The Window of Opportunity

(Excerpted from an interview on WPI Venture Forum Radio with Jeffrey Ross, Managing Partner, RossFialkow Capital Partners)

There is an expression that says “timing is everything” and it certainly applies when it comes to evaluating and deciding on a course of action when dealing with a failing business.  Is the right move to dump it?  Should every effort be made to change direction and save it?  Or – should the business be looked at from a pure “opportunity” perspective?  Jeffrey Ross shares some highlights of his work with a company that was extremely close to closing the doors. 

Interviewer:  You’ve done some pretty interesting things with a pet store group, haven’t you?

Ross: Yes, about two years after I sold the drugstores (Thayer Pharmacies to CVS), my CFO went on to be CFO of a failing late-stage start-up in the pet supply superstore business.  When I came in 1993, they were within 90 days of going under.  They had a wonderful idea, and they expanded it to ten or eleven stores, but they didn’t have any management, they were disorganized, they didn’t have a good strong infrastructure, didn’t have a good identity. 

It was a real “window-of-opportunity” business and perfect for me.  So I went in there as president and CEO of the company in October 1993.  I bought 25% of the business, took the existing bank out, brought in my bank, which was State Street Bank, who helped finance the growth.  So we repositioned the company and built up the management team, infrastructure, financial and inventory controls, put in a mission statement so everybody knew what we wanted to do.  I didn’t view the company as a retail business.  What I viewed it as was a window-of-opportunity business.  Because I knew we weren’t into this for the long term.  I told the partners who started it when I went in; I said “this is a real window-of-opportunity business.  We’ll be out of here in 24-36 months.  Somebody will take us out.”

Interviewer: You said that when you came in, they were 90 days from closing the doors?

Ross: Yes, the bank told them they wanted me to take it out in 90 days or they were going to pull the plug.

Interviewer: So what was the key to turning this around?  You obviously kept it alive for a while so you could sell it to someone else.

Ross: Fundamentally, the business was there; it just had to be run properly.  We didn’t have anything that was reliable for the long term, for inventory control.  We got rid of our little distribution center, which was sucking up too much cash.  We didn’t have good information about what we had there.  We went to the wholesaler and negotiated new deals.   And we did what we did best, which was sell pet products to the public, but not be in the distribution business or the transportation business.

Interviewer:  So maybe we can extrapolate from there, what does it take, in general, to get a business ready to sell?  What do management teams have to work on to get ready to sell?

Ross: In this particular case, as I was saying, I looked at it as a real estate play, because I knew we were going to be taken out.  So we went out and found the best retail real estate locations in New England.  High visibility – “50 yard line” – locations on highways where you could see the signs, next to busy malls, very busy intersections, and so on.

So, when one of the big national chains came in, they had a choice.  They could either create their own locations and battle it out with us, which would be very expensive, or they could say, “Hey, this is a nice looking chain, stores are the right size, they know what they’re doing, let’s take ‘em out.”  And that’s what they did.  Twenty-five months after I came in, we were out.  Got ten times return on my money, and everybody was happy.

One should always be able to define the business as to what it really is.  For instance selling cosmetics/make-up/fragrances is really selling dreams; dreams of being beautiful, attractive, etc.  With this type of definition, the CEO and management can develop a successful strategy. In my particular case, I got involved in an industry that was flying high with excitement.  Pet owners could take their pets into big beautiful stores and show them off by taking them around in shopping carts. It was a novel concept.  Knowing that this would not last forever, as well as realizing that there were two big publicly traded companies focusing on a huge industry consolidation, I looked at this as a "window of opportunity" business.  So we decided to grow the business quickly and open stores in attractive locations.  We built it knowing what the competitors would like, and we waited until they came.  Two years later, we sold out to Petco!

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