The Offer: Part 11
So you want to know how life changes after you sell a majority interest in your company to an outside investment firm and give up day-to-day management? Let me put it this way: Now I know how Colonel Sanders felt.
OK, maybe that's going a little too far. I'm not a complete figurehead. I still have responsibilities. These days, I work on things like long-term planning, mergers and acquisitions, and putting up new buildings. But my partner Louis Weiner is the president, and he and his managers run the business. Sometimes, it's hard for me to keep from butting in. I'm talking about simple things, like going through the mail. I used to do it fairly often. It would give me a good feel for the business. Not that I sorted the mail or opened all the letters; I just flipped through them quickly. Occasionally, one would catch my attention, and I'd think, Hmm, what's this all about? I'd also learn things about our customers -- how much business they were doing with us, how fast they paid their bills. It's easy to lose track of that stuff as a company grows. Going through the mail helped keep me up to date, and it became a habit.
So one day in early January, when I heard the usual announcement over the public-address system that the mail had arrived, I didn't think twice about going to see what was in it. "Where are you going?" Louis asked. "I'm going for the mail," I said.
"You shouldn't be doing that," he said. "That's my job now." And he was right. I wasn't even an employee anymore, let alone the boss. As soon as the deal with Allied Capital (NYSE:ALD) closed, on December 21, I no longer had a job at CitiStorage. My wife, Elaine, and I are still shareholders. I still have my office. I'm still getting paid -- but the money is a consulting fee, not a salary. That's a big adjustment, and I haven't finished making it, though almost six months have passed since the company was sold.
A lot has happened in that time. CitiStorage is already a different business from the one I used to be in charge of, though the great majority of our employees probably don't notice the change. That's mainly because Allied Capital is committed to maintaining the culture. We continue to buy baseball and basketball season tickets for our employees. We continue to contribute $1.60 for every dollar that an employee puts in his or her 401(k). We continue to run our box game, handing out bonus checks whenever we hit a new milestone. We have the same health-insurance plan as before. We continue to reimburse employees for education expenses, to subsidize their movie tickets, to run our employee training sessions, and to offer all the perks we've had in the past. The Allied people regard the substantial cost of all that the way I used to -- as a smart investment.
But although the culture hasn't changed, there's an entirely new way of making decisions and managing the business, and I see evidence of it every day. For example, my partner Sam Kaplan and I are working on acquisitions, some of which are really just purchases of accounts, not whole companies. Before, I would go to look at the boxes, do a little checking, and make a decision. I didn't need anyone's permission. If I didn't have the money to do the deal, I'd borrow it from a bank, using the contract as collateral. Now I don't have to worry about financing, but I can't make the decision on my own, which is strange to me.
The Allied people warned me that the changes would take some getting used to. "The biggest thing for you," they said, "is that we look at everything, and you cannot make on-the-spot decisions anymore. You did a fabulous job building this as an entrepreneurial company, but in order to get to the next level, there has to be more structure. You have to understand that."
And I do. The changes they're making are just what CitiStorage needs if it's going to make the transition from a small giant, so to speak, to a much larger, professionally managed business. Indeed, those are precisely the changes that I refused to make in my first company, Perfect Courier, 20 years ago. Back then, I was also buying companies and doing private equity deals, but I had no structure, didn't ask anyone for advice, reported to no one, and wound up in Chapter 11.
I firmly believe, moreover, that our people will benefit greatly from the growth we're going to see. Much as I hate to admit it, they had very limited opportunities to advance as long as I remained the majority owner. There was a danger that they would find their work less and less challenging, maybe even boring, as time went along. I began to see a few signs of this in the past couple of years, and it concerned me, but what could I do? I really didn't want to put in the time and effort required to build a huge company, and I knew from experience that I wasn't any good at it. At my stage in life, moreover, it didn't pay for me to take additional risk with my equity, and aggressive growth always involves risk. Now, with Allied Capital, we'll be taking calculated risks with the goal of getting much, much bigger in four to six years. That will open up opportunities for people throughout the organization. Some will thrive in the new environment, and some won't, but no one will be bored.
No one, that is, except maybe me. Actually, bored is probably the wrong word to describe how I'm feeling. Unsettled is better. Before, I was the benevolent dictator of CitiStorage, but the company isn't a dictatorship anymore. Although Sam, Elaine, Louis, the senior managers, and I still own about a third of the stock, the mindset is different. There's a board of directors, which I'm not a member of -- by choice. Sam and Elaine represent the minority shareholders; the other three directors are from Allied Capital. The officers of the company report to the board. The board reports to the stockholders.
So everybody answers to somebody, and here I am, an undisciplined guy all my life, never answering to anybody, except maybe my parents when I was a kid -- and even then I was an independent little kid. Now, suddenly, I have to get used to a different way of operating. I have to become a team player, which means adapting to Allied's methods. Allied's people don't make snap decisions. They have standards. They look at formulas and ratios. They go into a level of detail that feels excruciating to a nondetail person like me. They have to do it because they need the approval of a committee to get the money for buying a company or building a new warehouse. We never had a committee. Our decision-making process was simple: Order a couple of corned beef sandwiches, and hash it out over lunch.
Don't get me wrong. We were prudent. If we were buying a business, we checked out the customers, the contracts, the receivables, and so on. But we didn't go to anywhere near the lengths that Allied Capital goes. When Allied was buying our company, for example, it hired a big consulting firm to call our customers and find out how happy they were with our service. The firm produced a report of a couple hundred pages, and it was very interesting. We learned about some improvements we could make. The report cost Allied Capital many thousands of dollars. I would never have done such a survey, let alone spent that much money on it.
But money doesn't play the same role for Allied's people that it played for us. They have it, we didn't, and that makes all the difference. If we were buying land to put up a new warehouse, financing was the first thing we thought about. For Allied Capital, it's the last. Its people want to look at the returns. They want to take into account what might happen with our other buildings. They want to think about renting instead of buying and building. They want to consider how big the warehouse really needs to be. For me, the process can get a little tedious, but I understand why they do it their way. Maybe I make one mistake in a hundred, and they make one mistake in a thousand. That's how you have to do things in a large, public company, when you're taking risks with other people's money.
Meanwhile, I have to get used to other changes in my life. For example, I used to have a lot of expenses I could charge to the company -- like when I took business associates out to dinner or bought a car to use on company business. I was also in control of my own salary, which I could adjust based on the company's performance. Because of that, we never had to touch the money that Elaine put in our emergency fund, as she called it. Now, whatever I spend comes out of my pocket. Granted, there's enough money in that pocket. I'm certainly not complaining, but that's another psychological adjustment I've had to make.
The biggest problem, however, is that I don't have a clear idea of what I'm doing or where I'm going anymore. My work for CitiStorage doesn't fill all of my time or get my juices flowing the way starting a business does. There's a bit of a hole in my life at the moment, and I don't know yet how I'm going to fill it. So while I loved chasing the rainbow, I have to say that I have mixed feelings about having caught it. Any suggestions?
Norm Brodsky is a veteran entrepreneur whose six businesses have included a three-time Inc. 500 company. His co-author is editor-at-large Bo Burlingham.
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