Persistance, patience in financing search
are paying off for Spectrum Digital Services
More than $1.5 million worth of equipment and machinery hums away in a relatively common-looking light manufacturing facility just off Highway 83 in Hartland.
But the operation is anything but common – in more ways than one.
It’s an operation that was established only after the incredible persistence of its founder who, convinced that he had a great idea, had to battle the well-documented struggle of entrepreneurs to get financing.
And unusual in that, while many in Wisconsin talk about the need to lure and promote high-tech businesses, the technology-dependent firm may well be the largest of its kind in North America; but few here know of its existence.
The firm, Spectrum Digital Services, has grown rapidly since its founding in 1998, fulfilling more than 5,500 different orders in that time for the screen printing of recordable compact disks (CD-Rs) and recordable digital video disc (DVD-Rs), and seeing its space-requirement needs expand from an initial 2,400 square feet to a current 16,000 square feet. It moved into its current site, which it leases, in 2000.
The growth has resulted in the firm having been named to the Future 50 – a list of the fastest-growing companies in metropolitan Milwaukee, as recognized by the Council of Small Business Executives of the Metropolitan Milwaukee Association of Commerce.
Spectrum uses a screen-printing process to label the CD-Rs and DVD-Rs, primarily in short runs, with end-users being the likes of Mobil Oil, Rockwell, US Bank, Motorola and Peter Buffet – clients throughout North and South America, Europe and Japan.
This year, company founder, president and CEO Russell Gnant intends to expand the operation, becoming more of a full-service provider for CD-R users rather than primarily a label screen-printer. That goal comes on the heels of the firm’s purchase of a multi-media company and of its launch of an online retail store, www.cdrstore.com, which sells individual recordable CDs with themed labels.
The firm has already been doing more replicating of CD and DVD content, and last year acquired a Utah-based multi-media production firm, bringing that operation to Hartland in what amounted to a return to his Wisconsin home for one of the production firm’s partners, Patrick Sheedy.
"We want to let people know we can handle all of what they want to do," says Gnant, a licensed professional engineer whose earlier career days included work at W.H. Brady (now called Brady), and Westinghouse.
But Gnant and the 15 other persons at Spectrum Digital wouldn’t be able to handle any work were it not for Gnant’s tenacious persistence in seeking financing, and the seemingly miraculous acceptance of his vision by a group of four local investors.
Members of the Wisconsin Venture Network (WVN) and guests who attend that group’s monthly luncheon meetings at the War Memorial in Milwaukee became well-acquainted with Gnant as he regularly took advantage of the group’s "two-minute" forum to plead his case for financing, and as he described his plans before the group’s Venture Review Panel.
His visits to the WVN meetings, his work with its Venture Review Panel, and his attendance at seminars presented by the U.S. Small Business Administration and its Service Corps of Retired Executives (SCORE) helped him hone his business plan and his abilities to market his idea.
But it was still a long haul – a three-year process that became a full-time effort; he wasn’t working at the time, and had originally estimated it would take six months to secure financing. It was discouraging at times. But Gnant came to recognize that those who didn’t believe in his vision simply didn’t understand what the business would be all about.
"Nobody likes being told no, or being told something isn’t going to work," Gnant told a WVN audience after his finally obtained financing. "But it didn’t take long before I realized that all a ‘no’ means is that the person you are speaking to does not know how to do it. It doesn’t mean that your idea won’t work, or that you can’t do it. It only means that they don’t know how to do it. But that’s perfectly all right; it’s your dream, not theirs."
Gnant still has four large notebooks recording every conversation he had over the three-year search for financing. "If I talked to you about this idea, your name is in one of those notebooks," he says. The notebooks served an evolving purpose. Initially, they gave him something to do. But they became a source for follow-ups and a source of consolation, indicating that he was making progress in his drive. Further, they revealed to him an understanding that, while he is the entrepreneur who created the business idea, "what I did was made possible only with the help of hundreds of people."
His struggle for financing took him on a variety of paths. He signed three agreements with institutional and individual fund-raisers, but found that experience "less than optimal," telling his WVN audience that "there are several drawbacks to letting somebody else raise money for you. One, they don’t have the same vision you have. Two, they don’t have the same urgency you have. Three, it fools you into thinking that somebody else is going to solve your problem. And four, it can cost you a lot of money."
Gnant would only have had to pay the finance finders if they had secured funds. But that would have been at least 10% of the money raised. Additionally, there would be legal bills and securities laws concerns.
He also spoke with Indian tribes, and nearly secured financing from the HoChunk nation, which has headquarters near Wisconsin Dells.
He shared his vision with a host of venture capitalists.
And he heavily tapped into credit cards as the months became years.
But that extended time period would actually work to his advantage. His original plan – to open a disc manufacturing facility – would have required $2 million. That figure dropped by a significant amount later in his financing search when he altered his plans, recognizing a new opportunity to print on recordable CDs rather than manufacture them. Under the reorganized plan, he would need about $500,000.
Additionally, the market had changed. The cost of CD-Rs had fallen from $50 each when he started his search for financing in 1995 to $3 when he got financing. Related equipment had also come down in price. The price drops were accompanied by rising usage – and rising demand.
The lesson from that situation is that people searching for financing should be open to new or altered opportunities, Gnant says.
Such willingness to move in a new direction isn’t all that common, says John Murphy, of Brookfield-based Murphy Associates-Your Marketing Department. Murphy, a member of the Wisconsin Venture Network, served on the review panel that went over Gnant’s business plan.
"He showed a lot of flexibility," Murphy said. "A lot of people don’t know what to do when their original business plan isn’t feasible or practical anymore."
Murphy willingness to alter his plans also indicated a keen sense of the market. "He came across as a very sharp guy, very well organized, and someone who had done his homework."
Gnant seized that altered opportunity, and found a source of financing.
Or almost.
He was in talks with a Minneapolis firm to provide him the funding. At the same time, a $600,000 screen-printing machine became available. He borrowed $10,000 from a family member as a downpayment on the machine.
The Minneapolis firm backed off. And Gnant was stuck with an expensive machine and a lot of debt.
He persevered, and would be tested again. Just over a month after the Minneapolis deal fell through, a group of other investors appeared ready to provide the financing.
He and the investors met on a Wednesday night in February in his attorney’s office. His best hopes in three years sat with him at the table.
"It fell apart in 90 minutes," he notes, recalling the dejected feeling he had.
But it would be a roller-coaster week. That Friday, his accountant called with a lead. They met on Monday. On Tuesday they agreed to move forward. On Wednesday they were at that same attorney’s office, and the deal was signed.
Gnant had his financing from four local investors. While they are not active in the day-to-day operations, Gnant keeps them abreast of the operations and bounces ideas off of them. "They trust what I’m doing," he notes.
He admires his investors, too, and not just because it was their money that allowed him to realize his dream.
"When I make a large sum of money, I hope I can be as good of an investor as these guys," Gnant says.
The sale of the business is a possibility – some day. But Gnant clearly relishes the ongoing efforts to expand the operation.
He has high hopes for the company’s new online CD-R store. "Until now CD-R users who could not afford custom screen-printing charges were limited in their options," Gnant said. "They could write on a disc with a felt-tip pen, use a paper label, which has the potential to cause data loss and disc imbalance, or they could buy an expensive ink jet printer to produce a disc that will inevitably smear. The cdrstore.com offers a quality alternative with great looking discs in a wide variety of designs that are available off the shelf."
The Web site offers an online store featuring the entire catalog of CD-Rad discs, as well as bulk CD-R media. The company launched the store with an initial catalog of 65 different disc designs in 12 different categories. "We will very quickly build our catalog to several hundred designs," Gnant said. "We have a staff of professional graphic artists working with our marketing department to identify graphic solutions for common CD-R labeling needs. If we don’t have a design to meet your needs today, we probably will tomorrow."
The discs are labeled in family, business, music, holiday, sports, and other themes. They sell for 69¢ apiece, or 10 for $4.95.
Gnant is working with the owners of major national lifestyle brands to license images for cdrstore discs.
The company also recently expanded its marketing efforts, hiring Gerry Edwards as vice president for sales and marketing. "We’ve done a good job building up our manufacturing capacity, now we need to focus on sales and marketing," says Gnant.
It currently advertises in national trade magazines, and has gained some editorial mention in such publications. "But we want to be more well-known in the state of Wisconsin," Gnant says. "There’s a lot of business in our backyard that we’re not getting."
One factor in the firm’s relative obscurity is that much of its business has been through resellers. So, for example, while Spectrum Digital screenprints CD-Rs with a Mobil label, the work is actually done for another client who is the direct vendor to Mobil. "Few of the end users know we printed their discs," Gnant says.
But among the resellers it works for, the company has gained a reputation for quality and timeliness.
It posts monthly charts of delivery times and has seen those delivery times climb to 100% on-time or just shy of that. That’s critical in a business that bills itself as a quick-turnaround operation, Gnant notes.
"If you provide a service, if you are really serving the customer, the financial rewards will appear," Gnant states. "We didn’t claw our way to the top, we worked our way to the top with excellent service."
John Krueger of Nicolet Bio-Medical in Madison is one of the recipients of that service. He found about Spectrum Digital Services via an online search. "They were a Wisconsin company, so I decided to give them a shot," Krueger said.
It would turn out to be a good shot. "It was a fabulous experience," Krueger said. Nicolet Bio-Medical’s graphics department sent graphics to Spectrum Digital Services and, in two-days’ time, had a test print back to review.
"I was absolutely stunned," Krueger recalls, commenting on the turnaround time and the quality of the work. Additionally, Krueger praised the Spectrum staff for its handling of the project.
"I’m looking forward to getting more discs from them," Krueger said, noting that his original order has been nearly used up and that some graphics updates need to be made.
Krueger added that he now enthusiastically recommends Spectrum Digital Services to other businesses he comes in contact with.
Nicolet is a manufacturer and distributor of medical instrument systems, with approximately $60 million in annual sales.
Spectrum Digital Services’ equipment allows it to print 100,000 pieces per day and to duplicate 10,000 pieces per day. But there is no minimum order, and that has been one of its strategic advantages. It has been able to capitalize on demands for quick-turnaround short orders.
The pieces are now in place for more extensive growth, Gnant believes – from the facility to the equipment to the staff. And even if CDs go the way of vinyl records, they’ll be replaced by DVDs, which Spectrum is already handling, and which use the same equipment to process as do the CDs.
February 15, 2002 Small Business Times, Milwaukee
