My Last 26 Months: Anderson Bat Company LLC
In the "all about me" theme of this blog of mine, let me bring you up to date finally, after having been very vague about the last few years. This, of course, is my version of events, and not necessarily the way Steven or any other person perceived things ... but it is accurate and complete to the best of my ability. Steven did not read this before I published it (and has not yet, to my knowledge) and did not give me his permission to do so. Nevertheless, I disappeared from my own life into an abyss in October of 2011, and I finally give myself permission to tell my own story here:
Steven, my husband, had a bat company with a group of friends. He brought the bat company experience in engineering aluminum bats (Louisville Slugger and more) and they brought many other skills and enthusiasm. They made the first Nike bats, and moved from a tiny industrial rental to a very large facility and bought new equipment and materials to fulfill a huge PO from Nike. Nike pulled the order after they already had made their commitments, and so that enterprise went bankrupt in 1999.
Out of the ashes of Paragon Sports Products, LLC (the name of the above business) the primary investor suggested to Steven that he would back him in a new enterprise if Steven put his name on it. They used the same lawyer to represent them in their new LLC and gave birth to Anderson Bat Company LLC. Steven and his employees grew it exponentially, and that partner was able to make a good profit until 2007, although the partner felt it could do much better.
Meanwhile, Steven discovered that what was advantageous to that partner was disastrous to him: the LLC was flow-through for taxes, there was no way to grow the business without leaving the huge profits undispersed, and taxes were due on those profits from Steven as well as his partner whether the monies were dispersed or not. What that looks like for a growing manufacturing business is this: If this year's profit was $500K and next year's could be $1 million if there was enough inventory on hand, but it would cost $500K to build that inventory, then all that profit would be invested in building such inventory, and the money to pay the taxes on the $500K would be taken from the personal resources of the partners to the LLC and paid with their own tax returns. That works for millionaires, but Steven started Anderson Bat Company LLC on a salary that was less than half of what he previously made as a tooling engineer in an aerospace company, and had used all of his personal savings in his attempt to fund Paragon Sports Products prior to finding an investor. Steven had no personal resources to pay taxes on booked-but-not-disbursed-profit on a multimillion-dollar company.
Steven found himself in a position of owing taxes for several years that nearly equaled the money he actually took home, and potentially owing taxes if things kept growing that were many times what his partner would permit him to take home. And his partner was amused that Steven had been ignorant enough to enter into a situation in that catch-22. (I think he thought Steven was irresponsible to not know what he didn't know and take steps to cover an obligation he didn't know he would have, and that he couldn't conceive of someone not having the ability to at least borrow the money to cover such taxes. I also think he thought Steven was getting the lesson his "irresponsibility" deserved. But that is all just speculation. The bottom line is that Steven found himself trapped financially, and short of a willingness to change the LLC structure to one that was taxed as a C-corp or a willingness/ability to always keep on hand the funds to disperse to cover taxes due, there was no way for the financial partner to be kind in the long run. Steven didn't have the financial control to be able to protect part of the cash-flow from being reinvested rather than dispersed to pay taxes due; so he borrowed money personally from his partner to cover taxes on profits that were never dispersed to him and that disappeared into the losses of the following years. So, despite Steven's talent displayed in growing a multimillion dollar company from nothing in just 4 years, even the profitable years of Anderson Bat Company LLC left Steven financially and emotionally spent.)
Meanwhile, enter recession and internal problems to both the industry and the company: the partner wanted ever-increasing sales and was unhappy with the sales management, and so forced changes there. Sales fell. In-fighting ensued over several years. Changes in the industry forced expensive research and development work just as the financial partner called for layoffs, forcing long hours on unhappy engineers. Changes in the industry and increasing costs for aluminum caused increasingly high cost of goods sold, and movement offshore of the manufacturing efforts of competitors forced the sellable price lower, killing gross margin. Turnover in engineers caused big issues. The investor put increasing capital into the company in hopes of bringing it back to its former profitability, and became angry when Steven resisted doing things the way the investor wanted him to do them. Steven's initial posture of compliance changed to a resolve to do things the way he thought would save his company, which was very at odds with the investor's convictions. The investor shored up his claim on the company with a lien on the assets of the company, in effect making it 100% his even though Steven would still have to personally pay 50% of any taxes due on theoretical profit. The investor, however, was due 100% of the loss; leaving Steven really just an employee at this point ... an employee who was trapped by a non-compete agreement that made it impossible to quit. The investor made this impossible to not acknowledge by forcing Steven to sign over the managing member role to the investor.
All this came to a climax in October of 2011. The investor stopped funding his own strategy, and walked away in anger. This left Steven with a huge staff that sales did not provide cash flow to cover, purchase agreements that he also did not have cash flow to cover, payables that were huge, nonexistent cash reserves, paltry receivables with terms that were as much as 180 days, and no ability to borrow money because of the lien on the assets of the business.
Steven asked me to help, and so that is why I stopped my involvement at that time in all my other endeavors. We laid off virtually everyone, grateful that the financial partner had covered one last payroll before he walked away and so we only had to cover 4 days of that huge payroll from the limited receivables. We kept a tiny core of employees (Russell Wagers and Danny Gutierrez never left, and Juan and Aaron Rodriguez and Skyler Hardegree were gone only a few days) -- mostly long-term employees who had shown themselves loyal to Steven rather than others in the infighting of the 3 years prior to October 2011, and the engineer (Warren Faber) who was crucial to Steven in his hopes of future success. Steven's former sales manager, Ed McIntosh, donated his time, and his wife, Natalie, worked as a consultant to help us wrap our heads around the portions of customer contact that had developed outside Steven's purview. We worked out deals with vendors for repayment schedules. We collected receivables. We paid back-royalties to the certifying bodies. We did short- and long-term planning based on the current economic realities. And we called back a few employees who Steven saw as key to his attempt to save the company: Dan Blick, Dave Anderson, Cindy Hardegree, and Edward Garcia.
My goal had been to pay off the vendors and close it down at the end of the sales season of 2012, and we did indeed pay off almost all the vendors by June of 2012, and could have made final payments to the two we did not pay off if we had shut things down at that point instead of continuing production. (We SO should have just shut it down and walked away at that point, but hindsight is 20-20.) I had not been involved enough previously to understand the sales cycle, and that we would see no real revenue again until January of 2013. We had a plan on paper that looked workable, but it assumed sales through the next half-year that should never have been assumed if history and inventory on hand were weighed properly in the plan. As I struggled with cash-flow over the next few months, I realized my mistake and mourned the loss of the opportunity to shut things down without hurting vendors or employees. I tried to convince everyone else to just shut it down and walk away, convinced myself that there was no way forward that gave long-term profit to any of us.
But Steven had invested himself into a new strategy: sell our bats through our own website using a company called "Shopatron", which would allow our retailers who had the item in stock to fulfill the orders themselves but allow us to fulfill orders left by them . . . giving us more sales to our retailers and giving us the retail margin ourselves if our retailers were not active. This gave him the confidence to approach his vendors once again and ask for terms through the next year that were a real stretch for many of them. He sold them, and he sold me enough to be willing to approach the investor again as well.
The investor said he was willing to subjugate his lien to another lender if we could find anyone willing to put in the cash we needed to make it through the non-sales period while building enough inventory so that our sales in the coming sales season would make borrowing the following year unnecessary to continued growth. So we found a company willing to do that. And that was the undoing of it all.
The company that took on the position of primary lienholder put in a portion of the money necessary for the plan to work, but then made money by serving as the agent for high-dollar leaseback deals that took too long to fund to actually allow us to build what we needed on the schedule we needed it. Then they worked to formalize a deal between themselves and the original investor and Steven that was not part of the deal we thought we were making -- and all this after their delays in funding had already made our ability to work the plan we had made not only tenuous but unlikely, particularly with high-dollar interest on the leaseback deals that was not part of the original plan.
The final straw for me personally was while I was away for Christmas at my parents' home in late December 2012 and I had responded to the new and old investors by asking for the plan that they had to compensate for the unworkable portions of our plan because of the delay and the increased interest cost. Instead of responding with something I saw as workable, they worked to cut me from the picture and reduce compensation to Steven, all other employees, and our vendors. Since I knew the work that I did (and that they were not providing new people who would do those particular tasks in this company that had been cut from a high of 60+ employees to one that had only a handful to handle a still-big-company workload) and since I knew we had already cut things for our employees and vendors to the point where they could not sustain it for even a year without economic hardship of their own . . . there was no point in arguing. I was out. I couldn't save it, and they would sink it with or without me. It was a mercy that they didn't realize that I'd been the one doing so many jobs but thought that I was just one more way that Steven was mismanaging his business. It saved me from more months of the responsibility I'd taken on at Steven's request the previous year.
Over this year, things played out as I had known they would. There was not enough inventory on hand during the times it would have sold to sustain another year . . . not even enough to sustain things for the few months past the spring sales season. Steven and the financial partner fought. Steven and the new investor fought. Steven did his best to satisfy his ethical obligations to his employees and vendors and customers, but there was not a way forward that saved things. In the end, he was able to pay off most of the vendors, and he never failed to pay his employees even when he laid them off permanently; so I think he succeeded in what really mattered. But the new investor foreclosed on the primary lien and took all assets in early September, and negotiated a deal with a man named Vern Hildebrandt to sell him the assets of Anderson Bat Company LLC. The new investor got his money back, the financial partner got pennies on the dollar for what he was owed, and Steven got zip. (Well . . . he got no money, nothing of financial value, and no ownership interest or employment. But he did get freedom from the original LLC's non-compete requirement, which was dissolved since it had no assets after the foreclosure. And by then, freedom to go on and make a living elsewhere was sweeter than millions would have been.) The new owner registered "Anderson Bat Company" as a dba under his existing businesses, and is continuing the business as if it were the dissolved LLC, with many of the old employees, old products, and in the same location using the same equipment. Steven is not involved in any way in that business.
In my own life in 2013, I had been trying to build a clientele for my own little 4-year-old IT company when it became obvious that I needed to shift focus so that our family could survive once we were post-Anderson-Bat-Company-LLC. I virtually shut down my business and looked for a job and worked on our family's budget to figure out what our best life could look like as we moved forward. We took the two youngest kids out of the private school they had been in since preschool. Steven stopped paying for most expenses for his 21-year-old and 23-year-old. We made all the other cuts that we could make. Steven started looking for a job too.
We now have our house for sale and will move to Minnesota when it sells, building new businesses there on the foundations of our old ones. My parents are older and are 3 hours away from my brother; and my sister lives in the Atlanta Georgia area. I have wanted to relocate near them for some time, and that urgency has increased as my parents have gone through the events of their lives these last 3 years. The high cost of living in urban areas world-wide is counterbalanced by an availability of jobs and infrastructure that doesn't exist where houses cost less, but at this point I believe that Steven has the equivalent of an MBA from his entrepreneurial experience, and that I do as well . . . and the idea of starting over on a shoestring doesn't scare me. The idea of working long hours for people who know less than we know in order to sustain a budget for a life that I really don't want anymore . . . yeah, that scares me. Life is wasted moment by moment and not in one fell swoop, usually . . . and I know too much to volunteer to pour my moments down someone else's toilet at this point.
(We all do "lose our lives", of course . . . and if we are wise, we can choose to save the part of us that matters in the long run by deliberately choosing to pour our lives out to fertilize stuff we value. My whole blog muses on what I value.)
So that is the story to now. But The Real Journey of my life is not over, and more than ever before, I feel energized at the blank slate in front of me, even with a bigger knowledge than ever before of all that is outside my own control. God was in control, is in control, and will be in control . . . and God has been making me richer fertilizer for the stuff I hope forms the lives of people centuries from now.
So now onto my next post, directly about THAT.