The secret to fast growth is in planning and training, but it's dangerous too.
If you want your company to thrive in the long run, take the advice of Physician Sales & Service CEO Patrick C. Kelly: lay the groundwork now
You could have read a typical Inc. article on Physician Sales & Service way back in 1987.
PSS was then only four years old. Its business was selling supplies to doctors' offices. Gauze pads. Thermometers. Diagnostic equipment. Not exactly a glamorous -- or uncrowded -- industry. Nor did the company have a built-in competitive edge. It could only sell what everybody else was selling.
But chief executive Patrick C. Kelly had hit on a unique strategy, and it was working. Kelly and his two cofounders would set up a warehouse and hire a sales rep or two. They'd offer local physicians next-day delivery of any common item. Competitors couldn't match that -- the industry standard was delivery in three or four days -- so PSS could charge higher prices for its wares.
Those fat margins, in turn, allowed Kelly to invest in niceties like computer systems and his own fleet of snappy delivery trucks. (His competitors typically used UPS or merely tacked physicians' deliveries onto big hospital deliveries.) They also let him hire and train some crackerjack salespeople. Other distributors' reps, more often than not, just took orders. Kelly's made sure that the doctor knew about the latest advances, such as the then-revolutionary 10-minute pregnancy tests.
So PSS prospered. It expanded outward from its base, in Jacksonville, Fla., and by 1987 had five branches, all within the state. Sales that year hit $13 million. The company was profitable. It was just the kind of tidy little success story you read about in these pages all the time.
Today PSS is an example of another kind of success altogether. Call it hypergrowth.
In the past eight years, the company has grown from 5 distribution centers to 56, and from operations in one state to operations in every one of the continental 48. Revenues for fiscal 1996, ending March 31, should be close to half a billion dollars.
Other measures of hypergrowth? Take your pick. In 1987 PSS had maybe 120 people on the payroll. Today it has 1,800. In 1987 stockholders' equity was about $1 million. Today it's more than $40 million. Nor is the ride over. PSS's share price, for example, has roughly quadrupled since the company's May 1994 initial public offering.
As startling as the numbers themselves are the many ways by which PSS has pursued this explosive expansion. It has grown by building new branches from scratch -- 20 in the past five years. It has grown by acquisition, including a recent merger with Taylor Medical, one of its largest competitors. It has grown by taking on new product lines: earlier this year, for instance, it signed an exclusive agreement to sell Abbott Laboratories' diagnostic equipment. It has even grown by swiping market share in existing locations. Amazingly, PSS's same-branch sales have risen an average of 22% every year for the past five.
"Strategy" isn't quite the story here any longer. Sure, next-day delivery and top-notch selling skills have been indispensable to this warp-speed growth. But PSS's capabilities on this score are no longer unique. The other nostrums for business success -- take care of the customer, stay focused on your niche, and so on -- are only part of the PSS saga.
The real story here is how PSS could grow so fast -- how it could turn itself into a huge, market-dominating company -- without blowing apart at the seams. Plenty of entrepreneurial hotshots go for the gold, after all, only to stumble before they're halfway around the track. PSS's ride hasn't been without its bumps. Kelly's partners both left after disagreements with the boss. The company was kicked out of five banks. It lost money two years running.
Today, though, PSS is the undisputed industry leader in physician-office sales -- and it got there in a mere 12 years. That's why we're writing about it in Inc., even though it's probably 100 times the size of the typical company in this magazine. Looking back this little distance, you can see exactly what Kelly, now 48, learned along the way, and how those lessons have shaped what PSS is today. You can see how he laid the groundwork early on for a company that could redefine its business. You can see how he avoided the strains that have blown other high-speed companies apart.
You can see, in sum, 10 lessons about hypergrowth that any entrepreneur with big, burning ambitions had better learn -- preferably now, before takeoff, rather than later, when the education may come a little harder.
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I. Set a Big, Bold Goal
Growth wasn't at the top of Pat Kelly's priority list at the beginning. He was living on credit cards and his wife's earnings as a nurse. "My goal was survival" -- he laughs -- "and getting my income back to where it had been." Most small companies get bogged down there. They get so imbued with the struggle-to-survive mentality, they forget about long-term goals.
Kelly got his wake-up call in 1988, as he listened to management guru Charles Garfield give a speech. PSS, Kelly knew, was growing nicely. But its mission statement? Just the usual page-long compendium of highfalutin goals. It didn't really say where the company was headed. Garfield was saying that companies needed a real mission. Simple. Clear. Audacious.
Bingo. Not long afterward, Kelly announced that PSS, a Florida-based company with only a handful of branches, would become the first national physician-supply company. In an industry of local and regional players, it would be the big dog.
That was the beginning of PSS's hypergrowth. From then on, the mission appeared on every company document. Big banners trumpeted it from warehouse walls. Kelly mentioned it every time he got the chance. The effect on the troops was electric. Young hotshots such as Gene Dell, now a regional vice-president at the age of 34, eagerly set out to open new territories. That was PSS's mission, wasn't it? Thanks to the goal, nervous acquirees felt they might have a future with PSS. "They weren't very large then," recalls Nick Pecoraro, who in 1988 was a sales rep for a New Orleans company that PSS bought and who now is general manager of the New Orleans facility. "But they had that goal of being a national company. I liked that."
Today PSS is indeed the first national physician-supply company, thanks in part to its merger with Taylor Medical. Kelly has hardly paused: last year he announced that PSS's new goal was to be a billion-dollar company by year-end 2001. The company hit his first goal, so no one seems to doubt that it will make the second one, too. "Oh, yes," says Cyndi Aszklar, operations manager at the New Orleans branch. "When we say we're going to do something, we do it."
