Holt Educational Outlet, a toy and software distributor, was about to change forever. And Chief Executive Officer Paul Holt knew the shift would not be child's play.

Last year, as the family-owned company prepared to move into the digital age, there was the sticky problem of Holt's 40 employees. Could they handle the transition from mom-and-pop cataloger to Web retailer? If not, how would Holt find affordable replacements in Boston's tight labor market?

"We felt our employees were talented and motivated. They got us to where we are today," says Holt, 38, whose parents started the business 19 years ago.

So Holt started a four-month retraining program that cost an estimated $50,000 to $100,000. With one exception, every worker was successfully retrained by a consultant who taught technical skills and built teamwork. Everyone, from clerks to accountants, moved from paper-based to electronic systems.

Nobody has left the company, and wages are stable at about $25,000 to $35,000. Stacey Neustadt, 31, once a part-time clerk at the retail store, is now full-time Web master, while graphic artist Michael Boldezar, 28, took up Web design. "It's good to be cutting-edge all the time," he says.

And how's business? While the old catalog reached 12,000 customers, the Web site gets 200,000 hits a day and brought in about 20% of Holt's $10 million in revenue last year.

Retraining wasn't fun and games, but it worked. Now, the trick is to keep those loyal employees--and their new cutting-edge skills.

By Beth McGoldrick in Waltham, Mass.

This article was originally published online as part of the May 25, 1998 edition of Business Week's Enterprise.

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