Judging by the headlines, Nashville area businesses are in the tank. Service Merchandise has, at last, been forced to liquidate. The continued existence of Aladdin Industries is in doubt. J.C. Bradford & Co., the stock brokerage firm established in 1927, is gone, as is First American Bank, which at one point accounted for close to half the bank deposits in Nashville. Shoney’s, whose breakfast bar used to make cash registers sing and shareholders rejoice, is barely holding on. As for Gaylord Entertainment, Thomas Nelson and Corrections Corp. of America, these Chamber of Commerce poster boys are having problems even turning a profit.
During the past three years, as one Nashville-based company after another has fallen on hard times, followers of business news in Nashville have been asking each other the same question: Is there any good news out there?
Actually, there is. Adam Smith first articulated the thought some 200 years ago, but people still seem surprised when market-based solutions arrive to push out the old moss. And in the process, certain people get rich.
The Nashville Scene is happy to report on 10 companies thriving under our noses. They were started by aggressive entrepreneurs and funded by risk-oriented investors willing to take chances in the face of a national recession. And, in the spirit of legendary Nashville capitalists such as HCA co-founder Jack Massey, longtime Genesco chief executive officer Maxey Jarman and National Life and Accident Insurance Co. founder C.A. Craig, they are making money.
Some of them are making a lot of it.
A man’s gotta fish
TRITON BOATS
Five years ago, boating industry veteran Earl Bentz quit his job as an executive with Outboard Marine and, with his wife Janet, started a boat manufacturing plant called Triton in Hendersonville. When business took off, he asked representatives of Mayor Phil Bredesen’s Office of Economic Development for a property tax break to help him build a larger plant in Davidson County. They said no. After Cheatham County came through with several incentives, Bentz built his new plant there.
Since that time, Triton Boats of Ashland City has virtually taken over the bass boat industry. The Triton all-fiberglass boat, which sells for an average $30,000, is the fastest growing line in America and can be purchased at 180 dealerships. With over $100 million in sales, privately held Triton now outsells Ranger, the Arkansas boat manufacturer that had dominated the bass boat industry since its inception a quarter-century ago. Triton has even replaced Ranger as the official bass boat of the Bass Anglers Sportsman Society (B.A.S.S.).
How has Bentz been able to pull this off? People who know him remark about his dynamic personality. They say he has created a work environment in which employees feel comfortable making suggestions. And Bentz loves his job: He spends weekends either attending boat shows or entertaining vendors, dealers and professional fisherman at his 1,200-acre farm outside Waverly, in West Tennessee.
“Earl has been in the boat business for a long time, and he surrounds himself with good people who really know what they’re doing,” says Stuart Fraser, the president of a boat dealership in Columbia called Clark Marine. “I know that as long as his name is on the boats, they’ll be good.”
Triton has about 375 employees at its Ashland City headquarters, a number Bentz believes will rise this year. The company recently built another plant in Aberdeen, Miss., which makes aluminum boats under the brand name Summit. It has another 100 workers and is currently being expanded.
As long as Bentz is around, people think Trinton’s future is rosy. “If Earl made bathtubs,” Fraser adds, “he’d do a good job at that too.”
The simple, rural life
TRACTOR SUPPLY CO.
Most Nashvillians probably have never even been to a Tractor Supply store, let alone know that the company is based here. But Tractor Supply may be Nashville’s most successful public company right now, its stock price having nearly quadrupled during the last year. Tractor Supply is a chain of 323 ranch and farm retail stores that thrive despite the proliferation of Wal-Marts and Home Depots. Stores offer an eclectic combination of products heavy on the down-on-the-farm lifestyle: lawnmowers, pet food, blue jeans, welding supplies and horse accessories. The company is blowing the doors off national retail in certain categories—it is the nation’s fifth largest seller of riding lawnmowers and the nation’s top seller of equine equipment.
“We sell everything for the horse except the horse itself and the saddle,” company spokesman Blake Fohl explains.
Though very few Americans actually farm for a living, Tractor Supply is successful because Americans like to perceive themselves as rugged frontiersmen who enjoy getting their hands dirty. Customer demographics break down this way: About one-fifth are full-time or part-time farmers, a third are non-farming residents of small towns, and another third are so-called “hobby farmers”—people engaged with land or animals in some way, but not for a profit.
“We call it the ruralification of America,” Fohl says. “When a farmer divides 100 acres of farmland into 20 five-acre lots, we pick up 20 potential customers. These are people who live on five acres, so they want to live a rural lifestyle, even if they can’t be farmers.”
Tractor Supply’s target market is so similar to country music’s that its recent advertising campaign features country music star George Strait. Now, having recorded same-store sales increases of about 6 percent last year, Tractor Supply is planning its most ambitious expansion ever. As recently as a month ago, company officials said they intended to add about 25 new stores in 2002. Because of its recent purchase of the assets of a bankrupt retail chain called Quality Stores Inc., Tractor Supply is now planning to add about 100 stores this year. This makes the Nashville-based company one of the fastest growing retailers in the United States.
Perhaps one reason few Nashvillians know much about Tractor Supply is because the business didn’t start here. The company began in 1938 as a mail-order tractor parts business in Chicago. Eventually, the Atlanta venture capital firm J.B. Fuqua Industries purchased it and, in 1979, moved it to Nashville. Tractor Supply’s current chairman and CEO, Joe Scarlett, has been with the business since it moved here.
Pay me the money
PAYMAXX
It’s rare for a business to be included on Inc. magazine’s list of the 500 fastest growing companies in America for four straight years. But that is exactly what has happened to PayMaxx, a Franklin-based payroll services company whose annual revenue has just surpassed $10 million. PayMaxx traces its origins to a software development company called Access Data, which itself had been founded in 1979 by Iranian-born Farsheed Ferdowsi. One of Access Data’s most successful products was a payroll processing system. It was so popular that in 1994, Ferdowsi spun off the payroll system into its own company called PayMaxx. He has remained as the company’s president.
Today, PayMaxx is the 12th largest payroll services company in the U.S. and processes paychecks for 111,000 people. Its two main products are an Internet-based service for small businesses called PowerPayroll and a PC-based software product for larger businesses called PayLoad Suite. Among the local companies using PayLoad Suite are Tractor Supply Co., American HomePatient and Gibson Guitar. PayMaxx has 132 employees, with two offices in Franklin and an Internet development office in Rochester, N.Y.
PayMaxx is privately held, and counts among its main investors Nashville venture capitalist Clayton McWhorter. “When I first met Farsheed, I knew that there wasn’t any doubt that I was going to invest in his company,” McWhorter says. “He is a very focused guy and exactly the type of person you want to invest in.”
Ferdowsi says that there are two reasons why his company has a strategic advantage over its competitors. One is that it owns its own software. The other is that it has one central distribution center. “Many companies in this business have offices all over the country,” he says. “We sell and service from a central office, and that makes us far more efficient.”
Ferdowsi is one of four brothers, all of whom own their own businesses. (One of those brothers is Taco Bell franchisee and Nashville Zoo co-founder Farzin Ferdowsi.) He says that a heavy dose of entrepreneurial spirit runs in the family. “My father was a businessman who manufactured cars, imported tires and had some real estate holdings in Iran,” the PayMaxx president says. “We as children were raised in that environment. I don’t think it has ever occurred to me to take a job working for someone else.”
Not just another start-up newspaper
PUBLISHING GROUP OF AMERICA
One of the most startling American media success stories of the last five years has nothing to do with dot-coms or large cities. Three years ago, Nashville advertising veteran Dan Hammond created a publication called American Profile. Like Parade and USA Weekend, the magazine was to be inserted in newspapers. But unlike those publications, American Profile was created for papers serving small- and medium-sized markets, such as Franklin's The Review Appeal, Shelbyville Times Gazette and the Crossville Chronicle.
American Profile launched in April 2000 and reached a circulation of one million during its first year. That performance was so auspicious that the company was able to secure $23 million in venture capital.
Today, American Profile has a circulation of 3.5 million and a staff of more than 60 at its headquarters in Cool Springs. The company probably has been profiled more than any other Nashville-area business during the past year, having received glowing reviews in The New York Times, Chicago Tribune and Forbes.
With most of the company’s revenue dependent on advertising—newspapers pay about $1 a year per subscriber for the service—the company hopes to turn a profit by the end of 2002. Hammond believes that by the end of 2005 American Profile will reach a circulation of 15 million, making it one of the highest circulation magazines in the country. He says that the key to achieving this goal, on the editorial side, is to continue to emphasize small town news. “Our content is celebratory and uplifting,” he says. “It is just the opposite of an urban publication that might intentionally look for stories of a controversial nature.”
Yes, health care is still hot
COMMUNITY HEALTH SYSTEMS
Hospital Corp. of America and its gradual recovery from the U.S. Justice Department’s 1997 investigation have dominated the headlines in the for-profit hospital world for the last few years. But the industry also has had some quiet success stories, one of which is Community Health Systems of Brentwood.
Community Health is a chain of 58 small hospitals in 20 states, most of which are in small towns. Where larger chains duke it out in big, competitive markets, Community Health has hospitals in places like Granbury, Texas, Morristown, Tenn., and Newport, Ark.—communities traditionally served by only one facility.
Community Health believes these hospitals are good investments because rural areas are far less likely to be dominated by managed care networks that try to squeeze savings out of hospitals at almost any cost. There is also a lot of growth potential in buying small town hospitals, since most are municipally owned facilities that governments are looking to sell.
“There are still a lot of opportunities to buy undercapitalized and underperforming rural hospitals,” says Frank Morgan, an analyst with Jefferies & Co.’s Nashville office. “What Community Health does is come in, spend a lot of money modernizing the hospital, add new programs and services and recruit physicians. By doing so, they cut way down on the number of people in the community who drive across the state for health services and increase admissions and revenues at the hospital.”
Community Health went public in June 2000. Since then, the company has reported increased earnings every quarter. But its stock has been on a bit of a roller-coaster ride, going public at $15 and then peaking at $35 before falling to about $25 during the last few months. “The stock has been greatly affected by market conditions and as investors have shifted from one type of stock to another,” says chief financial officer Larry Cash. “But the recent reductions in the stock price are not because of company performance.”
Community Health, which is headed by 23-year Humana executive Wayne Smith, has acquired six hospitals during the past year and signed letters of intent to buy four more. In its most recent presentation to investors, it described its acquisition pipeline as “robust.”
Targeting by mail
SMART DM
The Republican revolution of 1994 did more than turn over two U.S. Senate seats and the governor’s office in Tennessee to the GOP. It also gave birth to a direct mail company called Smart DM.
Rich Maradik and Jay Graves worked for the Tennessee Republican Party in 1994, and their targeted mailing campaign was considered by some as a major reason for GOP success here. As a result, Republican parties in other states hired Maradik and Graves to compile similar mailing lists. Those contacts led to other clients and, before long, Maradik and Graves formed a direct marketing company called Datamark. The firm, now known as Smart DM, is co-owned by Maradik, Graves and four different venture capital companies.
In 2000, Smart DM had revenues of over $5 million, a number that Maradik says nearly doubled in 2001. The company has grown to include five offices and 60 employees. During its last year, Smart DM sent 30 million pieces of direct mail. Major clients include Harrah’s, American General, AmSouth and several area YMCAs. “We started by handling a direct mail campaign to help the Middle Tennessee YMCA increase memberships,” Maradik says. “That went well, and now we do business with 16 different YMCAs.”
Smart DM is a full-service direct mail business, with a graphic design staff that lays out postcards, computer specialists who generate targeted mailing lists and a fast-growing e-mail alert company. “We know that times are tough, but I think that the best business to be in during a recession is the business-to-business sector,” Maradik says. “Our goal is to be a $50 million to $100 million company by the year 2004.”
Getting the low-down
KROLL CORPORATE SERVICES
In 1989, Nashville native Mike Shmerling, backed by local investor Jack May, started a prison transportation firm called Transcor. The firm basically moved inmates from place to place. Business boomed, and after a few years, Shmerling and May sold the company to Corrections Corp. of America for almost $60 million.
So how do you follow that act?
Shmerling then started a business that performed background checks on people. Called Background America, it was eventually bought for $30 million in stock by Kroll, a New York-based business that provides various types of internal security services to other companies. Today, Kroll has located much of its operation here, including its background check, drug screening, surveillance and technology divisions. More than 200 Nashvillians work for Kroll, most of them in a little-noticed office building at 1900 Church St.
During 2001, Kroll performed 1.5 million record checks, about a 20 percent increase from the year before. The company’s Nashville operations were already busy before Sept. 11, but the demand for the company’s services has risen since. “The business of background checks has gone way up in the last five years because state governments have increasingly required that they be done for people who work in industries like day care, aviation and health care,” says Mike Rosen, Kroll senior vice president and general counsel. “On top of that, Sept. 11 woke up a lot of people and made them realize just how important background checks are and just how serious the crime of stolen identity is.”
Shmerling, who runs Kroll’s Nashville operations and is the chief operating officer of the company, has other business interests. During the last few years, he has purchased several buildings in downtown Nashville, including the old Castner Knott building across from the newly opened Main Library. So among other things, Shmerling is landlord to former Nashville Mayor Phil Bredesen and former U.S. Sen. Harlan Mathews, both of whom rent space there.
Home sweet home
TURNBERRY HOMES
Real estate agents are quick to say that Nashville’s residential market has softened some during the past two years. But that hasn’t stopped Turnberry Homes, which came out of nowhere to top the $40 million revenue mark last year.
Turnberry Homes was started by Rick Bell, a Scotland native who came to Nashville 13 years ago to run residential builder Zaring Homes’ operation in Nashville. Since he started Turnberry in 1997, the business has carved out a niche as a builder of homes priced between $220,000 and $600,000. While the company is still not as large as residential homebuilders Phillips Builders and Fox Ridge Homes, Turnberry built and sold 96 properties during 2001, making it one of the top residential builders in Middle Tennessee.
Bell offers several reasons for his company’s success. One is his close relationship with the subcontractors who actually do the building, something that he says out-of-town based builders don’t have. Another is the company’s willingness to make changes to standard architectural plans.
“We will modify our plans to fit the needs of our customers, and not that many builders in our price range will do that,” he says.
The same old thing, quietly
FRANKLIN INDUSTRIES
In the early 20th century, one of the richest men in Nashville was Jet Potter, the owner of a mining business called Nashville Coal Co. Because Potter’s coal mines were located far away from town, not many people knew much about Nashville Coal, and that was the way Potter liked it.
Nashville Coal is no longer around, but it has a soulmate. Franklin Industries, which began business in 1911, is one of the city’s least discussed but most successful private firms here.
The company has nine limestone mines throughout the South, one of which is just off Interstate 40 in Crab Orchard, Tenn. Because limestone has many uses—it is a key ingredient in highways, animal feed, paint, glass, fiberglass and roof shingles—the people who work in these mines stay busy. The company claims to be the largest provider of limestone for animal feed, glass and fiberglass in the United States. Existing mining operations such as Franklin Industries also benefit from environmental movements and “not-in-my-backyard” organizations that have effectively precluded the development of competing companies.
Franklin Industries also has a large brick distribution business that is reportedly doing well. Its main competitor in this line of business is Alley-Cassetty, a brick and coal distribution business that has been in existence since 1879.
But like the Nashville Coal Co., people don’t know much about Franklin Industries because its owner likes it that way.
“We don’t normally want any publicity about the company,” says president Rodes Hart, whose grandfather started the company. All Hart will confirm is what people familiar with the company claim: Business is good.
Thriving in a post-9/11 world
SERVICE MANAGEMENT SYSTEMS
The next time you see a security or cleaning person at a mall, take a good look at their uniform. Chances are they don’t work for the mall, but for a security company the mall has hired. The largest such firm in the U.S. is Service Management Systems of Nashville—a business that, along with its sister company Valor Security Services, provides security and maintenance for 240 malls and retail centers in 38 states.
The founder and president of Service Management Systems is Bill Coakley, a 1979 University of Tennessee graduate who started cleaning department stores as a part-time job during college. After several years with a company called Retail Cleaning Service, Coakley started his own business in 1988.
Since then, malls increasingly have farmed out their maintenance and security functions to focus on leasing and marketing. “We hired them because we found that it was too much trouble for us to find people to clean the mall, especially considering how tight the job market was here during the 1990s,” says Jeff Themm, manager of The Mall at Green Hills, which uses both Service Management Systems and Valor Security Services. “Mall maintenance and mall security is what they do, and they are the experts on the best way to clean and the best way to do security.”
Coakley’s combined companies boast 3,100 full-time employees and $90 million in total revenue. Business is better than ever now that malls are more concerned about security in this post-Sept. 11 world. Coakley is frequently asked about taking his business public, but he’s not enthusiastic about the idea. “We are not a high-tech company or a major manufacturer, and we may not have the glamour and glitz that Wall Street really wants,” he says.
Nonetheless, Coakley has expansion plans. “We want to take our structure that we have and diversify into other types of facilities, such as airports, hospitals and universities. On the cleaning side, they are just now beginning to look into the idea of outsourcing.
