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BUYING A SMALL BUSINESS

The Buyers
 

A look at what happens when a husband-and-wife team with a big-business background buy a small business in Maine.
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Bob Hammer and Sue Crowe abandoned their successful big-company lives and high-rise Chicago home to buy a small business on the coast of Maine. Here's what happened next

A chilling January wind whips off Penobscot Bay as Bob Hammer and Sue Crowe duck into Seafarers for lunch. Like most local restaurants, the place is nearly empty this time of year, since the coast of Maine isn't terribly popular in winter -- even local business owners close up shop and flee to kinder climates. Among those who remain, there is a relaxed camaraderie. The results of last year's toboggan race are posted behind the bar, and Hammer takes some good-natured ribbing about the "strategies" that won him and three employees eighth place out of 65 entries. "I had some theories on wind resistance," he jokes. "Then there was the secret ingredient we sprayed on the bottom of the toboggan," adds Crowe. It's a far cry from lunch in the executive dining rooms at Motorola and Abbott Labs, where Hammer, 60, and Crowe, 51, were senior managers for the better part of their careers. Now here they sit in the land of moose-crossing signs, having traded in their tailored suits for Levi's and their high-rise luxury apartment in Chicago for a sprawling renovated "cottage" on the bay.

Hammer and Crowe, who have been married for 21 years, share a passion for sailing and a distaste for traditional retirement. "We had talked on and off about running a little business when we retired," says Crowe, a former director of human resources at Abbott Labs who still projects remnants of a high-powered executive's demeanor. "We were always giving advice to management, and we liked the idea of being management." As Hammer approached retirement age they began to look for opportunities that would not "break the bank" (which they concede is substantial). The company had to be small, with a price tag of no more than $500,000, have some growth potential, and, ideally, be situated on the east side of Lake Michigan "so we could go sailing when we weren't that busy." Business brokers presented a hodgepodge of choices -- a wholesale flower business, an electronics subassembly plant, a cherry orchard, a furniture company. They were too risky, too narrowly focused, or too dependent on outside variables. But BlueJacket Ship Crafters, a mail-order model-ship-kit manufacturer in Searsport, Maine, seemed, well, just right. True, Hammer and Crowe hadn't planned on being that far east of Lake Michigan, but the coast of Maine held its own appeal, as did the company's nautical theme. "And we liked that it was a mail-order business," says Crowe. "We envisioned ourselves sitting with the cell phone on the back of the boat, saying, 'Yes, we'll get that out to you tomorrow."

* * *

Of course, it didn't quite work out that way. Hammer and Crowe made their first visit to BlueJacket in autumn 1991, after they had thoroughly reviewed the company's profit-and-loss pro formas with their accountant and had done their own analysis of the market. Dun & Bradstreet's reports on a handful of similar companies showed Crowe and Hammer that BlueJacket probably had less than 10% of the market. But, reckoned Hammer, aging baby boomers would expand that market, since it is primarily older men with leisure time who tinker with model ships. "If we could just maintain our market share, the company would grow quite comfortably," he recalls thinking. Assured by model-ship retailers that BlueJacket had a loyal following and a solid reputation for quality products, Crowe and Hammer began to think that they had discovered a diamond in the rough. They paid $331,000, a little less than the asking price. The sellers accepted, eager to move on.

It wasn't until the due-diligence phase of the sale that Hammer and Crowe got their first inkling of the challenges they would face. BlueJacket was situated in a former schoolhouse, a circa-1840 building with a second-floor apartment that was home to the company's managers, a married couple who were minority shareholders. Around their kitchen table, Hammer and Crowe interviewed each of BlueJacket's six employees, searching for clues that might better prepare them for their new roles. "I've managed several corporate realignments, and I've never met a group of people that were more apprehensive," recalls Crowe. Although the employees had suspected that BlueJacket was on the auction block, no one had bothered to tell them outright that the company was being sold. "When we found out who Bob and Sue were, it boggled our minds," recalls Joanne Trefethen, who works in the shipping department. "How could they run a company like this? We couldn't imagine it." Hammer and Crowe, on the other hand, were unconcerned. They had, after all, managed hundreds of employees. They had reengineered. They had restructured. Heck, they had even shifted a paradigm or two. And they fully intended to try it all out on BlueJacket. But while they hinted at what they had in mind down the road, they were quick to reassure the employees that no dramatic changes would be made right away, that everyone still had a job, and that the employees' current boss, Jane Holt, would remain on staff to ease the transition.

* * *

The sale was made final in December 1991 -- the beginning of Hammer and Crowe's toughest year. To be eligible for full retirement benefits, Hammer would need to stay at Motorola through 1992. Crowe would manage BlueJacket on her own while living at a nearby hotel, and eating -- mostly alone -- at local restaurants. On weekends, the two would take turns commuting between Bangor and Chicago. It was exhausting, expensive, lonely, and often frustrating. "The learning curve was intense," Crowe recalls. "We didn't know what we were doing, so we had to keep asking employees how things worked." Accustomed to being told what to do and rarely asked for their opinions, employees regarded Crowe's questions as further proof that BlueJacket was in uncertain hands. The couple's commuting arrangement, which prevented them from putting down roots in the community, also struck employees as odd. "There wasn't a feeling of permanence," says Sandy Whitney, who is in customer service.

Holt's presence turned out to be a source of conflict as well. Crowe saw her as "dictatorial" and attempted to convey to her that employees should have more control in solving problems. "We even sent her to North Carolina for a very sophisticated supervisory training program," says Crowe, "but she was just too high-control. She couldn't work with empowered people." Employees, however, loved their boss, couldn't have cared less about being empowered, and were quite happy to "ask Jane" whenever they needed help. More than one muttered under her breath, "This is a small company; they can't run it like Motorola." But few dared to speak up. "People were terrified of telling us anything," recalls Crowe. "That first year, we had meeting after meeting, and I was the only one who was talking."

And there was plenty to talk about. The company was struggling with back orders, often taking up to four weeks to send out kits. Components weren't ordered from vendors in a timely manner. Orders were taken over the phone but were never sent to the shipping department. And customer service was a virtual battlefield, where customers complaining about kits were simply told, "No, that's the way it's supposed to be." Moreover, employees were suspicious and resistant to change. Crowe and Hammer had altered the rules of the game, and their ideas flew directly in the face of the implicit local employment contract: do what the boss says -- nothing more, nothing less -- and you'll keep your job.

Hammer and Crowe, who plowed another $87,000 into the business that first year, were slowly beginning to realize that BlueJacket was a long way from running on automatic pilot -- the cell phone and their 38-foot cutter rig would have to wait.

* * *

By the time Hammer arrived on the scene, in January 1993, things had settled down a bit. Employees who were particularly at odds with the couple's ideas of how BlueJacket ought to operate, including Holt, had left. And Crowe had made incremental progress in getting employees to tell her about their jobs and how they could be made easier. There were new hand tools in the casting room, and Macintosh computers had replaced the old manual method of order entry and inventory control. Employees, accustomed to doing their jobs with little regard for how their coworkers performed their tasks, were beginning to coordinate their work and to develop some understanding of how things were connected. But Crowe had also learned when to back down. For instance, she had thrown herself into creating an extremely detailed inventory system for kit components, only to discover that it was unnecessary and impossible to maintain.

With Hammer comfortably settled in Maine, the couple began to establish themselves in the community. Hammer, easygoing and affable, soon became a regular at chamber of commerce meetings, and he was quick to involve BlueJacket in local charitable events; Crowe tentatively attended a Rotary Club meeting. They had bought a farmhouse and a black Labrador retriever, whom they christened BJ (for BlueJacket). And as they fell into the predictable pattern of life in Maine, their ownership of BlueJacket seemed, to employees, more permanent.

There was just one problem. Accustomed to taking direction from Crowe, employees were confused by Hammer's presence and were unsure of each partner's role. Ditto for Hammer and Crowe. Comfortable with managing large staffs of their own, they suddenly found themselves sharing turf. "You had two powerful gunners from large corporations, and we had nobody to gun but each other," says Crowe. Even the issue of ownership had been tricky. "We each wanted to have president on our business cards," recalls Hammer. In the end, the pair decided that Crowe would be president of the holding company and Hammer would be president of all the divisions, which included, by then, a small retail operation and a newly purchased lower-end model-ship-kit company called Laughing Whale. But as they went about managing the company, their styles often clashed. Hammer, always as accommodating as possible, would promise a vendor immediate payment; Crowe would insist on a 30-day payment schedule. Crowe wanted to continue advertising in traditional vehicles; Hammer preferred to branch out. Hammer wanted to buy mailing lists; Crowe wasn't convinced the investment would pay off. In BlueJacket's tiny offices, the tension was impossible to conceal. "People would look at us and wonder, 'Who do we take orders from?" recalls Hammer. "When we realized we were stumbling over each other, we decided to divide the areas according to our strengths and interests." Hammer commandeered marketing, new-product development, and a new retail venture, while Crowe tackled finance, production, and office systems. They agreed to disagree but to defer to the other partner in his or her area of expertise.

* * *

More than a year into their ownership of BlueJacket, Hammer and Crowe were still dreaming of the day they might take a day or two to go sailing, confident that they were leaving the company in capable hands. Hammer, who had worked directly with former Motorola chairmen Bob Galvin and George Fisher when that company first shifted to team-based management, believed that empowered teams at BlueJacket were the couple's ticket to a more leisurely lifestyle. "Shortly after I arrived, employees began telling us that they weren't happy with the production schedule because they didn't think it met the needs of customers," he recalls. "Our reaction was, 'OK, then you do the scheduling." He put together a team of four employees, which was charged with analyzing kit sales by quarter for the past two years and comparing that number with inventory. Production -- which consists of ordering materials and making and bagging kit components -- would be planned according to anticipated customer demand. It was a vast departure from "the old days," says Sandy Whitney. Under the new system, she does the wood ordering herself, based on information that comes from the production team, of which she is a member. "Our cycle time, which had been three to four weeks, became one to three days," says Hammer. "The production team really had a big impact."

Spurred on by success, Hammer and Crowe slowly created more teams over the next three years. They also began to share financial information, offer bonuses tied to performance, and create an atmosphere in which employees could schedule their own time as long as they honored their work commitments. With each change there is still resistance, but Crowe and Hammer have come to accept it, just as employees have come to accept that things are never static for very long. Their bosses can be counted on to tinker. Today there's an advertising team, a front-office team, a quality team, and a facilities team -- a bit excessive, perhaps, for a company with only 10 employees, most of whom are on two or three teams. But even those who originally thought teams were "useless and senseless" concede that the business is running more smoothly than ever. Orders are going out on time, and employees know enough about each job to cover for one another and are more self-reliant when it comes to day-to-day problem solving. Because Crowe and Hammer spend less time putting out fires, they can concentrate more on improving the quality of the kits, developing new products, and expanding their retail operation to take advantage of summer tourist traffic -- the kinds of revenue-generating projects that will eventually allow them to cash out handsomely. They hope.

"Our big investments are behind us," says Hammer, "and we're beginning to harvest the result." At $520,000, sales are up about 55% since the purchase, and last year the business was in the black for the first time, allowing Hammer and Crowe to draw $20,000 in the form of a loan repayment. They also put time and energy into creating their own corner of paradise: they bought and renovated a summer house in nearby Lincolnville, spending a small fortune to virtually rebuild the structure to accommodate their lifestyle (by incorporating his-and-hers kitchen workstations, custom-built furniture, and separate master bathrooms). And they finally felt comfortable taking a vacation, chartering a 61-foot French racing sloop in Antigua for a week (complete with a cell phone that remained untouched).

It's clear that their retirement is not riding on the success of BlueJacket, but neither is the company merely an amusement for two people with deep pockets and some spare time. To anyone considering a similar plan, Crowe cautions, "you will put in more money than you thought you would, you will take out a lot less, and you will work harder than you did when you were making a six-figure salary at your large corporation." Is it worth it? Absolutely. "It's great fun and very rewarding to see our employees grow, to keep our minds active, and to be able to contribute to the community," says Hammer. "This is the best time of my life."

* * *

Management editor Donna Fenn can be reached at incfenn@ aol.com


THE NEW BUYERS

As we read Donna Fenn's "The Buyers," we were struck by the story of BlueJacket's buyers, Bob Hammer and Sue Crowe. Their experience, it seemed to us, represents several themes in our economy, both recent trends and age-old questions about buying and running companies. Reporter Robina A. Gangemi called Dennis O'Connor, a partner at O'Connor, Broude & Aronson, in Waltham, Mass., to see if he agreed. O'Connor's law firm deals with emerging companies, from start-ups to more established businesses, and counts among its specialties "creatively structuring deals."

Inc.: We've been hearing that large-corporation refugees increasingly are buying businesses rather than starting them. True?

O'Connor: It's a trend that may have started with big-company refugees, but it now includes people who have left their jobs in companies of all sizes, often because they don't have the job security they thought they had. They have the talent, the knowledge, and sometimes the financial resources to get a running start by buying an existing business with experienced employees and making changes to improve the business. Three-quarters of our early-stage-company clients are people who buy or franchise rather than start from scratch. The product, the service, or even the industry itself is not of primary importance to many of them. These people are opportunistic, looking for a business to use their talents. They believe they can take their management talents to almost any business and succeed -- except, of course, in wild-card industries like biotech.

Inc.: Over the years we've been told horror stories about what happens when people bring their big-company skills to small companies. Is their experience any more relevant today?

O'Connor: People from bigger companies are used to working with significant resources. When they find they have to do it all themselves, it's kind of a shock. But in the long term, their organizational talents and discipline come into play and bring real benefits to small companies. That advantage gets overlooked because people focus on the adjustments they have to make in the first few months in the company. But if they can get through that initial period, they can do very well by the companies.

Inc.: Is culture clash inevitable between a new owner and the business's managers and employees?

O'Connor: I've never seen a case when there wasn't any culture clash. What you're talking about is change, and any change is tough.

Inc.: Why do you think people should think twice about buying a lifestyle business?

O'Connor: The business is going to be much more challenging in terms of time than they ever expected, and they won't get financial rewards in line with the effort they put in. It never ends, and it's brutal. If you're working for yourself and doing something you like, it can offset that. But meeting payroll is one of the toughest things in the world, and it doesn't go away.

Last updated: Jun 1, 1996

DONNA FENN is the author of Upstarts! How Gen-Y Entrepreneurs Are Rocking the World of Business and 8 Ways You Can Profit From Their Success, an exploration of the ways Gen Y is changing the entrepreneurial landscape.
@donnafenn




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