The Ride of Your Life
Trouble's inevitable. What do you do when a crisis hits? Take advantage of it -- and hang on tight.
One morning in January 2001, Sandra Brittain woke up and realized that she had three weeks to save her company. Her Cheyenne, Wyo., business, Denali Ventures (#133), had ended the previous year with revenues of $1.7 million. In February, unless Brittain did something fast, it would have no sales. Zero.
Denali prepares foreclosed houses for sale -- a niche that makes it vulnerable to the whims of large clients like the U.S. Department of Housing and Urban Development (HUD). HUD accounted for 98% of Denali's sales until early in 2000, when Brittain landed her first large private-sector contract with the Associates, a financial-services company. So when Brittain's relationship with HUD's prime contractor began souring, late that year, she felt confident enough to walk away from the $3-million government contract.
Then, in January, Brittain got word that the Associates contract would be canceled on February 1. She recalls thinking, "Oh, shit -- I just turned down $3 million in business." Just in time, Denali nailed a juicy 48-state contract with Horizon Mortgage Services. But unfortunately, that was just the beginning of more problems.
To handle the bank's business, Brittain set up field offices in 24 states, hired 70 employees, bought a fleet of new trucks and trailers, and equipped her employees with cell phones and credit cards. That model had worked perfectly for the HUD contract, and she assumed it would serve her private-sector client just as well. She was wrong. HUD's properties had been close together; Horizon Mortgage Services' weren't. Denali's employees weren't working fast enough, and by July, Denali had lost more than $700,000. Horizon told Denali: Perform or lose the contract. "Our entire business was about to collapse," says Brittain. Again.
From her perspective, there was only one solution: shut down the field offices immediately and restructure Denali using contractors. But her partner and then husband, Charley Dickey, disagreed. "In August we had the final showdown," recalls Brittain. "I told him, 'That's it -- these changes need to happen with or without you." Dickey relented, seeing finally that their business model was "a lost cause," he says. Brittain closed all but two field offices, laid off 50 employees, redesigned her quality-control system, and hauled all her field assets back to Cheyenne, where the idle trucks and office equipment were a constant reminder of wasted resources. She then began radically changing the company's business model, signing on independent contractors and selling off capital assets to them. Horizon was placated. Denali turned the corner in October of last year and has been profitable since then. Still, the company paid a high price for its miscalculations: a $900,000-plus loss last year on revenues of $4.2 million."I know I made the right decisions," says Brittain, "but they were awfully painful."
16 % of the Inc 500 CEOs surveyed said their company was in the same business and had the same target market as when it was launched.
For Brittain, those twists and turns ended up being growing pains rather than death throes. In that, she's a typical Inc 500 entrepreneur. If there is a single defining characteristic of an Inc 500 company builder, it is resilience -- the ability to stand up to the punch of change when it hits you in the face and not just survive it but turn it to your advantage. And the 2002 Inc 500 CEOs certainly have seen their share of change. Of those CEOs who responded to this year's survey, only 16% are still selling the same products or services to the same markets as they set out to do when their companies were founded. The rest said their companies had expanded into new markets (34%), added new products or services (41%), or changed so substantially that they are now in a different industry (7%), with the remaining companies reporting that they had altered their course in some other way.
Interestingly enough, for many Inc 500 CEOs, the point at which they transformed their companies was also the moment when liftoff occurred; many of the businesses puttered along at stasis for years and then suddenly accelerated full tilt following a change of industry, product, or organization.
Consider the story of Don Helfgott, who cofounded Inspiration Software (#310). For 12 years, the Portland, Oreg., company grew at a respectable 50% rate annually and gave him and his cofounder, ex-wife Mona Westhaver, a good living. But in 1996 their product, which helped people map out ideas visually, was becoming increasingly expensive to market. Sales were flagging. Helfgott took a deep breath and revised the software and pushed it aggressively into the more robust educational K-12 market. "We were about 75% done with the last version of the software for the business market when we decided to completely change the direction of the company," he recalls. What if the education market, which then accounted for just 10% of the company's revenues, didn't pan out? Helfgott took the chance, and Inspiration, 15 years after he founded it, truly realized its potential. In the past five years it's grown 745%, to $17 million in 2001 sales, with profit margins greater than 25%. Today the education market accounts for 97% of Inspiration's sales.
CRISIS POINT: "Our entire business was about to collapse," says Sandra Brittain of Denali Ventures.
So adaptability and opportunism are the keys to fast growth, yes? To win, one must embrace the long-held notion that, in business as in life, the only constant is change?
