Before we go any further with Jonah, we need to back up a bit. Throughout 1999 the new Big Idea leadership team was being assembled. Strategy meetings were taking place. Numbers were being crunched – trends analyzed. Even though there was still no official plan and no real budget, hiring was already well under way as the new leaders each built support staffs. By late summer the team was finally in place. I was traveling in LA on business around then when suddenly it dawned on me that it had been 10 years since I had started GRAFx Studios, the company that would later become Big Idea Productions. A full decade of my life had gone into this pursuit of the stories I felt God wanted me tell. Thinking about the team that was now in place to help me, for the first time I really felt the weight and fatigue of building and attempting to run the company alone for so long – a task I had seldom enjoyed. Sitting alone in a hotel room somewhere in Los Angeles, the fatigue overwhelmed me and I found myself crying uncontrollably. I was exhausted.
Back in Chicago, I told my new president I needed some time off. We agreed that I would take the month of October off to rest and recuperate. The team was in place. They could manage the business without me. October came, and Lisa and I headed to Hawaii for a week of rest. I had intended to spend the rest of the month playing with my kids, taking pictures and studying the Bible. The distance from Big Idea, though, gave me ample time and space to think things through and I began to doubt that things were going as well as I had thought. One clue that perhaps they weren’t came as I returned from Hawaii and was called in because my new president and executive vice president, locked in a dispute over their stock awards, were no longer speaking to one another. Over the rest of month I noticed more and more concerning issues. So many, in fact, that upon my return, I called all the leaders together and laid out my concerns about our direction one by one, in front of the entire team.
The reactions were swift and strong. Several leaders were embarrassed that I had mentioned concerns about their areas in front of their peers. Another leader called it “the most important meeting he had ever attended.” Our brand new head of human resources said it was “exactly what he expected Big Idea to be like.” My president, however, wouldn’t speak to me for two days. When he finally did, he declared it “the biggest leadership disaster he had ever seen.” The next day he instructed our new head of HR to help me write a full retraction and apology. Boy was I confused. I finally felt like I was leading boldly, but the man I had hired to help me lead described my bold leadership as a “disaster.” I agreed to apologize for any embarrassment I had caused by addressing concerns so publicly, but stopped short of issuing the full retraction my president had demanded. It was clear the two of us didn’t see eye-to-eye, and our relationship would be strained from here on out.
Christmas, 1999. Due to the rapid growth and hiring, we were a little short on cash. So our annual Christmas party was held at Big Idea’s new temporary offices in Lombard, Illinois. Near the end of the evening, a good friend of mine and fellow senior leadership team member pulled me into his office and said, “Wanna see a joke?” He dropped a thick, 3-ring binder on the table in front of me. The cover read, “Big Idea Productions – 2000 Budget.” Up to this point, Big Idea’s growth had been so unexpected and chaotic that we had never successfully put together an annual budget or sales forecast. Now that the leadership team was in place, though, it was time to start running things like a “real company.” So while I was taking October off, the team had started a budget process that had produced the tome sitting in front of me.
Curious (I had been completely uninvolved in the process), I turned to the summary page and felt my jaw drop. Our sales in 1999 had totaled roughly $38 million, a staggering amount in my mind. The new forecast for 2000 – $77 million. “Egads,” I thought, “Who’s going to buy all those videos?” Then I looked at the expense side, or the costs needed for the team to meet its sales forecasts. Our expenses in 1999 had been somewhere around $25 million, leaving the company with a very healthy $13 million profit. For 2000, the team projected expenses of $73 million, including staff growth from 1999’s 150 to an unbelievable 315. I was speechless.
As soon as we returned from the holidays, I called the leaders together and posed a simple question: “What exactly are we building here?” We were proposing to triple our expenses, while only doubling our sales. More concerning, we were proposing to double our staff size, without increasing our ability to produce films. Of the 165 hires being requested, only a handful were in the animation studio. Ninety percent were in finance, HR, marketing, licensing and design. So at 315 people we would be able to produce no more videos per year than we had produced five years earlier with a staff of 10. The meeting ended with no answers and very little real discussion. It was as if most of the leaders just wanted me to go write the next video and leave the business up to them. Stop meddling, we’re professionals. My president assured me the budget wasn’t yet approved and we wouldn’t be hiring anywhere near that many people. Don’t worry. We know what we’re doing.
A few weeks later the sales results for the month of January came in. The team missed the number they had forecast in the 2000 budget by 80%. Not by 20%… by 80%. The team had sold one-fifth the number of VeggieTales videos they had planned on selling. Yet they had spent significant monies on marketing plans and awareness/sampling programs to generate the sales they were forecasting. Something was seriously wrong. I started to freak out and ran into the President’s office. “Don’t worry,” he assured me, “I’ve told the sales team they need to make up those lost sales in the second half of the year.” Make up the sales later in the year? How on earth would they do that? It didn’t seem possible. So over the next month I dug into all the sales and financial data I could get my hands on, and rebuilt my own financial forecast for the company, based not on the leadership team’s optimistic forecasts, but on the expenses we were incurring and the real sales that we appeared to be achieving. With Jonah just recently greenlit, and sales at a fraction of the forecast used to justify its production budget, my forecast looked bad. Really bad. We weren’t going to be able to keep the company going long enough to finish Jonah, according to my forecast, without bringing in nearly $20 million in cash from some external source. In fact, we were just 5 or 6 months from running out of cash and shutting down.
In April of 2000 I ran to the President and CFO with my dire forecast. They both looked it over and handed it back to me. They had their own forecast that looked much better than mine, and, more importantly, they had already given their forecast to our bankers. If they changed the numbers now it would make us look bad with the bank, which would not be good, since we desperately needed a very large bank loan in order not to run out of cash in 5-6 months if sales didn’t turn around.
Desperate for cash, we pressed ahead with the bank loan process, until finally in August I found myself sitting in the conference room with my president, CFO and corporate attorney and a large stack of legal documents. It was the bank loan, ready for signing. Our attorney looked at me. “Before you sign this, are you comfortable with the covenants?” “What covenants?” I replied. His face whitened. My president and CFO shifted uncomfortably in their seats. I knew we were trying to borrow a lot of money from our bank. What I wasn’t so clear about was that when a company borrows money from a bank there are certain financial requirements placed upon the company to keep the bank comfortable with their financial health. If you fall out of compliance with those requirements, the bank has the right to call the loan and, effectively, take over your business.
“Well, there are certain hurdles we have to meet to remain in compliance with the loan agreement,” my CFO said. “Like… what?” I asked. The room was a bit tense. “I don’t know them off the top of my head, but I could go get them if you’d like,” he replied. “Yes. Go get them,” I responded. In a few moments the CFO was back in the room with the list of performance covenants. He read them in English, but they sounded like Greek to me. And I got kicked out of Bible College long before I mastered Greek. “Our blah-to-blah ratio needs to be no more than blah… our blah-blah-blah shall not exceed blah-point-blah… our twelve-month rolling EBITDA-E (I remember that one) must be blah-blah-blah.”
He finished the list. Everyone stared at me. “So…can we make those numbers?” I asked, not entirely comfortable admitting I had no comprehension of what he had just read. “Sure,” he responded, “We can make those.” Keenly aware that we were just weeks away from running out of cash, I swallowed hard, and signed the documents. Did I understand exactly what I was agreeing to? Not really. But my president and my CFO were convinced we could make the numbers, and they were much smarter than I was.
One month later, our financial analyst walked into a senior leadership meeting and said, “We aren’t going to make those numbers.”
I signed the loan agreement in August of 2000. By late September of that year we were already out of compliance, effectively giving LaSalle Bank the right to shut down the company and sell off all of its assets, including, of course, Bob and Larry.
I was not happy.
Continued in Part 5 >
>The new forecast for 2000 – $77 million. “Egads,” I thought, >“Who’s going to buy all those videos?”
ugh, if you guys were producing 2 stories a year, around that time and assuming that families would buy one of each you’d still need around 300,000 costumers to do that, and tahts just to hit video profit…i would think that you’d need more than that than just barely…ugh this is making my head hurt.
I’m wondering if I was to be working there at that time (like as an animator or story artist), would I even be able to speak my mind about this issues going on here and help fix the problem or would i just be shot down like you were.
I’m just going back and reading all this, and I had some what of an untainted biased oppinion from an employee taht was sorta my insider at teh time…you know, and i see where it got really stressful for you. heh, who would listen to a 9th grade fan girl anyways right? I didnt even know you back then, and I probibly wouldnt have listened to me either.
I am so gonna set things straight when i reach my goal. ten years, i’m giving myself a max of ten years…5-10, yes!
Aaaaaw maaaan, just finished reading the end, I think i was in the middle earlier. It almost makes me…wait, it makes me appreciate all those boring classes in high school about all the this legal crap, politics, and how to business stuff. ugh, he must have drilled it well into our heads, for being in 9th grade, I’m surprised its all still there now.
Oh, if only I had a time machine to get into that meeting…
Thank you very much for making yourself so vulnerable by explaining all of this. Our family has been a supporter of Big Idea since 1993, and I worked with your marketing department during the late 90s when Bob & Larry appeared at my festivals. I was deeply saddened to hear of your struggles, as I’ve lived through similar circumstances with another company which got stuck in “No Man’s Land.” I know all too well how it can feel as if someone took a weed-whacker and used it to go crazy on my pride and sense of professional self-worth. Your detailed explanation here of what went wrong and what went right is a huge help in assisting others to avoid such pitfalls. Again, I’m deeply impressed by your strength in making yourself so transparent for the benefit of others. Thank you from the bottom of my heart, and blessings to you, Lisa and Shelby.