COMNPUTER COUPLE UNTIES KNOT, BUSINESS SLIPS AWAY
It had all the trappings of a soap opera etched in silicon. Vector Graphic Inc. once a high-flying maker of microcomputer systems (INC., March 1981) was in trouble, its bottom lines flushed with red ink, its chairman and cofounder on the way out. And behind the fall -- well, who could ignore the marital merry-go-round at the top? Lore Harp had won fame and fortune marketing the computer equipment her husband, Robert S. Harp, designed. Then they were divorced and she married publisher Patrick J. McGovern, of the CW Communications Inc. publishing empire.
But Bob was not one to take all this lying down. Buying out a tiny Vector subsidiary, he soon had a healthier business than his ex-wife. And when he remarried last fall he issued a press release detailing the wedding. Take that, Lore.
Alas for the gossips, personal problems accounted for only a fraction of Vector's woes. The company had prospered by selling high-end multiuser computers to businesses. By 1983, when losses were beginning to mount, it was elbow to elbow with Altos Computer Systems, Fortune Systems Corp., and half a dozen other aggressive enterprises in what was an increasingly crowded marketplace. Bob Harp's company, Corona Data Systems Inc., wasn't a direct competitor. Instead, Corona had an entry in the new IBM Personal Computer-compatibles market, where business was booming.
MANAGEMENT: WINNERS AND LOSERS
Arthur E. Imperatore: "There is a greatness a heroism that is an intrinsic part of most everyone," says Imperatore champion of the little man and president of A-P-A Transport Corp., a trucking company based in North Bergen, N.J. "Our job as managers is to coerce that greatness out of our people."
Imperatore (INC., April 1982) has been applying the art of gentle persuasion to his operation since 1947, when he went into business with four of his brothers. Over three subsequent decades he has battled wildcat strikes, unions, competition, recession, deregulation, and apathy with a feistiness noteworthy even for an industry hardly known by its Victorian etiquette (he once sprinted down to his loading docks, grabbed a handful of change, and, flinging it at several idle workers, screamed, "Here, you sons of bitches. If you want my money for nothing, take it, take it all").
Loyalty to Imperatore has its consequent rewards. In 1975, he sank $750,000 into an employee recreation center, and two years ago he chartered the Queen Elizabeth II to take his gang on a three-day float to nowhere. Pretty heady stuff when your normal cruising waters are the outer lanes of the New Jersey Turnpike.
Imperatore, meanwhile, has been raising other eyebrows with his plans for a $3.5-billion development project on the Jersey side of the Hudson River (INC., November 1983). Unofficially dubbed West Manhattan, the project is expected to take as long as 40 years to complete and will include a version of Copenhagen's Tivoli gardens and a 750-foot tower based on a Leonardo Da Vinci design.
Donald Burr: Burr (INC., January 1984), founder of People Express Airlines Inc., the fastest-growing company in the history of aviation, entered the air travel game in 1980, about two years after the passage of the Airline Deregulation Act of 1978. With several of the large carriers (Braniff International, Continental Air Lines, Air Florida, et al) wobbling in mid-air, Burr introduced low-cost, no-frills flights that quickly became the standard by which small, independent airline companies compete against the biggies for lucrative routes. To any air traveler even remotely cost-conscious, flying the skies has never seemed friendlier.
Neither has managing ground operations. Where Burr's company has truly taken off from standard operating procedures has been with its innovative mix of job rotation, employee equity (wherein employees are actually required to own stock in People Express, a stricture that has forced a great many of them to become involuntarily wealthy), and belief in an environment that enables workers to "release their creative energies."
Still, life is not all joysticks. "We have a unique problem," says Burr. "We've designed a product which is so popular we can't satisfy the demand for it."
Harry V. Quadracci: "Management By Walking Away" was the tag we hung on Quadracci and his company, Quad/Graphics Inc. (INC., October 1983), a Pewaukee, Wis., printing company that rose to $75 million in sales last year and became the talk of the $4.7-billion industry. Ten years ago, Quadracci decided to let his workers play managers-for-a-day and run the plant unsupervised. Why on earth would a manager do that? "We've worked at a structure that allows everyone to assume a high degree of personal responsibility," said Quadracci, who conceded that unsupervised printing errors could cost him a bundle. "We trust our employees, and we're willing to give them the freedom to make mistakes."
That freedom is really a small part of the boss's larger purpose: encouraging entrepreneurial enthusiasm within company ranks. While there is nothing particularly new about that -- Quadracci himself borrows freely from popular how-to management books and encourages his people to do the same -- the degree of autonomy entrusted to each division is. Quad's organization, in fact, is about as antihierarchical as a hierarchy can get. When he set up his six divisions, ranging from trucking to lithographic plate-finishing, Quadracci's employees got precious little instruction from the top, a situation that bothered the boss not at all. "They're never ready for the responsibility," he said. "We always give them more than they feel prepared to handle."
William L. Gore: Bill Gore (INC., August 1982), founder of W. L. Gore & Associates Inc. of Newark, Del., calls his management system "lattice organization," which is a fancy way of describing a company structure with no titles (one employee puckishly stamped "Supreme Commander" on her business card), no commands, and no entrenched chains of command. But it seems to work: The company has blanketed the marketplace with Gore-tex, a thin, lightweight fabric cover that is both water-repellent and "breathable." Gore-tex gear now includes everything from vascular grafts to football jerseys, and the product list is growing.
So is Gore's reputation as a managerial freedom-fighter. "The key to getting things done is to get the commitment, dedication, and energy of everyone involved," he often tells fellow executives, adding that the responsibility of self-management is the one overriding demand he places on all his employees. "It's much better to use friendship and love than slavery and whips." Even if the whips are waterproof.
Billy Martin: In June of 1982, Roy Eisenhardt, president of the Oakland A's baseball franchise, told INC. readers why he had chosen Billy Martin, baseball's answer to The One Minute Manager, to run his promising young ball club both on the field and in the front office. "If we disagree about something to do with baseball," said Eisenhardt, "I'll be right about 1% of the time, so I'm not about to jeopardize the relationship just to be proven right about that 1%."
Eisenhardt was about 1% right about the stability of the marriage. "Billyball," as the A's dubbed it, proved to be a hot marketing concept but a lousy pennant contender: no power, no infield, no bullpen. Nice TV commercials, though.
When Martin wore out the arms of his beleagured pitching staff, he also wore out his welcome in Oakland, a career muff that didn't prevent him from returning to the warm embrace of New York Yankees owner George Steinbrenner, for whom the phrase "what have you done for/to me lately?" usually means last night. In the wake of a disappointing '83 campaign, Billy got booted out of the Yankees dugout, too. Is Martin destined to bring Billyball -- and ulcer medicine -- back to big league base paths? As his Yankees successor, Yogi Berra, once said, "It ain't over till it's over."
THE LBO BOOM
So you say you wanna buy a used business. Not one of those flashy new tin-plated, high-tech contraptions, but something with some history and guts, like maybe a boiler factory. And you say you don't wanna spend an arm and a leg, and you wanna drive some real equity. Well, have I got a deal for you. And, listen to this: practically no money down.
The leveraged buyout has been around longer than most people realize, but it has only been during the past year that the technique has come into its own. The device -- frequently employed by members of a management team to buy a company they otherwise couldn't afford -- promises to become increasingly important during the remainder of the decade, as conglomerates continue to spin off divisions gobbled up during the acquisitions frenzy of the 196Os and early '70s. The number and size of LBO purchases has already grown beyond all earlier expectations: Tom Fitzpatrick, partner in charge of Coopers & Lybrand's merger and acquisitions practice, reports that the number of LBOs increased more than 50% in 1983, and constitute a major portion of all corporate merger and acquisitions activity. And even multi-billion-dollar deals have taken place. Currently, Dr Pepper, Metromedia, and Faberge are all candidates for LBOs. INC., always alert to fresh flashes of "entrepreneurial spirit," first reported or LBOs four years ago, in "How Alkon Bought Its Freedom" (April 1980), the
Back in 1978, Dan Bricklin was struggling with the spreadsheet projections required by his courses at the Harvard Business School. So he set out to program a computer to do the grunt work (INC., January 1982). When he ran into technical trouble, he sought help from a friend, Bob Frankston, who worked nights polishing the program. For marketing he turned to Daniel Fylstra, a classmate who was running a fledgling software publishing company out of his third-floor apartment.
Ah, the innocence of youth. Today all three are rich men. And the two companies they started -- Bricklin and Frankston's Software Arts Inc. and Fylstra's VisiCorp -- are at each other's throats in the courts.
The program, of course, was VisiCalc. Although written by Bricklin and Frankston, it has been marketed since late 1979 by Fylstra's company. And with something like 700,000 copies sold at a retail price of about $250 each, it has become a license to print money.
The marketing, selling, and licensing arrangement, however, has been a bone of contention. From Bricklin and Frankston's point of view, there was friction over the fact that Fylstra had changed his company's name from Personal Software Inc. to Visicorp -- and that every program he developed thereafter was prefixed by the Visi- label, capitalizing on their product. Fylstra even drove a Mazda RX-7 with a California license plate that read VISICAR. From Fylstra's point of view, the friction was over the size of the royalties his company had to pay the program's authors. In an industry in which a standard author's royalty is 15% or 20% of net sales, Bricklin and Frankston got 35.7% and, later, 50%.
Whatever the reason, last fall the partners fell out of bed with a thud. VisiCorp sued Software Arts for $50 million, charging that it hadn't come up with the timely updates and adaptations the program needed. Software Arts countersued for $87 million, alleging halfhearted marketing efforts on VisiCorp's part. Then Bricklin and Frankston filed an amended countersuit that canceled their company's marketing agreement with VisiCorp, and announced that they would sell VisiCalc themselves. VisiCorp's request for an injunction to stop them was denied.
VisiCalc's sales in recent months have begun to decline, its erstwhile buyers attracted to newer and more powerful programs. Still, to judge from the array of legal talent being lined up, the license to print money hasn't quite expired.
THE SWEET TASTE OF SUCCESS
Jelly Bellys, they are called, "the original gourmet jelly bean" (INC., July 1981). And they rode to public favor on Ronald Reagan's coattails. Hardly a picture from official Washington appeared without the tiny candies. When Reagan met with his cabinet, the table was dominated by a centerpiece of Jelly Bellys in a cut-glass jar. At press conferences, Reagan picked the names of the reporters he would call on out of another Jelly Belly jar. When Mrs. Reagan visited the President after the assassination attempt, she took a jar. The lowly jelly bean had been transformed into a symbol of born-again Republicanism.
Candymaker Herman Rowland would find his business, Herman Goelitz Inc., transformed as well. Suddenly, the family-owned confectionary, founded in 1922, was in the spotlight, featured on the evening news and in the pages of People magazine. Average daily orders jumped from 25 to 100. His factories, running at capacity, built up backlogs of 70 weeks. And Rowland -- a self-proclaimed "die-hard Republican and long-time fan of Reagan" -- was harried. "I'm here 12 hours a day," he complained. "It bothers me that the President of the United States can run the whole country on 8 hours a day . . . and I can't run my own little company on 8 hours a day."
Things have calmed down a bit since then. Sales of Jelly Bellys are up to $9 million, and although there are still occasional shortages, the shipping time for an order is now only two to four weeks. And Rowland has time to plan a trip to the White House. "Of course I'll visit the President," he insists. "You always call on your best customer."
THE YEARS IN NUMBERS:
DON'T GO WEST, YOUNG MAN. GO PUBLIC.
Total number Total amount
of IPOs raised ($ bil.)*
1979 81 $0,506
1980 237 1.397
1981 448 3.215
1982 222 1.446
1983 888 12.600
IF YOU CAN'T STAND THE HEAT, GET BACK IN THE KITCHEN
Thomas Kron had a passion for chocolate. Starting in 1972 with $200 and the family chocolate recipe, the flamboyant Hungarian immigrant built a chain of 12 chic confectionary boutiques -- all franchised -- that by 1982 were generating $3 million in revenues for the chocolate maker. "I didn't even know what franchising was," Kron marveled when he was profiled in INC. in July of 1982. It showed. Franchisees were initially sold an entire state, rather than a smaller regional area or the city where the franchise was to be based, and were sold the state with no restrictions on developing new business or opening new outlets. Kron first asked for no royalty on product sales. He required no specific inventory or minimum sales, nor was there any required advertising.
Through trial and error -- a revised franchise agreement written as each new outlet was signed on -- Kron would change the terms of his franchise agreement. But the seeds of his destruction had already been sown, and in August of 1983 the candyman filed for bankruptcy. In November the company was purchased outright by four private investors. Although Kron is prohibited in the terms of the purchase from talking about the reasons for his downfall, a spokesman for the new owners blame it on bad management, bad cash flow, and an inability to produce and ship.
Not that Kron is despondent over the setback. He has moved on, "one step beyond chocolate," he says. He is opening a shop in New York City to bake strudel for the city's restaurant trade, and he plans "to build a strudel empire." This time, however, without the franchises.
ITS NO OCCIDENT
The Japanese Challenge -- had Godzilla invaded New York City, it wouldn't have inspired as much fear. The industrial invasion from the Land of the Rising Sun seemed to be reaching a flood tide in INC.'s early days. William Ouchi's book, Theory Z How American Business Can Meet the Japanese Challenge, was executive required reading, and Book of Five Rings, a 17th-century treatise on samurai military strategy, was selling like rice cakes.
But no more. Now the best-sellers preach buzzwords like "megatrends," "cultures," and "excellence." And Americans are finding their own way.
Take quality circles (INC., August 1982). Membership in The International Association of Quality Circles, started by U.S. businesspeople in 1977, has grown to 6,400 companies. Most companies tinker with the idea (that is, using workers' knowledge and experience to solve problems through brainstorming), creating their own productivity programs or quality teams, according to Darius Van Fossen, the association's executive director, "taking the circle concept and changing it to fit their needs."
The difference is cultural, Joji Arai, director of the American office of the Japan Productivity Center in Arlington, Va., argues. "Many have disregarded the basic philosophy behind quality circles. Americans tend to look at them as tools that result in a quick improvement in productivity. The Japanese see it as an ongoing training program -- they're not concerned with potential savings. But Americans look for quantifiable results, and quickly become dissatisfied."
Or take the Just-in-Time stockless inventory system that mesmerized U.S. manufacturers (INC., March 1984). At first Americans accepted the idea "lock, stock, and barrel," according to Roy Shapiro, an associate professor recently returned to the Harvard Business School after a research trip to Japan. Now, Shapiro notes manufacturers are "trying to study the philosophy behind [Just-in-Time] and extract the purely cultural elements -- things like lifetime employment -- from the pieces that are easily adaptable, like reducing set-up times."
Sheldon Weinig, CEO of Materials Research Corp., has found his own way of harnessing the energy and commitment of the Japanese workers for an American company. He hires them. After seeing sales for his Orangeburg, N.Y., electronic materials and equipment supplier drop $8 million between 1980 and 1983, Weinig became the first U.S. businessperson to build a manufacturing plant in Japan, with a government grant from Tokyo. "We have allowed Japan to become a privileged sanctuary," Weinig reasons. "If we continue to operate out of the U.S., and don't penetrate Japan, they will keep that sanctuary, and kill us. I say, get off your rear, and get the hell over there."
THERE'S NOTHING CERTAIN BUT DEATH AND TAXES, BUT AT LEAST WITH TAXES YOU CAN FILE FOR AN EXTENSION
Remember the Economic Recovery Tax Act of 1981? Billed as one of the most sweeping rewrites of the tax code since 1954, proponents promised that the law would slash the cash the U.S. government collects from its citizens by an estimated $1.6 billion in 1981, and $150 billion by 1984. Well, 1984 has come. And guess what happened? Collections rose approximately $20 billion.
In 1982, the Tax Equity and Fiscal Responsibility Act squeaked through Congress. Its goal? A total of about $98 billion in new taxes over the next three years. Its primary target? Business.
The liberal investment tax credit rules written into the 1981 law all but disappeared, as did safe-harbor leasing. Tax benefits available to the recipients of incentive stock options were slashed. Top-management benefits from employee stock ownership plans were tightened. What Uncle Sam giveth, Uncle Sam taxeth away. And taxeth away. And taxeth away.
New incorp. Failures
1979 524,565 7,564
1980 533,520 11,742
1981 581,282 16,794
1982 566,942 25,346
1983* 612,000 31,334
Source: Dun & Bradstreet Corp.
THE LONLINESS OF THE LONG DISTANCE INNOVATOR
Bryon Donzis: Like many inventors profiled in our pages, Byron Donzis (INC., October 1980) is a versatile man. You want a hot item on short notice -- an X-ray machine for oil pipelines, a nitrogen-filled car tire, a pneumatically inflated running shoe -- and Donzis is your first phone call.
The question facing him now is, will his new Houston-based company, Medidyne Inc., succeed managerially where other Donzis ventures (Travel Ray, American Pneumatics) have not? "I'm staying out of the business operations, he promises. "That's something I don't do well at all."
What Donzis does do well is design great products. In 1980, he founded Houston Protective Equipment Inc., a spin-off from one of his most ballyhooed inventions: the Lexan-covered flak jacket he tailored for Houston Oiler quarterback Dan Pastorini, back in 1978. That jacket, which protected Pastorini's battered ribs, became a much-talked-about item and spurred Donzis to design a variety of related sports equipment. Houston Protective, meanwhile, was folded into Utah-based Skywalker Inc., to produce Medidyne. Although six month sales for 1983 were a modest $700,000, Donzis is expanding its scope. In March, he opened a psoriasis clinic in Houston, and this year he will be importing medicinal herbs and surgical equipment from mainland China. "I'm interested in lots of things," Donzis admits.
James Browning: That kind of curiosity, the mental restlessness that can jump from football pads to medicinal herbs, helps explain the range of innovative products that emerge from the small business research and development cauldron. James Browning, for example, was one of eight inventors highlighted here three years ago (INC., August 1981). He designed a high-speed metallizing spray gun called Jet Kote, then sold the license to Cabot Corp. of Boston. Although Browning figures to recoup $2 million to $3 million over the life of the patent, he is hardly resting on his laurels. He is now tinkering with a thermoblast drill (for sinking geothermal wells through granite), a supersonic sand-blaster, and a hydraulic windmill -- all of which he says he is more excited about designing than manufacturing or marketing.
Samuel Raff: Getting from the design to the manufacturing stage has proved even more problematic for Samuel Raff. Raff, president of Bethesda Corp., in Bethesda, Md., perfected a torque-limiting socket for an impact wrench he hoped would find a respectable market among tire-changers. It hasn't, despite a $95,000 National Science Foundation grant. One problem: The tool had a tendency to destroy itself after several applications of force. Raff redesigned it and now has a durable version being tested.
George Ward: Bugs, not fish, were George Ward's big concern back in 1981, when he started raising microorganisms he believed could be used to detoxify chemical wastes. Ward, head of George D. Ward & Associates Inc. of Portland, Ore., was also looking into ways to disinfect septic-tank sludge and convert it to commercial fertilizer. Cost and bureaucracy have proved almost as lethal to his venture as toxic wastes, however. "The politics of sludge is very deadly," notes Ward, who says the city of Portland had drawn up a sludge-disposal contract with his company, which it soon rescinded. The case is in litigation. Something has been germinating in the Ward family, though. Just this winter, two of Ward's sons created Clearwater Utilities Corp., a nonmunicipal waste-water and water-supply management firm for which their father serves as chief engineer.
Arthur Thiesen: At Soil and Land Use Technology Inc., in Columbia, Md., the idea was to grow odd crops -- kenaf, amaranth, guayule -- that sounded like obscure crossword-puzzle answers but in fact were promising alternatives to the 20 or so plant species normally cultivated as food and fiber crops. Since 1981, however, the future over at SaLUT Inc. has looked a little wilted. According to the company's head, Arthur Theisen, the number of employees has dropped from 23 to 6, and sales have slumped from $1 million annually to "I'd rather not discuss that." What happened? "We had to struggle considerably during the recession," says Theisen, who notes he is shifting gears and getting into the use of biomass for cool generation in waste-water management -- not unlike George Ward. Theisen stakes much of his hope on his proximity to Chesapeake Bay, where pollution has reached such disturbing levels that even official Washingron is alarmed.
HE DID IT HIS WAY
Adam Osborne's story could be written in song, from the Broadway show tune "Anything You Can Do I Can Do Better" to "The Impossible Dream." Most recently he has been living 1960's pop refrain "like a rubber ball I'll come bouncing back to you "
Osborne Computer Corp.'s 1983 bankruptcy echoed throughout the industry. This, after all, was no two-bit start-up, but a $70-million company that had put its lovable luggables on desks throughout the nation. Nor was Adam a conventional entrepreneur (INC. November 1983). "I didn't have a degree in electronics and never had run a manufacturing operation," he admitted. That didn't preclude a confidence that in some people's minds bordered on arrogance. "I knew we would succeed," he said, shortly before his company went belly up.
And now Adam is back. His new enterprise is Software Seed Capital Corp., in Berkeley, Calif. The concept . . . well, the concept isn't quite clear. Something about new tax-sheltered vehicles for financing software development and new distribution arrangements. Osborne isn't talking, except to exude confidence -- -or arrogance. "It's incredible how inefficient and backward some of the software is," he says. "I've come to the conclusion that gold is lying around and somebody should pick it up." Prospective backers, meanwhile, are dancing to Adam's tune. "Adam Osborne probably has more venture capitalists willing to invest in him now than ever before," says one observer, "because he's made a mistake."
Mistake? Is that what you call it when someone walks into Chapter 11 humming "It Was a Very Good Year"? Stay tuned -- maybe Adam Osborne will be better the second time around.
It could have been worse. The January 1980 White House Conference on Small Business at least ended in a vote. the previous Washington small business gathering, held in 1938, ended with delegates embroiled in a fist-throwing melee.
The jury however, is still out on what the 1980 meeting accomplished, beyond a significant rise in decorum. The 2,000 delegates selected 60 recommendations for changes in federal laws, regulations, and policies to improve the environment for small business and enterprise. The following 15 became the top priority wish list:
Reduce corporate and personal tax rates Done, sort of
Accelerate, simplify depreciation schedule Done
Balance the federal budget Tilt
Reduce estate taxes Done
Impose sunset review on federal agencies, laws No way
Increase small business share of federal R&D Done
Add incentives for investment in small business Talk, no action
Reform social security without raising taxes No reform; taxes went up
Create small business participating debenture Talk, no action
Strengthen authority of SBA's Advocacy Counsel Toss up
Ease bank credit for women business owners Talk, no action
Reimburse costs to small companies sued by gov't. Done
Freeze minimum wage; create two-tier system No way
Mandatory procurement setasides for minority cos. Not likely
"Economic impact" statements on new regulations Done, sort of
Robert Taylor had hoped for nine-figure results when he steered Minnetonka Inc. (INC., April 1980) into the liquid-soap market following years of sloshing about in the muddy waters of diversification. Having taken unproductive flings at everything from real estate development to candle-making Minnetonka was realigning itself behind Softsoap a pump-dispensed cleanser that solved the problem of how to keep the old soap dish from looking like a clogged rain gutter. Good idea, thought Taylor, who first made his mark selling a variety of bath products through department stores and druggists.
Like most good ideas, however Taylor's invited competition -- and competition he has gotten. As in "over a hundred competitors," many of whom have been discounting like crazy, forcing Minnetonka to discount, too. Profits have thus dissolved (1982's net loss: $3.9 million on sales of $69 million), although Taylor claims that "Softsoap's on the recovery trail." He also points to a new institutional version of the liquid soap and a toothpaste pump as intelligent product expansion. In addition, Minnetonka bought out Calvin Klein cosmetics in 1980 and has been "turning it around" for the past two years, according to Taylor. No plans yet, however, for aerosol mascara.
'THE FAULT, DEAR BRUTUS, IS NOT IN OUR STARS, BUT IN OURSELVES"
Some chase tax incentives. Others, new markets. But Nat Burns follows the stars.
When last we checked in on the peripatetic Burns (INC., January 1980), he had just moved his metal-filter manufacturing company from the Bronx, N.Y., to South Carolina -- on the advice of his wife's astrologer, Callie de Koster. The astrologer made the move as well, continuing as a company consultant to dispense advice on such cosmic matters as press mailings (always sent, she says, by the light of the moon), bill collecting, purchasing, hiring, and employee financial management. In addition, Barbara Burns, Nat's wife, takes walks through the plant, warning employees when their "aspects" are most conducive to accidents -- resulting, according to Burns, in no time-loss accidents for more than three years.
Sales charts, unfortunately, have fallen behind the astral projections. Although revenues from Burns's Star Systems Filtration Division doubled (to $2 million annually) after the move, they have climbed, but slowly, ever since.
PRIME TIME CRIME
Jackie Kleiner makes money the old-fashioned way. He litigates for it.
Kleiner first captured the banking industry's attention -- and coverage in INC. (February 1981) -- three years ago, when he accused First National Bank of Atlanta (FNBA) of fraud. His beef was over six years' worth of loans pegged to the floating "prime rate," a rate Kleiner claimed was floating well above the rates extended to bigger businesses. He wanted six years of "extra" interest paid back. That suit, since upgraded to a class-action status and still in litigation, prompted a series of what Kleiner called retaliatory moves by the FNBA. First, Kleiner charges, the bank tried to get him indicted on the ground that he lied on his loan application. The grand jury dismissed the case, so the bank then filed a motion to disqualify Kleiner as a class representative -- having almost been indicted, they argued, he was of questionable character. Next, the bank's lawyers advised their client to call potential plaintiffs to the class-action suit. "Our friends don't sue us," they were to say. Those shenanigans led to a federal district judge's disqualifying the bank's lawyers and fining their firm $50,000.
Kleiner, meanwhile, is thriving. He maintains two homes, one in Georgia and one in Chevy Chase, Md., and has found a new career. "All I do now is sue banks," he says. "I'm making more money than I've ever made in my life."
Working with a Washington, D.C., law firm, as well as with his wife out of their Chevy Chase home, Kleiner currently has 22 suits lodged against major lending institutions, including Manufacturers Hanover Trust Co. and Riggs National Bank. Because Kleiner feels the prime continues to be defined in such loose -- and, for small businesses, usurious -- -terms, he has few qualms about reading these institutions the riot act. Actually, however, his current statute of choice is the RICO Act (Racketeer Influenced and Corrupt Organizations).
"The banking industry doesn't know how to take being called racketeers," says Kleiner, "but if they cheat people, what are they? I call them banksters."
So far, the banks in question have filed seven motions to quash the RICO charges. Six have been dismissed. And Kleiner has collected 15 separate settlements ranging from $900,000 to $10.5 million.
PIZZA THE ACTION
Last fall Nolan Bushnell got a memento from his engineering staff: a mounted pair of handcuffs, unlocked.
Bushnell is the entrepreneur who founded Atari Inc. 12 years ago and sold it to Warner Communications Inc. in 1976. The price: $28 million and a 7-year noncompete agreement. Since then as Bushnell tells it, he has carried around a little notebook with a picture of a clown on the cover, jotting down ideas for video games. And waiting. In October 1983, the agreement finally ran out.
None too soon, Wall Street analysts might say. Bushnell's biggest venture since Atari was Pizza Time Theatre Inc., a chain of fast-food restaurants featuring banks of video games and gaudy, life-size mechanical animals belting out popular tunes. After five years of growth, which saw Pizza Time swell to annual sales close to $100 million, the company last June began reporting what turned out to be a series of losses. Its stock price fell, and a game of musical chairmen began. First Bushnell took personal control, squeezing out co-founder Joseph F. Keenan. Later Keenan stepped in and Bushnell stepped out.
By then, anyway, Bushnell's heart was elsewhere: He was heavily involved with his first love, video games, and the Pizza Time subsidiary, Sente Technologies, that was manufacturing them. Sente, its spokespeople said, was developing games that would knock the socks off of arcade addicts, and Pizza Time restaurants would get them before any video parlor. Combined with a new pizza recipe, maybe that would help pep up sales.
Meanwhile, the video king was glad to get the cuffs off. Drinking beer with Sente employees to celebrate the end of seven years' commercial bondage, he crowed, "Free at last, free at last thank God I'm free at last."
Henry Kloss, founder of three famous audio-component companies (INC., May 1981), had a terrific reputation for invention and a lousy one for business management when he launched his fourth major venture, Kloss Video Corp., in Cambridge, Mass. Kloss Video manufactures large-screen projection television sets. Its founder's stated aim: "I want to build a company with a profitable track record," said the (then) 51-year-old home-entertainment czar.
Although the consumer market has failed to meet Kloss's early expectations, KVC is thriving (sales are up from $14 million to $20 million last year), thanks in no small part to the formidable purchasing power of the modern pulpit. About 400 wide-screen units have been sold for use by the Mormon church, and Kloss now labels "charismatic faiths" as his fastest-growing market.
The reason? "These churches are smart, have money, and have a message to sell," says Kloss, who is negotiating a major deal with the People's Republic of China.
At home, meanwhile, Kloss is moving his operation to a new facility in Cambridge (so his 330 employees won't have to relocate) and hoping for a renaissance of interest among upper-income consumers. He blames the indifferent marketplace on poor advertising and low-rent competition. "It's widely not known that the picture can be very good," says the high priest of wide-screen TV. Spoken like a true evangelist.
THE TRUTH IN NUMBERS
The dispute has been hot and heavy. Is small business responsible for some 82% of the jobs created in the United States, as Massachusetts of Technology researcher David Birch argued in his landmark 1979 study? Or is 40% closer to the truth, as The Brookings Institution tried to prove using the same statistics?
Let's look at some numbers. Since 1973, some 20,029,000 jobs have been added to the U.S. economy. A comparison of the Fortune 500 lists for 1973 and 1983 indicates a net loss of 314,659 jobs. So somebody out there had to have created 20,029,000 jobs. And it wasn't America's largest businesses.
You tell us.
THE YEARS IN NUMBERS: BYTES DOG MAN
Annual domestic factory shipments
of microcomputers, 1977-82
1977 32,000 $230 mil.
1978 131,000 455 mil.
1979 183,000 648 mil.
1980 308,000 1.2 bil.
1982 3.1 mil. 4.1 bil.
Source: International Data Corp., Framingham, Mass.