What's Luck Got to Do with It?

Julian Danielly repeatedly anticipated marketplace changes before his competitors did -- and has emerged as the world leader in latex-glove and -condom manufac-turing as a result. It didn't happen by accident

Emerging Entrepreneur:
Julian Danielly, Aladan

From the very start, Julian H. Danielly has left little to chance in building Aladan Corp., based in Dothan, Ala., into an industry leader. In fact, just about the only element of luck, if you can call it that, occurred when he was fired by his previous employer, Ansell Corp., a latex-glove and -condom manufacturer, in August 1986. He had been kicking around the idea of starting his own business with a fellow employee, Larry Povlacs, who had been building glove machines for most of his professional life. When headquarters got wind of what the two partners insist was nothing more than a pipe dream and a spreadsheet, Danielly and Povlacs found themselves with quite a bit of free time. Soon thereafter, they incorporated Aladan and embarked on an enterprise the size and scope of which neither man had seriously imagined.

Danielly's experience had certainly prepared him. Before joining Ansell, he had been a big shot at G.D. Searle, heading up its Health Products Division, which he had helped grow to $500 million in revenues and 3,000 employees by 1981. When G.D. Searle struck gold with aspartame, the artificial sweetener, Danielly was ordered to sell off the comparatively humdrum empire he had spent nearly 20 years building.

He had a hard time finding a buyer for the ugly duckling of the lot, the glove and condom division, but he eventually found a group of Australians who, he remembers, "desperately wanted to enter the U.S. market." They named their new company Ansell Corp. Povlacs, a Searle employee working in the division, went with the deal, and later Danielly joined him to establish Ansell's sales and marketing operation. Danielly talked until he was blue in the face to Ansell executives about the impending glove boom he envisioned and the need for more factory capacity, but they wouldn't listen. By the time he and Povlacs were fired, Danielly had had it with corporate politics. With Aladan it would be solely his own savvy that could make or break him.

By late 1987 AIDS awareness had created what appeared to be a shortage of gloves, as hospitals and dentists began hoarding inventory. Danielly milked that situation for all it was worth when financing Aladan. He got investors to fork over $2 million for slightly more than 50% equity. The risky start-up received industrial-development bonds, a financing mechanism usually reserved for more- established companies. Finally, anxious customers agreed to sign legally binding five-year purchase and supply agreements with the company -- superb terms for a start-up.

Meanwhile, Povlacs had drafted blueprints for an innovative $3-million glove machine that would be twice as efficient as existing machines and would produce a glove that would be an effective barrier to AIDS -- a new twist for a product intended until that time just to keep hands clean. By comparison, according to Povlacs, fly-by-nighters were slapping together $350,000 machines that churned out small amounts of shoddy product. As a result, on the day Aladan broke ground for its factory in Dothan, in July 1987, the company was about nine months ahead of the herd of glove suppliers.

Even within the context of the glove boom, Danielly's deals were shrewder than those being struck by others in the business, which helped make Aladan a major player in less than two years. Being the first to reach the market with additional supply during a shortage has its advantages. Aladan accomplished its five-year plan in one year, raking in an extraordinarily profitable $20 million in 1988. But through factory innovation, shrewd selling, and product diversification, Aladan has distinguished itself from flimsier start-ups and established itself as a company to be reckoned with over the long haul.

Latex exam gloves are an essential but low-margin commodity product for distributors that sell thousands of products to hospitals. Glove manufacturers have watched prices fall from an average of $5.25 per 100 in 1986 to $3.60 today, and the prices continue to drop. In that time, glove prices have fluctuated wildly, from a high of $12 per 100 to a low of $2, creating a highly volatile market in the formerly staid industry.

Total glove sales in 1992 were estimated to be $300 million. In units, the market has tripled since 1986 and is currently experiencing a 10% growth rate, but the competition is brutal. Aladan holds 17% of the global market, and its revenues for 1993 are closing in on $55 million for gloves. Ansell, the market leader when it let go of Danielly, now lags behind Aladan in market share. Smith & Nephew Perry, another major player in 1986, is out of the examination-glove business altogether. Baxter Healthcare Corp., the glove-sales leader with 22% market share in dollars, is struggling to keep major customers, setting the stage for Aladan to gain even more market share.

Still, as glove prices continue to slip and the quality of imported products improves, the company faces real challenges to its growth.

"Selling stock was about the only thing I hadn't done as a businessman, and it was a lot tougher than I imagined," claims Danielly, who started pitching investors soon after Aladan had been incorporated. In round numbers, Danielly and Povlacs had $200,000 in cash invested in the company. Danielly pegged the value of their idea at $5.6 million. The two had agreed from the outset not to become sharecroppers, "farming" gloves for a pittance and turning over the profits to investors. Danielly figured $4 million for 40% of the stock was plenty fair.

Initially, the market explosion that was so crystal clear in Danielly's mind's eye was incomprehensible to those he approached, but as AIDS awareness gained momentum, so did Aladan's fortunes. Houston County, Ala. (where Dothan is located), came across with an offer: it would give Aladan $3 million in industrial-revenue bonds, which are an incentive tool commonly employed by county governments to lure new factories. The bonds are tax-exempt and can be used to underwrite construction. The issue was contingent upon Aladan's finding a bank to back it.