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New World, Ordered

A profile of a 1995 Entrepreneur of the Year runner-up, and how he grew his company to a $1-billion business.
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Jirka Rysavy came to America from Eastern Europe 11 years ago with no money, no understanding of capitalism, little knowledge of English, and no idea what to do next. Today, after bringing order and scale to a once-fragmented industry, he has a $1-billion business

FOUNDER: Jirka Rysavy, Czech immigrant with no business -- or even capitalist -- background, now 41

MARKET ENTERED: Corporate office-products supply. Mature, fragmented industry with thousands of local suppliers

STRATEGY: Acquire independents and consolidate and professionalize operations

RESULT: Pretax profits of $5.2 million on sales of $621 million in fiscal year 1994; estimated sales of $1 billion in 1995. Largest company in industry

* * *

The company was for sale, and Jirka Rysavy was there to buy it. But he was not having an easy time.

It wasn't that the executives sitting around a table at Trick & Murray early in 1992 were unreasonably demanding about their company's sale. After all, Trick & Murray sold office supplies -- not the sexiest line of work. As merchants of clipboards and paper clips, the owners didn't expect to see Michael Eisner sweep into the boardroom, trailed by investment bankers bearing spreadsheets and cellular phones.

But neither had they expected someone like Jirka Rysavy (pronounced Yer-ka Ris-a-vee). He was tall, bearded, and as skinny as a scarecrow; his mumbled, halting English often made him difficult to understand. Just eight years earlier he had left his native Czechoslovakia for the United States, following an earlier visit in which he had bummed around the country, sleeping in bus stations and on park benches. It was hard at first to take him seriously. "He was not," says Ted Nark, then Trick & Murray's vice-president of sales, "a Fortune 500 kind of guy."

Nor did he run a Fortune 500 kind of company. At $31.6 million in sales, Rysavy's company, Corporate Express, was not much bigger than Trick & Murray itself, which had sales of about $15 million. "We were pretty skeptical," says Nark. "Corporate Express was by no means a major player in the industry. It all seemed a little improbable."

Not for long, it didn't. Where the Trick & Murray executives saw a marketplace offering only marginal profits, Rysavy saw a major growth opportunity. If Staples had grown large by selling office products to consumers and small companies, he would grow as quickly by becoming the dominant supplier of office products to larger companies. Already his merchandising strategy had revived an earlier acquisition in Denver. He also owned the industry's most powerfully computerized sales-and-inventory-tracking system, developed by a Czech friend, Pavel Bouska. Rysavy promised he would grow Corporate Express to $300 million in three years.

He proved to be wrong. In fact, he had promised too little. Today, three years after acquiring Trick & Murray, Corporate Express expects sales of more than $1 billion, up from $621 million (with a pretax net of $5.2 million) last year. It is the largest company in its industry. Chris Vroom, an analyst with Alex. Brown & Sons, expects Corporate Express, now a publicly owned company, to reach $3 billion in sales by the year 2000.

What Rysavy, who is 41, brought to Trick & Murray were lessons he had taught himself while running a tiny office-supply store in Boulder, Colo. -- a business not unlike millions of retail operations on Main Streets throughout America. But Rysavy never meant to stay small for long. He used that operation as a hothouse for testing ideas that could fix problems not only at his own business but also at dozens of other office-products suppliers around the country that he planned to acquire one day.

Rysavy sold the same staplers and steno pads as everyone else. What was different -- very different -- was that he figured out a far superior way of doing it.

* * *

Few paths to the kind of success Corporate Express has achieved are as unlikely as Rysavy's.

On September 21, 1982, Rysavy went to a downtown Prague bus depot to say good-bye to his boyhood chum Bouska, who was headed to West Germany to escape the Communist government that had detained him several times as a dissident. Friends since they enrolled in an experimental mathematics school in Prague at age 11, the two had become increasingly close over the years. Rysavy himself had been investigated three times by the secret police, suspected of dissident activities. He and Bouska had talked frequently about leaving for freedom in the West. Now Bouska was doing it, having managed to secure one of the hard-to-get exit visas that the government granted for travel abroad. In days Bouska would ask for political asylum, then sit in a West German refugee camp for six months, and finally settle into a software-development job in Munich.

Unlike his friend, Rysavy had traveled outside the country, as a hurdler in international track and field events. In 1979 he used his sports connections to secure an exit visa that enabled him to take a six-month trip around the world. Half that time he spent in the United States. Although he spoke almost no English, he worked small jobs to earn a little cash. He lived on $3 a day. "I ate bread," says Rysavy. "I slept outside in parks or in airports or bus stations."

By then it was clear that Rysavy's sneakers took him in directions that few others traveled. He welcomed long stretches of time alone, practicing meditation. In 1982 he lived alone in a shed high in the mountains on the Czech-Polish border, seeing only a few people over the course of nearly a year. "I ran with the bighorn sheep," he says. He spent half of each day in meditation and the other half picking berries and other plants and attending to his basic needs.

"To learn to be alone without being lonely is very important," Rysavy says. "You realize what you're really about and what's there only as a facade. You can rethink all the rules of existence and exercise the choice of taking them as yours or not."

Rysavy left his homeland for good in 1984 after earning a master's degree in engineering. "I hated the system," he says. He did not officially defect, as had Bouska; he simply extended his visa and never returned. Rysavy headed to Boulder, a college town, to the mountains he loved and to a milieu that embraced nonconformists.

In Boulder Rysavy first worked in a print shop for $3.35 an hour. In three months he had saved the $600 he needed to start a company. Living in the mountains had given him a strong interest in the environment, so he began selling recycled paper. His company, Transformational Economy, or Transecon, made $100,000 in pretax profits in its first year. Rysavy invested $30,000 in a new enterprise, this time to satisfy another of his interests -- the strict vegetarian diet he follows. In its first year, he says, his health-food store reached profitability on $2.5 million in sales.

Rysavy had never had formal business training. In fact, even capitalism was new to him. "I knew nothing about business," he says. "In Czechoslovakia, private business was called 'illegal enrichment." To better understand the specific problems he would face as a manager, Rysavy pored over every relevant book and magazine article he could find. "It was Cornflake University -- I learned from business articles I read over breakfast," he says. "I clipped articles. I wanted to know what mistakes were made by CEOs of growing companies. So I read articles to find the relevant answers, to get ideas to think about."

He had planned to open additional health-food markets, but a touch of serendipity changed all that. One of his neighbors owned an office-supply store in downtown Boulder and wanted to sell it. The store was losing money on about $300,000 a year in sales. But when Rysavy took a look at the business, the problems seemed not at all difficult to fix. He bought the store cheaply, paying $100 and assuming $15,000 in overdue accounts payable.

When he took over, Rysavy installed a computer system to track customers and sales. It was obvious that sidewalk business could not pay the bills, but Rysavy was intrigued by a handful of successful accounts with local companies that bought office supplies in large quantities. To Rysavy the future of the operation seemed obvious: move away from retail sales and instead focus on the corporate side. Following that strategy, he says, he expanded sales nearly eightfold within a year, to $2 million, with a pretax margin of 14%. His quick success in one office-supply store made him think, Could he do the same thing in multiple locations? In the fall of 1987 Rysavy sought the answer. He hired a researcher to collect material on the office-supply industry. That December he packed a pile of documents two feet tall and went to Maui for two weeks of reading.

What Rysavy discovered in his reading was a huge industry riddled with inefficiencies. Thousands of office-supply dealers split a market worth more than $100 billion. Because almost all the dealers were small -- with less than $25 million in sales -- and served local markets, they did not enjoy the sales volume they needed to make direct purchases from manufacturers. Instead, dealers purchased most of their items from wholesalers at prices up to 30% higher than what manufacturers charged. In addition, with the number of office products exploding in recent years, most dealers carried large, slow-moving inventories.

A few savvy merchants -- Staples and Office Depot among them -- had already grasped the opportunity to bypass wholesalers. By 1987 they were just beginning to terrorize local dealers by opening superstores in which they sold office products at discounted prices. But superstores served mostly retail customers and small businesses. What Rysavy saw was an opportunity to do the same thing for midsize and large companies.

Purchases by corporations with more than 100 employees accounted for $30 billion of the annual office-supplies market. And by selling directly to those customers instead of operating superstores catering to walk-ins, Rysavy was certain he could generate better returns on capital. "I figured I could cover all of the United States from 20 warehouses," he says. "Office Depot would need 2,000 superstores." He also figured that a big corporate supplier could cover the country with $40 million to $50 million in inventory, a small fraction of what a network of retail superstores would require. While merchants like Staples were opening bright new retail stores, Rysavy decided that it made more sense in the corporate side of the market to buy existing companies rather than start new operations from scratch. Corporate customers tended to remain loyal to their supplier for a number of years, so starting from scratch would require an extended period of building the business -- all the while accumulating losses. And because many local office-supply companies were doing poorly, Rysavy figured he could make the acquisitions inexpensively. After analyzing the market potential, he says, "I was astounded."

The opportunity to be first in the market would not last long, however. Rysavy knew it was time to move -- and quickly.

* * *

Rysavy found his first acquisition close to home. NBI, located in a suburb of Denver, had recorded a loss of about $1 million on sales of $20 million.

When he sold his health-food market, Rysavy had only $300,000 to invest. But this was the roaring '80s, and he managed to leverage the balance of the $12.8-million price. He seemed not at all concerned that he had put almost every dollar of his net worth into a troubled company. "I came here from Czechoslovakia a few years earlier with no money at all," he says. "What would be the worst that could happen? I'd simply go back to having no money again."

When he took over NBI's office-products division, in 1988, Rysavy began implementing the plans he had been devising for the past year. He did what had worked so successfully in his small storefront in Boulder, analyzing NBI's customer base to identify the unprofitable orders. About one out of every four orders lost money because it was too small to warrant the attendant costs -- picking the items from the warehouse, packaging them, and processing the invoices. "I cut out all the revenues that lost money," Rysavy says. As he cleared the underbrush that had ensnared NBI, work proceeded on what would become the company's most critical competitive weapon in the years ahead. An engineer by training, Rysavy understood better than anyone in the industry the importance of developing a software system that could embrace every aspect of the business. But what hotshot programmer would come to a small office-supply company run by a Czech ÉmigrÉ? None, it appeared. Except maybe Pavel Bouska.

Bouska had recently come to America for the first time. He had stayed at Rysavy's 80-acre hideaway nestled 8,000 feet high in the Rocky Mountains above Boulder. Rysavy had showed him the office-supply storefront and shared his plans for the future. "He had only a few PCs at the time," says Bouska. "I was dubious. I was running a major software-development shop in Germany."

Bouska returned to Munich determined to stay where he was. "I had lost my country, everything that people consider home," he says. "All of that was gone, but I had rebuilt part of it in Germany."

But his thoughts returned again and again in the next few weeks to Rysavy and his struggle to build a company in America. On a weekend trip to the Alps, Bouska couldn't get his friend out of his mind. In 1988, with the Communists still in control of Czechoslovakia, Bouska could expect to be arrested if he returned home. But a reunion in America with a close friend with whom he had played on the streets of Prague? It tantalized him.

"That Sunday," says Bouska, "I called Jirka and said, 'I'm coming."

* * *

Bouska's software system was already in place when Rysavy made his pitch to buy Trick & Murray, in 1992. So, too, was a merchandising plan that enabled Rysavy's company to bypass the wholesaler middlemen and instead purchase office supplies directly from manufacturers.

Rysavy described to the Trick & Murray executives a strategy that was producing dramatic results. From $1 million in losses in 1988, the NBI operation was on its way to 10% operating margins. And it was enjoying much greater productivity: whereas it once took 340 employees to produce $20 million in sales, Rysavy's NBI acquisition by 1995 would employ 180 people producing sales of $65 million. In addition, by 1995 the operations would require half the inventory to support more than three times the sales.

Rysavy completed the acquisition of Trick & Murray in the summer of 1992. He merged the company into two others he had acquired in the Seattle area. Eight of the nine former principals stayed on to run the combined operation, with Ted Nark taking the top job as president of the company's western region.

As he had done elsewhere, Rysavy pruned the Seattle operation both to remove withered branches and to expose the main trunk that held everything together. "We focused," says Nark, "on being the best supplier of office products to corporations." Snipped away were five retail stores as well as some services, such as the printing of business cards and letterhead. Gone, too, were redundant facilities. Rysavy also centralized many administrative responsibilities; for example, accounting functions previously done separately at the three different companies moved to headquarters in the Denver area.

By centralizing functions and eliminating redundant facilities, Corporate Express has improved operating margins by as much as 6%, according to Alex. Brown's analyst Chris Vroom. Such efficiencies are fairly common in corporate mergers across the broad landscape of American business, of course. For Rysavy, however, the most significant changes -- worth an additional 5% or so in improved operating margins -- went well beyond the standard fare. In fact, changes in the merchandising plan and in the computer system effected a complete metamorphosis of the Seattle operation.

Most office-supply companies, including Trick & Murray before it was merged into Corporate Express, give customers a catalog of 15,000 to 25,000 items from which to order. That requires the supplier to maintain a broad inventory, which is costly both because of that inventory's size and because it moves slowly. (The industry standard turnover is about four to eight times a year.) Because most suppliers are small, few of them have the scale to buy much more than half their items directly from manufacturers. Most of their inventory comes from wholesalers, who pass along a hefty markup.

Rysavy brought a far more focused merchandising strategy to the Seattle operation. What the company calls its "in-stock catalog" lists about 5,000 items, not the traditional 25,000. Customers can get everything they need, but the variety within any category is somewhat circumscribed -- perhaps the staplers do not come in emerald green, or you can't get them from every manufacturer that makes them. If a customer asks for a product that Corporate Express does not carry, the company's computer system automatically suggests a suitable alternative from the in-stock catalog. As a last resort, customers can still order from a larger, more traditional catalog, but the prices for those items typically run higher because the company obtains them from wholesalers. About 85% of Corporate Express's sales come from its in-stock catalog.

Many good things flow from that focused strategy. Corporate Express generates huge sales volumes from just 5,000 products, enabling it to negotiate bulk purchases directly from the manufacturers. According to Vroom, the company thereby gains about a 10% cost advantage -- even after passing savings on to customers -- against competitors who must buy primarily from wholesalers. With higher fill rates and lower prices than those of competitors, Corporate Express has grown not just through acquisitions but through double-digit increases in sales.

Corporate Express also gains several big advantages in its inventory. With most orders coming from its in-stock catalog, the company is able to deliver about 99% of all orders by the next business day, a percentage that's far higher than the industry norm and a key element in satisfying customers. At many companies, says Rysavy, "salespeople have to call customers and explain why the order isn't being filled quickly. That adds lots to costs, and it's a frustration for customers."

Rysavy's inventory doesn't stick around long. High volume on fewer products means faster inventory turnover. After it took over Trick & Murray, Corporate Express increased inventory turns from about 8 a year to 16. That produces fireworks on the bottom line: with inventory leaving the warehouse in about 23 days but Corporate Express paying for it in 40, the manufacturers finance not only the inventory but also much of the warehouse operations.

If Rysavy created the merchandising strategy, it was Pavel Bouska who brought the computer system to life. The system confers on Corporate Express a major advantage in the marketplace. Bo Cheadle, a senior analyst with Montgomery Securities, calls the company's inventory-control system the best in the industry. Why is that so important? "The items we sell are tiny in dollar value," says Bouska. "So we can't spend much money processing an order."

Customers can order office products by traditional means -- by phone or by fax -- or through an on-line hookup with the company. In every instance, a computer checks the items in the order against the inventory in the warehouse. If the items are in inventory, as they usually are, the order goes electronically to the warehouse, indicating to employees the location of each item. Another copy moves electronically to the billing department. If any item is not in stock, the system automatically checks the on-line catalogs of two wholesalers, choosing the one with the lowest price. The wholesaler usually delivers the item to Corporate Express the same day.

In terms of sophistication, the company's customer purchasing setup pales in comparison with its inventory-control system. Corporate Express wants to fill orders from inventory. But too big a cushion in the warehouse erodes the bottom line; so, too, does too little inventory, which may require the company to fill gaps in customers' orders by paying top dollar to local wholesalers. "Every night," says Bouska, "the computers look at everything in inventory. They try to make sure we don't run out of things -- but not at any price. We stock only as deep as is cost-efficient."

To maintain an optimal level of inventory, the computer system analyzes past purchasing patterns and future demand in a fast-growing market. It must factor in a large number of variables, including seasonality of orders, discounts offered by manufacturers, and free freight granted by manufacturers as part of special promotions. "Maybe we should overstock in some cases," says Bouska, "because the free freight will more than make up for the overstocking." The computer system figures out the answer and then acts on it, perhaps ordering 10 gross of pencils for delivery to the warehouse at exactly the time inventory is projected to reach perilously low levels.

In a business of pencils and pens -- no less than in a business of selling jet aircraft, as Boeing does in the same city -- managing the details well makes all the difference. In three years, sales for the Seattle operation of Corporate Express have almost doubled, and its operating margin has gone from just above breakeven to more than 10%.

* * *

So confident is rysavy of his ability to improve the margins of the companies he buys that his pace of acquisitions is likely to quicken in the next few years. The company expects by the end of 1995 to have acquired, at a cost of $130 million, 25 companies, representing revenues of $500 million.

The pursuit of acquisitions as a growth strategy poses its own unique challenges, of course. Analysts confirm that none of Rysavy's acquisitions since 1988 have blown up in his face. The company admits that some employees of the target companies resist change and others lose their jobs, but Rysavy says that the Corporate Express model is demonstrably so much better than whatever the acquirees were doing that most people go along enthusiastically.

Analysts praise Rysavy for recruiting new talent for his management team and for delegating tasks well before he has to. Even so, control over an expanding empire has eluded many entrepreneurs. That risk seems heightened in the case of Corporate Express as it moves overseas and imposes its business model on acquisitions that are out of sight and operating in different business cultures. This year Rysavy bought a majority stake in the largest office-supply company in Australia, and he expects to make acquisitions in Europe soon.

That expansion abroad comes just as competition grows more intense at home. Corporate Express and its four biggest competitors for corporate business -- Boise Cascade, Office Depot, Buhrmann-Tetterode, and Staples -- control less than 15% of the market, and all are busy buying small suppliers, which is likely to drive up acquisition prices in the future. Many hundreds of small, inefficient players will either fold or sell out over the next five years. Eventually, the big companies like Corporate Express will begin bumping into one another as they compete for the most lucrative corporate accounts. Price wars could ensue.

Despite those risks, Wall Street has been eager to finance the company's expansion. Corporate Express made its initial public offering in September 1994 and returned to the markets twice this year to make additional offerings, raising more than $500 million in all.

Rysavy owns about 3.3 million shares of the 50 million outstanding, worth roughly $70 million in early October. The financial markets clearly value his company-building expertise, but the opportunity existed for thousands of office-supply companies years before Rysavy came to the United States or even learned to speak the language.

It took Rysavy's fresh eye to see it.

* * *

Stephen D. Solomon is an associate professor of journalism and mass communications at New York University and was formerly a senior editor at Inc.


RESUME

JIRKA RYSAVY

Corporate Express, Broomfield, Colo.; founded in 1986

$621 million in 1994 revenues; $5.2 million in pretax profits

Born: Czechoslovakia, 1954

Parents: Father, civil engineer; mother, educational researcher

Education: Master's in engineering, Technical University of Prague, 1983

First Job: Print-shop worker in Boulder, Colo.; compensation, $3.35 an hour. Hired immediately after arriving in United States and just before starting first company.

Other Experience: Former hurdler in international track events

Other Companies Started: Transecon, distributor of recycled products; and Crystal Market, natural-foods retailer -- both in mid-1980s

Role as CEO: "You can't afford to say you like this role or that role; it's important for the CEO to keep changing. You have to keep taking responsibilities and passing them out."

Failures: Didn't compete in Olympic Games; track career stymied by injuries.

Family: Single; lives on 80-acre forested tract in mountains above Boulder

Heroes: None

Hobbies: Sports; meditation; pursuit of spartan life in mountain home (only available water must be fetched from spring, even in winter; often cooks and sleeps outdoors)

Quote: Rysavy traveled world with little money, sleeping on park benches and befriending strangers. "I went to so many countries without money. I didn't speak the language; I couldn't go to a hotel; I was dependent on myself. I learned that you can always start from scratch again."

Last updated: Dec 1, 1995




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