Tuesday, December 7, 2010

Clients From Hell: Part 1

Everyone in the professional services industry – law, accounting, public relations, et al. – has had at least one: The Client From Hell.  Whether it was a poor performing business and/or lousy business plan, a clueless and/or tyrannical client contact or any number of adverse circumstances, working with these companies could make any great day unpleasant and always resulted in too much time spent for little or even no compensation.  I’ve had my share, and here are a few.

  • The Postage-Stamp Takeover Artist.  In the mid-1980s, I joined an account team working for a former hospital executive (“Larry Pierce” for these purposes) who was attempting the hostile takeover of a major New York Stock Exchange hospital company.  He was better known for being the son-in-law of one of the wealthiest Chicagoans.  After a previous leveraged buyout, financed in part by Drexel Burnham Lambert junk bonds, went south earlier in the decade, Pierce organized another hospital company and expanded it through an LBO.  In the meantime, he set up an investment company with proceeds from the estate of his wife, who passed away around that time.

We kept busy churning out news releases and answering media calls ranging from the Wall Street Journal to daily newspapers in the target’s home city.  When asked about financing for the deal, I would reply the company is “highly confident” it would find investors to help it proceed.  That language was ripped off directly from deals financed by Drexel junk, although when asked if Drexel were involved, the answer always was “no comment.”

The target company’s response was basically, “Anybody with a postage stamp and an envelope can initiate a hostile takeover,” and it steadfastly rebuffed all efforts.  They were, of course, correct.  Pierce sent out the initial news release to gauge interest in joining him, for he did not have sufficient capital to mount a battle.  In fact, his investment company had more support staff than operating officers and almost no cash in the bank.  This didn’t stop it from continuing the aggressive PR work and starting a corporate-identify program.  I left the agency in mid-1987, after which Pierce tossed in the towel and left both my former agency and the design firm with a few hundred thousand dollars in unpaid invoices.

Pierce also had another project, a smart card with a person’s encrypted medical history, which really would be used by hospitals to discern quickly the extent of the patient’s insurance.  The problem: there was no card reader, and one was nowhere on the horizon.  Suffice to say, this was another project with much work and no compensation.

  • From Sewer Plugs to Heart Disease Detection.  Firms often take on clients they have no business even pursuing, either because they are too small and undercapitalized, have a shaky business model, lack proper management or all of the above.  This one circled the bases.

The Midwest-based company had a steady business since the 1950s of selling sewer plugs, which were used in testing systems across the U.S.  It was publicly traded on one of the markets below the Nasdaq National Market System, which meant no analysts followed it and no major institutions invested in it.  The company, however, hired us because it now had a new blockbuster product having nothing to do with waste disposal.

The company president (“Lance Cherry”), who invented the sewer plug, had purchased the rights to an algorithm that supposedly could detect heart disease in a-symptomatic patients.  The company would retain the sewer-plug business to generate enough cash to fund the testing and manufacture of the Cherry System, thus leaving limited funds to spend on projects like investor relations.

The introductory meeting was a disaster.  I accompanied two other top agency executives for a one-day orientation that began with Cherry reading and questioning our boilerplate-laden contract word-for-word, wasting precious time better used for learning about operations.  The heart-disease detection system was seemingly years away and, given the limited budget and management’s absolute ignorance about hospital equipment, this client was a recipe for disaster.  Cherry barely let us leave, and we would have missed our flight home on a Friday night but the incoming crew luckily was delayed.   Later, I noticed the back of Cherry’s business card read, “If you died tomorrow, do you know where your soul would go?”

It didn’t take long for the budget to dry up and our patience to wear thin.  I did my best to avoid working on the account, which dropped us in less than one year.  The Cherry System never made it to market.

  • Open ‘Em Where They A’int.  When a retailing company’s strategy is to put stores in cities where the industry leaders have not yet entered, you can be pretty sure that advantage won’t last long.  This is especially true if the company is undercapitalized and offers absolutely no differentiation. 

Having successfully opened an office-products superstore chain for a major retailer, the organizers of this Texas-based company did an IPO before opening a single store.  The agency should have seen the red flag right way – the underwriter was the well-known bucket shop D.H. Blair – but client selectivity was often lacking.  I left the orientation meeting with the president totally unimpressed, given my previous experience with the nation’s largest office-products distributor.  He was one of these “If you don’t get this, you’ll never get it” types.

I can’t remember doing much for the company except for the aftermath of a call at home around 6:30 p.m. from our dullard client contact.  He wanted to issue a news release about some relatively useless subject.  I tried to dissuade him but he seemed persistent, so I told him “fine” to get him off the phone.  Before long (much to my unacknowledged joy), I was booted off the account and it was moved to the New York office, since the company’s first store would be opened in Baltimore.  Staples and Office Depot quickly saturated the company’s territories, and it soon went straight to Chapter 7 and liquidation.  The agency stopped taking D.H. Blair clients shortly thereafter.

To be continued.

1 comment:

  1. Like these stories; look forward to reading more. I dealt briefly with DH Blair some years ago. They were considering putting some money into a friend/client's newly-formed small music business and then taking it public. I didn't know much about them, but quickly learned of their reputation. I went to a meeting at their offices with my client and discovered that their General Counsel was a law school classmate of mine.

    My client's prospective business was a highly speculative one, and the amount of money they were hoping to raise wasn't going to be adequate. However, for Blair, it seemed that the merits of the investment were secondary to the stock play they thought they could make.

    Don F.