Jack Rohrbach - A Success Story
This episode details the successful career of Jack Rohrbach. Jack began as a salesman and worked his way up. He made the most of every opportunity. While he often attributes his success to luck, it’s clear he was a team player who found out how to help those above him. In doing so, he became a leader.
Our favorite quote of the interview occurred when Jack was talking about his later career. When asked how it felt to have a lot of employees working for him, he responded “I don’t look at it that way. I always thought I worked for them.”
This episode show what persistence, hard work, and an open mind can accomplish. Jack went on to be Chairman of the Board for 10 portfolio companies at Kohlberg & Co. We hope you enjoy this holiday edition of The Business Brew.
Thank you for tuning in. Happy Holidays and Happy New Year.
Album art photo taken by Mike Ando.
Thank you to Mathew Passy for the podcast production. You can find Mathew at @MathewPassy on Twitter or at thepodcastconsultant.com
+ Transcript
Bill: Happy Holidays, and welcome to The Business Brew. I wanted to thank all y'all for tuning in. I couldn't imagine the reception that these first three episodes have gotten. I look forward to many more. I'm honored that y'all are giving me the time to listen to some conversations that I'm fortunate enough to have.
This one that is about to drop is my perception of a great Christmas episode. It's a guy in my family that I've always looked up to, I consider him a mentor. He's one of the most admirable humans that I know, and somebody that I think people can learn a lot of business lessons from. He made a fair amount of his money in a management buyout of a retail concept. He touches on some interesting competitive dynamics, working with Disney, just a real great example, in my mind, of always making the best out of the opportunities that you're given and being persistent without necessarily expecting something in return. He ended up running his own companies, and then became chairman of 10 private equity portfolio companies. I hope you all enjoy it. I'm honored to call this man not only a family member, but a friend and mentor. I look forward to having a fantastic 2021 with y'all. Thank you for tuning in for these first episodes. I look forward to doing a lot more and having a lot more good times with everybody. Happy New Year, Merry Christmas, Happy Hanukkah., and let's get it in 2021.
[intro]
Bill: Ladies and gentlemen, welcome to The Business Brew. This is your host, Bill Brewster, I have a guest that I'm extremely fortunate to talk to today, a hero of mine, Jack Rohrbach. Jack has had a long and distinguished career that we'll get into. We're hoping that he's going to share some of his wisdom with us. Jack, how you doing?
Jack: Well, this could be real short.
[laughter]
Bill: I suspect it won't be. I was trying to think of how to introduce your career, and I guess that the only things that I know how to say about it from a business perspective is that it's super impressive and that you've done a lot of stuff. You ran your own company for a long time, and then ended up running portfolio companies for a private equity firm. But outside of that, I don't know how to describe what you did very succinctly. So, do you want to go into it?
Jack: Yeah, why don't I give you a little summary of my career?
Bill: That'd be great.
Jack: When I got out of school, I went to work for in the sales training program for Cannon Mills, in New York. All their mills were in the South, but their marketing and sales offices were in New York. I went to work for Cannon. After some period of time, I was assigned a sales territory that covered the state of Connecticut, Western Massachusetts, and then all the accounts around New York that the senior salespeople didn't want.
Bill: [laughs]
Jack: I got the scraps. But in Connecticut and Western Massachusetts, I had all the accounts in that physical area. About a year after I was working for Cannon who was the big guy in the industry, they were the primary supplier of towels and sheets and so forth to all the retail trade, no matter what class it was in. I realized after about a year, that Fieldcrest Mills was the real innovator in the industry. They were emphasizing fashion and color and they were really paving new ground. I thought, “Wow, they are the future, and I should be working for them.”
I went to Fieldcrest and arranged an interview and went through the process. I don't remember how many people I saw at this point. But I saw quite a few people, and at the end, they said, “Well, we'd love to have you here except we don't have a position for you. If you're willing to come here and just kick around until something opens up, we'd love to have you here.” I took the plunge and left a pretty secure position at Cannon and went to an unknown at Fieldcrest.
Bill: Wow.
Jack: I wanted to be with the industry leader, when I thought was the innovator in the industry.
Bill: You define that more as what they were doing as opposed to scale, like who's winning today? You were looking at five years out, who do I think is going to win?
Jack: Right. Correct. It was definitely not size. Cannon was the big elephant in the room, and Fieldcrest was this struggling innovator who was trying to find a path. I knew that eventually they would find it. I went with Fieldcrest and I did kick around for a couple of months, and then some really respected person that was the head of was a product manager in the blanket department was going on a two-week vacation. They said, “Well, Jack, would you just sit at his desk, and try to keep things moving? And do the best you can.” I spent those two weeks there. This fellow's name was John Foster. He came back from vacation, and the head of the firm asked him, “Well, John, are you caught up?” He said, “There was nothing here for me to do.”
Bill: [laughs] It is good.
Jack: [laughs] They elevated John Foster to the head of the towel department, which was the big department in the company. They put me in to his position on a permanent basis. I really jumped probably five years ahead of where I should have been.
Bill: Wow.
Jack: It was just a stroke of good luck. I know maybe you earned it, but you just were fortunate to be there. So, I took that spot, and the head of the blanket department was a fella by the name of Reddy Grubs. He was the most disagree organized person you have ever met in your life.
Bill: [laughs]
Jack: But he could sell anything. He had a terrific personality, and he was late for every appointment. He was late for every flight. So, I really looked upon my assignment as trying to keep Reddy organized. It was an impossible job. But I guess I fielded okay. About a year later, Fieldcrest was doing a lot of innovative things in the product area, but they also were doing something very interesting in the advertising and sales promotion area. All the big retailers, the Bloomingdale's and Saks Fifth Avenue and all the big ones all over the country would do their catalogs at their white sale period, which was January and August. They would put elaborate catalogs together and put them out either Direct Mail or through the newspaper distribution, and they would do an unbelievable amount of business off of those catalogs.
Smaller retailer, in the secondary markets weren’t able to justify putting a catalog together. Fieldcrest said, “Oh, we're going to put a catalog together for you, and you'll be able to put your name on it. We'll also coordinate other suppliers of,” like mattress pads and pillows and other things, that Fieldcrest didn't make. I was asked to launch that program for the company. It gave me exposure to all of the secondary retailers in all the markets all over the country. I also worked with the other manufacturers to include them in the catalog. Basically, what it did for Fieldcrest is it assured them that they would have all of the basic lines in those retailers. So, it be white sheets and solid-colored towels, which generally Fieldcrest would not be able to get place. They were all the fashion items, but they wouldn't do the basics in those accounts. This assured them because it was in the catalog, you have to carry it. So, it was forced distribution without the retailer even realizing that it was happening.
Bill: They basically inserted themselves in the supply chain, and then do it as an advertising hub, and then in doing so assured themselves of distribution, is that accurate?
Jack: Yeah, that's very accurate.
Bill: That's super smart.
Jack: It was a method to gain distribution, not your normal product presentation, but it was through an advertising vehicle, which these accounts really needed, and they're very successful in running these catalogs. They were doing business that they would have never expected to do. So, they were very supportive, and it allowed Fieldcrest to get additional things placed because they had such confidence in the company.
Bill: I don't mean to cut you off, I'm sorry, I just have a thought. Why do you think Fieldcrest was an innovator in the-- you said the fashion area, and now they're coming out with this innovative concept within a way to get distribution. Was there an ethos in that company that was very innovation focused? Did it come from one guy? Why did that company do both those things?
Jack: Yeah, it came down to an individual who was the head of the company, head of the sales and marketing division of the company, which was based in New York, that did those things. He was a very, very innovative strategic guy who would think, way ahead of everybody else. His name was Frank Green, and he was really primarily my mentor. About a year later, or maybe a year and a half later, he left Fieldcrest and went with Lanvin‐Charles of the Ritz, which was acquired by the E. R. Squibb company, a medical company that bought the Lanvin‐Charles of the Ritz in the cosmetic and fragrance field. He was lured away from Fieldcrest by Squibb to take control of the Lanvin‐Charles of the Ritz company. He approached me about maybe several months after he was there, and he said, “Jack, I'd like you to join me at Lanvin‐Charles of the Ritz, and you would be head of the fragrance division.” It was big names, and that was Lanvin, Arpège, [unintelligible [00:13:51] Bain de Soleil, [unintelligible [00:13:54] these were all brands that were in the fragrance division.
I said, “Well, Frank, I'm flattered that you would even consider me for this, but I'm not sure I'm prepared for it.” He said, “You'll figure it out.”
[chuckles]
Jack: I went in as a division manager, again, catapulting me years ahead of where I should have been at that stage. Just because I got lucky.
Bill: When I hear you tell this story, Jack, you're making your own luck. What do you think about you-- It seems to me like you were solving problems for the people above you in different ways. You mentioned that you figured out how to get that guy organized that you worked for. There's obviously something that makes people see that you're worth taking a chance on. Was it something in your background? Do you think it was your football career? There must have been something in you that understood how to accomplish a goal?
Jack: I think more than anything was, I was a hard worker, and I would adapt. Whatever the situation took, I would try to figure that out and I would move in that direction. I was pretty flexible. I just wanted to find the right path to be successful for the brands and the projects that I was handling. I wanted them to be successful, and I was willing to go in whatever direction it took to get there. At Lanvin - Charles of the Ritz, I worked for-- I was the boss to some very powerful senior people that were probably resentful that I was even there, but somehow, I figured a way to get along with them and to use them effectively. Over time, they recognize that and accepted it. To be honest with you, Bill, I hated the business.
Bill: [chuckles] Uh-huh.
Jack: Every morning, I would wake up and I would go to work, not looking forward to it. Mainly because the business was full of enormous egos. Everybody thought they were the next Charles Revson or the next Estee Lauder or thought they already were. I would spend all day trying to get people to work together. There was not a room big enough for the egos that were in that room. I had to figure out how to try to get them to put their egos aside and to try to work together for a common goal. I got to tell you, it was a very frustrating experience.
After three years of that, I went to Frank Green, who I admired mentally. I said, “Frank, I have to tell you, I really don't care for this business. I think I'm going to try to leave and find something that is more compatible with me.” He said, “Jack, I feel the same way. I can't afford to move. So, good luck.
I wrote to all the people in the industry, in the home furnishings industry, that occupied the same position as Fieldcrest in their respective categories, because I loved Fieldcrest and their positioning. I actually did write them, too, but I think going back to your former employees always more difficult. I wrote to Henredon Furniture I wrote to Lenox China & Crystal. I wrote to probably seven or eight different companies occupied leadership positions in their respective product categories. I can't remember the exact number, but I heard back from maybe five of the eight, had interviews with a number of them. I ended up going with Lenox China & Crystal.
You know my wife, Penny, and I remember coming home from that interview, and I've said, “Penny, I've been presented with a really unique opportunity to join Lenox China & Crystal.” She said, “Oh, I'm really excited for you. I just didn't know that you would be able to secure that.” And I said, “But it is going to require a relocation.” She said, “Oh, well, we've talked about maybe a relocation would be a good experience for the family. So, I'm fully supportive of that.” She said, “Where?” I said, “Oshkosh, Wisconsin.
Bill: [laughs]
Jack: Without a loss of a beat, she said, “Oh my goodness, what did you do wrong?”
Bill: [laughs]
Jack: I said, “Well, nothing yet,” but probably ahead of me. Off we went, we packed five kids, a canary, a gerbil, and two dogs in the big old station wagon, got U-Haul it to drive behind us. Off we went from New Jersey to Wisconsin.
Bill: Just to give some context, Penny's whole family was in New Jersey at the time, right?
Jack: Oh, yes.
Bill: Yeah, that's not an easy sell, Jack. [laughs]
Jack: So was mine.
Bill: It's a big risk from a lifestyle standpoint.
Jack: We got out there, and I think six months after we were there, we looked at each other and said, “Oh, why hadn't this happened sooner? This is a great lifestyle.” The hard work ethic is still alive in the Midwest. Patriotism is still alive in the Midwest. People were so open and so receptive. I can remember a customer that would come out from the East Coast and they said, “I fly from New York to Chicago. The person next to me would never say a word. Then, I would get on the flight from Chicago up to Oshkosh, and I couldn't shut up the person up next to me.” [chuckles]
Bill: Yeah. The Midwest is a heck of a place. It's funny is when I moved there, people ask, “Why are you going there?” I grew up in southeast Florida, I thought Chicago was a bit of a cow pasture before I got off the airplane and saw it. That's how ignorant I was. Then I got there and what a life-changing experience to have. I feel I became a man in the Midwest, and it's an incredible part of the world. Michigan, Wisconsin, Chicago, it's incredible.
Jack: There is a lifestyle, and I had heard that before I went there. And I said, “Ah, that's a lot of crap.” When I got there, it does exist. There is an openness, there is a work ethic, there is patriotism, it's all alive and well out there. We just enjoyed that so much as a family. I really was stimulated by my time at Lenox Candles. What they did is they took the head of Lenox candles and moved him back to New Jersey. They were based in Trenton, New Jersey. Awful, awful place, but--
Bill: [laughs]
Jack: Lenox was this shining light there. They made him the head of the China and Crystal Division. And I said, “Wow, if this is a grooming ground, for the top spot in the whole business, I'm up to this. I'm into take that on and see if I can grow with it.” We had a lot of success. We expanded our distribution. We expanded our product lines. We did some really, really good things, and it showed in our market share. I was there about two to three years, and Lenox came to me and said, “Oh, Jack, we're ready to give you your next big opportunity.”
Bill: Wait, before we go on there, I’ve got to ask you something. What do you think about your process there enabled you to gain market share? Was it something about your team? Was it something about how you focused on your customer? I mean, what did you guys do better than the rest of the people because it seems somewhat commoditized the product you're selling, but you won, so was there something that you were doing unique?
Jack: I think I took the Fieldcrest experience on how do you become the fashion leader. It was interesting. Back then, candles were basically white, and we introduced colored candles, we introduced scented candles. We went into the soap business. It was interesting. Candle business how Lenox got into it, they were a major wax supplier out in the Midwest, and really providing wax to the paper industry and to the cheese industry, which is big in Wisconsin, that they would wrap the cheeses and the barrels for aging with wax, to keep the moisture out.
Then during World War Two, there was a need for candles. So, the US government went out to all of the wax manufacturers and said, “Can you produce candles?” That's how they ended up getting into the candle business. The first product line that was called Victor Light, which was based on the war, winning the war. That's the first retail line that they came out with. We took a pretty basic industry and really turned up the fashion end of the business through colored candles, through scented candles, through candle holders. We expanded out the product line, working with other manufacturers, but all under the Lenox candle line.
Bill: It's interesting you're talking in today's version of this, is the land and expand model of a lot of software companies, because what I'm hearing you say is basically product line extensions, product improvements and entering tangential markets is at its core what you guys did really well.
Jack: Yes, we did. We got the specialty distributions. The candle business was traditionally done through the department stores. All of a sudden, we got into gift shops because we were offering scented products. It fit more what they were trying to offer. We got into different channels of distribution. We introduced a line for the mass market for the Kmarts of the world, which was big back then. That was before Walmart became as big as it is today. We introduced a product line for the mass channels to distribution and geared it towards very much commodity products, packaged so that they had value. We just expanded our distribution and our product line. It worked.
Bill: Were you on the leading into that? When you went to Kmart, were you selling against somebody else or were you offering a unique solution to them?
Jack: Well, we were selling against somebody else, but they were real commodity people. We convinced like Target stores was our first big hit in the-- because Target would look at a product line and try to differentiate themselves from the rest of the market-
Bill: Still do.
Jack: -throughout the store. They do that. They recognized it in the candle and business and the accessories for candles, they recognized it, and really gave a lot of emphasis, because they emphasized it, that forced Walmart and Kmart and the Kohl's stores and so forth to start to look at the product line differently. Your success with one really forced the others to catch up. So, we rode that wave.
Then, Lenox approached me, I don't know two to three years into my tenure there and said, “Okay, Jack, we're ready to give you your next big opportunity.” Lenox was going into the jewelry business because of it was the one business that had margins that were equaled to the China & Crystal business. They didn't want to sacrifice gross margins. So, they looked at categories that they could get into that would hold those margins. Jewelry was one of those.
They purchased the Keepsake Diamond Ring Company that was based in Syracuse, New York. I said, “Well, that's interesting. I'm flattered that you're considering me for this. But could I go out and look at the company?” And they said, “Well, of course, you can.” I went out to Syracuse. By the way, I had nothing against Syracuse. There are good people everywhere. You just have to find them. I went out, and the idea was that this was a family-owned business. It was the Robin's family, and the deal was, I was going to work for the Robin's family for one year. Then, they were going to work for me for one year. Then, after two years, they were going to ride off into the sunset, and retire and enjoy their wealth.
I went out there and I spent two days talking with the Robin’s family. The language was exactly the same as the cosmetic and fragrance business. I was like--
Bill: No way am I going back here. [laughs]
Jack: I went back to Lenox, and I said, “I'm honored that you considered me for this, but I am not going to step back into an industry that I really didn't enjoy.” I felt there was just a lot of similarities between the jewelry business and the cosmetic and fragrance business. Lots of fashion, lots of margin, enormous margins on their products. Like 90% margins. They then look upon efficiency and eliminating mistakes and efficient production, they never looked at that, because they could afford to fall flat on their face. It almost didn't matter.
Bill: That's interesting.
Jack: They were not operating people. They were strictly marketing product people. I respect that, but in the end, you've got to be a good operating business, to be totally successful. I just didn't see that in either of those industries. I just wasn't going to go back to that and be unhappy. Lenox said, “Okay.” They were okay with it. They assigned up a press glass operation that they had down in Ohio under our division. So, I continued to grow, but after that, it became a real cat and mouse game with Lenox. They would keep asking, “What are your career aspirations?” “Are you willing to make a move?” I was like, “Oh, yes, of course, for the right thing.” We danced all around the issue. I decided that if we want to stay in Wisconsin, where we were very happy, then I should get into an industry that space there. That brings you to the paper business, because most people don't realize this, is Wisconsin is the largest paper producing state in the country. By a wide margin.
Bill: Really?
Jack: People think of Maine and state of Washington and so forth, but Wisconsin absolutely produces as much paper as Maine and Washington put together.
Bill: Wow. I always think of dairy when I think of Wisconsin, and farming. I [crosstalk] for paper.
Jack: Well, you do think it dairy and cheese, but there's a lot of water in Wisconsin, right next to Minnesota, the Land of 1000 Lakes or whatever it is. Lots of water, and there you use a lot of water in paper making. It's really taking the pulp from the tree, and mixing it with water, and then in the process, removing all the water, which leaves you with a sheet of paper, that is all the wood fibers that have been integrated together. That's really the paper making process. It looks like you have an enormous bin of crema wheat. As you've mixed the water and the pulp from the trees, and then you remove all that water through the paper machines and end up with a sheet of paper. At any rate, I had met a fella was my age, and we actually skied together out west a couple times. I was not a very good skier, but Penny was, so we would be invited to company, good skiing families and they would tolerate me.
I got to know this fella pretty well. His family owned a paper business. They also had gotten into consumer products, gift wrap, and some party supplies, napkins, plates and so forth. He asked me if I would ever be interested in joining their family company to run their consumer products business, because he knew my Lenox experience and previous experience in the textile business, so he knew I was familiar with consumer products. I said, “Great. This is perfect for us. We want to stay in Wisconsin.” You have a good position that I think can really be expanded.
Bill: How did you think through the position? I don't mean to cut you off, I'm just listening to you and thinking, like when you're assessing who to join, how did you think through these guys? Or, was it on a US basis? Was it just on a local basis? How did you think through that?
Jack: It was more on a fairly local basis. I looked at them and said, “They are good operators.” The product line is pretty, pretty weak.
Bill: And that was your skill set?
Jack: Yeah, and that was my skill set. As long as you had good efficient production, and you could inject some of your product experience into that, that was an interesting combination. So, I joined the firm, and they gave me a lot of leeway because they were really primary paper people, but in a paper industry, which was very much like the textile industry, you needed to run your mills 24/7 in order to make a profit on them. I liked their mentality, I liked their focus on operations and cost reduction, cost efficiency. I thought that my product experience and expanding the product lines, making them more fashionable, could fit pretty well with their operating experience. It worked. We really set the gift wrap business on its end.
We introduced designer inspired gift wrap. We introduced designer inspired party goods, napkins, plates and cups. We aligned ourselves with Disney, so we were able to offer the Disney characters on party goods for children's birthdays, so you could have birthday with Mickey Mouse. Let me tell you, the Disney Company was really difficult to work.
Bill: [laughs] I think they still are, Jack.
[laughter]
Jack: Oh, wow. They thought so much of themselves. They thought they could control every process, including what you were good at.
Bill: Yeah, well, to be fair, they have a lot of swag when it comes to moving product.
Jack: Yeah, they do. Their royalties were fair, on an industry average, but their demands on how you complied with their dictates in colorations, and how things get presented, they were unmerciful.
Bill: That's interesting that you said their royalties were fair. I sort of understand why they were so anal about how you did the colors. I mean, that's their whole brand. They need everything to be the same. It's very much McDonaldsy in a different way.
Jack: Yes. Oh, absolutely. They were very, very protective of their brand. Every character that represented them. Just as they are on their theme parks and movies, or anything else that they do. It is very, very thorough, in the way they research it, in the way they present it. They want any franchisee to employ the same standards that they do on your individual product. We eventually figured that out and develop a good relationship with them. They probably gave us a lot more leeway than we deserved. We understood their approach to the marketplace.
Bill: Well, it sounds like you probably earned the leeway that they gave you. It sounds like they probably come in very hard with demands, and then if you can satisfy them, then you become a true partner. Then, once you're a partner, they can let you go a little bit. They just need to know that you can be their partner.
Jack: Yeah.
Bill: That's interesting.
Jack: We ended up buying a major gift wrap company down in Tennessee. I was in the process of moving people down to run the Tennessee operation and to handle the integration with us up in Wisconsin. I eventually was going to move to Tennessee myself. Something happened in the interim before I actually made the move myself. Although I spent a lot of time down there. We were approached by a firm in Milwaukee, that was beginning to open up factory outlet stores. We always ran every year at Thanksgiving that we would start it the Friday after Thanksgiving, and we would run it through the following weekend. We would run it about eight or nine days. We conducted a warehouse sale, so it would be all the products that got returned to us from the retailers, overproduction, seconds, anything that we happen to have is sitting in the warehouse.
We would run these warehouse sales and it was phenomenal. We would do $500,000 or $600,000 worth of business in those eight or nine days and we had no idea what we were doing.
Bill: [laughs]
Jack: We would run a couple of billboards in town.
Bill: Oh, that’s funny.
Jack: We do a couple of really hokey radio commercials and we would hawk the warehouse sale, and then we would rent some cash registers and so forth and so on. And, wow, the people just came out of the woodwork. The first year we did it, it was like, “What are we going to do with all these people?” We rented a couple of clown costumes, and we hired a juggling team. They would perform as these long lines formed at the cash registers, to keep them entertained.
Bill: Yeah. So, people wouldn’t leave or whatever.
Jack: Standing on line, right. We still had a lot of people that just left their product right on the line and left because they were fed up with waiting.
Bill: Did you make any margin on those or was it just a good way to get rid of working capital?
Jack: Well, we made a little margin, but not much. It was much more to open up space, get rid of product, turn product into cash.
Bill: Yeah, that’s smart.
Jack: I don't know what people did with all the product.
[laughter]
Bill: I don't think Americans consume with the intent to use. I think they just like a deal. It's never changed. [laughs]
Jack: That was the case. I remember standing at the cash register one time and one husband said to his wife, “What are we going to do with all this stuff?” And she said, “Oh, I'm going to put it in the closet right next to the stuff I bought last year.”
Bill: There you go. Just in case we need it. [laughs]
Jack: This guy called me from Milwaukee, and he said, “We're going to buy an abandoned factory in a small town just north of Milwaukee.” I can't remember the name of the town right now. He said, “We would like you to open a store in our mall.” I said, “Well, we don't operate stores. We sell retailers. I could speak to one or two of them, and maybe they'd be interested in opening a store in your mall.” He said, “No. My wife is from Appleton, Wisconsin, and he drags me to your warehouse every year.”
Bill: For this damn sale. [laughs]
Jack: I said, “I want you to operate your warehouse sale in my mall.” “That isn't what we do, our main focuses product and distribution to retailers. We do that once a year. We have no idea what we're doing. We stumble our way through it.” He would call me every week, and field[?] kept getting better, and better and better
Bill: There you go.
Jack: Until, it was like, “Oh, well, this is a no brainer. We can fail at this and still come out okay.” We opened a store in his mall in this relatively small town outside of Milwaukee. It was really successful. We think, because everything we did was on the back of an envelope. We’d ship--
Bill: With all the math and whatnot.
Jack: We'd figure out and price it, and then a year later, this same developer was opening two more malls, one in Muskegon, Michigan, and one in Kenosha, Wisconsin.
Bill: Hey Jack, real quick, I just want to clarify something. So, were you running the warehouse strategy in the mall store? Was it a discount type strategy or was it your own unique store at sort of full price?
Jack: No, it was a discounted store. We sized the warehouse concept to a permanent location. We still did it very much based on value proposition.
Bill: Was it scattered out? Or, was it very well-- What am I trying to think, merchandise-- when you walk into a retail concept? Was it more you have to pick and look for what you are-- They call it a treasure hunt experience these days, was it treasure hunty? Or, did you have everything very merchandised and easy to find?
Jack: Well, I think we had it merchandized in fairly easy to find. It was very much based on a value proposition. To be really highly recognized as such. I mean, it was like, “Oh, well, we're going to buy this whether we need it or not. This is such a good value, we should take advantage of it.”
Bill: That's super interesting. That's working these days.
Jack: Yes. This operator opened a couple of stores one year later. One in Muskegon, Michigan, and the second one in Kenosha, Wisconsin, which is about halfway between Milwaukee and Chicago. It had a big draw from both of those locations. By golly, the second and third store, better than the first, because they had much more traffic at them. We were a big traffic generator because we had a frequency of purchase that was built around occasions. You would buy your party goods for children's birthdays, adult birthdays, wedding showers, weddings, gift wrap for all of those occasions, and then, of course, big at Christmas. We generated a lot of traffic, a lot more than the volume that our store would justify. The mall developers recognize that. We got a little help by us telling them.
Bill: Yeah, well, you should broadcast that and then ask for a rent concession. What was your competition doing? Did anybody else have a vertically integrated distribution?
Jack: No, we were alone in our product category.
Bill: It's interesting how many of your early businesses, and it can't be coincidence, but were innovators in what they were doing or the way they were doing it?
Jack: Yeah, but to be honest with you, we stumbled into those things. I did find if you got lucky, you better take advantage of it because it's not going to always happen for you. I was conscious that this was an opportunity that maybe you should really try to take advantage of. We opened up these stores in these new malls that were even bigger and better than the ones before. I think in the Kenosha store, we did a million dollars in the first year. I was like, “That's impossible. How can we do that?”
Bill: [laughs] In Kenosha.
Jack: [laughs] In Kenosha. There was a really heavy traffic mall. That's when these factory outlet malls were really coming into their own, and then additional developers got into it, mall developers, and they would contact us. We're saying, “Oh, we've looked at your store in Kenosha and Muskegon, and we want your store in our mall, in Cincinnati,” or wherever they happen to be. All of a sudden, we had a business almost by accident. I'm saying, “Okay, we've been lucky up to now, we've been operating this thing.” I remember I bought in a product manager that was in the party goods division. I said, “You really are going to have a terrific opportunity. You're going to be able to operate a retail store or several of them. You'll be able to work at this at nights and in your spare time. By the way, we're not going to pay you anything yet.”
Bill: [laughs] Aren't you happy?
Jack: “But what a chance to make your mark.” [laughs] We did that for a couple of years. Then I'm saying, “Oh, we really don't know what we're doing. I should hire somebody with retail experience to come in and operate this division. I hired somebody from Target stores, young guy, who I thought was really smart and aggressive. He came in and operated our retail division. [crosstalk] -paper factory.
Bill: Who else did you interview from? Target’s a very interesting choice, because at that time, if I'm not mistaken, Target, it was West Coast focused and very innovative and how they did retail, was just something about how he looked at things that clicked with you?
Jack: Actually, they were Midwest focused.
Bill: Oh, okay.
Jack: Yeah, they were out of Minneapolis.
Bill: Oh, yeah, that's right. That's where their stadium is.
Jack: Yeah. They were a good customer of ours, in the retail division. I admired the way that they approach things. They were very focused on what they stood for. They studied locations real well. They had a lot of elements that I just thought, you'd like to have in your business. We just happened to-- I think I used a recruiter, and he identified this person, and who was a regional manager, I think with Target at the time, I don't remember the region, but he had maybe a dozen stores underneath him. He was moving up the ladder. We somehow attracted him. All of a sudden, we had a business, we got up to maybe 30 stores. We had maybe $25 million of business in that division. It always worried me that we were competing with our customers and that always made me uncomfortable. I was not on the board of this company I was with, Fox Valley Corporation. I attended most of their meetings as a division head. I continued to warn them that we were growing this business, but we were really taking a big chance because it could be perceived as competing with our customers. Truthfully, that was the case.
In all my years, I got approached only one time about those stores. I was at Walgreens working with the gift wrap buyer and they were a big customer of ours. We were making a product presentation for whatever the season was. Vern Brunner, who was probably the best merchant in the entire country, walked by the office and said, “Oh, Jack, when you finish with Bob, please stop by my office.” “Oh, of course, Vern.”
[laughter]
Jack: “You're on ever been asked me to stop by your office.” I walk in and he said, “Jack, my wife dragged me up to Kenosha this weekend. And, wow, there is a lot of product in that paper factory store up there. You should be really careful where you're selling your product, so that it doesn't interfere with your normal retail distribution.” I said, “Vern, I’ve got to tell you something, we own that store.” He looked at me and he said, “Oh, that wasn't the answer I expected.” I said, “Well, we do it for a couple of reasons, Vern. I think these are reasons that help you. One, when you return merchandise after the Christmas season that you can't sell, we don't know what to do with it, we could sell it to a closeout artist, who would probably be right next to a dozen of your stores and interfere with your business. This allows us to control where it is. Secondly, we test retail concepts and designs in our stores before they reach your counter. So, they’ve been market-tested, and probably have a lot better opportunity for success.” He said, “Oh, I think I understand. Just be careful.”
He never asked me how many stores we had. I would have had to answer him, honestly. He never asked that question. I told that story to the board of the company I was working for. They said, “Jack, you really actually need to sell that division. It's too vulnerable for our core business.” So, they wanted me to work with an investment banking firm out of Minneapolis. And I did. I went over there and work with them. One thing they said was, “With the management of that division, have any interest in buying it?” I said, “Well, I just don't think they have the capability or the resources. They just don't have the scope to do something like that, but interesting idea. But I think we should continue to pursue other buyers.”
That night, I got home and I said, “Gee, maybe that's something that I could do.” I went to my boss the next day, and I said I was working with this investment firm and they thought about maybe selling to the management team. And I said, “I think I'd like to look into that.” He was irate.
Bill: Yeah, I'd imagine. He's like, “I'm losing one of my best people and my stores.”
Jack: So upset. And I said, “Oh, Bob, I withdraw that ideal. [crosstalk] I'm happy where I am. You've been very supportive. It was just an idea, and I'm going to shelve it.” He calmed down. And then that was on a late in the week. The following Monday, he called me, and he said, “Jack, I've talked to a number of our directors over the weekend. And they feel as though you deserve this opportunity. However, there are two contingencies. One, we want to maintain 25% ownership of the business.”
Bill: Yeah, I figured that would be.
Jack: “So that we can still enjoy the benefits of it, but not be exposed to the ownership in. Secondly, you need to take six months and groom your successor, so that we have lots of security in our business.”
Bill: It's smart company you worked for, like structuring it that way makes a lot of sense. It allows you to get your incentives and fulfillment. They state they keep an equity interest, you groom somebody. That's smart way of looking at the world. It's win-win.
Jack: Yeah. This guy was a very, very smart guy, still is. I said, “I think those conditions are great. One, I need your money-
Bill: [laughs]
Jack: -to handle this transaction, so that 25% is going to come in handy.” I said, “I think I know who should succeed me now, and it's a matter of just getting him into that space and getting him comfortable with it.” He knew who I was talking about. That's the way we proceeded. So, all of a sudden, I was in charge of a retail business.
Bill: Wow, what a shift for you, huh?
Jack: Yeah, it was. I liked the diversity. I like the challenges that came with something new. We ended up building that business from maybe 30 stores when we took it over, up to in a fairly short period of time, maybe four years, we built it to 130 stores. We had a major business on our hands.
Bill: How much leverage did you use to do it?
Jack: A fair amount.
Bill: Yeah, I’d imagine.
Jack: These stores would be profitable at the end of the first year.
Bill: Yeah, it's still going on, Jack, like this company, Five Below, those guys are killing it, and Ollie's, these things. It's amazing the returns that you can get from these little concepts that work like that.
Jack: Yeah. We fell into it. But, man, we knew how to take advantage of it. We built a terrific relationship with all of the developers in that business. So, they would come to us to operate stores in their malls, because we created a lot of traffic. A lot of repeat traffic, that there many other stores did not. The apparel stores, who were the big volume guys. You would go up and you would buy your seasonal needs. You may not come back to that store again, for four months. Meantime, you would come back to our stores multiple times in that four months. We were a real traffic builder, not so much a volume leader, but a traffic builder of repeat traffic in those malls. We figured out how to build that position pretty good.
Bill: Was your strategy to be dense in a region? Or, were you just spread out whoever would give us the best deal? In order to be that successful, you've got to have a strategy. So, how did you sort of think through that?
Jack: We went with the developers wherever they went. They would open up where they could get a certain amount of past by traffic. It was very much like the Kenosha location. We put it between Chicago and Milwaukee, we know there are a lot of people going down 94, I think it is on that highway, they would put them between Cleveland and Cincinnati. They would be very strategic on where they pick their locations close enough to a big market. So, they had access to large numbers of people, but far enough out so that it was a destination, and it was somewhat protected from the major retailers that would be in the larger markets.
Bill: That's interesting. Do you follow Dollar General at all?
Jack: I do. Yeah.
Bill: Yeah, they have a very cool real estate strategy. It's somewhat similar, a little bit different, but somewhat similar.
Jack: Oh, yeah. I really admire Dollar. They have done a terrific job of positioning their stores, positioning their customer, and then taking real advantage of downturns in the economy.
Bill: Yeah, they are very good at that.
Jack: To expand out their customer base, all of a sudden now you see, outside of Dollar General are parked BMWs and Mercedes. Those people that get out of those cars don't want you to see them.
Bill: [chuckles] That's right. Well, it's interesting. We're in a smaller town, you and I. We have two locations here that I drive by, and they're very nice. I think about stopping in there. I do go in there occasionally. It's a very cool concept that they built out. Some of those Wisconsin towns, it's the nicest store in the town, by far.
Jack: Oh, yeah.
Bill: It's not because the rest are not nice. It is a very nice store that they built.
Jack: Yeah. In some cases, the only store.
Bill: Yeah, that's right. That's interesting. I knew that you were with the paper company, but I guess I didn't realize that you were on the retail side and expanded that way.
Jack: Well, we stumbled into it. We really just stumbled into it. All because of this guy that called me every week, until the deal got so good, you couldn't turn it down. We built that up to maybe 130 stores, and Gibson Greeting Card Company, who was the number three guy in the greeting cards, it was Hallmark, it was American Greetings, and then it was Gibson Greetings. Those were the three primary players in the card business. They began to open up some of their own stores, their outlet stores. The head of Gibson Greeting called me one day, and he said, “Jack, as you know we operate a few stores. We actually operate 10 stores. Five stores are near where you're located. Five stores, you don't have a store near us. We like the business we do in our five stores where you're not around. But we struggle in the five stores when we're around you.” I said, “Well, I think that the deal is, you should not open any more stores.”
[laughter]
Jack: He said, “Well, we thought that we ought to buy you. Rather than compete with you, we should buy you and let you operate the stores.” I said, “Well, we don't have any interest in that. We're having a good time we're, growing. We just don't have any interest in selling. Everything is too good here right now.” And so, he said, “Well, okay, but we're going to continue to open stores.” And I said, “Well, I think you remember what we said, ‘Don't open stores near us.’ Because I said to be honest with you, when you do open a store near us, we suffer for the first year. Our business declines for that first year. After that, it rebounds and comes back up to its normal volume levels and continues to grow from that point on. We know we can suffer through your openings and come out okay in the long run, but we'd rather not have to face that.” He said, “Well, we operate that as a separate division. So, I can't tell you what we're going to do.”
Bill: When you are doing this, Jack, did you have number two, that was your COO? This retail business that you're running is very operations focused. I've always known you as a really good operator, but I'm just trying to think through when-- I know that it's hard to say when something happens, it becomes who you are. You started out in product, how did you get so good at efficient operations? It sounds like something you were always very interested in.
Jack: Well, I was because you started out in the textile business and [crosstalk] time in the paper business. Those two businesses are both highly operational forecast focused. You have to be efficient, or you will not be a survivor. You need to run those mills 24/7, you need to operate them extremely efficiently. They're all unionized, so you needed to figure out how to work with the union to meet your ends. I spent a lot of time in two industries that were highly operationally forecast focused. I learned a lot from the people that I worked with there.
Also, the guy that came over from Target stores was a very operationally focused person. He was not a product person. He was store operations focused. We learned a lot from him and followed his lead because distribution, inventory controls, margin controls, all of that was critically important in that industry. At any rate, this guy from Gibson, little bit like the mall developer in Milwaukee kept calling me. Every year, every couple of months, the deal kept getting better and better and better, until you finally said, “Wow, well, maybe we ought to do this.” He guaranteed you that you would continue to operate the business, they would fold those 10 Gibson stores right underneath the paper factory, and then we would operate the retail division on its own. Eventually, we sold it to them at a very, very nice profit margin. It was a great sale.
Bill: Yeah. And you were levered, so that can be life changing.
Jack: Yeah. We had actually pretty much de-levered by then, we were operating on our own cash flow because we could get these stores profitable within the first year. A major, major advantage that we had. There wasn't a lot of long-term investment, they had a wait for return on, you could get it fairly fast in these stores. At any rate, I agreed, and we continued to operate the stores and we absorb their 10 stores, grew their stores, and we got another big product line in our stores, the Gibson card line, as well as a number of other products that they had just like Hallmark, they went heavily into product extensions. We would get all that product into our stores, and it gave us another big push for volume.
Bill: Did you roll your equity into the transaction or get earnouts or anything like that? Or did they pay you?
Jack: Primarily paid, but we did get a little incentive to grow the business. The primary was on the initial payout for the business.
Bill: It's interesting something about you that the private equity guys that I talked to said about you and I'm just thinking about it, as you say this. They said one of the things that's so hard to find about replacing someone like Jack, is finding somebody that wants to work as hard as he worked, once they're wealthy enough that their needs are met. Even just hearing you talk about this, I know who you are, you went into grow an operation that you had less equity skin in. How did you keep motivated in that? Or, was it just that you enjoyed the game so much?
Jack: That's a good phrase. I think I did enjoy the game so much. It just stimulated me to be growing, to taking care of people. I remember one people, one person said to me, “Oh, Jack, it must be so fulfilling to have so many people work for you.” I said, “Well, that isn't the way I look at it. I am looking at it like, I am working for a lot of people. I am responsible for providing success to a lot of people.”
Bill: That's cool that you say that. For anyone that doesn't know Jack's family, part of the thing that I love so much about you is that is how you look at the world. You're very admirable human, and to know that-- it's wild. It's been fun getting to know you over the years, I'm super fortunate. How much of having Penny at home taking care of the kids enabled you to really focus on the game?
Jack: Oh, a lot. A lot. I was so immersed in the businesses that I was in. I probably wasn't as good a father as I should have been, but I knew Penny had the home front so under control, that I could afford to devote a lot of time to the businesses. I actually became the disciplinarian. It was like, “Wait until your dad gets, then you're going to really pay the price.” I would walk in the door and these kids were shaking, “Oh, dad's here. We're in trouble.”
Bill: That's an unfortunate position for you to end up in because that's not who you are, but it's who you had to be at the time. Right?
Jack: Yeah, but I think I overcame it.
Bill: Yeah. Looking at what you guys do now as a family, it's pretty evident that it worked out. It was Gibson, and you're working with them-- Today's version is like LBO type private equity transaction that turns into a retail expansion. I had no idea that that was what you did.
Jack: Yeah. Well, as I said, I stumbled into a lot of things.
Bill: Yeah. Well, you did a good job when you had the opportunity.
Jack: Yeah, you took advantage of the opportunities. I think of kids today. like, they're changing companies so frequently. I'm thinking like, “Oh. Ah, how can they churn like that?” Then I look back at my own career, I did it. I moved around a lot and churn. I didn't think about it so much then as, “Wow, this is a way to get ahead.” I just look at like, “Okay, this is the next big challenge. Let's do this well, and we'll take it from there.”
Bill: I think that one of the things that may have, I don't know if it changed, or their perception changed, or whatever, but I think that the feeling of the employee-employer relationship feels more transactional now. Maybe that's why people frame it differently of how to get ahead and whatnot. I'm not sure.
Jack: I think you're right, by the way. It is transactional, but you got to figure out a way to make it human. The ones that combine transaction with human and incentivizing people and, and appreciating people are the ones that are the most successful.
Bill: Yeah, I think that's probably right. One thing that's going to be interesting coming out of COVID is a lot of people are talking about how can we reduce office space, and whatever. I don't know how they're going to train younger people. There's something about being together that enables the quality time for lack of a better term that a team needs to train up younger people. I don't know how that's going to transition, whether or not people end up going to the office or whatever, but that will be interesting to watch.
Jack: I think that is going to be very interesting to watch. Somebody is going to figure out how you combine the remoteness with the closeness, and how you put those together in the right balance, and they're going to be the ones that are really successful.
Bill: Yeah. Do you think a lot of people say that change is happening so much quicker these days? Do you think that that's an accurate statement? Or, do you think that it just feels quick all the time?
Jack: I think it feels quick all the time. If you went back to the 1930s, people would say, “Things are happening so fast. I can't keep up with it.” Then the same thing would be said in the 60s, in the 90s, in the 2020. I think it's just all your perspective at that point in time. It is happening fast. I think technology's probably made it even faster again. At any era, people felt like, “Wow, things are moving fast.”
Bill: Yeah, that's how it feels to me. Buffett talks about this with the Industrial Revolution, like think about how fast that must have felt. It's sort of always happened, but inertia tend to-- things change slower than people perceive them to be changing. There is certainly an arc of change that you can't stop. Well, it seems to me that people tend to overestimate how quickly things are changing in the moment.
Jack: Yeah, I think it's the people that accept change, and figure out how to use it effectively, are the ones that really make out the best.
Bill: Yeah. When you were in your Later career, you started to get into like medical devices and whatnot. Were those industries that changed faster than the industries that you were in previously? Or, did you focus on niches that didn't change as much?
Jack: No, I think they did change. I should probably speed along and get to that part of my career, because--
Bill: Well, I enjoyed the beginning, but the second half is super interesting, too.
Jack: Well, at any rate, so we have this paper factory, we're growing it, we get acquired by Gibson Greetings and we get all new product lines in. Then we realized that we really should be working with other manufacturers to get their product into our stores. We would work with the back-to-school industry, which was been paper related and complimentary that didn't compete all with our own product lines. We expanded our appeal to the consumer. We got children's books. We did a real big deal with Golden Books that had the Green Eggs and Ham and all the other really, really popular--
Bill: That's a good book.
Jack: --children's stories. We struck a deal with them because they were based in Wisconsin. They were down, I think in Racine, Wisconsin, which was where the-- I can't remember the name of the publishing company, but they were part of a publishing company that was based out of Racine. We have a little bit of familiarity with them. They were looking for an outlet for their overrun products and their seconds and so forth. We were able to turn that production into a meaningful return for them. It was a real win-win for both parties. We expanded the product lines and we got really close to a number of other really key manufacturers in related products.
As it turns out, Gibson owned Cleo Wrap, which is which was the largest gift wrap company in the world. By far. I mean, they were $300 million company and exclusively gift wrap, and Gibson own them, and they were disappointed in their performance. The head of Gibson asked me, he said, “Well, Jack, you used to run Cleo’s largest competitor. Would you just mind going down to Memphis and spend two or three days with that business and with the management team? If you could come back through Cincinnati,” which is where Gibson was located, headquartered, “and give me your insight, I would appreciate it.”
I went down there and came back through Cincinnati. I gave them a couple of our debrief on my observations. He said, “Oh, I learned more about the Gibson about the Cleo gift wrap business in the last two hours than I've learned in the last 10 years. That may be a little indictment of your management style.”
Bill: That could be the problem.
[laughter]
Jack: He was a very hands-off guy. I left and went back up to Wisconsin. The following week, he called me, and he said, “We would like you to go down and take over the Cleo gift wrap business, and do some of the things that you say need to be done there.” I said, “Well, that wasn't what I was thinking about. We're really having a good time growing the paper factory retail business, and I'm not sure I want to go back into that.” At this point, all of our kids are out of the house. They're in school, they're in college. It was maybe an opportunity that I could do it without major disruption to the family. I went down to Memphis and took over the Cleo gift wrap company.
I'd say, probably two weeks after I was there, I discovered major fraud that was going on in the company.
Bill: Wow.
Jack: Gibson was a public company listed on the New York Stock Exchange. When I discovered this fraud, they have to report it. They have to, because it was a major happening. They have to go back and restate their financials for several years. It was a complete accident that I came upon this. Cleo, which was a very seasonal business, maintained public warehouses to store their product before they shipped it just in October, before Christmas. I would make it a point of every lunchtime, I would go out to a different warehouse, just to get familiar with them.
One day, I walk into this 170,000 square foot warehouse. I mean, it's big, went on forever. There was one person working there. I said, “Do you handle this all yourself?” And he said, “Oh, well, we don't have a lot of product that goes in and out of here. So, I can handle it. We hire temporary workers when we have an influx of or outflux of product.” I said, “Well, let's just walk the warehouse.” I'm walking the warehouse, and I open a big box. I found Walmart’s pre-priced product. It said the pre-price on this product was 99 cents. I'm saying, “Wow, this product has no value whatsoever,” because the pre-price on that product today at Walmart stores is $1.79. “What are we doing with this product?” The guy said, “Well, it just sits here. It never moves.”
I went back to the financial guy. I said, “This is what I encountered today. How is this carried on the books?” He said, “I hate to tell you, it's carried it full value.” I'm saying, “Hey, this product has no value whatsoever. We'd have to rewrap it and reflecting today's pre-price in order to have any value in it. We'd have to put in extra value to maintain the current value.” He said, “Oh, yeah.” I said, “Listen, I want you to run a report for me, that shows all of this product that may be overvalued.” He ran it. It was millions of dollars. Millions of dollars of product. I called the CFO at Gibson, and I said, “This is what I think is happening here.” He said, “I want you next week to call a senior management leadership meeting off-campus, so that you get all those people out of there, and we're going to come in with a team, we're going to get to the bottom of this.” I did that.
He came in, and he called me, and he said, “We got a major problem. We're going to have to restate our earnings over X number of years because this is been going on for a long time.”
Bill: Did that stress you out a lot? Or, was it just like, “I'm the guy that figured it out, now, we just have to go among our business?” That would stress me out to be in the middle of a public company fraud. Even if you're not--
Jack: Penny still up in Wisconsin, I was alone down in Memphis. I'm thinking all I have to do is work. I'm working 15-hour days, because I had nothing to go home to, and then you discover this thing. I quickly put together a game plan for how to overcome this, and how to get the business back on the right foot. I went to Cincinnati, and I presented to select board members and the CEO of the company a recovery plan that I'd said is going to take three years. Or, an option is to do a quick fix and try to sell the business, which would probably take a year. They quickly said, “We like the year plan.”
Bill: [laughs]
Jack: “We want to get this thing behind us.” I said, “Okay. Let me detail out that plan just to make sure everybody's comfortable with it. We're going to execute against it.” I put this together and I went back and presented it to them. They said, “Go for it.” We put together a program. One year later, we sold the business.
Bill: Wow. On time.
Jack: On time and sold it for more than we felt like we could achieve. Everybody was very happy, and they gave me a pretty big incentive to do this. I enjoyed a percentage of the sale, particularly if it was above a certain level, then my percentage even increased. I did really well on that. Meanwhile, I had gotten somebody in to run the retail operation, the number two person that was under me. When we sold the gift wrap company, I felt like, “I can't go back and displace this guy. Make him the number two. I think I've worked my way out of a job.”
I went back to Wisconsin, with no job, but fair amount of money in your pocket, so I wasn't destitute by any means. I actually contacted a few firms, accounting firms that I knew. They introduced me to two people that we're going to start a new business. They didn't have the skills to having ever run a business. In total, they were good employees and smart guys. One was an operator, one was a more of a finance guy, but they had a good idea. They were both coming out of the Thilmany Paper Company. They were going to start a new business called Coating Excellence. That was basically taking paper and coating it with wax, and to be sold for medical packaging. The first big piece of business that, and we landed it before we started the business, was the Sweet’N Low little sugar packets. You don't realize it, but that paper is coated on the inside of the package. It's really a moisture barrier because of any moisture gets to that powder-
Bill: Yeah, it spoils.
Jack: --absolutely destroys it. This was a moisture barrier and it had been done for a long time. We discovered a way to-- because the packages used to be formed and then glued shut. We found out a way where you could put the wax at say 123 melt point, and then you would drop a wand of the seal, and take it off, and that wax would solidify in an instant. So much, much faster because you used to have to hold the glue tightly and [crosstalk] until it worked and kept the package shut. You could all of a sudden run your machines four times as fast.
Bill: Yeah. So, you get some efficiency going.
Jack: So, you got an unbelievable amount of efficiency. We had the advantage of introducing this product to Sweet’N Low and then we took it out to every other package guy.
Bill: Were you selling the coating technology to Sweet’N Low or were you actually doing the Sweet'N Low packet run and doing the manufacturing part of that?
Jack: Well, we never did the manufacturing.
Bill: That's probably smart.
Jack: Yeah, we eventually did. Then, by the way, the people that I all worked with on that, were all Cuban immigrants in Miami who had come out of the sugar business. I remember one time calling this guy-- I can't remember his name right offhand. He lived in Miami, and he operated the Sweet’N Low which was Cumberland Farms. He handled all that business for them because of his experience in the sugar business. I said, “I would love to come down and visit you, and really experience the Cuban community. I don't want to just come to your office, and we meet there. I would really like to be introduced to the Cuban community in Miami.” He gave me a two-day indoctrination. We ate every single meal for those two days at Cuban restaurants, spoke just the Cuban people. My Spanish improved immensely in those two days. It was a terrific experience.
Bill: It's fun to do that kind of thing. That's one of my favorite things about Chicago is since the neighborhoods are still so segmented, you can go to the Ukrainian village and go to a restaurant where people are speaking Ukrainian, my wife's Polish. We would go to Polish restaurants, like true ones. It's fun. It's a real cultural experience.
Jack: Yeah. That built the relationship with those people to where it was a really solid bond. He said, “If you're interested in our community, I am interested in you.” It was as simple as that. It was totally unrelated to the business that became the bond that really, really held you together.
Bill: That's cool. A legitimate human connection creating one of those allegiances, that somebody [crosstalk] for you.
Jack: Yeah. You didn't realize it at the time, you did it, because it was interesting. I'm really benefiting from this. You didn't think about it as the way they would be looking at it and the interest that you took in them. It was a life learning experience that had business application. Eventually, we got into the printing of the package because we would be able to print it right when we were coating the paper, we would print the reverse side of it. So, you'd have a continuous operation of printing and coating. Then we got in eventually into slitting, so that we would be able to send the actual individual packets to the fulfilling operation, which I think was done around New York somewhere.
Then, we got into every other Equal was our second big customer in that category. We did Splenda, we did Equal, we did Sweet’N Low, we did them all because we had the most-- the industry was really rather old, and so they were using old equipment. When we started in the business, we were able to purchase extra wide equipment, faster, it would be able to do the coating much more precisely. We have a big, big manufacturing advantage that we took full advantage of it. We would pass some of our savings on to the customer, and then we would keep some of the savings for us for margin. It was a great business.
Then, you got into medical packaging, because a lot of sterilization equipment goes into a sealed package. We were able to provide the coating, the covering that you'd have a device in a plastic container and then it would be covered with a coated sheet of paper or film that you would peel off and then it would be sterilized in the process. We just had got really unique pockets of business that we were able to-- We grew that business, literally in less than five years to $150 million business-
Bill: What were the margins like? Do you remember offhand?
Jack: -from nothing. Yeah. I'm embarrassed that I do know the margins, and they were really good.
Bill: Well, you don't have to share them if you don't want to. You seem like you're transitioning through your career to better and better businesses.
Jack: Well, I did but again, it was just lucky. Eventually, we sold that business to a group of investors from Wisconsin. We were based in Wisconsin, and we sold it to a bunch of people that were up in Green Bay. Some of them involved with the Packers.
Bill: That’s kind of a fun for you as a Packers fan, right?
Jack: Yeah. Well, we actually had season tickets for the Packers. We are four seats, we're literally right on the 50-yard line. Two of them would on one side of the 50, two of the seats would be on the other side of the 50. We were way, way up in the stadium, like row 56. That only went to 60. Eventually, at Lambeau Field, they built the boxes, the corporate boxes on top of the stadium. All of a sudden, you realize, “Oh, I'm row 56, which is really close to the top. But look at those people up there who paid a fortune to watch this game and I'm closer to it than they are.”
Bill: Yeah, the only difference is they have heat, right. [laughs]
Jack: Yeah.
Bill: Which mattered in Wisconsin. [laughs]
Jack: They had heat and refreshments.
Bill: That's right. That's interesting. Where were you in your career when you sold this? Is this right before private equity?
Jack: Yes, actually, it was almost at the same time. I had a very good friend who's no longer living, that he owned a company in Neenah, Wisconsin, which is the town that we lived in. It was a business involved with building products. It was called Abitibi Building Products, which they had bought out of a Canadian-- Abitibi is a Canadian company. They bought the Building Products Division out of Abitibi paper company because he had a lot of building products experience and was operating this business. He owned the business. He asked me to join his board of directors. “Wow, this is a good experience. Learn a new industry at a level where I won't expose my weaknesses.” I did that.
He ended up selling his business to Kohlberg & Company, the private equity firm. He went to Kohlberg right after the purchase, and said, “Oh, there's one member of my board of directors that I want to continue to be a member of our board.” Kohlberg said to him, “I'm sorry, but we do not have any outside directors. The board will be four members of Kohlberg, and you. That will be the five-member board of directors.” This guy was a very, very persistent guy. He called them and he said, “I'm sorry, but you're making a major mistake that I can really add to our business. I want to have him on our board.” He said, “Okay, we'll talk to him.”
They did talk to me and [crosstalk] me into Mount Kisco, which is where they're headquartered. They said, “Okay, we'll let him continue.”
Bill: [laughs] This guy passes the test.
Jack: I got to know the Kohlberg people through the board meetings for this company, which they owned for a number of years. Then one day, they approached me and they said, “We're looking at a company in the paper industry. We'd like you to help us with our due diligence in order to make a decision on whether we should make an offer.” I said, “Well, that will be a real learning experience for me, I’d enjoy that to way to grow.” They figured they had a real pigeon on their hands. “And we're not going to even pay him. He's going to do this work for us.”
Bill: It is cheaper than most of the people we have hired.
Jack: [laughs] I looked at it as really a learning experience. We looked at this company, and the company was actually a division of International Paper, and it was Thilmany Paper. In Thilmany Wisconsin, which was only a couple of towns north of where I live, it was where the two partners in Coating Excellence came from.
Bill: Oh, wow.
Jack: Matter of fact, we're at our first due diligence session with the people from Thilmany. They said, “Oh, well, we should go around the room and have everybody give us a little bit about their background.” They came to me. Well, I gave my resume and I said, “I had been the owner of Coating Excellence. And they said, literally, right there at the minute, “This meeting is coming to an end.”
Bill: [laughs] Yeah. This guy knows more than we would like him to do.
Jack: Yeah. By the way, he got two of our key employees. We broke, and the senior person at Thilmany said, “Jack, could you spend a couple of minutes with me?” I did, and he and he said, “This is the reason why we stopped the meeting.” I said, “I don't blame you for doing that. I had a major falling out with one of your Thilmany people. And I didn't trust him, and he knows that. I literally have a lawsuit going on with him right now.” The guy said, “Okay, this meeting is back on. You feel the same way about him that--”
Bill: That we do.
Jack: The meeting is back on. We went through that meeting. Eventually, Kohlberg made an offer for the business and won the bidding process. They came back to me and they said, “Jack, we'd like you to be non-executive chairman of that business.” They made it very worth your while. They gave you a ton of options in the company, they compensated you for that. They said, “We would also like you to join Kohlberg as an operating partner. We now have four operating partners. You will be the fifth and you'll probably likely get involved with some other companies in time.” I did. I eventually got involved with 10-11 companies in Kohlberg. Most of the time as non-executive chairman, but there was a few times, maybe three, that I was the temporary CEO until we could find a full-time CEO, and then I would step back and become chairman.
Bill: What's it like to be temporary because that role requires some vision and setting the course of where the business is going to go over time? As a temporary CEO, you're a placeholder. Was it that you would figure out their strategic vision and then hire somebody to come in and execute what you had figured out? You don't want to be just a placeholder, right? Somebody that's treading water is losing ground.
Jack: Yeah, and I wasn't very good at treading water.
Bill: Yeah, well, I know. [laughs]
Jack: I would get pretty actively involved in the business, but that was my style. I want to know what's going on. I want to be involved. I want to be visible. I want to be a leader who has involvement in the business. I am not just a visionary that is going to just sit back and pontificate. I would get pretty involved in the business. We would determine where we had to go and then you would select people within the business to take on the leadership of that particular area. Meanwhile, I was interviewing for CEOs. In each case, we would eventually hire one, I think I was maybe CEO for six months at the longest on those three occasions that I did it until we got somebody on board that would be fill the position full time.
I got involved with this Thilmany Paper Company, which was a pretty good size operation, maybe $400 million in sales, maybe even more. We made a major acquisition down in Chicago called Packaging Dynamics. We change the name of Thilmany to Packaging Dynamics, because they were much more of a converter, they would buy Thilmany grades of paper and convert them for end-use, and a whole variety of different markets. It was moving down the food chain, where you got better margins. The margins in the paper industry are not really very good, you have to be a really, really good operator to succeed. Even if you're one of the best, it's not like you have fat margins. You can't afford to make mistakes.
When you got further down the food chain, and you got closer to the end-user, your margins improved. So, that was the reason that we purchased Packaging Dynamics was to move further down the food chain and get closer to the consumer and expand your markets. All using the grades of paper that we produce. We were internally integrated, and there wasn't any competitor that had that same structure. We were able to really take advantage of it.
Bill: It's a bit of a pattern in your career. It's the second time that you've said that you have had us a different type of going to market, whether it's vertical integration in the production side or opening the retail stores. That's interesting.
Jack: Yeah. I'd like to say I knew it at the time, I didn't. You just found your way there. That was the best path. You narrowed it down to what are your options? What are the best paths to move forward on? What capital is it going to take? Then you determine whether you could do it or not. That was the great thing about being part of a private equity firm. When you needed capital, you got it. Their whole idea was to how to build value in the businesses. Buy it at four times their earnings, build their earnings, invest in the business, extend out your product lines, extend out your geographies, buy competitors, so you can consolidate and reduce costs. All of these methods that you would employ, some more than others, depending on the industry, but the whole idea was, how do you build value in the business? So, you buy it at four times, you build the earnings from say $20 million to $80 million, and then you sell it seven times.
Bill: Yeah, and you're levered sometimes.
Jack: Yeah. Oh, you tremendously levered. Kohlberg would not lever as much as some of the players in private equity. Even they would layer three or four to one. So, if they made a $300 million operation, they may put in 75 million and borrow 225 million. Even that 75 million would come out of a fund that had outside investors in it.
Bill: Yeah, the GP leverage is crazy when you start to dig into like how much they actually have in it, but it's a good business model. What was your favorite business that you saw within once you got to be the chairman of 10 companies? What was your favorite industry to look at?
Jack: Well, I ended up becoming “the Wisconsin guy.” I would handle anything that had to do with paper, packaging, or any business that was based in Wisconsin. I remember, one time they came to me, there was a business based in Hudson, Wisconsin, which is right on the Mississippi River, right across from many from Minnesota. We're closer to Minneapolis-Saint Paul, which is where I would fly into, and it would be about a 45-minute drive over to Hudson. I remember Kohlberg was looking at this business and they eventually ended up winning it. I had been included on one of the due diligence sessions with the major owners of the business. Kohlberg said, “Okay, we've won the bidding war for Philips Plastics Company,” which was a medical device packaging company. “Jack, we'd like you to be the executive chairman of that.” I said, “I don't know anything about medical devices.” They said, “But it's in Wisconsin.”
Bill: [laughs]
Jack: By the way, when we were in the final bidding process, the owner of the business said, “I want to sell to those guys from Wisconsin.” The Kohlberg people said, “You're the only person that we have from Wisconsin, that’s who they were referring to. Somehow you made an impression on them.” I said, “Because I think I was a Green Bay Packer fan.”
Bill: Well, that stuff matters.
Jack: I ended up becoming chairman of that business having no idea of what I was getting into.
Bill: When you're in that position, Jack, how do you think through hiring a person? How do you know if the CEO is doing a good job? How do you know if the strategy makes sense? How do you cut through all the nonsense to get down to the variables that matter?
Jack: Well, in this case, the owner of the business that was probably late 60s at that time, was going to stay on and run the business for a year, and that we were going to search for a new CEO of the business. He was going to give us time to do that. We hired a search firm and went through a pretty exhaustive search for a CEO. We found somebody that had medical packaging experience. He knew the players in the business, he knew all the major pharma company, purchasing people, he knew their product development people. He had a lot of really good connections. We hired him. He was actually living at the time in Raleigh, North Carolina, and he was going to move to Hudson, Wisconsin. I'm not sure how he absorbed that shock. He ended up moving pretty close to Saint Paul, Minnesota. Then he would commute about a half an hour out to the business. He proved to be really, really good.
The owner of Phillips Plastic was a very interesting guy in his own right. He was a true entrepreneur. He had started the business from scratch. His philosophy was, “I don't want any town that I put a plant in to be dependent on me for their prosperity.”
Bill: He wants the ability to leave without feeling all the guilt associated with it.
Jack: Right. He would open up all these small plants all over Wisconsin. I went to visit several of them. Well, I'm probably all of them at one point or another. I said, “If I run off the road, they're going to find me in the spring. Nobody is on this road. I'm going to go off the road into five feet of snow and until that melts, nobody's going to know where I am.”
Bill: That's probably true. That creates some efficiencies that you guys could go to bigger scale operating facility.
Jack: Yeah. Oh, it did. I understood why he did it, but he did it very much as a non-business.
Bill: It's an emotional decision.
Jack: [crosstalk] --any guilt. Yeah.
Bill: That's right.
Jack: It left lots of room for operating improvements, where you would combine plants, you build a new plant somewhere, and you would absorb three other plants. Mainly, this guy that came in, really knew how to operate that business, and also would bring in tremendous amounts of new business. We were the largest producer of EpiPens in the world.
Bill: Really? Huh.
Jack: Yeah. We ended up buying a European operation called Medisize and folded it into the business and they had a very strong manager over in Europe. It was based just outside of Amsterdam, but they had a major plant in Finland, a big plant in Switzerland, another plant in Prague, in Czech Republic, just outside of Prague. Their major customer was Sanofi. It was producing insulin pens. We ended up getting most of the business domestically, we expanded that into a worldwide effort. Diabetes was growing as an illness, so the insulin requirements were expanding fast. We were just riding a great wave. Then we got other products developed with the different pharma companies, and ended up really writing medical technology, which is expanding rapidly at that point. Probably still is. You can imagine the person that's making the injection pens for the COVID vaccines. Almost all of that is contract manufactured.
Bill: Oh, is it?
Jack: Yeah. Almost all of it.
Bill: [crosstalk] --cost-plus, or is it like a tolling agreement? Or, do you take that [crosstalk] a risk and then arc it up as you care, too?
Jack: We would negotiate pricing on it. There was not that many people that qualify for it. You have to have clean rooms, you have to have sterilization, you have to really show that you were totally capable of handling that product with no threats at all. They were much more interested in the safety, price was almost secondary, we need to have absolute confidence that you're going to produce this product safely and that we're never going to have any liability at all. Your manufacturing capabilities were really important.
We ended up selling that business, I think about five years into owning it, which was about Kohlberg’s average for holding a company was about five years, but they would have some that they held for 10 years and another two companies they held for two years. They would average roughly around five years. I think we own that one for four or five years. We had primary sellers that we would go to. We would always work with an investment banking firm on selling a business, also on acquiring businesses. I mean, everybody was represented by an investment banker.
Bill: When you're in a business like that, the key is, “How much can I depend on you?” Your old businesses, like the paper business, there's not that big of an incentive or a focus on, “Can you get the paper made?” It's like how efficiently can you do it? Here you're in a business where it's, “Can you do it safely?” How much are you thinking through how efficiently we should do this? How do you balance sort of the-- The only word that I can think of is capital needs to get the process done right. I don't know that that's the right way to think about it. Obviously, you have to be efficient at some point, but what are you really focusing on and dedicating resources to when you're in that situation?
Jack: Well, it depends on the circumstance, obviously. In the medical packaging, clearly the highest priority was you need to prove to your customer that you can handle their production safely and that they will never have any liability that they have to be concerned about.
Bill: When you sell into that customer, how much of what you're selling is their ultimate end cost and what they're trying to deliver? Was it a large portion of their cost of goods sold? Or was it a small portion? You know what I'm saying?
Jack: Yeah, I know what you're saying, and I'm not sure I have an answer to that. I don't know.
Bill: Ideal if it was small, then you could charge a bunch.
Jack: We were relatively small. They had patent protections and all that kind of stuff. They had room to price things. If they had an effective and non-competitive, then they could charge almost anything they wanted. They were conscious of trying to be fair. You don't want to be abusive, because you invite competition in when you get abusive. You need to make sure that you price it so that it's not real appealing for somebody to come in and compete against you. If you get excessive, you're inviting in competition.
Bill: I know you have a call that's upcoming and I think that's a heck of a thought to end this one on. So, I'm going to give you a couple minutes to stretch before your last call. Jack, I appreciate your time so much, man, and I'm glad that I get to do this all the time.
Jack: I have a couple of things written down.
Bill: Okay, go ahead.
Jack: I was really thinking about how can you be a really effective leader and CEO. My style was to be very, very active in the business. I wanted to be visible, I wanted people to know that I was interested in what they were doing and that they were important. If you could figure out a way to move down in the organization incentives to be successful. Primarily, the financial incentives. You really need to pat people on the back, but the way you really get their loyalty is through their pocketbook. You have them share in the company's success, because they're going to do a really good job, because you've provided the incentive to do that.
The other thing I think of, as a CEO, you really need to think, strategically. I learned this really late in my career because I was so active in the leadership of the business that I never stood back and started to think about strategically, “Where do you want to go? And how are you going to get there?” My time with Kohlberg really taught me to do that. When I was not the CEO of the business, but I would be a non-executive chairman, I found myself really thinking, “Where do you want to go with this business? How do you want to get there? How much capital does it require to succeed? What are the margins you're going to make when you do get there?” You started to think much more strategically about how you got there.
The other thing I found out, and it took me a long time to learn that I was very seldom the smartest guy in the room. That used to annoy me. “Wow, I’ve got to work harder. I’ve got to do more. I’ve got to get smarter.” And then, I realized, “You're not going to be the smartest guy in the room. But by golly, I want the smartest guy there in the room with me,” because that person is going to make everybody else better. I found that a lot of times, the smartest people don't have great people skills. Though sometimes they don't know what to do with their intelligence. They don't know how to put it to good use, and I could help them with that.
Bill: Yeah. Well, it's a true team, right?
Jack: Yeah. I learned these things really late in my career. The other thing I would say is, listen. So many people have a tendency to talk. They want to be the loudest guy in the room. If you can't be the smartest, you're going to be the loudest. But by golly, you've really learned very little when you're talking. You really learn when you listen to somebody else talking. These are the things I learned a little too late in my career, but I still was able to put them to good use. You develop your own style. Everybody has their strengths and their weaknesses, and you just got to figure out how you work with your tool chest.
Bill: It's an ongoing process. I struggle with it myself, but I'm getting closer to having the answer. And thankfully, I got you to talk to you to figure some of the questions out.
Jack: Well, you're a smart guy and you’ll pave your own way.
Bill: Well, I got a good role model, man, and the world just learned a little something from him. So, I appreciate your time, Jack, and thanks for sharing it. It's been great.
Jack: Okay. Yeah, have a good day.
Bill: Right. You, too. See you soon.
Jack: Right. Bye.
