Maine entrepreneurs see the allure of bringing out-of-date businesses into the 21st century
In August 2006, when Kris Cornish acquired Drapeau's Costumes of Maine, a costume shop in Lewiston, the business lacked even the most basic facets of a business. There was no computer, no copy machine, no fax machine. When it came to business records, the former owner presented Cornish with 15 years worth of paper receipts in cardboard boxes. "They had a phone answering machine and that was it," she says.
To top it off, the building in Lewiston where the business was located was for sale and in decrepit shape. After purchasing the business, Cornish had to scatter trash cans around the shop to catch water drips from a cracked ceiling.
But in just more than one year, Cornish has taken this neglected business and turned it around. This past Halloween, the store rented roughly 520 costumes. Last year, the store rented 390 during Halloween. Overall, gross sales are up 20% since she acquired the business, she says.
She's done so by investing in technology to bring her business into the 21st century and help her better manage her business and cash flow. It also included a large commitment of time and capital. In total, Cornish and her husband are in debt to the tune of $250,000 after buying the business and a new building in Lisbon Falls to which Drapeau's could relocate, she says. (For more on this, see "Dollars and cents," this page.)
Cornish faced what many new business owners face after acquiring a neglected business: little to none of the appropriate technology, old bookkeeping procedures and a stale or nonexistent marketing plan. Getting the company out of the dark ages will likely take long hours and plenty of money, but the reward of a more efficient — and profitable — company often outweighs those challenges.
Those buying an existing business often are attracted to these kinds of fixer-uppers, says Steve Vlachos, a senior associate at the Portland business brokerage CBI. "It's all about understanding the opportunities," says Vlachos. "Or, more specifically, [figuring out] what's missing from that Maine company they could add to it."
The state doesn't track the number of Maine businesses that are bought and sold in any given year, but Vlachos says in his experience the majority of businesses that go on the market in Maine probably need some measure of modernization. "We're loaded with these companies that have been around 100 years that have survived somehow," he says.
In a global economy, however, many of these old-line Maine businesses face new threats, from offshore manufacturers to big-box stores. "Everybody has to step their game up," Vlachos says. "And there are a lot of Maine companies that have not done that."
The lure of technology
On a recent afternoon in a back room at the costume shop, Cornish leafs through a stack of receipts from March 2005. The former owner of Drapeau's, Venise Berube, left Cornish with more than a dozen boxes of old business records dating back to the early 90s. Cornish ended up taking only six of the boxes — the ones that had receipts from the last four years.
She organized the receipts by month and culled what useful information she could, such as the average number of costumes the store rented per month. That number, in turn, helped her establish a threshold for the number of costumes she needed to rent per month to stay afloat. (She needs to rent a minimum of 89 costumes a month to pay her basic bills, she says. The store is renting an average of around 110 costumes a month, Cornish says.)
The writing was often cryptic and the receipts lacked important information, such as a name or contact information for the person renting the costume. In describing what's being rented, the former owner simply wrote "purple hat" or "Alf mask." Cornish knew the system, which relied more on Berube's memory than any formal system, had to go.
As a result, Cornish's big investment, besides a new building, was in technology. She traded an old cash register with a paper spool for a computerized register that categorizes sales and provides Cornish with up-to-the-minute sales reports. Where the former owner delivered the cash register's paper tape to an accountant every month, "I can get good numbers everyday and follow the numbers myself," Cornish says.
She bought ACT, a database program, to track customers' buying habits, which helped her over the last few months to develop a direct marketing campaign to target people who over the last two years donned the garb of Santa Claus, Mrs. Claus or one of Santa's elves. She bought a copy and fax machine. She bought "real phones" — "that sounds stupid, but they had rotary phones," she says. She bought a computer and hooked up Internet access. And, of course, she launched a website.
In the future, Cornish wants to bar code every item in the store so she can pay closer attention to what costumes are in or out at any moment, and which are the big sellers (medieval and Renaissance) and which are not (harem girls). "The technology is going to be the thing that moves us over the edge," she says. "At least I can know what my customers want. It will up the customer service exponentially."
When taking the helm at an out-dated company, "it's hard to go wrong with modernizing and improving technology," says John Collard, a turnaround management consultant and chairman of Strategic Management Partners Inc. in Annapolis, Md.
Investing in technology was a key ingredient in Mike Cote's turnaround of Look's Canning Co. in Whiting, which he purchased in 2003. The Down East canning company, founded in 1917, produced clam chowder and other canned seafood products under the Bar Harbor and Atlantic labels. Now known as Look's Gourmet Food, Cote took the company, which still cooked clam chowder in 60-gallon vats and relied on people to carry around four-gallon, stainless steel pails of the chowder between production stations, and invested roughly $500,000 in venture capital funding to modernize the plant. The new automated canning equipment has increased output from 10 cans a minute to 60 cans a minute.
But while the company was "extremely archaic," Cote says, that was one of the "charms and allures of the brand." Cote, a former Pepperidge Farm and Odwalla executive, knew that no matter how old-school the plant was, the Bar Harbor brand name and the small-batch production process was priceless. So, when Cote installed a conveyor belt and automated canning equipment in his processing plant, he made sure that chowder was produced in 60-gallon batches like it had been for decades. While on paper it may be more efficient to produce the chowder in larger batches, Cote saw the value of small-batch production in the specialty food market he was trying to tap.
Cote has turned Look's Gourmet Foods into a niche specialty food producer that ships its Bar Harbor and Atlantic brand products all over the country. The business has grown five-fold in the four years since he purchased it — growth that this year landed the company on Inc. magazine's list of the 5,000 fastest growing U.S. private companies.
That ability to see past a shabby exterior and glimpse a business' underlying value is requisite for people looking to acquire an out-of-date business, says Vlachos, who brokered the sale of Look's Canning Co. to Cote in 2003.
Sweat equity
Drapeau's and Look's Gourmet are extreme examples of businesses in need of a modern overhaul, but even businesses that are relatively up-to-date are fair game for a new owner who sees areas where modernization could pay dividends. That's exactly what Jeff Johnson figured when, in mid-November, he acquired The Paint Pot, a paint store in Portland.
The previous owners hadn't neglected the business, Johnson says, but he believed the store's "old-style environment" could be updated. For example, while the previous owners had invested in a new cash register that tracked the store's inventory, Johnson says they were scratching the surface when it came to the useful data the system could provide — from daily sales reports to identifying what's selling and what's not. "They were using it to report," Johnson says. "You need to use a system like that to manage."
But, Johnson is asking himself how to take advantage of opportunities to modernize the business while maintaining and building on the strengths the existing business already has, such as its customer service. Will investing "six figures" in new paint-mixing technologies and a second location during the next year put customer service at risk? He doesn't think so, but admits that "it's a fine line you walk."
Along with an investment of capital to modernize a business through technology upgrades, a new owner also must invest a large amount of time and effort to turn a business around. In 2006, Andrew Broskie acquired New Dimension Homes, a Clinton-based builder of post-and-beam homes, and immediately set about giving it a "top-to-bottom and bottom-to-top redo," he says. That meant adding new technology and a wireless Internet network, and installing a new phone system.
But it also meant plenty of personal sacrifice: Broskie says he slept in the company's model home for four months and often fell asleep at the computer late at night. But it paid off. Broskie says sales at New Dimension Homes are up more than 100% this year, and that he expects them to more than double again next year. "And, the Lord willing, we'll just keep it up for three or four years," says Broskie.
Cote, after acquiring the languishing canning company, immediately started working seven days a week, 18 hours a day, he says. He could be talking to a potential client one minute, answering phones the next and working on the production floor filling tin cans with clam chowder after that. The benefit: He was able to identify what worked, what didn't, what vestiges of the old company should stay, which should be scrapped.
An initial evaluation of the company is necessary to make decisions on whether to scrap one aspect and invest in another, says Vlachos. One thing a new owner, who often takes on debt to acquire a business, must not do is stick with the status quo, Vlachos says. "If they run it the same way the last guy did, they will fail."
While Cote's 18-hour days have been scaled back to 14-hour days, he now spends most of his time on the marketing and sales side of the business, where his strengths lie. Last year, Cote spent 120 nights in hotels as he travelled on sales calls.
It takes a certain type of person to acquire an aging business and update it to 21st century standards, Vlachos says. "A Maine business owner is someone who's a sales pro, who's an HR leader, who's a marketing whiz, who knows how to clean the men's room and drive a truck if they have to — that's your typical Maine business owner," Vlachos says.
Broskie, who recently purchased a second outdated post-and-beam building business in Rockport, puts it another way: What's necessary is "the confidence to do what you know has to be done, whatever that is," he says. "If you have a good vision of what [the company] should look like and the skills to get it there, I think it's worth the effort."
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