Bottom line

Bottom line

Gartner Studios posts big sales numbers, but its CEO likes profits more

by Neil Orman   Greg Gartner knows his weaknesses.

His gifts for developing and selling innovative new products helped win his Stillwater firm, Gartner Studios, a place as No. 192 on the Inc. 500 list of fastest-growing private companies in 2004. The seven-year-old company makes specialty paper products for computer printers sold through mega-retailers such as Target and Office Depot.

Although the firm’s history has been one of unabated growth, its founder was self-aware enough to hire a president this year to help him make up for his biggest weakness: operations. The process of going from raw materials to finished products has never been his favorite thing.

“I understand it but it’s just something I get bored with,” says the 39-year-old entrepreneur.

His firm’s biggest operational challenges began in 2001 when it started outsourcing most of its manufacturing to China and Taiwan. Off-shoring presented major logistical challenges, which eroded the cost advantages involved and diverted Gartner’s attention.

Carl Monty, the firm’s vice president of sales, says Gartner couldn’t focus on his strengths: product development, sales and strategic planning. “The things we have more difficulty with are on the production side, the manufacturing side and the inventory side,” Monty says.

Still, Gartner Studios rode an enviable sales curve. It makes specialty paper on which customers print their own stationery and invitations. The firm started making do-it-yourself Christmas cards in 1998. Today it has dozens of different product lines for virtually every occasion, encompassing printable and traditional stationery, note cards, sticky notes, gift tags and more.

Sales were $26.5 million in 2003 and $40.5 million in 2004, and Gartner expects to generate $55 million this year. The firm began sustained profitability in 2002 and he says it will make its first seven-figure profit this year. All that with Gartner financing the company almost entirely himself and through cash flow, save a few early loans from friends and an inventory loan from a Stillwater bank. It employs 75.

The firm’s innovation — do-it-yourself stationery and invitations that customers could print themselves with their own PCs and printers — was the right idea at the right time. Garter Studios was launched in May 1998, when PCs and printers were emerging as commonplace in people’s homes as TVs.

The “gotcha moment” came when the firm’s high-energy founder was working as a partner in Extreme Marketing, a Minneapolis firm specializing in interactive marketing.

One of Gartner’s Extreme duties was managing “NBA Jam Session” events around the country. At a local event, he chatted with an art director who talked excitedly about advances in desktop publishing. Gartner wracked his brain and came up with the idea of printable cards and stationery.

The moment of inspiration was fortuitous, but there was nothing lucky about Gartner’s long preparation for entrepreneurship, which began at the age of 18.

Gartner grew up in a strict, working-class St. Paul home. Throughout his childhood, he heard his parents, Al and Pat, put off their own entrepreneurial dreams due to the concerns of raising five children.

Al Gartner was a plant engineer at Maplewood-based 3M Co., where he took care of the maintenance challenges of the company’s main building. At one point, Pat ran a flower shop out of the house with her husband’s help.

“That was as entrepreneurial as they got,” Gartner says. “They came very close several times to signing a lease and having a real flower shop. But they could never do it.”

Gartner, the second-youngest child, was deeply influenced by his parents’ wistful attitude toward entrepreneurship. As a high school senior, he determined to realize his own business dreams. He didn’t know what his company would be, but set out to take only jobs that would prepare him to run a company.

“That’s why I left a place after a year or two, because I knew I shouldn’t stay if it wasn’t giving me the background I needed,” he says.

His natural salesmanship ability gave him a head-start. Gartner practiced that skill early in life. “I was a little deviant when I was younger,” he said. “I had to work my way out of issues with my parents.”

His entrepreneurial education began while Gartner studied business administration at the University of Wisconsin at River Falls. He paid his way through as a lab technician at 3M, where he says he learned teamwork and the “genesis of how products start.” Upon graduation, he spent six months at IDS Financial Services. The Minneapolis company provided extensive sales training that honed his natural skills.

He next worked for three years as a salesman at Preston Marketing of Minneapolis, which sold Christmas decorations that cling to windows.

Gartner then used his Preston experience to start a firm called Color Clings on behalf of local entrepreneur Andy Ogren. The startup also made window-cling color decorations, and the youth led the firm to $3 million in sales its first year. (One of his regrets is he didn’t own a piece of that business.) At the end of that year, Ogren decided to sell his other companies and run Color Clings.

Gartner left that job with entrepreneurial experience and a proven gift for developing and selling products. He next worked for five years at Mello-Smello of New Hope, a division of The Miner Group International that sold scratch-and-sniff stickers. In his first three weeks, Gartner showed his growing abilities by repairing an eight-year-old breach the firm had suffered with Wal-Mart and selling it two Easter-related products.

By 1996, Gartner was eager to start a company of his own. He left a $250,000 salary at Mello-Smello behind to start a business. Unfortunately, he had a two-year non-compete that kept him from immediately starting a related company. So he launched Extreme and spent that time brainstorming startup ideas.

Once the idea for Gartner Studios was hatched, he thought about events for which customers might use self-printed cards and notes. “I was thinking high-output events, like weddings,” he says.

In February of 1998, he left Extreme to gear up for the launch of his company. He operated out of a spare bedroom in his house. His wife, Suzanne, worked at Andersen Consulting at the time, and they lived off her $75,000 salary.

“It was tight,” he says. “We had to watch how many Ziploc bags were used, how many paper towels, every expense we had.”

It was Gartner and two employees developing the firm’s first line of products, print-your-own Christmas cards, which they started selling that August. He worked his Rolodex hard.

“I called all my old friends, and said, ‘Hey, I have a new line of Christmas cards. Would you be interested in repping me?’ ” Gartner says. “I don’t think any of them turned me down.”

He spent a lot of time shopping for bank loans, and met with unanimous rejection for the firm’s first year and a half. “I still have a stack of cards in my desk from banks that turned me down,” Gartner says.

The initial orders were in the range of $1,000 to $5,000, and it was very touch-and-go the first year or so. “It wasn’t month to month, it was day to day,” Gartner says.

The biggest order of 1998 was for $50,000 and it came from Party Concepts, a chain of party supply stores based in Appleton, Wisconsin.

Gartner’s close relationships with vendors paid off, as they extended him long credit terms that helped carry the company. One of his tips for emerging entrepreneurs is be honest with vendors.  “Because at a certain point, they’re going to have some skin in the game,” he says. “And if they are, you have to let them know what they’re getting into.”

Friends and associates say Gartner’s sense of loyalty has been key. “I had faith that if this venture turned into something, he was the type of person to make sure we were paid well from start to finish,” says Tom Rawe about Gartner. He’s a Dallas-based manufacturer’s rep who has known Gartner since his days at Color Clings. “He’s very trustworthy and returns loyalty to people.”

That first year, sales were $400,000 on a loss of $50,000, with solely Christmas products. Gartner determined the firm needed to smooth its overly seasonal revenue stream with more everyday products. “We didn’t want such peaks and valleys on our income statement through the year,” he says. “That way we could cash flow the business.” Today, the firm has cards and notes for virtually every holiday or event.

Monty, whom Gartner knew from the Miner Group, joined as VP of marketing in January 1999. Monty says he appreciated Gartner’s “black-and-white directness.” “Living up to his word is a big thing with him,” he says. Monty is the firm’s only other equity holder, with a 10 percent stake in the company.

The event that both Gartner and Monty call the firm’s “defining moment” came in 1999. After months of sending product samples to Michael’s, the arts and crafts company finally responded with a phone call that August.

The Irving, Texas-based company was interested in the firm’s second major product line, wedding invitations. Michael’s invited them down for a September meeting, and an elated Gartner and Monty took the cheapest flight available. The ensuing sales meeting has become Gartner Studios’ lore.

“We were in there for two hours, and they put us through the wringer,” Gartner said. If they said yes, it was a $1.2-million order. Finally they said, ‘If you guys were to get this, can you ship in January?’ We didn’t hesitate.” Without that order, Gartner says the firm would have run out of money.

“We didn’t walk out of that office. We floated out,” Gartner says. “But we have a motto: ‘No high-fives. No eye contact. No smiles.’ Until we’re a mile from the building.”

They floated to a nearby bar for a celebratory libation, and Monty excitedly scribbled on a cocktail napkin (now framed in his office) how many pieces the order would require.

“All it takes is that one spark, and you can go share that story with other retailers,” Monty says. The Michael’s business helped Gartner grow from $850,000 in sales on a loss of $100,000 in 1999 to $3.2 million on a profit of $100,000 in 2000.

Gartner Studios was the first firm to introduce printable stationery (to Gartner’s knowledge), but competition was not long in coming. Today the largest competitors include Masterpiece Studios, the printable stationery division of North Mankato-based Taylor Corp.; Geographics LLC of Waukesha, Wisconsin; and Cleveland-based American Greeting.

Facing such big guns, Gartner says his main strategy has been “to have the best printable products on the market,” and to “know more about customers than they do.” His research includes sending a couple of employees to Europe each year to check out consumer trends. Also, the firm moves quickly, according to its manufacturer’s rep Rawe.

Rawe recalls when Michael’s had an immediate need for a special type of to-from card. He called Gartner and the firm had the card ready in a day. “Most firms would take six months.”

After landing Michael’s, the firm’s sales climb continued with more wins at major retailers. Next were the office superstores, Office Depot and Staples, in 2001. With a gleeful expression, Gartner recalls his manufacturer’s rep was angry at him for his determination to pitch wedding invitations, of all things, to Office Depot.

“He said, ‘You’re going to lead off with wedding invitations to Office Depot?’ Gartner recalls. “I said, ‘Yeah, we are.’ He said, ‘You guys are crazy.’ ”

Yet Gartner and Monty’s wedding strategy was vindicated, with one tweak. “The buyer says, ‘I like this. There’s no way I could sell it to management, but I like it,’ ” Gartner says. “So we said, ‘What if we took the word ‘wedding invitations’ off and just made them formal invitations?’ He said, ‘I could sell that.’ ”

It was typical of the sales instincts Gartner and Monty have shown in catching the big fish of the retail world. Sales jumped from $3.2 million in 2000 to $8.5 million in 2001, on a loss of $200,000 — the last red ink the company has seen.

Finally, another huge coup for Gartner Studios came on June 7, 2002, which might be the firm’s second “defining moment.” Target was auctioning off four feet of space for a combination of traditional and printable stationery, in what amounted to $8 million worth of business over two years. Six retailers were invited to the day-long auction, including American Greeting and Masterpiece Studios.

Gartner Studios sold little traditional stationery at the time, but scrambled in the three weeks before the auction to broaden its products. The Darwinian event involved representatives for six retailers sitting at a large table. The exercise, which has the melodramatic air of a reality show, is a regular Target tool to get the best deal from suppliers. One by one, Target summons the bidders to a small room for “challenges” while their rivals wait.

“If you couldn’t meet the challenges, you had to pack up your samples and take what was called the walk of shame,” Gartner says. That meant exiting the conference room while rivals watch.

Gartner Studios was distinguished by the fact that while its rivals each had only a few executives there, it had 14. The final two participants were Gartner Studios and American Greeting. They sat in silence waiting for Target to make a move. During this pause, an American Greeting executive asked, “What are you people all doing here?”

A smiling Gartner took her question seriously, proudly explaining the role played by each of his employees present. Her biting reply: “We have thousands of employees. We just didn’t bring them all today.”

After what seemed like an eternity, Target called American Greeting in to the “challenge” room.

The rival’s insult made what happened next all the sweeter. American Greeting’s executives walked out of the challenge room with their product samples and exited the room, without even looking at Gartner’s team.

“And we’re all thinking, ‘Is this the walk of shame?’ ” Gartner said. “Or are they just, ‘It’s time to go.’ ”

Five minutes later, Gartner was summoned. “There are six Target people sitting at the table, straight-faced,” Gartner says. “They said, ‘We just want to let you guys know, you got the program.’ I almost cried.”

Jan Dornseif, vice president of marketing, was one of the 14 employees there. She says Gartner’s employees back in Stillwater were kept in constant touch by cell phone.

“We’d call every time somebody dropped out,” Dornseif says. “The whole office would erupt.” Dornseif says that was very indicative of the firm’s “close knit” culture. “Everyone was still there at 6:30 or so when we got the business, and they were all cheering.”

The Target deal helped drive sales from $8.5 million in 2001 to $16 million in 2002, on a profit in the six figures.

Despite all this sales growth, managing operations has been a challenge. His banker, Paul Jennings, recalls a conversation he had with Gartner and his chief financial officer in mid-2002.

“He was trying to increase earnings entirely through increasing sales,” says Jennings, the CEO of Jennings State Bank in Stillwater. “And the rate of sales growth was outstripping his capital. I got him to see that if he became more efficient, he could greatly increase his profitability without having to increase sales so fast.”

Among the changes Jennings suggested was getting rid of some of the smaller-run-type products, which Gartner did.

That was a turning point for the company’s profitability. Another operational improvement came in 2003, when the company opened a 70,000-square-foot distribution center 15 miles away in Hudson, Wisconsin. In 2004, the firm shifted some overseas manufacturing back to the U.S., which ended up saving money and simplifying operations.

Monty recalls the firm would get into emergencies where it had to get things expedited or air-freighted, expenses that nullified any cost advantages from manufacturing overseas.

Reflecting his profit-centered mindset, Gartner says he wants to keep the firm private and has no specific size-goal for the company. “We have an open mind to become whatever size we’re going to become, as long as we can do it profitably,” he says.

With that same focus, Gartner hired Rick Gulbrand to become president. Gulbrand was president of Plymouth-based Scoville Press, one of Gartner’s vendors.

“What I admire about his decision is he knows what he does well, and what he doesn’t,” Gulbrand says. “I’ve started a couple of my own companies, and reached a point when I was doing things I didn’t do well.”

[contact] Jan Dornseif, Gartner Studios: 651.275.4605, jd*******@************os.com. Greg Gartner, Gartner Studios: 651.351.1177, gg******@************os.com; www.gartnerstudios.com. Rick Gulbrand, Gartner Studios: 651.275.4420, rg*******@************os.com. Paul Jennings, Jennings State Bank: 651.351.1000, pj*******@**********nk.com. Carl Monty, Gartner Studios: 651.275.4611; ce*****@************os.com. Tom Rawe, Rawe Mills & Associates: 214.698.1611, tr***@********ls.com