By Cheryl Hall
Business Section, Page 1H
The Dallas Morning News
In a dot.com world gone haywire, reality-based entrepreneurs hope to lure investors back to their business fundamentals. But they're also reminding themselves not to cast caution to the wind.
Mark Cuban helped usher in the year 2000 as the poster boy for the new millennium. Investors dumped money into the vaguest virtual ideas, hoping to latch on to the next multibillion-dollar e-baby.
And reality-grounded entrepreneurs found themselves on the outside looking in when it came to raising cash.
But as the year is less-than-graciously ushered out, investors seem to be making their way back to Business Basics 101.
"The lottery-ticket investment cycle is over," proclaims Dallas' king of vacuum cleaners, Joe Urso, owner and chairman of Electrolux. "The dot.com craze may be the only period in history when people were able to raise money on the premise that they were going to buy market share with a permanently unprofitable business model.
"The whole game was to get out before the next guy figured it out," he adds. "The query could be raised as to whether the investment banking community might ultimately be viewed as having perpetuated a legalized Ponzi scheme."
Many executives of for-real companies with for-real capital needs who were previously featured in this column used creativity to fund growth last year.
Given the uncertain economic climate and recent stock market upheaval, challenging times still lie ahead for Ideas at Work alumni who hope to make 2001 their growth odyssey.
But by using their mental juices and staying the trusted course, they intend to exploit the year ahead with gusto. They also remind themselves that as the economy shifts into lower gear, this is not the time to overextend.
Addicted to growth
No one knows that lesson better than Don Mechanic.
Sitting in his wholesale showroom, surrounded in a wonderland of Santas, snowmen, novelty lamps and nautical knickknacks, the 51-year- old entrepreneur is the picture of success.
Several key arts-and-crafts retailers have just been in, trying to get a jump on what Mr. Mechanic thinks will be hot for Christmas 2001
Don Mechanic Enterprises Inc. sold $15 million in novelty items this year. Not bad for a business born from the ashes of his Zaks craft-store chain, which was thrown into bankruptcy by creditors nine years ago.
"This was supposed to be a temporary thing to pay the mortgage while I figured out how to get back into retailing," he says, motioning to his 3,000-square-foot wholesale warehouse in the International Floral Design Center. "My only business plan was survival."
He scored big in 1997 when he updated an ancient Chinese concept of a lampshade that spins around as heat rises from a candle. His version has Volkswagens, peace symbols and other lampshade designs that go into motion as heat rises from a lightbulb.
Most fads last less than a year. Mr. Mechanic got three years out of his Magic Spinning Lamp, and in the meantime, he found other specialty lamps to pick up where it left off.
"If you expand your business on a trend, you're screwed," he says. "I was careful to couch our tremendous spike in sales with a reality check that this was an item that we hope will last forever, but we'll be surprised if it does.
"Do we have a good business? Yes. Can we keep our arms around finding the right items and finding new customers? I believe so,'" he asks then answers. "Can we handle all the other parts of the execution of that success? That's the scary part.
"I wish I could relax with the success that I have," he says, noting that several competitors went bust this year. "That helped grow our business, but it makes me even more cautious. No empire lasts forever."
The French connection
John Corcoran, CEO of La Madeleine French Bakery & Caf, has put the Dallas-based company up for sale - not out of desperation, but because things are going so much better.
For nearly three years, Mr. Corcoran and his new management team waged a quiet internal battle to save the financially ailing chain of 62 French bistros after unhealthy expansion and loose corporate controls took their toll.
The 44-year-old chief executive enters 2001 a decidedly happier man.
The privately held restaurant chain has turned the corner in just about every respect, he says. Sales and operating earnings are up significantly while costs and employee turnover are down dramatically.
"We're absolutely rockin' and rollin'," says an elated Mr. Corcoran in the 6060 North Central Expressway headquarters, a stone's throw from the 17-year-old original bakery on Mockingbird.
Bank of America is so pleased with the results that it recently extended La Madeleine's hefty $33 million in loans.
Now Mr. Corcoran wants a permanent solution to the debt-laden balance sheet. He announced last week that he's hired Dain Rauscher Wessels to find a buyer or new investors. The much-needed money could come from an outright sale, a joint venture agreement or a private placement.
La Madeleine is currently owned by two U.S. investment funds and a French consortium that want to reduce their holdings.
Mr. Corcoran hopes the turnaround pulled off by his management team will attract a partner that wants to jump-start the popular concept.
"We feel we can double the size of our existing markets, which is critical," he says. "There are no learning curves with existing markets. It's just getting the moon, sun and stars aligned so you can exploit the markets."
Out of the box
In most respects, The Container Store is about as far from a dot.com company as you can get. But as it heads into 2001, it wants to become one.
Only it intends for containerstore.com to be among the new breed that makes money.
The Dallas-based purveyor of all things organized, founded in 1978 by four investors who pooled $35,000, has mushroomed into a national chain of 22 stores with $237 million in sales this year.
The original four investors, including Garrett Boone, chairman, and Kip Tindell, president and CEO, still own it. The company never borrowed money until last year when it took out a loan to buy Elfa International of Sweden.
"In a way, the debt is good," Mr. Boone says as if to convince himself. "Until now, we've always been a company with more cash than opportunity. Now we have to have more financial discipline."
Last month, Mr. Boone, 57, handed over the chief executive stewardship to Mr. Tindell, 47, as part of a "subtle but significant" restructuring as the company gears up to open more stores and develop its Web site.
Mr. Boone, who's guiding the Web site, is like a light-hearted kid with a new shiny toy. As the new official boss, Mr. Tindell is invigorated and thinking strategic thoughts.
Investment bankers constantly want to know if the two execs have changed their minds about an IPO. They haven't and won't anytime soon, but may sometime in the future.
Freedom of choice, for now, is just too precious.
The company spent a fortune on a new warehouse and financial and merchandising computer systems, as well as outfitting its Web store - something a public company might have trouble justifying to shareholders and analysts.
"Garrett and I aren't under pressure to perform for just this quarter or the next," says Mr. Tindell. "We're all dressed up, ready for the dance, ready to go."
Eddie Lennox is another self-made millionaire who doesn't want to answer to outside investors or kowtow to lenders.
"I haven't ever had to raise any external capital or give up ownership," he says, adding that he isn't about to shift gears.
The 47-year-old founder and owner of Service King Collision Repair Centers started out 25 years ago repairing autos in a tin shed along the Trinity River bottom. Today, his company has 13 state-of-the-art repair facilities and a drive-through estimating center at its new Richardson corporate headquarters.
Mr. Lennox owns it lock, stock and carburetor - with the exception of a 10 percent stake that he set aside for a stock ownership plan for key managers.
Service King will post $40 million in revenue this year and expects to do $48 million in 2001. The only thing hindering his growth, he says, is finding quality people to do the paint and body work.
His 14th facility under construction in Euless is the last one planned for the D-FW market. In two years, he intends to become completely debt-free. Then he might move into other major markets.
"We've built a great company that gives great service," he says. "The demand is high throughout the country. It would be foolish not to take advantage of the financial rewards that can come from that."
Texas Capital Bancshares, which was founded by Texans for Texans two years ago, has found that being lone starred sells.
"It's paid off in spades," says Jody Grant, chairman and CEO, noting that in two years, the Dallas-based bank organization has grown to $915 million in assets.
That gives Texas Capital certain bragging rights, he says. "Nobody keeps these statistics, but I'm certain that we're the fastest- growing bank start-up in the history of the United States."
The bank holding company has raised $107 million in equity capital from 700 shareholders, most of them Texans. Many are big-name business players.
The company has operations in Dallas, Fort Worth, Austin and San Antonio with plans to enter Houston next year.
Texas Capital expects to hit another milestone in the first quarter of 2001 with its first profit. "The first two years have been base-building," Mr. Grant says.
"Start-ups are expensive and take a long time."
Mr. Grant, a longtime Texas banker, says the explosive growth does not indicate loose lending practices.
"We've been very careful since we started this organization," he says. "We've had a total of $11,000 in loan losses in two years."
Back in June, Gary Kusin's ship came in when he merged his Dallas- based company, HQ Global Workplaces, with his leading competitor and created the world's largest provider of so-called executive suites.
The 49-year-old CEO just didn't realize it was going to start taking on water.
As part of the deal, HQ Global got a new majority owner, New York- based FrontLine Capital, a business-to-business e-commerce company that has been turned upside down by the Nasdaq's horrendous selloff.
The merger itself, however, has been a roaring success, says Mr. Kusin, noting HQ Global Workplaces will generate a highly profitable $600-plus million in revenue from its 479 business centers.
"Our company is hitting on all cylinders. We continue to have record occupancies so we can grow a lot more rapidly than we planned," he says. "But in our business, growing rapidly requires a lot of capital. So the question is, how do we finance it?"
Luckily for Mr. Kusin, HQ Global's two other major investors are on much firmer ground: Equity Office Properties Trust, the nation's largest publicly held owner and manger of office buildings; and CarrAmerica Realty Corp. of Washington, D.C., which owned HQ Global before the merger.
Both of them have stepped up to help expand the concept more rapidly, he says. Ultimately, Mr. Kusin wants HQ Global to be a public company. "We need to be able to drive our own destiny and tell our own story in a clear and simple fashion."
For a while, Anousheh Ansari looked to be this year's Mark Cuban. Now she needs a little help from the stock market.
Her company, Richardson-based telecom technologies inc., is being acquired by Massachusetts-based Sonus Networks Inc. in a stock purchase that's expected to be completed early next year.
The deal for tti, which develops "softswitch" technology that enables voice and data network systems to "talk" to each other, was worth $440 million when it was announced in November. But that value has been slashed by 40 percent in the recent Nasqaq technology selloff.
The soft-spoken Ms. Ansari, however, is taking a longer view.
"I stopped watching it. I'm not selling the stock anytime soon," says the 34-year-old CEO. Besides, she only has to share the bounty with her husband, Hamid.
The couple started tti seven years ago with $50,000 in MCI stock from their former employer's stock option plan. This year, it sold $25 million in software and consulting services to global telecom giants.
Ms. Ansari, who couldn't speak English when she came to the United States from Iran as a teenager in 1983, was knee-deep in plans to take tti public when Sonus made its bid.
"We were going full force on our IPO, but there were a lot of things happening in the market that were very scary at times," she says. On top of that, the industry was consolidating with key players buying smaller companies in the telecom-technology chain.
"We wanted to make certain we maintained our leadership position and that the big guys couldn't just come in with their names and push us aside," she says.
Regardless of whether the deal ultimately weighs in at $200 million or a half-billion, it's a boatload of money headed Ms. Ansari's way.
"Absolutely," she says with a demure laugh.
News of the big deal stunned her mother. "The first thing she said was, 'Don't tell anybody.'"
Wait til next year
Jon Shapiro spent most of this year working on plans to take his company public - putting together documents, lining up investment bankers and getting analysts on board.
But it turned out to be a fruitless endeavor for his Plano-based Alliance Systems Inc., which sold $55 million in open communications systems used by major call centers, wireless companies and telephone service providers in 2000.
"At the beginning of the year, if you weren't a Web portal, you just weren't that cool. No one was interested in practical businesses," says the 45-year-old CEO. "Now everybody's got cold feet."
So his IPO has been put on indefinite hold.
"If there's a revival of the high-tech IPO market, it's probably going to be in the second or third quarter of next year," he says.
"The bankers I'm seeing are licking their wounds from some of those deals, but they continue to have ridiculous amounts of money from pension funds, insurance companies and 401(k) stuff.
"There's a piling up of cash waiting to be invested."
Eventually, he hopes that will make market conditions more favorable for companies like his that deliver products, satisfy customers and actually make money.
In the meantime, he'll have to work a little longer before he and his employees can cash in some of their options.
"I'm over the fact that I'm not going to be Mark Cuban this year," he says. "But I still might have a shot at it in the future."
Cheryl Hall is business columnist for The Dallas Morning News. Ideas at Work is intended as a forum for ideas and opinions of interest.
Illustrations/Photos: PHOTO(S): 1. E. Lennox , 2. J. Grant , 3. G. Kusin (4-5 Dallas Morning News file photo) 4. Anousheh Ansari's company, Richardson- based telecom technologies inc., is being acquired by Massachusetts- based Sonus Networks Inc. in a stock purchase that's expected to be completed early next year. 5. Alliance Systems CEO Jon Shapiro (right) was ready for an IPO ealier this year, but instead will wait until market conditions are more favorable. "If there's a revival of the high-tech IPO market, it's probably going to be in the second or third quarter of next year," he says. Also pictured is Alliance president Rusty Cone (left). (6. The Dallas Morning News: Mark M. Hancock) "My only business plan was survival," says Don Mechanic (above), when he started Don Mechanic Enterprises Inc. eight years ago. This year, he sold $15 million in novelty items. (7. The Dallas Morning News: Barbara Davidson) (8. The Dallas Morning News: Andy Scott) 7&8. Above: Having engineered a turnaround at Dallas- based La Madeleine, CEO John Corcoran hopes to attract the interest of potential investors. "We feel we can double the size of our existing markets, which is critical," mr. Corcoran says. Right: Garrett Boone (left) and kip Tindell, founders of The Container Store, have no plans for an IPO anytime soon. They are expanding their chain and starting a Web site.
Reprinted with permission of The Dallas Morning News.