The 10 Commmandments of Hypergrowth

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Kelly's banks were always nervous, so he was always in danger of losing his credit lines. "They'd say, 'Pat, you gotta slow down.' I'd say, 'I can't.' I'd try to build up enough equity so they'd be comfortable. But I'd predict 30% growth and run at 50%. That's when the banks would tell me it was time to move on."

Kelly was asked to leave by five banks. His conclusion? "Grow your equity."

Kelly did so in four ways:

Soon after he launched the company, he asked his employees to buy in. There were only 21 people on the payroll at the time, but they put up $50,000. The founders kicked in another $100,000.

A year later he set up a formal employee stock ownership plan, which enables PSS people to buy stock with before-tax dollars. They can participate through payroll deductions of up to 10% of their salaries, matched in varying (and discretionary) degrees by the company. Today the ESOP owns nearly one-fifth of PSS shares.

In 1989 he sold 20% of the company to Tullis-Dickerson & Co., a small venture-capital fund. Good thing he did: 1990 and 1991 were a time of brutal competitive battles in PSS's newly opened western branches, and the company was unprofitable.

In 1994 PSS went public, raising nearly $16 million at $11 a share. In 1995 it was continuing to grow rapidly. But thanks to the IPO its debt-to-equity ratio was just a little greater than 1:1.

VII. Have a Good Time -- Even When You're Doing Serious Stuff

Hypergrowth is hard. People work long hours and get stressed out. Some quit. That may be why Kelly has made recreation a central element of the PSS culture.

Annual picnics, organized by region, take everyone to a distant resort for two or three days of fun, including a popular branch-against-branch volleyball tournament that boasts T-shirts and trophies. The four-day national sales meeting sports golf and other games as well as the national volleyball playoffs. Kelly takes the corporate staff on half-day excursions once a quarter -- to Key West for a lobster dinner, to the beach for surfing instruction, to a rink for in-line skating.

What makes PSS different from other have-a-good-time companies, though, is that Kelly also wants people to enjoy themselves while they're working.

Take those monthly P&L meetings, for instance. They were important. They were serious. But they weren't fun. Occasionally, Kelly noticed, people's eyes would glaze over at the numbers.

So corporate trainer Susan Parker, at Kelly's behest, came up with the PSS Challenge.

Today the monthly P&L meetings take place at some recreational site -- the Jacksonville branch did one at a bowling alley, another at the local ballpark; New Orleans held one at an amusement park -- and branches choose teams for a contest modeled on Family Feud.

Each month's contest focuses on a different business subject. "May's topic was the bonus program," explains Parker. "Others are purchasing and inventory, customer service, and the balance sheet." Teams prepare for the game by studying "hint sheets" posted at the branch. Winners get points toward such prizes as jackets and watches.

In a way the PSS Challenge is simply an extension of an approach Kelly has cultivated for years: expect people not just to work hard but also to understand the business, and reward them for their knowledge. Every branch, for example, has a book of 100 questions ("What's a leasehold improvement?" "What are this branch's inventory days?"), and every employee is expected to know the answers. When Kelly visits a branch he'll ask employees randomly chosen questions -- and pass out $20 bills for correct answers.

VIII. Avoid Bureaucracy
Kelly hates policy manuals, so PSS doesn't have one. He avoids memos. He can't stand the thought of rules and regulations. Still, you can't run a hypergrowth company like a small business. Each of PSS's 56 branches has to look and work pretty much like all the others.

Surprisingly, most do. That's due partly to the company's training program -- everyone goes to the same school, so to speak -- and partly to the fact that everyone in a branch is likely to have worked at some other branch. (PSS in the past was like the army: if you weren't ready to move, you weren't hired. Today it tries to hire and place people close to their home.)

But Kelly has dreamed up another way to get people marching to the same music: the Blue Ribbon tour.

Twice a year, Kelly or one of his top lieutenants drops in on each branch unannounced, wielding a score sheet. Are there pictures of employees on the walls? Check. Are the trucks clean? Check. Are service levels up to standard? Check. "There are 100 things that are the right way to do business," says Kelly. "They either do it or they don't. If they do, they get a check mark."

On this year's first tour, the New Orleans branch got a 94, a point of pride to the branch's employees. That may or may not be enough to win the top prize, a pot of $25,000 that will be divided equally among everyone on the branch's payroll.

Now and then Kelly finds a branch that isn't up to snuff. "I've walked in to do a Blue Ribbon and turned around and walked out. They got a zero. I wouldn't fire anybody on the spot -- but the regional leader was in there the next day to see what was going on."

IX. Share the Wealth
The payoff of hypergrowth is substantial wealth -- and Kelly, like most highly successful entrepreneurs, is now worth many millions.

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