Case Study : Patrick C Kelly Prof Bharat Nadkarni Many new ventures find that the most difficult stage of their life cycle is the rapid growth stage. It is the period when management decision making becomes most critical. Goal setting, financial controls, marketing planning, hiring new employees, and even simple record keeping issues are only a few of the important management activities that need constant attention during this stage. One person who has not only survived this stage but has built a company from nothing to a $ 500 million company is Patrick C Kelly. Kelly is the present CEO of Physician Sales & Service (PSS), which started in 1983 selling gauze pads, thermometers, diagnostic equipment, and other physicians’ office supplies directly to the physician. This business was not unique, but what Kelly did have was a distinctive strategy for selling that no one else in the industry could duplicate. His concept was to set up a warehouse and offer the doctors the next-day delivery of any typical physicians’ office item. To reach the physicians he hired a few salespeople that made direct sales calls to the physicians or the office manager. The distinctiveness of this concept was that no one else in this market could match the next-day delivery. Most of the competitors were using delivery services or were including physicians’ requests with hospital deliveries. In turn for the fast delivery, Kelly was able to charge higher prices, which provided a very fast profit growth for the new venture. These high margins allowed Kelly to reinvest the profits in computer tracking systems, new delivery trucks, and the hiring of new sales representatives. By 1987 Kelly had five branches in the state of Florida and a sales volume that reached $ 13 million. This 4 year growth to $ 13 million was nothing compared to what was to occur during the next 9 years. In this 9 year period Kelly’s venture grew from five distribution centres to 56, from 120 employees to 1800, from operations in one state to 48 states, and from sales of $ 13 million to around $ 1.5 billion in 1996. Some of the important questions that many entrepreneurs would want to ask Kelly are : How did you survive hyper growth? How were you able to build a quality staff? Hoe were you able to control finances, sales, people, and marketing efforts during such rapid growth? Kelly’s response would likely be based on some of the many lessons that he learned during this time period. Many of these lessons that Kelly learned are in fact important issues that an entrepreneur should address before reaching the growth stage of his or her business. According to Kelly, waiting until growth begins to happen is too late. An entrepreneur needs to be prepared for these inevitable states before they actually happen. One of the first lessons that Kelly learned was to set goals. Too many entrepreneurs are only concerned about survival because things are moving so quickly. Aftr attending a seminar Kelly decided to prepare a mission statement and set goals for the growth of his company. These goals also helped employees understand their roles and where the company was going.

A second major lesson that Kelly learned was related to interviewing and hiring quality people. His strategy was not to hire experienced people in the industry but to train and grow his own employees. As a result the company established an interviewing procedure, criteria for hiring, and then visited college campuses looking for young people that were willing to work hard and had the right attitude to learn the business. The company has also established a rigorous promotion within the company policy that has enhanced the quality of its management from top to bottom. A third important lesson that he learned was to provide employees with the most modern technology to prevent them from becoming too bogged down with paper work. Bureaucracy and red tape are a common problem for rapid growth ventures as the volume of business surpasses the ventures’ ability to maintain an efficient management decision making process. To deal with this problem Kelly decided that salespeople should carry notebook computers that would provide them with up-to-date information on customers and would be used for electronic ordering. Kelly also believes that it is important for an entrepreneur faced with rapid growth to focus on financial controls, particularly profits. Everyone in the company needs to think about the profits. Each branch is a profit centre, employees get big bonuses for making plans, and salespeople receive a bonus on gross margin, not on sales revenues. Kelly strongly believes in sharing the success of the business with his employees through these large bonuses and incentive programs. The hypergrowth of PSS also made the banks very uneasy because the company was not building equity but was using all its profits to sustain the rapid growth. At one point Kelly needed more cash and was turned away by five banks. The banks were concerned that his growth was too high (over 50 percent in some years) and wanted to see him slow down. In response, Kelly decided he needed to grow his equity. He accomplished this by asking his employees to buy into the company, by setting up an employee stock ownership plan, by selling 20 percent of the company to Tullis-Dickerson & Co., a small venture-capital fund, and by going public in 1994 raising nearly $ 16 million. These efforts improved the venture’s debt-to equity ratio to 1:1. Kelly and PSS are a good model for rapid growth ventures to follow. Kelly’s lessons are important preparation activities for any venture entering into rapid growth stage. He has faced the challenges of growth as well as potential serious health care reform proposed by the Clinton administration. Now PSS, with Kelly at the helm, will face the challenges of maintaining success as a multi-million dollar company.