Their lack of involvement on that front hurt them early on. In 1990 Leonid Grzhonko and his family were among the many Russian immigrants who flooded the Bay Area. The school offered free English classes for the newcomers, who served as test students for Transworld's teachers in training. So many responded that Transworld--which "was like a family for us," Grzhonko recalls--ended up hiring extra teachers to handle the overflow. "That should have been my first realization that neither of us was very good with money or details or finance," says Mackarness.
Not that there weren't other clues. In the summer of 1991 Transworld acquired a school that taught English as a second language. Mackarness and Notley bought the business at a bargain price. But it took them 10 months to get the authorization necessary to bring foreign students into the school. In the interim, Transworld had moved to accommodate the new school, quadrupling the company's rent, and was paying five or six teachers from the new school, even though the student population there had dwindled to eight. By the time they got clearance, their new language school had almost ceased to exist.
One recurring problem was hard to ignore: Notley's disastrous involvement with the company's finances. "Although Chris is talented and charismatic, he is completely and totally coming off walls when it comes to anything like finance or day-to-day planning," says Mackarness, who sounds as if she's talking about a favorite, if exasperating, child. He rarely recorded expenses and didn't distinguish between corporate and personal funds. Before Fridge arrived, Notley set up a separate banking account for a special marketing program. When the program failed, he used the account as his personal checking account. To make matters worse, Notley promised some early investors absurd returns. One lender of $5,000 got a 300% return on his investment--not that the windfall had anything to do with company performance. "I made all kinds of wild promises," admits Notley. "We just couldn't get bank loans, and we needed quick cash for growing. And if anyone wanted to have blind faith and participate, I felt that was worth rewarding." Notley was also overly altruistic with students. "He was open to any sob story," says Mackarness. "If students couldn't pay their tuition, he'd say, 'Come back and pay us if you can someday.' "
Some did, some didn't. Either way, it didn't much matter. Mackarness and Notley hadn't started a language school looking to strike it rich. For them, being in business was just a necessary condition of following their passion. They fully believed that the force of their commitment, their sheer love of what they were doing, would carry them.
It did. To a point.
"We welcomed him like he was Jesus Christ walking across the water to our front door," says Notley. Not that the bearded Fridge could be confused with anyone but a numbers jockey, given his reserved demeanor and tortoiseshell glasses. Almost as soon as he took up his duties at Transworld, in February 1994, he proved to be a decisive manager.
Almost immediately, he sent out the books to be audited and brought in computers. A few days into his job he fired bookkeeper Tomas Pilar, later accusing him of embezzling. (According to Pilar, the criminal complaint that was filed was later dropped because of lack of evidence.) In accusing Pilar, Fridge confirmed the view that Mackarness and Notley already shared, that their friend Pilar was in over his head. Not much earlier, he had told them they wouldn't be paid for four weeks, despite the fact that enrollments had hit an all-time high and the business was actually positioned to post a tiny profit for 1994. The audit Fridge commissioned revealed that the company had, in fact, been breaking even for the past six months. Fridge assured the founders that they not only would get paid next month but could expect bigger checks down the road.
Given how swiftly Fridge had begun to set things in order, Mackarness and Notley were only too happy to continue playing a hands-off financial role. When, immediately after he started, Fridge asked for equity in lieu of pay, they rejoiced at his long-term interest in their company. It never occurred to them to study their options as business owners: they could have given Fridge nonvoting stock or granted him shares over a period of time, tying the amount to his performance. Instead, the founders awarded him the shares without writing up any shareholder agreement. "We were stupid about that," admits Notley. "We were terribly nave and distracted by what we needed to do ourselves. Everything was by his guidance." Fridge's suggestion that he be called president barely registered with them. "They didn't care what Fridge called himself," says Eric Shaw, Transworld's lawyer. Mackarness assessed Fridge, who's also British, as a quiet, good worker. "He didn't put a foot wrong," she says. "He was exactly the sort of person we had hoped to find. He wasn't a personality. The fact that he was a rather boring, dry little Brit suited us. We had far too many personalities."
And far too many shareholders. Or so Fridge said, as he explained to the founders why it made sense for him to buy out some other minority stakeholders, including Mackarness's stepmother. It was all part of cleaning up the business, the founders figured. Between March and June, Fridge had, in addition to the 20% equity stake he received in lieu of salary, invested an additional $7,000, raising his holdings to 29.6%. That left Mackarness with 19.3%, Notley with 9.2%, Swire with 15.7%, and Morris with 26.2%. It never bothered them that Fridge had rapidly become the single-largest shareholder. Quite the contrary. "We were willing to part with part of the company in return for his getting it on track," says Mackarness. In appreciation for his first 20% stake, Fridge gave them a handsome clock that kept time internationally, says Mackarness, who claims she later found it charged to the company. Then, after Mackarness and Notley revealed their plans to separate in May 1994, Fridge awarded them and himself a $2,000 bonus each. "He said it was to help us with our separation and to get apartments," says Mackarness. "He used his to buy shares."
