Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
When the state Legislature passed a law requiring employers to provide paid leave and safe time for employees, Justin Bieganek started hearing differing details from friends, colleagues and peers.
Jen Guarino says she felt uneasy two years ago when her business partner, Chuck Bidwell, added about $1.2 million in debt to J.W. Hulme Co. in St. Paul. Bidwell wanted to expand the luggage manufacturer and retailer quickly. “We took the fast track to growth. We were growing 40 percent a year,” Guarino says.
When their bank in 2008 refused to make its annual short-term loan to fund their catalog printing, the company sank into trouble. Now Guarino and Bidwell are working a 90-day recapitalization plan, buoyed by offers of help after a detailed account of their travails appeared in The Wall Street Journal in early 2009. Guarino says she’s determined to save the made-in-America brand.
“It’s oddly comforting that we’re not the only ones in this situation. Since the article ran in The Wall Street Journal we got a huge sales jump for us. One category of calls is investors. We’re talking with five investors; the danger is you can get a lot of bottom feeders.
The other piece is strategic partnerships, not necessarily equity partners, but people who would work with us to increase revenue or cut costs. We’ve had to really listen to everybody, but also sift through everything to make sure we don’t give the whole company away.
The partnerships that we like the most are strategic partnerships. One is involved with direct-to-consumer sales. In 2002 when we bought the company we were 80 percent wholesale. Now we’re 80 percent consumer. We’re unusual in that we’re a manufacturer and a retailer. Our customers tell us what they want.
Our most successful line right now is American Heritage. It absolutely was consumer-inspired. We guarantee our bags for life. People say, ‘it’s just getting good,’ when they send us these completely worn out bags to repair. We went to a tanner, and we bring in a leather unfinished. Then we buff it so it looks like I’ve been carrying it a long time. It’s our most expensive, and it’s our most successful line. We launched it a year and a half ago.
So that direct-to-consumer relationship is important. So is made in the U.S.A., quality, and evergreen fashion, they are the three things we stick by.
The second potential partner is an Internet company. They would come in and grow the direct-to-consumer business through the Internet.
The third is someone who’s a retailer. Our time frame is short. Our recapitalization, there’s a part that we’re responsible for. First, we have people who are lenders; we’re converting them to equity holders. Second, we’re selling assets to pay back our SBA loans.
We’re looking at taking a million dollars of debt out of our balance sheet. That’s the bullet we have to bite. Then 60 to 90 days from today we’ll be in a new agreement, so the banks see that we’re part of a recapitalizaiton.
We were very frank with our banks. They knew what our situation was in October, November. We then went back to say, what we need most is time.
We have two banks, a lead bank and then the SBA bank. We havecollateralized personal assets, real estate, cars. We have to show thatpiece, that those assets are actively on the market.
Withour lead bank, we’ve brought in an adjunct CFO that was recommended byone of our banks. He’s in charge of reporting to the banks, to sayhere’s our timeline. Whether we can make it happen or not, we don’tknow, but it shows we don’t have our head in the sand.
When you’re in survival mode, shame has to go out the window. I calledWomenVenture, the St. Paul resource group, about the state of thebusiness. The Wall Street Journal called them looking for a company tocover. We decided, it’s just time to tell the whole story. For me itwas incredibly motivating.
You feel shame, especially if your career has always been aboutsuccess. People saw it, the article. I wanted to say, well I WASsuccessful. You put this all out there and hope. God, I hope it helps.The reporter spent three months here. We invested a lot of time in therelationship, so we had to put our trust in her. Then it ran, onJanuary 9, and the phones went wild.
Everybody that e-mailed and called us, none of it was evil. Today I gotan $1,800 order from one of our best customers. He said, ‘I really wantyou guys to make it.’ So many people wanted to help. We got tons ofadvice. The biggest piece was the made in the U.S.A. thing. They don’twant to lose that.
It builds character. I’ve always thought of myself as a strong, smartwoman, and I’m really finding out how strong or weak I am.
The way I’ve always done business is to be candid. I had to callvendors. They just want to hear from you. They might not be happy thatyou’re writing them a check for $50 a week, but they’re OK. Likeanything in life you cannot put your ego or your shame in front of yourrelationships.
Many have been so helpful. We have 28 employees in the high season, thelow season 8. From August to December we do 50 percent of our business.
It boils down to two different approaches to growing a business, mybusiness partner’s and mine. He was always successful in highlyleveraging and converting. About two years ago when we took a big step,we added $800,000 of debt with an SBA loan. Also we had brought in$400,000 of sub debt. I was uncomfortable, but I wasn’t working herefull-time. He’s got 20 plus years experience on me. In retrospect, Ishould have gotten educated and not deferred.
What I didn’t do was really make it a priority to look beneath thenumbers. I can’t say I blame it on Chuck. We took the fast track togrowth. We were growing 40 percent a year, spending money on newproduct, new customers, and re-engineering.
It was always our plan, with 10,000 customers and 250 products, thecompany would cash-flow itself. Last year was the year to hit thatnumber. We hit that number. The problem was, each year we got ashort-term note to cover the catalog printing. This year, 2008, theysaid no. It was the perfect storm.
So in June we said, we’re going to have to raise some equity. I said,if we default on the SBA loan, we’re going to lose these assets anyway.We had to let go of some things. Everybody wants us to survive andespecially now more than ever.
It demands patience, creativity, openness. Not that the bank won’t saywe’re tired of you, but for sure that will happen if we don’t do thesethings.
No. 1 is honest communication with your business relationships, yourpartner. It’s so easy to think someone is going to get mad. Have thosetough discussions.
No. 2, you have more at your disposal than you think. You have cashwithin your walls. Negotiate with your vendors-that’s cash. Don’t fallin love with your inventory. For example, we never discount, but thatdoesn’t mean we can’t discontinue products. I looked at every SKU, in’07 and ’08, and the combined sales for each. I had to look at what’sreally performing for us. We’re in the process of discontinuing 25 to30 products, that’s 10 percent, which for a small company is scary.
No. 3, absolutely celebrate your customers and let them know it. So wesent our customers a $100 gift certificate at the beginning of theyear. We lowered our minimum for custom orders.
To summarize, the SBA loan, we’re selling assets to pay that $800,000loan. Friends and family who invested money, made loans to the company,almost $500,000 total from 11 people, we’re converting them toshareholders. If you take those two pieces, it’s $1.2 million and thebanks really like that.
Also, we’ve worked on shortening our run. We’ve been looking to buyequipment. Now we’re down to runs of 10, when it used to be 50. So wecan do 6 to 7 production runs a year instead of one, and hold on toexpensive inventory for a shorter time.
I have a BFA, I was a fashion illustrator. I was illustrating for ahandbag designer. I was vice president for the SAK in San Francisco,overseeing the product development team and product management.
Then I was in media for five years, at the Southwest Journal and theDowntown Journal, in Minneapolis. It’s been fun to bring those alltogether for my company. It is so wonderful to produce it right here. Idon’t care what anyone says, the quality suffers if you go overseas. Sodoes the customer service. Philosophically, we really believe that.
That made in the U.S.A. piece at first we thought it was part of thebrand, but now the marketplace is looking for it. We have the guaranteefor life, loyalty and word of mouth. Rather than paying $50,000 for aVogue ad, that pays for a lot of repairs.
I’ve been here full-time for over a year. I used to do productdevelopment and design. Now I’m way more active. It’s kind of likevoting; if I don’t vote I don’t have a right to bitch. Also, I’m 47 andI like my work to be something I’m building.
I think we will be here, that’s my prediction, but a lot of pieces haveto work. I probably wouldn’t say that if we didn’t have five activepartners. We’re not looking for $5 million; we’re looking for $500,000.
If this works, I’m going to feel like I’m going to get back to running the business. I’ve spent the last year bootstrapping, finding financing. I look so forward to that day because that’s what I do best.”
– As told to Beth Ewen
[contact]
Jen Guarino,
J.W. Hulme Co.:
651.222.7359
jg******@*******co.com
www.jwhulmeco.com
The use of fractional executives — those hired by companies on contract to work a fraction of the hours at less cost than full-time hires — has been on the rise for years. That accelerated during the COVID-19 pandemic. John Arms, co-founder of Voyageur U, helped establish the organization to help educate free agents on what it takes to make it as a fractional executive. He’s now put that knowledge into print, recently releasing the book “Consult Your Way to a Full-Time Job.” Arms joined Upsize Minnesota Editor Andrew Tellijohn to talk about how the book can help potential fractional executives carve their new paths.
Branding expert Kate DiLeo wrote a book about how branding agencies need to do less storytelling and more listening to better meet their clients’ needs.
