Company Profile: True Value
A close-up look at how a new company emerged from failure, and how the cofounders are protecting themselves this time.
Grady Hesters and Linda Olsen were self-made millionaires -- on paper. Only when they lost nearly everything did they learn to create value in business and in life. Here's how a couple of survivors are getting it right this time around
On High Street in Auburn, Calif., you can't help noticing the bronze colossus of a prospector panning for gold. You pass it on the way to the modest headquarters where Grady Hesters and Linda Olsen, wealth seekers of a different sort, are also looking for gold. But Hesters and Olsen, partners in business and marriage, couldn't be more different from the prospector on the town square or the many like him who once flocked to this valley to fish gold from its streams. It's not that the pensive Hesters and his creative partner don't know or appreciate a gold nugget when they see one. It's just that they harbor a healthy suspicion of the other stuff that glitters: the glamour of growth, the pleasures of profit, the thrill of dominating a market. They have sworn themselves instead to creating value -- that rare compound of growth, profit, and market share taken in just the right proportions. That, they reckon, is the alchemy of pure gold.
"My purpose here is to create value," says Hesters with the matter-of-fact resolve of someone who's been at it for a long time. "It's an absolute objective." His is not a mission to rack up growth or maximize profit, except insofar as those practices foster value -- value that can be measured, extracted, and converted to cash -- just as surely as gold was extracted from the eddies of the American river a century and a half ago. Only never as randomly.
You can't fault Hesters and Olsen, a couple in their fifties whose net worth is almost entirely baked into their business, for thinking about ways to extricate it. "I'm 52 right now," says Hesters. "You become conscious that that's all some people get." Still, their value consciousness is neither a spasm of financial insecurity nor a midlife longing for liquidity. Both insist their business is not on the block, and their deliberate consideration of how and when to cash out is not the consequence of declining fortunes or flagging interest. "The thrill is not gone," says Hesters, who envisions an exit that resembles a leisurely promenade more than a hasty retreat. It will be a passage calibrated in small, surefooted steps.
They're quite familiar with its polar opposite -- the grow-fast-and-hope-you-take-something-with-you-when-you-go approach. As cofounders of Newman Communications, a company that soared, crashed, and burned in 1987, they kissed $60,000 in savings good-bye and watched 68 people lose their jobs. "The stock, which had effectively cost us 3¢ a share, was worth $5 a share at one time," Hesters recollects. "You learn that there's a certain fiction to business -- a fiction of anticipated rewards -- that has to be converted to reality."
Hesters and Olsen have devoted the eight years that have passed since then to a work of nonfiction: Audio Partners, built from the rubble of Newman Communications and dedicated to the preservation of jobs and the liberation of equity. It's a true story -- not a fairy tale, not a Greek tragedy -- about building something that lasts.
* * *Audio Partners, the gilded cage in which Hesters and Olsen's net worth remains locked, is a direct-mail marketer and publisher of books on tape. The company has enjoyed robust growth for most of its history, reaching $4 million in revenues in fiscal 1994. It has shown modest profits in most years, and in its best years paid the owners generous bonuses. It's not such a bad trap, really, for an anticipated $2 million in equity, considering the founders invested less than $30,000 at the start and hold all but the 10% stake Marvin Goff, their operating partner, paid cash for when he joined the company, in 1993.
A burgeoning audio-book market, which in 1993 alone grew 40%, to $1.2 billion in retail sales, has propelled the growth of Audio Partners and expanded the distribution channels through which books on tape are sold. Retail specialty chains that peddle only recorded books have quadrupled in the past year. Titles have proliferated, and publishers, who often bid aggressively for audio rights, promote the recorded books vigorously. Even Hollywood is in on the act. When Sharon Stone signed a recording deal to narrate The Scarlet Letter, an industry that only 10 years before boasted nothing more exciting than a gravel-voiced Robert Frost reading his poems could now delight in the hot embrace of a starlet. Audio publishing has become, improbably, sexy.
Amid heightened competition, the founders have positioned the company, quite cannily, as a veritable encyclopedia of audio books, its catalogs touting hundreds of books on tape and its backlist topping 3,000 titles. One-third of its revenues come from the library market, which cottons to the company's exhaustive product line; the rest from its list of 50,000 serious aural "readers," who spend an average of $65 an order.
Pledged these days to temperance, the partners have had their benders with growth. Two years on the Inc. 500 list of fastest-growing privately held companies attest to that. Since 1989, the year the company published its first catalog, sales have increased nearly 600%. But the company's financing -- out of cash flow -- has kept the founders sober. The elixir of growth is beneficial only in doses that enhance value; the owners refuse to buy market share and only cautiously trade earnings for growth. Their company currently grows apace or slightly ahead of its market -- a rate that Hesters considers both "sustainable" and necessary. To grow slower than the market would erode the company's value.
Now, watching their market mature, the founders "are throttling back to concentrate on profitability," Hesters explains. He wants profits to double or triple to between 5% and 10% of gross revenues in the next few years. If he and Olsen achieve that goal, they will multiply their own exit routes and make the company more attractive to investors -- those for whom earnings are paramount as well as those whose interests favor growth or market share.
