The 105-Year-Old Start-up
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Back in 1886, C.D. Smith's founder traveled to rural drugstores, peddling scotch as a cure-all.
When a company is older than Ford Motor Co. and Dow Chemical Co., it's likely to be too burdened by a bygone age to grow by triple-digit numbers. But for C.D. Smith Drug Co. (#390), founded in 1886, it took 105 years for a CEO to bet everything on the right opportunity. "There's no way," says Robert C. Farley, "that you could have planned what happened here."
What happened was a complete makeover of a company whose founder started out by delivering various potions and notions via horse and buggy to rural drugstores near St. Joseph, Mo. Back then, with no Food and Drug Administration around to ruin a good time, C.D. Smith packaged scotch as a cure for...well, whatever. Such evident business sense helped Smith establish the company as a fixture, and three more generations of Smiths came along to slowly expand its wholesale distribution business. The company supplied drugstores with virtually everything they carried.
But in 1991 the Smith string finally ran out. Farley, who had been chief financial officer for five years, engineered an employee stock ownership plan that left workers controlling 88% of the company while he owned the remainder. What they had bought, however, was a company that lagged far behind competitors in terms of using technology to lower costs. Farley drafted a new business plan that targeted 15% annual growth and a modernization of the company's facilities. From manual entry of orders, for example, Farley moved to a system in which drugstore owners used a handheld computer to send orders over phone lines directly to C.D. Smith. He also began plans to move into a larger automated warehouse.
At the end of 1993, however, came the opportunity that tested Farley's flexibility. A nearby competitor fired six of its salespeople. They came knocking: could C.D. Smith use their services? Because the business relies on the relationship between salesperson and drugstore owner, Farley saw a shot at growing quickly. So he hired them, growing his sales force from 9 to 15 overnight. Within six weeks, 19 more salespeople signed on.
The prospect of much more business meant that the company would suddenly have to multiply its inventory, but Farley didn't have lines of credit large enough to accommodate that increase. To get them, he "did a road show," visiting pharmaceutical companies and other suppliers. Farley got the credit he needed, but the terms were 30 days. If the new business didn't materialize quickly, he wouldn't be able to pay the bills. "We had to pay for our new inventory, our new salespeople, their travel expenses, and a new building," he says. "It could have bankrupted the company."
But the sales materialized, and C.D. Smith launched its second century with a 710% growth rate over five years, to $302 million. Farley says he's completing negotiations on an acquisition that would lift sales to $750 million. "In 1991," he says, "our goal was to take the company to $100 million by the end of the decade. Now we figure we could do $1 billion."