Playing for keeps: buying a bankrupt business was only the first step. Here's how two entrepreneurs turned a falling company into a multimillion-dollar success story

Entrepreneur, August, 1998 by Elaine W. Teague

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 derision 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.