Enterprise -- Management: Turnarounds
Lessons from a Survivor
When his company went under, Jeff Randazzo didn't
Let's say, just for a moment, that you face complete financial ruin. Everything you've worked for is on the line, even the house and nest egg you've tucked away when times were good. The stakes are no less dire for your workers, who depend on you for their living. So do you cut your losses and move on? Or do you risk all you've got left on a last, desperate attempt to save the company and its people?
Sure, go ahead--it's easy to play hero on paper. But Jeffrey A. Randazzo faced this situation for real, and like millions of other entrepreneurs who have been down this path, the choice wasn't so clear--not after watching $3 million of his net worth evaporate and promising his wife he wouldn't bankrupt the family. At some point, doesn't an entrepreneur have a right to save himself?
You decide. For all his woes, Randazzo somehow staggered back to reclaim his dream of doing business his own way--but he wound up shedding assets, longtime suppliers, loyal staff, and even his home in the process. This is not the story of a hero but rather that of a survivor and what happens when an entrepreneur's dream meets reality.POOR FIT. Randazzo first glimpsed that vision back in 1973, when this son of an immigrant Italian electrician, armed with no more than a vocational school degree, plunged into the Manhattan world of contract printing at what seemed a princely $122 weekly union wage. Almost from the get-go, it was a poor fit. "The quality of what we were producing was nowhere as good as it could be," says Randazzo, who was fascinated by new, computerized scanners that promised an enormous leap forward in translating images from artist's design to a printing plate. Flush with enthusiasm over what he might be able to achieve, Randazzo recalls what happened when he approached his foreman.
"I've got ideas," Randazzo said.
"You snot-nosed little SOB," the foreman barked. "You've been here six months and you're going to tell us--the best shop in the city--how to improve?" Undeterred, Randazzo appealed to the plant manager and got himself assigned to crummy shifts where spots on the new gear were easier to get. "Jeff did come along in a strong way," says Shirlee Scoma, the plant's retired owner. "If he had stayed, he would've been top banana."
You know what happened next: The entrepreneurial bug bit hard. Randazzo quit the union and, with $20,000 in savings and some partners, opened a new shop during the mid-1970s that made color separations for Madison Avenue clients and museums--clients that demanded high-quality work for glossy ads and art posters. Separations are a hidden but crucial step in the process of turning a commercial artist's work into a printing plate that can be fastened to a press, and it's exacting work. By 1988, Randazzo had emerged as the sole owner of Imaging International Inc., which boasted a payroll of 65 and $4 million in annual revenues, largely from work on packages for such supermarket-freezer items as Ore-Ida potatoes and Birds Eye veggies. Clearing $500,000 a year, Randazzo says the business life "was great."
Then it all began to unravel. Determined to preserve a technological edge, Randazzo in 1989 ordered $1.4 million in high-end graphics and scanning gear. But the equipment never worked to his satisfaction, despite endless tinkering. "He kept believing it was going to be fixed," his wife, Leila, recalls. Long nights of installation and troubleshooting prevented him from staying close to customers--the primary job of any entrepreneur--and sales plunged 40%. Imaging bled cash: $40,000 one month, $50,000 the next. "His whole personality changed at home," Leila says. "I can't begin to tell you how hard it was to live in the house with him. Severe depression--I don't even think he can remember it."
What he does remember is obsessing over the needs of his best clients. Randazzo sacrificed dozens of lesser accounts to maintain credibility with core customers--a decision that would later play a crucial role in his recovery, even as it now pushed Imaging closer to ruin.
With his cash nearly gone, Randazzo hired a "workout" consultant. "This is the easiest company in the world to turn around," the consultant said. But it meant laying off Randazzo's brother and his best friend, and he still had to put up fresh cash. He killed the plan.
By winter, 1992, Imaging was clearly doomed. Randazzo's first goal was self-preservation. Already, the couple's net worth had sunk to $1.5 million from $4.5 million, and they had pledged not to touch personal assets for business debts that now totaled $900,000. Beyond that, he wanted to protect his clients, avoid alienating key suppliers, and bring along as much of his core staff as possible--12 of 45 people. That way, he would have the key elements in place to recover. And so it came to this: liquidate the company in bankruptcy, try to line up jobs for his workers, then join a big corporate rival that wanted to get in on Imaging's key niche, a type of printing called flexography. It wasn't a great option, but it was doable.
As Randazzo worked out final details, stealth was mandatory. He knew many employees might wind up jobless and some vendors could get stuck with bad accounts. But once word got around that Imaging was going bankrupt, employees, clients, and vendors would all flee, and he wouldn't be able to help anyone--including, of course, himself.
Then the Death Fax arrived.
It was no act of malice, just an oversight by Randazzo's lawyer. Filled with details of the employment contract he had been negotiating for himself, the fax arrived unannounced on the company machine used by the whole staff. Someone picked it up and--like that--it boomeranged around the office, knocking control of the business right from Randazzo's hands. Employees dropped everything to job-hunt, and vendors cut off credit.
Suddenly, Randazzo confronted a tsunami of emotions, his staff's and his own. "I had to pull everyone together and explain the realities of life. I stood in front of them, and I was crying," he recalls. "Instead of a timely, nicely organized wind-down, I had everyone looking for jobs that same day.... Devastating. Just absolutely devastating."
Underhanded? Too secretive? Perhaps not. Randazzo's plan was probably no different than what large companies do in a more impersonal way through their human-resources departments and outplacement firms. At a small company, though, these things appear more personal, and some of his employees and suppliers reacted bitterly.GUILT PANGS. Randazzo doesn't fault himself for putting his own interests first. In fact, the whole experience hardened him. "I looked at it as a business decision," he says. He still felt guilty about laying off people and stiffing vendors. But in hindsight, Imaging was a business, not a social contract, and employees should have had no illusions about why they worked for him. "It's what they produce that gives them value in the company," he says.
Randazzo tried to carry out his recovery plan by joining Applied Graphics Technologies Inc., then a $100 million Manhattan rival. Yet as his second year there closed, he became convinced that corporate life, like his union job, was a bad fit. By spring, 1994, he had quit. "I don't go by traditional thinking," he told himself.
That, and more, went through Leila's mind as her husband proposed his next step: sell their Long Island home on two acres and move to a lower-cost area to restart his own business. Leila thought he had gone daft. "How can you possibly relocate a business in an area where you don't know anybody?" she wondered. Nevertheless, she soon found herself bound for Florida, along with their 12-year-old daughter and 9-year-old son, where they squeezed into an 1,100-square-foot rental apartment.
In their pockets, however, was the previously untouchable $400,000 they had netted on their house. Wiser for his woes, Randazzo resolved to move slowly, never outrunning his monthly cash income. It was November, 1995, before he logged any serious jobs, but he stayed busy keeping up with his old clientele from his new shop in Delray Beach, Fla.IN TOUCH. Remarkably, they were pleased to hear from Randazzo despite his earlier woes. "He doesn't have a big marketing degree," explains Sue Barkis, a packaging manager at Ore-Ida Foods Inc. in Boise, Idaho. "But when it comes down to it, he figures out what his customer's objective is and how to achieve it." Even in his worst times, Randazzo had made a point of keeping in close touch with customers, which made it easier to patch up relationships later.
Denice Thueringer, an art director with Salt Lake City-based Huntsman Packaging Corp., remembers how Randazzo would call and say, "`What are you guys doing? What are you up to? You're redesigning? Oh, that design? I remember that one.' It was really a smart, political thing to do. Otherwise, if he called back after five years we'd say, `Uh, who are you?"'
Unable to forget his biggest mistake--installing the $1.4 million of new equipment without first ensuring that it worked right--Randazzo held equipment vendors' feet to the fire. When one handed him a signed, "non-negotiable" contract, Randazzo balked. "Jeff wasn't going to get burned twice," recalls Imaging's attorney, Edward C. Kramer. "When we were done, it was full of projections and clauses that there would be no payment unless those projections were met."
With his new shop ready to roll, Randazzo bid to win back Ore-Ida's account. He took on a tricky test project for a snack food called Dyna Bites and scanned the work 77 times to get the colors' density and hues just right. It left customer-service manager Hassan Shareef reeling: "I was proofing it over, and over, and over, and over, and over." Randazzo still wasn't happy. But facing a deadline, he rushed to the airport for an evening flight to meet Ore-Ida's team in Boise--and missed the plane. "That was an omen," Randazzo says. "So I called my staff from the airport. `Be prepared to work through the night,' I told them. `I'm going to fly out at first light."' They did, and sent Randazzo out bearing a superior example of their efforts. "That gave Ore-Ida the confidence to give me back the business," he says.
Randazzo also wanted to exploit what he counts as his best asset, technical knowhow. Flexography, a labor-saving technique that uses a nonsmudging water-based ink, has trailed other printing techniques such as offset and gravure in setting color standards that clients could measure. The main reason: The competition found it hard to focus on the common good. Randazzo says he invested more than $20,000 and hundreds of hours traveling to meet with clients, suppliers, and competitors and get them to agree on standards. It was a canny stroke of marketing that helped build his credibility. Late in 1997, the effort yielded a 108-page book that has sold some 3,500 copies--and elevated Randazzo to guru status in the industry. "Ten years ago, I was told I could never break into this old-boys' network," he says. "Now, I'm leading the pack."CATHARSIS. Indeed, his reborn company's sales last year topped $2.5 million and could double this year. By November, Randazzo hopes to move to a bigger plant, and he's up to 23 employees. Best of all, he and Leila recently finished building a new 6,800-square-foot home.
Does that mean that he's happy? You'd know if you were at the flexography industry's annual meeting in San Diego last spring. Waiters in the hotel ballroom were clearing away 1,500 plates of halibut and filet mignon when Randazzo suddenly received a surprise award for his efforts. Barkis recalls him "standing up on the stage and there were these big video screens and we were all staring at him. He looked like a politician, running for something....And we all looked at each other and said, `Uh-oh, there it goes, he's going to burst into tears."' Which he did.By Robert Barker in Delray Beach, Fla.Return to top