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HOW DO YOU HITCH YOUR WAGON TO A STAR? CAREFULLYHaving a giant for a client poses huge perils as well as opportunities
Jeff Bleecker and his business partner, Tony Hollars, could hard-
What Reebok wanted was cool technology to accessorize the pump-up sports shoe it had released a year earlier. At that point in 1990, Innovations was just two young entrepreneurs outsourcing production. ''We were gaga,'' Bleecker says. ''We were selling about 8,000 a year, and they were talking about 8,000 a day.''
AWKWARD AGE. This is the stuff of entrepreneurs' dreams--landing the megadeal with an IBM, Sears, or Sony. But growth spurts are as awkward in commerce as in adolescence. Reebok took more than two years to commit to the deal. Then, Bleecker and Hollars found themselves in a scramble to learn the manufacturing process, buy equipment, find and train staff, and dig up the money to pay for it all. In 1994, Innovations raked in $3.5 million from the Reebok contract alone--80% of its sales that year. But the next year, Reebok lost interest, and Innovations pulled through only by reacting fast. ''There's no question we made a lot of money,'' Bleecker says, looking back. ''But it could have been a disaster.''
The Big Deal poses opportunity and risk in almost equal measure. When growth and change happen at breakneck speed, systems break down, relationships fray, and vision can become blurred. ''People don't go in with their eyes open and don't play out the worst-case scenario,'' says Vicki Clift, a marketing consultant and small-business owner in Santa Maria, Calif. A small company may stretch finances too far and be caught short of cash. Or it may get so caught up in the big client that it neglects others.
Michael Gerber, 63, had a close call in the mid-'80s when his Santa Rosa (Calif.) training company, E-Myth Academy, inked a deal with a large computer-services firm. In his zeal to serve the client, he stopped minding the store. ''I wasn't watching the money, the sales system, or the implementation of services,'' he admits. The company almost went under. Gerber spent the past decade rebuilding E-Myth, and he has this advice for when a megaclient appears: ''Instead of counting your blessings, take a deep, cold, hard look at what it means.''
If you've got the stomach for the wild ride, a big partner can be a good teacher. Reebok engineers and advisers showed Bleecker and Hollars the ins and outs of manufacturing, quality control, and management techniques. But the lessons often have to come with more than good counsel. Bleecker figured Innovations would need $500,000 to set up production for Reebok, but no commercial bank in Tucson would give him a loan. ''We were really asking for venture capital, and banks just don't do that,'' says Bleecker. ''But we didn't want any partner who'd want an interest in the company.'' Finally, Reebok offered an advance against royalties.
Indeed, few banks are willing to fund rapid expansion based on a single client's purchasing plans. ''We want to be sure they can handle the repercussions and that the customer will continue,'' says Sandy Maltby, executive vice-president for small-business lending at KeyCorp.
To stand a fighting chance with your bank, it pays to develop a close relationship. A few months ago, GGS Information Services in York, Pa., won a $1 million-plus contract with Grove Worldwide, a maker of construction cranes and forklifts, to create and manage a global database for parts. The $12 million company needed $300,000 to buy file servers, scanners, and other equipment. That came as no surprise to its lending officer, because GGS meets with the bank quarterly and had already discussed the project. GGS got its loan.
''WEIGHT IN GOLD.'' During a 1989 growth spurt, GGS had learned a few other tricks for managing fast growth. In bidding for the Grove contract, GGS President Paul Kilker factored in an extra month, then began recruiting and working with subcontractors right away. ''You always underestimate how long it takes,'' he says. In January, a trial run of the system for Grove failed. Luckily, Grove wasn't expecting the system until April. ''You may have to pay your suppliers a little early,'' Kilker notes. ''But it's worth its weight in gold when the client comes and says: 'What? It's done already?'''
Of course, it's tough even to pay your suppliers on time when major clients delay payment--as they often do. When Reebok's checks started coming late, Innovations had to stretch out payments to its own vendors. ''At one point, they owed us half a million dollars,'' Bleecker says. ''We finally told them we could not ship unless they paid.'' Reebok obliged. Observes Roger Harris, an accountant and president of Padgett Business Services: ''Businesses more often go under because they run out of money than because they're not profitable.''
Even when money isn't the problem, rapid growth can be a huge challenge. Systems that worked for small quantities may not work for larger orders. Hiring is tough for small companies used to adding just one or two new workers. When Kilker boosted the GGS staff from 75 to 100, he needed people who could read blueprints and write computer programs. Unable to find enough workers with adequate skills, he paired experienced people with inexperienced. ''We were really training on the fly,'' he says.
Solving one problem can sometimes create another: Increasing staff can mean more government regulation. A tiny company doesn't have to worry about the Americans with Disabilities Act of 1990. The ADA kicks in at 15 employees, the Family and Medical Leave Act when your staff numbers 50.
Of course, just when you've finally got a handle on warp-speed growth, there's always the chance it will screech to a halt. In 1995, orders from Reebok dried up. For three years, the two entrepreneurs had been so distracted by their big client that they had neglected their core constituency. ''All that money was gone, and we weren't on our feet,'' admits Bleecker. They refocused on developing new bike-related products. And then they got lucky. Rema Tip Top North American Inc., the big name in bicycle tire repair kits, cut out its wholesalers for bigger margins. Within weeks, Innovations put together copycat kits with tire patches from Asia and jazzy packaging and went straight to the distributors. That nursed sales back up to $2 million last year, but Innovations owes a lot to Rema's gaffe. ''We could have gone either way,'' Bleecker admits.
As anyone who has been through it will tell you, it takes luck to survive a lucky break. Before the big deal has you dancing for joy, be sure your feet are on solid ground.
By Edith Updike in New York
Updated June 15, 1997 by bwwebmaster
Copyright 1997, Bloomberg L.P.