed to having a full service department and a full installation staff, which are expensive. Our product lines were good quality and therefore not the least expensive.