Frank Lautenberg, cofounder of Automatic Data Processing Inc. and former U.S. senator from New Jersey, discusses an unwise acquisition.
Frank Lautenberg Cofounder of Automatic Data Processing Inc. and former U.S. senator from New Jersey
I helped found ADP with Henry and Joe Taub in the early 1950s. From those early days until I ran for political office in 1982, the company completed more than 100 acquisitions. Most of them were small payroll companies -- some purchased for as little as $100,000 in cash or stock, plus performance incentives. They were perfect acquisitions for ADP.
We also made some acquisitions that didn't work perfectly for us but provided valuable lessons in business strategy. One acquisition stands out as having been a long-range error. In 1966 we bought a New York City printing company. We calculated that we could save 2% on printing each year by owning that company. Given that we were spending a substantial amount on printing at the time, the idea seemed attractive. The cost of the deal was just over $2 million, half of which we paid in cash and half in ADP stock.
In the beginning we thought about putting more effort into the printing business, but eventually it became obvious that we could pay a stiff price for small gains. It was at best a diversion that far outstripped any contribution that came from a minuscule addition to our bottom line.
Since we had more than $8 million in revenues from payroll processing and we were growing almost geometrically, neither my partners nor I could direct our attention to managing a printing company. We sought a way out and realized that a sale of that operation even at a deep discount would be a substantial bonus. We ended up selling the printing company back to the owner who had sold it to us. We learned an important lesson -- "stick to your basic business" -- and we did that from that point on. --Written with Mike Hofman
The Quotable Entrepreneur
"I equate customer service to losing weight -- it's the kind of thing everybody knows about but is hard to do. Before you embrace it, you have to look in the mirror and say, 'Do I believe?" --Stew Leonard Jr., president of Stew Leonard's, a three-store grocery chain based in Norwalk, Conn., with $245 million in sales
MIKE HOFMAN was previously editor of Inc.com and a deputy editor at Inc. magazine, which he joined in 1996. The site was nominated for a National Magazine Award for Digital Media in 2010, and was named the best business website by Folio Magazine. In 2006, Hofman was part of a team of writers nominated for a Webby Award for best business blog. He lives in New York City. @mikehofman