According to Robert B. Goergen, turning a business around isn’t exactly rocket science. “I was interviewed once by a reporter from Fortune magazine about what I had done to resurrect a household consumer products company back in 1986. The reporter’s reaction was: Isn’t that what management is supposed to do? I said yes, but they weren’t doing it.”
Goergen should know. Not only is he an ex-nuclear physicist, but an entrepreneur’s entrepreneur who has earned his money the hard way — by running the companies he buys.
Goergen is currently chairman, CEO and president of Blyth Industries, Inc. Over the course of 18 years, he has taken the company from a $2.8 million regional manufacturer of grocery store and religious candles to a $300 million industry leader that designs, manufactures and markets an extensive line of candles, fragrance products and candle accessories. Sales for 1996 are projected at $400 million. Current market value is $800 million.
Goergen owns more than ten million shares of common stock in Blyth, which went public in May 1994 at $8.25 a share and was recently trading at $27 (adjusted for a December 1995 100% stock dividend). It’s a stunningly successful illustration of a formula that Goergen has adhered to since his first “hobby investments” of the mid 1970s: Freedom = net worth.
THE ROCK ’N’ ROLL YEARS
Goergen didn’t start out planning to be an entrepreneur. He grew up in a working class suburb of Buffalo to parents who divorced shortly after he was born. His mother’s firm belief in the importance of education, plus his own aptitude for math and science, led him to a scholarship at the University of Rochester where his initial plan was to study nuclear physics. It took a summer job researching the field of airborne radioactivity to convince him that he wanted a career with more people interaction.
“Friends suggested I might like to be president of a company. Okay, I said, how do I do that? The answer was get an MBA.” With the bulls-eye determination that would characterize his later business dealings, Goergen applied to Wharton, was granted a fellowship, finished the coursework in 18 months and landed a job with Procter & Gamble for $7,600 a year.
At P&G, after taking a long look up the brand management career ladder, he decided to move on to The McCann-Erickson advertising agency. Among his successes as a senior account executive for Coca-Cola was persuading the company to switch its ad music from the sedate rhythm of The Limelighters to the rock ’n’ roll beat of Diana Ross, Tom Jones and the Beach Boys.
In 1966, Goergen joined McKinsey & Co. and worked primarily with large consumer goods companies like Heublein, PepsiCo and Mobil Oil. Within four years, he was made a principal, one of a select group that included, among others, future IBM chairman/CEO Louis V. Gerstner, Jr. and American Express chairman/CEO Harvey Golub. Three years later, he was ready to move again.
“McKinsey tended to work with big companies. I was interested in small companies,” says Goergen. “And at McKinsey, no matter how well you did, you were paid a salary. I wanted significant equity.”
At age 35, Goergen landed a venture capital position with Donaldson, Lufkin & Jenrette and after several years became the managing general partner of three private equity capital partnerships. He did so well on one of his first investments — putting $500,000 into a fledgling citizens band radio company early in 1973 and selling out two years later at a profit of nearly $7.5 million — that Forbes magazine wrote a two-page feature on his successes in 1977.
Ironically, by the time the Forbes article appeared, Goergen had already made decisions that, unbeknownst to him, would result in his leaving Wall Street and his home in Greenwich for a new job in Chicago and a room at the Chicago Athletic Club.
LOOKING FOR EQUITY
While still at DLJ, Goergen had begun a series of “hobby” investments with several partners who, like himself, were itching to make money on their own. He put $7,000 into Delta Filter Corp. of Albany, N.Y., and $35,000 into the HammerBlow Corp., a Wisconsin manufacturer of couplers for agricultural and off-road vehicles.
Sandwiched between those two was Valley Candle Co., a manufacturer of church and grocery candles based in Brooklyn, N.Y. Goergen, his attorney and two entrepreneurs each contributed $25,000, borrowed the rest and bought the company for approximately $1 million.
Goergen spent his weekends advising Valley Candle management, and within one year the company had acquired Candle Corp. of America (CCA), a Chicago-based manufacturer serving the restaurant and Hispanic markets.
The deal changed Goergen’s life. Valley Candle borrowed $3 million to meet the purchase price and, in a characteristically bold move, Goergen personally guaranteed the loan.
Back then, it didn’t seem like much of a risk. “Every time we made an acquisition and had to borrow more money,” Goergen says, “I guaranteed it. I was confident these companies were so mismanaged that we could turn them around.” CCA, however, was different.
Within several months, it became clear to Goergen that the management team in Chicago was not up to running what was now an $11 million company. Suddenly it looked as if the whole operation might fail. “I went to the board of directors and offered, under certain conditions, to come in full-time as CEO,” Goergen says, noting that the $3 million guarantee was a “significant motivating factor” in his decision. “But I also saw this as an opportunity to turn around the company and build up equity. My theory — and I have nuclear physics examples of what I mean — is that real freedom and independence is a function of net worth, not salary or income. And so I left Sprout to focus on Candle Corp.”
Goergen moved into a rented room at the Chicago Athletic Club and began the long, slow business of “doing what management is supposed to do.”
THE LEAN TEAM
The headquarters of Blyth Industries is spare. A no-frills industrial carpet winds throughout plainly decorated offices and ends up in a conference room furnished with a table bought at Drexel Burnham’s bankruptcy auction. The office site was chosen primarily for its proximity to the Greenwich, Conn., train station 200 yards away.
Blyth Industries has 1,700 employees, 800 of them located in and around Chicago, the seat of the company’s financial and administrative functions and major manufacturing and distribution centers.
The Greenwich headquarters, by contrast, houses a lean team of five professionals and three support staff. Its location reflects Goergen’s desire to stay in the community where he and his family have lived since 1977.
Blyth is, in fact, the parent company of two subsidiaries — Candle Corp. of America and PartyLite Gifts. It designs, makes and sells candles, scented candles, outdoor citronella candles and fragrance products, including potpourri, and markets a broad range of related accessories. Products are sold under the brand names Colonial Candle of Cape Cod, Mrs. Baker, Carolina Designs, Ltd., Old Harbor, Gardens & Groves, Aromatics, PartyLite Gifts, Candle Corp. of America and Eternalux.
The company’s operating strategy has been, and continues to be, growing through new product development as well as acquisitions.
Over the past 18 years, that strategy has gone through four phases, beginning in 1977 with Goergen’s decision to camp out in Chicago for as long as it took to turn CCA around.
“At the time we were very bootstrapped. One of our vendors announced to me in 1978 that he had more money via accounts payable in the company than I did. But that year we managed to acquire a $2 million high-end candle company called Charmwick based in Santa Cruz, Calif., and in 1981 bought $1 million Best Candles Florida in Miami.” Candle Corp. of America (formerly Valley Candle) began to expand into the mass market.
From 1982 to 1985 — phase two — CCA focused mainly on new products, including the development of outdoor patio candles (citronella). “The key was introducing new products with relatively high gross margins, increasing sales volume, lowering manufacturing and purchasing costs, and at the same time constantly adding new people in sales, manufacturing, marketing and the creative end.”
Meanwhile phase two also coincided with what Goergen calls “a diversion,” referring to a three-year period when he and two partners bought and ran Rayovac Corp., a $160 million battery manufacturer that was then losing about $25 million a year.
Unlike other investments, however, Rayovac called for a full-time commitment. Goergen and his two partners divided and conquered — Goergen in charge of Rayovac’s European operations plus the financial and human resource divisions, another partner in charge of the U.S. operation and a third partner in charge of Japan and Mexico. Within six months operations were at break even and Rayovac was well on its way to becoming a profitable battery company.
In 1986, Goergen and his partners sold the company to the management team, and Goergen spent the next year as interim CEO of Clopay, a household consumer products company based in Cincinnati that had been one of the Sprout deals back in the 1970s. Clopay was sold that year through a tender offer.
“There I was in 1986. My partners and I had made a lot of money in Rayovac. I could have retired,” Goergen says. “I thought about working on my squash game and becoming a regional amateur.” Instead, he decided to direct his energies back to the candle business.
Enter phase three. From 1986 to 1991, Blyth acquired three companies, all in the consumer area, all of them losing money. The expansion brought CCA to $50 million in sales and added growth in the mass market area, in independent gift stores and department stores and, with PartyLite, in the direct selling area. “We picked the best managers and built up strong teams. That was the key,” Goergen says.
All along the way, Goergen was continuing his philosophy of converting from low gross margins to high gross margins in order to have money for marketing and advertising, and in order to keep bringing out new products. “While I was doing that, I had to build up critical mass, which meant we always had to bootstrap and leverage.”
It was around this time that Goergen started selling stock in the company at book value to senior managers and plant managers. “We offered options that were very affordable because we wanted to encourage people to participate. I think it’s important to have stock in something you go to every day,” Goergen says. Since the company’s IPO in 1994, all the management stockholders have become millionaires, in some cases several times over.
Goergen was also emphasizing his market segmentation philosophy of selling candles. “I established marketing profit centers so that people working in food service concentrated their efforts only in that area and didn’t worry about Walmart or Bloomingdale’s or the Catholic church.” In 1990 he started a brand management system, working with his managers to create pricing policies, product policies and distribution strategies. “I feel that most people don’t start out as superstars. So if you can channel them with a strategy and help them focus on certain goals, the chances of their becoming a superstar are much higher.”
The road to stardom for Blyth employees is clearly lined with market fundamentals, including constant market research into what consumers — both the retailer and end user — want in terms of color, price, fragrance and packaging. “Our strategy has always been to have the right product at the right price in the right channel of distribution,” says Goergen.
THE ROARING ‘90S
Phase four, from 1992 until the present, has brought another round of expansions. Among them, $12 million Aromatic Industries in Rancho Cucamonga, Calif., a potpourri company bought in 1992 because Blyth’s market research showed that purchasers of fragrance candles also bought potpourri. In the traditional Goergen style, Blyth bought the ailing company for well below book value, turned it around, and integrated it into Blyth within a year. Blyth has also stepped up its exporting efforts, primarily in Canada and Europe.
In May 1994, when sales were at $157 million, Blyth Industries went public, offering 3.7 million shares and raising $33 million for the company. “We were leveraged, and going public would pay off our debt,” Goergen says, which it did, although the company recently took on another $25 million in a private placement note to build a plant outside of Chicago and double the size of a distribution center in Plymouth, Mass. About 30.7 million shares are currently outstanding. Forty-six employees have stock options, and all employees can buy stock through a company profit sharing plan.
Going public was also an opportunity for Goergen to make his fortune, again and in bigger numbers. Blyth stock — of which 5.6 million shares were owned by Goergen — opened at $18.50 the day of the offering, making Goergen a millionaire a hundred times over. Within approximately one year, the share price had doubled; recently it tripled and in December it split two for one.
It’s not only the stock price that is impressive. The $300 million in sales which the company had logged by the end of 1995 is an increase of 39.5 percent over 1994 sales of $215 million. The current growth rate of the $1 billion candle market is estimated by Blyth managers at 15 percent.
The company’s gross profit margin is 50 percent, up from 30 percent in 1990. Operating profit margins are slightly more than 10 percent. Return on equity is 30 percent, approximately double that of other consumer goods companies.
Meanwhile, the company continues not just its phenomenal growth, but also its evolution. Discussion during a management meeting in August focused, in part, on repositioning Blyth over time more as a home fragrance company than just a candle and candle accessories company. “Consumer research tells us that candles are growing so much because they are a convenient way, and an emotional way, to deliver fragrance in the home,” says Goergen. “Not in dining rooms where you don’t necessarily want a scent, but in living rooms, bathrooms, bedrooms, kitchens and outdoors. A lot of products are already geared to this — sachets, potpourris, air fresheners, and so forth. That’s where the market growth is.”
THE RIGHT STUFF
Inside Goergen’s Greenwich office is a plaque given to him by a business colleague when Blyth went public. The dedication ends with the words: “… to a man who has figured out a new use of the term ‘Living By Your Wicks.’”
Clever, but it doesn’t quite capture Goergen’s ability to concentrate with razor-like intensity on the particular operational problem at hand. Or, as he did once during the ‘80s, to juggle the management of five different companies at once.
“When I go into a company, I’m very analytical. I look for the jugular issues,” says Goergen. “I ask tough questions and then I don’t forget the answers. Partly it’s a result of my training at P&G, McCann-Erickson and McKinsey.”
Many times “people do dumb things,” says Goergen. “Someone is looking for volume instead of for profitability. Or someone says they are spending according to budget even though the sales aren’t there to justify it. Or a company has two different sales forces even though combining them clearly would reduce costs, simplify communications and increase effectiveness.”
The challenge is locating the “right” companies — low-tech businesses that sell low-ticket, consumable items, “like razor blades” — buying them at the “right price”, i.e. at or under book value, and doing the necessary homework.
“My partners and I always made sure that when we bought a company from a larger one, we knew more about that company than the owner. And we always came into that company on day one with a game plan.”
Goergen’s acquisition strategy has been “to build net worth and keep every tub on its own bottom. Each company would be separate. If one went down the tubes, it wouldn’t kill me financially.
“I was always investing and trying to help these companies, because I didn’t know what was going to happen at Candle Corp. Would it grow or not? Someone asked me during the IPO in 1994 if I always knew that this was going to be a terrific company. The answer is no.”
To hedge his bets, Goergen in 1979 set up The Ropart Group to handle his investment, as opposed to his management, activities. The group typically has focused on private equity investments, turnarounds and acquisitions, but for the last three years has been relatively inactive. In the late 1980s, Goergen sold out several of his earlier investments, including Delta Filter and The Hammerblow Corp., to concentrate more heavily on Blyth, and in 1994, when the company went public, he ratcheted his commitment to Blyth even higher. It now takes up about 90 percent of his time.
Today The Ropart Group has 10 private equity investments, including, most recently, ownership in two small specialty finance firms. Goergen has a multiple stock portfolio which he manages himself. He also owns 56,928 shares of the Xtra Corp., one of the largest trailer leasing companies in the U.S., and is chairman of the board but plays no role in the day-to-day operations of the company.
“My style was always to put a lot of energy into the deals, negotiate some equity for the management — I consider myself the key manager — get the company on course and then back off. Except with Blyth.”
STOCK TIPS AND NEGOTIATION ADVICE
In a speech he gave to the William Simon Graduate School of Business Administration at the University of Rochester in 1991 on “Financial Entrepreneurship in the 1990s,” Goergen named five key factors to success. One of them was “the value of an understanding spouse.”
Goergen met his wife Pamela, a graduate of Immaculata College, in New York City when she was working as a management consultant. The couple married in 1968, and now have two sons, ages 25 and 23, one of whom works at McCann-Erickson and the other at DLJ.
Although Pamela Goergen left her job shortly after her children were born, the MBA degree she earned at night at Baruch College in New York City has been useful: She is an active member of Blyth’s board, and is often recruited to be president or treasurer of fundraising committees for local schools, libraries, hospitals and museums. She is a past director of the United Way of Greenwich. She also manages the couple’s three homes in Greenwich, North Palm Beach, Fla., and Quogue, New York.
Goergen seems to have passed the investment gene on to his children. During one particular day last summer, two of the phone calls into his office were from his sons: One had a new stock issue to suggest, the other asked for advice on negotiating the purchase of an apartment.
Goergen, 57, has continued a strong relationship with his alma mater, The University of Rochester, and currently serves as chairman of the board of trustees. In 1993 he was head of Rochester’s presidential search committee. His belief that education can make a difference in the quality of people’s lives is reflected in his establishment of The Goergen Foundation in 1986, a charitable giving vehicle for his family that has a heavily educational orientation.
The other keys to financial success cited by Goergen in his 1991 speech included:
– Learn on other people’s money. “No one is born an entrepreneur; on-the-job operating experience will lay the basic foundation.”
– Real time performance: “Whatever your job, do not simply meet expectations. Rather, perform very well and exceed others’ expectations. Credibility is more important than capital.”
– Omphaloskepsis. (Read on.)
When Goergen decided not to pursue a career in physics, he realized he had missed out on a significant amount of liberal arts education. To fill in the gaps he took French lessons and art history courses and began to build up his vocabulary by writing down interesting words on 3×5 note cards, words like “jejune,” “turbid,” and “omphaloskepsis.”
A literal translation of “omphaloskepsis” is the philosophy of studying one’s navel. Goergen translates it as the practice of looking inward periodically to examine yourself and your long-term goals. “I don’t recommend doing it every week or every month, or using it to make peer group comparisons. Once a year is okay, but no less than five years.
“I decided in 1993 to make a five-year commitment to be CEO of Blyth. In 1998 I’ll be 60, and I’ll take another look. Will I want to continue on here? Will I start planning for my successor? What are my interests and do I want to devote more time to them? How healthy am I? I don’t know the answers now. What’s important is the process of settling down and examining your goals.”
There are two other words that Goergen frequently uses to make his point, and both are featured in Blyth’s 1995 annual report. “‘Meliora,’ which means never being satisfied, because as soon as you are, you will be killed by the competition. And ‘kaizen,’ or making progress in small steps. I don’t want a hula hoop or the troll doll — individual products that suddenly double or triple your sales and then crash. It’s not healthy. The only sustainable item like that has been the Barbie doll. What we need is to constantly do things a little better.”
“It’s more fun to make money than to have it,” says Goergen. “Having it can be a burden. It means you need to start dealing with lawyers and thinking about estate planning and municipal bonds. You worry about preserving, rather than creating or building or growing.”
Goergen is clearly not done with the creating and building part. “Maybe I’ll be sitting here five years from now and maybe we’ll be doing a billion dollars in sales along with more acquisitions, greater expansion into Europe, more new products. Whatever the future brings, we’ll be helping this company grow.”