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Watching the Cash
Bill Bindley may be a rich man today, but he got there by being cheap.
Maybe frugal is a nicer way of putting it. Or as Bindley likes to think of his management style and his company, "penny-wise." Whatever.
What's striking about Bindley is that he has been extraordinarily successful at what we at Inc. sometimes call bootstrapping -- growing a company with internal financing alone. Today Bill Bindley's company, Bindley Western Industries Inc., in Indianapolis, is one of the nation's largest pharmaceutical distributors, with 1991 sales of $2.4 billion. What's more, Bindley financed his company internally from its start-up, in 1968, to the time he took it public, in 1983, when it had sales of $480 million.
You don't grow a company that big on sweat equity without being a master of cash management. Here are a few of Bindley's secrets:
Use "vendor capital." Before he started out, Bindley decided the only way to finance his business was by getting paid before his own bills were due. That way, the more business he did, the more working capital he'd have. So he got ordinary 30-day terms from his pharmaceutical suppliers; in exchange for his extra service, he got his retail customers to agree to 10-day to 15-day terms. From the beginning, he grew his business on that spread.
Keep your promises. Bindley stresses the importance of always meeting whatever terms you agree to. (Another bootstrapper among this year's winners, semiconductor manufacturer Atmel Corp., even tried to pay small suppliers early, to get good credit references that would aid growth.) "The one main thing I preach and preach again is credibility," says Bindley. "You have to not only establish but maintain and maintain and maintain credibility." Once you slip, he points out, few people will give you a second chance.
Make every penny count. Better yet, obsess about every penny. At Atmel, chief executive and founder George Perlegos still signs most purchase orders, even though the company had 1991 sales of $120 million. And even when Bindley Western was a start-up operating out of a warehouse basement in Terre Haute, Ind., Bindley routinely placed his money in overnight investments at money-center banks to get as much mileage as possible out of those days of float.
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The Niche Picker
You've got to hand it to Bill Tobin. Now on his eighth company, he seems to have a pretty good knack for spotting a business niche -- at least judging from his latest start-up. PC Flowers Inc., in Stamford, Conn., and Oakton, Va., allows customers of videotex services like Prodigy to order flowers by computer. PC Flowers, a member of the FTD network of florists, then transmits the orders to other member florists and gets a share of the revenues. What makes that such a desirable niche? Well, for one thing, Tobin and his partner, Peter MacMurray, are able to run their highly profitable three-year-old company with just 10 full-time employees -- even though it had $3 million in 1991 sales. That probably has something to do with the fact that the company is primarily an order-taking machine: it has no inventory and gets paid immediately by its customers' credit cards. "I don't know anything about flowers," Tobin admits.
Pay for Performance
Years ago Lewis Smoot Sr. decided to run his family's construction company on an open-book basis, sharing his financial information with his employees. "I don't want a hidden agenda," he says. "Life is too short."
That's an unconventional approach in the construction industry, but it's working for Smoot: The Smoot Corp., based in Columbus, Ohio, grew by 32%, to $81 million, from 1989 to 1991. And the company has earned such respect in Columbus that the regional judges named him their area's Master Entrepreneur.
Like many of this year's regional winners, Smoot is a firm believer in tying employee compensation to company performance. The Smoot Corp. uses a two-tiered approach: there's a profit-sharing plan for employees' retirement, but to create a more immediate incentive, Smoot writes bonus checks to the involved employees after each successful job. Other Entrepreneur of the Year regional winners have different approaches, ranging from incentive pay to equity to everything in between, but the effect is the same. For example, UltraCare Products, of Marion, Ohio, one of the national finalists in the Emerging category, has a "gain-sharing" program that rewards plant employees with 50% of the savings each month that the diaper-manufacturing company keeps defects, downtime, and scrap below set standards. "I can't think of anything we've done that's had a more positive impact on the bottom line," says company president Randy Schaaf.
