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Playing For Keeps

Buying a bankrupt business was only the first step. Here's how two entrepreneurs turned a failing company into a multimillion dollar success story
August 1, 1998
URL: http://www.entrepreneur.com/article/16210

Even under the best of circumstances, taking the entrepreneurial plunge requires courage. But for a first-time business owner to willingly take on the challenge of rebuilding a business from the roots up takes true grit.

After a leveraged buyout from its founders in 1991, the once-successful Raleigh, North Carolina, residential playset manufacturing company Woodplay had plunged into bankruptcy and receivership. By late 1993, the company was up for grabs to the highest bidder.

Enter Jim Sally, 40, and Tom Marenyi, 48, who were searching for a business to call their own. "We knew nothing about the company," recalls Marenyi, who spotted a notice in the local paper indicating that only one purchase bid for Woodplay was before the court; additional bids would be accepted during a seven-day "upset" period.

Marenyi and his brother-in-law Sally had several purchase criteria in mind: a quality product, a good name, market potential and a solid formula that could be improved upon. The partners' hasty research revealed that Woodplay products were well-made and well-regarded in the industry. They also discovered that, even with limited catalog distribution, the company had ranked high in its niche market for years before its troubles.

Encouraged by Woodplay's seeming potential, Marenyi says, "The decision was made to put in an upset bid, and much to our surprise, no one countered it." Marenyi and Sally (along with Jim's father, John Sally, as a silent partner) became the new owners of the capsized company just two weeks later.

"[The purchase price] just bought us the assets," says Marenyi. "We still had to get the thing cranked up." Together, the partners coughed up several hundred thousand dollars more from their savings for working capital. Marenyi dove in to handle marketing, finances and administration while Sally took charge of manufacturing operations, purchasing and technology.

Salaries could wait, the new business owners agreed; they'd do whatever it took to fund the company internally. Purchasing Woodplay with their personal savings was the beginning of a commitment by the partners not to go into debt to bring the ailing company back to life.

First Things First

Before making any dramatic changes, Marenyi says, "The first thing we had to do was stabilize the business." After assessing the company and its product line, the team identified several strategies that would heighten Woodplay's growth potential. The product line had been ignored during the business's receivership, and its look was dated. With a plan to eliminate "dead" products and introduce new ones, the partners hoped they could produce a new, exciting line.

Their strategy was hatched: "We had six series of playsets," says Marenyi. "We said `Let's try to bring out two new series each year with something cool for the kids to play on, something unique that will differentiate our product.' " Eliminating their two slowest-selling lines the first year, the partners introduced two new ones, repeating the process over the following two years until the line was completely revamped.

With catalog distribution holding its own and a new product line in place, the duo was ready to launch the second part of their distribution plan: a coast-to-coast dealership network. "The first two or three [dealerships] were the hardest to get," says Marenyi. After turning the partners down several times, a Denver playset dealer came on board and recommended Woodplay to a dealer he knew in New York. With a few dealerships in place as references, the process got easier.

Putting On The Brakes

The company was poised to take off--but the partners were determined to control its growth. "You can grow yourself into bankruptcy," says Marenyi. "We had an opportunity to sign 50 or 60 dealers, but we wouldn't have been able to fund that growth internally. So we laid out [our plan], measured it and did it over three years."

Despite Marenyi and Sally's efforts to grow slowly, in mid-1995, the partners had to refuse orders when Woodplay couldn't make its products fast enough to meet dealer demand. The root of the problem was Woodplay's manufacturing capacity: It was maxed out.

For more than a year, Marenyi and Sally adopted a roll-up-your-sleeves strategy: "Each manager, including myself and Jim, would work one night a week, cutting, drilling, sanding, whatever needed to be done in manufacturing," says Marenyi. "We'd work until the night shift was over and then come back in the morning and do the regular stuff."

Becoming hands-on managers helped, but the company's manufacturing capacity was still stretched to the limits. Then last October, serendipity struck: The partners had the opportunity to purchase another imperiled company--Wood Graphics Inc., a Raleigh wooden sign company that was facing foreclosure.

Well-acquainted with the art of rejuvenating a struggling business, Marenyi and Sally realized they had a winner on their hands and quickly bought the new company. The beauty of the situation? Wood Graphics had the woodworking ability needed to augment Woodplay's manufacturing needs, and the waste product at Woodplay became raw material for its new sister company.

Not surprisingly, under the guidance of Marenyi and Sally, it took only four months for Wood Graphics to start turning a profit.

Firm Foundation

The blending of Woodplay with Wood Graphics isn't the only synergy behind Marenyi and Sally's success. Bringing different talents to the table, Marenyi and Sally are near-perfect entrepreneurial complements to each other.

The partners' decision to team up came naturally. Although in the corporate ranks Marenyi had helped lead a publicly traded Manhattan financial printing company to annual revenues of $60 million, he felt something was missing. "I had been very fortunate in being successful, but I was always doing it for somebody else--with somebody else's money and somebody else's reward," he says.

For his part, Sally was primed and ready for the formidable challenge of operating Woodplay after his decade-plus career as a civil engineer for a North Carolina electric cooperative. And Sally had grown up watching his father dabble in small-business pursuits such as restaurants and real estate--further fueling his entrepreneurial fire.

What lies ahead? An emphasis on retail, says Marenyi. Last October, Marenyi and Sally joined friends Byron Unger and Bob Wall to open their first retail location, Woodplay of the Carolinas, in a refurbished 10,000-square-foot former warehouse in Raleigh. "Once we're confident we have a good product mix [at the store], we're going to focus on retail," Marenyi says.

On the national scene, Woodplay now boasts more than 40 dealerships in California, Colorado, New Mexico, New York, Oregon and Utah as well as eight new Midwest locations. With a state-of-the-art product line, zero debt and revenues expected to top $6 million this year, "This is definitely our breakout year," says Marenyi.

Recalling how he and Sally untangled the web of business missteps that came along with their purchase in 1994, it's clear that collaborating to reverse Woodplay's fortunes has lived up to the partners' entrepreneurial dreams--at least so far. Says Marenyi, "Knock on wood."

Contact Source

Woodplay, (919) 231-6080, http://www.woodplay.com