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."
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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.
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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.
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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.
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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.
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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.
