It Takes a Team

It Takes a Team

COMPANIES by Janet Leiser | Senior Editor

A $3,000 loan sparked the idea for a company that generated more than $10 million in sales in its fourth year. Turns out, there's a hot market for used computer hardware that costs a fraction of its original retail price.

Network Liquidators Inc. revenue shot up from $1 million its first full year to more than $10 million in 2005. Still, CEO Barry Shevlin says growth was restrained.

"We've been very bottom-lined focused here since inception," Shevlin, 35, says. "Our growth on the outside looks fairly impressive. But we could've grown quicker if we'd been less conscious of making sure we sustained profitability."

To manage growth and protect a target profit margin of 10% at the Oldsmar firm that buys and sells used network hardware, Shevlin set up a management team with decades of experience at other high-growth companies.

Like any good coach, he contends his team is the best, adding: "I don't know too many companies this size that have this type of management team at the top."

• Joe Serra joined Network Liquidators in March as executive vice president of sales and marketing. Serra was a vice president at Tech Data Corp., where he played a part in that company's exponential growth for 18 years. The Clearwater company grew from less than $100 million in annual sales in 1987, the year Serra joined it, to $20.61 billion last year.

• Tom Calcaterra, who became executive vice president of business development in February, previously worked at PODS Inc. of Clearwater, another fast growing company. As chief financial officer, he oversaw an initial public offering of more than $100 million.

• Matt McDonald became chief financial officer in October. At Quality Distribution Inc. of Tampa, he led process, system and control improvements. He previously held executive positions at Catalina Marketing Corp. and Industrial Distribution Group.

• John Stafford worked for Network Hardware Resale, the company's largest competitor, based in Santa Barbara, Calif. Shevlin talked Stafford into joining Network Liquidators after he flew him to town to watch the Tampa Bay Lightning play one of the Stanley Cup final games. For a while, Stafford commuted to the Tampa area weekly from California where his wife and children live. He's now setting up a company office there.

Network Liquidators is also opening an office in London in September. About 30% of 2005 sales were to overseas customers.

An idea is born

In 1989, on a blustery winter day in upstate New York, Shevlin was on a telephone pole installing cable when he decided to find a better way to make a living. Within a month, he'd moved his family to sunny Florida.

He eventually began a cable television installation business, built it up and sold it to one of his foremen. Since then he has founded other Tampa Bay area companies, including BusinessMall.com Inc., a telemarketing company that fell victim to is own fast growth and closed in 2000.

That experience is one of the reasons why Shevlin, a self-taught software developer, focuses only on profitable growth at Network Liquidators, and he doesn't plan to accept money from venture capitalists.

"The mentality then was different, it was more about growing top-line revenue with somewhat of a disregard for the bottom line," he says of BusinessMall.com.

In 2001, Shevlin was writing software to automate business practices when friend and colleague Scott Hooten asked to borrow $3,000. Hooten told Shevlin he'd repay the loan, plus another $600 within a week.

Hooten bought five Cisco switches for $3,000 and resold them for $5,000. Shevlin made $600 and began researching the market for used computer hardware.

"I realized there was a lot of opportunity in this industry," Shevlin says. "It was highly fragmented, a lot of really small companies. Very few people had a sophisticated backend operation to run a business efficiently."

Serra estimates there are 250 companies that sell used hardware. Most are one or two-person operations.

In 2002, Network Liquidators' first year, the business had sales of $1 million. The company has grown an average of 20% to 25% quarterly since its inception, Shevlin says. The long-term plan is to reach $100 million in annual sales within four years.

"The catalyst to our growth has been our Web site," Shevlin says. "It grew very quickly to be the largest site in the industry."

The site receives about 15,000 hits a day, he says. But, more importantly, about 5,000 unique visitors hit it daily. Half are looking to sell and half are looking to buy. Network Liquidators sells equipment for about 60% to 90% less than its original retail price.

"We've become a source for leasing companies when they're taking equipment back, they know they know they can call us," Shevlin says. "We'll take the equipment off their hands."

As for the Web site, two full-time programmers work on the site, which has thousands of pages listing items for sale.

In the past four years, the company, which now has 45 employees, has moved four times as it outgrew its offices. It's now located in 13,000 square feet at the Tri-County Business Park, off Race Track Road in Hillsborough County, near the Pinellas border. It may add the adjacent 10,000 square feet that's vacant, as early as March.

Paying for growth

Shevlin worried until recently the company might receive an especially large order that would prove too much for Network Liquidators since the growth was being paid for through cash flow.

"Proper financing has been a challenge," he says. "When we started this, it was financed by American Express. I could be a poster boy for their small business program."

Network Liquidators had a $500,000 line of credit with Bank of America. In December, the bank refused to increase the company's credit.

"They told us what the deficiencies were with our balance sheet and why they couldn't see growing that forward," Shevlin says. "That was the catalyst for us doing a small stock offering - the first one we've done."

Network Liquidators had to improve its debt-to-equity ratio, says McDonald, the chief financial officer. Lenders wanted to be sure management had a big enough stake in the business before they'd put their money on the line.

The management team put up $600,000, and business associates bought stock for $400,000. Today, Shevlin owns 55% of the company, with another 40% distributed among the management team. Outside investors own 5%.

McDonald has since established controls and systems that banks expect to see when they loan money, he says. And Network Liquidators now has an asset-based loan with Detroit-based Greenfield Commercial Credit. The initial amount of $1.5 million can increase to $7 million as the business grows.

"The best lesson is all that really matters is cash flow and the bottom line," Shevlin says. "I have a much better understanding today than I did three or five or seven years ago about what banks and financial institutions are looking for."

Future growth

One challenge the company faces is finding qualified employees in a tight labor market. To help deal with that problem, Shevlin hired a recruiter, who starts next month.

Sales and accounting positions have been more difficult to fill, not the techie jobs, he says, adding, "It's a desirable place for [techies] to work because they get to play with such a broad range of equipment. Believe it or not, that's a benefit. There are not too many places you can go and mess around with million-dollar routers."

Most growth will occur in the sales department, which now has about 15 employees, he says. Another six sales people will start in September. The sales people, who also speak languages other than English, follow up on leads generated through the Web site.

The company's target customer is a mid-sized business with 100 to 1,000 employees, Shevlin says.

Network Liquidators guarantees its equipment for a year, while most new equipment comes only with a 90-day warranty. Its top brands are Cisco Systems, Extreme Networks, Nortel, Foundry Networks and F5.

Network Liquidators is poised for growth.

The business installed a bar-coded inventory system with wireless scanners after an assessment of the industry showed that competitors grew to a certain level and stopped, McDonald says, adding: "What we realized is the complexity of the transactions in our business. Unless you have really strong systems, it's difficult to grow beyond a certain level."

A new, expanded operating system interacts with the accounting system so that sales people can see the status of an order on a real-time basis, McDonald says.

Shevlin says, "I don't see a lot of obstacles at this point. We've really built a solid foundation."

And unlike most of Network Liquidators' competitors that are small businesses, he has a management team that's used to fast growth.

"The two things we hang our hat on are the technology that runs the company and the management team that will take it to the next level," Shevlin says.

Starting Over

Joe Serra experienced a dejà vu moment when he visited Network Liquidators and saw the entrepreneurial spirit that he recalled from his early days at Clearwater-based Tech Data Corp. in the 1980s.

"I had missed that entrepreneurial spirit at Tech Data as it became a world-class organization," says Serra of his decision to join Network Liquidators as executive vice president of marketing and sales.

Serra retired from Tech Data, which had $20 billion-plus in sales in 2005, and was planning on taking life easy until he met Barry Shevlin, founder of Network Liquidators.

"Everybody here wants to be successful and that's the spirit that most companies wish they had," says Serra, who joined in March.

Matt McDonald, chief financial officer, says the growth opportunities at Network Liquidators attracted him.

"The company is in a unique position within a unique industry that lends itself to explosive growth," says 41-year-old McDonald. "I've been in many companies that grew very rapidly. I could see that opportunity was present in Network Liquidators."

McDonald previously worked at Quality Distribution Inc. of Tampa, Catalina Marketing Corp. and Industrial Distribution Group.

By the Numbers

Network Liquidators

Year Revenue* Change %

2002 $1 million

2003 $4 million 300%

2004 $7 million 75%

2005 $10 million 42.8%

Source: Network Liquidators. *Company declined to release exact figures.