Faster Company: Building the World's Nuttiest, Turn-on-a-Dime, Home-Grown, Billion-Dollar Business

Chapter 2: Starting Out

They say that getting there is half the fun. I'd go one step farther: Most journeys are more important and more fun than arriving at the destination. That was certainly true of PSS. But I sure didn't know what was in store the day my boss Buddy called me into his office. That was the day I became a Reluctant Entrepreneur. It was February 8, 1983. Nobody at PSS ever forgets the date, because every February 8 we celebrate Buddy Day with cake and ice cream.

At the time, I was vice president of sales and marketing for a company called Intermedco, headquartered in Houston. For me it was a plum job, exactly the kind of position I'd hoped I'd be in at that point in my career. I was 35 years old. My two daughters, Mara and Jenny, were in elementary school. We had a nice house and a couple of cars. We had just put in our first swimming pool. Intermedco was a $41-million company, owned at that point by British Tire & Rubber (BTR). I figured my future looked pretty good. Starting a company was the last thing on my mind.

There was just one blemish on this otherwise rosy picture: According to the grapevine, our London bosses had decided to freeze the salaries of all of Intermedco's officers. No raise that year.

Now, this was aggravating. Intermedco's sales were up about 20 percent over the previous year. The company had made a profit for the first time in five years. I figured the other officers and I had contributed to this success. But BTR wasn't so sure. Buddy was president of the company -- my boss -- and I went to him to confirm the rumor that there would be no raises. He said that was right. I said I wasn't happy about it. I even said I might have to start looking elsewhere. Then I went back to my office.

A little while later, a guy named Bart, the vice president of operations, came into my office.

"Pat," he said. "Why did you quit?"

I looked up, surprised. "I didn't quit! I just said I was unhappy about not getting a raise and might have to look elsewhere."

"Oh, no," said Bart. "I think you quit."

We went back and forth like this for a couple of minutes. No, I didn't. Oh, yes, you did. Nothing that I said could persuade him otherwise, so I was left there scratching my head. Then Buddy walked in.

"I'd like your resignation today," said Buddy.

I shook my head. "Buddy, what is this? I am not quitting! I don't have a job to go to. If you want to fire me, go ahead. But I am not quitting."

Buddy's reply was emphatic. "Pat," he said, "we're not compatible." He then proceeded to spell out all the ways in which he thought we were not compatible.

Ouch! When your boss says to you that you and he aren't compatible, you have to face facts. Maybe you are quitting, after all. I called a friend in the industry, and he offered me a job in sales. I flew to New York that night, and we made it official. Next day I did indeed hand in my resignation at Intermedco.

The next couple of months were tumultuous. I went to Florida to work for my new employer. My family stayed in Houston. The only constant amidst the tumult was the series of phone calls from an old friend of mine named Bill Riddell. Bill spelled out his agenda in the very first call.

"Hey," he said, "now that you've left Intermedco, let's start a company."

I really didn't want to start a company. Before going to Houston as vice president, I had worked for several years for Intermedco's Florida subsidiary, a company called Surgical Supply. I had a lot of friends from the years with Surgical Supply, including Bill, who was (and is) a world-class salesman. I didn't want to damage those relationships by starting a competitive business. But I had worked in the medical-distribution business my entire career, and that was the only kind of enterprise I was remotely qualified to start. Conclusion: no new company.

As the weeks went on, though, the new job proved pretty stressful. I wasn't exactly enamored of my new situation. I didn't know whether I'd wind up in Florida or Texas. If I moved my family again, I wanted the move to be permanent. And, always, there were those calls from Bill, sometimes three or four a week.

"Come on," he'd say. "Let's start a company." Or, "Hey, Pat, when are we going to start that company?"

Finally, at the end of April, I was attending a sales meeting in Houston. Something clicked. I had to put my life on a new track. I called Bill from that meeting and said, okay, okay, I'll come over and we'll talk about it. "But," I added, "you have to get at least one other sales rep to sign on."

Within ten minutes another sales rep, an old friend and colleague named Clyde Young, was on the phone. "If you come over here to start a company," he said, "I want to be part of it." On May 2, 1983, Physician Sales & Service (now PSS/World Medical) was born.

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Starting a business has to be one of the crazier things we ever did. Maybe all entrepreneurs are crazy. Maybe you have to be to set up your own business. But I think our decision is right up there on the insanity scale.

For one thing, there were already hundreds of companies in the medical-distribution business. The industry was crowded, and the competition was fierce. I had already spent four years as general manager of one of our prospective competitors, Surgical Supply. Anything I knew about building a business I had already put into practice there. It's not as if I had any secrets up my sleeve.

For another thing, getting started in a distribution business is particularly difficult. It's a sales-driven industry, and no company wants to lose good salespeople. So you know you're in danger of being slapped with some kind of lawsuit every time you hire a sales rep away from a competitor. Then, too, manufacturers are reluctant to deal with an upstart. They have relationships with existing distributors and don't want to upset them. They also figure that the new kid on the block probably won't be around too long, so why get involved? Nearly every new distribution company has a hard time getting product to sell.

But there was one final wrinkle. This was the health-care business. And even in 1983, health-care companies were facing an uncertain future. In fact, the accounting firm Ernst & Whinney (now Ernst & Young) had been commissioned to do a study of the industry, and the study came out just about the time we were creating our company. There it was, in black and white. In years to come, said the study, health care would be dominated by eight or ten "supermeds." The supermeds would provide insurance. They would own hospitals and nursing homes. They would hire doctors or buy their practices. They'd buy up manufacturers and distributors of health-care products. They would own health care from cradle to grave.

So this was the environment. Everybody believed the era of the small, independent company was over. Everybody thought we were nuts to be starting our own company. As I said, maybe we were. It would take hard work and good luck. Mostly, we figured, it would take tenacity -- the ability to hang in there, take the inevitable blows, and get past the inevitable obstacles.

Tenacity, at least, was something I knew about. You see, I spent 13 years of my life, from ages 5 to 18, in the Virginia Home for Boys.

You'll read about the Boys Home a lot in this book. It's one of the oldest institutions of its kind in the country. You'll read about the men and women who raised me when my family couldn't, and about the lessons I learned there about how to treat people. My upbringing had a powerful effect on my ideas about how to run a business. But when you start a company, the only issue you care about is whether you'll survive. When I first got to the Boys Home, that was pretty much the only issue I cared about, too.

By 1952, my mother realized she needed help. I was five years old. My father had left the family right before I was born. My mother worked two or three jobs all the time, but the jobs didn't pay much. I was the third of three children. Sometimes she left me in the care of aunts, sometimes with my sister Jo Nell, who was eight years older and who kept me out of harm's way. The Boys Home was right in our neighborhood at that time, but the Home didn't ordinarily take boys until they were eight. Finally, with the help of our pastor, my mother persuaded the Home first to take my brother, Jimmy, at age six, and then myself, at age five. I was the youngest kid ever to live there.

The youngest -- and the scrawniest.

I was a little red-faced Irish kid a good 20 or 30 pounds lighter than the next-smallest resident of the Home. And boys being boys, I took a pounding. Anytime someone had a lousy day, anytime someone was beaten up by a bigger kid, there was always somebody smaller that the loser of the last fight could beat up. Unfortunately, that someone was named Pat Kelly.

At some point -- I'm not sure when -- I realized I had to fight back. Fists weren't much use against kids so much bigger. So I made a decision. Anytime a kid picked a fight with me, I'd grab him. I'd wrap my arms around him as best I could. Then I would sink my teeth into whatever part of his body was handiest. And keep them there.

Well, the kids howled. For a while, I probably got beaten up worse than I would have otherwise. But pretty soon word got around: You can beat that kid up, but he'll make you pay. Those bites hurt. And bit by bit, they stopped beating me up.

So when I decided to sink my teeth into starting a company, I wasn't planning on giving up any too easily.

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Looking back on it, some of the hurdles we faced were exactly what we expected, only worse. Others were wholly unexpected, like the day the bank reneged on a loan we thought we already had. Some were the result of our own paranoia. A few were downright ludicrous. One or two helped us make PSS a better company than it would have otherwise been. This book isn't really about how to start a business. But if you are starting one, or if you ever hope to, read on. You, too, may wind up under a desk, fearing that somebody has just lobbed a bomb into your brand-new office.

So the company's birthday was May 2, 1983. Its place of birth was Clyde's dining room table. There were four of us there: Bill Riddell, Clyde Young, a neighbor of mine, and me. My neighbor was interested in putting up some capital in return for a share of the equity. He and my two other partners all wanted an even split of the stock, 25 percent to each person. To tell the truth, I was a little apprehensive about that plan. It had already taken us a fair amount of time to work through the process of negotiating a deal. We knew I'd be the general manager -- the chief executive -- of the company. If I had an investor and two sales reps each owning 25 percent, I might have difficulty running things.

Fortunately, this initial obstacle yielded to what we still think was a pretty clever idea. I proposed a formula to the others. I would own 31 percent of the company. They'd each own 23 percent. That way, I'd have majority support for a decision if I could get just one of them to agree with me. If I couldn't sell at least one shareholder on an idea, then the chances were it wasn't a good idea. My partners bought the formula, and we shook on it. We were in business.

We had one other thing going for us: a clear conception of our market niche, and our competitive advantage. If we failed, it wouldn't be because we didn't know what we wanted to do.

At that time, the companies that supplied physicians' offices typically sold not just to doctors but to hospitals and nursing homes. They liked large orders. They'd load up their big trucks with pallets full of product. They might visit the physicians' offices once every few weeks and drop off a bunch of cartons. It would be the doc's problem to figure out where to store them. And if the office ran out of syringes or wound dressings between deliveries, well, that was tough luck -- mostly for the nurse who got blamed for not ordering enough.

Our company, we decided, would be called Physician Sales & Service. Yes, we took a lot of ribbing about the name. ("You sell doctors?") But it reflected our focus. We would sell only to doctors' offices. We'd take an order and deliver it the very next day in a spiffy PSS van. We would provide a level of service that doctors and nurses had never experienced. In turn, we would be able to charge a little bit more than the bulk suppliers charged.

It would prove to be a good idea. If only we could jump those hurdles and swim those moats.