Inc 500 Survival
Don Weiss really should have been living it up right now.
His computer-programming school, Conseva Learning Center of Kansas City, is coming off a spectacular run, with a five-year revenue-growth rate of 1,588% and a first-time spot (#172) on the Inc 500. Weiss should be out celebrating -- or at least giving himself a good pat on the back.
Instead he's spent the summer in Conseva's Missouri headquarters worrying that the business might not last the year. In June, after four years of increasing friction, Weiss's longtime partner split. Alone, Weiss is now in the middle of a costly national franchising plan. Enrollment in Conseva's programming schools has dropped off sharply, and there are few signs that demand for software training will ever come roaring back. The 35-employee company's cash reserves are running dangerously low. "We were going to spend the year ramping up for phenomenal growth," Weiss says, sighing. Now his partner is gone, having sold Weiss his 49% stake in Conseva in a bitter breakup. And Weiss has suddenly had to troubleshoot crisis after crisis entirely on his own. "It's a very scary time," he says. "Every mistake, every shortcoming, is on my shoulders."
No doubt about it: Weiss is suffering through a classic case of post-business-breakup trauma. But, hey, partnership splits happen. Two colleagues with a few thousand in the bank and lofty dreams come together to build the next Ben & Jerry's or Hewlett-Packard. At first the union is happy. Then the honeymoon ends and problems bubble over. One partner wants to expand from chocolate-chip cookies into espresso brownies. Another wants to kick back. Whatever the cause, sometimes the differences just can't be mended. One partner clears out, and the other is suddenly solo at the helm.
It's a panic-inducing prospect. For starters, there's the sticker shock entailed in valuing the exiting partner's cut of the business. Weiss, for instance, will shell out in excess of $1 million for his partner's stake over the next several years. In some cases, there may be emergency operations issues to face, especially if the outgoing partner brought a unique skill to the business. Then there's the very real danger that creditors will start putting the squeeze on and skittish clients and employees will bolt.
That's the bad news. Now for some good: this year's Inc 500 list is scattered with at least half a dozen companies that not only survived but thrived after a partnership split. For some, the booming economy served as the perfect bandage to what otherwise might have been a fatal event. For others, surviving the divorce took some serious triage. But the partners who stayed on managed to remain focused -- and they coddled customers and cheered up employees. And despite the anemic economy, most are faring better than ever on their own.
Of course, the first challenge immediately after a business breakup is to avoid freaking out. That wasn't easy for Jay Myers, owner of Interactive Solutions Inc. (#182), a videoconferencing-equipment company based in Memphis. Three years ago he was reeling from a falling-out with his partner. "I had plunged myself hopelessly in debt and was taking this on by myself," says Myers, whose company owed roughly $250,000. Before the breakup, he and his partner had bumped along, operating with few detailed policies or procedures for things like tracking inventory or product shipments, and with no long-term business plan. Myers knew that had to change if the company was to survive.
So he took a deep breath. Then he enrolled in a three-month course at the University of Memphis for entrepreneurs who were looking to grow their businesses. For several hours a week Myers crafted a detailed business plan that covered everything from competitive research and advisory boards to marketing and long-term cash-flow projections. Just as important, he commiserated with other struggling small-business owners and took solace in their tales of survival. One classmate, he says, could pay employees only what amounted to "beer money." In the end, Myers insists, the class gave him the confidence he needed to go it alone. "I felt a heck of a lot better about myself and the fact that I could do this," he says.
The result: last year, Interactive Solutions, which then had 7 employees, reaped $4.3 million in sales, a 1,535% increase in five years, thanks to steady work from the likes of FedEx, Nike, and the University of Tennessee. Remarkably, the growth occurred even as prices in the video-equipment industry plunged more than 80%, slicing into the company's revenues and margins, Myers says. That's where the business plan really paid off. Myers was already seeing downward price pressures when he took the university class. Guessing correctly that prices would continue to fall, he looked at other services that would complement his basic desktop video product. He found the solution in more-advanced -- and higher-margin -- video equipment used to outfit entire conference rooms. "I learned how to look at trends in the industry," he says. "Adding products became part of the equation."
Unspooking the Staff
Stepping back to rethink a business strategy as Myers did is one thing. You also need to make sure you've still got enough employees after a breakup to carry out your plans. Rupesh Srivastava, for instance, was concerned there could be a mass exodus from Youngsoft (#43), his then 30-employee IT consulting shop, after he and his partner's 1997 split. The company, based in Livonia, Mich., was in a painfully tight labor market, and Srivastava worried about the seemingly countless opportunities his workers had to jump to the competitor across the street. "Let me tell you, in an IT consulting firm, the best assets you have are your people," he says. "If they leave, then you lose."
So he set out to soothe nervous employees. He met with some of them face-to-face; others he reassured over the phone. Through it all he hammered home the same theme: Youngsoft was going to emerge intact and even expand into new services. Anyone who stayed by his side would have opportunities to learn new skills and work on different projects. For Youngsoft senior consultant Sanjoy Nandy, the proof came when a cash-strapped Srivastava footed the $5,000 bill for him to spend a month learning a new technology. Adds Youngsoft consultant Arun Misra, "Rupesh told me that even if everything didn't work out and the company was losing money on me, he would pay me from his own pocket." A little getaway to Lake Erie helped foster even more good feeling. In September 1997, just weeks after the partnership split, Srivastava hosted a $40,000 retreat for all Youngsoft employees and their friends and families. The two-day affair, held at a posh lakeside resort, was all play -- no work. The Youngsoft crew danced. They played volleyball. Srivastava didn't formally address what had happened, but the message was clear. "Everyone knew the problem was behind them," says Sandeep Upadhyaya, a Youngsoft vice-president. Today Youngsoft has grown to 91 employees, with a five-year revenue-growth rate of 4,214%.
Calming the Customers
Employees aren't the only ones who need reassurance after a partnership split. Customers can also get skittish when stories (or E-mail messages) about the messy divorce at one of their main suppliers or service providers start going around. Just ask Mark Bakken, CEO and cofounder of IT consultancy Goliath Networks (#97), in Madison, Wis. Two years ago he lost two partners: one left for personal reasons, and the other, a childhood friend of Bakken's, departed under disputed circumstances. In January, Bakken engineered a shake-up at the top when he acrimoniously parted company with his second-in-command. Looking to smooth things over, Bakken penned a companywide E-mail, trying to explain the shake-up. Hours later that E-mail landed in the in-boxes of Goliath's customers. Bakken's reaction: Uh-oh. "For some people," he recalls, the response was "where there's smoke, there's fire."
Distraught over the prospect of losing prized customers, Bakken immediately began damage control. For the next two months, he met personally with each of Goliath's 30 biggest accounts. He explained what had happened and informed them that the company, which had made an ill-conceived (and costly) foray into an Internet-based data-storage service, was going back to its roots as a straight information-technology consulting shop. The PR offensive paid off. According to Bakken, 125-employee Goliath Networks lost only one account as a result of the company's woes.
Goliath customer Red Everson, vice-president of information technology at AnchorBank in Madison, says he definitely appreciated Bakken's candor. "I knew there were some problems and that the company was headed for some tough decisions," says Everson. But a lot of those concerns were alleviated once he and Bakken had lunch.
That's not to say that Goliath is entirely in the clear. Despite the company's recent growth -- a 2,381% gain in revenues in the past five years -- it's facing a sharp slowdown in tech spending. It's also in debt from its failed Internet plan, and Bakken is now embroiled in an ugly court battle with his former second-in-command.
Still, Bakken is optimistic about the company's future. In June he completed Goliath's first acquisition, absorbing a small technology consulting shop called eVolved Solutions. He considered it an important strategic move. Plus, he figured it would be good for morale. "I needed to inject that entrepreneurial spirit in my company right now," he says.
Myers of Interactive Solutions and Srivastava of Youngsoft both say they're far more focused managers now that they're totally free to operate their businesses the way they choose. "If I had to start all over again, I'd have the confidence to do it myself," says Myers.
Weiss, of Conseva Learning Center, is still getting used to that freedom. On one hand, he's finding it exhilarating. On the other, he knows what kind of economic climate the company is up against, and he admits to a certain amount of dread. "It's up to me now," he says. "There's nobody else to blame."
Krysten Crawford is a freelance writer in San Francisco.
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