When a Billion-Dollar Company Ain't Enough
Profile of a CEO's struggle to build lasting value in his growing company.
In 20 years Terry Theye has turned ideas and energy -- the only assets he began with -- into an Inc. 100 company approaching $1 billion a year in sales. But thanks to an economy in which lasting value is getting harder and harder to achieve, he still isn't home free
Terry Theye displays a couple of large photos of golf-course scenes on the wall behind his desk. One is of the famed and treacherous 16th hole at Augusta, with the morning mist coming off the water hazard fronting the green. Theye is a trim, soft-spoken man of 50, as serene and self-possessed as the image on his wall. In a starched blue shirt, monogrammed at the cuff, he looks every bit the part of a successful corporate strategist, mulling his next move from the hushed fifth floor of Cincinnati's Bank One Tower, where his company's offices are located. Having shrewdly maneuvered through one shakeout after another in the brutish world of computer reselling, Theye has built himself an empire from which he can periodically jet off to one of those exotic golf spots glimpsed on his wall.
At least, that's how things seem. But appearances break down when Theye gazes wanly out the window on an austere winter's day and remarks, "I'd love to be down in West Palm Beach right now playing golf, but I can't. I have to be here." A thin smile creases his face. "Someday I'll get there."
For a decade now Theye has been offering himself similar words of comfort as he has continually reshaped his company, the Future Now Inc. (TFN), to withstand the hazards of a cutthroat industry. Five years ago there were 50 large national and regional computer resellers like TFN. Today there are 7, and within two years, almost everyone in the industry agrees, that number will boil down to no more than 3. Theye, of course, is betting that TFN will make its way into the elite group that ultimately triumphs. But for now he is just where he has been for too long: a step away from having created a company suffused with the kind of market-affirming megavalue that makes the entrepreneurial odyssey worthwhile.
In his tenure at TFN, Theye has sold the company, bought it back, taken it public, and merged it with a multibillion-dollar distributor -- all in an ongoing scramble to ensure the company's survival and create value for its long-suffering shareholders. Despite all the wheeling and dealing, TFN's stock was trading at just one-third its all-time high when the company announced its intended merger earlier this year.
"We've had a lot of wins but not much to show for it," admits Theye. "That doesn't leave me with a warm feeling."
With so many victories behind him, Theye should feel as warm as the Georgia sun in April, instead of enduring what must seem like an endless midwestern winter. After all, TFN earned the #51 spot on the Inc. 100 in 1993, rising from the 63rd slot the year before that; the company is also a graduate of the Inc. 500 ranking of the nation's fastest-growing private companies, having earned spots on the list in 1989 and 1990. But although TFN's sales have never been higher, its margins have never been lower. That Theye isn't free to head for the first tee says less about his company-building prowess than about the tedious task of trying to create lasting value in an economy in which its very definition seems to be forever changing.
Not so long ago an entrepreneur like Theye could set out to build a business, and if his idea was good enough, if he had enough energy, then he would likely succeed and create material rewards for himself and his shareholders. But nearly 20 years after founding his company -- and growing it to $800 million in sales -- Theye still struggles to build ongoing value. Prior to TFN's merger with computer distributor Intelligent Electronics (IE) -- announced in March -- Theye's stock options remained worthless because of the depressed stock price. He also owned 90,000 shares of TFN common stock, worth $6 apiece, down about 40% from their initial-public-offering price of $10.25 in July 1991. The stock market, meanwhile, valued TFN at just $45 million -- scarcely .05 times last year's revenues. Even IE paid no premium for the shares when the companies merged. Notes Dennis Hummel, TFN's senior vice-president of operations, "None of us had any idea it would be this difficult to preserve value in this company. It's been the hardest thing for us, particularly when you consider how much energy we've put into it all these years."
It used to be that businesspeople knew value when they saw it. It was fixed and lasting, contained in such reliable measures as mineral wealth, productive capacity, and the land people walked on. The computer industry, in which Theye has earned his daily bread for nearly a quarter century, is a signal example of that belief turned on its head. The price of what is tangible -- hardware -- keeps falling. The software that drives the machines becomes a proportionately greater store of value. But with software, the barrier to entry is so low and the mobility of vital intellectual power so great that value is left open to persistent attack.
The computer-reseller industry is as old as the personal computer itself. At 14 years old, the PC market operates with all the boisterous unpredictability of adolescence. The mood of the market shifts wildly, as do loyalties. Rebellion against whatever form the status quo takes is the norm.
Resellers get little respect because they operate in the food chain as "configurers" and integrators of computer equipment, customizing systems to meet clients' needs. They often buy from distributors, and so they constitute a second, seemingly redundant link in the chain of an industry moving fast toward commoditization. The typical customer is a business looking to squeeze greater use and efficiency out of computer technology, and to do that it must depend on the expertise of resellers like TFN. (About 80% of TFN's volume goes to Fortune 1,000 companies.) But the squeeze is on margins as well as the technology. In 1993 TFN netted just 1.3% in profits on $700 million in sales. Last year the company took a restructuring charge to find new efficiencies -- and to raise profitability.
