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BUSINESS PLANS

Flexible Fliers

A profile of the 1995 Master Entrepreneur of the Year winners and the runner-up.
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Alan P. Hald and Jeffrey McKeever started their computer-sales business almost 20 years ago -- and are running it still, and thriving, in an industry that for decades has seemed to change by the day

MASTER ENTREPRENEURS
Master entrepreneur: An individual who has maintained company-building and management excellence over a period of years

* * *

The Winners
Alan P. Hald and Jeffrey McKeever
Company: MicroAge Inc., Tempe, Ariz.

Founded: 1976

1994 Revenues: $2.2 billion

1994 Profits: $27 million

Number of employees: 1,677

Business: Reseller of computer equipment and systems

* * *

The Runner-up
Michael J. Birck
Company:
Tellabs Inc., Lisle, Ill.

Founded: 1975

1994 Revenues: $494 million

1994 Profits: $98 million

Number of employees: 2,585

Business: Designer, manufacturer, and marketer of telecommunications products

* * *

Think you run a growth company? You don't know growth the way Alan Hald and Jeffrey McKeever, founders and top executives of MicroAge Inc., do.

Imagine sustaining blockbuster annual expansion -- even after your sales top half a billion dollars. (MicroAge's recent revenue trajectory: $620 million in 1990, $1 billion in 1992, $2.2 billion in 1994, and nearly $3 billion projected for this year.)

Imagine 35 straight profitable quarters. Imagine seeing your equity shrink to 5% but rise to $3 million in value.

Imagine making reference, as vice-chairman Alan Hald did in conversation, to sales "plus or minus $100,000," and then realizing you meant $100 million. It gets easy to forget those extra zeros.

MicroAge is a Fortune 500 company, but it's one of those graduates of the Inc. 500 (class of 1986) that are redefining the nature of big business and corporate agility. MicroAge is a company that has kept its entrepreneurial roots despite all those zeros. It's not a matter of maintaining frugality, although that's part of it. ("There are rugs on the floor, not linoleum, but there's no expensive artwork on the walls," says Hald, 49, of the corporate offices in Tempe, Ariz.) It's more a matter of managing a company that's on the edge -- always. Despite its size and expanded resources, MicroAge has the feel of a company that's constantly at risk.

A reseller and integrator of computer equipment and systems, with a network of direct-sales offices and franchise outlets, MicroAge operates in an environment in which gross profits are a slender 5% to 6%. That's obvious in the way the company accepts tension as a cultural norm. Staff members are expected to adjust to an atmosphere of constant change. "People who decide to stay here like change and can deal with a lot of reorganization, which you have in a company that is always dealing with 40% growth," says Hald. "We recognize that people are under pressure all the time, and we have to figure out how to channel their tension not into anger but into creativity."

Keeping that edge has meant changing the business model repeatedly. MicroAge started out in 1976 as a computer retailer for hobbyists, with a single store in Tempe. It added stores and then became a distributor and later a franchisor. Later still, in 1981, came bankruptcy, restructuring, and finally, in 1986, reemergence, with creditors paid back with interest. Then it became an "aggregator," or product customizer. The company's current incarnation is as a "hybrid integrator and distributor," as 53-year old Jeffrey McKeever, the company's chairman and CEO, puts it. About $1.9 billion in 1995 revenues have come from the company's 5,000 storefronts and its distribution network, and $1.1 billion from putting together customized systems for large corporate customers.

"The computer business has over the years become one of the highest velocity and thinnest margin businesses," says McKeever. "If you don't figure out how to improve what you do each year, you're going to be out of business fairly quickly. You literally have to, as the saying goes, eat your own -- you really have to be able to eat your own ideas, replace your previous ideas, or be willing to erode part of your business. The alternative is that someone else will do that to you."

An example is how MicroAge dealt with franchising. "As recently as 1989 we were collecting franchise royalties, which were half our gross margin," says McKeever. "In one fell swoop we eliminated that to go to a nonroyalty-type franchise. We destroyed something, we gave up $100 million of royalty payments owed to us, simply to change models." The system MicroAge moved to -- of charging affiliated stores a product markup without a royalty -- allowed the company to compete for new franchises more effectively. The business grew fairly quickly from 600 to 1,500 locations (many of which were existing independent stores that didn't necessarily add MicroAge to their name), and MicroAge now sells to 5,000 locations in the United States. "It was one of those bet-your-business moves that paid off really well for us," says McKeever.

Over the years Hald and McKeever have remade not just the business but themselves as well. After spending their thirties in day-to-day decision making, they moved during their forties to big-picture strategizing, a passage made somewhat easier by the corporate training they got in M.B.A. programs.

The ability to switch gears is partly a matter of discipline. "As you get more successful," says Hald, "it gets more difficult to set self-imposed boundaries. There are too many opportunities; you can lose focus. Entrepreneurship means having the mind-set to be able to throw things that are distracting you into the garbage."

McKeever has his own method of discipline: he gets up at 3:30 every morning to read and write and think. "That gives me a tremendous head start every day because I've already spent three or four hours getting organized and thinking about how to spend my time before anyone else is at work." He also spends two weeks a year at educational programs. "I always say that I'm perfectly qualified to do the job I was asked to do last year. I always find myself out on the uncomfortable edge of having to learn my job on the fly."

Both McKeever and Hald credit their early bankruptcy with preparing them to be better managers. "I wouldn't recommend it to anybody, but it was good for us," says McKeever. "You know, instant success is actually not that rare; there are plenty of examples in the business press of people with tremendous successes. And then you read about the aftermath, the story of how they failed later on." Living that failure after an initial success has made it easier, he thinks, for the partners to make the transitions that are forced on them every five years in their industry. "The key thing is to recognize where you're at at all times and be realistic about it. Being in Chapter 11 was a powerful reminder of how painful it can be when you don't look at things realistically. I think we've gotten better at that over time."


WHERE HAVE ALL THE FOUNDERS GONE?

As companies grow from small to large to huge, their founders rarely make a successful transition to being corporate managers. That's especially the case when companies go public: whereas 432 companies on this year's Inc. 500, a list of the country's fastest-growing privately held companies, are led by CEO-founders, only 55 of the Inc. 100, a list of the country's fastest-growing publicly traded businesses, still have their founders at the helm.

Cultivating teamwork with a new tier of managers, learning how to pull back from day-to-day decisions, figuring out how to expand without losing focus -- they're all common tripping points. Companies more often than not outgrow not only the founders' skills but also their ability to successfully integrate other talented people.

The inability of most founders to adapt to new roles as their companies become giants in the computer business -- Bill Gates and Michael Dell are among the small handful of industry colleagues who, like Alan Hald and Jeffrey McKeever, still run the companies they started from nothing -- amplifies the MicroAge founders' accomplishment. Computer retailing has been unrelentingly tumultuous for all of MicroAge's 19 years, with the rise and fall of supernames ComputerLand and Businessland, the current surge of superstores CompUSA and Computer City, and the market entry of consumer-electronics shops, including Best Buy and Radio Shack. Planning and flexibility, Hald and McKeever think, have made the difference.

How can a founder increase his or her odds? For one thing, it helps to have an aggressive board. MicroAge was 10 years old and on the cusp of going public when its board called for a "management audit" by an outside consulting firm. McKeever recalls that the process brought in by a third party (Mercer Consulting) helped everyone -- him and cofounder Hald, along with other managers -- figure out what role each would play in the company's next phase.

"We use Mercer to help put together strategic plans every three years," says Hald, "but we also do 18-month to 36-month plans." The company runs not only on instinct but also on a constant flow of market research and third-party perspective. "Gut instinct is important, but that's not it," says Hald. "The way to be successful is to get your resources together and find the biggest emerging market. And to do that you need the intuitive part, and you need the intellectual part."

Last updated: Dec 1, 1995




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