Slowly but surely, day by day, Jim Kilmer is learning about the world of company building. His years as a manager at the H.J. Heinz Co. were by no means in vain. They just hadn't prepared him as well as he had expected
Jim Kilmer spent 13 and a half years building a career and a set of skills at the H.J. Heinz Co. For nearly all that time, he pictured himself staying there happily -- perhaps even for his whole working life. Kilmer had joined the Pittsburgh-based food giant, famous for its ketchup and pickles, as an accountant just three years out of college. At the time, he and his wife, Vickie, had a two-year-old son. And with the help of the bank, they had recently bought their first house, a compact brick colonial about 10 miles from Jim's office.
One of the great things about working for a multibillion-dollar company like Heinz, Kilmer found, was the freedom and the mobility to learn new things. Whenever he lost enthusiasm for his current job, he'd nose around within the company for something new. After a couple of years of doing internal audits as part of the corporate staff, for instance, he moved into manufacturing, where he was part of a group that helped Heinz's factories with scheduling problems and product launches. Then he did a brief stint in management information systems. Going into it, he told Vickie he hoped the job might be a launching pad for where he wanted to go next -- marketing and sales. And sure enough, it was. Seven years into his tenure at Heinz, Kilmer, who by his own count was about 60 pounds overweight, got to repackage himself as an associate product manager working on Heinz's expanding line of Weight Watchers products, a label that spans everything from salad dressings to a diet Snickers bar.
The Weight Watchers sales-and-marketing job was full of excitement. Not only was the product line getting bigger all the time, but everywhere Kilmer looked there were opportunities to make an impact: tasting new recipes, shaping decisions about packaging and pricing. It wasn't unusual, he says, to get involved in a handful of projects in the course of a day.
For two or three years Kilmer was as happy as could be: the job was satisfying and demanding. "The ability to make decisions and the sense of control," he says, "were almost narcotic." He'd leave home by 7:30 a.m. and return at 7 or 8 p.m. to a family that, in many ways, functioned without him. Heinz liked him, too, promoting him to brand manager in charge of a new line of frozen novelties.
But before long, a feeling of frustration began to set in. A new boss took over as vice-president of marketing, and Kilmer could feel his own power to make decisions slipping away. Now every suggestion or proposal he made had to undergo a formal review. Little things that needed quick attention -- like a purchasing decision on new packaging equipment -- were held up for weeks or longer. The adjustment was more than Kilmer could stand. At home he became dark and withdrawn. A couple of times he rushed off to the local emergency room with chest pains. "Every week," he says, "I'd go through a bottle or two of Mylanta." He knew that something had to change when, early one morning in 1990, while gathering up the gumption to tell an assistant she was being laid off, he realized he was, in fact, envious of her. He remembers thinking, "Why her? Why couldn't Heinz be laying me off?"
Back home, Vickie reminded her husband of the simple pleasures of employment: a salary that was brushing up to $80,000, for instance; health insurance; the bigger house they'd been talking about. "My dad worked in the same steel mill for 40 years," she pleaded. "He hated it, yet he kept going back." But it was in vain. On the last day of February in 1991, Kilmer (who, following the guidelines of Weight Watchers, had recently shed more than 50 pounds) packed up his office and drove home. At 38, with an at-home wife and two growing boys, he had no job and no specific plans. What he did have was six months of severance pay; some savings, totaling around $50,000; the assets of his 401(k) plan, which he prayed he wouldn't have to touch; and a belief that there had to be a better way.* * *
For a few weeks Kilmer sifted through a hodgepodge of possibilities. Maybe he'd relocate the family and go to work at another big company. Or maybe he'd stay put and hook up with some people he knew -- or didn't know -- and buy part of a local business. But none of the ideas really grabbed him. At some companies he checked into, like Kellogg, brand managers had even less control than he'd had in his last months at Heinz. Eliminating one option after another, Kilmer focused more and more on the thought of starting a business.
"Given all the things I did at Heinz," he says, "I knew I had the ability to run a business." By now he was considering three or four possibilities. The big question was, Which one would it be?
Casting about for direction, Kilmer set up a meeting with Dwight Baumann, the director of the Center for Entrepreneurial Development, affiliated with Carnegie Mellon University. (Vickie had found the center while flipping through the local phone book.) Baumann, a rumpled engineering professor in his late fifties, listened carefully as Kilmer ran through his list of possibilities. Sipping coffee in a dimly lit meeting room, Baumann tried to react as constructively as he could.
Kilmer's first idea, a gourmet-snack-food business, didn't impress Baumann at all. For starters, he noted, the snack-food category was saturated. What did Kilmer know that would make him successful in that industry? Kilmer's second idea, a low-fat vegetable cookbook, didn't strike much of a chord with Baumann, either. Pursue it in your spare time, he advised. But when Kilmer mentioned his third prospect, based on a little-known vegetable called spaghetti squash, Baumann listened. Kilmer talked about how he'd become a spaghetti-squash devotee when he was losing weight; the vegetable, while filling, was low in calories. His idea: buy raw squash, peel it, chop it, and package it for the convenience of supermarket shoppers.
Baumann fired away with questions. What would the business realistically involve? How would Kilmer make money on it? What type of equipment would he use to lower the cost of labor-intensive peeling and chopping? How long could the peeled spaghetti squash stay fresh in the store? And how much money did Kilmer have available to invest? Kilmer didn't know all the answers, Baumann recalls. "But when he talked about spaghetti squash, he really sparkled." Based on the enthusiasm he saw and Kilmer's background, Baumann encouraged him to pursue the idea.
Kilmer immediately went to work. For the next four or five months, he was scooting off in a hundred different directions, trying to answer basic questions about how his business would work. Where would he buy his raw squash, for instance? And how would he go about processing it, packaging it, and getting it into stores?
Kilmer was amazed to find how many resources there were for helping someone create a business. At Heinz, his network had been internal -- specialists in every discipline imaginable sprinkled around the organization. "We thought we were the only food company," he says. "If I had a problem, the last thing I'd do was to call someone at Stouffer's." But on his own, he began to start a network from scratch.
Kilmer's outgoing personality stood him well. He wasn't the least bit shy about picking up the phone and asking for referrals. In addition to Baumann's Center for Entrepreneurial Development, people at the Enterprise Corp. of Pittsburgh told him how to beef up his business plan; a Penn State University lab provided technical assistance (under a grant from the Ben Franklin Technology Center) on how to extend the shelf life of squash; somebody else introduced him to an accounting firm; a recommended law firm gave him 18 months of legal work for virtually nothing.
Both as moral support and as an extra pair of hands, Vickie (who worked as a substitute teacher) plunged into the start-up. In no time flat, she shifted from being a mom who was always home when the boys came back from school to a working parent who, like her husband, was usually away until 7 or 8 p.m. "One of the first things we did," she says, "was to go out and buy a beeper," so the boys, then 11 and 14, could track her down if they needed to.
Working together as "mom and pop" had its advantages, at least at the beginning. For one thing, nobody had to ask Kilmer how his wife felt about his risky venture: for important meetings with prospective vendors and other contacts, Vickie was right there (sometimes weighted down with a Styrofoam cooler full of squash). Like college students gearing up for finals, the Kilmers crammed for the market test during the spring and early summer of 1991. But truth be told, working side by side wasn't all it was cracked up to be. Jim was annoyed by Vickie's constant stream of questions about why they were doing things one way and not the other; he also resented it whenever Vickie wasn't available to help out. Vickie found that hearing about every blip in the business and being on call every minute were too much. Eventually, she says, "we decided we'd rather stay married." She took a $6-an-hour job at the local library and in an instant became the family's number one breadwinner.
To keep expenses down when the market test got under way that summer, Kilmer did as much as he could himself, calling in part-timers only when he was swamped. When he wasn't peeling squash on into the night (in a kitchen he rented by the hour from a local caterer Vickie knew from the PTA), he was cooking it or wrapping it or packing up coolers and making deliveries or sales calls at stores. Ideally, he would have made his drop-offs in a refrigerated truck, but he made do with his 1983 Buick Skylark. On hot days he just cranked up the air conditioner and hoped for the best. There were times Kilmer felt like Clark Kent, changing his clothes four or five times to accommodate all the different jobs he had to do in the course of a day.
The busier he got, the better time he had. "I ran on adrenaline. I thought about stories I could tell my grandchildren." Some days he'd set up a card table in the aisle of a supermarket and cook up spaghetti-squash cheese crêpes for customers to try -- one more thing he'd never been called on to do at Heinz. Of course, it helped that the market test was going well: on average, the 23 targeted stores were selling twice as much spaghetti squash as Kilmer had forecast. At revenues of only $500 to $1,000 a week, the test itself wasn't a moneymaker; in fact, it continued to be a $4,000-a-month cash drain. In Kilmer's mind, though, he had proved what he'd set out to prove -- there was a market. Now it was time to turn it into a commercial enterprise.
Kilmer admits that, coming from a big company, he didn't have a lot of experience in raising money. "At Heinz," he says, "financing involved requesting to have your budget funded. And when you ran out, you asked for more." Still, he fantasized that, as a former Heinz manager, he'd have no trouble attracting investors who would trust him to run the business. Wrong. The wealthy people he courted were very demanding. How big a plant did Kilmer intend to have? Where would it be? And what kind of production and distribution costs did he expect? He didn't have all the answers. And each time he grabbed a few hours to scope out potential facilities for his squash factory in the greater Pittsburgh area, he came back shell-shocked. "They all looked like Superfund sites," he says.
Just as he started to panic, a local business owner introduced by Kilmer's lawyer came through. He was ready to commit $500,000 in exchange for about 30% of the business. But as the lawyers worked over the details, the terms became unpalatable. In one provision, for instance, the investor could grab 70% of the business if its financial ratios weakened more than a little. Upon hearing this, Kilmer gagged. It might fit an old-line steel company, he thought, but not a start-up like his. Yet another lesson in the world of start-up financing. In early June 1992 he walked away from the deal. No money. No production. No company.* * *
Jim and Vickie Kilmer made a pact that if Jim didn't have the investors he needed by September 1, 1992, he'd begin searching for a "real" job. A few weeks before the deadline, he cut a deal with three individuals; for $500,000, the investors received a little less than half the equity.
Lining up the investors turned out to be the easy part. To buy the vacant facility he finally located 35 miles from home and to do the necessary improvements, Kilmer needed more money. How much? Well, each time he added up the figures for the 17,000-square-foot plant, for the state-of-the-art cutting and blanching machines, for improvements to the water system, and, oh yes, for that refrigerated truck, the numbers kept rising. Where did you draw the line? "It's amazing how many costs came out of the woodwork," he says. Gradually, it dawned on him that beyond the equity financing he'd just raised, he'd need to borrow (gulp) another $1 million.
In his usual fashion, he got on the phone again. He found it wasn't hard to identify the best sources with the help of some people from a local economic-development agency: a loan from a local bank, guaranteed by the Small Business Administration, for one piece; a loan from the Pennsylvania Industrial Development Authority for another; to complete the puzzle and take him over the top, maybe some money from a state-sponsored equipment loan fund. On paper it looked great. But the bank wouldn't budge until the SBA signed on. The SBA wanted to wait until the state loans were committed. And the state refused to go in without the SBA. Kilmer spent several depressing months waiting for the standoff to end -- and writing checks for nearly $100,000 for application fees, appraisals, environmental studies, and lawyers. "You begin to realize," he says, "that you're really not a priority on anyone else's agenda."
To avoid paying rent, Kilmer made an office out of the enclosed porch on the back of his house. He'd ask visitors -- engineers, equipment reps, prospective employees -- to circle around the back, a feeble attempt to limit disruption in a house with one bathroom. A neighborhood woman who helped out part-time would frequently arrive at the back door just as Vickie was walking out the front. "Our other neighbors must have had a field day," Vickie says. Finally, nine months into the process, a $1.1-million loan package fell into place.
The day of the closing, Jim and Vickie sat in Fay-Penn Economic Development Corp.'s conference room, in Uniontown, Pa., signing their names to several inches of loan documents. "We signed papers for three hours," Vickie recalls. They pledged their house and virtually everything else they had -- "our children and even our first grandchildren," Vickie says. It all seemed abstract to her until she returned to work that April afternoon and her coworkers asked her how it had gone. "I was shaking," she says, "and tears were streaming down my face. Fortunately, they were real understanding. My boss had gone into debt for a business -- one that failed."
For Jim Kilmer, the closing was less significant, although it did mean he could finally draw a paycheck for the first time in 18 months. As he saw it, the new business, Remlik (his last name spelled backward) Foods, was one step closer to reality. But how many more steps remained? One thing he was becoming more aware of was the extent to which time really did mean money. He was glad he hadn't sold more equity, because he would have lost control of the business. But debt was no bargain, either; though the business was without a dollar in revenues, the lenders expected him to start paying back the loans. "The financial system," remarks Kilmer with a kind of naïve wonder, "isn't the least bit geared to the needs of start-ups."
Kilmer hired a contractor, ordered his equipment, and set about putting together his team of managers. Once everything was in place -- with what's known as a clean room, for example, for processing the squash in the most bacteria-free conditions; an ambitious total-quality system; and so on -- he hoped to shift everything into gear and generate cash by June. But, surprise! The renovations went slower than the contractor expected. Even if they'd been completed on time, some of the new machinery didn't arrive until August. At Heinz, says Kilmer, delays were irritating. "Here," he notes, "they were eating into my own equity." Each week the schedule lagged behind, Kilmer reckoned, he was burning through about $6,000, cash he wouldn't be able to spend later.
He hoped he could make up the lost ground when his spaghetti squash finally hit the stores at the end of last summer. But it didn't work out that way. At Weight Watchers, he had had ready access to the market: he could make an appointment with any grocery-chain buyer, anytime. There was rarely ever a question of whether stores wanted the products; some stores ordered sight unseen. Meanwhile, the food brokers who handled the Heinz account lived in constant terror of losing it.
But Kilmer learned from hard knocks that Remlik Foods wasn't Heinz. In many ways, he concedes, the differences have been shocking. Through his industry contacts, he's had pretty good luck lining up brokers in cities like Philadelphia, Washington, D.C., and Boston. And once the product is in the right part of the produce section (which is never a given) at the targeted price (also never a given), it usually sells at least as well as expected. But selling the supermarket chains and then the individual stores on stocking his spaghetti squash, even for a trial, has required more begging and pleading than Kilmer is used to. "I make better presentations than I ever made at Heinz," he says, "but I have less credibility."
And then there's the whole question of positioning. Fresh from his own successful dieting, he'd pitched spaghetti squash during the initial market test as an ideal product for dieters. But recently, Kilmer says, all the independent studies show that serious dieting is on the way out. What to do? Simple, he says. "We have to reposition the product and educate the market about what spaghetti squash is." He's already asked his investors to put up new cash to spend on print, radio, and cable-TV advertising. To avoid diluting his equity, he had to put up new funds himself (which he got by remortgaging his house for the third time). He's feverishly trying to broaden the appeal of his product, called Nature's Pasta, by promoting spaghetti squash as "the vegetable with a hundred uses." (Number 28, spoon gravy on top; number 94, toss with duck sauce.) Kilmer, who now employs about 20 people, talks about reaching breakeven by mid-1995.* * *
When Jim Kilmer started his business, three years ago, he fantasized about the flexibility in his schedule: time to duck out for a dentist appointment or a haircut. But that's become a joke. "Things that can be delayed really drop on the priority list," he says. With the exception of Sunday, which is reserved for church, leading a Weight Watchers group, and family activities, Kilmer works 12 to 14 hours a day. He can't tell the difference between Thursday and Saturday. And those trips to the dentist? He sets them up for 6:30 a.m., before his 45-minute drive to the plant.
Kilmer travels for business as frugally as possible. No more Marriotts and nice meals on Heinz. Now if he has to go anywhere overnight, he stays at Comfort Inns. If a trip is less than a four- or five-hour drive, he takes the car. If he flies, he stays over Saturday night to save on airfare. He used to look forward to some weekends of skiing, but he hasn't been on skis since he launched the business. Partly, it's a matter of time. But it's mostly a new feeling of responsibility. "At Heinz," he says, "you could show up on crutches and it wouldn't be a huge problem. But what would a broken leg mean to my business?"
"I really can't remember what things used to be like," offers Vickie. Soon after the decision to start the business, Jim and Vickie sat down with their boys to tell them what to expect. Everything, they said, was on the line: the time and money for family vacations, the ability to help the children with college bills, even holding on to the house. The boys offered to do what they could. The younger one, Matt, sold candy to earn spending money. And Jimmy, now 17 and a year away from college, found an after-school job at a nursing home; that first Easter, he gave his parents a card with $60 tucked inside. Vickie still talks about how moving it was. ("I don't know if it was the high point or the low point," she says.)
Even today, she notes, the economic anxiety is relentless. She avoids talking about the business with her mother for fear that it will upset her. "It's not that I doubt Jim can do it," she says, "but there are so many things out of your control."
Kilmer himself doesn't pause often to reflect. "I tend to focus on the current problems and the next ones down the road," he says. Still, he muses about the day when he might be able to take an afternoon off and not feel incredibly guilty -- when there might be less of a sense of urgency and more of an organization to fall back on. One of the things he misses about big companies, he says, is having peers. "You could walk down the hall and plop yourself in a colleague's office, and they knew exactly what you were talking about," he recalls. When you own a business, he has discovered, it can be lonely.
But there are other aspects of owning a business that Kilmer says he wouldn't think of giving up. The business, he says, has quite unexpectedly helped his family grow closer. Last summer at least one of his boys got up with him at the crack of dawn each morning and went off with him to work at the plant. The goings-on at the business have become a common reference point at home. "When I was at Heinz, the boys saw it as my job," Kilmer says. "But now they call it 'our company." And notwithstanding the long hours and low pay -- he still earns less than half what he earned at Heinz -- he likes the ability to make quick decisions and act. "If there's an obstacle," he says, "I can go over it, around it, or through it. I don't have to worry about how it looks to my boss." Both physically and mentally, he says, he feels better than he's felt in years. He can't remember when he last took an antacid.
"Whenever I feel discouraged," Kilmer says, "I think about the great feedback we get. Just the other day, for instance, I was in Columbus, Ohio, to meet with buyers at two big chains. I drove up early in the morning and arrived at the meetings with a soup, a quiche, and a low-fat coconut custard pie -- all made with our spaghetti squash. Everyone said, 'This is really good.' They loved it!" But talk is cheap -- now he needs to get them to place orders.
In some ways, Kilmer says, owning a business is like a trip to Disney World. "It's tiring, the lines are long, everything is overpriced, and people bump into you with their ice-cream cones. But you don't regret it. For a lot of reasons, you're really glad you went."* * *