COMPANIES

by Alyssa A. Lappen
Forbes | Feb. 24, 1986

Vol. 137., No. 4, pp. 64-65
919 words

If the best lessons are the most expensive ones, Donald Gustafson has bought himself a fine education. Six years ago Gustafson’s stake in the little office equipment company he started, Kroy Inc., was worth $40 million. Today it is worth $11 million.

“I have learned a marketing lesson, and I hope it’s one of the last we ever learn,” Gustafson, 67, grimaces. Asked to articulate the $29 million lesson, he replies: “That [by pushing] sales growth at the expense of profits, you’ll self-destruct.”

Let’s back up. Gustafson, formerly a vice president at a Minneapolis bank, bought control of Kroy, then a thermoplastics company, in the 1960s. Kroy developed a nifty lettering machine, which resembles the Dymo labeling gun, except that Kroy’s rotating-disk fonts type black letters onto clear tape. Press the tape onto a paper master, make a copy and presto! all you see is a typeset headline. The machines became a success with engineers and architects, but now anyone with reports and memos to jazz up can use them. The cheapest ones sell for $295; for $2,495 you can get a fancy electronic keyboard that lets you type over errors.

Gustafson sold the machines through a network of 1,000 independent office supply dealers around the country–“peddlers,” Gustafson condescendingly called his dealers. But the peddlers knew their territories and helped keep Kroy’s overhead down. By 1982, when FORBES wrote glowingly of the company, Kroy’s sales had reached $44 million, profits $6.1 million (FORBES, Dec. 20, 1982).

Now comes Gustafson’s expensive education. Kroy’s 36% return on equity, Gustafson reasonably figured, was bound to attract competition, maybe from such office products giants as IBM, Wang, Sperry or Exxon. To get the jump on the giants, Gustafson decided to expand his product line to include high-priced computerized headline writers with electronic keyboards and cassette memory banks. Price, when the product finally arrived: $4,995. To move these upmarket machines, Gustafson decided to dump his 1,000 “peddlers,” on the grounds that independents would not be up to the task of selling against the button-down boys from IBM.

No matter that the idependents knew their markets and their accounts, many of them small local businesses. No matter that Gustafson had to start his new marketing force from scratch. In place of the independents, Gustafson hired a direct sales staff of 140 to workout of 23 branch sales offices and put them in competition against Kroy’s old “peddlers.” The predictable results were (1) some very hard feelings and (2) internal chaos. In the midst of all this, Gustafson moved Kroy’s headquarters to Scottsdale, Ariz., where he planned soon to retire.

By fiscal 1983 (ended March 1983) Kroy’s sales had climed to $47 million. Profits, however, fell nearly a third, to $4.5 million. The new generation of letterers was delayed, forcing Gustafson’s expensive new salesmen to move the older, cheaper models. Rather than throttle back on his new marketing strategy, Gustafson hired 110 more salesmen. By fiscal 1985 sales had reached $66 million. But operating earnings had all but evaporated.

Gustafson had also erred in 1981, when he asked Scott drill to take over Kroy’s Far East sales. Drill, who had been Kroy’s international sals manager, took the offer as an insult. In February 1983, as Gustafson fretfully scanned the horizon for competition that failed to appear, Drill started Varitronic Systems and eventually took 14 other frustrated Kroy managers out the back door. Varitronic quickly came out with a couple of Japanese-made lettering machines. Dubbed “Merlin,” Varitronic’s machines are similar in principle to Kroy’s but are smaller, twice as fast and cheaper.
Drill already had a willing sales force: the independents over whom Gustafson had run roughshod. Just 14 months in business, Varitronic has already sold $20 million worth of Merlins and now wants a piece of Kroy’s tape and carbon supply business as well. “If you are writing about Kroy,” a jubilant Drill tells FORBES, “you are writing about the wrong company.”

Couldn’t Gustafson have soothed Drill and the other defectors? Possibly. But he had already repaired to Scottsdale to play golf and oversee the corporate move.

Sublesson here: If you push people around, don’t be surprised when they shove back.

Finally, in February of last year, Gustafson brought in Errol Bartine to clean up the mess. Bartine, 54, a former planning director and corporate vice president at Sperry and AM International, immediately began closing Kroy’s new sales offices. On average, each of Kroy’s salesmen was producing less than $200,000 annually in sales. “If you can’t get $400,000 to $500,000 [in sales] per salesperson per year, you have no business trying to maintain a direct operation,” says Bartine, who has already shuttered 11 branches and laid off a third of the company’s work force, which now numbers about 700.

Now Bartine is sorting through the ranks of his remaining 400 “peddlers,” begging the good ones to forgive and forget. He now has 80 high-volume dealers and hopes to build that to at least 225. On a less positive note, Bartine is suing Varitronic for patent infringement.

Bartine’s most recent report card is impressive. Kroy’s operating expenses were down 25% in the first nine months of fiscal 1986 (ending Mar. 31). Earnings were back up to $4.8 million on sales of $45 million, compared with less than $1 million on sales of $49 million in the same period last year. If bartime can maintain this pace, the $29 million hit to Gustafson’s net worth will have been tuition well spent.

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How to prevent back injuries

by Alyssa A. Lappen
Forbes | Feb. 24, 1986

Vol. 137, No. 4, pp. 102-103
718 words

In 1981 Roger Daneault, a 32-year-old Mississippi electrician, bent over to pick up a 50-pound motor on an offshore drilling rig. His life has not been the same since.
Four years and at least $90,000 later, Daneault it still paying the price of backache caused by improper lifting–in his case, a ruptured spinal disk that eventually required corrective surgery and months of therapy before he was able to return to work.

Backache, one of the least understood of physical afflictions, is business’ silent crippler, costing an estimated $56 billion annually in insurance, treatment, lost production and employee retraining. Until now, nostrums have included everything from pain pills, bed rest and surgery to chiropractic spinal adjustment, acupuncture and even psychotherapy. Yet a growing number of physical therapists nationwide are at last beginning to attack the problem from the prevention angle, beforehand, with the so-called extension technique.

Says David Apts, who cofounded the American Back School in Ashland, Ky. in 1981 and is a proselytizer of extension techniques: “The feeling in the medical community is that you can only treat backs when you have someone in acute pain. But I got sick of seeing all these people maimed with back pain. Why couldn’t we take an industry with serious back problems and prevent them?”

The approach is catching on. Safety directors at a lengthy list of companies, including IBM, Owens-Corning, Westmoreland Coal, CSX, Dow Chemical, Schlumberger, United Parcel Service, Data General, Lockheed and Coors, are now providing extension-technique training to employees to prevent backache.

What is extension technique? In contrast to conventional treatments such as “flexion” exercises, which emphasize a combination of pelvic tilts and knee-to-chest routines to flatten and strengthen the back, extension technique involves a method of sitting, standing and lifting that capitalizes on the spine’s three natural curves. This lets the back extension muscles, in concert with the backbone, bear the stress of weight loads, which can exceed 1,000 pounds per square inch of disk when a person lifts even 70 pounds.

Known also as the McKenzie technique, for Robin McKenzie, the New Zealander who introduced it to the U.S. in the mid-1970s, extension technique is designed to preserve normal lordosis, and inward curve in the low back. “Most people have lost the curve through faulty sitting, watching TV five hours at a stretch, and driving,” says therapist Peter Mayock, who instructs workers on the technique at Anheuser-Busch’s brewery in Merrimack, N.H.

One useful technique recommended by Mayock: When sitting, place a rolled towel behind you to support the natural curve at the base of the spine. To stretch the abdominal muscles and the spine’s long front ligament, necessary for normal lordosis, Mayock also recommends a kind of semi-push-up that bows the low back in. For lifting, Mayock prefers the style that lets an Olympic weight lifter heave 300 pounds and lift it over the head by, in essense, locking the back into its naturally curved position instead of squat-lifting with a flat back and the legs bearing the load.

Extension technique is already showing real success in reducing injury on the job. After 350 “high-risk” workers at Public Service of New Hampshire completed Mayock’s two-hour course in late 1983, the number of back injuries dropped 60%.

Texas Instruments’ data systems group in Austin cut the number of back injuries there by 60% after 2,000 employees took Gilbert Gimbel’s Las Cruces, N.M.-based Save-A-Back extension back care course. After 183 workers at Austin Power & Light took Gimbel’s class, the number of lost-time back injuries fell by two-thirds. Inco’s Huntington Alloys in Huntington, W.Va. cut compensation costs 21% after Apts trained nearly 1,600 of its workers.

Treating backache is, of course, complex, and extension technique, although used for treatment, is by itself hardly a cure-all once a person does damage to his spine. But as a way to prevent damage from occurring in the first place, the technique has much to commend it. Compared with the cost of injuries, the $10 to $30 per head that therapist-instructors charge for prevention is small. Mississippi Power safety director Mikel Gusa says back injuries fell from 12 a year to zero after 1,200 employees took a back class there.

[WARNING: Do NOT cross-post this article; it is for PERSONAL USE only.]

All Articles, Poems & Commentaries Copyright © 1971-2021 Alyssa A. Lappen
All Rights Reserved.
Printing is allowed for personal use only | Commercial usage (For Profit) is a copyright violation and written permission must be granted first.