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The Class of 1989: Where Are They Now?
 

Various Inc. 500 companies of 1989 are featured showing different facets of the volatility of the new economy.
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If you have any doubts about the volatility of fast-growing companies in the new economy, take a look at some of the experiences of the Inc. 500 class of '89

The companies of the class of 1989 are at least 10 years old now. Some have been slammed by the recession, while others have faced showdowns with deep-pocketed competitors. Some have gone bankrupt, while others have topped $100 million in revenues. Some CEOs have sold out and moved to Florida. Others are still plugging away, selling the same product in the same market at the same price. Almost anything that can happen in business has happened to the Class of '89.

Many of those companies have grown up. No longer does the president return the calls; that task has been delegated to corporate-communications professionals. Many CEOs have exit plans in place -- if they haven't sold out already.

Taking a peek at how some companies on the list have fared gives this year's winners a glimpse of the challenges they'll face in the future. If present trends continue, the stakes will be higher and the competition even hotter in the years to come.

* * *

Almost Curtains for #336
In business, timing is everything. Unfortunately for Rue de France (#336), and for many other mail-order companies on the list, the timing of the 1991 Gulf War couldn't have been worse. Competition was heating up in the mail-order business as more and more companies chased fewer discretionary dollars. Says CEO Pamela Kelley, "What kind of person can think about ordering curtains when we don't know if we're going to war? The country was transfixed in front of its television sets." It was a money-losing year for Rue de France.

The company, which sells French-lace curtains, had just mailed 300,000 copies of its catalog in January 1991 when it was hit by a triple whammy: the Gulf War struck, postal rates were jacked up, and the franc-to-dollar exchange rate made imports expensive. That's when Kelley's new banker (her original bank had been sold) paid a visit to renegotiate her loan. "They wanted more collateral for the loan," says Kelley, "since my house, which had collateralized the loan, had dropped in value."

Kelley ponied up a portion of her stock portfolio, then went to work trimming the lace from her operations; she closed one retail store, and that plus attrition decreased her staff by 30%. She also forged an alliance with a French bedding manufacturer to defray catalog costs. Rue de France is expected to do nearly $5 million in revenues in 1994 -- up from $2.6 million in 1988 (the fifth revenue year for the Class of '89) -- and is back in the black.

Now bankers are calling Kelley. "They say to me, 'I will be a relationship banker,' and I say, 'I don't think so. We haven't had good relationships with bankers.' I like being debt free."

* * *

Dancing with Giants
Sometimes academics know what they're talking about. Take the case of Carts of Colorado (#431). The designer and maker of mobile kiosks and pushcarts is bringing to life the theme of Harvard professor Rosabeth Moss Kanter's 1989 hit management-theory book, When Giants Learn to Dance. PepsiCo purchased 49% of the Denver-based company from the Gallery family in early 1992. The corporate giant invested in Carts of Colorado, then with $10 million in sales, to fuel its rollout of the souped-up Pizza Hut, Taco Bell, and Kentucky Fried Chicken pushcart stands we see in airports and malls today. (All three restaurants are PepsiCo subsidiaries.) But that's not all. According to president and CEO Stanley Gallery, PepsiCo also hopes to cure its case of "big company-itis." The strategic alliance includes a clause that requires Gallery to share his knowledge of and experience in "mobile merchandising units" with PepsiCo subsidiary managers. The hope is that those managers will learn to be more entrepreneurially minded.

Gallery says that in 1993 sales to PepsiCo accounted for 38% of his company's business. PepsiCo has the option to buy the remaining 51% of stock in 1998.

* * *

My Company, Myself
Princeton Review (#263) has been growing up with its customers. In 1981, at the age of 21, John Katzman founded the company to prep students for SATs and graduate-school tests. Inc. reported how Katzman and his staff would order pizza at midnight and pull all-nighters to keep up with their workload.

By 1992 Princeton Review had hatched about 65 offices around the country and abroad and was offering classes for most standardized tests. Fishing for growth strategies, Katzman again turned to his own generation's need for pointers and hit upon the idea of a support group for people recently out of college and struggling to get settled -- something similar to the American Association of Retired Persons.

While the discount network, called Student Access, isn't as ambitious as Katzman originally envisioned, the market research used to get it up and running created a host of additional products, including a series of 35 how-to books and guides (for example, How to Survive Without Your Parents' Money). Katzman reports that a million books were sold through Random House in 1993. To date, Princeton Review's revenues have climbed to $20 million, from $2.6 million in 1988.

* * *

The High Price of Excellence
American Rug Craftsmen (ARC) reached #237 by being a technological leader in rug and doormat manufacturing. By offering quick turnaround and unique products, such as contemporary-design area rugs, to the mass market, it earned sales of $15 million by 1988. Since then, things have just gotten better. In 1991 and 1993 the company was named Wal-Mart's Vendor of the Year, and it received the same honor in 1993 from J.C. Penney. The company's edge? Its competitive pricing and its on-time shipment rate, according to company spokesperson John Azzolino.

In 1993 ARC founder and CEO John Thornton switched gears from selling rugs to selling equity. "Revenues were hovering at $43 million, and the company needed a cash infusion to maintain a growth rate of 40%," says Azzolino. Thornton considered going public but decided the hassles weren't worth it. He chose instead to court $1.4-billion carpet and rug manufacturer Mohawk Industries, based in Atlanta. In May 1993 the two inked a deal. Mohawk bought the company for $20 million, with a proviso to toss in another $15 million if ARC met certain earnings goals. It did, and the earnout was paid in June 1994. Mohawk also gave ARC an $18-million cash infusion to build more plants and pursue new technologies. ARC has since tripled its plant capacity, to 810,000 square feet, and forecasts 1994 sales in the $85-million-to-$90-million range, up from $63 million in 1993.

Working for a big company doesn't appear to faze Thornton. After all, he started ARC after leaving his job as national sales manager for a big rug company; at the time, the company wouldn't take the risk of manufacturing the items he reported mass merchandisers were demanding. Mohawk ultimately paid big bucks for that sales manager's advice.

* * *

If It Ain't Broke
Peppering the 1989 Inc. 500 list were 58 companies that had gotten in on the gold rush to equip the nation's businesses with computers. CompuAdd (#104) had achieved sales of $240 million in 1988 by selling via mail order, a channel whose use the company had pioneered in 1982. But by 1990 that distribution channel was becoming saturated by the competition, not the least of which was Dell Computer, just down the road from CompuAdd in Austin.

In June 1988 Dell decided to raise money through an initial public offering so it could tough it out in the mail-order business, while CompuAdd founder and CEO Bill Hayden decided to stay private and roll out a chain of retail stores. That strategic decision ended up costing Hayden his company.

CompuAdd was too thinly capitalized to make a go of it. By 1992 sales had more than doubled to $524 million, but because the company was facing competition from the new superstores, only half its 110 retail outlets were profitable. To compound matters, profits generated through mail order couldn't make up the difference, since Dell was eating away at CompuAdd's mail-order business.

By June 1993 CompuAdd had declared Chapter 11 so it could wiggle out of its 110 retail-space leases and focus on mail order. The company emerged from Chapter 11 five months later, with landlords and other creditors holding 75% of the stock and with Hayden out of the company.

CompuAdd posted sales of $233 million in 1993, compared with Dell's $2.9 billion. In July 1994 a Philadelphia investment syndicate agreed in principle to buy CompuAdd for an undisclosed sum; it plans to invest working capital to turn the company around.

Meanwhile, Hayden, in true entrepreneurial form, has started three new companies. Cornerstone Information Services, which Hayden actually started two years before he left CompuAdd, provides software development for clients such as Sears, which uses the software for its point-of-sale cash registers. Another company, Peripheral Partners, follows the original strategy Hayden used for CompuAdd: sell computer peripherals by mail order. The third company, 1-800 Service Partners, provides technical software and hardware support over the telephone. Says Hayden, "I lost as much money personally as all the vendors lost together. They are professionals, and they're willing to do business with me, despite what happened to CompuAdd."

* * *

Turf Wars
In 1989 Bertucci's (#72) had the lock on the brick-oven-pizzeria market in the Boston area, with 14 restaurants and sales of $11 million. It was founder Joey Crugnale's persistence and vision that helped launch this new style of pizza in the United States, and competitors rushed to copy his recipe for success. Bertucci's went public in June 1991 to capitalize its rollout of outlets in locations as far away as Florida and Washington, D.C.

Now Bertucci's is facing off with the fast-growing California Pizza Kitchen (partially owned by PepsiCo) in Boston, Bertucci's home turf. Crugnale, exhibiting characteristic optimism, insists that the two casual-dining restaurants are not competitors. Says Crugnale, "We offer different experiences. We're Italian, they're Californian." Time will tell if Bertucci's can maintain its annual growth rate of 40%. In 1993 it posted revenues of $73 million, compared with California Pizza Kitchen's $77 million.

* * *

Up, Up, and Away
These days mergers and acquisitions in the U.S. software industry are setting records for both size and volume of deals. A ripe plum for picking was the leading business- and consumer-software publisher WordPerfect (#118), which had grown to more than $700 million in annual revenues by 1993, earning Fortune 500 status for the privately held company.

By 1993 WordPerfect's cofounders, Bruce Bastian and Alan Ashton, were ready to free themselves from their creation, since they were finding it increasingly difficult to compete in the marketplace with just a single hit product. After scrapping plans to go public and rejecting overtures from Lotus, the WordPerfect founders opted to sell out to their Utah neighbor, Novell, a leader in client/server networking systems, for $855 million. The acquisition is key to Novell chairman Ray Noorda's plan to undermine Microsoft's dominant position in the software-applications market by offering, among other things, an operating system, a word-processing program, and a spreadsheet program.

* * *

Switching Gears
Adept Technology (#4), a robot manufacturer, lost money in 1991 after experiencing flat sales for three years. The slowdown in the economy had led to decreased demand from Adept's major customers, semiconductor and auto manufacturers.

To combat the downturn, Adept took a no-shame, no-pride approach to selling. It broke out the proprietary vision-and-motion control boxes from its robots and sold them to its competitors. It has also rolled out new robots for the packaging industry. Vice-president of sales and marketing Charlie Duncheon reports that the venture capitalists who sank $30 million into the business were extremely patient as the company turned itself around. In calendar year 1993 Adept rang up sales of $45 million, only 30% greater than in 1988. That's a far cry from the five-year growth rate of 15,741% it racked up to get on the Inc. 500 list in 1989. Brian Carlisle, the founder of Adept, remains in charge of the company.

* *

Brothers Part Company
Micrografx (#430) earned a spot on the 1989 list by being a pioneer of software for the Microsoft Windows environment. Its founders, George and Paul Grayson, tirelessly promoted to trade publications the virtues of then-revolutionary Microsoft Windows software, along with the benefits of their own complementary applications software. A favorite story angle in the trade press was, "Isn't it neat how two brothers went into business together?" Well, by 1992 the brothers had had it with each other.

The company lost $2.8 million on $56.5 million in sales in fiscal year 1993, and $3 million on sales of $60.5 million in fiscal year 1994. Why? "Increased competition in the marketplace," says a company spokesperson.

As the company was losing money in November 1992, the board asked the younger brother, George, to step down as president and chief operating officer of the company and instead to cochair the business with his older brother, Paul. George refused and left to start a new software company, Seventh Level Software, which is also located in Richardson, Tex. Paul remains at the helm of Micrografx and is steering it out of the red with, among other things, a Crayola-brand graphics-software program for kids.

* * *

Cleaning Up
Bob and Mary Black own Super Wash (#280), a company that builds, sells, and operates self-serve car washes. Since 1989 sales have held steady at $16 million a year because the Blacks build and sell only 40 units a year. But that's not for lack of interest among buyers. One hundred twenty-seven people are in line, waiting to buy one of these money-making machines, which earn a consistent 20% annual return on an original investment of $500,000, according to CEO Bob Black. He says the company has built 420 car washes and hasn't lost a dime on any of them.

"We are fortunate not to have any quality competitors," says Black. "The industry is full of people who sell car-wash equipment. They haven't taken time to identify potential new owners such as the doctor, the lawyer, and the professional baseball player" -- people who are looking for a business on the side. Current owners of Super Washes include Mike Morgan, a pitcher for the Chicago Cubs, and Pete O'Brien, formerly of the Seattle Mariners.

A computer system in Super Wash's Morrison, Ill., headquarters tracks every quarter that's slipped into a suds machine. "We make sure the machines are always up and running. That's uncommon in this industry," says Black.

Last updated: Oct 15, 1994




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