If the Harvard Business Review decides to dissect the recent bankruptcy of StyleMaster Inc., the conclusion would be pretty easy to predict: The company relied too much on one customer, in this case Kmart Corp.
It's a classic case of putting too many eggs in one basket, right? This is Business 101, the first thing they teach in entrepreneur school.
But in StyleMaster's case, did the company have a choice?
That's a question that others in the housewares industry, and in fact plastics processors of all types, need to consider.
In this age of industry consolidation, every day processors find themselves wooing fewer purchasing agents. Face it, if you sell housewares, you're going to spend most of your time trying to get your foot in the door at Kmart, Wal-Mart and Target.
In StyleMaster's case, the Chicago molder was fortunate enough to win a nice chunk of business from Kmart: $14 million in 2001, or about half of StyleMaster's total sales.
Right now most of the company owners reading this column have a mental image of flashing lights and police sirens. They know that too much can go wrong in this scenario. How could Martha Williams, StyleMaster's top executive, who worked her way up from the shop floor to own an injection molding company, allow the company to be so dependent upon a single customer?
Well, it clearly was a gamble that didn't pay off. Kmart filed for bankruptcy in January, owing StyleMaster $7 million. That sort of unpaid bill would give pause to a big company like Newell Rubbermaid Inc. For little StyleMaster, with only 133 employees (but a reputation far beyond its size, thanks to Williams' inspirational rags-to-riches story), the bad debt was too big to swallow.
Still, the plastics industry is full of thriving businesses that, once upon a time, put their future in the hands of a single customer and succeeded. That's the nature of start-up companies, and consolidation among customers will make this formula more widespread in the future.
The next question relates to the prospects for StyleMaster and Williams. She wants to retain control of the company, and most StyleMaster creditors appear to support her effort. They figure that Williams is the key to making this company work. After all, as an African-American, Williams still has the ability to open doors at customers that have minority purchasing programs.
But there's some history that may be tough for Williams to escape. Recall that in 1994 she helped push StyleMaster into involuntary bankruptcy, then she bought back some key assets at the liquidation sale.
If Williams again manages to help StyleMaster escape its bad debt while hanging on to the assets, that might leave a bad taste in the mouths of some custom molders and mold makers that have supplied her company.
Undoubtedly some will choose to sever their ties with Williams. But others will take another chance on StyleMaster and Williams' moving story.
A word of advice to those suppliers: Don't bet your company's future on Williams. Unless, of course, you don't have another choice.
