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Living in Color Growing ColorMatrix, Step by Step

A Co-Memoir by John Haugh & Mike Shaughnessy


Cover design by Ben Small at Live Publishing, Cleveland. The tiger drawing on the cover is a reproduction of an original chalk drawing by Dale Young. It was the inspiration for the ColorMatrix logo. ©2014 by John Haugh and Michael Shaughnessy First printing, August 2014 Printed in the United States of America All rights reserved. No part of this book may be reproduced, stored in a retrieval system, or transmitted in any form or by any means—including electronic, mechanical, photocopy, and recording—without the prior written permission of the publisher.


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TABLE OF CONTENTS Introduction.............................................................................1 I. Monomeric—On My Own...................................................5 Salesman............................................................................6 My Own Man..................................................................17 Angel...............................................................................22 II. Colors—A Primer..............................................................31 Liquid Color....................................................................32 Consistent, Custom, and Complete..................................42 III. Dimeric—Our Bond of Two.............................................47 About John......................................................................48 About Me........................................................................51 Triple Trouble..................................................................54 Just The Two Of Us.........................................................67 IV. In The Black—Selling for Profitability...............................71 Sales First.........................................................................72 Great Relationships..........................................................78 Solution Selling................................................................84 V. Polymeric—Adding People & Partners...............................91 Plastic Packaging..............................................................92 The Europeans.................................................................97 Asian Markets................................................................104 Brazil.............................................................................106 VI. Seeking Gold—Harnessing Opportunity.........................125 Transformations.............................................................126 Supporters, Not Enablers...............................................135 Opportunity Hunters.....................................................143


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VII. Silver Lining—Our Community....................................149 Do Gooders...................................................................150 Cleveland Works............................................................154 Political Follies...............................................................163 VIII. Our Specialty Additives—New Technologies...............175 Bottled Water.................................................................176 Better Ketchup...............................................................179 Partner Pain...................................................................182 IX. Seeing Green—Adding Capital.......................................185 I-Bankers........................................................................186 Excellence......................................................................190 High Anxiety.................................................................192 X. Exothermic—Selling Our Company................................201 Going Global.................................................................202 All Decked Out..............................................................208 Sale................................................................................210 Notes To Chemical & Scientific Images................................213 Acknowledgments................................................................215


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Dedication Mike When my daughters, Anne and Kate, were nine and six years old, I came home for dinner. I had experienced a difficult day at the office. At the dinner table, I told my wife, Marian, that we should sell the company. I was overworked, my desk was a garbage dump, and I was sick of it. “Dad, you can’t sell the company,” Anne said. “Why not?” “Because I want to run the company.” Katie piped up, “I don’t want to run the company. My husband can do it.” So I want to dedicate this book to my wife, Marian, whose husband couldn’t have done it without her, and our children, Anne and Kate. These three women in my life were always supportive, even in the hard times, and that means the world to me. —Mike John When I was seven years old, my father, a liquor store owner, said, “I don’t want my kid to grow up to be a nobody.” Three years later, my mom came home late at night, woke me up, and said, “Dad’s gone. You’re the man of the house now.” He had a heart condition and had died from open heart surgery. At that moment, I decided I would grow up to be somebody. This book is dedicated to my late mother and father. After my father died, a local priest, Father Joe Donahue, became the male figure in my life, and he taught me how to be an altar boy. But he also showed me how to work with the local farmers to carry on my father’s side business of buying and selling farm animals. In our southwestern corner of Minnesota near the borders of Iowa and South Dakota, he taught me hard work and the value of a dollar. He was a mentor, and this book also is dedicated to him. —John


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Housekeeping Note: We take turns in this book telling our story. It should be obvious who is narrating each chapter, but in case there is any confusion, you’ll find the narrator’s name at the top left of each page. In addition, Mike’s chapters have titles and images that are related to chemistry, and John’s chapters have titles and images that involve color. (In reality we both spent our professional lives involved in the intersection of chemistry and color interchangeably.) Finally, the dialogue in this book is based on our recollection of conversations that in most cases took place years ago, and to that point we have indicated throughout the book that we are including dialog as we recall it.


Introduction | 1

I

Introduction

t’s not uncommon to hear someone referred to as “selfmade.” We think that’s misguided; no one is self-made. Somewhere along the line, a person is given an entrepreneurial opportunity by a family member, customer, banker, partner, or friend. More times than not, that person is given many entrepreneurial opportunities. The difference between entrepreneurial failure and success is whether the person recognizes the opportunity as a lifeline to entrepreneurship, seizes it, and then is persistent in using it to achieve his or her dream. When we started ColorMatrix, we had a lot going against us. We were Midwesterners with chemistry degrees and few contacts in the business world. We had no training in entrepreneurship and only cursory knowledge of colorants. Considering that our new company was an entrepreneurial venture in colorants, these were big limitations. We also hardly had two nickels to rub together, and knew nothing about finance or how to raise money—a couple more strikes against us. We were located in Cleveland, a rust-belt town with a burning river, dilapidated buildings, and a pretty unskilled workforce. How can you successfully grow a company in a rust-belt city when you are two plain guys who have no money, few contacts, and some chemistry knowledge? This book answers that question, but here’s a preview: We knew something about plastics and operations, which meant we understood our customers’ needs and could produce a product that worked for them, all the time, every time. We were aggressive about sales and marketing, which meant we were completely driven to sell, sell, sell, and then sell some more, and we were pathologically consumed with seeking out ways to turn customer opportunities into cash for our business. This was how we raised money for growth—not from venture capitalists, but from customers. We called it our SALES FIRST approach. And finally, we had fantastic mentors and partners. We recognized that our


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work lives consisted of a string of people who had helped us: our parents, bosses, customers, clergy, and friends. They weren’t wealthy or important people, but they were our resource engine, our lifeline, and our opportunity, all rolled into one. We knew it, and we honored it. “Hey, we need to quit our jobs right now to start a company that’s gonna make us rich!” This was never us. Ours is not an iconic, high-drama story of success created by incredibly smart, well-connected people. We never had a breakthrough idea or a moment of clarity when we were sure success would be ours. We don’t have the epic entrepreneurial moment that plays well on the big screen and in the popular imagination. When we were in middle management at big companies, we had the scrappy, almost shameful desire to be our own bosses, and we had mentors who gave us the chance to do this. When we were on our own, driving our beatup cars (initially, they were beat-up, and then later they were nice sets of wheels) around the Ohio Valley trying to make a buck, we had a total commitment to hunting down every single opportunity presented to us, as if each one was a winning lottery ticket we had to cash in. We had the ability to see how important color was becoming in companies’ products, and by God, did we have a commitment to product-izing and operationalizing color for them! We knew how to make color effective, efficient, and successful for our customers. It—color, that is—was a multi-billion dollar industry. And by using the things that we did have—mentors, SALES FIRST, operational knowledge—we grabbed a nice slice of the industry for ourselves and our company. We also made Cleveland a huge asset, not a liability. We got incredibly inexpensive work space and fell in love with the idea of helping out a blue-collar workforce that was loyal and knew how to work hard. We got satisfaction from helping others, employees who needed a loan for a car or needed to get off of welfare, in a way we never would have predicted. A tiger may have


Introduction | 3

been our logo, but our inner city location was our identity. We were so proud of it. Our book is a story of the growth of an inner-city company in a flagging industry by a couple of plain guys. If you aren’t important, seasoned, wealthy, or well connected, but you want to be a successful entrepreneur, this book is for you. This is a how-to manual disguised as a story. Our biggest issue with entrepreneurship as it’s taught today is too many people think they need a breakthrough invention, an Ivy League education, wealthy parents, or venture capital investors to be a successful entrepreneur. That’s the sexy route to success. Great if you’ve got it, but hardly necessary. What you need is our ColorMatrix story. It will show you that you can go a less sexy route and still be your own boss, change the world, create jobs, build a valuable company, and make great money. —John Haugh and Mike Shaughnessy Cleveland, Ohio 2014


I Monomeric—On My Own Monomer, n: a molecule that can combine with others to form a polymer.

Mike


6 | Living in Color—Mike

I

Salesman

was standing in the elevator on a Friday afternoon in June 1965. A middle-aged, little bitty guy—I am 5'7" and he was shorter than I am—was standing in the back corner. “What are you doing?” I remember him asking me. I must have looked wet behind the ears. I had just graduated from St. Louis University, a Jesuit school where I had majored in chemistry and minored in math. I was a good student, studied hard, and worked as a grocery clerk a few nights per week to help pay for my education “I’m going to an interview to be a quality control chemist,” I answered. I was on the elevator en route to my interview for my dream job. “Oh, really? I need some people on my team,” I can still recall the reply from the guy in the corner. His name was Danny Friese, and he was a sales manager at Mallinckrodt Chemical. We talked for a few seconds, and he asked me to come see him after my interview. I was in heaven because for chemistry majors like me, Mallinckrodt Chemical was the company to work for in the St. Louis, Missouri, area. Edward Mallinkrodt had founded the company as a pharmaceuticals company after the Civil War. It manufactured acetaminophen (the active ingredient in Tylenol) and, more intriguingly, it had developed a skill set in extracting narcotics from opium. It was the only company in the country licensed to import coca leaves (for Coca-Cola). By all accounts, Mallinckrodt Chemical was geared toward new frontiers in chemistry. After my interview to be a quality control chemist, I did as I was asked by Mr. Friese and went to see him in his office. The Mallinckrodt campus had 120 buildings, some small and unobtrusive—which was where they produced small batches of narcotics—and others vast and imposing, where they produced chemicals in huge quantities. I walked over to corporate headquarters, a seven-story building called “Z Building.” Danny’s of-


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fice was on Z-7, the executive penthouse floor, and the place was exactly what you would expect of an executive’s suite—a corner office with high, wide windows on two walls, a big wooden desk with matching credenza, and an expansive view of the Mississippi River and Mallinckrodt campus. “Don’t be a QC chemist,” he said to me as I sank into a big chair across from his desk (QC stood for “quality control”). “Come work for me in sales.” He didn’t mince words, but I wasn’t so sure about selling. My only experience in getting people to say “yes” was when I had tried to sell an ad for a publication that my fraternity at St. Louis University produced. For Freshman Week we were doing a skit that parodied West Side Story, and we had to sell ads for the program. “No thanks. Not interested,” the prospect said when I asked him to place an ad in the program. “Okay,” I replied. With that, I hung up the phone and decided that selling (or not selling, as it turned out), was not for me. I decided my longstanding work as a golf caddy was more up my alley—it involved doing as you were told, not selling, and that was what I knew. Golfer: “Hand me a seven iron.” (I would hand the golfer a seven iron.) Golfer: “Sand wedge.” (I would hand the golfer a sand wedge.) I liked this. It was uncomplicated—you carried someone’s bag, did what you were told, and got a tip. While caddying was in my past, and chemistry—monomers, polymers, and isomers—was in my future, I still knew I didn’t want to sell chemicals. As I sat in Danny’s corner office, I told him as much, trying to convince him I was a chemistry guy, not a salesman. The problem was, Danny was very funny and engaging: charismatic wouldn’t be an exaggeration. I didn’t know it then, but I figured out soon enough that he was masterful—maybe the best there was—at getting people to “yes.” He smiled, puffed away on the Pall Mall


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lodged in his cigarette holder, and made his pitch. “Mallinckrodt is publicly held and its stock is doing great . . . ,” I remember him saying. “The company has cash for growth . . . ,” and “You would be perfect for the job. . . .” He talked about sales with such forthrightness and enthusiasm that I was intrigued. I asked him a little more about the position and made the mistake of showing some interest in it. In caddy terms, this was like handing him exactly the club he needed to make the shot—he walked me straight down to the customer service department. “Michael, my boy,” he said, “This is where you’ll do your sales training.” As I stood there, looking at the bullpen of customer service representatives, knowing this is what I would be doing for him and his group of salespeople, I realized he wanted me to “carry his bags.” I would be his caddy, from a selling standpoint, and as this idea sank in (over the course of a few milliseconds), I decided that might actually be a good job for me. What did I have to lose? “Okay, I’ll do it,” I said. The next day I started in a sales support position for Mallinckrodt’s chemicals products, which ranged from turf grass fungicides to paper mill chemicals and plastics additives. I sat in the bullpen all day and took calls from salesmen and customers, confirmed that I entered their orders right, and ensured we could meet customers’ delivery schedules. This was the perfect job because Danny came down to the bullpen and trained me, sometimes showing me how to make an outbound phone call to a customer, and other times, how to set up an appointment for a salesperson like him to meet with a customer. Because of him, I stuck with this customer service position, and eventually reached the point where I could think about visiting customers myself. “Michael, why don’t you come cover the Manhattan territory,” he basically said one day.


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Although Danny had an office in St. Louis, he also worked in Mallinckrodt’s Manhattan office. This would be a huge change for me. First, I had performed only customer service tasks for our salesmen’s customers, but in this new role, I’d be meeting with customers face-to-face and trying to make a direct sale myself. Second, I had never even visited Manhattan, let alone lived there. I watched how East Coast business people—from secretaries to managers, and customers to suppliers—treated Danny. “Yes, Mr. Friese. Is there anything else you need?” “Yes, Mr. Friese, I’ll get right on that!” “Yes, Mr. Friese. I’ll have it on your desk by first thing in the morning.” These people called him “Mr. Friese,” and they “yessed” him constantly, always a “yes” because his bearing commanded that response. I realized he was a major player, and I was completely in awe of him. He must have noticed this because he explained during one of our meetings in New York that he hadn’t started out as a guy who called the shots. “Michael,” I remember him saying, “It wasn’t always like this. I started as Mr. Mallinckrodt’s office boy.” Danny initially was tasked to run every crazy errand Edward Mallinckrodt Jr. needed. He told a few stories about his life as a five-or-six-days-per week gopher and was proud he had survived years of constantly doing low-level tasks and then steadily climbing up the corporate ladder to become the head of sales at a multinational chemical company. To prepare myself for the big, new, sales role, I went back and read huge stacks of reports for each of the product markets I’d be covering. When I got to New York, Danny set me up in the Summit Hotel on Lexington and 51st Street—a supremely posh place for a young, twenty-something salesperson like me. He made sure I was moving well through sales training and steadily learning the fine points of how to sell Mallinckrodt’s chemicals. Most of all, he inspired me with his stories and successes, always a smile on his face, like he enjoyed his job so much that he


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couldn’t help but smile. The world was in chaos—Kennedy had been assassinated a couple of years prior, the Vietnam War was about to escalate, and President Johnson was struggling with the US role in the war. Some combat troops had been sent in, and the military was in the process of gearing up to the point where the US would draft tens of thousands of young men like me per month. Meanwhile, here I was living in a hotel in the Big Apple selling chemicals under the guidance of a boss who smiled all the time, called me “my boy,” and believed in me. Danny was my boss, and he was a great salesman, but years later, I concluded that he was much more than either of those labels; he was my mentor. I once heard it said that a mentor is someone who sees things in you that you don’t see yourself, and I like that definition. Many people confuse mentor with coach, boss, or advisor, when the reality is that a mentor is at a higher level than those roles. I like this description of a mentor: A coach focuses on results; a mentor focuses on attitude. A coach focuses on skills; a mentor focuses on vision. A coach encourages you to fix problems; a mentor encourages you to lead a great life. A coach helps you understand the “hows” of your career; a mentor helps you understand the “whys.” For me, Danny Friese fulfilled these aspects of a mentor. He saw the potential in me, and he understood the “whys” in me. ||| When a chemicals competitor in our New York territory went on strike, Danny decided we needed to call on the striking company’s customers to see if we could serve them. It was an aggressive move, meant to take advantage of the sudden opportunity offered by a labor strike. He assigned me the task. Even today I recall Danny informing me, “You’ll be working


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under the direction of Ted on this project.” Ted Wamstad was Mallinckrodt’s eastern regional sales manager, and he worked for Danny. He was your archetypical sales guy. He smoked a pipe and wore a fedora, wing-tip shoes, and a camel overcoat like it was his uniform. He was of Scandinavian descent and had a ruddy complexion and blond hair. After graduating from St. Olaf’s University in Minnesota, he went straight into sales and never looked back. He was the regional manager for Mallinckrodt in New York, so he became the person I turned to for help or advice. Danny Friese was still around, but he had tasked Ted with continuing the day-to-day sales training I needed. Ted threw me to the wolves on the competitor labor strike project. He told me to figure out how to get us a meeting at as many of the striking competitor’s accounts as possible. He gave me little direction on how to do the phone calls, which should have been an all-out disaster if not for his relaxed attitude about it all. “You probably won’t do any harm,” he mused aloud, pipe in mouth. “We never had the accounts anyhow, so there’s no downside, and on the upside, it’ll be a great learning experience for you.” He also agreed to go with me on a few of the sales calls. “You do the research and lead the face-to-face meetings, but I’ll go with you a few times if you want,” is the command I remember from him. In this assignment and all the others that followed, Ted showed me how to hone in on the building blocks of selling. He frequently conducted a curbside review where we sat in a parked car after a customer meeting and reviewed what had just taken place. We talked about the customer’s needs, where the customer had shown high interest, what products might be best for them, and what follow-up actions we needed to take. Ted dictated all of this into a tape recorder and sometimes decided to drive while we did our review. This habit was disconcerting because he became so involved in his dictation and fiddling around


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with buttons on the recorder that he forgot he was driving. “Uh, Ted, don’t forget to look at the road while you’re dictating,” I often felt like saying to him, but I didn’t. While Danny showed me enthusiasm and love for sales, Ted showed me that selling was a process. It was completely different from the college fraternity publication selling experience in which I cold-called a prospect, was summarily turned down, and then gave up selling. For Ted, rejection was almost a moot point. He showed me sales was less about ego and luck, and more about diligently following a tried-and-true process of making a sale. You had to prepare well, understand customer needs, follow up, and continue in this way with customer after customer. Statistically, if you did this, you’d land sales from enough customers to hit your sales targets and earn your salary. Finally, after going on these sales calls with Ted for a couple of months, I tried my first solo sales call at 8 a.m. on a Monday. I was calling on Irv Podell, president of Podell Industries. “Hi, good morning, how are you doing?” I said to him. I was wearing a sharp suit and was as nervous as a floozy in church. My recollection is crystal clear: “Did you come to talk with me about something?” Mr. Podell asked. No smile. No simple greeting, like “Hi.” Nothing. His impatience broke me in, and I viscerally learned a few lessons that you can learn only by trying to make a sale all by yourself. First, you don’t make sales calls at 8:00 a.m. on a Monday. Second, there is an art behind when to make small talk. And third, selling was about calling on someone for a purpose, and if I was going to avoid another awkward sales call, I needed to plan my purpose better. I began to prepare extensively for sales meetings late at night at the Holiday Inn on Broad Street in Newark, which was a shabby replacement for the posh Summit hotel I had been living in. Ted told me I needed to understand customers’ needs better by reviewing more market information, so I sought out and read every new


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product and market report Mallinckrodt’s marketing department put together. I really began to work hard to understand the true nature of a sales opportunity, provide a customer with value-added information about the dynamics of the market for their product, make the case internally at Mallinckrodt for how large a given opportunity might be, and call in a manager when I needed help building the finer points of a relationship or sale. I started to do well at selling. Mallinkrodt did its sales in a traditional manner: a salesperson covered customers in specific geographies at regular intervals. I was successful enough that Ted gave me my own territory, which was eastern Ohio to western New York and West Virginia. I was still green and had a lot to learn, but it meant the world to me that two people had believed in me so much. Danny Friese had got me out of the lab and into sales, and had sent me to New York to become a salesperson, totally changing my career path from science to sales. He also had served as a great teacher. Then Ted came along, and instead of dropping me as a mentee, he had believed in me enough to continue the course Danny started. He had helped me develop as a business person and sales guy to the point that in my mid-twenties I could oversee my own large territory. People say the mentor-mentee connection is one you can’t precisely plan for. They say you wait for a connection and see how it develops: it’s not a perfectly linear path to a successful relationship. This was definitely the case for me. I really wasn’t looking for a mentor. I didn’t even know what a mentor was. I was just listening to my bosses because I thought they were pretty amazing, and over time, these relationships grew into mentor-mentee relationships. As we drove around to customers and discussed strategies for getting them to buy more of our products, I knew enough to listen to and follow everything my higher-ups said and did.


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||| Mallinckrodt sold all kinds of industrial products, which from a selling perspective required me to be a jack of all trades. Despite poring over market reports, I gained no deep expertise, and being a generalist started to bother me. I knew the situation wouldn’t change because Mallinckrodt was large and had cash to burn—it planned to use its excess cash to invest in strategic growth markets and wasn’t going to focus by reinvesting in its traditional base. If I stayed with Mallinckrodt, I was going to continue to be a jack of all trades, and maybe even worse. Plus, this was several years into my stint running my own territory, and my mentors had moved on to other positions. I wasn’t learning much anymore, and I knew I wanted to learn about polymers (plastics) at a company that was investing aggressively in that area. I began interviewing, and just before I turned 30, I found a new job. Cincinnati Milacron had two primary businesses. Cincinnati Milacron Plastics Machinery made processing machines, such as injection molders, blow molders, and extruders. Cincinnati Milacron Chemicals produced chemical additives used by plastics processors. This second business was the one that interested me because the additives needed to be mixed with great precision so the processing equipment performed well. Selling these additives would still be a sales position, which was fine by me, but in selling to the plastics processors, I also could use my chemistry background more than I had at Mallinckrodt. I moved to Shaker Heights, a suburb of Cleveland, Ohio, because that sales territory opened up, and I spent my days selling heat stabilizer for use in polyvinyl chloride (PVC) applications. PVC is used mostly in plastic pipes and vinyl house siding. When it’s heated, its chemical properties change, and the heat stabilizer I sold remediated these changes. My boss was Howard Ellerhorst Jr. He was about 6’5” and carried much of that height in his legs—compared to mine, they seemed impossibly long. He had a lot of years of calling on senior people in customer orga-


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nizations, was the most polished guy I had ever met, and had a fantastic sense of humor. Howard showed me the ropes. He liked nothing more than being in front of customers—he was in his element in front of a customer—and was always calling on big honchos: vice presidents of northern Ohio-headquartered companies. There were some big industrial names in the Cleveland area, companies like Sherwin-Williams, Diamond Alkali, BF Goodrich Chemical, and Goodyear. For me back then, calling on companies like these was like a young person today sitting in meetings with executive vice presidents and division presidents at the hot technology companies in Silicon Valley. Howard took me with him to meetings with big-company executives and made it his job to explain to me how to get in to see senior-level people and conduct myself once I was there. “Most importantly,” he said, one of his commandments that I well remember, “Do not ever waste your customer’s time.” He had a perfect ability to combine humor with being all business all the time, and this attitude affected me tremendously. I had learned from Ted Wamstad and Danny Friese that sales wasn’t about small talk, but Howard solidified this knowledge by showing me how to be laser-focused on my selling purpose, not in just one or two meetings per day, but in every single meeting I held. The length of the meeting was not important; knowing your purpose and achieving it was the key. I drove my company-issued, green Ford Torino around northern Ohio to places like Toledo, Cleveland, Youngstown, and Akron. Sometimes Howard came along for the ride, but mostly I was on my own. In both cases, I enjoyed good success and was happy. Within a year, Howard decided to restructure the sales organization. I was about 30 years old when he gave me a huge break. He had received approval to replace our manufacturers’ representative organization with an in-house salesforce, and he wanted me to lead the new organization. “I want you to be sales manager for the Midwest region,” he said.


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Giving me a large new territory and responsibility was a big risk. Apparently, he believed I had the core skills required to sell chemicals, knew I worked hard, and liked that I was constantly hungry to learn more. With this promotion, I moved to Reading, Ohio, outside Cincinnati, which was where Cincy Milacron’s headquarters were, and I started as the Midwest regional sales manager. I woke up each day ready to practice everything I had learned about selling over the prior eight years, and this is when I truly started to make good money. This time of completely owning a huge territory and raking in what to me were big bucks was coincidentally the time when Howard decided to retire and start his own consulting business. I was full of energy, confident in my capabilities, on the professional upswing, and had great relationships with the sales and marketing crew in Cincy Milacron’s chemicals group. So, I didn’t think Howard’s retirement would affect me at all. As it turned out, there were several problems with my assumptions: I did not enjoy reporting to Howard’s replacement. He was ineffective. He couldn’t sell. He was a crummy manager. He was no Howard Ellerhorst Jr., no Ted Wamstad, and no Danny Friese. I stopped learning, and this was the first left turn in my career. For the first time, I didn’t wake up every day loving my job. I wasn’t actually unhappy because I was making good money, the customers in my territory were generally happy, and my sales team was very capable. Not being unhappy, my plan was to enjoy some of my hobbies a bit more, like golf, which I loved, and squash, which I found to be a great form of exercise in winter, and ride out my new boss’s tenure until he moved on and my job became fun again. These stall points in life are the occasions when a mentor makes a huge difference. A mentor’s guidance and belief propels us to be something greater than ourselves, and I started realizing


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that every successful person I learned about had a mentor. For example, although business icons like Warren Buffett, Charles Schwab, and the late Steve Jobs rose to prominence after my stall point, each has said he had a mentor. Conversely, people who weren’t particularly successful often thought they were selfmade and could not name a single mentor in their lives. So as I stalled in my career, I realized just how important to me were these people who had invested in my success, not with money but with principles. I had experienced and needed to keep cultivating people willing to invest their time and expertise in me just because they saw something in me. I needed to find my next someone who believed in me, would take a risk on me, and offer insights to me as I worked through my next career steps. I realized only by their absence that Danny, Ted, and Howard were a trio of amazing mentors who knew I could sell much more product than I imagined.

T

My Own Man

hen along came Cameron Duff, a perfect case of the right person at the right time. We both were salespeople for the plastics additive industry, and we had come across each other frequently over the years, so we had become good friends. He was gregarious, outspoken, and bordered on outrageous. Early on in our friendship, Duff had passed on to me advice his father had once given him. “Mike,” I recall him saying, “If you want to be a success, keep a smile on your face, keep your fingernails clean, and eat where the successful people eat.” Duff called me during those gray days when I was biding my time at Cincy Milacron. “How you doing?” he asked. “Great!” I said. I told him I was a sales manager and explained what a hot shot


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I was and about the relationships I was building. Relationships were one thing. Figuring out how to make a living off those relationships was another. “How much are you making?” he asked me. I could picture him on the other end of the line, cigarette butt in his mouth, ruddy red face. His last name originally was “MacDuff,” and though he had grown up in Brooklyn, he had all the coloring of his Scottish ancestors. I told him how much I was making. He quickly volleyed back, “You’re not doing so well.” He always had an answer for everything. He once told me exactly how to replace toilet paper: with the end of the paper sticking out from the top of the dispenser, not from the bottom. That was just one example—he was always giving totally unsolicited advice. He got to the point of his call. “I have an opportunity for you,” I recall him saying. Duff knew I was busy building relationships with plastics processors while most chemical salespeople were calling on resin compounders. The way I saw it, calling on compounders—companies like BF Goodrich Chemical—was the old way. They were the first step in the plastics value chain. They mixed plastic resin with ingredients (e.g., heat stabilizer, lubricant, wax, pigment) and sold the resulting compound down the chain to plastics processing companies like CertainTeed or Carlon. But the resin compounders were steadily deciding that they made their money selling simple resins, so they no longer wanted to be burdened with the complexity of compounding. For years, I had noticed that compounders were showing their plastics processor customers how to invest in their own blending equipment so they could produce compounds themselves. The compounders were like parents who show children how to do their own laundry. I had long since switched my sales calls away from the compounders and toward the processors, who now were buying plastic resin directly, adding specialty chemical


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ingredients, and mixing the ingredients together on the factory floor before making pipe or vinyl siding. For me, making this switch had been a matter of survival, and I had steered Cincy Milacron’s salesforce in this direction, as well. Duff knew this about me, and he thought one of the companies whose products he represented could make good use of my relationships with plastics processors. “I want you to come meet with Gary Curtiss,” I can still remember his order because it was issued in the same manner as the toilet paper advice and the assessment about my earnings (that I wasn’t doing so well)—matter of fact, confident, non-negotiable “conversation.” He was 20 years older than I was, and my only real option was to agree with him. In fact, agreeing with Duff was how I operated with him, which brings up another facet of the mentor-mentee relationship. Having an effective relationship seemed to require implicit agreement about what each person was trying to accomplish in his or her role as mentor or mentee. While friendships often last forever, mentor-mentee relationships often last a couple of years. A mentor may pass me along to someone else with no fear that I’d be insulted by the hand off and with no obligation to stick by my side for years on end. The beginning and end of a mentor-mentee relationship didn’t correspond precisely to a boss-employee relationship—it was related, yet not completely. Anyhow, the thing about Duff was that our “contract” was one in which he was a one-way advice-giver, and I listened to him and did as he said. It was fine that way. ||| Duff took me to meet Gary Curtiss, the president of Synpro, the company for which Duff was selling products. Synpro was a family business that produced and sold calcium stearate and other additives to the PVC industry, mostly for use in plastic pipe. It had recently been acquired by a much larger company, Dart & Kraft, an Illinois conglomerate that included such dis-


20 | Living in Color—Mike

parate companies as household plastics maker Tupperware and Breyers Ice Cream. While being acquired usually ends up killing a business owner’s ability to make quick decisions, Dart & Kraft was, to its credit, allowing Gary to run Synpro as an independent division. The three of us had lunch at Dino’s in Willoughby, and as we ate and drank, Gary told me that Synpro’s business was changing. So many plastics processors were mixing resin themselves and no longer buying from the chemical compounders that Synpro’s traditional business of selling into the compounder market was evaporating. He needed direct relationships with the plastics extruders. I recall our conversation. “Duff tells me you can help fix this situation,” Gary said. “If that’s true, I’d like you to help me out.” I thought he wanted me to work on staff for him. I’m a sales manager at Cincinnati Milacron managing a whole bunch of people. I’m a hot shot, I thought. I don’t want to work for you. (What I actually said was a slightly more polite version of this, but not much.) “What if I make you your own man as an independent sales rep and pay you the same commission as I give Duff?” Gary asked. This was a little different than I had thought—I wouldn’t be on Gary’s staff at Synpro, instead I would be like Duff, representing Synpro’s chemical additives to plastics extrusion companies mostly, as well as some compounders. Sales repping was common because the chemical additives industry mostly comprised mom-and-pop shops that couldn’t afford the salary, benefits, and commission of in-house sales staff. The mom-and-pops contracted with independent sales agents like Duff to promote their products. The principals, as they were called, sometimes threw in a small monthly retainer, but the big money was in the commissions they paid. Gary and Duff were asking me to leave Cincy Milacron and become an independent rep for Synpro. I had to admit that the


Monomeric—On My Own | 21

independence of being a sales rep was attractive, but I knew it was a different animal from being a staff salesperson. At Cincy Milacron, I was receiving a salary and bonus, and had enough seniority that I was hard to fire. In other words, I may not have been thrilled with my boss, but at least I had job security. I had no savings to see me through the inevitable learning curve of becoming an independent sales rep. I needed to turn down the offer, and I enumerated my reasons. “I have two problems,” I replied. “First, I live paycheck to paycheck so I don’t have a bank account to fund me for six months while I build up my book of business.” I had told Duff I was a hot shot, which was true (in my own mind), but that didn’t mean I had extra money lying around! I still ate what I killed, from a financial perspective. Gary was ready with a retort that I remember because it was so action-oriented: “No problem. What would it take, money-wise, for you to live for six months?” I told him. “How much would it cost for you to travel on my behalf?” I figured that out for him. He added together my living and business expenses. “Okay, I’ll give you that amount every month, and when your commissions reach a sustainable level, you can pay me back.” “What if I don’t succeed?” “You will.” I still remember this because I was so surprised by his easy confidence in my abilities. “Okay, but I have a second problem,” I added. “I have no idea if any of my current Cincinnati Milacron customers will buy additives and lubricants from me.” Gary wanted my relationships, but I had no idea if they would buy a totally new product from me. “No problem.” Synpro had a highly respected product line and he knew it. “Why don’t you take a few days to make phone calls to find out if you have the support I think you’ll have for


22 | Living in Color—Mike

our products?” I recall him asking. “Okay, you know what—I’ll do that.” We finished lunch and I went back to work at Cincinnati Milacron, but I continued to be dissatisfied with my boss there, the first boss who hadn’t been a teacher and mentor to me. Almost every day, I compared this boss to Cameron Duff, who, while outrageous, was the angel on my shoulder showing total belief in me, and to Gary Curtiss, who was another angel on my shoulder—he was ready to put cash into my bank account even though he was relying only on Duff’s opinions about me and our one meeting! In my head, I went over and over the situation Gary outlined for me. I decided to make the phone calls he recommended and called several of my customer accounts to explain that I was considering setting up shop on my own and ask them if they would consider becoming my first customers. I explained this was for a product that was not competitive with any product Cincy Milacron sold, so they knew I wasn’t doing anything underhanded. Still, making those phones calls was a big move because once it was out that I was considering leaving, I would probably have a hard time—even if I ended up staying—of getting my customers to trust me to serve their needs.

A

Angel

rnold Coldiron was the first person I called. He was the vice president of manufacturing at Carlon. Carlon was the maker of the Hula Hoop (it had produced 50,000 per day in the 1950s) but was better known in the trade as one of the largest plastic pipe manufacturers on the planet (200 million pounds of pipe per year). There’s a good chance the gray plastic pipe and fittings and green septic and sewer pipes on any US homeowner’s property were made by Carlon. The same applies to the pastel blue plastic wall switch and outlet boxes in most American homes.


Monomeric—On My Own | 23

Howard Ellerhorst initially had taken me to meet Arnold Coldiron, and I had been grateful because Arnold was a senior leader of the type I usually had no access to. He was a manufacturing manager at Carlon and was successfully expanding the company’s operations. I liked that he had a background as a scientist because he took a disciplined problem-solving approach to everything he did. Early in his career, when Continental Oil’s petrochemical plant leaked detergent into Baltimore’s drinking water, Arnold had been the lead scientist who quickly figured out how to remediate the problem. Continental was impressed enough that they asked him to become a plant manager, and then they paid for him to go to Columbia Business School. He combined science with business. In the years since Howard had introduced Arnold to me as one of Cincy Milacron’s biggest accounts, I had worked hard to earn his trust. I had learned that providing useful information and resources to customers was better than making small talk, so for years, I had brought Arnold information from Cincy Milacron’s research and development group that included detailed feedback from plant managers about the performance of PVC additives, as well as in-depth market studies. I occasionally helped him find new hires that added horsepower to Carlon’s manufacturing team. We had played golf in Cincinnati and Florida a couple of times, as well, and became friends. One time after a full day of golf, we were traveling to a nearby restaurant in Tampa. The driver, someone who had been playing with us and was a colleague, had enjoyed a few too many drinks when a policeman pulled over our car. I was in the back seat, sober as a judge but with a beer in my hand. I hid it in the waistband of my pants before the officer got to the car. “You’re weaving all over the road,” the policeman said to the driver, as I recall. I informed the officer that I would drive the rest of the way, so I got out of the car and walked around to the driver’s door.


24 | Living in Color—Mike

As I stood talking to the officer, the half-full beer can slipped down my pants and began spilling onto the ground. He saw the can and beer at my feet, confirmed I was sober, and said, “Go on. Get out of here!” (The 1970s was a decade when Florida was very visitor-friendly because it wanted to build up its tourist trade. Public officials were softies about situations like this. I was indeed sober, though.) That was then. Now, I was thinking about leaving Cincy Milacron to set up shop as an independent rep. I had no idea whether Arnold would commit to buy Synpro products from me. “I have a situation to tell you about,” I said to him over the phone, and he promptly invited me to meet with him. When I arrived at his house, he opened a bottle of wine. He was relaxed. I wasn’t—I was as nervous as hell. In my mind, this was the one person who could help me become my own man. He was a potential customer, and he had a big budget. Yet in this particular sales call, I had no idea how he would react, but I knew he was open to the concept of a person striking out on their own. “You never make any money working for a big company,” I had recalled him saying to me years earlier. “Big companies have a ladder process for raises and promotions. If you do an outstanding job, you might make 2 or 3 percent more than another guy who does an average job.” Top executives who get stock options might make more money, but his point was working for a big company isn’t a great path to wealth creation. I had always remembered that conversation. But Arnold was technically oriented and a very capable manager, and I knew he could start poking holes in my Synpro plan. I might watch it deflate right in front of me. “What’s going on?” he asked. Before I took a sip of wine, I told him I was thinking of leaving Cincinnati Milacron to become an independent sales rep. I wanted to get that out of the way. “You know, Mike,” I remember him swirling the wine in his


Monomeric—On My Own | 25

glass and saying, “I’m surprised you didn’t do this earlier.” I was encouraged by his response, and I got straight to the point. “I have a little problem, in terms of capital to start my own thing, and I’m going to need help. Would you be willing to place your business with me?” I wasn’t asking him to move his business away from Cincy Milacron. Ten or more additives go into PVC—thermal stabilizers, lubricants, fillers, processing aids—so I was asking him to become a customer of a Synpro additive that Cincy Milacron didn’t sell. “Look,” he said, “I buy products from a lot of people, and as long as you have a competitive price and the quality is there, then I would love to buy from you. You’re a person who always brings me something interesting to discuss. You don’t waste my time. So it works well for me to buy from you. I have no problem with that.” “I don’t see this as me doing you a favor,” he said later in our conversation, “because I have a selfish rationale. I have no interest in building new relationships with new salespeople.” His staying with me as a salesperson, albeit of a different product, suited him, and he was happy to give me the opportunity. This wasn’t a touchy-feely conversation (my wine remained untouched), but his words were exactly the commitment I needed. The business he would place with me was in the range of millions of dollars’ worth of Synpro product per year, and I would make enough commission on that to survive. Very encouraged and newly confident, I made one or two more calls to potential customers to build my future book of business. I called Harry Katz at Vipco in Columbus and Dick Geyer at Mastic in South Bend, Indiana. Both companies were vinyl siding companies, which uses the same plastic as pipes, so they used the types of additives Synpro produced. “By all means, we’d be happy to buy from you,” both men basically said.


26 | Living in Color—Mike

This was great—now I had three commitments, and I tallied a few more within the next several days. Among the handful of calls I made, I always counted the one to Arnold as the most important. He was most committed to my idea for striking out on my own, and he had the most business to place with me. He was the customer and commitment I needed to go out on my own, and it was he who put me into the repping business. I left Cincinnati Milacron, and on May 1, 1978, Gary Curtiss wrote a check for my salary and business expense advances. I deposited the check into my bank account and with that I was officially working as an independent rep. Cameron Duff also was an independent rep, and because our business model was to be exclusive, Synpro was our only principal. All of our eggs were in the Synpro basket. As far as mentors go, I consider Arnold to be a mentor among mentors. He committed to me when I needed it most and always managed to make mentoring me seem like the most natural thing in the world. He got to know me and changed our relationship when it needed changing—like when I left Cincy Milacron and started as an independent sales rep. After he eventually left Carlon and was no longer a principal, he became solely a good friend. Nothing about his mentorship was forced or unnatural. ||| Gary called me one day to ask me to take on more business. “Gary, I can handle only a certain number of customers at one time,” I said. “I’m working all the time just to keep up with the amount of business I have.” Akron, which is about 50 miles south of Cleveland, was the rubber processing capital of the world, and because rubber and plastic both fall under the category of polymers, our part of the Rust Belt became known as a global polymer center. In a lot of ways, I was in the center of the center, driving around in search of plastic additives opportunities in the flat, southwestern part of Ohio near Dayton, up to industrial Cleveland, and along the


Monomeric—On My Own | 27

Lake Erie shoreline toward automotive centers like Toledo and Detroit. Duff and I were like kids in a candy store, and he and I both generated much more business than we could handle. Gary was all about removing barriers. You could not successfully say “no” to him. “What about John?” he asked. John Haugh was a salesman at Cincy Milacron. As a sales manager, I had hired him from General Mills because he was plain-spoken, purposeful, had big goals, and I liked that he had an undergraduate chemistry degree. When I was at Cincy Milacron, we had covered sales territories together and had become friends. We often had two-martini lunches in some Ohio Valley outpost and spent our time at a dive bar revisiting what we had sold that day and strategizing on what we wanted to sell the next day. John was a pretty riotous guy, one of those types who can spontaneously tell jokes that, at a minimum, get a chuckle and usually a big laugh. He was totally immature, about 17 years old in much of his thinking. More than once, I watched him take a glass of ouzo, a Greek liqueur, and drink it without using his hands. That image flashed through my mind as I thought about Gary’s suggestion. I knew that John liked and respected me because he once said as much. “I’m going to be as good as you one day,” he said. I had just won a big account for Cincy Milacron. “What makes you think you’re not already?” I asked. He worked hard, and had deep product knowledge and effective selling skills. I wondered why he thought that one day he might have my selling capability. I told him he already had it in spades. So, here was Gary, who also knew John well, asking whether I would consider taking on John as my partner. They went back years through a family connection. “I can’t think of a good reason why I shouldn’t ask John to join me in the business,” I said to Gary.


28 | Living in Color—Mike

“Good,” he said, and I remember he prompted me to action with his words. “Why don’t you call John?” I did. I told John what I was doing and asked, “Why don’t you try out the independent rep business?” He was surprised, but as we talked, I could tell he was getting hooked on the idea. “You know, I can’t think of a good reason why not. I get along great with Gary. He wouldn’t holler at a cat if it peed on the couch.” John knew Gary would be as good a principal as a rep could find. He had a relentless belief in people he liked, and he matched it with disarming niceness. “And I think you and I get along well too,” John added. In April 1979, a year after I left Cincy Milacron to be an independent sales rep, John Haugh agreed to join me as a partner. He added his long list of potential plastics processing company relationships to mine, which gave us a healthy stable of new prospects to visit on behalf of Synpro. We sold them Synpro’s high-quality heat stabilizers and lubricants. Selling these top products and bringing our chemistry backgrounds and market knowledge to each sales call, we became highly credible. We also were, we thought, pretty cool—sporting the sideburns that were a hallmark of the 1970s and clad most days in bell-bottom pants, often plaid—we loved becoming known as polymer industry experts. The thing that wasn’t so cool was our arrangement as an exclusive rep to a single principal was a double-edged sword. We loved building a rock-solid relationship with our sole principal and becoming experts in a single company’s product line. Being informed, knowledgeable sales engineers rather than shysters purveying a suitcase full of products we knew nothing about was the trademark style that made us successful. But our strategy was risky because if we lost Synpro as a principal, we would have zero income to support us. Most of our industry colleagues repped many principals, which was a less risky route.


Monomeric—On My Own | 29

“Our model is risky business, but we do have some comfort,” John said once when we talked about this problem. “Yeah,” I agreed. “At least we have the comfort that Gary has our back. He totally believes in us.” ||| Adding color to plastic is a matter of chemistry. As we drove around the Ohio Valley selling liquid additives to plastics processors, we became enmeshed in the chemistry of plastic colorants. We came across three businessmen in Chicago who owned a fledgling company called Rosemar Industries. They knew we were experts in functional additives and wanted to talk with us about liquid colorant. “These guys claim they’ve developed a liquid colorant for PVC,” John said. PVC is the plastic used for pipes and vinyl siding, and John and I were PVC connoisseurs. “We’re thinking you might be able to add it to your bag of tricks when you’re out meeting with plastics companies,” I remember one of the Rosemar guys saying when we met with them. They knew their stuff when it came to colorants, and they convinced us that liquid colorant was likely to take share from dry colorant and become a big business. John and I liked the opportunity Rosemar outlined and became very interested in selling its new liquid colorant to the plastics industry. “The problem is,” one of them added, “we’re a very small business and can’t pay you much, if anything.” So we agreed to a classic start-up compensation structure that involved equity ownership. We would establish a new entity, Rosemar Industries of Ohio. We would own a controlling stake in that entity, and the three businessmen would own a significant minority stake. We now had two businesses: Chemiplast, our repping business through which we sold the Synpro line, and Rosemar Industries of Ohio, our new liquid colorants company, a business that wouldn’t generate much in near-term revenue.


30 | Living in Color—Mike

In fact, Rosemar of Ohio would be a cost center to us because we had to set up its manufacturing capability, which required capital investment and personnel. We found a windowless 200-square-foot, single-car garage behind a hardware store at East 140th Street and Lakeshore in Cleveland and made that our laboratory and pilot plant. We made our headquarters address John’s condominium because that’s where we did our billing. Chemiplast became the cash cow for the pint-sized conglomerate we were building because, in the best scenario, no cash would come from Rosemar’s first customer for at least six months (four months to turn a prospect into a customer, and then two months to invoice and receive payment). Having Chemiplast as our ATM is one of the most important structures we established in all our years of doing business. If we had left Cincy Milacron to sell Rosemar’s liquid color product, we never would have made it financially. We and our families needed the steady cash flow Chemiplast provided to finance our foray into the new and unproven liquid colorant realm. We could have scrambled to secure angel investors for Rosemar. But investors would have created a board of directors that likely would have controlled the company’s future, making John and me hard-working employees of an investor-run company rather than decision makers in our own business. We hadn’t left Cincy Milacron to report to a board of directors; we left so we could be our own men. We knew this was our motivation, so one inviolable principle of our entrepreneurial pursuit was to set ourselves up for success. We generated enough cash through our repping business to reinvest in Rosemar of Ohio. Initially, Chemiplast brought in 95 percent of our income and Rosemar, 5 percent. As partners in two businesses, John and I were like brothers. Although we didn’t bring to the table a Rolodex of venture capital investors, we did respect and listen to each other, and we shared the same vision for hunting down opportunities, selling our products, and growing our companies.


II Colors—A Primer Color, n: the property possessed by an object of producing different sensations on the eye as a result of the way the object reflects or emits light.

John


32 | Living in Color—John

I

Liquid Color

should appreciate the scenery more, I often thought in the days when I regularly drove down Interstate 77 past Akron—rubber capital of the world—and a little east into the foothills of the Appalachians. This is the heart of the Ohio River Valley. It’s where small towns populate the banks of the Ohio River, the largest tributary of the Mississippi River. The Ohio River starts near Pittsburgh and cuts a path through West Virginia, Ohio, Kentucky, Indiana, and Illinois before ending 1,000 miles later at the Mississippi. At the eastern edge of the Ohio River Valley—the I-77 area—which was my most common sales route, the hills are rolling and green, the valleys, often covered in fog, and the roads, narrow and winding. On my way to see customers, I had to keep an eye out for deer, turkeys, raccoons, and possums crossing the road. This Appalachian plateau is coalmine country, a place where generations of people have worked in mines. Although I dealt with industrial-company people, the regular country folk in these parts use an Appalachian dialect: “Mamaw” is their word for grandmother, “Papaw” for grandfather, and “you’ns” for you. I always loved the industrial scenery more than the natural. As I drove through towns like Parkersburg, West Virginia, and Ironton, Ohio, I passed through an area that had the largest concentration of plastics processors in the world. One thing I knew was none of them were going to survive if they didn’t improve their operations. During World War II, researchers at big companies had come up with dozens of new types of plastics and resins, so now, a plastics processor needed the ability to process dozens of resins with specific combinations of strength, resilience, heat tolerance, and recyclability. Small processors on the outskirts of worn-down towns had to invest in specialized equipment at a time when major competition was coming on the scene: China and Mexico had growing


Colors—A Primer | 33

populations that were eager to work for low wages. I turned over some thoughts that constantly sat top of mind for me in these days (the 1980s): for every dollar a US worker got paid, a Chinese one got paid three cents. Hong Kong, Taiwan, the Philippines, Thailand, Japan, and India had similar workforce dynamics—i.e., cheap labor! Towns like Shenzhen on the Chinese mainland just north of Hong Kong were beginning to invest heavily in manufacturing. The Chinese government declared Shenzhen a Special Economic Zone in 1979, and China used the city as a way of practicing pseudo-capitalism. In the ensuing years, over $30 billion in foreign investment went into Shenzhen as the world took advantage of China’s low-cost labor and untrammeled growth. As I sat back and listened to tunes on my FM radio—Elvis, Beatles, anything in that genre—I did mental math and came to my conclusion. “The only way our customers have a fighting chance is to wring out every single unnecessary cost in the entire supply chain,” I said to Mike, on a regular basis. We knew they needed to invest in equipment and teach floor supervisors to use it efficiently. We also knew we were a provider in that supply chain. Our liquid color was a new and better way to add color to plastic, but almost no companies were using it because they were accustomed to using pellets or powders. They poured clear plastic resin into a hopper, added color pellets, and melted and mixed them together until the resin reached the right uniform color. Sometimes (depending on the type of plastic), they dried the newly colored resin to lower its moisture content. When they switched to a different product on the same manufacturing line, someone had to clean the hopper and equipment, and then load a new resin, all of which created excess downtime. Customers also pointed out this process as potentially unsafe because workers at the feed throat of the hopper usually were on ladders or platforms. Meanwhile, processors in China were spending 5 percent of


34 | Living in Color—John

our costs to do the same thing because their labor was so inexpensive. That was one-twentieth the cost, by my calculation, that Chinese processors were paying. Sometimes, processors employed one of two variations of coloring their resins. In one version, a company pre-mixed the resin with color in an area away from the processing line. That way, it didn’t have to do the mixing in the hopper on the line, but it had to manage a back-room mixing operation. The other version was to purchase pre-mixed color (“pre-color”) resins, which had to be kept in inventory. Pallets of different-colored resins, instead of just one clear resin, usurped warehouse square-footage. The point remains that using dry color concentrate in the form of pellets or powders required significant downtime, was lessthan-safe, as well as expensive, and used up a lot of space. Liquid colorant was:  less expensive,  more efficient, and  safer. Company executives complained to us about the costs of dry color time and time again as we toured the I-77 corridor to visit PVC pipe and consumer products companies in Parkersburg, West Virginia, and in Carrollton and Middlefield, Ohio, among other fading Ohio Valley towns. “We may as well be throwing dollars out the window,” one executive said to me in frustration. I usually explained to these executives that no hopper was required for melting and mixing liquid colorant because it already was in liquid form. Instead, our colorant was dispensed in process. Using a small, attached dispensing system, a line worker, process engineer, or colorist pre-set the color dispenser and fed the liquid colorant into clear resin while it was moving through the injection molding or extrusion press. “You just need to turn on the dispensing system,” I said, turning the dial as they watched. “That’s it. It’s that simple.”


Colors—A Primer | 35

Also, liquid colorant had higher pigment ratios than concentrate pellets, so a much smaller amount was needed to reach the right color. I could go into the executives’ warehouses and show them the fraction of storage space needed for liquid color versus solid color concentrate. When we first came across liquid colorant, Mike and I quickly recognized these space- and money-saving benefits, yet we could drive through the entire Ohio River Valley and count on two hands the number of companies using it. Sometimes after a couple of customer visits in the Appalachian area, I hopped on Interstate 70 toward Columbus to fit in more visits. The hills flattened out as I approached Cincinnati and Owensville, Kentucky. Around me, in all these areas, while the scenery differed, one fact remained: about one in every hundred plastics processors was using liquid colorant. The story was the same as I traveled further west into Illinois, where the landscape was completely flat—good-bye Appalachian foothills; hello Midwest—maybe 1 percent of companies was using liquid colorant. We were in the early part of the new product adoption curve with our liquid colorants business. In many cases, plastic products companies didn’t even know liquid colorant was an option for them, and if they did know, they usually weren’t eager to switch to it. Their attitude was that solid color concentrate was working well for them: If it ain’t broke, don’t fix it. The problem was that it was broke—China was replicating Shenzhen in additional special economic zones, first Wanchai, and then Suzhou—all three of these places with their government subsidies and low-cost workforce showing that US manufacturing, including plastics processing, was about to break. These processors I was trying to sell to had manufacturing facilities that housed expensive lines of equipment that weren’t working at full capacity. As I walked into a processing plant, I thought, THIS is the scenery I like! I liked it because, to me, it was the scenery of opportunity, and


36 | Living in Color—John

that completely drove me. I was a hunter of opportunity, obsessed with my desire to capitalize on the opportunities in front of me. I drove 50,000 miles per year in pursuit of opportunities. I wore out the cars I leased or owned within a year. My basic math told me our liquid colorant helped plastics processors experience less machine downtime and operate more efficiently, which could help processors survive the intense competition from the Asian tiger. These companies needed liquid colorant. As I walked into each customer facility, I showed them how they could save time, money and unsafe work practices on every specialized product line they ran. Sometimes this included dozens of lines at facilities across the country. With a liquid colorant system, inefficiency was unnecessary. As floor supervisors, colorists, purchasing people, and executives watched, I did my demo. I turned a switch on a machine that was at eye level and then stood there while colored plastic went into an extrusion press or was injected into a mold. As I was doing this, I thought no company in China is using liquid colorant and this takes a fraction of the time it takes workers in China to use solid concentrate color. ||| I was really into cars, and most of the cars I drove had dashboards that were dull as dishwater, from a plastics perspective. Gray and black were the predominant interior color schemes. In the 1970s, Detroit’s Big Three auto companies decided that varying the color of a car’s exterior was more important than varying the color of its plastic interior. In most other industries, though, the color schema was different. The 1970s ushered in a plastics renaissance. Bright, distinctive, and varying colors were becoming big business. And as plastic began to be used everywhere after WWII—for packaged food, consumer products, industrial products, home construction and siding, and more— drab colors started to bore consumers. The post-war era brought splashes of color to many products,


Colors—A Primer | 37

and consumers responded well to that. By the 1960s when Mike and I were combining chemistry and sales in our jobs at Cincy Milacron and other big companies, makers of dishwashers, refrigerators, washing machines, coffee makers, cabinets, and carpets were beginning to gather annually to play mediocre golf, eat rubber chicken, and forecast which colors would become popular. In 1967, a group of European and American firms formed the International Colour Association, a group that helped companies like Braun, Whirlpool, DuPont, and others, project what colors they should add to their coffee makers, dishwashers, or carpet. Product design teams incorporated the color forecasts into their products, and the creation of a color value chain became partly responsible for shooting the country like a cannon ball into the excellent phenomenon known as “color phases.” The 1970s were known as the harvest-gold and avocado-green decade. The 1980s witnessed a mauve-and-gray period. In the 1990s, jewel tones like indigo and forest green became popular. Even vinyl siding manufacturers began using popular colors so people could custom-color their house exteriors, creating a multi-billion dollar industry. Mike and I knew we needed to understand color better, which meant we had to be in the field observing color first-hand, and how our customers saw and reacted to it. “We need to put miles on our cars,” Mike said. “We can’t sit in a lab hypothesizing all day.” We had to always be in the field meeting with customers, and this took money. The problem was, money was in short supply in our early days—we didn’t have venture capital money or wealthy parents—which made our lives more stressful than if we had been members of a more privileged, Ivy League-educated class. Fortunately, we had grown up watching our parents work hard, so we knew what it was like to have a strong work ethic. Being a farm boy, I well understood the vagaries of nature,


38 | Living in Color—John

which often were greater than the vagaries of the markets, so I was comfortable enough with the attendant stress. We forged ahead and purchased an injection molding machine. INJECTION MOLDING: In injection molding, molten plastic is squirted into a mold in the shape of the product you’re trying to make, and then the mold is cooled until the product hardens. We tested liquid colorant in this process, over and over. We also bought an extrusion line. EXTRUSION: In extrusion, the machine melts the plastic as it squeezes through a die to create a certain profile. The process is much the same as using a pasta machine and to make macaroni. With these two lines, we recreated our customers’ processes and invited technicians, operations people, and managers to our facility at the southern shore of Lake Erie to show them how our liquid colorant was better than the solid color concentrate they were using. With no money to pay our own salaries at our Rosemar business (we were financially supported by our Chemiplast business), we hired experienced colorists, usually chemists. They worked in a makeshift lab, which was a claustrophobic, windowless garage in a rundown part of Cleveland, helping us develop deeper color-chemistry expertise. This was before “garage entrepreneurship” was popular. There was nothing cool or retro about our garage. It was a piece of junk and no one liked working there—it was no Mallinckrodt corner office or Cincy Milacron new facility—and we paid no benefits. But it was the best we could do. Our lab chemists played around with different resins and color combinations and worked with a handful of additives that could help customers get more bang for the buck from whatever plastics they were using. Early on, most of our customers—almost all of which were from the Ohio River Valley—had simple


Colors—A Primer | 39

color needs: black for trash barrels, or orange, gray, and white for pipes. But others came to us with more challenging requirements. One customer I visited made a plastic flower pot. “This needs to look like real terracotta,” he said. I acted like I knew what “terracotta” was, and thankfully was able to infer the color when he walked over to show me a brownish-orange flower pot. “No problem,” I lied, and went back to our lab to try to get the color just right. I was dismayed at how many iterations we had to go through to achieve real-looking terracotta; it was a real time-sink. Another early customer was trying to injection mold a red purse in the shape of a strawberry for a doll that was similar to Kenner’s Strawberry Shortcake. When the purse came out of the press, it wasn’t red at all. “It looks red in the can, but not here,” I said to the Chicago partners we worked with to match colors. I had no idea what was going wrong, which was an uncomfortable feeling. After making some phone calls and working in our lab, I figured out that the pigment our lab chemist had selected was heat stable to 425 degrees, but our customer was molding at 450-475 degrees, which was burning out the color. These were some of our chemistry and production challenges, and then there were some heartening early opportunities. One of our first customers was Arnold Coldiron, Mike’s mentor, and he led an effort that resulted in a color being trademarked. He wanted the electrical switch and outlet boxes that his company, Carlon, made for housing contractors to be blue. Arnold had us formulate the blue for him. We did, and the blue outlet box products sold well. Within a few years, contractors in the construction industry came to identify the blue switch and outlet boxes with Carlon, so the company trademarked the name of the color, “Zip Box Blue.” Later on when the U.S. Supreme Court deemed that color could be trademarked, the company trademarked its specific hue of blue. Carlon has sold more than


40 | Living in Color—John

150 million of those blue zip boxes over the years. To me, trademarking a color seemed a little absurd; how can one company have exclusive rights to use a red, or blue, or green? But the idea of trademarking a color took root in 1995 when Supreme Court Justice Breyer wrote a decision for a lawsuit. He said colors are important as symbols, so they can be trademarked. Since a company owns its trademark, the company can, in effect, own its color. This decision by the high court was unanimous—the justices believed a color, in certain situations, could connect people to a product so deeply that it became a brand. This was a pretty big deal in the color industry. After the decision, things changed. Elite jeweler Tiffany & Co. registered its famous robin-egg blue color as a trademark so no one else could use it in a similar way. Owens Corning registered the pink color of its insulation products as a trademark. On a related note, companies also include specific colors in their design patent filings. Apple, for instance, included the color and shape of its white and black iPhones in its design patent filing. Shortly after the US opened up color to trademark protection, so did Europe, and companies there joined the fray. Fazer Chocolates in Finland received trademark protection for its blue wrapping, “Pantone 280 C,” and Fiskar’s, another Finnish company, received trademark protection for its orange-handled scissors (of which it has sold over a billion pairs). It’s a little-known fact that no other company can legally sell orange-handled scissors. So when Cantex, a competitor to Carlon, tried to copy Carlon’s zip box color, Carlon filed suit and Cantex was barred from using the color. Instead, Cantex made its boxes a lighter, powder-blue shade. We also had customers who were the exact opposite. They could not claim trademark protection for certain colors because they served an important function that went beyond one company’s use:


Colors—A Primer | 41

 PVC pipe, for example, was an industry we served heavily. When construction crews lay, replace, or move pipes, they need to know how each pipe functions so they don’t damage or dig up the wrong ones. Green is for sewer water; gray is for electrical wires; blue is for drinking water; and violet is for recycled water used to irrigate plants. No one may claim trademark protection for these colors in these uses because they serve functions.  Electrical wires are similar—the colors of these wires are the same in Moscow, Russia, and Peoria, Illinois. Electricians need to know which wire is doing what so they don’t get electrocuted when they work or cause a fire.  The neon orange cones used in road construction projects are another example—they’re highly visible and show drivers where to drive. For purposes of public safety, any company can copy the fluorescent orange shade in order to make construction products.  Prescription and over-the-counter drugs are another example. As we visited and worked with customers in those early days, we developed a real color expertise. Mike’s and my best skill was understanding the process for putting color into polymers by knowing the processing industries (extrusion and injection molding), as well as polymer and color chemistry. Investing in our knowledge base by buying processing equipment, hiring technicians, creating lab space, foregoing salaries, and driving all over creation in crappy cars were financial hardships, but they generated exactly the right results. Because liquid colorant was a new category, our product was different in the marketplace. It also came “packaged” with great expertise. This expertise was one way to help beleaguered US plastics companies compete in a newly global economy. We weren’t just selling liquid colorant; we were selling improved efficiency, safety, and branding all in one pint-sized bucket.


42 | Living in Color—John

I

Consistent, Custom, and Complete

read a lot and listened to books on tape as I drove, too. I liked spy novels, mostly, and non-fiction about World War II and Vietnam. I was an Army enlistee during Vietnam but was never sent over there. One fiction writer I liked was Ernest Hemingway. For me, everything in the 1970s and ’80s related back to plastics—I was consumed with plastics and colors—which meant I related Hemingway to plastics, too. He was raised on the far western edge of the Ohio River Valley, in Illinois outside Chicago. He received his best advice from the first newspaper for which he worked, which had a rule for its journalists: “Use short sentences. Use short first paragraphs. Use vigorous English. Be positive, not negative.” That first style guide was a great guide to him in his career, and he developed his own simple style guide that became famous. “Write what you know,” he advised. He apparently said something slightly different, but the essence of what he advised was that simple. His advice, with a twist, is exactly the advice I would give to entrepreneurs: “Do what you know.” Mike and I were doing what we knew. We understood I-77, I-70, compounders, plastics processors, injection molding presses, extrusion lines, additives, specialty chemicals, and Scotch (my drink of choice) the way Hemingway did martinis, Havana, and fishing. As we enjoyed a post-sales meeting martini or two in a sparse Kentucky hamlet or Indiana town, we decided that we needed to infuse more art into our selling and production processes. “I don’t really care about harvest gold and avocado green,” I said, “but we do need our colorant to be exactly the same every single time we provide it to a customer.” If one of our customers experienced an inconsistent color, they might have to shut down their manufacturing line or throw out a batch of product. That would make for a pretty bad sales call,


Colors—A Primer | 43

and bad sales calls put me in a crummy mood. “Bad chemistry will never be a reason for anyone throwing out our product,” I committed to Mike. Consistent chemistry was nothing special at all—it was the price of entry. The way we created consistency made our product different. Our few liquid colorant competitors made consistent colors with a one-size-fits-all mentality. They used the same vehicle (the liquid in which the color is dispersed) for every colorant because their big idea was to be “universally applicable.” This helped make their liquid colorant consistent. I brought home this point to our Chicago partners and our own in-house technicians working in the garage. “Being universally applicable doesn’t get us the technical precision and color customization we need,” one of our technicians said, and our Chicago partners agreed. They explained that as plastic resin formulas become more specialized and technical, using the same vehicle for all colorants could become a drawback. Because of this, we never tied our products to being universally applicable. Ernest Hemingway once said, “If you want to know about a culture, spend a night in its bars.” My twist on this is that if you want to know about plastics colorants, spend a day in a plastics processing facility. You have to do this constantly if you want to succeed in the industry. When I talked with our customers in their facilities—which I did non-stop—they told me they wanted us to make our liquid colorants polymer-specific. They told me this would make our product technically superior to our competitors’. Later, we began to dominate certain markets, such as plastic packaging, using this approach. “How did you do it?” people asked us, looking for a simple answer. There was no one answer for our success: We did what we knew, and then we listened to our customers. “The processors told us not to fit a square peg into a round hole,” I explained. The processors told us they didn’t want a universally applica-


44 | Living in Color—John

ble liquid that tried to meet everyone’s needs because consumers were demanding plastics with specific capabilities. For microwaving food, they needed polyethylene terephthalate, better known as PET; for keeping stains off their carpets, they needed nylon; for clothing with less shine, polyester; for weather proof capabilities, PVC; and the list goes on. Our decision from early on to customize our liquid vehicle was different, and we were among the first liquid colorant companies to do so. When a customer ordered red from us for a pipe, a doll’s purse, or anything else, they received their color in the vehicle customized for their resin’s composition and purpose. They received the same shade of red with no detectible difference in hue every time they ordered it. They also received their color as part of a complete system designed for them. Our bundled product included:  The Colorant: Pigment suspended in a liquid vehicle and offered in sizes ranging from one-gallon pails to 300-gallon tote bins.  Additives: We could integrate dozens of liquid additives with the vehicle: • Reheating agents, which bottling converters used when they reheated preformed bottles to complete the blow-molding process. (One reheating agent attracted infrared light so less energy was consumed to make the bottles.) • Ultraviolet light blockers, which helped ensure liquids inside plastic bottles didn’t get damaged by this light. • Oxygen scavengers that reduced the amount of oxygen seeping through the plastic and damaging fresh food or beverages. (Makers of juice, tea, beer, water, and ketchup bottles wanted these.) Some of these additives were commodities, but others were specialized technologies (we either owned the patents or licensed the technologies) that dramatically enhanced the value of our product to our customers.


Colors—A Primer | 45

 Metering systems: Originally made for the medical industry, these systems pulled the colorant, vehicle, and additives from their respective containers into a tube-and-roller to precisely meter them into the feed throat of an extruder or injection molding machine. These systems were minor money makers for us, but they helped us sell our product the same way Gillette’s razors sell its razor blades. (Gillette sells the razors at a low price to get customers hooked on the consumable blades, which is where the real money is.)  Technical support: We taught our customers how to use liquid colorants. They could send someone to Cleveland for a few hours to learn how to use our prototype extrusion and injection molding lines. This was our full solution: colorant, vehicle, additives, dispensing system, and technical support. I drove all over the Ohio River Valley, tallying new customers for our plastics colorant solution each week. Mike and I became known as the go-to people for this new thing called liquid colorants. “We weren’t innovators so much as opportunity-seekers,” I now tell students and entrepreneurs who want to know how we grew our company without using outside capital. We produced a better product, but we didn’t invent the wheel, or the printing press, or the automobile, or the Internet. Our product was a better version of something that already existed. We made chemistry, polymer science, process expertise, consistent production, and extreme customer service the combination for our success. In essence, we did what we knew, as Hemingway advised, and we drank in the local bars all around the Ohio River Valley. For my automobiles and me, these were really good times.


III Dimeric—Our Bond of Two Dimer, n: A chemical structure formed from two similar sub-units.

Mike


48 | Living in Color—Mike

J

About John

ohn and I owned equal portions of the company. We set up the part of Rosemar Industries of Ohio that we owned as a fifty-fifty partnership. (Our partners from Chicago had a three-way split of their minority stake in Rosemar of Ohio.) “You know this is risky,” I recall our lawyer saying to us. “Yes, I know,” I said, simply. He explained that equal co-ownership is a risky business structure that frequently fails. I remember him expanding on the riskiness: “Your equal partners approach requires relationship skills as much as it requires specific legal documents.” We were optimistic about our equal partnership, though. We believed our relationship would overcome our inevitable disagreements. “You know, liking each other is not just a soft-fuzzy feeling. It’s a matter of our company’s success,” John said. He was right. We had to like each other. Fortunately, I liked John. He was very funny, a little wild, and an adrenaline junkie. Over the course of our long partnership, he got into racing Cigarette-type boats on Lake Erie, shooting skeet at competitive levels, and racing cars around the country. His skeet shooting pastime was amusing to me because it drew a crowd of regular guys who could barely afford shells, as well as billionaires who loved the sport for its aristocratic, British heritage (it helped refine bird hunting skills). He also was consumed with cleanliness. When in doubt, he cleaned. I’d go into the office and see him cleaning his desk, carpet, or windows. “Where’s John?” I’d ask. “Cleaning his boat,” someone would respond. He did this for relaxation, not quite to the point of being obsessive-compulsive about it, but there were times when I wondered. . . . His professional side was different. He abhorred doing paperwork, so we kept him away from the paper. He was incredibly


Dimeric—Our Bond of Two | 49

good at operations, and in his element on a manufacturing floor or interacting with customers to get them what they needed. His first instinct was to get in front of customers quickly and resolve their problems immediately. He gathered facts and details so he could fix a situation, and he followed this process like a bricklayer building a house, minute after minute, hour after hour, year after year, diligently and speedily gathering facts, getting in front of customers, and solving their problems. He was no speech maker. His words were the opposite of fancy. “I’m as blunt as a two-by-four,” he said about himself, sometimes as a compliment and other times as a put-down. I always figured his Midwestern background produced this plain-spokenness, and I liked it. He grew up in a Minnesota outpost called Kinbrae, which had a population of 29 people (by 2000, it was 21, and today it’s 12). His house lacked plumbing, and he used an outhouse until he was 16 years old. When he was ten, his father passed away, and this caused serious financial hardship for his family. His mother took over the liquor store (which also had a bar and stools, so it doubled as a pub) and spent about ten hours each day serving customers. The store was open from 10 a.m. to midnight, six days a week. She hated her job, but she never held herself at a higher level than the people who spent time at the pub. This egalitarian philosophy was engrained in John. He never had the luxury of country clubs or private schools, and never spent time around people who put on airs. He may have been rough around the edges, but he was so unassuming and motivated to succeed that his bluntness was endearing. “Almost everyone finds him easy to relate to,” I said to my wife once when I was talking about our partnership. “He builds great relationships with customers.” Our customers saw integrity in his quickness to speak the truth with no veil or preamble. “Initially, they’re taken aback, but they come to appreciate his directness. You have to see it to believe it.”


50 | Living in Color—Mike

John’s ease in building great customer relationships led him to create what became our tried-and-true SALES FIRST approach. “Mike, I hated the numbers game at Cincy Milacron,” he said to me while noodling on this new idea. He was referring to the mentality that if you wanted to increase sales by 10 percent then you should make 10 percent more sales calls. “There’s little connection between those two things,” John said. “Some days we should make just one sales call to a million-dollar opportunity, and that one call is as valuable as if we made five sales calls to smaller opportunities.” He wanted to operate on the basis of great relationships with customers more than on the big-company numbers game, when it came to sales. I agreed with that philosophy. But probably the most interesting thing about John was in the midst of the adrenaline sports, tough talk, and quick problem solving, he was a total softie. Part of his soft-heartedness was purposeful: he wanted to overlook people’s flaws and focus on their strengths. “I don’t want to be like a big-company bureaucrat spending all my days trying to suppress the weaknesses of the people on my team,” he said, “because then I would just have a team of people with watered-down skill sets. I want to spend my time building up a person’s strengths.” John gave a little bit of guidance on someone’s deficiencies, but he had no interest in sending that person to training or sensitivity classes so they could suppress their weaknesses, ignore their strengths, and end up with watered-down management skills. “If they can sell like a maniac or put together a great financial statement, I’m happy to ignore their flaws,” he said. The part of John’s soft-heartedness that was not purposeful or strategic—but just his nature—is harder to describe. He was intuitive, and when a person came to know him, they’d hit that layer of intuition like a well driller hitting water. At first, they


Dimeric—Our Bond of Two | 51

saw this gruff joke teller who was all about getting things done for customers, and then they might be sitting around a conference table one day when he showed a sensitivity, emotion, or depth about an employee, friend, or politician that was completely unexpected. I sometimes found this soft layer to be problematic. He empathized with people’s difficulties so much that our workers knew to go straight to John with their issues. “You know, John, the word on the floor is that people will get the answer they want from you,” I said to him once when we were talking about an employee issue. He admitted that he knew this was the case, but we agreed there wasn’t a lot we could or would do about it. It’s hard to change human nature.

I

About Me

didn’t give people the answer they wanted as frequently as John did, and this occasionally caused problems, but we liked and respected each other enough that we worked through it. “We need to always resolve our differences between ourselves rather than contradict each other in front of employees,” I said to him. “Well, I agree with that,” he said, “I think our relationship is very solid, and our employees need to know that.” We loved each other like brothers and respected each other’s differences. This amazing combination gave us our best chance at success with our company. We also focused on our roles and responsibilities. I was president and John was chief executive officer. My role was to lead our vision, strategy and technology decisions. I was data-driven, continuously asking people to provide me with data and facts so John and I could make objective decisions. “Don’t give me things you call facts if they aren’t really facts,” I sometimes had to say to people.


52 | Living in Color—Mike

Harold Geneen, CEO of International Telephone & Telegraph, once said there are apparent facts, assumed facts, reported facts, hoped-for facts, and half-true facts, and none of these were actual facts. If you mistake them for facts, you make bad decisions. I agreed with Geneen. “Actual facts are what we need, even if we don’t like what they tell us.” I looked at markets and customer accounts objectively, took the actual facts and built up a point of view on how to grow our business. I loved to place big, strategic decisions in front of people, listen to their thoughts, and then work with John to make a decision. This process was an endless loop for me: gather the actual, real, objective facts, synthesize them into a picture, and decide. The risk with this behavior was that I sometimes seemed impatient and arrogant. “Mike, if you’re dealing with actual facts, and your counterpart is basing their decision on opinion or hope disguised as a fact, you start to tune them out,” John said to me once when I had probably tuned someone out. “You think I did that?” I asked him. “Yeah, you do it a lot. It doesn’t bother me, but it probably bothers others.” To me, people who brought emotion but not facts into a decision weren’t that helpful, and I mentally put them in a corner. In turn, they could see me as cold and overly calculating. Fortunately, my approach mostly had benefits. People knew I never sat on a decision; I was like an assembly line worker whose products were decisions. Employees knew they’d get a decision from me quickly, and they knew it would be objective and unemotional. Most importantly, considering that there was constant risk in what we were doing (liquid colorants were new in the industry and untested in most applications), I took on the role of facing risks head-on and minimizing them in a consistent way. Through gathering information, we gained confidence that


Dimeric—Our Bond of Two | 53

we were making the best decisions we could. I did have emotions; I just didn’t let them get in the way of strategic decision making for our company. I loved providing opportunity to people and found some of my greatest happiness in life by helping people get out of a tough spot, believing in them, and watching them grow. Over the course of my career, I became dedicated to philanthropy in a way that I wouldn’t have predicted. I had a fantastic role model. “Michael,” my mom said to me when I was about ten years old. “You’re not going to public school. You’re going to a Catholic boys’ school, and I’ll get a job to put you through.” That was a big decision for her, one that set the tone for my childhood. But the next thing she said was what I particularly remember because of how she said it. She issued it as an order, not a request. As I stood there, all red hair and freckles, her commandment was: “You are going to go to college and get a job and be happy for the rest of your life.” I have always remembered that commandment, word for word. My mom’s mentality was that I was going to be a success, and success wasn’t a magical formula or something the stork brought in. It was about education and hard work. I think my commitment to charity, which grew with every year of my life, was based on my desire to offer the same chance my mom gave me to less fortunate members of our society. Not every person in the world has a mom who says to them so matter-of-factly that they will be a success, and as I grew older, I realized this. I couldn’t provide every disenfranchised person in the world with a mom like mine, but I could provide resources that showed belief in them. (My father also was a great father, but he worked night shift at a factory, so I saw him only on weekends.)


54 | Living in Color—Mike

L

Triple Trouble

awyers and businesspeople say a fifty-fifty partnership is not a good idea because the business world is littered with those that failed. “One of you contributes more than the other and becomes disgruntled. Then you’re in a logjam situation because neither of you has the right of majority ownership.” These are the words I recall our lawyer using to try to dissuade us from using this structure. “With three equal partners, two can make decisions to overrule the third, but not so with two.” Bill Gates and Paul Allen, co-founders of Microsoft, which was started around the same time as our company, knew that a fifty-fifty equity split wasn’t a bright idea. Gates’ father was a lawyer, so like our lawyer, Gates Sr. knew how important it was for his son to fight for a majority ownership stake in the company. Gates was ruthless in his negotiations with his co-founder, and they started Microsoft with Gates at a 64 percent ownership and Allen at 36 percent. The rest is history: Gates controlled the company and was able to put his vision to work. I knew about the Microsoft example. “But there are occasions when a fifty-fifty partnership can work,” I countered to our lawyer. I also knew about the Wright brothers, who chose an equity split more akin to John’s and my arrangement. Orville and Wilbur initially owned a Dayton publishing firm, Wright & Wright, in which Wilbur was editor and Orville was publisher. At the same time, they co-owned a bicycle rental, repair, and sales shop. The Wright brothers co-owning two companies at the same time was similar to John’s and my co-owning two companies, Chemiplast and Rosemar of Ohio. After the Wrights hit the big time by inventing the airplane, they formed an airplane company in 1909 in which they co-owned stock and patents, plus received royalties (Wilbur was president and his brother handled operations). We didn’t invent the airplane, but we were similar to the


Dimeric—Our Bond of Two | 55

Wrights in our co-ownership structure and division of roles, as well as in our relationship. They were content to be two guys who were quite different in temperament—Wilbur preferred long country rides on his bike, while Orville enjoyed racing— yet they always said they loved and respected their differences, and this mutual appreciation was part of what got them through their challenges in technology, finance, and operations. Wilbur wrote in his will, “My brother, Orville, has been associated with me in all the hopes and labors, both of childhood and manhood,” and with respect to all his money and ownership stakes, “I am sure, [Orville] will use the property in very much the same manner as we would use it together.” That was not quite their buy-sell agreement, but it does show how much they respected each other, despite their differences. There were more examples:  Bill Hewlett and Dave Packard were techies who focused their partnership on achieving goals rather than on their style differences. They built Hewlett-Packard to more than $130 billion in revenue.  Ben Cohen and Jerry Greenfield, founders of Ben & Jerry’s, the ice cream company, were both the slow kids on their 7th grade track team. They took a course in ice cream making, and with a double scoop of knowledge and fun, they formed their company (which was acquired by Unilever in 2000 for $326 million). These next two examples came after our early days at ColorMatrix, but I’m providing them because they’re good examples of great relationships between co-founders:  S ergey Brin and Larry Page, the co-founders of Google, disagreed on almost every topic early on in their friendship, and banter became the basis of their friendship and work. They were co-presidents of Google for a decade, and they said they made life-or-death decisions about their company’s future every week.


56 | Living in Color—Mike

 Whole Foods co-CEOs John Mackey and Walter Robb say they care tremendously about each other and focus their energy on their mission. Examples abound, and none is exactly like our situation. But according to the statistics, our partnership was likely to fail unless we figured out a relationship of mutual respect—one that, despite our differences, mirrored the relationships of the Wright brothers, Ben and Jerry, Hewlett and Packard, and others. Our partnership had to become one of our company’s greatest assets. It had to see us through the major disappointments that transpire in business. “The thing that’s frustrating is that so many of the people we’ve been good to have turned on us,” John said once over drinks at the Ground Floor restaurant on Chagrin Boulevard in Beachwood, after we had been double crossed by a partner. “And yet we’re still stupid enough to believe our partnership with each other is going to succeed. Why is that?” I think the reason was that instead of having a lawyer focus on creating differing equity percentages for us, we focused on differentiation through our roles and personalities. As it turned out, we felt time and time again, that for us, this was the right way to go. As we encountered a steady drumbeat of difficulty over the coming decades, we turned to each other for help. Our first relationship to fail was with Synpro. Gary Curtiss, our only principal and the man who ran the company, left his new parent company, Dart & Kraft. We weren’t surprised by his departure because we often shook our heads in amazement that he had hung on for so long. Our problem was that we didn’t know precisely when he would leave, so we couldn’t plan for his departure. With Gary gone, Dart & Kraft’s management told us they had reviewed the economics of using sales reps and decided we were too expensive. They wanted to build an in-house sales team. They terminated our agreement, and we found ourselves with virtually no income.


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We were scrappy and picked up a new principal for which Chemiplast became the exclusive rep. This was through John’s contact at a Japanese firm, Shintech, which manufactured PVC resin. John knew a couple of companies that would buy from Shintech through us, exclusively. Then John’s Shintech contact said, essentially, “Okay, thanks for your help. These customers you got us can pay us directly now, so we don’t really need you anymore.” Relationship over. No more revenue for Chemiplast until we found a new principal to rep. (Although the money we made from this relationship did sustain us for two years). “I think I’ve got us a new principal,” John said at one point. “Hitox needs help getting into the pipe industry.” Hitox was based in Texas and had a beige titanium dioxide pigment product that was useful for creating opacity and improving tint strength. The problem was that the beige color could be used only where pure white wasn’t critically important. It was often mixed into yellow traffic paint (it was good for weathering) or other colors. Most pipes were pure white, but we had “ins” with makers of pipes that were green, purple, blue, and black, and we figured out a way for Hitox to include its beige pigment in those pipes. We provided an entrée for Hitox into the pipe industry, and in fact, the new business we landed for them ended up filling 60 percent of their plant. After two or three years, they said the equivalent of, “We don’t need you anymore,” and they fired us. By “fired,” I mean they terminated their sales repping agreement with us. We had no revenue coming in the door yet again. John and I tried to solve this recurring problem more permanently. “We keep doing such a good job with these guys, that they get so much business and hire in-house sales staff,” he said. “John, we’ve got to manage our relationships with these guys so we make enough money to support ourselves but not so much that Shintech or Hitox or whoever wants to fire us,” I said. “Yeah, it’s like walking a tightrope,” he said. “It’s not much


58 | Living in Color—Mike

fun. If we’re successful, we’re fired, and if we’re unsuccessful, we’ll be fired.” We were realizing the limitations of our business model when another important relationship fell apart. Moonlighting with Rosemar took up all our extra time and money. We didn’t know much about liquid colorant, and we checked in frequently with our three Chicago partners. John and I met with customer prospects, figured out the prospects’ needs, and called our partners to have them do the technical work, mainly matching the color to the customer’s need and costing it out for us. Then we went back to the customer with a color match and price. The Rosemar guys mentored us in our technical challenges, like the ones with the terracotta flower pot and strawberry purse. While running our repping business, Chemiplast, and getting fired all the time, we also were talking on the phone every couple of days with our Rosemar partners about selling that product. We met with them in person about once a quarter and usually went to dinner at the Blue Fox on Clifton Boulevard in Lakewood (the West Side of Cleveland) or at the Ground Floor in Beachwood. At these meetings and dinners, we peppered them with questions about the product and industry, and John occasionally lightened the mood with his bawdy jokes and bar tricks. ||| We enjoyed a solid partnership with the Rosemar guys until a couple of years into our partnership, when we thought they were becoming less responsive to our technical needs. From there, our partnership went on a slow roll downhill. The relationship was faltering but not irretrievably damaged, and we were in the business pretty deep, so we had a tremendous need for it to succeed. In 1980, we were expecting to generate $69,000 in revenue at Rosemar, and we were projecting a profit of exactly $195 dollars, assuming we took no salaries for ourselves. The next year, we projected a whopping $296,000 in revenue, and if we won a bunch of accounts we were trying to sell, that might reach the


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$400,000 level. We had a handful of employees in a starter facility at 140th and Lakeshore that could do only color matching and production of samples, and color concentrate up to 50 lbs. Not only were we taking no money out of the business in salaries, bonuses, or distributions, but we were putting money into the business. It’s fair to say Rosemar of Ohio was not even close to supporting us, our lifestyles, or our families. “We don’t have a pot to pee in or a window to throw it out of,” John was fond of saying back then. Yet, we were excited because our Rosemar of Ohio sales levels were increasing. This place has a future, I was beginning to think. I knew we needed to invest in order to give it the right future. I was realizing we couldn’t turn back. Our Chicago partners and we were calling each other regularly about sales leads and chemistry ideas. One week, we were sharing a booth with them at a national plastics exposition in Chicago. “Listen,” I remember the grayest-haired of the three partners saying. He was in his 60s and had intimated previously that he needed to think about his future; he frequently talked about his 84-year-old aunt who was an investor in the company and interested in cashing out. “We have a deal to sell our company to Morton-Thiokol.” A Midwestern company with $2 billion in revenue, Morton-Thiokol wanted Rosemar’s polymer research and development capabilities. Apparently, the company had strayed from its roots in specialty chemicals by building new capabilities in aerospace equipment and other industries including consumer products. This diversion had not worked out well, and the company needed to return to specialty chemicals. Some of its executives believed Rosemar would help—a small but symbolic piece in this company’s plan to renew its polymer innovation capabilities.


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“Is the deal to sell Rosemar of Ohio, too?” I asked one of our partners. The businessmen owned Rosemar Industries entirely, but they owned only 49 percent of Rosemar Industries of Ohio. They had a minority stake and so didn’t have the right to sell Rosemar of Ohio. Only John and I did. I watched convention attendees smiling and sauntering by our booth, and wished I had their peace of mind. At that point in my conversation with our partners, I was growing concerned. John was, too. “The whole thing,” is the response I remember one of them giving. “How much do we get for it?” I’m pretty short on words, and especially so when I’m fact-finding. Stating a fact shouldn’t take many words. “You and John each get $250,000.” He kept talking but I didn’t hear much because I recall thinking, that’s a lot of money. On the one hand, I was thinking, they didn’t have the right to sell Rosemar of Ohio. I was annoyed. On the other hand, we needed the money. In today’s dollars, $250,000 is more than $600,000. This is the big time, I thought. It was more than I had imagined. As I went back and forth in my mind about whether I was happy or annoyed, one of the partners outlined the rest of the deal. He said the three of them would get $4 million to split among them, and they would have management jobs with Morton-Thiokol. “How about us? Do we have jobs?” I asked. “No, unfortunately they have concerns about you,” I recall one of the partners saying, and then he explained that one of the principals we repped at Chemiplast was a competitor of the acquirer. “Because of that, the Morton-Thiokol executive team doesn’t want you coming on board.” Our evolving reaction as people sauntered by at this trade show, some stopping to try to ask questions, was that this wasn’t as great a deal as we had thought. Before I left our convention


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booth to do homework on the deal, I felt pretty sure I wanted to turn it down. I could tell John felt the same way because he issued them a warning. “Remember, we own the majority of Rosemar of Ohio,” he said to them. As soon as we walked out of earshot of the partners, I said, “They can’t sell without us. You and I need to approve. Let’s figure this out.” I read Rosemar of Ohio’s buy-sell agreement to confirm that John and I knew our facts about when and whether our partners could sell our share of the company. We were right—they could sell Rosemar of Ohio only if they had our permission. John and I talked and concluded that two things were wrong with the deal: 1. We wouldn’t have jobs with Morton-Thiokol, and 2. We would be prohibited from making a living because, according to what the Rosemar team relayed to us, Morton-Thiokol wanted to require us to sign a non-compete agreement that applied not only to Rosemar of Ohio but also to Mike’s and my Chemiplast business. Knowing these two things—no jobs and terms that seemed to restrict our ability to make a living—we decided $250,000 for each of us wasn’t enough money. The next day, we sat down with the partners in Chicago. I was our strategist, so I started the conversation. “It’s not enough money for John and me,” I said. I explained that they needed to tell the acquisition team at Morton-Thiokol that we needed more money for us to agree to be out of jobs and live under the other restrictive terms of the proposed agreement. Our Chicago partners explained with some annoyance that they hadn’t explained during their negotiations that they lacked control of Rosemar of Ohio. “Well, that’s unfortunate. I guess you’ll have to go back and explain that fact to them,” I said. I was shocked by what we perceived as their lack of goodwill.


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To us, they had been self-dealing, and we saw their treatment of us as neglectful. John and I believed partners should never selfdeal, hide things, or negotiate for one member of the partnership and not the other. Under duress imposed by us, our Chicago partners went back to Morton-Thiokol. “It’s not enough money,” they apparently said to the executives there, or something like that. I wasn’t in the room, but later I was told by the Rosemar guys that this conversation didn’t go well. The multi-billion dollar company apparently was unwilling to pay a dime more for our portion of the business and quickly called off the deal. More damage was done by this foiled transaction than lost time and focus. Our trust with our partners dissolved. We now knew that not only had they stopped supporting our technical needs, but in our view, they also were prepared to ink deals that weren’t in our best interest. Their view of us was similarly unfavorable. They saw us as being prepared to hold them back from the financial future they needed as they approached retirement. We all were furious and stopped speaking with each other. ||| Then we were raided. On a Friday night while I was changing into a tuxedo for a benefit dinner, having just finished a round of golf, I received a call from a federal authority. I thought it was a practical joke. The agent on the phone said his agency was conducting a search. He emphasized that I had exactly one hour to get to the plant before they’d break down the door. I figured out it wasn’t a practical joke and called John to inform him of the raid. “Do you know what’s going on, John?” “No. I have no idea at all. Why do they want to break down the door?” he asked, “We have keys.” Whatever was going on, breaking down the door seemed to


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both of us to be melodramatic and unnecessary. We got to the plant where two federal authorities and a technical employee of ours were waiting for us. We opened the door for them, and they walked in. The lab technician showed them where various file cabinets were located. When we asked what was going on, the authority told us they were seeking data to support an accusation by the technical employee that we were using a chemical in an application that was inappropriate for consumers. Months prior to the raid, the owner of a Chicago-area company had been sent to prison for life for continuing to manufacture chemicals he knew were potentially dangerous. In that case, the prosecutors had sought to try their case as a personal liability against the defendant, not a corporate one, and the judge had granted them their request. The prosecutors had “pierced the corporate veil.” This was dismaying to the business community around the country. Owners set up their corporate structures so they won’t incur personal liabilities for company issues. This “limitation of liability” is why corporations exist as a legal structure. Companies face many risks each day, and this limitation of liability makes American businesses different and better than those in other countries. American business people can’t be persecuted for company issues. But the prosecution in the Chicago case had proved that the owner should face personal liability for a corporate issue. Apparently, there were cases in which owners did bear personal responsibility for what their companies did. The owner of the Chicago-area company was languishing in jail, and the climate for accusations at manufacturing firms was highly charged. There were copy-cat cases popping up around the country. Lawyers were taking cases on behalf of employees against manufacturing firm owners everywhere. Over the next few days, we worked through the basic outline of what was going on. This employee of ours—the accuser—had heard about the acquisition our Rosemar partners had tried to work out with


64 | Living in Color—Mike

Morton-Thiokol and deduced that Rosemar of Ohio was up for sale. He became nervous about his future with us, so, although he was not a chemist and knew nothing about chemistry, he developed a theory—probably based on the legal environment surrounding chemicals companies at the time—that we were using a color in an application he thought was inappropriate, even dangerous, for consumers. He put together that the company was up for sale and imagined a scenario in which: a) We sold Rosemar of Ohio, b) we took off for the Caribbean and counted our stashes of money, c) we left him working at the company, d) he had to explain to an angry judge and jury why he had allowed the company to inappropriately use this chemical, and e) John and I sat and sipped fruity punch drinks on a beach somewhere while he and other workers went to jail. It just so happened that this employee also was going through a difficult time in his private family life. With unsupported conclusions about Rosemar of Ohio and personal family matters conflated in his head, he went from being a regular employee to developing outright animosity and paranoia about us. He became convinced that he had a case against us, and he went to the authorities. His deteriorating mental condition and the actions he took with the authorities caused us a year of indescribable angst. “The authorities are treating us as if we’re guilty until proven innocent,” I said to our lawyer, Tom Jones. Tom had seen this before, so this was not a revelation to him. The wheels of justice grind slowly, and for six or eight months, we ran the business while the investigation took place. On Tom’s advice, we immediately disclosed to our customers what was going on, even though we were in the dark about most of it. I was never sure we wouldn’t go to jail because the atmosphere


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was so charged with anti-corporate, anti-chemical company sentiment. We were not allowed to talk with the authorities or our employees about any specifics of the investigation. Only Tom was allowed to talk with the authorities or their lawyers, and even then, only when the authorities said he could. “We’re powerless and completely in the dark,” I said to my wife. I slept very little, and neither of us could eat much. We lost weight. Our friends told us we looked run-down and ill. Eight months turned into a year, and still we waited for our indictment. Then one day, we were cleared. The authorities found out what we knew all along (and what we had tried to tell them on the rare occasions they asked us for information): The accusations by our employee were completely baseless. The authorities found not a single actual fact or piece of information to support the employee’s claims. It’s interesting—when you are treated like you’re guilty, you start to wonder if you are guilty, and you develop a guilty-until-proven-innocent mentality that you have to experience to understand. It’s a terrible path to be on, and I don’t envy anyone who has to walk through the presumption of guilt. Astounding us, the authorities raided first and did their research later. No one ever bothered to ask us one single time what we knew, thought, or believed. The lack of a voice in our own fates, and our total reliance on government workers who did not have time for things like objective questions and unbiased fact gathering, changed me. In that anti-climactic moment, the federal authorities told us they would not charge us with a crime. We were incredibly relieved and angry all at once—angry because we should not have been put in a position of feeling elated about not going to jail for something we didn’t do, something that was based on one employee’s instability. “This experience will never leave me,” I said to John, and he agreed completely. “It’s hard not to be bitter after what we’ve gone through,” John said.


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Then again, throughout this ordeal, our relationships with customers stayed strong and grew stronger because we informed them of what was going on to the extent we were able. They valued our directness in the face of inconceivable uncertainty and ignorance about what was going to happen to us and our business. Our relationship with our Chicago partners went the opposite direction: from poor to non-existent. The partners had a big ax to grind with us about the failed acquisition of Rosemar, so they believed and supported the claims made by the rogue employee. Throughout the investigation, our Chicago partners didn’t talk to us, except through lawyers. Their standoffishness didn’t improve after we were informed that the employee’s accusation of criminal activity was baseless. Not one of our Chicago partners called us. No “Sorry, guys, for not believing you.” No “Congratulations, men!” Finally, one of them contacted us. “We’ll never reconcile our differences,” I remember him saying, and then I remember him making his ask: “Why don’t you and John buy out our 49 percent of the company?” He was right—we needed to end our partnership. We scrounged up $185,000 to purchase their ownership of Rosemar of Ohio. They received a cash infusion from us and benefited from a separate deal by negotiating an acquisition of their company by Ferro Corporation, a big, Cleveland-based specialty-chemicals concern. They were at the tail ends of their careers and needed retirement money, and they got it. They were happy. John and I were otherwise. We were still in the early days of our careers and investing for our future. We had gone through an investigation by federal authorities and what felt to us like a traitorous relationship with our partners. We needed a fresh start, so one of the things we did was change the name of our company from Rosemar Industries of Ohio to ColorMatrix Corporation. We closed out our past and gave ourselves, we hoped, a bright future.


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M

Just the Two of Us

y hobbies and interests could probably be considered tamer than John’s. I loved golf because it was a great way to be outside and focus, and also to spend time with friends and business colleagues. I became an avid player of squash because it was a great, quick workout that was perfect for Cleveland winters, it’s indoors, and you run a lot. I also liked having sharp duds. As we moved past the grim time of the investigation and partner split, and as ColorMatrix became more financially stable, I started to spend more money on tailored clothes. “Are you actually getting those delivered to you?” an amused John asked me the first time a tailor brought newly bought and tailored, high-end clothes to me at work. “Of course I am,” I said. “I don’t want to be out shopping when I could be spending time with Marian and the girls.” I had a wife and two daughters, and—except for the squash and golf—I worked all the time. I did whatever it took to maximize time with them, and yet it was important to me professionally to focus on the details of everything, including business attire—the implication being that I also focused on the details of liquid colorants for customers. My clothes gave me the appearance of confidence. That was important to me because over the prior couple of years, John and I had experienced a series of relationship disappointments that had been real blows to us.  Our relationship with Synpro had ended.  Our relationship with every principal we repped had ended because we had been too successful for them.  Our relationship with one of our technical employees had devolved into a false accusation of fraud.  And our relationship with our three Chicago partners had been obliterated. Our idealism was shattered. Being fired, duped, and wrongly


68 | Living in Color—Mike

accused, we were on the other end of the spectrum—we were cynics. Yet we weren’t too worn out to move forward. The good news about these disappointments was they made the bond John and I shared even more solid. John and I loved each other like brothers and were able to get through our tribulations with respect, love, and decisiveness. We never sat on decisions. We made them and moved forward. We didn’t always agree on a decision, but we recognized there was more than one way to skin every cat. If we disagreed, we knew one of us wasn’t all right and the other all wrong. We knew a black-and-white mentality would set us up for failure. For the sake of the survival of our partnership, we came to an understanding that we simply had to decide without recrimination. If the decider ended up, in retrospect, making the wrong decision, then so be it. We also were direct with each other, and we challenged each other. “Why did you tell [insert name] that? You should have told him this,” we could say to each other without any threat to our relationship. On top of love and mutual respect, directness and rapid decision making became hallmarks of our relationship. One thing we didn’t do was create a board of directors or even a less formal board of advisors. “That’ll just slow down our decision making,” John said. “I think you’re right,” I agreed. “What about investors? Any desire to take them on, or are you still interested in us operating on a shoestring?” “No interest in venture capital,” he replied, “And I don’t think they’d have any interest in us. They’d slow us down, or they’d be like our principals, Mike. They’d fire us if we’re unsuccessful and they’d fire us if we’re successful.” So true—even if we succeeded, they’d probably want new executives who could grow our company faster than us. “Okay, we’ll keep raising money the old-fashioned way,” I concluded.


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The old-fashioned way of financing our company was getting customers to pay us for something of value. While the Asian tiger was rising—a massive competitor that was creating a sense of urgency in our industry—and Silicon Valley was luring talent with its siren song of smart, powerful money, our old-fashioned method was to bootstrap our way to success. John and I agreed on this, which was good because our industry’s growth rate was fantastic to us and allowed me to buy nice suits and cars, but it was not at levels that would attract meaningful venture capital money.


IV In The Black— Selling for Profitability Black, adj: of the very darkest color owing to the absence of or complete absorption of light; the opposite of white.

John


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M

Sales First

ike and I never agreed much on cars. Cincy Milacron gave me company cars to use like a Ford Taurus and a Chevy Chevelle. When I bought my own ColorMatrix “company car,” I chose a Cadillac El Dorado. Actor James Caan had recently played Frank (no last name) in the film Thief. Frank was a Chicago “entrepreneur” who owned a used-car dealership, and some bars and Laundromats; dressed slick (blazer, jeans, cowboy boots); and, most importantly, drove a slick, black El Dorado. I thought it was a brilliant movie and performance, so in homage, I got myself an El Dorado. “You can’t drive that,” Mike said as soon as he saw it. “You’ve gotta take it back.” “Are you kidding me? Why?” “You can’t be driving a Cadillac. If you visit customers in that,” he said, waving his hand toward my car, “they’ll think we’re charging them too much money.” My view was: he liked to wear sharp clothes; I wanted to drive nice wheels. I didn’t take the car back. In fact, when the El Dorado wore down about a year and 60,000 miles later, I upped the ante and got a Corvette. When that was stolen, I leased a Porsche. I loved cars and didn’t want to compromise, especially considering how many road trips I took. I spent most of my weeks driving south on interstates 77 and 71, as well as west on I-90 and I-80 toward Toledo and Indiana—an ugly drive that I never enjoyed. I popped in motivational selling tapes and recorded books like The Bourne Identity, but more than anything else, a nice car helped me enjoy these trips. Mike and I didn’t see eye to eye on automobiles, but we did agree on almost every aspect of how we wanted to grow our business, including financially. During those dark days when our Chicago partners were divesting from their partnership with us, Mike and I had tried to get a $250,000 loan to buy lab- and sample-making equipment.


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It’ll be no problem to get a bank loan, we had thought. “Rosemar’s inventory and receivables will be the collateral,” I said naively to Mike, “and our Chemiplast income will be the income support we need for the loan.” “No,” came the response from the first loan officer. We went to another. “No.” And another. “No,” came the usual answer, and then something like, “Your Chemiplast commission income is unpredictable and unrelated to the loan, so it can’t serve as the income support for the loan.” “John, we’re going to need to sign the loan personally,” Mike said. This meant the banks could come after our personal assets, including our homes, if we failed to repay the loan. We were disillusioned by this. We had never wanted to commit our homes and family savings as collateral. “I’ll ask Ray Rossman,” Mike said. Ray was a bank president with whom Mike golfed. “Great idea. He’ll give us better terms,” I said, still naïve. Mike knew Ray pretty well, and the guy was president of the bank, surely he could direct his loan officers to make concessions for us. Ray looked at our cash forecast. “We can loan you $50,000,” I recall him as saying. This was one-fifth of the amount we needed. And then he added the coup de grace: “You’ll need to sign for this loan personally.” I remember his words because the “personally” was what I had hoped to avoid. We figured out early that bank loans were hardly a dream scenario. From this experience, we learned that if we were going to grow, we were going to have to be more creative. We weren’t high-tech enough for venture capital investors, nor did we even want venture capital money. Instead, we’d have to raise cash by selling our products to customers who wanted to buy them.


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I thought we needed some name for this way of raising money for our business, a name that had the same cache as “venture capital” and “working capital,” and didn’t sound as desperate as “bootstrapping” (even though we were desperate). What name would be good? Mike and I were much like the Wright brothers, who wanted to remain co-founders un-separated by investors, and they, too, decided to generate cash from customers early on to finance their capital-intensive airplane business. They sold exhibition flights, flying their own planes, and then hiring a guy to fly the planes. They attracted people from all over who wanted to see the exhibition flights, which brought in the revenue to keep them independent and solvent, and their company afloat. This strategy allowed them to build airplanes without raising venture capital. (They eventually did take on venture capital investment, but they delayed this long enough to retain more control of their company.) On most of my drives around the Ohio Valley, I wasn’t thinking about the Wrights or anyone else, I was thinking about generating cash. Sometimes I went down I-71 to visit Rubbermaid, which was growing pretty creatively in the 1980s, cranking out about 400 new products per year, and was a steadfast customer of ours. That often was just one stop on a bigger trip to Akron and Canton, past Columbus, and toward Dayton, which is southwest of Columbus, and is, coincidentally, the birthplace of the Wrights. On one of these drives, I came up with the idea of SALES FIRST. Over time, we had deemphasized our work with Chemiplast and focused more on ColorMatrix. We needed cash to continue to grow ColorMatrix, and SALES FIRST was a great term for that fact. We needed to get money from customers quickly, which meant we had to sell constantly and at the right time. Why not call this SALES FIRST? I know it’s not genius, but we weren’t sensitive or progressive enough to have written core values for our company, nor were we smart enough to have a


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formal strategy. We just needed cash, and SALES FIRST seemed like as good a strategy as any—better, actually. SALES FIRST is a bit more nuanced than I gave it credit for because it required us to consciously manage the thin line between being at the leading and the bleeding edge of the market. If we tried to open markets for liquid colorant systems too early, the sales cycle for each customer would be so long that we would have to raise capital to support our pioneering efforts. If we were too late to a market, we would face a handful of competitors who were jockeying only on price, which would erode our profits. To survive, we learned how to do whatever it took to solve a customer need that was real, immediate, and offered a rapid payback. This SALES FIRST approach was vital because it allowed us to have more control over our destiny. It also kept us from trying to do something so innovative and speculative that a customer wouldn’t pay for it. We let the customer lead, tell us what they wanted, and pay for it. We then delivered it with a sense of urgency. Our customers helped us stay on the leading edge opportunity and avoid its bleeding edge. For a long time, SALES FIRST was our only core value—the single most important point in how we survived and grew. Most entrepreneurs need investors for one of two reasons (and neither applied to us):  Their product doesn’t work yet (a new medicine, for example) and needs further development. That gap in working technical capability needs funding.  Their product requires massive infrastructure so sales from one customer can’t possibly finance all of it (for example, a railroad). Liquid colorant was not a new medicine or railroad. It was a new category of an existing product, so it was unfamiliar but not breakthrough science or a massive infrastructure project. “Our biggest barrier is that we’re swimming upstream,” Mike said when we put together our early sales forecasts. “We have per-


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ception issues, but we can fix those with good selling techniques.” People thought liquid color was dirty, messy, and hard to implement. For every 100 doors we knocked on, 95 of the people who answered told us to pound salt. Of the remaining five, four gave excuses about why it wouldn’t work for them. Liquid colorant also required a technical sale. I met first with process engineers, bench chemists, foremen, and production managers on the factory floor, which was where I was most at home. I showed them how our product helped them reduce machine downtime and increase productivity. They liked this and asked the company’s purchasing department to figure the cost of liquid colorant. “Too expensive,” purchasing almost always responded. Raw materials, not labor, were the largest cost component of extruded and injection-molded plastic products. Resin was roughly 80 percent of the raw materials cost, and additives, about 20 percent. Purchasers were always looking for ways to reduce materials costs. I was an avid number cruncher (in a back-of-the-envelope way), so I loved to combat this objection with a couple of calculations. “Okay, you’re processing 10 million pounds of resin per month and using a Let Down Ration (LDR) of 2% pellet concentrate. That’s 20,000 pounds per month of concentrate at $1.50 per pound (or $30,000). Our liquid concentrate sells for $2.10 per pound, but you only use it at 1.2% LDR. Since you only have to purchase 12,000 pounds per month of colorant, the cost is $25,200, or $4,800 per month in savings.  Annually you’ll save more than $57,000.” “Plus, you have the additional savings of decreased warehousing space,” I said. I drove all over creation because great execution of SALES FIRST required driving my El Dorado, or Corvette, or Porsche, everywhere and showing people these back-of-the-envelope calculations. With SALES FIRST, Mike and I made sure not to


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overestimate the revenue or profit we could generate. “I don’t wanna be one of those entrepreneurs who fails because we sat in our offices thinking about what we can do or how fast we can do it,” I said to Mike. We knew from our sales experience at General Mills (for me), Mallinckrodt, and Cincy MIlacron that revenue usually came in slower than expected, and we knew that overly optimistic entrepreneurs who sat in their nice offices making projections failed much more often than did ones who were in the field taking orders for their products. The office dwellers were too optimistic. They weren’t out there being told “no” over and over again, gaining an understanding of what real-world (not hypothesized!) patterns united the “yesses.” SALES FIRST united Mike and me, but it frustrated employees sometimes. When employees asked if they could spend money on something, Mike and I habitually made a motion of opening up our wallets and doling out dollar bills. Although that sounds condescending, we didn’t mean it that way. We wanted to show that our culture was built on the fact that we were financing every spending decision ourselves. We didn’t have the money to take on speculative or long-payoff projects. We were about near-term opportunities that could be fully financially justified. Because of SALES FIRST, our employees often were rebuffed for exciting growth opportunities they were motivated to pursue. But it was this approach that enabled Mike and me to avoid bankruptcy, slowly build our company, and avoid having to answer to equity holders, creditors, a board of directors, or friends and family who invested in our business. With SALES FIRST, we didn’t need to ask anyone else for their opinion about whether we could deliver when a customer needed something. So we both were devout followers of SALES FIRST, and we trusted each other to make the right SALES FIRST decision for the company and the customer. In the 1980s and even the early 1990s, mobile phones didn’t exist in any meaningful way, which meant I had ample time to


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think about these things as I piloted my various automobiles. As I captained my V8-engine ships, I motivated myself with my back-of-the envelope SALES FIRST calculations, thoughts on a meeting with a prospect or customer, or a little bit of Elvis.

M

Great Relationships

ichael Mann produced Thief, and he also produced the popular TV show Miami Vice about a guy’s life as a Metro-Dade County undercover cop. Actor Don Johnson played Sonny Crockett, and he mostly drove excellent boats (a 1984 Chris-Craft Stinger 390x and a Wellcraft Scarab) really fast off the coast of Florida. I loved this show, and I also became obsessed with go-fast boats. I bought one and kept it up the street from ColorMatrix at Lakeside Yacht Club, which was a less-fancy place than most yacht clubs—not quite a working man’s club but nowhere close to the shows of wealth you see at many yacht clubs. Fast boats offered the kind of speed and precision I really liked, and I got into an occasional habit of leaving work when I needed to let off steam, hopping into my boat, and going fast northward on Lake Erie toward Canada. I had to be careful about inviting customers to go yachting with me because some didn’t find these expressions of the (i.e., my) male ego to be all that charming, while others were totally into them. It was hard to predict which customer might be which, so I usually didn’t bring up the topic at all. The boats I owned featured no furnishings because TVs, stoves, dishes, and other comforts wouldn’t endure 70-mile-per-hour speeds through choppy waters, which meant the women in my life weren’t always thrilled to join me for a boating excursion. The boats weren’t overly helpful in my relationships with either customers or the women in my life (I have been married a few times). The initial hires we made at ColorMatrix also weren’t much about relationship building. We were so consumed with


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our SALES FIRST mentality that we hired people who could support us by keeping their heads down and doing the background work to help us sell. This practice worked for a while. “Our entire team needs training on how to build relationships,” Mike said one day when he was frustrated about an employee who wasn’t working well with another employee or maybe a customer. I don’t remember. “We have got to put something in place to help them develop this skill,” he said. We looked at our options and decided to use a training program based on Zig Ziglar’s best-selling book, See You at the Top. Ziglar was born a dirt-poor southerner who ended up making a great living and becoming wealthy. He decided to share what he had learned along the way about character and motivation. When it came to relationships, he had one core belief: “If you set out to make a friend, you wouldn’t find many. If you set out to be a friend, you’ll find them everywhere.” His basic mentality was that if people consistently gave back to their world rather than expecting something from it, they’d find success in life. The way to become a friend to others was through the core values of honesty, loyalty, faith, integrity, and strong personal character, Ziglar said. He didn’t think every person was born with these values, but he believed that no matter what walk of life a person came from, he or she could be taught them. Ziglar’s ideas matched Mike’s and mine, and building great relationships through his simple belief about making friends with these core values essentially became our culture. We knew we wanted our people to show this sense of friendship and these values all the time as we operated, and we became committed to the Zig Ziglar way. We went to a “train the trainer” session in Dallas so we could learn how to teach his program to our team. When we came back, we began to use a video cassette and our training and ideas to infuse the See You at the Top mentality into our company. From early on, it was successful. One woman who worked


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with us had lost her husband. He was killed in the middle of a holdup. She subsequently developed significant health problems, and with the stresses in her life, her confidence suffered. She had kids at home to feed, and she lived in constant fear of destitution. She was always worried and nervous—if you looked at her cross-eyed, she’d cry. After the See You at the Top course, she developed a better self-image and became much more confident. She became friends with her co-workers, practiced the core values, and used those successes to start expressing her professional needs appropriately. “I’m working with customers, taking sample requests, performing our bookkeeping, and working as a receptionist. I do a lot of things and should be compensated differently,” she said to us one day. We were taken aback by her sudden forthrightness, but we loved that she had developed a belief in the power of her own integrity, honesty, and strong personal character, and we loved that this gave her the confidence to ask for a raise. To forge great relationships, we also spent as much face-toface time with customers as possible. No customer should have had to call us with a request like, “Can you give me a quote on [such and such product]?” We needed to be close enough to them that we could anticipate their needs. We didn’t want to research our way into a new customer or fax in a response to a customer’s request for quote. We needed to be in front of our customers, listening to their problems, and developing a relationship with them. When we followed this path, we built a suite of customers who were the cornerstone of our business. One example of how our relationships with customers worked was when we got in front of Arnold Coldiron early on. He had become the largest customer of our repping business by agreeing to purchase one of Synpro’s additives (calcium stearate) from us. Then we wanted him to help us out at Rosemar (before it became ColorMatrix). “Would Carlon be willing to replace the solid color concen-


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trate it’s using with our liquid concentrate?” I asked him one day. He thought it might. His R&D team, which had responsibility for researching new resins, stabilizers, waxes, fillers, and colors for Carlon’s switch boxes and plastic pipes, tested our liquid colorant in their Oklahoma City facility. They decided it was good. “My engineers tell me your product works,” he said, “and we’ve got a great relationship already. So I’m willing to work with you to switch to liquid colorant.” This was a huge, early win that was based on a longstanding relationship. Another experience that illustrates the importance of strong customer relationships was with Bill Coleman, general manager at Variform, a vinyl siding company. We originally met him when we were with Chemiplast selling him resin and additives (heat stabilizers). Then he became a manager at a vinyl siding plant that extruded siding that was one color on the top and gray on the bottom. He was interested in switching to our liquid colorant for this co-extrusion, but he was concerned because liquid colorant was considered messier than dry pellets. This was one of the main objections we fought every day. We lost many customer prospects because of the belief that liquid color would be all over their machines, employees, and factory floors. I decided to bring a can of liquid carbon black on a flight to visit Bill at his Kansas plant. Because it’s so dark, liquid black is the messiest liquid colorant. I wanted him to see that even the messiest colorant was pretty neat. Bill knew me well enough to know that I was obsessively clean. I washed my car every other day, my boat, every other day, and that type of thing—a trait I learned from my mother. “You don’t need to be rich to be clean,” she had said to me countless times. Mom was a stickler about her children being tidy, having clean clothes, and living in a spotless house, so I developed a habit of extreme cleanliness. Customers knew if I said something was clean, it probably was


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immaculate. I brought my dispensing pump with me on the plane and wore nice slacks and a tie to impress upon Bill Coleman that our product was so clean, you could easily handle it while wearing business attire. This was my standard technique for preempting the customer concern about liquid colorant being messy—if a neat freak like me could handle it in a suit, then their skilled supervisors, foremen, and chemists could handle it on the factory floor. Just before we started the demo, Bill unexpectedly stopped me. “I’ll do this,” I remember him saying to me. He wanted to operate the pump that metered the liquid colorant into the throat of the extruder. I hadn’t planned on this. “Bill, I was going to show you how to do this first,” I said. “Nah, let me do it,” he said. What could I do? I had to let him operate the equipment. He was a friend, and I wanted this trial to go well so he could see what a fantastic company we had. He was wearing a pink shirt, gray tie, and gray slacks. I was a little nervous as I watched him, but mostly, I was confident. He pulled off the cover of the carton of carbon black and it burst! It covered him from his shoes to his nose! I mean, he was covered in black liquid. “I should probably catch an earlier flight,” I said sheepishly. The flight must have pressurized the can, and once it was opened, the pressure was released. Fortunately, Bill had a great sense of humor, and we were able to clean up and use the remainder of the carton of liquid black for the demonstration. I completed the trial successfully, went out to dinner that night, secured Variform as a customer, and flew home the next day. That disaster turned into a success only because Bill and I had a great relationship. I am pretty certain if we hadn’t known and trusted each other, I would have been booted out of the facility. We experienced quality problems at times, and those put pressure on our relationships. We had an issue once with a multi-billion dollar building-products company that had a strong presence throughout the southern US. They claimed their orange colorant was burning and discoloring as it went through the


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manufacturing process. Mike went to see them, and our main customer contact made clear he wasn’t at all happy by handing Mike a product-liability claim for $85,000. On the spot, Mike said he’d take care of the issue, no problem. “Enter a credit balance into the customer’s account,” Mike said to our vice president of finance, and he asked me to let the customer know he had a credit to use for future purchases. Our customer was really excited about how quickly we resolved the issue—no denying, conjecturing, extended conversations, bringing in new people, or good-cop-bad-cop routine. Within hours, Mike knew the problem was our fault and ensured that our customer got what he needed to be happy again. I later let Mike know the results of my conversation with the customer. “Mike, this guy was complimented by his boss because he resolved the problem so quickly. And you know what,” I added, “some of the bad material has value in a second-hand market, so he can mitigate a portion of the $85,000 that way, as well.” Our quick action and strong relationship helped lower the stress of this situation, but we did have some less-than-perfect relationships. We were named in lawsuits by customers twice. Once was in the early 1990s when a roofing installer sued United Technologies for a roofing product failure. UT believed its suppliers’ products had caused the failure, so it sued us and six other defendants. Fortunately, the lawsuit was dismissed. Another time, a customer that made plastic preforms (that are heated and blown into full-sized bottles) for PET bottles for dairy products had a problem with brittle bottles that couldn’t be properly blow molded. The customer received a handful of claims that their bottles were delaminating. We were selling the customer a white color, and he blamed our colorant for the issue. “Our other customers who are doing the same thing with the same colorant aren’t having any problems,” we explained to our contact there. When we looked into what he was doing, we found that his


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company was processing the colorant incorrectly. He maintained it was our fault and sued. We ended up settling. When people think of relationships, they tend to think they should sweep problems under the rug to avoid confrontations. It’s the opposite. We never did this. We quickly came straight to the point and laid issues right out onto the table in front of everyone. “What do we need to do to get this fixed?” we asked. If we messed up and confessed, we had the possibility of repairing the relationship. If we tried to sweep things under the rug, downplay issues on either side, or not tell customers about problems, it became hard to repair the relationship. Either we or they were too frustrated to make it worth repairing. Relationships with direct communication are important to a successful SALES FIRST approach. The other thing that seemed important was being obsessed with work. I was so obsessed with selling and building relationships that I rarely vacationed. I went to Miami to watch boat races a few times, which was fun, but I guess I found the most relaxing activity to be cleaning. In summer, I liked to go down the street to Lakeside Yacht Club and clean my boat for hours on end, sponging the deck and hull, and shining the hardware. I did this at least once a week when she was in the water, plus I always cleaned my car once a week and my office every day I wasn’t on the road. That was about all I had time to do, considering how hard I worked, so it was a good thing I liked it.

M

Solution Selling

y first boss at General Mills, Mike Laudice, showed me how to set up a problem, and then one by one, eliminate its variables. Mike was a research chemist and a Brainiac with a number of patents and published papers in scientific and other journals. We got along really well—we played softball, bowled, and occasionally hunted together. I


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thought college lab work generally was one-time experiments to demonstrate a principle, not an ongoing process with commercial applications. So when my lab work at General Mills started to consistently generate results that made sense to me and others, Mike explained to me that this wasn’t magic—it was the inescapable output of setting up problems correctly and methodically eliminating variables until I received answers. This was an “aha moment” for me. He taught me how to solve problems consistently and with confidence, which came in very handy for selling our products at ColorMatrix. Initially, we sold features and benefits. One of our glossy flyers highlighted the accomplishments of liquid colorant. It basically shouted: “DISPENSES COLORANT CONSISTENTLY AND INEXPENSIVELY!” (We couldn’t afford to be subtle.) Another one showed off our dispensing system (shouting again)—“PROVIDED AS A SIMPLE SYSTEM!” In meetings with customers, I pulled out the flyers and did the back-of-the-envelope calculations I loved. “Say you’re paying $250,000 for solid color concentrate. Our liquid system will cost you $175,000 or less. That’s a 30-percent savings or more.” The price per unit of liquid concentrate was greater, but you used less liquid than dry concentrate. I showed them the entire value proposition of liquid colorant. I was so eager to gain market share that I focused on cost and got us into bidding wars. The few liquid colorant companies that existed—Rosemar Industries (before it was acquired by Ferro), Ferro, Bee Chemical, and Riverdale—sold mainly on price alone and accepted low margins. They responded to requests for quotations (RFQs) from prospects that only wanted lower prices. Typically, a handful of competitors vied for these bids through a series of phone calls, back and forth. It was a pure price war. It seemed to us that our competitors loved these situations because, with a few phone calls, they could replace someone else’s color business. Never mind that their own business could be replaced just as


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quickly. It was a commodity situation: their chosen business model was to focus on price. Relationships were what we wanted, not price wars. “We’ve gotta move away from talking about features, benefits, and cost savings,” Mike said in one of our meetings after a bidding war. “We really need to avoid these competitive bid situations like the plague.” We decided to turn to solutions selling. We changed our target customer to companies using dry concentrate colorants that would gain a clear value from converting to liquid colorants. This conversion process took six-to-twelve months, which was eons, compared to our competitors. But the relationships we built with our customers were deep, meaningful and also lasted eons. One of our first customers was a company that made garden supplies and had a plant in a Cleveland suburb. We converted them to liquid color in 1984, and they remained a customer for years. “We will never let anyone else become our liquid color supplier,” one of their people told me several times over the years. We didn’t need glossy flyers showing off our products to make our case with the types of customers we wanted. We needed to be in front of them so we could build relationships with them. This made us completely different from our competitors. When we were in front of prospects, we could show that we knew the plastics industry incredibly well. We understood PET (food packaging), PVC (vinyl siding and pipes), and traditional injection-molded plastic products. We had our own in-house machines, and we tested products constantly so our salespeople could sell in a consultative, technical way. An example of this selling method occurred with a Texas company that manufactured PVC pipe and conduit. We were desperate to secure them as a customer, but as we were courting them, they told us they were committed to dual-sourcing most of their materials and supplies. Companies that dual-source buy materials from two suppliers instead of one so that they have


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relationships and a transaction history with both suppliers. This reduces supply-chain risk. “The problem with dual sourcing is that there are no other suppliers anywhere close to us in technical sophistication,” Mike said to them. “We have our own dispensing system, and we customize your formulations in customized resins, which other companies don’t do, so it’s going to be impossible for you to dual source with us.” Waiving their dual-sourcing requirement was one thing, but depending on our single plant to produce their colorant was another, they told us. If our facility experienced a disaster that disrupted their supply of colorant, they’d be in trouble. “How about if we add a facility?” I asked their purchasing person. “That way, if our facility becomes incapacitated due to some disaster, we can supply you from our other facility. Plus, you could purchase a year’s supply of liquid colorant from us, which is enough to last through any potential business disruption scenario I can think of.” They agreed this made sense. For us, adding a new facility for one customer was a big concession, but we were already in a mindset to do this, anyhow. “A second location would give most of our customers greater peace of mind,” Mike had said to me once or twice during the prior year. Mike already had a second facility on his mind, so we had basically been waiting for a customer to ask for one to justify this strategy. Our SALES FIRST mentality dictated that we couldn’t add a facility until a customer asked us to do so. Once a customer made the request and was willing to purchase our products from that facility, then our decision became easy. This particular company wanted our second facility to be located near their operation, so we negotiated a long-term lease of a 48,000-square-foot facility that included manufacturing and lab space in Fort Worth, Texas. A few of our people transferred to Texas, but mostly we hired new people for the facility.


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“This is great because it brings us closer to Mexico and the Southwest,” Mike said. Both regions were high-growth plastics regions, and we were branching out beyond the Ohio Valley. Still, the location was not ideal: a tornado hit Fort Worth and blew the roof off our facility shortly after we opened it. The damage was severe. Many pallets of pigments were destroyed by water. We salvaged enough pigment and equipment to resume operations within a few days. This also was when we found out how good (or bad) our insurance was. A clerical error on the part of the insurance company had caused them to initially tell us we were uninsured; they soon corrected their error. “It’s sort of funny that the plant we opened specifically to reduce risk for our customers was hit by a tornado,” I offered up, adding, “and that our insurance almost didn’t pan out.” Mike wasn’t amused. But the crisis did show a commitment to solving customers’ problems that went far beyond a glossy brochure or responding to an RFQ. That was how we wanted to do business. We focused on the value proposition of how our entire colorant solution increased performance and quality for customers while decreasing their cost. That became our primary strategy:  Use the SALES FIRST approach (always).  Build enduring relationships (which added to our values and became our culture).  Sell complete solutions (don’t commoditize). It worked really well for us. The hardest part of our growth curve was growing from $0 to $1 million because we had to build credibility to get early sales. Then we grew from $1 million in annual revenue in the early 1980s to about $10 million by 1993. We brought on a couple dozen new customers per year and continually pried open the market for liquid colorants. From 1991-2000, we were named each year to the Weatherhead 100 list of fastest growing businesses in northeast Ohio. In 1995, we also won the Ernst & Young Entrepreneur of the Year Award,


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and we were proud of that. In fact, I’d say we were pigs in mud, or more accurately, plastics guys in the Ohio Valley. Yet, we were sort-of cerebral pigs in mud, because we did want more. “I think in this market we can grow to $100 million,” Mike said. “You think so?” “I know we can. I think we’ve got to go after that goal.” India and China were becoming major forces in the plastics industry. Small plastics processors were a dying breed, being replaced by global companies that had professional purchasing managers. And we were at the leading edge of that change. “Not taking on outside investors is going to put a damper on our growth,” Mike said, “but I think we can grow quickly without investors.” We continued to toe the line of being high-growth entrepreneurs and yet bootstrappers too. We were adamant about being self-financed and independent. Fortunately, timing was on our side. In the early 1980s when we started out, the plastics colorant market was worth hundreds of millions of dollars annually and almost entirely made up of solid-color concentrate. By 2004, the global plastics colorant market reached $5.7 billion, with liquid colorant’s growth rate at twice that of dry colorants. With that kind of market growth, we went from living paycheck to paycheck to running a successful, rapidly growing business.


V Polymeric— Adding People & Partners Polymer, n: a substance that has a molecular structure consisting chiefly or entirely of a large number of similar units bonded together, e.g., many synthetic organic materials used as plastics and resins.

Mike


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J

Plastic Packaging

ohn and I were at our company booth at a plastics convention in Cleveland. We were still a young company—our annual sales were around $1 million—and we were talking to passers-by who were interested in liquid colorants. A big guy—6'3" and about 250 pounds—introduced himself. “Hi, I’m Dave McBride,” he said. He was young, probably about 21 years old, and his nametag showed that he worked for Reed Plastics, a Dallas, Texas, company that made dry color concentrates. He was Reed’s inside sales associate, taking and fulfilling customer orders, and his boss had recently transferred him to Ohio. “I think liquid colorant is going to take market share from solid concentrate,” we recall him saying, “and I’m excited by that. I’d love to be on the liquid colorant side.” He seemed genuinely excited about liquid colorants, which was an attitude we liked. He had majored in marketing at the University of Illinois, and he seemed smart and insightful. “If you’re ever looking for someone to sell for you,” he said, “let me know.” John and I were both interested. We interviewed him at the Holiday Inn on Rockside Road. The three of us drank beer. “I’m confident I can sell your liquid colorants,” he said. We finished our drinks, and the next day offered him a job as our first salesperson. “Okay, Dave,” John said, “your job is to go out and sell as much of our liquid colorant as you can to plastics injection molders in the Ohio Valley area.” We were still Rosemar of Ohio, and our partnership with Rosemar Industries had required that we sell only in that Ohio Valley. Dave’s first sale was ten drums of white liquid colorant to a company that made components for Whirlpool washing machines. “I just got my first customer order,” I remember Dave sauntering into my office and saying.


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“That’s great!” I replied. “I told you it would happen.” He acted nonchalant, but I was excited for him, and I called John into my office so we could make a big stink out of it. We finally had someone else selling for us. Seeing our excitement, Dave became more obviously happy about his success. He was a natural, and we knew he was going to work out well. We gave him my company car. He was a sight to see—driving my old front-wheel drive Toronado all over the place. I bought a new car for myself. After we split from our Chicago partners, the world beyond the Ohio Valley opened up to us. Dave added new geographies. Some companies in these areas started talking about polyethylene terephthalate. PET was invented in 1941 as a strong, lightweight plastic that sustained high pressures and was 100-percent recyclable. Bottlers began to use it in the 1970s, and that’s when it became popular—thirty years after its invention. In Europe, it soon became the leading material for food and beverage packaging, and the US followed. One of the largest glass bottle manufacturers in the world became Dave’s first PET packaging customer. He was visiting the company’s prescription products division in Ohio, which made amber-colored polypropylene (not PET) pill vials. Dave converted them to liquid concentrate for that application, and while he was there, he noticed they had a couple of machines in another room that were making PET cough syrup bottles. “How do you get the amber color into those cough syrup bottles?” he asked. “We buy pre-colored resin,” his contact said. He told Dave that they were buying pre-color from the specialty chemicals divisions of a couple of large commodity suppliers. “Buying amber pre-color this way is expensive,” Dave observed. He sat down and showed them the numbers. “You should buy clear resin and add our liquid color on site. It would be less expensive.” They didn’t disagree, but they told him that adding liquid col-


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orant to PET resin affected its physical integrity. They tasked him with finding a liquid vehicle that would work in PET. This was no easy task because PET is a pretty sensitive polymer and doesn’t offer the kind of technical forgiveness as polyolefins. He came back to us, explained the situation, and our technical crew engineered a solution. Thanks to the technical team’s work, the company became Dave’s first customer conversion in the rapidly growing PET packaging industry, and that marked another major milestone for Dave. His confidence was bolstered. He decided to double down on the PET industry because it was growing so quickly. He visited the firm that made the packaging for Palmolive Sensitive Skin. When PET is recycled, it yellows. Colgate-Palmolive wanted to be able to use recycled PET for the Sensitive Skin bottle, but so far had been unable to do so because of the yellowing. They were working on solving this problem with their packaging supplier and a PET packaging consulting firm. Our technical team was pretty sure they could develop a product that would do what was needed, so Dave told them we’d work on this. We did trials and determined a blue toner could remove the yellowing effect in recycled PET, but to have confidence, we knew we needed to test it specifically in the customer’s machines and settings. The consultants and packaging supplier told us to give it a shot, so we customized a formula for Palmolive Sensitive Skin and experimented at the Sensitive Skin production plant near Cambridge, Ohio. The blue toner worked. The consultants and packaging company both were very happy with the results. The PET packaging consulting firm was impressed with Dave’s resourcefulness and with ColorMatrix, overall, and they introduced us to a couple of their biggest clients, the bottlers for Coca-Cola. Coke’s business model is to own its formulas and make its beverages, using bottling companies to bottle and distribute the products. Employees at the bottling companies used to hand-fill bottles with Coca-Cola products and


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deliver the bottles house-to-house by horse and wagon. Coke’s bottling and distribution operations are big business, and one company made the PET bottles for two of the beverage maker’s largest bottlers. I remember Dave being pretty excited about a bottling company opportunity, saying, “We’ve been introduced to a huge converter. Western Container is located in Texas, and Southeastern Container is in North Carolina, and when these converters change from running a line producing Sprite (in a green bottle) to Coke (in a clear bottle), the line has to go through a complete color change.” This was a perfect situation for our liquid color concentrate. Machine operators had to clean out the green color from the hopper, load new resin, and wait 6-8 hours for the new resin to dry properly before they began making bottles. Then John set in: “Multiply this process across all the Coca-Cola products and a whole bunch of injection-molding machines and . . .” He started to do the calculations. “You get major inefficiency,” I said while he was calculating. “Using pellets is causing this converter huge machine downtime,” Dave added. John finished his calculations and gave us the numbers. “Line workers may as well be twiddling their thumbs while someone throws this money out the windows.” We installed a metering device that pumped colorant through a tube into the feed throat where the resin came into the press. We made it so the changeover from a Sprite line to a Coke line was this easy: the line operator or colorist turned a dial to let out color or to stop it. They could switch from green Sprite bottles to clear Coke bottles with one simple step, avoiding the machine cleaning and resin drying processes. The value proposition of reducing the number of steps in the process—and the time and labor involved—was a no brainer, and Dave won the sale. Dave was on a roll, and through his efforts, we figured out


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plastic packaging was big money. Consumers wanted convenience for their increasingly on-the-go lifestyles, which included growing numbers of microwave ovens that handled PET plastic well. PET was a $200-to-$300 billion annual market globally, and Dave was young and hungry enough to go after it like the linebacker he was. (He had planned to play football at the University of Illinois but had injured himself.) He could be overwhelming, intimidating, and overly aggressive, at times, as well as difficult and abrupt when he didn’t get his way. “Dave, see the handle on the door?” John used to say. “That’s called a door knob. You usually turn the knob to open the door.” John made a motion of turning a knob gently. “You don’t knock the door down to get in.” Dave was someone we had to slow down, not speed up. He was determined to achieve an objective regardless of what got in his way. Coca-Cola sold a lot of beverages, and his goal was to have our color in every Coke bottle that had color, which took thousands of pounds of color annually. This was exciting, but it required that I organize my personal life and the company differently. I had so little time with family that I decided to take up horseback riding with Marian and the girls so I could spend more time with them. The girls excelled and competed in the hunter-jumper category, but I enjoyed going out to a nearby barn and riding with them. I also installed two phones in my office so that one could be dedicated to Marian and our children. When the family phone rang, people laughed because it was like the red telephone that connected the US president and Moscow during the Cold War. I literally dropped things to run and answer my family phone because I wanted Marian and the girls to know that they were the only other priority in my life, aside from the job I loved. At work, we also had to organize ourselves for growth. With the new PET business taking off, we divided our company into three markets:


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 Injection molded consumer products like flower pots and trash cans,  Construction and building products like PVC pipe and vinyl siding, and  PET packaging products like juice, tea, beer, water, and ketchup bottles. This new organization structured us for the growth that was coming at us constantly and without let up.

I

The Europeans

met Bill Ravenna in the early 1990s when he was a salesperson for American Cyanamid, a diversified company that made pharmaceuticals, building products, and specialty chemicals. He was calling to sell us UV (ultraviolet) absorber. We talked, and he revealed that he wanted to leave his current employer. As I recall it, he said something along the lines of, “I’m planning to make my way over to England, so long as I can find the right work opportunity.” It turned out, he had met an au pair from England, and they had fallen in love. She had returned to England, and he wanted to follow her, but he wasn’t sure what he’d do for work there. He had spent time in the United Kingdom as a youth because his father had been an automotive executive. Bill had even attended college and business school in England. I remember him explaining his career desire. “A couple other guys and I want to start a business in England,” he said. Mark Frost and Dave Nuttall were the “other guys.” All three had been chemical engineering majors at various universities and had met when they were getting their MBAs at the University of Manchester. In a damp corner in upper western England, they had developed a pact that someday they’d start a business. “Bill seems really capable. I’d love to support him in his dreams. We were thinking about getting into the European market, and


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Bill might represent the opportunity for us to do that,” I said. John, Dave McBride, and I had heard European PET processors were going from buying pre-colored plastic to doing on-site coloring. “Why doesn’t he go over to England and look into that for us,” John suggested. I threw out this idea to Bill, and he liked it. He and his partners commissioned a market study from students in the University of Manchester’s MBA program, and when the study was complete, he began calling on the companies recommended in the report. One company he visited was Constar, a company that made PET containers and sold them in the US and Europe. Constar bought pre-colored amber resin from a dominant chemical supplier. Bill was interested in getting them to switch to buying natural resin and coloring it themselves, using our amber liquid color concentrate. Bill was right in the middle of pursuing this line of reasoning with his Constar contact when the large chemical supplier called. The Constar guy picked up the phone. “I’m calling to tell you that we’re not going to be able to supply you with pre-colored amber anymore,” the chemical supplier apparently said to the Constar guy. He went on to explain that his chemical supply company was getting out of pre-color because selling natural, uncolored resin was more profitable for them. Bill’s contact at Constar hung up the phone. “Interesting timing,” he said, as Bill later relayed it to me. “I guess we would consider switching to using your liquid concentrate to color our resin.” Bill jumped all over this because it gave him the opportunity to return to the UK and follow his heart. We inked a ten-year agreement with Bill, Dave, and Mark that formed ColorMatrix Europe, which licensed know-how and purchased materials from us on favorable payment terms. In exchange, we received royalties on sales of liquid colorant. A structure and tone of equality was important to us in our


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partnerships. Also important was the idea of having backstops in case of failure. We set up the partnership as an export arrangement under which we exported the licensed product to ColorMatrix Europe, and they distributed it. We didn’t invest big money in building new manufacturing facilities or make acquisitions. Our manufacturing remained in the US. A second step, if all went well, would be to set up manufacturing in Europe. We wanted to be for our European partners what Gary Curtiss had been for us—guys who removed barriers for others—and I think we succeeded. Bill, Mark, and Dave started tinkering in Chorlton-cum-Hardy, near Manchester, which was their “headquarters” (i.e., the apartment building where Bill lived). We sent them materials in five-gallon quantities, and they sampled, tested, and repackaged them to test them with customers. They found the opportunities, we provided technical support and produced colorants and additives, and they priced and resold them under the ColorMatrix Europe brand. After they landed Constar as a major customer, they set up a real facility in Knowsley, England, which had created an economic development zone to combat the employment devastation of coal mines that had closed across northern England. Bill, the American, was very commercially oriented—a bit of a cowboy—and he became our European sales leader. David was operational and administrative, running the company’s day-to-day business. And Mark was a strong technologist, very technically sound and creative. Dave and Mark were detail oriented, which was a nice complement to Bill’s big-picture salesmanship. It wasn’t always sunshine and roses among us all. Early on, Bill, Dave, and Mark wanted to sell as “ColourMatrix” because that spelling of “color” was more familiar to Europeans. “We’re an American company,” John said to them, “And we’re proud of that.” We understood their desire to “do as the Romans do,” but for branding purposes, we really wanted them to sell as “ColorMa-


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trix.” We could see that didn’t make them happy (they already had ordered ColourMatrix signage and stationery). Another time, Bill, Dave, and Mark concluded that they wanted to enter the PVC extrusion (pipe and vinyl siding) and injection molding markets. We were in these markets in the US and had figured out that, at least in this country, these were commodity businesses with low profit margins that were getting worse every year. “The packaging market is much higher margin,” I said. “Why do you want to sell into low margin markets when we haven’t exploited even a small part of the packaging market,” John asked. Packaging had much higher margins. They didn’t seem thrilled about our request and may not have agreed with it, but over the ensuing years, they also seemed to respect it. I think we all agreed that we wanted to compete with great relationships and systemic solutions to customer problems, not with low prices. For years, John and I had lived the reality that our market-focused, non-commodity strategy was sometimes painful, most of all, when it meant passing up big-revenue opportunities. Bill, David, and Mark were innovators who seemed to be modern-day extensions of the UK’s pioneering of color chemistry. In England a couple of centuries ago, mom-and-pop makers of consumer goods used mostly ground-up roots, leaves, insects, and snails to extract color. The colors were muted and temporary, about what you might expect if you ground up a snail and blended the resulting color with sheep’s wool at your homebased spinning loom. Bright, lasting colors didn’t exist in large quantities, at that time. In the mid-1800s, William Henry Perkin, a London teenager, created what became the modern colorants industry. He was a chemistry student on a lab team that was researching cures for malaria, and his professor persuaded him to experiment with hydrogen, oxygen, and coal tar, a thick, sticky substance. Perkin was messing around with the coal tar, also called aniline, in his home lab when he noticed a bright purple residue in his test


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tube. He thought the color was striking and figured it might have commercial value. He turned away from finding a cure for malaria and started testing the purple residue as a dye for silk clothes. It was amazing! Used as a dye, the purple sludge created a richly colored silk. He initially called his colorant Tyrian purple, after the colorant used by the ancient Romans, but the name didn’t catch on. He switched it to mauveine, named after a French flower. People liked this name, and I think of it as an early example of how chemistry meets fashion. Perkin knew he was on to something big, and he set up a small-scale production plant for aniline in West London. This was the world’s first industrial colorant company. He determined how to apply mauveine to wool, which was a breakthrough that enlarged the market for his discovery. Not many Europeans had access to expensive silk, but millions could use or buy sheep’s wool. He built a larger mauveine production plant, and partly as a result of his supply of colorant, “mauve” (for short) had become the most popular color for dresses in London, Paris, and New York by 1858. Perkin was a chemist-turned-inventor-turned-entrepreneur. After him, hundreds, maybe even thousands, of chemists devoted their careers to developing new synthetic colors. They worked with derivatives of aniline to produce brighter magentas, reds, and blues. German chemists founded Bayer & Co. in 1863 to develop and make money from new dye technologies, and Perkin, Bayer scientists and other chemists throughout Europe rushed to patent their chemical formulations. The color race was on! Our European partners had the same sort of inventiveness and aggressiveness when it came to colorants, while John and I were more about steady-stepping our way into opportunities. Where they were innovators and entrepreneurs, John and I were opportunists and sales guys. Bill, Dave, and Mark sometimes wanted to move into markets ahead of sales and revenue. One


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time, a South African company wanted them to provide liquid color concentrate for the fiber used in fabrics. Bill, David, and Mark spent about $200,000 on a fiber spinning machine and lab equipment to do development work without getting a purchase order first. When we heard about it, John and I were taken aback. This wasn’t our SALES FIRST approach. “We don’t sell into that industry. Why are you spending money there?” I nearly yelled into the phone. “It’s a big market and uses the same polymer,” we recall Bill saying, or something like it. He couldn’t believe we were going to ignore an opportunity to develop a huge market that he had long been cultivating. The European unit was growing at about $1.5 million per year, which was a meaningful addition to our US revenue, and he and his partners were confident operators. “But we’re supposed to be focusing on the packaging industry,” John said. “And we don’t have enough experience in fiber.” Most polyester fiber coloring is done in a vat in which dyes are mixed with natural yarn and then pressure-cooked so the dye dissolves into the fiber. We had figured out a way to color the fiber during the extrusion process (instead of in a vat), which was a great accomplishment. But the extrusion process weakened the fiber so it needs to be axial oriented—basically, stretched—to return it to the required strength. The axial orientation washes out the color, making it hard to predict how the color will turn out at the end. The only way to predict the final color is to invest in expensive machinery, and we didn’t want to do that. We were unfamiliar with the fiber market and didn’t have enough of a customer commitment for our liking. But the Europeans loved technical challenges like this. “They’re really not happy with our decision,” John said to me after our call. The episode spoke to the largest area of friction between us and ColorMatrix Europe. They were idea guys and innovators


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who were motivated by investing up-front to develop products that had a need down the road. Meanwhile, Mike and I were sales guys and opportunists who were obsessive about our SALES FIRST mentality. We were driven to avoid the “If we build it, people will come” mentality, and we saw any movement toward needing investor capital as a step away from the financial independence that was sacred to us. We absolutely had to control our own destiny. We had some disagreements with our European partners over the years, but we maintained a strong partnership because one thing above all others makes a joint venture a success: performance. These guys performed every step of the way. They surpassed $500,000 in revenue in their first year and reached about $2 million in their second year—a growth rate that helped smooth out our differing philosophies about entrepreneurship. Another time, Eastman Chemical in Europe offered a great opportunity. The company wanted to shed its resin service center equipment and employees. As I remember it, Bill wanted us to do something about it. “I think we should acquire the equipment,” he said. The equipment included machines for running color matches and production-scale, multiple-cavity molds that could get us into extruding and molding finished products for our customers in Europe. These capabilities could distance us from our commodity-based competitors and was consistent with our commitment to solution selling. “I think this is a great decision. Let’s do it,” I said. Bill, Mark, and Dave bought the equipment, which was not inexpensive, set it up as a service center in Eindhoven, Netherlands, and began providing services. When Coca-Cola wanted to sponsor the World Cup soccer competition and run hundreds of thousands of bottles with promotional colors, we were able to do this for them. They were happy because they didn’t want to interrupt their high-volume manufacturing lines for a short


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run. The Coke team came to our facility and spent a day completing the run, which saved them money and built our relationship. Other times, our Netherlands service center remixed colorant. Some liquid colorants settle if they sit on a shelf too long. Our customer could ship the settled colorant to our Netherlands facility, where our lab technicians remixed it and sent it back to the customer. This facility helped us forge even stronger relationships with our customers in Europe, and our European team’s instincts on taking advantage of this opportunity were right on. “They are great partners for us,” John said. “You know, they probably structure their operations and manage people better than we do.” They built a high-performing operation. Bill ended up marrying the au pair (they later divorced). We never provided the Europeans the opportunity to build out CM Europe at the pace their forebear, William Perkin, built his colorant inventions. But we all did well pursuing the opportunities in front of us together.

W

Asian Markets

e wanted to copy and paste our CM Europe experience in other geographies. The Asian tiger was fully upon the plastics industry, with Asia taking enormous market share from US companies. Further, its own consumer class was growing so that it also had domestic demand. On one trip to the UK, Dave McBride met someone who could help us in Asia. Ben Chan was a Canadian of Chinese descent, and as he and Dave talked, Ben disclosed that he had a close relationship with the head of a large company that made preforms and bottles for Coca-Cola bottlers in China. Dave told Ben we were already an approved supplier within the Coca-Cola system.


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The two men agreed that combining Ben’s connection with our approved-supplier status and China’s massive growth led them to one conclusion: they should pursue the Chinese market as soon as possible. “Ben, do you think you can help us land this converter as a customer?” I asked him, and he said he thought he could. In fact, he developed an opportunity so large that we quickly set up a new joint venture, ColorMatrix Asia, and Ben, 25-percent owner of the venture, moved to Hong Kong to run it. Great Britain still governed Hong Kong so our Hong Kong company could legally be set up like a British company, which wasn’t an overly exotic undertaking. Ernst & Young in Hong Kong helped us. I always wanted us to export as a first step to market entry and set up manufacturing only as a second step. “We’re on step one of our two-step process,” I reminded our team, so they knew we could take this further if we wanted. We mixed the liquid colorant and produced the dispensing system in Cleveland and shipped the products to our ColorMatrix Hong Kong warehouse, receiving payment in US dollars. CM Asia used a customs broker to ship the colorant products to the converter, which was based in Wan Chai, a really impressive industrial complex on the border of Hong Kong. We were interested in the PET market in China because, compared to other plastics markets (e.g., polypropylene, polyethylene, etc.), it had more proprietary formulas, greater innovation, and higher margins. Ben relied on his far-reaching personal network and ability to speak Mandarin to get new PET packaging business for us. The difficult thing was that he had spent a good part of his twenty-or-so-year career selling for the leading company in the injection molding machine industry, so he was used to being at a company that was the 800-pound gorilla in its industry. Things were quite different in our Chinese market situation. South Korean commodities companies started flooding Hong Kong and China. They successfully replaced CM Asia’s custom-


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ers at low prices. Ben was a good commercial salesman and very disciplined (e.g., he was quite particular about his eating habits, and this was back in the mid-1990s when people weren’t as fanatic about eating habits as they are today), and he didn’t like this Korean influx. He desperately wanted to avoid commoditizing CM Asia, so he found great ways to hit back hard at the South Korean commodities companies. He partnered with a Korean businessman who knew the South Korean colorant market like the back of his hand. “These guys,” John was referring to Ben and the South Korean colorant expert he had found, “are going to beat the South Koreans at their own game. This is great!” John was happy and impressed with our Asian partners’ gumption, and Ben and the colorants expert were able to sell our liquid colorant systems into South Korea with surprising success, landing customer after customer. They showed the South Koreans who were price-competing with us in China that ColorMatrix could one-up them. Ben taught us a lesson on how to compete in Asian markets.

W

Brazil

e wanted more joint ventures, and next up was South America. Because Brazil was the largest country in South America by population—today it has almost 200 million people—it was our primary interest. Dean Miller was our entrée. He was from Winnipeg, Canada, and he had a real gift for languages. Using no guides or teachers, he taught himself Portuguese so well that within six months, he was fully conversing with Brazilians, not missing a beat in a conversation. It was pretty amazing to watch. On our behalf, he gained familiarity with the Brazilian market for liquid colorants. We said we definitely wanted to establish a presence there, and Dean began doing the spade work. He found


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converter customers and came up with a plan for us to get revenue from each one. We thought his analysis was great, and with him and a husband-wife couple who became our equity partners in Brazil, we created a new joint venture. CM Brazil would sell liquid colorants to companies, primarily converters, located in Brazil. We had the two equity partners, but Dean became our “feet on the street.” He lived in Campinas, a city near Sao Paulo. Our Brazilian joint venture model was similar to CM Asia and CM Europe. We did up-front technical work (running trials) and produced colorant systems in Cleveland, and then sent them to Brazil. We were paid in US dollars. Our partners warehoused the systems, marked up their prices, and sold them to customers. We also formed a second South American joint venture, CM South America, which was a British Virgin Islands company that allowed us to legally export from Brazil to the rest of South America. As we gained confidence in Europe and Brazil, we went to step two. We licensed the manufacturing process to our partners there, and they produced colorant systems and provided technical support for customers. We always followed this two-step joint venture process: setting up a ColorMatrix distributorship in the local market, exporting systems from the US to that distributorship, and then, once there was a base of customers, inking a manufacturing license agreement that enabled our partners to make product and send royalties to us. In Brazil, we set up our plant in Itupeva, which is called “PET Valley” because a number of resin producers and processors are located there. We gained a surprising amount of satisfaction from removing hurdles for our three joint venture partnerships, de-risking our partners’ early days, and helping them become experts. “Go sell the product, and if it’s not doing what you need it to do, tell us,” we said to them. “We’ll find a way to get it to do what you need it to.” We wanted our partners to focus on selling into the geographies they knew, and we could support everything else. In Eu-


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rope, Asia, and Brazil, ColorMatrix was the first to bring liquid color concentrate to the market. Each of our partners had worked closely with us to research the market and find real opportunities, so we had high confidence that we were bringing a valued solution into the market. This fact-gathering process was an important part of giving us the confidence to enter new global geographies. In business, though, you always have to be thinking about what can go wrong. We were so enamored of joint ventures as our way to grow that we lost sight of the fact that partners sometimes become competitors.


John Haugh (pictured here in fourth grade). I grew up in in Kinbrae, Minnesota, population 29. I lived in a modest wooden house without plumbing and used this outhouse until I was 16 years old.

Mike Shaughnessy. I was a good student, studied hard, and worked as a grocery clerk to help pay for my education at St. Louis University, earning a degree in chemistry and math. My mother’s unwavering belief in me contributed to my work ethic, success, and a life-long desire to help others who are less fortunate.


We had many mentors along the way, and we firmly resisted the idea that some entrepreneurs hold that they are “self-made.” Some of our mentors were (clockwise, from top left) Arnold Coldiron, one of Mike’s first customers; Mike’s parents, John T. and Madeline Shaughnessy (pictured here at Mike and Marian’s wedding); John’s priest, Father Donahue; Mr. McGuire in The Graduate, and John’s parents (Marcella “Dolly” and George Haugh). Mr. McGuire was a type of mentor because when he said “Just one word . . . Plastics," we took him seriously!


The sales team at Cincinnati Milacron Chemical circa 1975, where I (Mike Shaughnessy, front row, second from the right) had hired John (second row, second from left). We covered sales territories together and had become friends.


Cincinnati Milacron was one of the most dynamic companies in the specialty chemicals industry. Many people at Cincy Milacron ended up being mentors, customers, and supporters of ours later. Clockwise, from top left: Gary Berkins, Mike Shaughnessy, John Haugh, and Jeff McMath; Mike Shaughnessy; John Haugh with Ralph Binns, the president of Cincinnati Milacron Chemicals; John Haugh (last two photos).


Resigning from Cincy Milacron was a step toward becoming my own man, professionally. John joined me a year later, and our partnership was rock solid, unbroken, and incredible for over 25 years. We always had complete respect for each other, and we loved each other like brothers.


We knew we wanted an animal for a logo, and we had to have vibrant colors as well. We chose a tiger. A friend drew this chalk image of a tiger for Mike, and the ColorMatrix tiger logo was inspired by the drawing.


We were realistic and specific about dollars coming in and timing of the inflows. Also, we couldn’t take out salaries for ourselves early on, so it was a good thing we had our sales rep business—it paid our bills and allowed us to avoid taking on outside equity.


From day one, our sales forecasts were bare bones (nothing fancy) but specific, reflecting tangible customer commitments.


Our sales grew every year and with each strategic growth plan—we added new geographies, forged joint ventures, licensed new products and product add-ons, and recapitalized the company. But it was our unyielding SALES FIRST approach that was the heart and soul of our growth for many years.


Employees often came to us with needs in their personal lives, and we usually responded. We tried to help them break lifelong, poor financial habits—sometimes successfully and sometimes not.


For several years, we were named to Inc. magazine’s The Inner City 100 list, which recognizes the fastest-growing privately held businesses in America’s urban cores. We reached as high as 37th on the list in terms of size and growth rate.


We were longstanding customers and supporters of Cleveland Works. Better than any other program we had seen, Cleveland Works prepared unemployed, unskilled urbanites for the workplace.

Secretary of Labor, Alexis Herman, was the driving force in the Clinton administration’s successful Welfare to Work initiative, and she was also a very classy lady. She held up ColorMatrix as a prime example of how employers can provide career paths to unemployed residents of America’s inner-city neighborhoods.


For almost a decade, we won the Weatherhead 100 award given annually to Northeast Ohio’s fastest growing companies.


Cleveland had inexpensive manufacturing space, strong public transport, and (once we figured out how to harness it) a dedicated work force. We loved this combination and believe the city of Cleveland helped us vitally with much of our successful growth.

Polymer science and color chemistry—we loved those two fields! Fortunately, they were part of a $6 billion plastic additives market so that we were able to turn our fields of interest into a thriving business.


Marian and I at home with Anne, (left), Katherine (right), and Beauregard the dog, c. 1994. My wife and daughters were the only priority in my life, aside from the job and company I loved.


VI Seeking Gold— Harnessing Opportunity Gold, adj: a deep lustrous yellow or yellow-brown color.

John


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M

Transformations

y boat was dry docked for the winter, and I didn’t know what to do with myself. Some guys from Mentor Yacht Club invited me to shoot skeet. They shot in winter because they didn’t know what else to do when their boats were out of the water. I borrowed a Remington 1100 automatic and went around the skeet stations. “Pull!” I yelled to get the puller to press the button that released the target, and I shot at targets like this for an hour, reaching about 90 percent (23 out of 25), which they told me was very good for a beginner. “That was fun,” I told my wife, Marni, when I returned home to Mayfield Heights. “It’s like golf with guns, and these guys are as crazy about their equipment as golfers are about their clubs. They buy German or Italian shotguns for $10,000. I would never spend that kind of money on a shotgun.” Then, I decided I liked skeet a lot and wanted to take it up as a pastime. So, I went to Atlantic Gun & Tackle. “I wanna shoot skeet,” I said. The salesman sold me a 20-gauge field hunting gun for $400. I came back and shot for a couple of weeks. “John, that’s not a gun for skeet,” someone said to me. Then another person: “John, that’s a hunting gun. You need an over and under gun.” An over and under is a gun with two barrels, one on top of other, which is the best gun for skeet shooting. I went out and bought a Browning over and under, and paid $800. It beat the living snot out of me because it didn’t fit well, so my face got swollen whenever I used it. So I went to Jaqua’s Fine Guns in Findlay, Ohio. “I wanna shoot skeet,” I said to Camille Ranzau, who owned the place. I told her I wanted to trade in my handguns and shotguns for the right skeet shooting gun. She got me into a Perazzi for about $3,000 and took my trade-ins.


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Becoming obsessed with skeet and its equipment was a surprising lifestyle transformation for me, and it paralleled a transformation Mike and I went through at ColorMatrix. When we went from $0 to $1 million in revenue, I was like a baby or adolescent, always learning. When we went from $1 million to $10 million, I was like a teen, having a ton of fun. And then our huge leap from $10 million to $100 million threw me for a loop; we had to be responsible adults, and this brought unexpected changes. At first, I tried to adapt by working harder, but I figured out this wasn’t a very good plan. Waking up an hour earlier each day and working a couple of hours later wasn’t going to get me very far. I was becoming disillusioned and burnt out. I think tons of entrepreneurs face this—their companies’ growth flags, their dreams founder, and they end up running a one- or five million-dollar company. This is fine if that’s their goal, but for Mike and me, it would have been a tragedy. It wasn’t that we didn’t recognize the growth stages. It’s that we recognized them later than we should have. At some point well down our path from $10 million to $100 million, Mike and I figured out we didn’t know everything we needed to know about growing a company to that size. We started out stupid and tried to work harder to become smart. We started to become disillusioned when this didn’t work. “You know what, Mike? We need to work smarter, not harder,” I said one day. “We need to hire people who are smarter than us, and people who have skill sets we don’t.” If we were going to hire up, we needed to improve our organization building skills. These skills had always played second fiddle to our selling and relationship skills. Solving technical problems: check. Selling all the time through SALES FIRST: check. Building customer relationships: check. But we despised trying to solve our own organization’s people problems, and we diligently avoided being a human re-


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sources department. Employees and partners, some of whom had loads of potential, became frustrated enough with us that they left. Then we scratched our heads and wondered what had gone wrong. “Well, we really didn’t invest much in developing them,” Mike might say to me. In fact, it became a common refrain for me. “We’ve gotta have a better way of developing people. It’s completely stalling our growth.” We needed to build our organization, starting with a more strategic people plan. I have to say that this was pretty painful. We knew how to spend money on equipment when a customer opportunity required we invest. Now we had to spend money on people who weren’t all going to be selling our products 100 percent of the time or helping us solve customer problems, but would support our infrastructure? Well now, that was hard to swallow. We began by bringing in John Standish in 1995 to do a major overhaul of our technical capabilities. He had a BS in chemistry, a master’s in material science, and PhD in polymer science and engineering, a combination of credentials that put him among the best in the industry at understanding color chemistry. “We need you to help us develop expertise that matches the expertise of our largest customers,” I said. These customers had research and development budgets in the hundreds of millions of dollars, so this was a somewhat ridiculous request. But if anyone could do it, John Standish could. He knew everything about our technical process and our customers’ processes, plus he understood our SALES FIRST approach. “I worked as a technical salesperson at my prior company,” I recall him explaining over two decades ago, “and from that role, I understand the pressure to get products out the door to customers. Manufacturing lines don’t wait for things to grow in petri dishes and scientists to stare at them.”


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He knew how to conduct science projects that served real customer needs. In his first days on the job, he had to tell us our company had some issues. Quality control systems like Deming and ISO were beginning to take root when Mike and I left big company life. John had been trained in them and set up his processes using them. Mike and I weren’t overly familiar with them, but we didn’t let that stop us from having an opinion, namely that we didn’t care much for them. SALES FIRST is working for us, was my basic thought. Why do we need to complicate it? (We knew we needed to build out our organization and processes, but changing our thought patterns was hard.) John Standish was a plain-spoken guy, but he didn’t relish delivering bad news to his new bosses. “Our manufacturing operating and delivery problems can be traced back to poor quality control systems,” I can still remember him saying, adding, “We have got to adopt a formal quality program.” Liquid color concentrate faced major customer adoption issues because of its perceived messiness. “The best way to combat this perception issue,” he said, as I recall, “is to convince customers we’re a serious operation with top-rate processes and quality systems.” We weren’t convinced. We thought our quality was great. He begged to differ. “Most or our customer complaints can be traced back to the core problem of our having poor quality control systems.” He said that while we were out selling and growing the business, employees in the office were pointing fingers at each other about whose fault any given customer issue was. “If we had better tracking and control, when employees played the blame game, we could track down evidence to figure out what’s going on. It would improve employee morale,” John said. I still wasn’t convinced. In fact, I was annoyed that someone


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who didn’t know what we had been through was criticizing our company. I heard him out, as did Mike, but I didn’t allow him to do what he wanted to do. This frustrated him because he was a systems guy who wasn’t being allowed to invest in systems. Then Mark Frost, our European partner who was a technology expert, joined the chorus. He started telling me the same things John was telling me—we needed quality control experts who understood our products and our customers’ equipment at a deeper level. So here I was in the mid-1990s, with over a decade of experience running a business that was winning awards and growing like gangbusters, hearing a steady drumbeat of how bad we were. That’s how I took it, anyhow. I remember Mark articulating his point of view with, “We need people who know the idiosyncrasies of our products and who can help us more systematically deliver products to our customers.” I was frustrated, but they were adamant, so Mike and I acquiesced and allowed them to invest in quality-control procedures. We added depth to our technical capabilities in our fastest-growing market, PET food and beverage packaging. We hired Bob Prewitt, who was revered around the country for being able to do technical audits on resin dryers. (Resin that doesn’t dry properly is an urgent technical problem because it shuts down a processor’s line.) John Bombace had been manager of operations for Southeastern Container, which was owned by Coca Cola Bottling Company. We recruited him to lead our PET technical service group. We also added a guy named Kyle Clark because of his strong background in PET processing. We added organizational depth in other areas. To cut costs, plastics processors had shed many of their technical people, and we picked them up so we could be a centralized source of plastics industry technical skills. Another guy, Jim Renfro, had been a manager at a PVC extrusion plant and knew extrusion inside and out. When we visited our extrusion customers such as


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the CEO at Carlon, one of our biggest customers, Jim came and showed them ways to improve their operations. Beyond quality and technical specialists, we added people with operations skill sets who could help us run our business more efficiently and increase our profit margins. We promoted a color chemist, John Lesho, to run our plant and make sure we produced and delivered our colorant systems on schedule and on budget. We recruited coatings industry veteran, Gerry Corrigan, and asked him to figure out how we could convert scrap into saleable product. He did this and delivered bottom-line impact quickly. After overseeing manufacturing operations for a bit, he became our chief operating officer. These hires in quality engineering and science, and operations was a major investment that resulted in dramatically distancing us from our competition. Because we had a variety of new processes, John Standish and Mark Frost suggested we start a “train the trainer” program in which a trainee in a new process was required to train others, too. This worked great, and we built in consistency to our new processes. “You are the only ones in the industry who consistently know what you’re doing,” our customers began saying to me on a regular basis. I drove and flew all over the country (we had long since expanded beyond the Ohio Valley) to sell our wares, and I never tired of hearing this. But now that we were no longer a small shop that could manage by force of personality, we had to do more to beef up our culture. Zig Ziglar’s training had been great for awhile, especially his focus on building relationships and holding core values, but now, more was needed. We started a new teamwork initiative by hiring Andre Thornton, a pro baseball player who had eventually ended up with the Cleveland Indians. Over the course of twenty plus years in his baseball career, he had been first baseman and designated hitter, and had been named American League All-Star (twice) and top-five in the league in home runs (three seasons). Most


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relevantly, he had won the Roberto Clemente Award, which is given annually by Major League Baseball: [The Roberto Clemente Award] recognizes players who best represent the game of baseball through sportsmanship, community involvement and positive contributions to their Clubs. The Award is named for the 12-time All-Star and Hall of Famer who died in a plane crash on New Year’s Eve 1972 while attempting to deliver supplies to earthquake victims in Nicaragua. The Award pays tribute to Clemente’s achievements and character by recognizing talented current players who truly understand the value of helping others. After his pro ball career, Andre founded a consulting firm that helped people work in teams. He worked with our management team for over a year in the mid-1990s so we could create a culture in which people went from acting as individuals doing their own thing to acting as interdependent co-workers. They also learned how to be colleagues with our customers so our customer service managers could go beyond taking orders to having two-way conversations. Andre did a great job, and he became close friends with us and others on our team. One day toward the end of Andre’s consulting work with us, I realized change had really taken place. “You know what, Mike,” I said. “I think we are no longer the most important thing at the company. I think our culture is.” That should have been a moment for pause and celebration. The moment when our company moved beyond us and became its own entity with a team that ran it was an incredibly big deal. It had taken lots of internal changes in Mike and me, including pulling back from our SALES FIRST approach so we could invest in building our organization. But we didn’t celebrate because we were too busy and had so much more work to do. One thing we


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needed to do was to upgrade our policies. Employees were constantly misinterpreting rules and asking us questions about them. “I’m buying a car and need money. Can I take money out of my 401(k)?” “Can I get a loan from the company?” “Is there any way for me to change the child-support money that’s coming out of my paycheck?” We had about 40 employees and were thinking that we had already invested in quality control, technology, and operations. We really didn’t have time or money to invest in human resources, too. We were working through an employee issue with our lawyer, and he stopped in the middle of our conversation. “You don’t have an employee manual?” he asked, incredulous. I explained, “Look, if we don’t have employee policies written down, we can remain entrepreneurial and hide a multitude of sins.” He didn’t like this response, but we took pride in our informal culture. He countered, as was his duty, telling us we needed to formalize our policies. “You are going to start getting issues more and more frequently as you grow,” he put in. “Employees have a need and right to know what their guidelines are.” Under duress, we created an employee manual that spelled out how our benefits and policies worked. As we did this, I swallowed hard and reminded myself that our goal of going from $10 million to $100 million in revenue had so far been totally uncomfortable for me, and obviously this was going to continue. Even though we had always paid more than minimum wage, we took the financially uncomfortable, albeit important, move of beefing up our compensation and benefits. We created a bonus plan based on individual performance and enhanced our 401(k) plan to match a percentage of an employee’s contribution. We also added a profit-sharing plan in which profit that exceeded a target level was shared with all employees. Combined with our other organizational efforts, this plan


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seemed to motivate employees, and we started to develop “the conviction of the converted,” where organization building was concerned. In fact, I started to become consumed with making our people our greatest asset. We added an educational assistance program so they could develop in their careers. We gave employees advance payment for their educations. If they completed a course (any course, as long as they were trying to educate themselves), they could keep their monetary advance as follows:  If they got a “B” grade or better, they kept the entire advance.  If better than a “C” grade, they kept 75 percent.  If a “C” grade, they didn’t keep much, and  If lower than a “C”, they kept nothing. Throughout our organizational transformation, Mike’s and my relationship remained strong. We never once, over the entire time of our working together, raised our voices with each other. Mike’s leadership of our overall strategy remained uncannily strong, something you had to see to believe. He knew which product extensions to add so we were right on the leading edge of the market. He combined technical insight with sales and marketing expertise in a way that seemed successful every single time he made a decision. At the same time, he was probably the most family oriented person I knew. I remember when his wife, Marian, and their girls asked him to take up horseback riding so they could spend more time together. He invested himself in this pursuit so fully that he became a pretty good equestrian. I was impressed by that. I oversaw ColorMatrix’ operations (manufacturing, people, and purchasing) and thrived on thorny issues. “There’s always some problem to solve,” I once said to Dave McBride when he asked how I dealt with the constant onslaught of issues. I remember him then saying, “You seem pretty calm and intuitive about it. You’re like the Tsung Tsu of plastics.” Dave had read The Art of War, written by Tsung Tsu, an an-


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cient Chinese general. A lot of American business people worshipped this book for its philosophy on winning battles and wars. Tsung Tsu explained how important it was for military leaders to use intuition, as well as other tactics and strategies: The supreme art of war is to subdue the enemy without fighting. If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle. While those are some of Tsung Tsu’s nuggets, I had nothing so articulate or meaningful. “I don’t like all the issues we face,” I shrugged, “I just accept them as part of the game.” That constituted the entirety of my own intuitive genius on the matter of customer problems. I often tried to problem-solve during my drive to and from skeet shooting ranges. When I was at a range, though, I was incredibly focused on the task at hand. I had set a goal to be among the top skeet shooters in Ohio, and I started to come close, eventually reaching a 98.5% hit rate and entering the Ohio Hall of Fame for Skeet Shooting. I was proud of that achievement but never surpassed it, either because of lack of skill, or because Mike and I had an organization to run (which took a lot of time).

K

Supporters Not Enablers

inbrae, in southwestern Minnesota (near Iowa and South Dakota), where I grew up, has a lot of corn farms and is flat as far as you can see. It’s a geography with no hills, mountains, or oceans to distract you from the pervasive facts of farm life. My father loved those flat lands. He wasn’t a


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farmer, but he rose at 4 a.m. and worked seven days a week until the day he was struck by a fatal heart attack. He bought, raised, and sold chickens, hogs, and cattle (we usually had over 1,000 head of chickens, 50-to-100 hogs, and a handful of cattle). I helped him take care of the livestock and sell them for profit, as well as butcher some for us to eat. After Dad died, Mom showed me hard work, spending her days and nights running the liquor store and pub she took over. Our local priest, Father Joe Donahue, took me under his wing. I was an altar boy at his church, and I got up most weekends and every weekday during summers, and rode my bike two miles to church. He encouraged me to join the speech and debate club at my school and to show up at church activities so I didn’t hole up inside my house or my own mind. He introduced me to Boy Scouts and 4-H, a group that worked with farm kids around the country, and he took me hunting for pheasant and fishing for walleye in nearby lakes. Father Donahue stepped into my life at an important time and helped me with adolescent and teenage decisions about what type of person I was going to be. He showed me what honesty and integrity truly were because he lived these characteristics every day, and he continued my father’s legacy of hard work. My mother used to feed him breakfast, and I remember sitting at breakfast one Sunday when he arrived to cancel church services. The weather had turned good suddenly, and farmers all around needed to harvest in a hurry. He was dressed in plain clothes. “The Lord says we’re not supposed to work on the Sabbath, but we need to get the crops in,” he said. “There’s going to be no mass today.” He told me I needed to help the neighbors with him, and we went from farm to farm and asked if they needed help. I tried to take the Father Donahue approach when working with our vendors (lawyers, accountants, insurance agents) because Mike and I believed ColorMatrix could only be as good as its vendors were. We initially asked friends and family for advice


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on vendors, but this didn’t work so well for two reasons. First, people were insulted if we didn’t use a vendor they referred, implying we were snobs. “What makes you think you’re so special that you don’t think my vendor is good enough for you?” was their attitude. Secondly, their dreams weren’t as big as ours. To our friends and family, we were just a couple of guys who needed help managing our little mom-and-pop shop, but we had much more of a desire to become a great company than most people understood. We switched tactics and began interrogating the owners of businesses we admired. “Who can’t you live without?” “Who do you rely on for your success?” “Which lawyer is really worth their salt?” Then, we put the recommended vendors through the gauntlet. We asked them to explain relevant experiences in detail, checked references extensively, and, most importantly, let them know we expected to build long-term, Father Donahue-type relationships (bailing hay with us side-by-side). “I’m different from a big company client,” I told them. “Big company executives think about the relationship as a corporate one. I want personalized service.” I was looking for “my accountant,” “my lawyer,” “my banker.” For me, this was about having the suite of relationships I needed to grow my business. “I’m anxious about everything,” I said to them. “I value accessibility. Mike and I have a sense of urgency; we’re impatient. We want answers as soon as we ask questions, and we need vendors who understand this.” I gave them an example to see how they’d handle it. I told them how we once filed our tax returns, and then the IRS wanted more information. My accountant at a Big Eight firm answered my question three days later, and the anxiety about whether we had filed our tax returns correctly nearly killed me. Apparently, we were too small to receive immediate attention.


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“I need an accountant who takes my call immediately,” I said. Mike’s membership at a local country club proved to be fertile ground for us in finding the right vendors. We hired a local accounting firm who called back immediately, helped us with monthly bookkeeping, and then dragged us into the computer age. We had big ambitions. They understood this and became partners in our ambitions. More strategically, they helped us better position ourselves with banks so we could get loans. Our early experience of getting $50,000 of the $250,000 loan we needed to buy lab and sample-making equipment had disillusioned us. They told us, “We’ll clean up and organize your books on a consistent basis so when you go to banks, you’re professionalized and come across as worthy of a loan.” At the country club, Mike also came across Dick Musgrave, a terrific insurance guy. He not only helped us secure our entire insurance portfolio, he found us our first manufacturing facility. A non-profit board of trustees he sat on had received a donation of a 50,000 square foot building in Midtown Cleveland. The Boys & Girls Club couldn’t afford to maintain or operate that large of a building. “I think you could probably have this place for nothing,” Mike remembers Dick saying to him. “You’d need to give the Boys & Girls Club some office space, but you could have the rest of it.” We ended up paying taxes, operating costs, and maintenance, but making no monthly lease payment, which was a fantastic deal. We took 10,000 square feet of the building, which was so much space that we made the ground floor a parking area. Just as Father Donahue went beyond sermonizing to spend time with his congregants in meaningful ways, we wanted vendors who helped us strategically, who were partners in growing our business. We cherry-picked lawyers so we could work with specialists. These experts were so skilled in their target areas that our expenses were lower than if we had gone with generalist lawyers. We used one lawyer for setting up our company, one


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for the investigation by federal authorities, one for intellectual property assessments, and another for employee issues. Among that group, one was particularly great. He explained the legal process of the federal investigation, helped us understand why simple things dragged on for months, and let us know what to expect, which soothed us during the most intense anxiety we had ever known. We ended up hiring him full-time, another example of our desire to build long-term, strategic partnerships with vendors. We cherry-picked other vendors, too. When MA Hanna, a polymer company, made an unsolicited offer to acquire ColorMatrix, we were surprised but not unhappy. We had to quickly assemble information on our business for them. Our local accountants were not expert in mergers and acquisitions, so we asked Ernst & Young to create the offering memorandum, and they worked with the local accountants to compile the financials section—a collaboration that worked well and exemplified how we brought on new vendors as we grew but retained existing ones, as well. On the other hand, we changed our banking relationships with some frequency. Midwest Bank & Trust, who loaned us the initial $50,000 for our equipment, was acquired. We lost our close relationships there, so we switched to Key Bank. When our Key bankers said we couldn’t use our inventory and equipment in South America as collateral for a credit line because of Brazil’s unpredictable business environment, we went to National City Bank. That was three banking relationships in 15 years—an unusual turnover rate for us. One vendor relationship was altogether different. One time, Mike and I had to get ourselves to Leominster, Massachusetts, in a hurry so we could meet with a customer. As we sat in the Lear jet taking us to Massachusetts—a plane that was owned by a friend of ours—Mike and I fell in lust with getting around in a jet. Within minutes, we decided that the ability to hop on a plane and quickly get anywhere was a game-changer. Dave McBride, our packaging unit manager, was with us on that trip.


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“My God, you guys are gonna buy a plane, aren’t you?” he said as we giddily threw around the pros and cons of having access to our own private plane. Not long afterward, we bought a King Air propeller plane and made Burke Lakefront Airport, just a few minutes from our facility, our home airport. This whetted our appetite for quick, easy travel, and we found airplanes to be addictive. We traded in the prop plane for a jet and decided to use a management company to manage it, giving us access to other planes if ours was out for maintenance. Private jets are worth the investment even if the only benefits are intangibles such as fun, convenience, and a better work-life balance. But there were more concrete benefits, too. “If we’re going to be heavy on relationships and provide true solutions, we need to be in front of the customer early and often,” I said to Mike. I once flew to South Bend, Indiana, had breakfast with a customer, flew to a remote town in Iowa, had an early lunch with another customer, then flew to McPherson, Kansas, to visit a customer in the early afternoon, and on to a fourth place for a mid-afternoon meeting and a fifth place for dinner, returning to Cleveland the next morning. I did in 24 hours with a private plane what would have taken three or four days on a commercial jet. We always brought along ColorMatrix employees to help develop our business and strengthen client relationships. We might have a customer who ordered our product by phone, talking to the same sales rep day in and day out for years. Normally, our sales rep would never meet or see the customer, but with our own jet, our clients and employees could put a face to a name. We used it as tool to build solid relationships with our customers. “With our own plane, three or four of us (a color technician, customer service rep, and another employee) can pile into the plane early in the morning, fly somewhere, and return home to see our families that night,” I said. “It definitely supports our SALES FIRST approach,” Mike


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agreed, and SALES FIRST was concrete to us, which made jet leasing and ownership a reasonable investment. Then again, private jet investment was expensive enough that figuring out how to manage our newfound asset efficiently was important—we didn’t stay loyal to a single jet ownership or leasing program and this was an exception to our general, “Father Donahue” style of partnering with our vendors. Beyond being a model of partnership, Father Donahue was a mentor to me. He saw more in me than I saw in myself, and he removed the barriers that I might have put up after losing my father. Mike and I believed in our mentors so much that we desperately wanted to return that favor. The good news is that, sometimes, we succeeded. For example, Mike was a perfect mentor for me; we loved each other like brothers and never once disappointed each other. Another example was the CM Europe team, which welcomed our desire to be partners and mentors while becoming a high-performing group that didn’t always agree with our way of operating. The bad news is, other times, our partnering and mentoring philosophy fell flat. This relates more to partners than to mentors. First, there was our original partnership with Rosemar Industries and the three Chicago partners, which hadn’t ended well. Then our Brazilian partnership ended because we seriously disagreed with our co-owners in the venture about how to manage the business. Although we repurchased our equity and maintained our presence in Brazil, our partnership failed. Fortunately, Dean Miller, who had scouted Brazil for us and was incredibly conscientious, continued to work with us in other places. He wanted to be in closer to his mother in Winnipeg, so he went to Toronto and worked for us in Canada. Next, a South Korean distributer turned on us. The distributor decided to get together with a South Korean colorant company to reverse-engineer our colorant systems. The South Korean colorant company figured out the pigments, additives, and dispersion vehicles we used, copying our product and lowering the price.


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The Korean distributor picked up that product and dropped ours. Ben Chan had done a great job getting us into the South Korean market, but the distributor ruined our efforts. At the same time, Ben was offered a fantastic career opportunity with Mr. Huang, the head of a converter customer of ours in China. “Ben decided to resign,” Mike came into my office and said one day. It was a loss to us, but we couldn’t argue with the opportunity presented to him—it was a great one and would probably pay dividends to us, as well. Mike and I bought back Ben’s shares in ColorMatrix Asia, and while there were positive aspects about this deal, it nonetheless represented our third failed partnership. We had endured risk and hardship to create opportunities for our partners in new industries and geographies, so we were hurt when the partnerships dissolved. We wondered too many times what we were doing wrong. Were we picking the wrong people? Were we too easy on people? Should we be more litigious? As we deconstructed each failed partnership, we realized that we had become “enablers.” We were too eager to remove barriers for people and give them the opportunities like we had been given. We had to accept responsibility for the fact that we probably had made it too easy for them to succeed. Success may be better appreciated when some part of it is hard to come by. Certainly this was the case for us. Why did we think we needed to coddle others? This was an “a-ha” moment. “Mike, we need to stop enabling people! We need to support them, but not enable them.” In enabling, we made excuses for people who didn’t need excuses. “They’re going through a hard time, so let’s let it slide,” was the type of thing we said a lot. We were taking away the pain of overcoming problems with creative solutions to succeed, even though people weren’t always asking us to do this. We had turned ourselves into enablers instead of


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mentors. We needed to start letting people sink or swim with their own capabilities and desires, not the capabilities and desires we had in mind for them. We needed to support them, not enable them. We also had to accept an aspect of human nature: Some people are not grateful for the opportunities they receive. They believe they are self-made. Mike and I always believed we had benefited from angels and mentors who helped us along the way. We firmly believed there was no such thing as a self-made man (or woman). But some people don’t appreciate the opportunities others give them, so we tried to recognize this type of person early in our relationship and to stop beating up ourselves when we were met with ingratitude. Our third aha moment was the realization that it is possible to outgrow people and companies. We were loyal and didn’t want to simply dissolve a relationship with a good vendor, but loyalty didn’t stop us from limiting the scope of some vendor relationships. We gave each vendor the courtesy of openness and professionalism, explained that we were changing the relationship for a specific business purpose (not because we were unhappy) and gave them advance notice so the change wasn’t overly detrimental. As we changed, we began to shed our cycle of false hopes, disillusionment, and micromanagement. This was a transformation for us on our journey from $10 million to $100 million in revenue.

W

Opportunity Hunters

hen I started shooting skeet, I didn’t care about the finer points of being a competitor. I noticed the basics. Ok, there’s the clay pigeon in the air. I better shoot it. Oh, wow, look at that—I just shot it! At my shooting club, novices, old-timers, and pros could shoot skeet, trap, and sporting clays, all for a $150 for annual


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membership fee. The game didn’t put on airs. Fellow members ranged from CEOs to guys who were so down on their luck that they had nothing else to do but practice skeet. When I got more into the sport, I developed the skill of being able to see not only the clay pigeon turn in the air but also the tiny ridges on the pigeon. I compare this skill to telling time. If you’re not focused on the specifics, you do what all of us do, which is look at your watch and note the time. But if you’re focused on details, you notice where the second hand is in relation to the big hand, what the hands look like, what the watch face looks like, and you make these finer observations each time you look at your watch. I became semi-obsessed with shooting skeet, but I was hesitant to talk about it because gun ownership (which is part of the sport) is not something you bring up in casual conversation. What I liked about skeet was that I didn’t have to be a hardcore athlete to be good at it. The top 30 or so skeet shooters in the country probably focus on fitness and diet (they don’t drink caffeine or alcohol, don’t eat sugar at certain times of the day, and typically have 20/15 eyesight). But a person like me didn’t have to be physically fit to shoot skeet well. I liked applying math to the real world, and at its core, skeet is a game of angles and formulas. What I liked most, though, was that skeet involved seeing an opportunity (the target), taking advantage of it (shooting it), and doing so with urgency (you have 1-2 seconds to shoot). It is perfect for opportunists like me, and it gets to a major point I want to make about successful entrepreneurs. A lot of people say entrepreneurs are huge risk takers. Our society certainly paints this picture of them. But this is a myth. Failed entrepreneurs are the ones who are grand risk takers. Successful entrepreneurs are risk minimizers, and more entrepreneurs need to realize this so they can succeed. Peter Drucker recognized that entrepreneurs are risk minimizers, and he wrote about this in one of his books, Innovation & Entrepreneurship. The management consultant, educator, and


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author who was revered during my career said he attended a conference at which academics agreed on one characteristic of the entrepreneurial personality: that entrepreneurs were risk takers. Drucker was amazed at how wrong they were. “I, too, know a good many successful innovators and entrepreneurs. Not one of them has a propensity for risk taking,” he wrote in his book. Drucker tried to get the business world to stop repeating the myth of the entrepreneur as a risk taker, but he wasn’t very successful at this. Mike and I lived every day with the reality that Drucker wrote about. We did whatever it took to uncover an opportunity and quickly turn it into revenue. We recognized problems as opportunities, analyzed opportunities from a bunch of angles, and then made decisions rapidly. As much as we enjoyed and learned from Mallinckrodt and Cincy Milacron, the culture at those places was different. They operated by consensus. Executives moved up the ladder by asking colleagues what they thought about a potential decision fifteen times before making a decision. Boards of directors required three-inch thick books of slides and financial models to make a decision. Mike and I agreed when we reached the point at which more facts weren’t going to help us. “Do we have enough information to make a decision?” we asked ourselves. As long as we did, we made the decision quickly, and took action. And that was it. Malcolm Gladwell took up Drucker’s idea that entrepreneurs are not huge risk takers. Gladwell is a best-selling author, and in “The Sure Thing,” an article he wrote for The New Yorker in 2010, he compared successful entrepreneurs to lions seeking big-game prey. To the untrained eye, this activity might look like a risky game of big stakes. But Gladwell reframed it. He said zebras, wildebeests, and other large prey are the “opportunities” in a lion’s life. A lion doesn’t chase after these


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animals while merely hoping to make a kill, here and there—a lion is 100 percent driven to spend its days minimizing the risk of pursuing its big-game prey. Its sleeping habits, the way it walks, its family life, its choice of location, all are aimed at minimizing the risk of its pursuit of large prey. (Gladwell frequently cited researchers Michel Villette and Catherine Vuillermot, whose book, From Predators to Icons: Exposing the Myth of the Business Hero, also said that the people who are most successful in business are risk-minimizers. In the book, they provided numerous examples showing that successful entrepreneurs are consumed with maximizing opportunity and minimizing risk.) Gladwell compared hedge fund manager, John Paulson, to his lions in the grassy plains example. In 2007 just before and even during the financial crisis, Paulson made massive bets on the housing collapse. He made billions of dollars from his bets and became a richer man during a time when few people were getting rich. Many people claimed Paulson was guessing about the market collapse and had gotten lucky. Gladwell said no way was Paulson guessing that the housing market would collapse.  He saw an opportunity.  He made his employees run the numbers over and over again until they figured out a housing collapse was certain.  He knew that even in the unlikely event that housing prices dropped softly—instead of collapsing suddenly, which is how he thought they would fall—his investment positions were safe, and he would make money.  He figured out that there truly was no way he could lose. Gladwell said that successful entrepreneurs are people who hate risk. Their minds are so intensely anti-risk that they constantly crunch data to reduce risk. He described the physical anguish of Ted Turner as Turner tried to improve a troubled media company he had acquired. Turner told Gladwell:


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During the first six months or so after the General Outdoor acquisition my weight dropped from 180 pounds to 135. I developed a pre-ulcerative condition and my doctor made me swear off coffee. I’d get so tired and agitated that one of my eyelids developed a twitch. Successful entrepreneurs are risk averse like this: they see an opportunity that no one else sees, find loopholes that allow them to nearly eliminate risk, and do the analysis to know why they know something that others don’t know so they can occupy a “structural hole” in the market. Successful entrepreneurs almost always are risk minimizers. They aren’t attracted to entrepreneurship because they like risk, but they become entrepreneurs because they love opportunity, solving puzzles, and being their own boss. Gladwell debunks the concept that entrepreneurs are braver than everyone else and says that instead, they are more analytical—better at figuring out a sure thing than others are. Here’s another example. John Paulson looked at the same marketplace as every other Wall Street investor, but he saw a different pattern. He found partners who valued assets differently than he did for a massive housing bet—namely banks selling credit-default swaps for pennies on the dollar—and he ruthlessly exploited his advantage. Mike and I were not lions on the African savannah or John Paulson. Neither were we merely guys who liked selling colorants. We completely agreed with the idea that entrepreneurs identify an opportunity, analyze it from every angle, and then minimize its risk. Others see that we left our jobs, created a new business around an unproven product, grew it quickly, and endured a series of failed partner relationships. The behind-thescenes reality is the opposite. We always conducted analysis to minimize the risk of our opportunities.  We sought the huge opportunity of being our own bosses when starting our business, and we minimized the risk of this opportunity by making sure we had paying customers.


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 When we saw the opportunity of liquid color, we gathered the facts to make sure we understood the value proposition from every angle.  We maintained our repping business in chemical additives so we could keep consistent cash coming in. We always kept an eye on our cash needs.  We had our SALES FIRST approach: When we needed to invest for growth, we used commitments from customers as our source of cash.  Finally, we kept our growth costs low by using joint ventures instead of acquisitions or development from scratch. “Can entrepreneurship be learned?” people frequently ask me. “Yes,” I usually answer, “it can be learned, mostly through the experience of being in an environment where people are constantly identifying opportunities and then working obsessively to minimize their risk.” I experienced that environment from early on. My dad and I were shoveling grain into a barn in our back yard when I was about nine years old. I was complaining about the work, because it was early in the morning and the work seemed endless. “Well, John, I tell you—if you’re willing to work, you’ll always be able to feed your family,” my father said. He died the next year, but his comment has stayed with me—it had everything to do with minimizing risk and maximizing opportunity. Dad had not finished high school, but he woke up every day knowing that hard work was a key to success. It wasn’t just about hard work, because he could have worked hard at someone else’s business. He knew the combination of trading livestock for profit, and owning the liquor store and pub was a combination that reduced the risk of doing only one of these things. And that’s what my father was teaching me, on top of a work ethic.


VII Silver Lining—Our Community Silver, adj: a shiny gray-white color or appearance like that of silver.

John


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W

Do Gooders

e started ColorMatrix with profit in mind and with no philanthropic ideals. When we located our first facility in Cleveland’s inner city, we didn’t do that because we wanted to be community-oriented. We wanted cheap land and buildings. We knew we were going to be successful, so we would need thousands of square feet of space. As a rust-belt city, Cleveland offered downtown square footage that was much less expensive than space in places like Los Angeles, New York, and San Francisco. Downtown Cleveland also was cheaper than its suburbs because of many years of urban flight—we could lease space downtown for less than 50 percent of the suburban cost per square foot. We had no munificent motive in harnessing Cleveland’s urban workforce. “We’re going to draw workers who don’t have their own transportation, you know,” I said to Mike when we decided to locate in Cleveland. “And that means they’re not going to be able to come in from the suburbs.” “We’ll have to deal with it the best we can,” Mike said. “They can take the Rapid if they need to.” Cleveland’s Rapid Transit Authority had a few routes that extended to the near suburbs. We figured we could deal with the issues that came with our low-cost location strategy when we had to. And there were issues! Statistically, Cleveland metropolitan area citizens were the urban poor. During the years we were growing our business, Cleveland lost nearly 40 percent of its manufacturing jobs, and saw its employment rate drop about 40 percent and its median family income by a third. By the end of the 1980s, one third of Clevelanders were living below the poverty line, often in single-mother households. High school graduation rates were tragically low, and many students didn’t come close to passing the most basic achievement tests required by the state. We thought we knew what we were getting into, but we were


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amazed at what we found. It was not just that Cleveland’s citizens didn’t know how to work; it was worse. Some of the people we were trying to employ had no idea how to find the right clothes for work—winter coats, boots, hats, and mittens were a huge problem. I was exasperated. It was sometime in the mid-1980s. They don’t know how to buy, set, or use an alarm clock, get themselves a bus pass, find childcare, open a bank account, or get themselves the right medicines, I thought. This is ridiculous. The pool of applicants was so substandard that we hired people who had been homeless, incarcerated, bankrupt, or had never left the neighborhoods in which they had grown up. We contended with absenteeism, substance abuse, and educations that didn’t go beyond the fifth grade. Workers often were behind on their child or spousal support payments, and they occasionally were burdened with bench warrants, which were issued when they had been requested in court for jury duty, to answer a subpoena or for a minor infraction but hadn’t responded to the summons. The bench warrant allowed officers to forcibly take the person to court. We witnessed a few occasions when employees were escorted from the factory floor by a bail bondsman. When employees needed bail money to get out of jail for minor offenses, made dumb financial decisions, or had paycheck garnishments that reduced their pay to nearly nothing, their first instinct was to raid their 401(k) account, if they had one (usually they didn’t). Or they came to us. “But I’m broke and I need money,” they said. And they were right. We had no desire to deal with entrenched societal problems, but the surprising thing was—and it’s maybe the greatest surprise of our lives—Mike and I grew to love offering people opportunities and then watching them grow in their careers. This was the most rewarding aspect of our years at ColorMatrix. We derived tremendous satisfaction from giving people a break, teaching them a work skill, and, if they were willing to help


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themselves, helping them move quickly into positions with more responsibility. One of my favorite movies is To Sir with Love in which Sidney Poitier plays a British teacher of high school seniors who were the poorest of the poor, neglected by their parents, and with no hope for a better future. Poitier’s character, Mark Thackery, teaches the kids life skills to help them get out of their East London projects and into better lives. I realized that like Thackery, we needed to focus less on work skills and more on basic life skills. We started with creative employee assistance. I talked with our employees before they raided their 401(k) or made some other poor financial decision. “What do you need the money for?” I asked. If they had a good reason and were good employees, Mike or I issued them a loan. We usually didn’t get the money back, but the activity was a creative employee assistance program that built loyalty, and so it did generate returns to ColorMatrix. We could have let them live with the consequences of their bad personal financial decisions. But, first of all, we felt these were small amounts of money to us and yet they meant a lot to the employees—the advances built a sense of employee loyalty. When people are shown love and empathy at difficult times in their lives, they often return the sentiment in the form of loyalty, which has a business benefit. Second, we used these interactions as opportunities to build a relationship with the employee, namely through discussing a better way to handle their finances. We could send people to financial literacy classes all we wanted but the thing that made the most improvement was showing them directly and immediately how they could solve their present issue. If an employee came back to us a second and third time over the same issue, we became more demanding and we issued them a sterner rebuke. “Do you really want to lose your job over the fact that you can’t control your finances?” I was forced to ask sometimes. I was willing to help people out—support them in a time of


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need—but I didn’t want to enable them by continuously issuing loans in the midst of a pattern of reckless behavior. Mike was the same. To many people, except those who run factories in inner cities, our creative employee assistance programs seem strange. I read about and saw the rise of workplace “campuses” that have conference rooms with couches, game rooms with pinball machines and video games, fitness centers, fresh food buffets, gourmet chefs, kegerators, pet-friendly policies, and benefit plans with personal valets and sabbaticals. That way of operating was foreign to Mike and me, but we found that a factory floor that offered opportunity to the down-and-out might be as rewarding as those types of campuses. We derived real satisfaction in helping people get second chances and watching them flourish. We were energized by the creativity, humor, and empathy we had to find inside ourselves in order to help our workers help themselves. I used a part of my brain and heart that totally surprised me and felt pretty great. I have never thought of myself as a “do-gooder,” and I enjoyed my luxuries—I built the equivalent of a “campus” for myself outside of our work environment. In fact, when I started doing very well for myself financially, I shed my boating habit but I started collecting cars, mostly muscle cars, and I had a garage built to hold them. I bought a black Rolls Royce—it’s no muscle car—just because I could. “It’s too ostentatiousness,” I told my wife. “I can’t drive it around Cleveland.” After three years, I had put only 1,000 miles on it. I never drove it to work because I recognized the contrast of asking employees to work harder while I drove a $300,000 car that was purely about my own ego. But . . . one day, I decided to drive it to work. It’s a beautiful, sunny day, I thought. It was spring in Cleveland. I was happy. “I am going to drive this thing to work.” I planned things so I’d arrive around mid-morning, when everyone was in the factory and wouldn’t see me pull in. I’d park


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it in our back garage so no one would see it. It just so happened that ColorMatrix decided on that day—at that exact time—to have its once-a-year surprise fire drill. Every employee on that shift was lined up outside of the back garage when I pulled up in my Rolls. I was so embarrassed that I sold the car. That illustrates the extent to which I had plenty of luxury in my life and don’t want to sound “preachy” on the topic of helping others; I was no monk. Nevertheless, I wish more people would think about working in an environment where they’re giving downtrodden people a shot at a career because this is a major intangible benefit of starting a business in the inner city. The only thing I’d change if I could do it all over again is to go into ColorMatrix knowing this at the outset, and to work to help people who are down on their luck earlier and more often.

I

Cleveland Works

n the late 1980s, we realized we needed a predictable, process-oriented hiring and retention plan where we could rely on more than hope and good intentions. “We need an institutional version of To Sir with Love,” I said to Mike. In that movie, Sidney Poitier’s character says, “It is your duty to change the world, if you can.” But other than our “creative” employee assistance programs, we didn’t have the slightest idea how to change the world. “We don’t have time to train Cleveland’s urban poor in how to live and work.” I was just thinking things through, not sure what we should do. Then Mike read a Plain Dealer article about homeless people marching to Columbus, Ohio. Sister Kathleen Ryan was joining the march because she thought Cleveland’s homeless population deserved more chances at jobs and wanted to march in solidarity


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with that idea. Mike was always very involved with the Catholic Church, and he liked what he read about her in the article. He thought maybe her organization, the Commission on Catholic Community Action, could help with our idea of becoming more institutional about how we hired the down and out. He called her at the chancery. “Sister Kathleen,” he said. “Are you serious about what you said in the article? That part you said about just wanting them to have a chance at a job?” “I sure am,” Mike recalls her as saying. He didn’t know her, but he would quickly find out that she was poised, graceful and modest in demeanor, and totally devoted to community action. She would later in her career win many awards for working with the poor and disenfranchised. “Well,” Mike said, “after the march, I’d like you to send the person you think has the best shot at a job over to our place on Payne Avenue and we’ll hire them.” She said, “Let me think about it.” She knew this was important, symbolically, and wanted to provide us with someone who would be a success. She eventually sent us the man who had been the leader of the Columbus march. He had said in the newspaper he was homeless and simply wanted his shot at a job. We took him on as an employee, hoping and believing this would be the beginning of many good things for us, maybe a new partnership with the Commission. Instead, he worked for us for two weeks, cashed his first pay check at the local bar (he didn’t have a bank account, a common situation with our employees), got his drinks, was happy, and never came back to work. This was painful to Sister Kathleen and us, and we realized then that we needed to find a better way to harness the benefits of having the down-and-out work for ColorMatrix. We did nothing about this until one day we were explaining these workforce issues to a real estate developer. He was giving us a tour of a potential new facility in Cleveland’s Midtown corridor.


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“You need to talk with David Roth, the head of Cleveland Works,” he said. In the 1980s, Ohio Works was formed as an offshoot of America Works, a national back-to-work training program based in Boston, Massachusetts. After a few years, the state decided costs were too high, so it stopped supporting Ohio Works. Cleveland Works was established in 1994 to revive the notion of helping chronically unemployed people clean up their societal baggage so they could get back to work. Cleveland Works had a more enduring financial plan than did Ohio Works: it planned to raise local and regional funding to match federal funding from President Bill Clinton’s new welfare-to-work initiative. The local and regional funding would be steadier than notoriously fickle state and federal funding. From the outset, Cleveland Works had a great plan. First, it had that local and regional funding plan. Second, it made sure it was cost-efficient—it consistently cost a few thousand dollars per person. Third, it ensured that it had a transformative impact—it was available only to heads-of-household on welfare and with minimal job skills. Its staff:  Provided 400 hours of instruction, including job readiness training that taught trainees the responsibilities of being an employee and the expectations an employer, T  alked to trainees about absenteeism and tardiness, H  elped trainees find work clothes,  Ensured they had hygiene supplies such as soap, deodorant, hair brushes, and tooth brushes, H  elped trainees earn a GED, P  ut them through drug testing, O  ffered legal services,  S uggested ways to improve their health and health care, and O  ffered additional counseling.


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Cleveland Works also asked employers to partner with them by offering competitive wages and benefits, and supporting the program over many months. That way, the program, the trainee, and the employer could work through problems. Personal and systemic change doesn’t take place in a quarter or a year; it takes many years. As soon as we met with David Roth, the head of Cleveland Works, we knew his program could play the training role we needed to hire and retain some of our employees. Working closely with David, we began an organized program of hiring for our factory-floor and office positions with the idea of creating a gateway to a new career rather than just a job. In every case, we tried to put our employees in situations in which they’d develop a skill set and could further their education by taking classes. We paid above minimum wage and developed attractive health care benefits. We paid particularly close attention to women with children because they represented the largest category of need in the welfare-to-work initiative. Their health insurance needs were different from those of young single men, and we had to make sure we addressed that difference. Our first Cleveland Works hire was Linda, a single mother who worked in customer service and accounting. She was exactly the right hire, which was a great early win. “You know, she’s great. I think this program is going to work for us,” Mike said to David Roth. Linda stayed with us for at least five years, which was a typical retention period for us through Cleveland Works. Our retention rate (the percent of new hires who stay at least one year) surpassed 80 percent for people hired through the program, while our retention when we used a temporary employment agency was around 50 percent. In our world, this was a huge productivity increase and cost savings. We doubled down on our commitment to Cleveland Works and became one of the first businesses to donate money to the program. Mike also joined its board. We found our quality manager, Jim, through the program.


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He had been in the military, so he understood responsibility but needed to build work skills. We hired him as a lab technician. He did a great job, and we transferred him to Texas to supervise quality control in the color lab. We also hired David, a native Liberian who had worked as a quality chemist on rubber plantations. He and his wife came to the U.S. as political refugees to flee the Liberian civil war. Even though David had a chemistry degree and was a hard worker, he couldn’t find a job. We ended up employing him in our lab as a product engineer. We once went to David’s home for dinner, and his wife, a lovely woman, served boiled chicken feet with the claws still attached. I didn’t want to touch them: when I was a child, my mom kept pickled pig and chicken feet in jars of brine at the liquor store and bar she operated. People used to come in and devour them like potato chips. I never acquired a taste for them. Another Cleveland Works hire was a married woman with children and a history of substance abuse. When she worked with us, she developed a sense of worth and responsibility. She held a technical position for years and then moved on to another company. We felt happy she moved on to a bigger, better job and were proud to have been a training ground for her new career. “I think we might have reached the point where not only are we an attractive employer for people down on their luck,” I said to Mike one day, “but I think we have the right program in place where they’re attractive employees to us.” “It’s a pretty great combination,” he agreed. We were looking at the employee turnover and retention numbers. “I mean, if a person doesn’t come to us through Cleveland Works, they usually fail the math test or the drug test. But if they come through Cleveland Works, they’re drug-free and prepared.” We did have some successes in hiring through traditional means. We brought on Donna to answer phones, and she grew with us for many years. She was promoted to office manager


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and then moved into customer service and information technology (IT) positions. She was a fantastic team player. “Donna, we need you to focus on IT now,” we could say to her, and she’d happily change her role. Then, if we needed something else: “Donna, we need you to focus on customer service,” and she did it—a total willingness to learn. Donna was adaptable, trusted by everyone, and understood the business. We met another person at the Ground Floor, one of our favorite restaurants. Gary was the valet who parked cars there. We began chatting with him. “Hey, why don’t you come down to the plant and apply for a job,” Mike said. Mike was always inviting people to apply for a job. The habit went back to his mom’s “happiness commandment.” He equated having a job with lifetime happiness, and he deeply wanted to be the same motivating force in other people’s lives as his mom had been for him. “Not everyone had a family life with a mentor who provided guidance,” he said. Also, he was quite involved with Catholic Charities for the Diocese of Cleveland, which provided many services in the community: education, health care services, homeless shelters, drug rehabilitation, meals programs, caring for the needy, refugee services, financial management, lifestyle management, and more than a hundred others. The organization spent over $10 million each year on services, and he felt that among these, jobs (which equal careers and upward mobility) were offerings he could make. That’s why Mike offered people jobs like he was giving out communion, or something. Gary came to the plant, and we hired him and taught him how to be a lab technician. The position worked out well for him—lab tech is a better career path than valet—and for us. I once was drinking a Diet Coke or a Scotch and shooting the


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breeze with Kenny, the bartender at Lakeside Yacht Club. We were probably talking about wrestling, which he loved, when he told me he was thinking about trying to get into hospitality management. “Is that the kind of career you want?” I asked him. It was a leading question. He was single, and I was skeptical that hospitality management would be fulfilling for him. “You oughta apply for a position with us,” I said. He was hired and did a great job, earning a promotion to plant manager and then transferring to our Texas facility. His twin brother later went to work for us, as well. Then there was another guy who was doing janitorial work at a club where Mike was a member. “You should apply for a job at ColorMatrix,” Mike said. “I just been released from prison,” this person explained, figuring Mike would shoo him away. “Was your jail time for anything violent?” Mike asked. People who had been in prison sometimes sought work at ColorMatrix, and as long as their offense was a non-violent crime, we felt giving them a chance at a job was important. “Nah,” he said, “nothing violent.” This guy got the job with us, and we sponsored him to go to a trade school where he earned his associate’s degree. With that, he eventually left us to work for a large specialty chemicals company. Some hires didn’t work out as well. We hired Victor (name disguised), who was a great worker except that he drank too much. Mike ran into him at a bar one time in late December. “You know, Mr. Shaughnessy,” he said, “I really appreciate working here because of the two weeks paid vacation at Christmastime. You know what I’m going to do for the next two weeks?” Dramatic pause, followed by an ear-to-ear smile, followed by an expansive gesture to the bar and his drink sitting on the bar waiting for him.


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That was it. No words. His gestures showed Mike that he was going to drink at the bar for the next two weeks. He laughed, walked to the bar, and downed his drink. He did good work for us, but he eventually died from alcoholism. Then there was Dante (name disguised), a guy who was as big as Shaquille O’Neill and was a nice man and a good worker. “I’m gonna be late to work,” he called to tell Mike one day, “’Cause if I don’t do something this morning, then I gotta go to jail.” “Why’s that?” Mike asked. “Well, I was at a convenience store, and someone said something not-so-nice to my wife, and so I threw him through a window,” Dante said. He explained that the owner of the convenience store said he wouldn’t file charges if Dante cleaned up and replaced the window he broke. Some years later, Dante came to Mike. “I’m resigning,” he said. “Why?” Mike asked. “Because I’m gonna retire!” he said with a grin. He explained that he had inherited a home from relatives in some southern state (Arkansas or Mississippi) that was worth $40,000—a huge sum of money for a guy living paycheck to paycheck. “I think you might want to rethink your decision,” Mike said. “Rethink it? Why?” “Because you’re going to run through the $40,000 in a couple of years. Why don’t you invest it and keep your job here?” Mike took out a piece of paper and showed him that at a return rate of about 5 percent after taxes, Dante would make maybe $1,700 per year in income, but that would grow over the years and become a big sum, making a big difference in his life. Dante didn’t think much of Mike’s calculations, so he retired to live off his inheritance. He spent every penny over a couple of years.


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“Can I have my job back?” he came into ColorMatrix and asked Mike one day. Unfortunately, we didn’t have an opening and couldn’t rehire him. Our employee stories were alternately touching, uplifting, fun, and sad, but across the board, Mike and I are proud we hired so many inner-city people who came to ColorMatrix unskilled and in need of a break in life. Working with Cleveland Works was a self-serving act because through that organization, we found a process for effectively hiring people who carried baggage. Happily, our Cleveland Works relationship also turned into a philosophy about social responsibility. It helped us be consistent about our desire to be supporters and mentors who provided people with their first opportunity, and it helped us avoid a cycle of hope, disillusionment, and micromanagement, which was the cycle of enablement we had committed to avoiding when we decided to grow from $10 million to $100 million. We hired about 15 employees through Cleveland Works, and in most cases, they stayed with ColorMatrix until making their next career moves. We were proud to help them build a resume and transition into the workforce so they could move on to better things. We owe our good experiences to the fact that David Roth, the co-founder and executive director of Cleveland Works, ran the organization really well. Its parent organization, America Works, franchised its model to places like New York, Albany, Washington, DC, and the states of California, Illinois, Maryland, New Jersey, Michigan, and Wisconsin. In the mid-1990s, President Clinton’s administration discovered how important Cleveland Works had been in implementing welfare-to-work and asked David Roth for an example to highlight the impact. Clinton’s secretary of labor, Alexis Herman, made a road trip to ten cities, including Cleveland. In preparation for the trip, Mike talked with her quite a bit. “She’s as hard working as anyone you’ll find and a totally classy lady,” he said.


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Herman’s insights and commitment were the main reasons welfare-to-work was so successful. She visited ColorMatrix, highlighting us as a good example of how industry and government can interact to train America’s urban poor for the workplace. She invited Mike and one of our Cleveland Works hires, Lisa, to DC for a National Press Club event. After Secretary Herman delivered her introductory remarks, Mike and Lisa gave a talk about doing job training the right way. They talked about how it can be much more than a hand-out.

I

Political Follies

n August of 2008, a Cleveland police officer spotted a Chrysler driving erratically. When the car stopped, the officer found the female driver unconscious but breathing. He had discovered Stephanie Tubbs Jones, the first African-American woman elected to the US Congress from Ohio, who had suffered a brain aneurism and died at East Huron Hospital a little while later—an early end to an important life and career. About a decade earlier, Representative Tubbs Jones had made an impact on our local and federal government strategies. She was not of Mike’s or my political persuasion, but she was impressive. She had a law degree from Case Western Reserve University and was informed, smart, revered by many, and winner of four reelections. Even if I didn’t agree with her, I respected her—she committed herself to causes she cared about and stood up for the things in which she believed. She worked hard to earn significant power and eventually served on the House Financial Services Committee and House Small Business Committee. She also was a member of the House Ways & Means Committee, the oldest and most powerful committee in the House of Representatives, eventually becoming its chairman. Mike sat next to her once at a dinner at Cleveland Botanical Gardens, and their conversation turned to economic develop-


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ment. She said she was interested in bringing in more grants, earmarks, and appropriations for Cleveland’s community of start-up biotechnology companies. “What about manufacturing?” he asked. He thought her focus on biotech was off-base—the city’s manufacturers could create more jobs more quickly than its biotech start-ups could. Biotech companies are risky and take decades to add jobs beyond their initial handful of hires, often PhDs. She was overlooking ColorMatrix: a Cleveland company that employed 150 mostly inner-city people, was located near public transportation, and had successfully forged public-private partnerships (Cleveland Works being the prime example) to create jobs. We thought our steady growth in the inner city represented economic development at its best. “Aren’t these the types of activities you want to promote?” Mike asked her. She said they were, indeed. “Okay, come visit, take a plant tour, and see what we do,” he invited. She took him up on his offer and visited our facility. She listened, asked questions, and then offered her conclusion: Our company wasn’t sexy enough to garner support in the rarefied atmosphere of DC politics. Manufacturers were not creating jobs anymore in Cleveland or America, she said. Our counter arguments about the manufacturing sector growing fell on deaf ears. Tubbs Jones called it the way she saw it, but we were frustrated because she was ignoring Cleveland’s skill base and how connecting that base to manufacturing could help the city differentiate itself. The meeting showed us the problems with many economic development efforts. Grant makers often looked for the industry du jour, and then forged futuristic fictions around that industry to win development money. They based their funding pitches on a few facts covered in layers of hope, overlooking the successes right in front of them.


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“The people running government grant programs don’t want to understand the facts,” Mike said to me after the meeting. “They compare Cleveland to other regions like Silicon Valley and Boston, and we’re not those places.” “Yeah, they keep throwing other people’s money at biotech, meanwhile, we keep using our own money to add jobs.” I was righteously frustrated. We continued to engage with politicians, but the differences between their economic development mindset and ours caused us to keep our expectations low. We occasionally found success. In the early 1990s, we were outgrowing our Payne Avenue facility and had started to look for a new location. We were adamant about remaining in Cleveland, so we began meeting with local politicians. Our first meeting was with Mayor Michael White and his team at city hall. I was direct and impatient. “We have about 50 jobs,” I said. “We’re a good employer. Our plan is to leave the city if you don’t give us $250,000 to stay.” I didn’t have any desire to engage in small talk or beat around the bush. I wanted what I wanted. Evidently, that was a problem. “No dice. Have a nice day,” I recall Mayor White saying to me, pretty much exactly like that, adding a few quick words to explain that the city didn’t provide business retention grants, so we weren’t going to get anywhere with his administration. End of conversation. I did go away from the meeting thinking, this mayor is good. He was imposing—confident, with a graying beard—and he didn’t pull his punches. He had 80 lawyers, 30 unions and 10,000 employees to manage, so I shouldn’t have been surprised. “Well, that didn’t go so well,” Mike said as we walked to the parking garage. “Nope,” I said. “I guess issuing ultimatums isn’t the way to go.” We regrouped and did our homework on company retention mechanisms the city found palatable, discovering that it did use tax abatements, so we asked for another meeting. We offered


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our thoughts and analysis on a proposed tax abatement plan. While some people criticized tax abatements—one muckraking journalist a few years earlier had said tax abatements rape the city because they take away desperately needed revenue from residents—the mayor thought tax abatements enabled companies to grow and create jobs. This meeting went much better. Mike, the mayor’s team, and I crunched numbers for a tenyear inventory and property tax abatement. We came up with a scenario that saved us real money and was feasible for the city. “How long does it take to package this proposal and push it through the approval process with city council?” I asked. The mayor seemed to appreciate that for businesses, time is money, because he responded firmly. “I am authorized to offer this,” he basically said, and then something along the lines of: “It’s approved as of right now.” He went on to explain that our plan didn’t subtract from the tax base because we would still pay our current taxes; we just wouldn’t pay taxes on increased levels of inventory and new property. We were required to show that we could create at least ten jobs, which would substantially outweigh the benefit of any property tax revenue because the city would get 2 percent of payroll. He emphasized in closing that we had a good plan in front of us, and we should consider it approved. I was awestruck and chastened. “Once we spoke his language and gave him tools and terms within his bailiwick, he moved lightning fast,” I told our CFO back at the plant. “I learned a lot about how to do business with the city today.” We worked with Mayor White’s administration numerous times and found his focus on job creation to be right on target. I also came to appreciate the city’s two health care institutions: Cleveland Clinic and University Hospitals, the former being the largest employer in the city, and the latter being the institution I adopted almost as a second company.


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In 1996 when I was 50 years old, Mike and I flew to Chicago to try a new, albeit not totally unproven, procedure called a fast CT scan because we wanted to make sure our hearts were healthy. I was at our global sales meeting in Breckenridge when I received a call to inform me the results of my scan were concerning. A good friend of mine at Cleveland Clinic, Doc Taylor, told me not to worry about it because the fast CT test was unproven. I had passed a stress test, and I was likely just fine. Then I had a heart catheterization, which was the only reliable way to determine if I had arterial blockage. When I received the results, I called Doc Taylor. His secretary, Dorothy, answered the phone. “Is Doc in?” “You want to shoot skeet with him?” she asked. “Is Doc in?” I repeated. She told me to come down and wait for him to get out of surgery. At 11 a.m., he came out, and I gave him the disk that had my results on it. “John, you are 95 percent blocked,” he said, and he choked up. I think he knew how my dad had died. “I don’t know how you are even existing, never mind moving around,” he said, and then he asked Dorothy how many surgeries he had scheduled the next day. “Two,” she said. “Make it three,” he said. He ordered me to go straight to the pre-operative area of his department. Marni and I were separated and on our way to divorce, so I didn’t involve her. I went to Mike’s house to let him and Marian know what was going on and then called a lawyer friend of mine to complete a late-night will signing. By sometime the next day, I was on a hospital gurney in post-op intensive care with tubes and wires in various parts of my body—nose, mouth, chest. Doc Taylor came in and let me know he had performed a quadruple bypass. To stay alive, I would have to stop doing all kinds of things, including working so hard. Andrei Thornton,


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the former Tribe player-turned-ColorMatrix consultant, came to visit me and told me the same thing. So did Mike. But I couldn’t slow down—I was a workaholic and loved bringing in opportunity and creating jobs. Down the road from both Cleveland Clinic and our facility (we were located in the Midtown Corridor), Mayor White continued his focus on job creation. He regularly took heat from the Cleveland Teachers Union, among others who rallied around the idea that tax abatements took needed money from the city’s schools. Cleveland’s is the largest school system in Ohio, and it is funded by property taxes: about 60 percent of the city’s property taxes go to the schools. So the union put a referendum on tax abatements on the ballot for the city’s residents to vote on a couple of times. During one campaign after I was fully recovered from the heart surgery, the mayor called. He was holding the line on his position that tax abatements allowed companies to grow and create jobs, and the payroll taxes provided revenue for the schools. “Can I hold a press conference at your facility?” I recall him asking. We had created at least 50 jobs, in contrast to the ten for which the mayor had asked—one small win for Cleveland, which was losing manufacturing jobs to low-cost labor in Asia and sometimes to better deals in the city’s own suburbs. During the conference, the mayor held up ColorMatrix as an example of smart and hard-won job creation. Mayor White has been Cleveland’s longest-serving mayor. By the end of his tenure, 30,000 jobs had been created in Cleveland. The Rock & Roll Hall of Fame and Museum, and new Browns stadium also had been built, helping to make Cleveland a top American city for business, according to Fortune magazine. The next administration was a completely different story for us. During Mayor White’s time in office, we moved from Payne Avenue into a new facility on Chester Avenue. We stayed on Chester for ten years. At almost 100,000 square feet, the Chester plant was large enough for us and our projected growth,


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but its layout was wrong. Our building had three floors and this vertical layout was not consistent with lean manufacturing practices. For our operation to be efficient, we needed to find a location that was all on one floor. Though Cleveland is full of dilapidated old buildings, the inventory of structures that would suit our needs was not promising, yet we badly wanted to stay in the city. We had by this time been placed on the list of the highest-growth private companies in America’s inner cities. We had received several ranks over the years, eventually making it as high as 37th on the Inc. 100 Inner City Company list for our size and growth rate compared to inner-city companies across the country. In one of its introductions to the annual ranking, Inc. wrote: Because of their locations, the companies honored here sometimes find life a little more challenging than many other businesses do. But that has only made them more creative. On the flip side, the CEOs who grew up in these inner-city neighborhoods often find their success—and their consequent ability to give back to their communities—more than usually gratifying. Great companies are born in garages and office parks and basements and incubators. And thanks to factors ranging from diverse workforces to innovative investment programs, more and more are born on city streets. This captured our sentiment—we loved our location in Cleveland and were willing to go to great lengths to find the right building so we could stay there. Jane Campbell was mayor after Mike White. She was the first female mayor of Cleveland, a Democrat with a background in community organizing and politics. We set up a meeting with her team. We had learned a lot from working with Mayor White’s administration, and we felt well-versed in how to approach city hall. Of course, a new administration always brings a different


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way of operating, but Mike and I underestimated the extent to which things would change. We met with Mayor Campbell’s economic development director, Chris Warren, who was sharp and grasped our needs immediately. He sent us to see Mayor Campbell. That’s when things took a turn for the worse. She didn’t ask good questions and quickly shuffled us along to someone who drove us around to look at buildings. This guy started showing us five-story buildings served by a single elevator. “This isn’t working,” I said. “So far not one building has met a single one of our top three requirements.” Mike and I took matters into our own hands. We found a building we thought might work—an old manufacturing building in the heart of Midtown that the city had acquired in 1991. A decade later, in 2001, when we found it, the place looked like it had been sitting around for a thousand years. It was abandoned, had boarded up windows and a collapsing roof, and showed scars where scavengers had ripped away the copper and aluminum. When we went inside, though, it didn’t look as bad because the city had rehabilitated half of it. And we needed only the ground floor. We went back to the mayor. “That building could work,” I said. Her reply forewarned us that our relationship with her and her administration would be an exercise in vagueness and frustration. It was like a canary in a coal mine. Her stream-of-consciousness reply, as I recall, went something like this . . . oh, you can’t have that building . . . we park the city’s school buses in the parking lot there . . . if you took that parking lot, I wouldn’t have any place to park the school buses. School children were her highest priority, she explained to us, and so were the children’s school buses, which spent the night at the old building. There seemed to be no creativity or resourcefulness to her response.


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“Wow, what a different regime!” I said on the drive back to our plant, suddenly longing for the Mike White days. I didn’t have enough experience to know whether White was really good or that Campbell was really not good, but I am guessing that her response was pretty typical among her mayoral peers. Michael Porter, a Harvard Business School professor who runs a national program called the Initiative for Competitive Inner Cities, once asked his research team to survey companies that had left inner cities. Porter’s team reported in Inc. magazine that “the number one reason by far, like five times over No. 2, is that they couldn’t expand in the time frame they required,” he said. That was our problem with the new Cleveland regime—slowness and unresponsiveness. “Mayor Campbell is not going to lift a finger for us,” I said to Tom Adamo, our chief financial officer. “We need to begin looking into other locations.” I still held a glimmer of hope. I had learned about the state of Ohio’s program for existing Ohio companies that build new facilities. For these companies, the state offered loans at 1 percent interest for the first three years and 3 percent interest after that, which were attractive rates for us. Tom and I went back to Mayor Campbell. “Do you have any interest in partnering on this?” I said. “If you got a real estate developer to build a facility at those terms, we would commit to a long-term lease.” She stared at us as if to say, “Now, how would you get that done?” followed by another stream-of-consciousness reply, something along the lines of we haven’t done this . . . it’s new to us . . . “I’m done,” I said to Tom. “She doesn’t understand business, and there is no way her administration will ever want to work with us.” We had loved supporting the city, and being supported in return, but we had an urgent need to expand. In Berea, fifteen


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miles west of Cleveland, we found an empty building owned by a developer who agreed to make leasehold improvements for us. The mayor of Berea welcomed us and made relocating attractive by refunding a portion of the city’s payroll tax. We needed cost concessions like this to compete with the Chinese and other foreign governments, which were throwing piles of money at their manufacturers, enabling them to grow. We weren’t going to win on labor costs. And while we competed with China (and others) largely with our value-added solutions, we also had to manage operating costs very tightly to drive the efficiencies that made us competitive. We pulled the trigger, and in 2003, we struck a five-year lease agreement with the developer and Berea. We moved in shortly afterward. I bought a glass-topped, art deco wooden table for my new office, decorated the walls (pictures of my wife, my boat, and me playing pit crew at a Las Vegas speedway; a pencil etching of the names of three friends listed on the Vietnam memorial; and a print of our company logo, a tiger), and was happy with my new office. But every day I walked into it, I missed Cleveland. Mayor Campbell probably didn’t miss us much, although it seemed she didn’t like our decision to move to Berea—her administration removed the ColorMatrix property tax abatement a couple months prior to expiration and received kudos from Cleveland residents who thought the tax breaks represented capitalistic greed. While we were fine in our new offices and Campbell’s administration was fine because it was fighting “corporate greed,” the city of Cleveland’s workforce suffered. The loss of another Cleveland employer—this time, us—was a very sad day for us. It broke our hearts. We had been proud of being an inner city company and creating jobs. Michael Porter, the expert in inner-city business growth, summed up our experience most simply: “I think it’s not understood how powerful business is in addressing the social agenda,” he said in an interview.


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Many people in America are cynical about business. But more than any other type of institutions, businesses create the jobs that help people who are down and out to rebuild their lives. At ColorMatrix, we loved being a part of this, and although I think US businesses do have warts, job creation by US businesses is a force for good. I wish more young people would harness the positive aspects of our country’s private sector by going into business (instead of politics), creating companies in the inner city, and knowing from the inside—like Mike and I did—that while they are making money, they also are providing long-term jobs that improve lives in enduring ways.


VIII Our Specialty Additives— New Technologies Additive, n: A substance added in small amounts to something else to improve, strengthen, or otherwise alter it.

Mike


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A

Bottled Water

fter Dave McBride, our linebacker of a salesman (now probably more of a quarterback), officially took responsibility for our PET packaging business, he found a major bottled-water opportunity for us. When processed, PET plastic sometimes releases a harmless chemical (acetaldehyde) that can seep into food or drink and slightly affect its flavor. Food companies reduced the effects this acetaldehyde seepage had on flavor by adding antioxidants to their PET resin. Although the antioxidants solved the seepage problem, they also changed the color of the resins. This was an acceptable side effect for colored plastic bottles but not for clear bottles. Who wants to drink water from a cloudy bottle? The bottled water industry needed a solution that would remove excess acetaldehyde without discoloring polyester. If we solved this problem, we’d make a lot of money—about 200 billion bottles of water are consumed annually around the globe. Europeans in particular are connoisseurs of bottled water, and Germany, for one, had an acetaldehyde specification that was so tight, no plastic bottlers could meet it without spoiling the clarity of the bottle. As a result, glass was the container of choice for Germans, and most European countries were similar: they preferred glass, which was expensive to make, use, and handle, and was less recyclable. Knowing this was a global, multi-billion dollar opportunity, Europe’s beverage industry was trying to figure out how to switch to plastic for water bottles. Constar, one of our first European customers, was a PET converter and one of those companies in the race to make clear plastic water bottles. Our ColorMatrix Europe team had forged a partnership with a few university researchers, and together with Constar, they were experimenting with ways to decrease acetaldehyde levels. They talked regularly with bottled water companies to come up with a solution. Back in the US, we also were circling around the water bottle


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issue. Dave was calling on Coca-Cola, whose captive bottlers were some of our largest customers. Coca-Cola was developing its Dasani line of bottled water, and its research team was concerned about acetaldehyde contamination. They were trying to control acetaldehyde in a project at their Atlanta corporate offices. “Why don’t I bring our head of R&D, John Standish, to meet with you, and we can talk this through together?” I asked. The idea was that John could learn from the Dasani research team and maybe add his knowledge to their project. “What are you guys doing on acetaldehyde scavengers?” the Coca-Cola project manager asked them at the meeting in Atlanta. John had a ready reply. “We’re doing quite a lot in this area,” he said. “We have a couple of candidates identified and . . . ,” he went on to tell them about potential solutions being developed in the CM Europe research project. Mark Rule was a Coca-Cola scientist who was impressed enough with Dave’s and John’s knowledge that he started to open up about what Coca-Cola was doing. “I’ve developed a decent technology,” Rule said, describing how he had developed an acetaldehyde “scavenger.” This was an exciting new technology. The men talked chemistry for a while. Mark ended by asking John, “Would you be willing to submit your research samples to us? We can compare them to ours and see what works and what doesn’t? Maybe we’ll all learn something.” “Great idea!” Dave said. This was just what he wanted from the meeting. He called the Europeans to give them the news, and with that, ColorMatrix (Europe and the US) formed an experimentation team with Coca Cola. After a while, Mark came back to us with his conclusion: Our research was good but not as good as what they had developed. Their TripleA scavenger eliminated acetaldehyde diffusion in PET and so entirely avoided the problem of


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discoloration. It was a breakthrough. Our research wasn’t at that level. We were still happy with his conclusion—we had opened up our research kimono and collaborated with Coca-Cola, and now our strategy was leading them to treat us like a partner. Dave came to me and said that Mark had contacted him. “We’re about to patent our technology, and we are looking for someone to license it,” Mark told Dave. Once they received Food and Drug Administration approval, Coca-Cola could use the technology in its Dasani bottled water line, but Coke knew it would make more money on TripleA by getting other companies to use it. We believed the TripleA scavenger would open up the plastic-bottle water market, so we worked out a global licensing deal for ColorMatrix. A friendly competition existed between ColorMatrix North America and ColorMatrix Europe, spurring both of us to develop or find products that served our customers. Once we had the license to sell TripleA, Bill, David, and Mark made quick work of converting the German bottled water market to plastic. This was a big deal. Consumers could finally drink water from plastic PET bottles that were clear and had no effect on flavor. With this success, our sales grew at a record pace, especially in Europe, which went from 20 percent of ColorMatrix revenue in 1996 to almost 40 percent in 2004, and then to about 50 percent in 2006. We didn’t develop TripleA ourselves, yet the market was large, and our knowledge was strong, so we made a lot of money from licensing the technology. Our first experience with licensing a technology showed us that this could be a promising route. At the same time, we knew “luck favors the prepared.” We never would have been in a position to license the TripleA invention without the research John Standish and the Europeans had done because that is what had had impressed Mark Rule. We advanced our research and kept up with the industry. We understood the value of what Coca-Cola had. We knew the market size and dynamics.


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As long as we were present in markets, and doing our own research and development, we showed inventors that we were well-positioned to license and commercialize their new technologies.

D

Better Ketchup

ave led the TripleA scavenger success, and although he was young (about 30 years old), he became the central point for information shared between our researchers and Coca-Cola. We were a small business becoming a mid-sized business, and we needed managers who could deal with this transition. They needed to be independent, but not so independent they went off the reservation, which is a hard mix to find in a manager. Dave displayed exactly this mix. He was an independent thinker and doer, and yet he was respectful of our way of growing the company. He led yet another technology success for us. A lot of our PET customers were trying to make juice, tea, beer, water, and ketchup last longer in PET containers. During the first steps of packaging a food or beverage, oxygen seeps in through tiny pores and causes unwanted oxidation. The result is like when you take a bite out of an apple and it turns brown a few minutes later. The primary way to fix the oxidation and discoloration was to use three layers of plastic—first PET, then nylon, then PET again. The central nylon layer created an oxygen barrier but at a cost—three layers of plastic was wasteful, heavy, expensive, and not very recyclable, so food and beverage companies worldwide were trying to figure out how to “light weight” plastic packaging. John Standish was ambitious and wanted to come up with a solution. He hired Ron Valus, who had spent his career in research at British Petroleum in Cleveland and was an expert on polymers and gas diffusion.


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“We need to completely understand oxygen barrier technologies,” John Standish said, so Ron worked on this issue in the lab. One day, Dave McBride and John Standish were in Atlanta visiting Mark Rule at Coca-Cola. They started talking about oxygen ingress in plastic containers. Because of the TripleA scavenger success, we were at ease with each other about our research and development, and we knew Coke had engaged BP to help with the oxygen ingress problem. “I’d like you to talk with my friend Greg Schmidt who works at BP in Chicago,” Mark Rule said. Greg was a sharp researcher with a PhD in chemistry, and he oversaw business development and scientific projects at his company. John and Dave got on the phone with him, and they began talking about oxygen barriers and the work ColorMatrix had done. “You know, we’ve been working on that,” Greg said. “Maybe we should start talking more formally.” Greg flew to Cleveland with his chemist, who was involved in developing a BP product they were calling “Amosorb.” Back in the lab, Ron Valus knew exactly how to test the BP technology, so he and this other BP chemist hit it off immediately. “Wow, you guys really know this stuff!” Greg said as he watched them at work. Just like with our acetaldehyde situation, the BP and Coca-Cola researchers told us we weren’t as far along as they were, but they were genuinely impressed with our scientists’ expertise and findings. It turned out that Amosorb scavenged oxygen as a food or beverage was being packaged. This “always active” capability was a breakthrough because it meant companies didn’t have to use three layers of plastic to prevent air from permeating into their juice, tea, beer, water, or ketchup. They could use one lightweight plastic resin mixed with Amosorb. In addition, plastic containers using Amosorb could be recycled. Lightweight, cost efficient, and good for the environment: Amosorb checked all the boxes for meeting the industry’s needs. Greg Schmidt knew Amosorb was promising, Dave told me


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after the meeting. But Greg and his colleagues were frustrated that they’d sold relatively little of the material over six years. Dave McBride jumped all over this. “I am certain we can sell Amosorb,” he said when he was back at our offices. As we talked about it, we realized that if we added Amosorb to our offerings, we’d have a great product suite:  Complete liquid colorant systems that were better than commodity pellets and powders,  TripleA scavenger for the bottled water industry, and  Amosorb for packaging for perishable foods and beverages. Dave and John Standish came to us to explain how important it was to license this technology, but that the negotiations wouldn’t be a slam dunk. We may have been the right partner, but BP was obliged to shop around its technology and get the best deal it could. To put us as high up on the partner list as possible, Dave and John developed a great licensing and commercialization plan—very bullish and confident—and shared it with Greg at BP. Greg must have determined that ColorMatrix had the right knowledge, skills, and commercialization plan, because he recommended to BP that we receive the license for Amosorb. In 2003, we were incredibly pleased to add it to our product line. We faced a small credibility problem with our sales team because Amosorb was a pellet-based product, which was different from our “all-liquid-all-the-time” position in the market. Many times over the years, our salespeople had asked us if we could add color concentrate pellets to our product suite so they could sell dry color to customers who wouldn’t convert to liquid. “No,” we had always said to them. “Our differentiation and positioning are that we are a liquid colorant company, and we need to keep it that way.” Now, we were trying to sell them on a pellet-based product. We knew this seemed hypocritical, but the underlying value of


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the Amosorb technology was consistent with our positioning. We produced liquid versus solid colorant not because we had some irrational love for liquid but because liquid was technically superior and yielded higher margins. Our real product differentiation was not really about liquid versus solid, but rather about adding value to solve customer problems and producing high margins. Amosorb did those things even though it was a pellet. We explained this to our salesforce, and by and large, they accepted it. But at the same time, we developed a liquid form of Amosorb that could be sold alongside our liquid colorant. As head of our PET sales and marketing efforts, Dave McBride had owned most of these technical opportunities—the UV blocker, TripleA scavenger, Amosorb, and more—so he had managed the largest portion of our business for years. We promoted him to business unit manager for packaging, and he just kept going— knocking on doors, making sales, and growing the company.

T

Partner Pain

he Europeans added a Russian company to their list of customers. Russians drank beer from plastic bottles because glass was too expensive, and during the bottling process, oxygen was getting into the beer. As a result, Russian beer had a distinctive “skunky” flavor. “This tastes flat-out bad,” John said to me when he tried the beer. CM Europe figured out how Amosorb could fix the problem, and it became a big hit in the Russian beer-bottling market. Simultaneously, European demand for plastic bottles continued to grow. Italy was the largest plastics market in Europe, and now even the Italians were replacing their glass water bottles with plastic. CM Europe had become very capable at quickly capitalizing on each new opportunity. They were a better partner than we


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ever could have imagined when Bill came into my office ten years earlier looking for a reason to follow his au pair girlfriend to the UK. Around 2003, our initial ten-year agreement with them was due to expire. We had always owned the know-how. But the Europeans had developed their own in-house know-how, so ours wasn’t a huge asset. We also owned the TripleA scavenger and Amosorb licenses. They held similar goals as us, and they had reasonable requests in the agreement renegotiation. But one of their points was hard for us to swallow. They wanted the new joint venture agreement to contain a provision for a liquidity event—they wanted a sale transaction that would generate cash for them. “They’ve worked hard, and now they want to cash out,” I recapped for John. “But I want them to be co-owners for a lot longer because there’s so much more opportunity for all of us to capture.” I probed Bill on why his team desired liquidity. He repeated that cash was an important factor for them. It was for John and me, too. But for us, timing was more the issue. We were happy to wait longer to cash out than our European partners. “Our renewed agreement has to have a liquidity provision,” I summarized for John afterward. “It’s a non-negotiable term.” We needed Bill, Dave, and Mark. They had turned Europe into a backbone of profitability and growth for ColorMatrix. At an intellectual level, we understood their desire, but in our hearts, we wanted them to keep growing. In the end, we had no choice but to include the provision. We completed the agreement renewal, which stated that if a company didn’t acquire ColorMatrix, then John and I would be required to buy them out. Partly because of this situation, we were of two minds. On the one hand, we felt great. It seemed like the world was our oyster:  We had finally become a global chemicals company. We had our colorant systems, which were customized solutions for customers.


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 We provided training and customer support, which included technical support from centers in the US and Europe.  We owned rights to proprietary additives like the UV blocker, TripleA scavenger, and Amosorb.  We were located on four continents, and we were selling our colorant solutions into every continent on the globe.  We counted some of the biggest corporate names as customers or end users—Coca-Cola, Pepsi, Heineken, J.M. Smucker Co., Rubbermaid, Royal Appliance, and many other huge companies. We also were supplying color to 70 percent of PVC pipe customers in North America, companies like Cantex, Carlon, and others.  From a knowledge standpoint, we had a lock on the largest and fastest-growing plastics markets: consumer packaged products (PET), building and construction products (PVC), and plastic consumer products (traditional injection-molded plastics).  And liquid colorants was a growing area, having reached 5-10 percent of the plastics industry, up from about 1 percent when we had started in the early 1980s. On the other hand, the liquidity requirement for the European team was a dark shadow over John and me. It unsettled us and changed how we thought about our roles in our global business. I sat at my antique British partners’ desk and stared out the window. What the heck are we going to do? I wondered.


IX Seeing Green—Adding Capital Green, adj: of the color between blue and yellow in the spectrum; colored like grass or emeralds.

John


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T

I-Bankers

he European deal term threw me for a loop, too. My heart condition and surgery had helped me make some changes over the years. I ate more healthily, sold my boats, and while I didn’t work less hard, I stepped back a bit from the constant stress of selling and solving problems. I liked this step—being more strategic, making fewer sales calls, and relinquishing the locus of most of our hiring decisions. Mike also had pulled up a level, driven by his desire to enable the business to grow more quickly and flexibly. I was having fun with this new role, and we were growing like gangbusters, reaching about $100 million in annual revenue. “This company can do much more,” I said. I didn’t want to sell the business. “It can,” Mike agreed, “but buying out Bill, David, and Mark is going to take a heap of cash.” Technically, we did have a heap of cash. But using the cash and a lot of bank debt to buy out our European partners would cause enormous financial stress. Neither Mike nor I wanted that stress in our lives. “Maybe it’s time to take on investors. We could sell a stake in the company,” I said. The equity-investor path was one we thought we’d never take, but we had changed. After talking with our accounting firm, bank, and others, we figured out that selling a minority stake to investors so we could maintain a controlling interest wouldn’t work. “If an investor is going to put a bunch of money into your company (we were thinking about raising over $50 million), they’re going to want a controlling stake,” our advisors told us. Investors at that level require the authority to make decisions, which meant we were going to have to find an investor to buy over 50 percent of our business. We didn’t want to sell 100 percent because we wanted to remain actively involved. We needed


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a recapitalization that would accomplish all of our goals:  Raise the cash to buy out the Europeans and grow the business,  Monetize some of our own equity stake,  Continue to own a large portion of the company (albeit not a majority), and  Keep working at ColorMatrix. We needed to find buyers who wanted us to remain active with the company rather than kick us to the curb. We wanted an experienced firm to do the transaction and we wanted to avoid seller’s remorse, which is when a seller experiences intense regret about selling something important, say a home or treasured antique. Research shows that half of owners who sell their companies feel like they left money on the table. The sellers might not have wanted to sell in the first place, or perhaps they set the wrong sale price or were taken advantage of by the buyers. “We could just not sell the business,” I said to Mike because I was so wary of experiencing seller’s remorse. “That’s what we’re doing, in a way,” he pointed out. “Because we’re not selling it, we’re recapping it.” Rather than selling, we were weaning ourselves off of ColorMatrix. We were determined to get a fair price. And we weren’t naïve sellers who let a seasoned buyer take advantage of us. “You need to find an investment banker,” our accountant told Mike when he relayed our concerns. “They lead buy-sell deals all day long and know how to get you a good price.” These bankers could create our offering memorandum, conduct the auction that hopefully created a competition for recapping our company, and create the right financial structure for the whole transaction. We had avoided working with investment bankers nearly a decade earlier, in 1997, when an unsolicited bid came in for our company. Instead we had asked Ernst & Young


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to put together a basic booklet that functioned as a type of offering memorandum. Only one buyer had been involved, and when our half-hearted efforts to respond to their bid failed to yield a fair price, we were happy to terminate the deal. “It’s different now,” Mike said as we talked about our disappointments with that experience. “We know we want to sell— we’re not just responding to a bid—so we should use an investment bank.” We met with the sell-side teams at a handful of investment banks, and found that bankers and their firms were as different as day and night. “They all have their own personalities,” I observed after the third or fourth meeting. “I like the regional firms because I think we’ll be better served by them than by a big firm out of New York,” Mike opined. “Yeah, I agree, but let’s stay away from Cleveland firms because this is a small town, and if word got out to our employees that we’re looking to sell, it would hurt morale.” Employees often worry about their future when they hear owners talk about selling. Then their performance slips. We were assured that Cleveland bankers would maintain confidentiality of the deal—as all bankers should do. But after a meeting with an investment banking group in Cleveland, I found out that a banker or lawyer had leaked confidential information. “That does it,” I said to Mike. “We’ve got to go with a firm outside of Cleveland.” We decided to work with Grace Matthews in Milwaukee, Wisconsin. Its co-founders were Doug Mittman and John Beagle, two chemical engineers with MBAs, which was a combination that worked well for us. Doug was the finance and accounting expert. He was outspoken, opinionated, and matter-of-fact. He didn’t pull his punches. John was strategic, sales-oriented, and incredibly pleasant, a combination that was a good yin to Doug’s yang. Their company had a rock-solid reputation for mergers and acquisitions in the specialty chemi-


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cals industry, and they offered all the best of a regional investment bank—they were down-to-earth, interested in our company, experienced in our industry, and focused on nothing less than total success. “One of the things that impresses us most about ColorMatrix is the partnership between you two,” one of them said to us (I don’t remember which one). “We’ve been brought in to represent a bunch of companies where the partners were at loggerheads with each other.” “It’s amazing you stayed in business together for over 30 years,” the other said (a quarter-century together at ColorMatrix and a handful of years at Cincy Milacron). “We’ve never really had a substantial disagreement,” I said. I made this comment regularly because it amazed me and summed up the strength of Mike’s and my relationship. Our partnership wasn’t perfect. I didn’t tell the investment bankers about the couple of times we annoyed each other and needed to walk away to hide our frustration. Mike criticized my writing once. I’m pretty thin-skinned, and his attempt at constructive criticism annoyed me. I got pretty pissed off. I bought a greeting card that had a picture of a guy sitting on a park bench with his legs stretched out and his body covered with pigeon crap. Inside the card, I wrote: “Thanks a lot for your help, Mike. From, John” I put the card on his desk and walked away. We never discussed the issue after that. I still don’t know what he thought about the card, and I don’t want to know. Then there was that time back in the early 1980s when I bought the car he thought was too showy and might turn off our customers. We had differences of opinion on things like that. But staying together when most partnerships failed boiled down to one thing: respect for one another. My hot temper aside, we never second-guessed each other, and we always kept the business moving forward.


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B

Excellence

efore we signed on with Grace Matthews, Mike wanted to add someone to our team. “What do you think of the idea of adding Polymer TransAction to our team on this transaction?” Mike asked John and Doug. Bill Ridenour, the head of Polymer TransAction Advisors, had called on us for years, eager to represent us in a transaction. Mike had always liked Bill and wanted to get him on our team somehow because he had a deep understanding of the plastics industry. Everyone agreed that Bill should be a special advisor to Grace Matthews in the transaction, so our transaction team was set, and John and Doug kicked off the selling process. We met at our offices in Berea. “If you want someone with deep pockets who’ll pay a premium, you’ve got to be global,” Doug said before we signed on with them. “We are global,” I responded. “We have operations in China, South America . . . “ He stopped me short. “John, you’re international, which is great,” I recall him saying. “But you’re not global. Each of your locations is its own independent entity, and each one has its own structure and relationship to the US headquarters.” “Sure,” I shot back, probably a little defensively. “Hong Kong is a distributorship because that’s always our first step into foreign markets. The UK is a full licensee with joint ownership because they’re farther along, and so they reached step two of our joint venture process.” I had wanted to explain how well-reasoned our entry into other markets was. But the Grace Matthews guys had shown that they didn’t care about that because they looked at the world from the viewpoint of big-company buyers. That was their


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job—to know what big-company buyers wanted. “Your international locations do business under the ColorMatrix name,” he said, “but you don’t operate as one company. You have pocketed entrepreneurship with an international presence.” “You say that like it’s a bad thing,” I said, wondering how being international and entrepreneurial could be bad. “You need to become one global, coordinated company,” Doug continued, saying his firm would prescribe this strategy in our offering memorandum. His insight was a blow to us. The independence we offered our joint venture partners was important to how we operated. “We have completely forgotten how big companies think,” Mike concluded. “John and Doug have sold about forty companies in our space (specialty chemicals and additives) and they know what’s going to work for big companies.” After our engagement, our first meetings with Doug and John were aimed at figuring out how big companies could “plug in” ColorMatrix to their global operations. If we had a cookie-cutter approach of doing things at each location around the globe, we would make multinationals much more comfortable. Under their guidance, we positioned each of our primary locations in the US, Europe, China, and Brazil as a center of excellence for a specific capability. The UK became our research and development and our global packaging (PET) industry center of excellence. The US became a center of excellence for developing new equipment (such as our metering devices) and industrial extrusion (PVC) processes. We also got our IT systems up to speed—an expenditure Mike and I always found painful. Every time we analyzed the economics of IT projects compared to investments in machinery, new products, people, and partnerships, the return on investment wasn’t anything that made us jump up and down with excitement. Avoiding the allure of investing in vaporware and expensive IT trends hadn’t seemed to hurt us. But Bill, David,


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and Mark in Europe had long implored us to put more money into our systems. “New systems will increase European sales at least 5 percent,” is the summary of what they had told us a few times over the years. If true, such investment admittedly did make good economic sense. “Might be true,” I had responded each time, “but our style is to pick up the phone and visit a customer, so let’s stick with that.” Silence on the other end of the phone was the usual response, likely the sound of people pulling out their hair. Now our bankers were saying to us, “You have got to invest in IT.” They said it would help create that cookie-cutter operation that would increase the price we fetched for the business. “We need to maximize the price of the business,” Mike reasoned. “That’s as good a return on investment as it gets.” So, we followed their advice and invested in systems.

N

High Anxiety

ext on our emotional hit parade was the fun experience of seller’s anxiety. “I’m constantly afraid this transaction is going to fall apart,” I said to Mike when we were knee deep in the selling process. My anxiety was based on the daily, relentless grind of what we had to do for the recap transaction—it took tremendous time, and there were more opportunities for things to go wrong than right. “If this deal dies, we have serious issues,” I said. “We need to get this thing done as quickly as possible.” Topping the list of those issues was the high fees we were paying Doug and John. We couldn’t recoup those fees if the deal failed. Although they were owed a success fee from the proceeds


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of the transaction, they also were charging a retainer fee. Second on the list of issues: We were about to spend a year (the length of time a recapitalization transaction typically takes) improving our company for sale rather than ongoing operations. We would take our eye off the operations ball for an extended period of time. Dave McBride, John Standish, Gerry Corrigan, and others were running the business, but we needed their time and energy spent on this transaction, as well. The divided focus meant we ought to plan on lower company performance and working extra hard for a while. The third issue causing us anxiety was, if the transaction failed, our employees would suddenly know Mike and I had tried to sell our stake in the business. “They’ll think we don’t care about the business anymore,” I said to Gerry, Dave, John, and others when I explained why confidentiality of this transaction was so important to me. Money down the drain, sub-par business performance, and low morale were our trio of transaction-failure nightmares. If the transaction failed, we faced a similar experience as publicly held companies that fail to complete a sale—a decline in the seller’s stock price to pre-discussion levels or lower. We weren’t publicly held, but this example gives a good sense of the negative effect such a failure has on a company. To counteract this risk—and ensure a buyer is really motivated even in the face of problems that inevitably arise—some sellers write a break-up fee into an agreement. The buyer has to pay the seller a fee if they break off the transaction. It partially compensates the seller for that negative stock-price effect. But Doug and John thought breakup fees offered an “easy out” to buyers, which they didn’t want to offer. So, “nerve-racking” is a good way to describe the year-long process in which Doug and John collected information from our management team, created an offering memorandum, generated interest from buyers, confirmed interest from a select few, and then shepherded us through due diligence with the compa-


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ny whose Letter of Intent we signed. This last step—exclusive due diligence during which we negotiated with one buyer who had all the power—was the worst. It seemed like anything could have an adverse effect on the value of ColorMatrix and be used by the buyer to discount the sale price. For instance, in our offering memorandum, we included projections for monthly and annual revenue and EBITDA (profit). If we didn’t hit or surpass those projections, the buyer could use the shortfall to decrease the price. And yet we had to take our eye off operations to conduct the all-consuming recapitalization transaction. We had to rely on Dave, the Europeans, and others to keep our sales and profits up. We figured that a large specialty chemicals company would pay the most for our company because they would gain market share and cost benefits from integrating our products into theirs. But private equity investors bid on us because leveraged recaps like ours were their bread and butter. They knew how to get debt financing, put together a syndicate, work with business owners, and quickly improve a company for sale at a higher price. We eventually agreed to move into exclusive due diligence with Audax, a private equity firm out of Boston, Massachusetts. Among more than 40 bidders (narrowed over time to eight), we chose to move forward with Audax because they seemed most likely to put together the right financing and ownership package. “Plus, John and I like them,” Mike said to Doug. Doug and John told us Audax was a respected private equity fund and confirmed that they were well-equipped to put together the right financing package for us. None of us could have predicted the trajectory of the US economy. In 2006, it showed signs of weakness, led by the accumulating troubles of the housing and banking sectors. The booming housing market turned to bust by late 2006, home sales fell, and economists talked about a housing bubble. “Bubble” isn’t a word you want to hear when you are on the verge of selling your business. The word implies “bursting,”


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which implies “woe to buyers who overpay.” A buyer could add these economic implications to the list of things that could reduce the price of our business. The Wall Street Journal was full of articles about banks bearing the brunt of the bubble. The phrase “liquidity crunch” was being thrown around a lot, which is another term you don’t want to read when your business is in the midst of a major debt-financing transaction. Every time he listened to the news, Mike got extremely agitated. “John, there’s a real risk Audax won’t be able to secure bank financing,” he told me more than a few times. As our strategist, he was great at collecting information and making sense of it, and he didn’t like what he saw on the horizon. The myth Malcolm Gladwell debunked (his idea that entrepreneurs are not risk takers) applied to Mike—he hated the risks he was seeing in the economy, and it showed. “Mike, are you sleeping these days?” I asked him. “Not much,” he said. “You look like you’re losing weight too,” I said. “Yup.” I was concerned about him, but there wasn’t much I could do. “Black swan” events also were on the list of things that could reduce the price paid for our company. A black swan is a sighting so rare that you can’t predict it. I think of 9/11 as a black swan event—as a business, you couldn’t have predicted when, where or how that tragedy would unfold. Presidential assassinations, nuclear explosions, and tsunamis are more black swan events. Because black swans affect markets and deals, they give buyers reason to re-price or cancel those deals. Apparently, Mike was lying awake at night worrying about this type of negative event. Still another category of price-reducing possibilities were “miscellaneous 11th hour” stuff that made me paranoid and uneasy. Unexplained delays fell into this category. “These delays are excruciating,” I said to Mike. This category of problems bugged me more than him because


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while his job was to scan the environment for risks and opportunities, mine was to complete the transaction. Toward the end, we were on the verge of completing a key step in the transaction when everything suddenly came to a standstill. I didn’t know why, and I jumped to conclusions. They want to decrease the price? They think there’s going to be a meltdown in the economy? They can’t get financing? As it turned out, the reason for the holdup was something mundane and easy to resolve—we didn’t include in the due diligence materials the certificate of approval from a tiny Eastern European country to sell our products there. Audax interacted with us positively throughout our due diligence process. They even allocated a stock option pool to Mike and me so we would have additional upside after the transaction. We met with one of Audax’s partners, Keith Palumbo, about the pool. He was down-to-earth, someone you wanted to be around, and really bright. We explained to him what we wanted to do. “John and I are interested in reallocating some of our stock options to some employees,” Mike said. “Do you have any issues with this?” We had always wanted to be the only owners of ColorMatrix equity—we felt that we should incur the financial risk (and upside) for the company. Also, attracting great people to ColorMatrix had never required us to issue options. Silicon Valley companies developing breakthrough technologies and new markets often needed to offer stock options to recruit and retain top people, but our opportunistic chemical and additive company was different. We did, however, want some employees to benefit from the new ownership structure, and we gave up some of our own stock option pool to do that. We went and talked with some key employees and confirmed with them our stock option reallocation plan. Keith said he was okay with the general outlines of it.


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Then one day, when none of the news on the economy or the transaction was good and some of it was bad, I noticed that Mike looked really uncomfortable. “Are you sweating?” I asked him. “Yeah,” he said, “I sure am. You know, John, there’s a good possibility this transaction could go south.” Mike was having a panic attack. I was concerned about his health, so I just listened. He said the facts pointed to a serious possibility of a failed transaction. We got John and Doug on the phone and talked through our fears. Their tone was exactly right, matter-of-fact and informed. Matters that were a hurricane to us were just a gentle breeze to them. We realized that owners like us sell a business once, maybe twice, in a lifetime, so we don’t recognize the pattern of a deal. Everything’s new. But the bankers have seen it all. They recognize patterns across a large number of transactions and know which problems are serious and which ones aren’t. The Grace Matthews guys were able to hose Mike down, and me as well, and they did a great job at it. They talked us off the ledge. Around ten months into the process, Geoff Rehnert and Mark Wolpow, the co-CEOs of Audax, visited us. This meeting was important because we had to like them and they had to like us for our recap to be completed. Geoff was bright and people-oriented. He made a point of meeting the owners of a business he was interested in acquiring and hearing their story. He wanted to get a sense of the heritage and heartbeat of the business before buying it. Mark was a good complement to Geoff. He was a steely, blueeyed guy who was disarmingly direct, and we had been told that his cut-to-the-chase attitude struck fear into a lot of people. “I didn’t find him to be terrifying. Did you?” I asked Mike. “No. He was direct. I’m okay with that.” “You can see the wheels churning in his head though. He’s a smart guy.” Mark was always analyzing, strategizing, and figuring things out. It was as if he couldn’t turn off his brain.


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The visit went well, and on May 24, 2006, Geoff, Mark and the Audax team acquired ColorMatrix for $175 million, which represented a healthy revenue and earnings multiple in any environment, never mind the deteriorating economic conditions. We held a company-wide meeting to explain that we had recapitalized ColorMatrix to take advantage of growth opportunities. “Mike and I are still involved with the business,” I said. “We’re co-chairmen, and we’ll now have deeper pockets so we can grow faster.” ColorMatrix employees took the news in stride. A number of employees who received deferred compensation or stock options likely would do well when Audax decided to sell the business, and our European partners were happy to be bought out. Mike and I went to Morton’s Steakhouse to join our management team, bankers, European co-owners, and new owners for a celebration. As I sat there, I soaked up Mike’s and my new situation in life. Our new owners were effective managers and leaders; the company was well-capitalized for growth; and our employees stood to do well, financially and otherwise. “Wow, somehow we have cobbled together a string of successes over the past 25 years, huh?” I said to Mike. A glass of wine or two can make a person nostalgic. I thought about me as the small-town guy and Mike, the salesman, selling like crazy and solving customer problems for a quarter of a century, forging joint ventures because we didn’t have money to start new businesses from scratch, and now, we were wealthy. “I never ever imagined we would create a business that someone would value at nearly $200 million, Mike.” “We had some great mentors on the way,” he said. “You know, they probably believed in us more than we believed in ourselves.” Our success was the result of many people—employees, vendors, partners, mentors, and our families—believing in us. And it was the result of a great partnership. Not everything we had done was successful, but we had never blamed each other, wal-


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lowed in indecision, or had a serious disagreement. I had come to love Mike like a brother. We weren’t as inventive like the Wright brothers, but I think we were similar to them in one meaningful way: we were a couple of Ohio entrepreneurs who worked really well together. Mike may have preferred horseback riding with his wife and daughters to the speed-boat racing and skeet shooting with buddies that I enjoyed, but I was grateful that my business partner had stuck by me through the years. Leave it to a lawyer to burst my nostalgic bubble. The next day, our lawyer walked into our offices and delivered to me a fat book of all the legal documents for the transaction, including the representations and warranties we had made. “I hope I never have to open that book,” I said to Mike. A week after the transaction, I found in my day planner the list of documents the federal authorities had taken from us when they investigated us in the mid-1980s. I had always kept the list near me because I lived in terror of a repeat experience. For 25 years, I had been waiting for us to be falsely accused again, and the piece of paper had served as my security blanket. I always imagined pulling it out, gathering up the documents on the list, providing them to the authorities, and being cleared of whatever the false accusations might be. I unfolded the paper, tore it up, and threw it into the waste basket.


X Exothermic—Selling Our Company Exothermic, n: a process or reaction that releases energy from the system, usually in the form of heat, but also in the form of light, electricity or sound.

Mike


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T

Going Global

he business world was driven to its financial knees in 2007 and 2008. The subprime mortgage market collapsed, and mortgage foreclosure and interest rates rose sharply. To say this destabilized US banks and the economy is an understatement. EBITDA multiples dropped by nearly a third during those years, and a lot of deals stopped mid-stream. The leveraged recapitalization we had just completed would have suffered and died if we had waited six months. But I was relaxed. I could step back from the business yet still be involved, which was a perfect situation. Earlier in the decade, John and I had recruited Gerry Corrigan to help us turn our scrap material into cash. He did such a bang-up job that we made him our chief operating officer. Audax, the private equity firm that became our largest investor, went further, promoting him to chief executive officer. Meanwhile, John and I were co-chairmen of the board, which meant we attended weekly conference calls and periodic in-person meetings. We dealt with a few Audax guys, including Keith Palumbo and Oliver Ewald, an Audax partner from Germany who had a great thinking style that was naturally geared to structure information for making good decisions. A company moves forward because its people make good decisions, and Oliver brought this mindset to ColorMatrix. It was interesting to watch him become impatient when someone didn’t operate in that same fact-finding and decision-making mode, because I had a similar tendency. Steve Loose was another Audax guy, and he had a background in investing, operations, and consulting. His style was to constantly push for growth and opportunity. These three men, Keith, Ollie, and Steve, were the right combination for ColorMatrix. Early on, they came to Cleveland for quarterly board meetings and attended our monthly conference calls. They wanted to invest for growth, which was a change for me because I had always been a conserver of cash, so I need-


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ed to adapt. Audax’s growth approach was what ColorMatrix needed, but I needed to catch up. The private equity guys tried to increase the value of ColorMatrix quickly so they could “sell high.” They knew that plastics companies didn’t sell high, nor did the vast majority of colorant companies, but specialty chemical companies did. Keith, Ollie, and Steve had the plan and the cash to make a series of moves to ensure that ColorMatrix was squarely positioned as a global specialty chemicals company. They were consumed with ColorMatrix growth drivers, dialed into the details of each of our revenue streams with the precision of engineers. They knew exactly how long it took to convert a prospect into a paying customer, and they developed Gantt charts that broke down the mechanics and economics of the sales pipeline. This reverse engineering of the factors that drove our business interested, entertained, and impressed us. “The things we’ve treated as intuition or idiosyncrasy, they treat like science,” John observed after a weekly call. We were curious to see how they did things and amazed that with each analysis, they found a new way to finely tune a growth driver. We learned a ton by watching Audax, but it wasn’t all rosy. The financial crisis became a source of stress. Early in 2007, Keith, Ollie, and Steve were getting negative signals about the economy from other Audax portfolio companies. ColorMatrix was doing well, but Audax thought we needed to take preventive action. They wanted ColorMatrix to cut costs globally. By this time, Gerry Corrigan had left ColorMatrix, and our CFO, John Gelp, had replaced him as acting CEO. Cash became a concern for Audax because of the plunging economy, and our new investors set before John Gelp the task of managing cash levels and flow among our European, South American, and Asian operations. As acting CEO, John Gelp also dealt with a bank syndicate that was skittish because of the tenuous US and global economic situations. He spent hours each week managing the bank cove-


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nants under which ColorMatrix operated. He spearheaded the effort to remove costs so when sales declined, we wouldn’t violate our bank covenants. He laid off employees, reduced our purchases, extended our working capital, and put together contingency plans. These ranged from mild recession-style scenarios to hell-in-a-hand-basket scenarios. There were no “good” or “upside” scenarios during the financial crisis. Our European team wasn’t seeing the gathering gloom we were seeing because the US entered the financial crisis before Europe did. As a result, they were displeased about having to do layoffs. Another thing that wasn’t fun for John and me was being out of the driver’s seat for key relationships. We had built up many vendor relationships over 25 years, and some of them were special to us. I would have loved for ColorMatrix to continue these relationships as a reward for past service. But we didn’t own the company anymore, so we couldn’t drive those relationships. We influenced some—Audax continued to use National City Bank for some ColorMatrix banking and lending needs, but other service providers were replaced by Audax’s support system. This was a perfectly sound—and not unsurprising—business decision on our investors’ part, but I won’t say I enjoyed giving up being the key relationships guy. ||| We were interested when BP connected with us about the possibility of selling its entire oxygen scavenger patent portfolio to us. It fit perfectly with Audax’s strategy. Audax also wanted us to add more proprietary technologies because that enabled us to serve more additives needs for customers. This increased our “stickiness” with customers, which created revenue and earnings that commanded higher multiples. “We’re a specialty chemical company masquerading as a plastics colorants company,” I said to John after one board meeting when we saw the full vision Audax had for our transformation to a specialty chemicals company.


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It was exciting to see the plan unfold. Our colorant formulations were proprietary, so were our UV blocker formula, TripleA scavenger and Amosorb technologies. We owned or exclusively licensed proprietary products, and Audax was calling for more of these. I went to meet with BP. They kicked off our meeting with a case study on safety. I didn’t understand why until one of their people explained that a recent explosion at a plant was traced back to a fitting that had been provided by a supplier. There had been no casualties, but as part of a renewed commitment to safety, its employees were required—at every meeting, whether internal or external—to discuss safety at the outset. BP’s corporate offices believed this practice would make the point that the company took safety seriously. After the safety case study, BP explained they had a directive to focus on their core business and get rid of non-core assets. That was point number one. Point number two was that our product development efforts and theirs were somewhat similar in the area of oxygen scavenging. They were interested in selling us their oxygen scavenger patent portfolio. After some discussion, I asked, “What’s the price tag on this?” We were already paying a lot to BP in annual royalties on its patents. If we bought the technology outright, we could stop paying the annual fees. They gave us a number. Ollie liked the idea of acquiring BP’s patent portfolio but wasn’t interested in the price they gave. We negotiated down the amount, and it was a good deal for both sides, but then things stalled because, it seemed to me, no one knew which individual at BP should to put his or her signature on the deal. It was a good deal for both sides, but what came across was that BP’s executives didn’t want to stick out their necks. I kept thinking, that’s the big-company way of doing things, and I have to say, I didn’t miss that way of operating. I placed a few phone calls to BP and then, after going in circles for a while, I asked, “What will it take to get a signature on this?”


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Finally, they made a decision. We closed on the patents in 2008, and Amosorb soon grew to be a substantial global business for us. Audax was correct in its belief that owning technologies outright gave us a shot at growing even faster. As long as they had cash to do it, this was a great strategy. Meanwhile, our footprint in China was too small, considering the country had over a billion citizens and a rapidly rising consumer class. We were still on Step One of our geographic market entry strategy (i.e., export first), and we had never gotten to Step Two (i.e., set up manufacturing). We exported colorant systems from the US to Hong Kong, where they were warehoused. Hong Kong supplied our products to the converter in Wan Chai, China, which was a city that can only be described as a feat of modern Chinese economic policy. It was filled with massive industrial complexes. Individual operations don’t even have names. They’re not so much companies as government entities established to produce goods for export so China’s masses can be put to work. The point is, there was huge opportunity for us in China, and Audax knew it. Our investors made ColorMatrix UK the support center for China and tasked Bill Ravenna with growing our presence there. Bill’s charge was to get us manufacturing in China for the domestic market of converters and processors. He opened a plant in Suzhou, which was an hour or so from Shanghai, and like Wan Chai, was another feat of Chinese economic policy, with industrial complexes as far as the eye could see. ColorMatix sales in China grew dramatically. We made acquisitions, too. Audax charged me, in part, with figuring out what targets made good acquisitions. We became interested in a family-owned company called Dosicolor, which was a top South and Central America supplier of liquid colorants. If we acquired them, we’d be the largest liquid colorant company in Latin America. The population of its three primary markets—Mexico, Argentina, and Brazil—totaled 350 million people, about the same as the US population. This acquisition


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would make us the leading liquid colorants company throughout all the Americas. Ollie and I traveled to Argentina and convinced the Dosicolor owners that an acquisition made sense. After this acquisition, we undertook more. Steve Loose led the acquisition of Colorant Chromatics, a Finnish company focused on the wire and cable market. Wire and cable casings are colored according to the function of their wire and are made from a specialty plastic that’s heat stable at very high temperatures. It’s flame resistant and doesn’t emit smoke so it can be safely used in high-heat places such as car engines. A handful of companies across the globe made colorants for this specialty plastic, and Colorant Chromatics was one of them. Because of its niche, it was a high-margin, solid-color concentrate company (we usually avoided solid color concentrate because it was lower margin). I worked with Steve to make the acquisition, which added to our earnings and gave us a new, specialty product line. More acquisitions followed. For years, I had held casual, exploratory conversations about a “potential business combination” with Bob Bradley and Robbie Droman, co-owners of Gayson Silicone Dispersions near Akron. Their company made silicone colorants and additives for rubber. Keith Palumbo, who had become our primary Audax relationship, worked with us to turn the casual conversations into something formal. In April 2011, we acquired Gayson, which was the final piece of Audax’s strategy to make us a global chemical and additives company. We had 14 locations around the world, including Ohio (2), South Carolina (which manufactured our dispersion pumps), Texas, Connecticut (through the Finland acquisition), Brazil, Argentina, Mexico, the UK, the Netherlands, Finland, Hong Kong, and China (2). Way back, our sales route had been the Ohio Valley—up, down, and across the foothills of the Appalachians to the flat expanses closer to Indiana and Illinois on I-77, I-71, and I-90. Then in the 1990s, our customer base had become more global. The wholesale transformation as a global enterprise was strik-


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ing. When we started in the early 1980s, I was scratching my head trying to figure out how we could reach $69,000 in revenue, and now I was co-chairman and part owner of a company that had $175 million in annual revenue and 15 percent top-line growth. John and Doug at Grace Matthews had told us that whoever acquired our company would move it away from being an “international presence and pocketed entrepreneurship” and toward being a fully global specialty chemical and additives business. “I think we’ve made that change,” I said to John at our plant in Berea.

P

All Decked Out

rivate equity firms need to generate a return on investment in a five-to-seven year window, which means the plan all along was for Audax to sell ColorMatrix a handful of years after acquiring it. Near the four-year anniversary of owning us, Keith said Audax was ready to sell, and he planned to use Baird as the investment bank for the transaction. Baird checked most of the important boxes:  Established,  International presence,  Many connections with major companies around the globe, and  Strong process for selling a company. The firm knew well the process of generating interest from buyers, creating competition for the deal, driving buyers to sign letters of intent, seeing buyers and sellers through the due diligence process, and closing the deal. “Grace Matthews was so great for us,” I said to John. “I’d like to see if we can get them involved in this.” John and I want-


Exothermic—Selling Our Company | 209

ed to make sure that we, as minority owners, were represented in the deal. Audax bought and sold companies constantly and was a core client for Baird, but we weren’t. Baird was a great firm, but contractually, they were working for Audax, and our thought was, who is representing us? Grace Matthews had represented us in the first transaction, and that had meant a lot. We explained our desires to Keith and convinced him that Doug and John knew ColorMatrix, specialty chemicals, and us, so it would make a good additional banker in the deal. “Okay, how about we use two investment banks,” I recall Keith as saying. “We’ll go with both Baird and Grace Matthews.” We were happy. At the same time, Keith was firm on one point. Because neither John nor I would be involved with ColorMatrix after its sale, it was important to Audax that we were removed from the sale process. Audax needed to avoid a situation in which buyers could say, “If these guys aren’t with the business, then the business doesn’t have value.” Having been through our own experience of trying to avoid every item that could reduce the price of our business in the recap four years prior, we knew what he was talking about. “This process will be run by the bankers,” John and I remember him saying. He, John, and I would be completely sidelined during the deal, and ColorMatrix’ ongoing management team would do the work, incentivized in part by a combination of straight stock ownership and a stock option plan that vested upon a sale of the entire company. That’s when they could exercise their in-the-money options. ColorMatrix managers and the investment bankers assembled an offering memorandum and created the data room, which is a physical or online location where a buyer can see all the due diligence documents. The bankers sent out the offering memos, and within a few weeks, Grace Matthews and Baird heard back from companies interested in proceeding to due diligence. Doug winnowed the list to the handful of buyers about which ColorMatrix and the investment bankers were most excited.


210 | Living in Color—Mike

B

Sale

eing uninvolved in the selling process, and being only partial owners of ColorMatrix stock, John and I suffered much less seller’s anxiety the second time around. Then again, we weren’t uninvested in the business. We each still owned almost 7 percent of the company. The three Europeans combined owned almost 7 percent, too. We all were keenly interested in the sale, and Grace Matthews created an auction of about 100 prospective buyers of ColorMatrix. By the second quarter of 2011, PolyOne had entered into exclusive due diligence with ColorMatrix. PolyOne was a publicly owned, $3 billion (revenue) specialty plastics company headquartered in Avon Lake, a leafy, lakeside suburb of Cleveland. Simultaneously, economies throughout Europe started to slide and China’s economic growth began to soften. By 2010, the US financial crisis, which had reared its ugly head in 2006, taken over most economic indicators by 2008, and continued to decimate the economy into 2009, was showing “green shoots”— tiny glimpses of improvement. Europe and China were a few years behind this curve. Their economic downturns, which had been minor in 2008 and 2009, became more acute in 2010 and 2011. Europe and China were two of the geographies in which ColorMatrix was expected to continue to grow. Our company performed well in Europe for the first four or five months of 2011, and then its growth and profitability stalled. Given the economic situation in China, could our growth in that country follow suit? As a public company, PolyOne probably wanted an accretive, not a dilutive, acquisition. This could be interesting, I thought. Fortunately, ColorMatrix’ growth recovered, and the investment bankers completed the process. On December 21, 2011, ColorMatrix became a wholly owned subsidiary of the multi-billion dollar PolyOne Corporation. The company was


Exothermic—Selling Our Company | 211

bought for $486 million, which was over twice its annual revenue and about 11 times its annual EBITDA, both of which are robust multiples. The three employees who had opted to roll their deferred compensation into equity cashed out very well, as did those to whom we had reallocated our stock options. And then there were John and I. We were out of jobs for the first time since graduating from college in the mid- and late1960s. I drove to Berea and cleared out my office. I removed the pictures of Marian and our kids, my horse, Hashim Khan (a squash player I admired), me with friends on a golf trip to Scotland, and a Phantom of the Opera print that I had always loved. I put them all into a box and threw in some pens, pencils, and notepads. I leafed through a pad of lined notepaper. It had scribbles of our sales forecasts from 25 years ago, showing no salaries for either John or me. Over in his office, John had his art deco desk removed and was taking down photos, including one of him and his drag-racing crew. After his passion for fast boats waned, he had replaced it with a passion for cars. He had come to love fast cars, in particular, and had taken up collecting Lamborghinis, Ferraris, Chevys, Corvettes, and other sports models. Among all of them, muscle cars—Corvettes, Mustangs, that type of thing—were his favorites. We went to a deal-closing party that Dave McBride had organized at Fleming’s Prime Steakhouse on Chagrin Road in Beachwood. We looked around at the 75 or so people in the room. There were the Baird investment bankers and the Grace Matthews guys; Doug and John; our mentors—people like Arnold Coldiron and others; and longtime team members like John Standish, our research and development guy. It was hard to eat at such an emotional moment. No more ColorMatrix in my life. “They’re gonna run ColorMatrix differently from the way we did,” John said. “I can already tell.” The folks at PolyOne would put their imprint on the company,


212 | Living in Color—Mike

making it their own. There are names for this process of making an acquired company after one’s own image.  JP Morgan Morganized companies.  Newell Corporation, which acquired more than 70 companies (including Rubbermaid) Newellized its acquisitions by centralizing functions and implementing systems.  And PolyOne would PolyOne-ize ColorMatrix. They probably wouldn’t prioritize SALES FIRST, like John and I had. They likely would develop products first and then see if they could sell them—an order of events that never made sense to us because we were too conservative; sell first, then develop the product. It was a good thing we were out of the business. “I wonder how the team will adapt,” I said to John when we were at Morton’s. “I don’t know.” He didn’t say anything more. His silence said everything—we had zero control, so it didn’t matter. “Might go riding tomorrow,” I said, by way of nothing. It was winter, the time when what locals call “the cloud” descended on northeast Ohio. From November through April, the place is pretty gray. The grayness is interrupted only by white when intermittent Lake-Effect snow storms careen into Cleveland. But who was I to complain about the colorlessness all around: for so long, color had been pretty good to John and me.


Notes | 213

Notes To Chemical & Scientific Images As chemists, the scientific and chemical images that appear at the beginnings of some chapters have special meanings to us and our work at ColorMatrix. MONOMERIC This is the monomer vinyl chloride, a colorless gas that burns easily and is used to make polyvinyl chloride (PVC), the world’s third most-widely used plastic. PVC often is considered superior to other materials such as copper, wood, and iron when it comes to building things because it is strong and impervious to water and air. Many of the PVC pipes used in the construction industry were colored with liquid color concentrate from ColorMatrix. DIMERIC This dimer is polylactic acid (PLA), which comes from renewable resources such as cornstarch, sugarcane, or tapioca roots. At ColorMatrix, we helped develop commercial applications for PLA, so that it could be used in colorants, lubricants, and reheat additives. POLYMERIC This structure represents polypropylene, a very widely used polymer. What makes a polymer a polymer? The chemical reaction that combines long chains or cross-linked networks of repeating monomers—a reaction that’s


214 | Living in Color

called polymerization. ColorMatrix pioneered the use of liquid colorants and dispensing equipment to color polymers, such as plastic. Liquid colorants are made by dispersing pigments in natural, un-colored polypropylene, then mixing it with plastics in a molding machine. ColorMatrix liquid colorants are used to create millions of injection-molded plastic products every year, including housewares, laundry baskets, food containers, and toys. SPECIALTY ADDITIVES One specialty additive that ColorMatrix provides is TripleA, which preserves the taste of products packaged in PET plastic bottles (especially water in clear bottles) by “scavenging” a chemical called acetaldehyde. This image shows TripleA’s active ingredient, anthranilamide. We licensed TripleA from Coca-Cola, and it was a real win because it helped open up the worldwide bottled-water market to ColorMatrix. EXOTHERMIC The exothermic reaction depicted here includes polybutadiene (PBD), the primary ingredient in the Amosorb oxygen scavenger. ColorMatrix licensed Amosorb from British Petroleum with great success. One use of PBD is in rocket engine fuel—it reacts with oxygen to release heat. ColorMatrix harnessed the reaction of oxygen with PBD on a very small and controlled scale to prevent oxygen from entering plastic bottles. Licensing and selling Amosorb had a major impact on the global growth and sales of ColorMatrix.


Acknowledgments | 215

W

Acknowledgments

e would like to thank Arnold Coldiron, Mike Hopkins, Dave McBride, and John Standish for providing information for this book. Additionally, the team working with The Braun Group, including Becca Braun, Stacy Goldberg, Mary Vanac, and Ben Small, did a great job helping us organize our thoughts and assemble and design the book—we thank them. Finally, we thank ColorMatrix’s workforce, which has a unique and special understanding of, and commitment to, manufacturing skill sets, factory life, and industrial company growth. The best years of our lives were spent with ColorMatrix workers growing a global company, and we are deeply thankful for the opportunity to write about this experience.


Profile for Braun Ink

LIving in Color: Growing Color Matrix, Step by Step by John Haugh and Mike Shaughnessy  

In the early 1980s, John Haugh and Mike Shaughnessy—two Midwestern chemicals salesmen—pioneered the liquid colorants industry. They transfor...

LIving in Color: Growing Color Matrix, Step by Step by John Haugh and Mike Shaughnessy  

In the early 1980s, John Haugh and Mike Shaughnessy—two Midwestern chemicals salesmen—pioneered the liquid colorants industry. They transfor...