Crisis control | Veteran entrepreneurs lend seasoned advice for riding out -- and reaping the benefits of -- tough times
Four veteran entrepreneurs -- Michael Fiori, Steve Vlachos, Rory Strunk and Jim Wilfong -- offer tips to be successful in a recession
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Time to shine: Entrepreneur Rory Strunk says a recession is a perfect time to be aggressive and grab market share while your competitors are wringing their hands
Photo/David A. Rodgers
Persistence pays: During the recession in the early 1990s, Entrepreneur Michael Fiori says he learned that if you have a good company, stick with it
[Crisis control is a package that includes an article about seasoned entrepreneurs and what they say is necessary to thrive in a recession (below), a look at the results of a Mainebiz survey on the local and national economies (below), and an unabridged Q&A with Charlie Colgan on the causes of the economic meltdown and what it means for Maine.]
Steve Vlachos can immediately spot the difference between a business that’s going to make good on a recession’s opportunities and one that might not survive it at all. Vlachos, a partner at the business brokerage Caswell Vlachos Group in Portland, has been swamped lately by calls from business owners desperate to sell. These frantic efforts, Vlachos says, are from “folks who are in trouble.” Hampered by high overhead and running on credit fumes, these businesses Vlachos rarely takes on because these days they just won’t sell. Instead, Vlachos sometimes encourages the callers not to consult a broker, but an attorney — a bankruptcy attorney.
Vlachos’ perspective on what it takes for a business to survive the current financial crisis is tempered by his own experience as a serial entrepreneur who launched seven companies, the first in 1983, and by what he learned the hard way about surviving a recession.
“The biggest mistake is people who wait to try to take action,” Vlachos says. “It’s a natural thing for an entrepreneur to want to keep every employee, to be great to your vendors. But if you wait too long, you lose it all.” [Story continues below]
During the 1990-1992 recession, Vlachos had to cut staff at one of his companies, the Portland custom cabinet store Atlantic Kitchen Center, from 12 employees to four. Vlachos and his wife Leslie, who co-owned that store and Vlachos’ other ventures at the time, the Inn at Long Lake in Naples and the laminated shelving manufacturer Shelf Systems Inc. in Portland, worked 80 or more hours a week to keep their businesses afloat. Vlachos says all three businesses survived, and were either sold before the end of the recession or rebounded to their pre-recession staff numbers after the turnaround. That recession taught him a golden rule — cash is king — and Vlachos made sure to sock away a cash cushion for his businesses moving forward. Were the hard knocks worth it? Absolutely, Vlachos believes.
“When the upswing came — at that time, just like now, there was an overheated housing market — so when the upswing happened there was a ton of pent-up demand [for home improvement products],” Vlachos says. “Anybody that goes through a downturn and gets back to the core of the business, those are the folks that are going to boom when the economy turns.”
By 1999, when the Vlachoses sold Atlantic Kitchen Center for an undisclosed sum to Hancock Lumber of Casco, the company generated $31 million in sales annually and employed 13 people. Nothing can push a company to get back to basics like a recession, which is why the experience, however harrowing, is what Vlachos calls “the greatest education you can have.”
Nimble navigators survive
Several of Maine’s most experienced entrepreneurs agree that being a small company — or “lean and mean,” as some put it — can be an advantage during a downturn. While large companies struggle to maintain multiple locations, sell bloated inventories and protect the household-name image attached to their historically dominant market share, small companies can keep costs low and attract new clients dismayed by the big boys’ troubles.
Rory Strunk, co-owner of the Portland sports marketing firm Aura360, with revenues of between $5 and $10 million per year, and the newly-launched Stackbox, which provides stages and other infrastructure for entertainment and sports events, watched his first company, RSN, flourish during the recession in the early 1990s. Strunk founded RSN, a sports and entertainment television company for resorts, in 1985 at age 25. The concept was a new one, and RSN didn’t have any direct competitors. It did, however, rely on revenue from advertising sales, and here RSN found itself competing with conventional television channels. Strunk and his single employee were able to keep costs low and aggressively go after clients to gain market share while competitors were losing ground. RSN didn’t rely on loans to operate — a factor Strunk says was critical to its survival during the credit crunch at the time — and ended the recession with $3 million in annual revenue, triple its intake pre-recession.
“This is the time to move,” Strunk advises today’s entrepreneurs. “This is your chance to break through and get on other people’s radar when other companies are entrenching.”
Jim Wilfong, a serial entrepreneur based in Stow and an instructor at the University of Southern Maine’s Center for Entrepreneurship, agrees the little guys have a prime opportunity during a downturn to gain market share that will jettison their business forward after a recovery.
Wilfong launched his first business in 1977, when he and a business partner became the first North American distributors for the Austrian company Atomic Ski. During the 1980-1982 recession, Wilfong, his business partner, and his sales staff of three to four people were able to avoid the losses suffered by their overhead-burdened large competitors and expand Atomic’s share of the North American market dramatically.
“We hustled,” says Wilfong. “We put in a lot of hours, since we weren’t losing money and since we didn’t have brand share. We kept all of our operating costs as a percentage of revenue below industry averages. If you are able to operate five or six points under the industry average that lets you put that money where it is strategic.”
Wilfong invested the money he saved on operating costs in research and development and advertising, and he lowered his prices. By the end of that recession, the five-year-old company was the second largest ski distributor in North America and generated roughly $15 million in revenue a year.
By 1990, Wilfong found himself weathering a recession from the other side of the fence. Atomic Ski North America was by then an established heavy, and Wilfong was the one worrying about damage to Atomic’s brand if it lost market share and overhead costs from enormous inventories that weren’t selling like they used to. That go-around, Wilfong says, was much tougher than his lean-and-mean years in the early ’80s. The company got by on savings stored up during the good years — a critical cushion, Wilfong believes, for any business in it for the long haul.
But will this downturn be a longer haul than most? Wilfong expects this slump could drag on for five to 10 years, which means even companies that follow his advice and keep overhead costs down, hang onto market share by advertising and save up during the boom years might still fall prey to plain old bad luck.
“It’s tough, sometimes,” Wilfong says. “You can do absolutely everything right and it seems like nothing that you do works out.”
Short-term cuts, long-term gains
Entrepreneur Michael Fiori’s former company, Downeast Pharmacy in Bangor, was going strong when the recession hit Maine in 1990 — the chain of pharmacies he launched in 1984 had rapidly ballooned to 17 stores in Maine and Vermont, employed a total of more than 200 people and generated $18 million in revenue annually. And then, the bottom fell out.
“All of a sudden you had this housing crisis out there,” Fiori recalls. “Banks calling in loans, and I remember feeling pretty bummed.”
Faced with a rapidly slimming profit margin and an inefficient management structure inherited from the pharmacies the company had acquired, Fiori decided to take an honest look at where his business went wrong. He worked closely with his accounting firm, Bangor’s Berry, Dunn, McNeil & Parker, to audit the entire company back to its launch, examining expenses and comparing them with those of Downeast’s competitors. Fiori then adjusted the company’s health care contributions, eliminated some middle-management positions and cut remaining managers’ pay by up to 25%. Fiori also reduced his own salary by 10%.
Fiori left nothing unexamined during that recession. Even the company’s nonprofit donations were scrutinized and reduced, saving Downeast several thousand dollars a year. Fiori also similarly vetted the other two companies he owned at the time — a forensic equipment supplier in South Paris and a storage company in Bangor. In the end, all three companies survived, employees’ salaries and benefits were improved after the turnaround, and Fiori learned a lesson that would last him a lifetime: If you have a good company, stick with it.
“The most important thing is not to give up,” he says. “You may have to take in less, you may have to work longer hours, but don’t give up. If you always had the business working for you, it’s going to work again.”
Sara Donnelly, Mainebiz managing editor, can be reached at sdonnelly@mainebiz.biz.
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