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Always the Optimist

Lessons in perseverance from Darlene Ryan, owner of the drugmaker PharmaFab.
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Darlene Ryan says she never really wanted to be the boss. She never dreamed the entrepreneurial dream. She was a lifer at Arthur Andersen, a pioneer female tax partner who found herself increasingly dispirited by the shenanigans she saw in the world of corporate accounting. Then there was her young son Kevin. Darlene, who ran major Asian accounts from San Diego, spent half her time winging across the Pacific and rarely saw him. So when her father, Ken, and her brother Bruce invited her to join the small pharmaceutical business they were starting in Texas, she decided to take the plunge. Darlene knew zero about manufacturing drugs, but a start-up sounded like fun, a lark. Plus it was family, which to Darlene meant treating people right. She imagined the cozy venture as a "little company for the three of us."

"It was never money in our family," she explains. "My dad wanted to start this company as his legacy to my brother and me. What he had to give us was his knowledge."

Ten years later, on the day I fly to Texas, the Fort Worth City Council is celebrating Darlene Ryan Day. The council chamber is packed. The mayor, Mike Moncrief, a Dabney Coleman look-alike, reads from the plaque: "Whereas PharmaFab was the fastest growing private company in the Dallas-Fort Worth area between 2001 and 2003...Whereas the 286% sales growth...Whereas..." He concludes the proclamation by asserting, "Darlene Ryan, you're a shining star in our crown!"

The metaphor is apt, perhaps more than the mayor knows. While from a distance, a star inspires a sense of celestial peace, we all know that, up close, the process that makes it shine is brutally dynamic. The last decade has been like that for Darlene Ryan. Over the same period of time that she built PharmaFab into a business with an estimated $40 million in annual sales (without a single salesperson, I might add), she has endured the most trying moments of her life.

Over the years, there were times when she thought that her smartest move would be to walk away from the business, that that might be better for her family. But the company, which started as an escape -- and then seemed like an obligation or a burden -- has, in time, become for her a source of strength. So often we think of entrepreneurs as successful professionals who let their work overwhelm their personal lives. People who build companies never spend enough time with their kids, it is said, and many of them end up divorced. That may be. But it's also true that a company can ground people and provide them with a means of coping. Sure, Darlene works long hours. But she remains a devoted daughter, wife, and mother. And through the tough times, her company has helped to keep her sane.

As the name PharmaFab suggests, the company manufactures pharmaceuticals. Tablets, capsules, and liquids each account for a third of the business. About 50% are branded drugs and 50% generic. A lot are cold and cough remedies; a few, pain relievers. The company gets most customers in one of two ways: 1) A big manufacturer is over capacity in its facility and outsources the product, usually an older drug; 2) A top executive, an expert in sales or marketing, strikes out on his own and needs a company to make the new product.

This particular niche of the market, contract or boutique manufacturing, is relatively new and small, maybe a half-dozen companies. What's kept competition down are the barriers to entry, the heavy regulation, and extensive scrutiny by government agencies. PharmaFab got a running start because Darlene's dad was a well-known chemist with vendor and customer contacts. It was his reputation that gave Darlene the confidence, back in 1993, to chuck her half-million-dollar salary from Andersen, with an office that overlooked the Pacific, and sell her big, beautiful house. Her husband, Dick, was less sanguine. A city planner who'd designed the quaint downtowns of Vail and Boulder, Colo., he struck a deal with Darlene: She had two years to get the business up and running. After that, the family would move back to the country he loved: the Rockies. "My Andersen partners thought I was crazy," says Darlene, who is now 50. "How could I leave the job certainty and partnership income to work for this little company my dad had started? Well, I did."

Anyone who has ever worked at a start-up can guess what happened next: Almost immediately, the plan unraveled. Darlene's father, Ken Montgomery, had another partner, who owned the majority share. The two had an ugly falling-out, and lawsuits were filed. That might have been the end of the matter, except Darlene is nothing if not resolute. It was, she decided, no time to back out. She went to Barnes & Noble and bought a book, How to Incorporate. She picked the logo, a red capsule shape around the name PharmaFab because it was available on her Microsoft Paint program. She bought a color printer and ran off the business plan.

At the same time, she made plans to move back to Colorado, where she intended to headquarter the relaunched firm. Not only did the decision assuage her husband, but it also made sense from a financial perspective. Darlene had secured a million dollars in capital from a company in Colorado that had considered backing her father and his initial partner. "I just said fine," Darlene recalls, "let's start over. We're going to do a company right."

This is the point where the story gets bleak. On the very day the Colorado investors flew to Fort Worth to finalize PharmaFab's seed round, Ken Montgomery, who had recently had the stomach flu, went in for a checkup. His doctor had noticed something on an X-ray. That day, he was diagnosed with lung cancer -- a highly lethal form with a two-month median survival rate.

Devastated, Darlene weighed what to do. Her father couldn't move to Colorado because of his condition, and Darlene couldn't conceive of leaving him during his illness. Then there was the company to consider. Her 36-page business plan no longer seemed like a fun project. But Darlene feared that shelving PharmaFab would leave Ken demoralized, which could accelerate his physical deterioration. "This was what my dad had to leave us," she explains, retrieving the document from a drawer. "So I had a talk with my brother and said, 'If we don't do this I think Dad will die in two months. The only chance he has is if he has something to live for."

"Suddenly there was this urgency," recalls Bruce, Darlene's brother. "We realized we had to start something here, now."

All three family members agreed that the unpredictability of the situation seemed to rule out accepting outside seed capital. "We'd rather start and have something really little we can handle while we go through the chemo," Darlene told the Colorado investors. Bruce cashed in retirement funds, while she maxed out her credit card debt. She also took a part-time job preparing tax returns to pay her mortgage.

The schedule the three founders kept in those years -- 1994 to 1996 -- was grueling. In the morning, Darlene would take her dad to chemo and radiation, then drive him to the lab, where he'd spend all afternoon, securing vendors and doing analysis to fine-tune drugs. While Ken could still work his Rolodex, they raced to develop product and attract customers. PharmaFab began to take shape. And twice the cancer went into remission, "but we knew the chances weren't good," says Darlene.

Ken Montgomery died two years after his cancer was diagnosed and two years after his company was launched. He'd beat the doctors' odds by twenty-two months, enough time to establish the business so that his children could take over. One of his final acts was to cash out a million-dollar life insurance policy, which provided PharmaFab with an advance of $600,000 for operating capital.

Sales were such at this point that Darlene could finally afford to relocate to Colorado, true to her deal with Dick. She ran PharmaFab finances from afar while Bruce managed the business day to day. A mechanical engineer who'd worked 10 years servicing oil rigs, Bruce's first love was machinery. "I'm a hands-on person," he explains. "At PharmaFab I started and ran every process, I knew every product and system."

A mind for production was Bruce's enduring contribution to the business. In 1998, the Food and Drug Administration inspected manufacturers who made drugs that relied on time-release beads. The issue: uniformity. Every capsule has to have the active ingredient equally spread. At the time, the accepted procedure was to mix, say, antihistamine beads with decongestant beads -- but that was "like putting sand and gravel together," Bruce says. Under his guidance, PharmaFab came up with a new technique to apply the active ingredient on the same bead, guaranteeing uniformity. When federal inspectors began to issue warning letters to companies about the problem, PharmaFab emerged with a clean bill of health.

"Most people in the pharmaceutical industry are chemists first and very proud of it," explains Darlene. "They don't worry about how it's going to ramp up in the production facility. Plus, I don't necessarily do things the same way everybody else does. We look at every challenge with fresh eyes. That's been our philosophy from the start."

Bruce's process attracted clients and marked a turning point in the company's development. But once the process was in place, Bruce's work was done, at least in his mind. The more the company grew, the more restless he became. "I never wanted to manage a large company or family empire," he says today. Halfway through 1999, he told Darlene that he wanted her to buy him out for $2.5 million.

I thought, okay, that's it. That's absolutely it. We're selling the company.

"I thought, okay, that's it," says Darlene. "That's absolutely it. We're selling the company."

Of course, if Darlene had sold the company, there would never have been a Darlene Ryan Day in Fort Worth. The person who intervened was her best friend, a lawyer, who told her it was crazy to cash out at the very moment the company was taking off. Buy him out, the lawyer whispered; go to a bank. She did, and to her astonishment, she easily secured a $2.5 million loan. PharmaFab was hers -- just as soon as she could pack up her family and move back to Texas. "It was the friendliest buyout in history," she says.

Friendly, maybe, but Darlene also admits that she was scared to death. "I was a CPA," she says. "What did I know about running a company? But I decided, Okay, I'll do it for two years and then find a buyer. Except I started having too much fun!"

That much hasn't changed. Darlene loves her business and loves showing it off. Her offices are in a large building on Highway 360, just east of town. Taking me on a tour of the facility, she proudly points out the latest colossal bit of machinery, a $575,000 Bosch 2000 that spits out 2,000 capsules a minute. We also pass giant mixers and blenders, and hundreds of drums of empty capsules stacked on a giant floor, half the size of a football field. There are vaults and locked cages for the narcotics, and a secure room for the bottle labels, to prevent theft. Technicians in white coats, latex gloves, and hairnets walk the halls and move about the lab purposefully. Half the staff seems to be mopping or sweeping.

Aside from the necessary sterility, however, PharmaFab's corporate culture is decidedly loose. Darlene fosters a "family environment" where new moms are encouraged to bring their babies to work. She encourages dissent, she likes to delegate, she's a consensus builder, but she's tough when needed. At the regular Tuesday meeting of her executive team -- which consists of three guys named Russ, Mark, and Danny -- Darlene sits at the head of an oval table and listens more than she talks. The guys banter. They pop up from their chairs. They challenge Darlene. On a key personnel issue, she's in the minority and announces, "My vote, and I have three votes -- "

"Okay," says Russ. "We can still beat her. We have four votes!"

Darlene smiles indulgently, concluding, "What we'll do..."

Half the meeting is devoted to staff issues. So-and-so wants to be a manager. So-and-so's going to be offended. So-and-so's frustrated and going to leave if not promoted. It's delicate stuff, and it's revealing that Darlene will trust an outsider, this reporter, to sit in. With decisive clarity, she sums up the situation: "So the question is: Is now the right time to make this person part of the management team? If so, who's going to be offended? If not, how do we explain it?"

PharmaFab's head count tops 200, and deciding to add payroll is often done on the fly. Later in the meeting, Danny lobbies to hire a Ph.D. chemist from Bulgaria who's working as an $18-an-hour temp in the lab. Because he doesn't have a permanent job, his son's been deported. "It's a heart-wrenching story," says Danny. "We could make him an offer."

"Do it," says Darlene.

Personnel issues resolved, it's on to new product development. The company's banking big on a new twice-a-day cough syrup ("We figured a way to mask the taste," says Darlene. "You've never tasted a cough syrup this good!"). But it's proving tricky to test.

"We cranked up the rpm [revolutions per minute] and it tore up the inside of my tank," Mark reports.

Darlene looks concerned. "When did that happen?"

"Five minutes before we walked in here."

"Do I have a tank I need to replace?"

"We're hoping it's just a ding," says Mark and shrugs.

It takes more than a ding to shake Darlene. Sadly, Ken's illness was followed by other family health problems. This past fall, Darlene's husband, Dick, began acting erratically and was diagnosed with a rare neurological disease. The symptoms resemble Alzheimer's, and it's incurable. In January he was moved out of the house and into an assisted care facility. A month before, her son Kevin was operated on for a serious heart arrhythmia. Pre-op, the prognosis was good, but Kevin fell into the 2% for whom the surgery did not work. The condition is not immediately life-threatening, and Darlene is pursuing other medical options.

"We'll just keep our fingers crossed, and see what's out there," she says, always the optimist.

Mother and son have their picture taken with the mayoral plaque at the end of the official Darlene Ryan Day ceremony, and then he heads home with his grandmother, while Darlene moves on to hotel cocktails with a high-profile group from the Women's Business Center. It's a classy, tough bunch of entrepreneurs, which includes an aircraft parts supplier, the city's largest retail roofer (and waste disposal operator), and a commercial printer. "Darlene's our queen mother," offers one in a toast.

After that, Darlene meets with a group of investors from Chicago for dinner. PharmaFab's top line will likely jump by 60%, or $15 million, this year, and the money guys guess that sales could top $200 million in another few years. They want in.

The next morning, the group gathers with PharmaFab's management team in the company's conference room, which is named for Ken Montgomery. The Chicagoans look and sound impressive, and do a slick but subtle job pitching their firm. The big question on the table: What's on the horizon for PharmaFab? Right now PharmaFab is moving beyond "traditional tableting" into more sophisticated tablets and capsules. Then it could be ointments and lotions, maybe time-release inhalers. It's tempting to think of developing new products, but not at the expense of the core business. Sales are no problem -- the challenge is keeping up with customer demand. "Should PharmaFab grow by acquisition?" one of the investors asks.

"How could we?" says Russ. "We don't have time. We've got a ton of things on our plate."

The venture guys nod sympathetically, and the meeting breaks up with promising handshakes all around. When asked whether or not she'll do a deal, Darlene replies, "We'll see," and adds, "I don't need the capital right now."

You'll have to forgive her nonchalance, but this is not her first brush with investors. Darlene spent $400,000 last year trying to negotiate financing that she walked away from on Memorial Day. "They were going to take over my life for a relatively small amount of money," she says. "Finally I said, 'No thanks!"

Into the breach jumped Capital Southwest, a minority long-term player whom Darlene trusted and who pumped in $5.5 million last summer. When the contract was signed, no one paid much attention to a clause that required an equity shift if PharmaFab failed to meet projected goals. At that point, sales for 2003 were off the charts. Then, an unforeseen glitch threatened a key product. Mid-December, Darlene faced a $3 million shortfall -- and handing over roughly 10% ownership. The situation looked hopeless. There didn't seem to be enough time to fix the problem and then sell the product. And for once, Darlene herself was exhausted, played out. Dick had just been diagnosed; Kevin was recovering from his heart operation. Telling her management team to cope, she took her son on a recuperative cruise in the Caribbean.

On New Year's Day, Darlene checked her e-mail from the ship's computer center. A message from Danny revealed that while she was gone, the employees worked overtime to close the last $3 million of business. In the end, sales for that last month topped $4.2 million. PharmaFab's ownership remained in the family, thanks to Darlene's determined staff. "I don't know how they did it," she says, "but they did!" Of course, they had learned perseverance from her example.

Jonathan Black is a writer living in Chicago.




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