And were gone by the following January, after alienating longtime employees by dictating how the company should be run. Tingey says that Ellertson, who lasted longer, called the salespeople teenagers, claimed his old sales force could sell rings around them, and instituted a draconian compensation plan, under which the sales force lived or died by monthly sales volume. Soon salespeople were ignoring long-term development to boost their numbers.
Seastrand, who served barely two months, handed down a code governing inventory and order processing. Some of it made sense, but his contemptuous manner, McCloskey says, got in the way. "Both of the outsiders had tremendous talent, but people hated them." For their part, Seastrand and Ellertson say they had begun to introduce some of the professionalism they had been asked to provide when McCloskey's ambivalence and interference sabotaged them.
Sadder but still not wiser, McCloskey made another attempt to graft some professionalism onto System Connection, merging it in February 1993 with a Salt Lake City company called Angia Communications. Because other companies quickly copy the latest cable, it soon becomes a commodity. A few smart cable companies have solved that problem by obtaining proprietary technology and engineering capabilities beyond the cable market. McCloskey hoped to do that with Angia, which designs and manufactures tiny fax modems for notebook computers.
But he had ulterior motives. "Rick still didn't feel strong at day-to-day administration," Brad Bullough, the head of operations, recalls. "He had hopes -- we all did -- that the head of Angia, Kirby Cochran, could handle that." So Cochran became president, and McCloskey assumed the title of chairman.
"Shortly after the merger, I realized I'd gotten into bed with the wrong guy," McCloskey says. "He went hog-wild with spending." Worse than that, "I believe his real motive was to get big, go public, and get rich quick. That's totally against our philosophy."
Employees saw the contradiction, too. "I took one look at Kirby," Dale Erling says, "and I saw Carl Icahn. I thought, He'll clean house." Cochran resigned after two months. As with earlier failed experiments, McCloskey quickly cut his losses. But he couldn't just put the episode behind him. "It was like we'd ripped out a part of ourselves and thrown it to the dogs."
The board met again to choose Cochran's successor. McCloskey was no longer the majority stockholder; he had to apply for the job if he wanted it, and he wasn't sure he did. He'd never been very good at it, anyway -- he was a founder, not a manager. So he listened as the board discussed candidates -- none qualified, in McCloskey's opinion. Then the board considered bringing in another outsider. And McCloskey woke up. The dark ages had taught him how special the culture of his company was and how different -- how bad -- it could be. "That made me realize how much I wanted it," he says. "Not the title but the ability to determine the type of company we were going to be."
* * *
When he started his company, McCloskey entered into an unspoken contract with early partners and employees -- a contract every bootstrapped entrepreneur understands and exploits. Employees understand it, too. You ask them to sacrifice, to do more in a week than most people do in two, and in return, you offer to take them with you as you climb. That doesn't mean that the secretary who cut checks between phone calls in the early days can handle CFO duties for an international business; it's not that simple. But with the contract come certain expectations.
"Everybody thought they could be owners, that one day they'd share in the pie," Erling says. "When these outside guys came in, we all thought, You've got to be kidding. Many of us had applied for those jobs. I did. I came up with a whole marketing plan. But the marketing guy came in at double my salary."
There's a second provision to that bootstrapping contract: that you'll respect the knowledge and the experience of the employees who brought you this far. Of course, sometimes you'll need outside advice. But you'll invite employees to help solve problems, instead of imposing solutions from above.
"They weren't just giving advice," Dennis Dickinson recalls of the outsiders. Dickinson, the distribution and warehouse manager, is an old friend of McCloskey's, with 25 years' experience in distribution. "They told us, 'This is the way the world is.' Yeah, well, I've been in it. Where were they when we built this company? When we outgrew four buildings in five years?"
When McCloskey broke that contract with his workers, he undermined their bootstrapping ethic. "I've realized how fragile it was," he says. "You can blow it all with one or two bad decisions."
Now he's trying to repair it. He can't go back to the simplicity of the company's pioneer days. Through the dark ages, the company continued its frantic growth -- to anticipated sales of $25 million this year -- so it needs controls more than ever. System Connection can never again be the company it was. But it can operate according to the same principles and apply them to its new circumstances, if it can develop controls that sustain frugality and fellowship.
Once again, McCloskey is president. Jon Tingey is still with the company as executive vice-president, focusing on sales and marketing. McCloskey has come around to some of Tingey's ideas about the value of budgets and job descriptions and other such noisome things. He accepts them now because he believes he can develop them within an ethic of bootstrapping.
"Our people know as much as any manager does about what needs to be done in their departments," he says. "We can't treat them as robots, to be programmed by someone from outside. We've got to tell them when there's a problem and ask them to think up a solution." McCloskey is loath to say "empower." But that's what he's slowly begun to do.
Recently, employees reorganized the shipping department and wrote their own job descriptions. This past summer the company introduced a new profit-sharing plan, based on net profit before taxes, with a certain percentage of each worker's salary -- a flat percentage across the whole company -- paid quarterly. The company has tried profit sharing before. The difference this time, Sorensen says, is that information will be shared. Which is why in June, CFO Sorensen led three weeks of classes in the company's finances for all 130 employees. First they learned to read a balance sheet, an income statement, and a cash-flow statement. Then they tackled ratio analysis. Finally, they reviewed the company's financial statements from 1987 to the present. Like the old bootstrapper he is, Sorensen told them that "there are two reasons companies go out of business: one, poor management; two, problems with cash flow." Workers will help avoid the latter only if they know where the money goes.
It's only a beginning. The key to success, McCloskey believes, will be consistency. And that will be difficult; the company's saving grace during the dark ages was its willingness to make changes quickly, to cut losses. And those quick changes were possible because the McCloskey of old never let go of control. What will happen this time when empowered workers make expensive mistakes? "We've got to let that happen," McCloskey insists. "We've got to try."
