Entrepreneurs Often Underestimate Growth Potential
Turnaround stars Keith A. Alessi, MBA '79, and David A. Brandon say adding and capturing value for owners and shareholders are key.
ANN ARBOR, Mich. CEOs Keith E. Alessi, MBA '79, and David A. Brandon, superstars in the lucrative turnaround management field, specialize in cleaning up after entrepreneurs, the two told more than 380 students and businesspeopleincluding many would-be entrepreneursat the Stephen M. Ross School of Business at the University of Michigan.
Entrepreneurs often underestimate the growth potential of the companies they found, thus creating rich opportunities for savvy business managers who can make large sums of money by adding value to the firms, Brandon and Alessi said in keynote addresses at Entrepalooza 2004: Expanding the Horizons of Entrepreneurship, held September 24 at the Ross Business School.
Brandon is chairman and CEO of Domino's Pizza Inc., a member of the University of Michigan Board of Regents and a member of the Ross Business School Visiting Committee.
Alessi, chairman and CEO of Lifestyle Improvement Centers LLC, the world's largest franchiser of hypnosis centers used to assist people with behavioral change, teaches a popular MBA turnaround management course at the school. He also received the school's 2004 Entrepreneur Award. He and his wife funded the Keith E. and Valerie J. Alessi Courtyard, dedicated at the west end of the Ross Business School campus in 1999.
Alessi, who describes himself as "the sanitation department of the entrepreneurial world," explained how as CEO he engineered the 18-month turnaround of the public tax preparation firm Jackson Hewitt. The market capitalization of the company went from $15 million to $468 million in one year. It was sold for cash at the end of that year, 1998, to Cendant Corporation.
Jackson Hewitt, one-tenth the size of H & R Block and the second-largest tax preparation service in the country, was a franchiser with a strong relationship with Wal-Mart, which housed 400 Jackson Hewitt offices, Alessi said. Poorly run and undercapitalized, Jackson Hewitt had a disastrous tax season in 1995. The firm was hampered by a strong personality cult centered on the founder, scattered focus and a board rife with politics. By 1997, when Jackson Hewitt had become profitable, the value of its stock had increased from $4 to $68 per share.
The benevolent dictatorship with a leader who can focus the organization is the best management style in a turnaround situation, Alessi said. As part of Jackson Hewitt's turnaround, the firm closed losing stores, drove down costs, restructured its board, focused on the business basics of executing, measuring and managing, and introduced stock options to motivate employees.
With stores in 60 countries and annual sales of $4.5 billion, Domino's relies heavily on franchisees to drive the firm's success, said Brandon, who engineered the firm's initial public offering (IPO) in 2004. Brandon, who as CEO of Valassis took the international marketing services and sales promotion company public in 1992, shared what he learned from both IPO experiences:
Entrepreneurs often underestimate growth potential. Professional managers are often more restless for growth than entrepreneurs, which is why investment firms get rich.
Managers must stay focused on the core business. Buying sports teams is not a way to make money.
Media often get it wrong when they report on transactions, erroneously reporting the buyer paid too much or the business is over-geared.
Professional managers can add value to a business. Value creation is based on sustained operational performance.
The key to success is to create value and capture that value for investors and owners.
Among the strengths Valassis and Domino's Pizza had going into their IPOs and continue to benefit from, Brandon said, are talented leadership teams and strong corporate cultures that encourage employees to be entrepreneurial. Stock options and bonuses based on profits are powerful tools that propel organizations, Brandon added.
For Par Gandhi, MBA '06, weekly opportunities to listen and learn from business leaders like Alessi and Brandon are important to his overall education. "I feel this is why I'm here. One of my focuses is entrepreneurship," said Gandhi, who also attended a panel discussion titled "Venture Capital/Private Equity: Deriving Maximum Value for Your Investors."
For more about Entrepalooza, sponsored each fall by the Samuel Zell & Robert H. Lurie Institute for Entrepreneurial Studies and the Entrepreneur and Venture Club, visit
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Mary Jo Frank