OPERATIONS

Irreconcilable Differences

Donn Rappaport and Liza Price, husband and wife cofounders of American List Counsel Inc., tried to continue running the company together after getting divorced. Here's why it all fell apart.
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Despite the breakup of their marriage, Liza Price and Donn Rappaport did all they could to continue comanaging their successful company. They took smart legal steps; they maintained their professionalism; they acted with the best intentions. And in the end, they didn't have a prayer

Liza Price and Donn Rappaport never meant to make their employees cry. But when they announced to their key managers in the fall of 1992 that they were splitting up, the president and chairman, respectively, of American List Counsel Inc. (ALC) were unprepared for the reaction they got. Thinking they were merely formalizing what everyone already knew, the couple had gathered the group together for a somber lunch. "We said, 'We have some news," recalls Rappaport, "and then we told them we were separating. The reaction wasn't that different from when we told our children. It was very sad."

Price and Rappaport were taken aback because during ALC's then 14-year history of building and managing customer-prospecting databases for national catalogers, publishers, and marketing firms, the couple had consciously tried to create the kind of professionally run company at which either of them would be dispensable. Unlike many couples who tend to view the business as their baby, the pair regularly welcomed outside consultants and shared decision making and profits with employees. They even had the business equivalent of a prenuptial agreement in place to ensure their company's survival. "What I think neither of us really ever grasped," says Rappaport, "was how really, truly embedded in the culture of this company was the idea that the owners were married to each other."

Like many company success stories, ALC's comes with the stereotypical hard-luck start. In 1978 Price, 28 years old and seven months pregnant, lost her job creating marketing plans for Ed Burnett Consultants. "The guy fired me and told me he was doing me a favor because I was pregnant. He thought I'd be able to collect unemployment while I was on maternity leave. At the time it didn't feel like a favor," says Price. "I didn't take it very well." Taking a few customers with her, she started ALC out of her basement the next day.

Supported by her husband of five years, Donn Rappaport, who was running the direct-response division of a New York City advertising agency, Price set about building a small lifestyle business compiling, managing, and brokering mailing lists for companies like the Goldhirsh Group, which owns this magazine. (ALC still manages and brokers Inc.'s lists.) The work enabled her to stay home with her child while earning spare cash. Rappaport lent visionary support in the evenings.

Price's plan to stay small failed. Her earliest customers themselves grew so fast that within two years she had four employees crammed into the basement of the couple's Scotch Plains, N.J., home, and a fifth working out of an extra bedroom. Fran Green, then a personal friend and now a key manager at ALC, remembers the early frenetic pace: "It was crazy. Liza had just had a baby. So in between nursing, she'd type purchase orders." When the sixth worker took over the family's den, Price, pregnant with her second child, finally started shopping for office space. The company wasn't quite three years old and was grossing roughly $3 million annually.

Around that time, Rappaport did what an increasing number of spouses do every year--sometimes for better but often for worse: he hopped into business full-time with his wife. And she welcomed him. "He was bringing a marketing expertise to the company that none of us had," she says. Early on, the pair signed a simple partnership agreement delineating the terms of ownership--something far too few entrepreneurial couples do. Even though, under New Jersey law, Rappaport automatically had rights to the assets of ALC, the agreement gave him 50% of the company's stock in writing. It granted Price a right of first refusal, she says, giving her the first option to buy Rappaport's shares.

The couple's willingness to visit the often emotionally charged issue of drawing up a written agreement was remarkable, according to Azriela Jaffe, a consultant to entrepreneurial couples. Only 20% of business partners properly document their business relationship from the outset, she explains. The percentage of business-owning couples who do so is much lower, she estimates. "The worst part is that they don't do it because they think it'll jinx them. They think it will somehow make them start acting as if they had a problem marriage."

Rappaport and Price thought little about how being married would affect how they'd run a business. Perhaps that's because they were such a natural fit. Rappaport calls himself a big-picture guy, born to market and sell. Price says she's more at home working the back end, keeping software up-to-date and taking care of employees and customers. "If you were a headhunter, you couldn't have gone out and found a better-matched pair to run the company," says Don Nicholas, a longtime ALC customer and the owner of publishing-services company Blue Dolphin Group Inc., in Wayland, Mass.

Dreaming together of the ideal work and living space, Price and Rappaport purchased an 18th-century dairy farm in Princeton, N.J., for $250,000. Employees wax poetic about ALC's early days there. Kathy Witwer recalls going from her previous job on the 30th floor of an insurance building on Michigan Avenue in Chicago to the relative wilderness of ALC--with employees dressed in shorts, poolside picnics, and Price's animals, including horses, sheep, some peacocks, and the goat that used to sneak into the offices. Drive up the winding path to the farmhouse today, past the white picket fence lined with black lanterns, and you can almost imagine Price in a floppy straw hat, crouching over a circular stone flower bed, planting impatiens. "We had to get rid of the goat," Witwer explains, "because he jumped on the cars."

Price and Rappaport originally planned to live upstairs and work downstairs. But by the time the town had approved the zoning and the contractors had finished remodeling, in late 1980, ALC had 11 employees, leaving little room for living space. Idyllic though their farm may have been, the tempo was anything but serene in the early 1980s. As the direct-mail industry blossomed, so did ALC. From 1980 to 1985 gross sales grew from $1.4 million to $16.3 million, earning the company three consecutive spots on the Inc. 500 list, in 1984, 1985, and 1986. Winning big accounts such as U.S. News & World Report in 1986 forced the $17.2-million company to add a $700,000 modern wing, two or three times the size of the original farmhouse, to accommodate close to 60 employees. By the late '80s, revenues were still growing by more than 20% a year.

ALC managed to thrive at that energetic pace in part because Price's risk-averse instincts tempered Rappaport's zeal for growth. "There are all kinds of clichÉs to describe me," Rappaport says. "I'm a visionary. I'm somebody who likes to build things and grow things. And I'm a salesman. In certain contexts those are wonderful things. Left unchecked they can be very dangerous. Liza was a good check for me. She really kept me from overextending myself with the business." Customers depended on that balance as well. "Donn is a salesman. He's perfectly willing to paint a perfect picture of what will happen in a perfect world," says Blue Dolphin's Nicholas. "But I knew Liza would make things happen even if she had to butt heads with Donn over it. Donn is cool and calm, and Liza is a little fireball. From the day I met them, they were always willing to pick up a rock and throw it at each other," he recalls. "After a while it became part of the landscape."

Though often at odds on business decisions, the pair both worked hard to run the company professionally. Early on, a consultant helped them set long-term goals, divide responsibilities, nurture employees, and clarify the lines of reporting. "It was very valuable in taking the management of the business outside our bedroom or our bathroom and putting it in the conference room," says Rappaport, who as a result could focus more on new-business development and replace himself as sales manager. Price, while she was always very hands on, encouraged employees to take on larger responsibilities and pursue work they loved. Granted, Pat Stecher, who was hired as Rappaport's executive assistant when the company still used IBM memory typewriters, recalls being thrown into a technology role simply because her office sat next to the computer room and she had some spare time. But she flourished there, going from data processor to, eventually, executive vice-president of corporate services.

In 1983, ALC hired 28-year-old Bob Tomlinson to manage its finances. "Coming out of 40th and Madison, it was a real change for me," says the boyishly handsome refugee from Chase Manhattan Bank and Young & Rubicam. Tomlinson, who keeps his watch set 15 minutes ahead, admits it took him a while to get used to farm life. "I wore a tie and a suit from the day I got there for the first five years. I thought it was important in my role to establish credibility. We were now coming up against Fortune 50 companies." Even more important, Tomlinson established ALC's credibility with potential customers by introducing sophisticated financial controls.

On the sales side, ALC grew more aggressive, becoming one of the first companies in its industry whose order takers also did telemarketing. And, says Stuart Jordan, a former customer and employee, ALC "went out and actively promoted the list products they had. From the mid-'80s on, when you opened a trade publication, you saw big full-page ads for ALC-managed lists. Now you look at any trade publication and everybody has adopted what ALC started."

By 1988, their company's 10th anniversary, Rappaport and Price were beginning to enjoy the fruits of their success. Sales approached $30 million. And in the industry's supremely clubby world, they were the golden couple--young, attractive, entrepreneurial, and known for throwing great parties. Deb Goldstein, president of IDG List Services, says, "They were known as the premier couple in this industry for many, many years." With the day-to-day management increasingly in others' hands, Rappaport and Price started taking time for themselves. After giving birth to the couple's third child, a boy, in February 1988, Price took three months off. She began breeding horses. Rappaport, like Price, devoted more time to the couple's kids. With the rest of his newfound freedom he took up golf seriously and spent more time on the road--finally flying first-class.

What ultimately caused the dissolution of Price and Rappaport's marriage depends on whom you talk to. But whatever the reasons, by the time they announced their separation, in the fall of 1992, the course was set. Other than the announcement, the pair made little fuss about their separation. After all, with offices far removed from each other, they didn't spend more than an hour a day together at work, and they still relied on each other's strengths. Surely they had created the kind of company that could survive their marital troubles. "People can destroy their main asset when having a divorce," says Price. She and Rappaport were determined not to let that happen.

For further reassurance, they created a safety net for the business. Before splitting up, they scrapped the original partnership agreement and drew up another agreement. Though Price and Rappaport give different accounts of the events that led up to the new document, both agreed to include a "shotgun clause," meaning that once one of them offered to buy the business at a particular price, the other had 45 days to accept the offer or buy it at that named price. While the agreement eliminated the potential for prolonged negotiations, lowball offers, or, worse, a stalemate, once it was executed, there was no turning back.

With the agreement in place, the pair attempted to run their separate areas as they always had. They even organized an Outward Bound trip to bond with 18 managers in the woods, sleeping under the stars and going white-water rafting. "All I asked of the Outward Bound trainers was that Donn and I be on different rafts," says Price.

Stuart Jordan joined the company in 1993, and he recalls candidly discussing with the separated couple whether or not they could still work together. "They really honestly believed there was a distinction between the personal and the professional," he says. Eventually, however, the reality of running a business together while withdrawing emotionally from each other set in. "I just remember the days that I had to be in the office were a kind of misery when he was there," recalls Price. "I remember thinking one day, 'I love coming to work when Donn's not here. And I hate coming to work if I know he's going to be here.' I was only seeing his arrogant, aloof, egotistical self, not the self I had fallen in love with."

Trying to keep the peace sometimes meant avoiding each other during the day--or coming in on days when the other wasn't there. As a result, seemingly innocuous decisions, such as updating software, took forever. Heather Maylander, an 11-year employee in ALC's list-brokerage services, says deciding how big a party to throw at a trade show became a polarizing issue.

Innovation and growth began to suffer. "They had had such synergy that when they put their heads together they came up with great ideas," says Witwer. "And the opportunity to put those heads together just ceased."

Managers found themselves in an awkward position. "As a director, it became more difficult to take a stand against somebody," recalls Fran Green. "The company had always had very, very direct and open communication, particularly at the top. The spirit of being able to do that with Donn and Liza was definitely not the same during that period. They'd take things personally. They'd think I was taking sides rather than making a good business decision." And though the pair had always fought passionately about the business, their arguments now grew more volatile, clouded by personal issues. Monthly managers' meetings went nowhere, with Rappaport pitching acquisitions and Price talking about maintaining a 15% growth rate. Regular attendee Stecher says, "It was very difficult. You could see the stress between the two of them. It became more difficult for them to come to agreement. Meetings were becoming very uncomfortable."

In the industry, word traveled fast that the golden couple's marriage had tanked, leading some anxious customers and prospective customers to shop their business elsewhere. "We lost some clients," admits Green. "They never said, 'I'm leaving because Donn and Liza are splitting up,' but I think we all believed that. It was difficult. Clients move around all the time. But if you know someone's thinking about it, you go out with all guns blazing to keep them. And it was difficult for us to make a case. Clients didn't want to put their businesses in jeopardy waiting to see what was going to happen with ALC." Rumor had it that competitors were using ALC's vulnerable state to capture deals. "I think anytime a company's undergoing a transition, competitors are going to say, 'There's a certain amount of instability there. Why don't you come with us, to a more stable environment?" says customer Cindy Still, who recalls being on the receiving end of competitors' pitches while at The Atlantic Monthly.

While Price and Rappaport continued to go through the motions at work, the lens through which each viewed business decisions changed. Although the two had always been at loggerheads over growth issues, there had been an underlying trust throughout their sparring. Each had the other's future well-being in mind, since the two shared a nest egg. Virtually overnight, suspicion replaced that security. "When you're separated and working on your divorce and working out property distribution and all kinds of things like that," says Rappaport, "all of a sudden you're not quite so confident that the other person has your best interest in mind." What had once been constructive disputes over growth became loaded issues. "When things were going well, we were able to talk about the decision to take on some new business, to do an acquisition, to expand into a new area," he says. "When things were not going well, it was the same discussion, but the outcome was very different." Price found her soon-to-be ex-husband's push for growth unbearable. "It actually was OK until this whole business about doing acquisitions and going public and getting bigger, bigger, bigger became the most predominant thing," she says. Rappaport admits, "I got caught up in how fast we were growing, how big we could get. I think we became a little polarized in a lot of ways."

To make matters worse, things Price and Rappaport took for granted as a married couple no longer applied. They had often made alone what should have been joint decisions, knowing they'd discuss them later at home. "There were a few things that started making me realize that if we weren't married, he wasn't going to be such a great business partner," says Price. "When you trust the person and you know you're going to see them later on, some things you do are OK." Take, for example, an event that Price says transpired in May 1994. Price, Rappaport, and Tomlinson were negotiating with Vinod Gupta, founder and CEO of American Business Information, to sell Zeller and Letica, the New York City-based business-data-compiling service they had bought back in 1984. Price claims she had agreed to the proposal Rappaport had written, but he had signed her name to it--which he denies--and sent it out without showing it to her. The next day Gupta called to discuss the proposal. Rappaport was out golfing, so Gupta spoke to Price. Caught off guard, she put him on hold while she grilled Rappaport's secretary about the agreement. Price says she didn't care that Rappaport had signed her name. She simply wanted to see final agreements before they went out. "These are not big issues," says Price. "The point is that I saw the handwriting on the wall.

"Finally," Price says, "I just said, 'Look. I can't work with you anymore. You either give me an offer that works or I'm going to execute our buy-sell." Rappaport still thought it could work. On August 15, 1994, wanting him out, Price put into play what she believed to be her only option--the buy-sell agreement. Offering more money than she thought Rappaport would pay for ALC, she set a price she could live with if he did. "I came up with what the company was worth to me to sell my half of it to him," explains Price. "And I executed it because at that point I was willing to take the money and leave rather than have to work one more day with him. He had to either match the amount I came up with or leave in 45 days. We were at an impasse. If we hadn't done that, we could have destroyed the company." Price put up her half of the proceeds from the sale of Zeller and Letica and lined up a key supplier to invest the rest. The buy-sell agreement included a stiff seven-year noncompete clause. Assuming the business would be hers, Price had little problem with the provision. She had created it. "I didn't want my former husband taking millions of dollars from me and then surfacing again, trying to start a company to compete with me," she says. Price confidently bet the farm.

During that period, employees held their breath. Although they were caught up in the couple's trauma, ultimately they were more concerned about their jobs. Some were nervous that customers close to Price might exit if she lost her bid for the company, since many of them viewed her as ALC's heart and its resident direct-mail expert. Others feared that Rappaport's departure would compromise the company's growth potential. Either way, employees knew they wouldn't have to wait much longer for a resolution.

Tomlinson recalls visiting Price in her office late one night, 10 days before the deadline. Although he was ostensibly neutral, he was excited by Rappaport's visions of continued fast growth and had hitched his star to Rappaport by helping him line up some financing. "I knew that if Liza ended up with ALC, I would wish her well, but I would have to move on. I wanted to be in a bigger organization, and I knew she would continue to grow it but not to the level that, personally, I was looking forward to," he says. He broke the news that Rappaport was putting together a financing package so he could purchase ALC. "I was very direct with her. It was clear which side of the fence I was on. She respected that but also told me that when the closing was done and she ended up with the business, she'd wish me well."

On October 4, 1994, it was over. Donn Rappaport owned ALC. To prevent further damage, Price, Rappaport, and some employees began to share the news with customers they were close to. As an added precaution, the pair had earlier awarded phantom stock to four directors (all of whom had been with ALC for at least 10 years) and asked them to sign 5-year employment contracts. "It did serve to offset some of the trauma of the whole thing," says Rappaport. Miraculously, only one employee, Jordan, left at the news. Although he admits being much more partial to Price, he also had a better offer.

While most employees and customers saw Rappaport as the guy to take ALC to the next level, many were still saddened by Price's departure. One industry colleague, IDG's Deb Goldstein, made her a collage. "It was a thank-you from other women leaders in this industry, because she was a trailblazer," she says. "She was one of the first women to have ultimate power and vision in the direct-marketing community. She's just a great role model."

"The whole thing was hard," Price recalls. "When he came up with the money, I was very bummed. And the day after I sold the company, I was depressed. Basically, I had to tell the employees that I was leaving the company I had founded because we were getting divorced and Donn had bought out my half." After doing a couple of months of intermittent consulting for ALC, Price found herself banished from the industry for seven years. The divorce was finalized in December 1994.

Epilogue

During a routine teeth cleaning, Price's dentist had once described to her the business he'd always dreamed of creating: running golf tournaments for duffers. By June 1995, Price had started Amateur Golf Tournaments, making her dentist a minority partner.

On a spring day three years later, she's navigating a golf cart among the rolling hills of Crumpin-Fox Club, in western Massachusetts. In between photographing golfers--a perk for them and a favor for Player Magazine--she speeds toward a couple she remembers from a previous tournament. She tells the woman how delighted she is to see her again, and isn't it nice the pair has brought along two friends? The sportswoman is gracious but distant, addressing Price more like "the help" than the founder of a four-person, $1-million company that, in addition to running its own tournaments, manages tournaments for other companies and organizations, such as this one for the Golf Society of the United States. In between snapping photos, Price reminds the woman to fill out the customer survey. "As far as these people know, I'm Golf Society staff. And that's fine," says Price, who's dressed in khakis, sneakers, and a salmon polo shirt with a Golf Society staff pin. "They don't know that I don't have to work."

Sitting in his ALC office in the old farmhouse, Rappaport, still slender and handsome at 48, is smartly dressed in dark green slacks and a crisp white shirt that draws attention to his tan. "I think we had a pretty productive partnership for 16 years," he says. "It was successful, and I think it was rewarding in a lot of ways. Who's to say that a marriage or a partnership is supposed to last forever?" With its worn carpet stacked high with management books, and with photos of his children on every available surface, his space looks more like a den than the office of the chairman of an almost 200-person company that has more than doubled in sales (partly owing to acquisitions) since Price's departure and boasts new branches in Manhattan, San Francisco, and Peterborough, N.H. Appreciation plaques cover the walls. A baseball-cap collection circles the upper shelf. An early clip from a magazine, with a photo of the couple, much younger, remains pinned over his computer. "We never in 16 years failed to resolve an issue," he reflects. "Liza is a very strong-willed person, very persuasive, very thoughtful, very smart. I think that the most difficult part of the transition of her moving away was that I didn't really have anybody here to challenge me. If I wanted to expand, she wanted to get better control of what we had. But that actually gave me great freedom. Tremendous freedom to really think aggressively in a very big way, because I knew that I was tethered. Once that tether was cut, who's here to say, 'You're out of your mind'?" His secretary cuts short his reflections, reminding him that he's late for an important meeting. And he's off.

Stephanie Gruner is a staff writer at Inc.

Last updated: Sep 1, 1998




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