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One CEO's ship that weathered the storm

January 18, 2005

The Greater Cincinnati Venture Association took a trip on the high seas January 18 as John Bostick presented "The Storms of 2001-2003: A CEO's Ship Log." John used the nautical theme as a parallel between internal and external factors, and to show that just like nature, capitalism can have sudden changes. The audience was exhausted after hearing what John went through in the tumultuous times of what he calls the "dot-bombs."

John has been an entrepreneur since he was 10, performing tasks from babysitting to mowing lawns to snow removal (and some he wouldn't share!). He started out as Shipmate at IBM for 10 years and Pomeroy for 2, before taking over the Captaincy in 1993 as he founded LUCRUM, Inc. and in 1999 with dbaDIRECT. His presentation provided a "ship's log" of what it was like trying to survive "Tech's Perfect Storm," as well as sharing John's beliefs about what it takes to be a successful Captain.

In 2000, John experienced the calm before the storm. He had 7 years of success with record financial performance for Client Server Associates, which was then renamed & reorganized into LUCRUM, Inc; the pipeline for the first half of 2000 was strong; and they had just spun off dbaDIRECT from an IBU into a Delaware C Corporation. He began to look at buyers for LUCRUM, hoping to focus on dbaDIRECT as a global company.

However, in August, 2000, the storm hit. LUCRUM acquired Healthcare Practice, which had done $7.3M business in 1999. At the same time, a customer, called "Dot-Com-1," defaulted on accounts receivable of $660k.

September continued the problems. As John signed a term sheet on LUCRUM, another customer, "Dot-Com-2" started to default on $100k. Luckily, an investor jumped in, extending credit for continued development.

But that didn't help LUCRUM: In October, post-due diligence, the sale fell through.

During the next year and half, waves continued to batter the LUCRUM/dbaDIRECT ships. John faced multiple challenges, including demand down-turn, continued customer defaults, growth investments that were shrinking, merger failures, CFO turnover, even employee theft! After several rounds of personal investment and "last minute payroll" bail-outs, the storm finally subsided.

In 2002, dbaDIRECT found itself with 75 customers and 1,000 databases under contract. They had a profitable quarter, followed by LUCRUM's first profitable month following 20 months of losses.

From here, waters continued calmly, letting John rebuild his companies and repay angel loans made by friends. By 2003, LUCRUM experienced a full year of profits and was back on track.

What did the Captain learn from all this? Most importantly, John says, "business is a series of victories and losses, but declare them all as victories." And since the highs are higher and the lows lower for a CEO, be sure not to over-mourn losses or over-celebrate victories. "You are not really dead in business until you are either 6-foot under, sprinkling your ashes, or sliding your body into the dark blue sea …" John philosophizes.

One of the keys John found to staying afloat was working closely with customers, vendors and employees. Customers and vendors are key: "They'll find out from your employees, competitors, the press" about your problems, he explains. "Tell them pro-actively about your business and don't lie, exaggerate, or just share the optimism." Instead, use them to help you get through the rough waters by asking for customer pre-pays and more business, and vendor scheduled payments. Be sure to keep service quality high, "no matter what," and understand that executives must have "high-touch" with customers prior to the storm to keep them "in the boat" during the storm. This includes personal customer research versus market research or marketing programs. And one key, in John's mind: there are no short-cuts. "No matter what the pressure is, cheating, white-lies, and manipulating numbers outside of FASB/GAAP are all still very wrong."

What about the other key players in the mix - Shipmates, Boat Owners, Board Members, and Family? The Captain must also understand how important they are in keeping the boat afloat. First, the Captain must create and maintain loyal Shipmates. This includes identifying, hiring & retaining people with proven capabilities - then, getting them to perform uncommon things. Generating this type of performance and loyalty can be difficult. John amazingly had 7 LUCRUM employees who said "We'll lock the door with you" if that's the end result. It takes commitment like this to keep going through the roughest times. To get it? It's simple, John believes: "You already know who is 'gold,' treat them as such!"

Working with Boat Owners (investors) can be more difficult. You are asking your investors to stick with it through the bad times, to have faith business will turn around. John feels he should have considered three things: learned more about his Boat Owners' history of being an investor in a similar enterprise; see if they had ever gone through a "troubled investment" and how they acted; and determine if, in a storm, they would add confusion by trying to take over the helm. These answers would have helped him focus his Boat Owners on the long term, to position the company properly against the outside elements.

Board Members can be similar to investors. "They may never have been a CEO, may never have gone through a crisis such as yours," explains John. "They may not tell you what they really think," which can work against you as Captain.

Despite the challenges with these different groups, John believes family & friends are probably the most difficult of all. "They are not business people and now's not the time to teach them," he says. To keep them focused and positive requires the art of keeping things in perspective. One suggestion he has is to "anchor the present situation to another historical success they may have experienced." Hopefully this will show them that just as then, this storm too shall pass.

John's final advice comes to Captains themselves: the entrepreneurial CEOs trying to make their companies work. "You must take care of yourself," he stresses. "My Captain's habits included eating like it was my last meal every day … getting enough sleep even if I didn't have the solution … playing tennis 3-4 times a week … taking vacations …and continuing to volunteer."

And in the long run, remember: "There will always be more storms." But keep perspective: what does the story look like in 10 years, and how can you affect the story now?