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The Candle King
Bob Goergen has made a career out of prudent risk-taking.
"en·tre·pre·neur: one who organizes, manages, and assumes the risks of a business or enterprise." –Merriam-Webster Online Dictionary
The word "entrepreneur" gets thrown around a lot these days; everyone, from insurance brokers to employees of big corporations, wants to claim that it describes them. Seldom do these folks take the risks that true entrepreneurship requires.
Bob Goergen, chairman and CEO of Blyth Inc. and the namesake of Wharton's Goergen Entrepreneurial Management Program, is someone who does. Indeed, prudent risk-taking, in some ways, defines a career in which Goergen built Blyth from a tiny candle maker into one of the nation's largest home-accessories companies, with about $1.5 billion in annual sales.
In 1973, for example, Goergen jumped from a lucrative job as a venture capitalist to lead the then-struggling company. And in Blyth's early days, he repeatedly pledged his personal assets as guarantees when his company did acquisitions.
But Goergen's risk-taking hasn't been rash. It stems from his willingness to make big changes to meet personal and professional goals, not a gambler's thirst for a thrill. Goergen believes that, through hard work and steady, incremental change, what looks like a risky situation can be transformed into a reasonable one.
"Kaizen" is a Japanese word that he likes to use to explain his approach. He came across the words when reading about Japanese management practices. "I use it to differentiate between great leaps forward and thoughtful, gradual changes where your likelihood of success is much higher," he explains. Kaizen denotes gradual change.
Goergen's first big risk came before Blyth. A 1962 graduate of Wharton's MBA program, he was working as a management consultant at McKinsey & Co. He enjoyed his assignments, his clients and a generous salary, but eventually concluded that McKinsey didn't fit his goals.
"What I considered freedom wasn't high income but net worth," he says. "So I began thinking about doing venture capital. I took a huge pay cut to start at the bottom at Donaldson Lufkin & Jenrette, which was then called the Sprout Group. I went from partner's perks to basically starting over."
The move paid off. Goergen soon found himself in a position where he was able to make what he calls "hobby investments" — that is, deals that were too small to interest Sprout.
In 1976, he came across a Brooklyn, N.Y., firm called Valley Candle Co. Goergen and three friends put up a total of $50,000, and he then raised $300,000 more from other friends and family members. That enabled the partners to persuade Chemical Bank to lend them $650,000 more. They bought Valley for $1 million.
Within a year, Goergen heard that another candle company — Candle Corp. of America in Chicago — was for sale. This time, the price was $3.3 million. Goergen again called on his network. But to get a large enough loan, he had to pledge his personal assets, too. If the loan was called and the company couldn't pay, Goergen would have to pony up.
Soon, problems began to emerge. CCA's former owner and president who was supposed to run the combined company, stepped down. Then an outside audit found that the controller had been incorrectly recording transactions. The company was breaking even, at best. Bankruptcy seemed possible.
Goergen found himself staring down another risk — leaving his sweet gig at a big venture capital firm to run little CCA. He had held a variety of jobs in his career; before McKinsey, he'd done stints at Kodak, Procter & Gamble and an advertising firm. But he'd never overseen a company's day-to-day operations. Tough luck.
"I saw the $3 million guarantee possibly getting called, and my friends had invested in this company and I didn't want to let them down," he recalls. So in 1978, he quit his job and became a full-time candle maker.
He learned a lesson from the CCA deal, too — the key to a successful acquisition was doing assiduous homework. He'd never face a surprise like CCA's inaccurate financials again. From then on, when he did a deal, he'd strive to know more about the sellers and their industry then they knew themselves. He and his team would "understand their markets, their strengths and weaknesses and the critical factors for success. I call those the jugular issues — the things that really make a difference on whether a company's going to be successful."
The lessons of those early deals have served as a template for a company that has become an avid and effective acquirer. "Because of my background in doing deals, we buy very well — but fairly," Goergen says.
Back in the early days, each deal was a personal risk for Goergen. As with CCA, he'd offer up his personal guarantee as security for lenders. "We didn't have any money in those days, so the best things I could find were companies that weren't doing very well. We'd buy a company, bootstrap it and get it fixed up. Our net worth would go up, and we'd buy another."
Over the years, Blyth has done scads of acquisitions. For Goergen, one stands above the others — the 1990 purchase of Massachusetts-based Colonial Candle Co. When asked the smartest deal that he's done, he points to Colonial.
He did it because he wanted to combine Colonial's premium line of candles with Blyth's. In the course of studying Colonial, he learned that the company had a home-party division called PartyLite. He was intrigued. PartyLite was using "direct selling" to take Colonial's candles into people's homes. A customer would organize a party, inviting a bunch of friends, and a PartyLite salesperson would come, demonstrate different candles and take orders right there. "With PartyLite, people are learning from their friends," Goergen says.
"During due diligence, I came to our directors and said, 'Whether we get this or not, we have to understand how to do direct selling.'" Initially, another firm outbid Blyth. That deal fell through. However, after several months Blyth ended up prevailing.
"Once the deal was done, I went to the guys at PartyLite and said 'I think you can be a $100 million company in three or four years.' And I remember the president saying to me, 'Maybe we'll get to $25 million.' PartyLight is now a $700 million business."
What Goergen sensed was an opportunity to demonstrate Blyth's fragrance candles, which were then a new and largely unproven product. Historically, people had used scentless candles for flickering light, and flowers and potpourri for pleasant aromas. PartyLite enabled Blyth to persuade people to use its candles for both.
"In the '90s, fragrance candles became the hot product, and we were proselytizing. We just took state after state and organically rolled them out. The two things I attribute Blythe's original growth to are putting fragrance in wax without sooting and direct selling, the missionary part of the business."
Those advantages have paid off for shareholders, too. Blyth's stock returned 12.5 percent over the five years that ended July 23, compared with a 17 percent loss from the Dow Jones Total Stock Market Index. Even more significant, stockholders who invested at Blyth's IPO have earned a 16.5 % compounded annual return for the past ten years.
Similar to the active role he has played in his company, Goergen has not just given back financially to the Wharton School. As Chairman of the Wharton Entrepreneurial Programs Advisory Board and as member of the Wharton School's Board of Overseers, he is actively engaged in the progress of new School programs and research.
And to this day, Goergen continues to play a key role in Blyth's acquisitions. "I always get involved, checking on values and the strategic fit. And I really kick the tires on the management team."
It's all part of making sure every risk this entrepreneur takes is a prudent one.
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Goergen Entrepreneurial Management Program