Million-Dollar (almost) Man

Million-Dollar (almost) Man

entrepreneur by Mark Gordon | Managing Editor

Trying to take his company past $1 million in annual sales has humbled Rick Spahn. But a seven-figure

victory could be forthcoming.

If the business experts and gurus are right, that taking a company past $1 million in annual revenues is one of the toughest things to do in business, then consider Rick Spahn to be doubly challenged.

Spahn, founder and owner of Pace Software Inc., a Bradenton-based business that sells and maintains software systems for auto repair shops nationwide, finished 2006 with $647,000 in revenues, about 65% towards the million-dollar goal - not bad for a company that didn't even break $200,000 in 2000. But Spahn's been about halfway to the million-dollar mark once before, in the mid-1990s, only to have the business buckle after a slew of problems, many of which, he admits, were self-inflicted.

Business consultants have often cited breaking the million-dollar barrier, as Spahn is hoping to do by November, as a major milestone - even though $1 million isn't what it used to be.

Paltry by 2007 small business standards, but not insignificant to an entrepreneur's morale, says Bob Normand, a business consultant and founder of the Sarasota-based Institute for Small Business Management. "Psychologically," says Normand, "you hit a million, and you are feeling pretty good about yourself.

And the million-dollar challenge is also akin to parenthood: You're never quite done, no matter how old your child, or your business gets. There's always another growth goal to break, be it paying for college, or $10 million or even $100 million in annual revenues.

For now, Spahn, 49, will settle with surpassing the million-dollar mark.

A native of suburban Chicago, Spahn started his first business when he was 11-years-old, fixing up and reselling neighborhood cars. By the time he was 19, in 1976, he had skipped college and was running his own auto-repair shop. By 1990, he had sold the repair shop and moved with his family to the Gulf Coast, where he founded Pace.

A Y2K Meltdown

One problem during the first unsuccessful run to million-dollar land, says Spahn, is that he didn't have concrete plans, past making enough money each week to keep the company going, with some left over for himself. "I really hadn't set goals for the business," Spahn says. "I was just getting by on day-to-day sales and what came in the door."

That period took up just about all of the 1990s, and there were other mistakes, too, says Spahn, in addition to not setting goals.

He didn't plan properly - if at all - for the complicated Y2K software conversion, and that put him behind competitors. He didn't have a second revenue-generating business line, in case sales of the core software product slowed, like it did. He didn't have any employee retention programs, much less thoughts about how to keep his most talented people.

And finally, Spahn suffered from a severe case of entrepreneur-itis, an illness with symptoms including micromanaging, not being able to relinquish control of even medial tasks and not trusting valued employees to work without him on big projects.

While Spahn and Pace were coasting through much of the decade, mostly ignoring the looming problems, the one positive aspect was that the business had no debt.

But by 2000, sales had dropped from more than $500,000 to $198,000, a result of the aforementioned problems, especially not preparing for Y2K. Instead, of joining the masses and spending money to switch systems, Spahn stayed with selling DOS-based programs.

It was a big mistake. "We sunk big-time when we got blindsided by Y2K," Spahn says. " I went from being on cruise control to having to rob Peter to pay Paul."

Spahn soon took on some debt, several hundred thousand dollars worth, to begin rebuilding his business. Humbled, he would soon create employee-retention programs and begin to loosen his tight grip on the daily operations.

A million-dollar plan

In Pace Software, the sequel, Spahn has become as goal-oriented as marathon runner. In addition to passing $1 million in revenues late this year, Spahn's financial goals for Pace include: continuing to grow sales at a rate of at least 15% a year through 2009; maintaining a pace of reaching at least 80% a year in gross profits; and disbursing about 20% into a new profit-sharing plan for the company's 12 employees.

The doubly challenging part comes into play here, though, as Spahn fine-tunes his three-year growth plan. While he candidly admits how much, and what, he's learned from past mistakes, the second go-around at reaching $1 million in revenues has new hurdles.

For example, the software market for auto-service dealers has shrunk to about six or seven larger firms, from about 40 that were doing it 15 years ago. For a small business like Pace, the challenge is to differentiate itself from those competitors. Also, Spahn compares the learning curve in the software industry to rock climbing, in that there are constantly new pitfalls to be aware of.

Internally, one recent growth challenge has been finding the right person to lead the sales department. Halfway through 2004, when the company was back up to $500,000 in revenues, Spahn made a commitment to hire a sales leader. In the process, he would focus more attention on long term-strategy.

Over the next one and half years, Spahn went through two sales managers. The problem was twofold: Spahn had trouble letting the managers make big decisions on their own, so they had trouble learning on the job. But the managers came to the job with no experience in the auto-repair industry, so training was cumbersome.

A few months ago, as Spahn put together his million-dollar plan, he again sought a sales manager. He narrowed the choices to two candidates, one who had run a Bradenton auto-repair shop, and a second who had experience in sales and marketing in a similar business.

After agonizing over which one to hire, Spahn surprised himself, as well as the candidates: He hired both, and split the responsibilities. Having been through two hires that didn't work out, he didn't want to take any chances on missing a good one.

New business lines

Spahn also recently instituted a profit sharing program that has increased employee morale. The plan works by dividing company profits into thirds, with one portion going back into the business, a second portion going to pay back debt and a third portion going to employees.

The plan has worked, Spahn says. Programmers are now concerned about how the sales crew is doing, and the sales crew counts on the programmers to improve the product. Says Spahn: "I'm giving our staff members the ability to be entrepreneurs without owning their own business."

With the profit sharing plan and the new managers in place, Spahn has begun to focus on finding new business lines, so that a slowdown in the core product won't wreck the overall company, as it almost did seven years ago. Possibilities include developing software systems for other repair businesses, including boat dealers and small airplane shops. Also, Pace is in the process of developing a fee-based monthly-maintenance system to go along with its core software product.

With all the changes, the biggest factor, says Spahn, is that's he's taking the time to plan out each move, both the risk and the rewards. That's even more important to him than passing the million-dollar mark - although he admits that's a sizeable motivator.

"I used to manage by gut feeling," Spahn says. "Now I back up my gut feeling with statistics."

REVIEW SUMMARY

Entrepreneur. Rick Spahn, founder and owner of Pace Software, Bradenton

Business. Creating, selling and maintaining software programs for auto-service centers

Key. Spahn is trying lead his business past the million-dollar revenue mark, one of toughest challenges in business.

Mr. Fix-It:

From car repair to business repair

The entrepreneurial bug bit Rick Spahn when he was 11 years old.

For several years, Spahn had already been a 'fix-it' type of kid, tinkering with lawnmowers and Go-Karts around his suburban Chicago neighborhood. And when a friend's dad was looking to get rid of a dying 1954 Chevy, Spahn asked if he could have it instead.

Spahn's grandfather lived two blocks away, and the young boy was allowed to keep the car in his grandparents' driveway. Spahn took out a Chilton's Auto Repair Manual from the local library. He studied the engine and its parts. And then, using money he made from mowing lawns, he bought some spark plugs and tools and went to work.

Within a few weeks, working on weekends and after school, Spahn had gotten the Chevy back in working condition. Spahn sold the car to someone in the neighborhood and was in business: He would soon fix up other broken down cars, including a Dodge Lancer with a busted transmission, and sell them for $50 or $100.

"By the time I was 16," says Spahn, "I was a pretty decent self-taught mechanic."

And by the time he was 19, in 1976, he forked over $3,500 he had made in his business to buy a local auto-repair shop. As Spahn grew his business, he began looking for computer and software programs that could help with the non-car stuff, such as accounting, managing inventory and tracking customer records.

In 1982, he bought a TRS-80 computer from Radio Shack. And just like when he was 11, Spahn began to tinker with the computer to get it to do what he needed it to do, this time working on nights and weekends. He ultimately created a program that could take care of those medial tasks with minimal time and output and by 1988, he had founded a business to produce, market and sell it.

Today, Spahn's Pace Software sells that software, which has been renamed the YES Management System; Spahn says the name is apt, because the system can be customized for each buyer.

Spahn still fixes cars, but now only as a hobby. Professionally, he's focused on growing Pace into a multi-million dollar business. "I liked fixing cars," Spahn says, "but now I'm more interested in fixing a business."

-Mark Gordon

BY THE NUMBERS

Pace Software

Annual

Year Revenues %Growth Gross Profit %Gross Profit GP Growth

2000 $198,259 - 167,721 84.4% -

2001 $269,893 26.5% 260,173 96.4% 35.7%

2002 $301,199 10.4% 289,838 96.2% 10.2%

2003 $310,591 3% 255,698 82.3% -

2004 $500,220 37.9% 437,452 87.5% 41.5%

2005 $461,016 - 411,970 89.4% -

2006 $647,251 28.8% 541,313 83.6% 23.9%

2007* $1,060,656 39% 935,020 88.2% 42.1%

Six-year average annual revenues growth (2001-2006): 17.7%

Six-year average annual gross profit growth (2001-2006): 18.5%

* projected Source: Pace Software, Inc.

Share your story

Has your business or company surpassed a million or multimillion-dollar milestone? What were the challenges? What went right? What would you do differently? How long did the euphoria last before there was another goal to set, and reach? The Review would like to hear how it's done. Share your stories at [email protected], or call Mark Gordon at (941) 362-4848.