Facing Failure

Robert Sanders shares lessons he learned from bankruptcy reorganization

Sometimes success tempts failure. Robert Sanders, owner of Robert Sanders & Company, watched his design company grow rapidly until it had 11 employees at its apex. Sanders thinks the company got too big. "In a design or creative field, it's better to stay on the small side," he says. With his large overhead he had no choice but to take most every job that came his way. He couldn't be selective.

Then after a decade in business, Sanders filed for protection under bankruptcy law while he reorganized his company. He owed $154,000 more to creditors than his assets were worth. Sanders moved his company to Santa Rosa in 1981. "I took a chance," Sanders says about his move to Sonoma County. "I thought it was going to be a growth area." He found that in the graphic design field here, he had dozens of talented competitors whose numbers lowered the prices graphic artists could charge. At the time of his arrival, there were about 15 other ad agencies the size of his company and about 100 one-person design firms. "People think graphic design is a glamorous field. But the downside is that it's highly competitive, with lots of people wanting in. It has some rough business aspects." But competition was not the main reason for Sanders' stumble.

Sanders allowed one client, Brock International, an investment company, to become 40 percent of his company's gross sales. "It was a classic error, a land mine we stepped on," he says. "We thought it was a good stepping stone. I didn't realize the risk I was taking, doing so much business with that client. I was geared toward getting more sales, more business. I had some intuition that I should be more conservative with this client, but they paid their bills. They were liberal with their spending. One day they were instantly out of business. There was nothing we could do except adjust to that change."

Sanders says Brock International owed him $60,000 when it went under. That plus other bad debts pushed his business over the brink. The health of a business can change quickly, he says. "By the time you respond to the change you can have dug yourself into a deep hole. People think it will be onward and upward and the bad stuff will never happen to them," he says. "But if you can intuitively sense that things are going in the other direction, make quick changes to protect against the worst. It's better to be a constructive pessimist than an optimist."

Sanders tried a self-created reorganization of his company, laying off several employees in efforts to cut costs and pay creditors, funding the business with personal money, but it was too late. He couldn't keep up. "I never thought I was going to go under," Sanders says. "I am a really tough survivor."

He resisted going into bankruptcy. "Your ego and personal name on the company door gets in the way," he says. Finally he opted for Chapter 11 bankruptcy. Under court protection he reorganized the company and pared it to four employees. A loyal customer base allowed his company to survive. Initially he feared that people might shun his business because it was in bankruptcy; but reorganization is not liquidation, Sanders points out. He paid his debts and stayed in business. "It was not the way I wanted to learn, but going through it made me a better business guy. People have opened up to me, said they know what I was going through, that they had those problems, too," he says.

"The big lesson I learned," Sanders says, "is that a lot of people expect you to join the chamber of commerce, drive a fancy car, have a good image, rent an office in the right environment, but it's difficult to support a big overhead. You have to stay lean. Get your product or service directly to the client without a lot of built-in overhead. You could make more money and have a saner business life that way." A business with gross sales of $60,000 or $70,000 and a 50 percent net profit can be healthier than a business with $1 million in sales on a tight margin, he says.

Fast growth can be a warning signal that something is out of balance in the business, Sanders says. One year you could be driving a Cadillac and the next year go down the tubes, he observes. Instead he advises slow, steady growth.

Organization and planning of work flow was also a serious problem for Sanders. "I never said I was a manager," he says. "I am a creative person. A lot of creative people dislike managing, but a business owner is a manager. If the project is late or over budget, that will screw it up as much as not having the talent. Sometimes it's more important to be on time and on budget than to get a brilliant product. You can't make every project a creative breakthrough." Facing financial troubles also made Sanders reassess his commitment to staying in business. "You are not a bad person because you are a business failure," he says. "But there are times when you want to flush the business and go on to other things. I did not expect it to be so tough." Owning a business, Sanders says, is twice as challenging as city planning, his previous career.

Some business owners create for themselves a kind of business purgatory, says, Sanders says. They teeter on the edge of bankruptcy for months or years, cling to products or services that are marginal money makers. "That is sad," he says, "spending 80 hours a week with minimal return. You need to take a hard look at yourself and see what that's about." Sanders says that even though he was open about his company's financial troubles with his employees, he and his employees had morale dips. "Don't try to hide anything," he says. "Let vendors and employees know what's going on. The key to survival is having faith that it will work out in the end." Sanders' company not only survived, but began to thrive again.

Now based in the town of Sonoma, Sanders' company branched out beyond graphic design to include creation of signs.

—James Dunn

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