From Change to Chaos One of the first changes was the announcement that Pacesetter would close its manufacturing plant and outsource window production to vinyl window manufacturer Republic Windows of Chicago. Pacesetter reps were used to selling one product and getting top dollar for it. Now salespeople would offer their prospects a good, better, and best window selection. According to several sources, this had a deflating effect on the salesforce. “We built a unique fiberglass product that was superior to everyone else’s,” says one former executive, requesting anonymity. “That took the pitch, and a good product, away.”
A second far-reaching change was structural. The old Pacesetter organization of “A,” “B,” and “C” offices presided over by a handful of general managers “who ran their operations like fiefdoms,” according to one description, was broken up. These were replaced by three divisions — East, West, and Central — each run by a president and a vice president and administered at the local level by district sales managers. Pacesetter’s eight call centers were reduced to five. Nonproductive offices were steadily closed through 2004.
These changes, Blue says, “caused a lot of negativity. And as everyone in the direct sales world knows, negativity is a cancer.”
The company also implemented a “greeter” (or customer intercept) program with retailers Sam’s, Garden Ridge, and Kmart. This put Pacesetter demonstrators into stores to drum up leads. Initial results looked promising, and Pacesetter equipped demonstrators with BlackBerries so that appointments could be set almost immediately. In April 2004, the company launched its “Quarter Million Dollar Great American Home Remodeling” sweepstakes that ran through the summer. In the fall Pacesetter began airing TV commercials featuring game show host Bob Eubanks.
There were also plans underway for the company to merge with the Bil-Ray Group, a large home improvement operation in New York. “We were all very excited about it because it meant an influx of money, territory, and experienced business partners,” Bannon remembers.
An Implosion Whether it was the internal resistance he encountered, his hands-off leadership style, or a profound misreading of just where the opportunities for Pacesetter might be, virtually none of the initiatives launched by Iskra and his management team stemmed the erosion of leads and sales. For instance, Pacesetter’s management expected store leads to sit at an 80% rate and close at somewhere between 50% to 60%. But those leads soon diminished, and at the same time they grew more expensive.
When Iskra bought Pacesetter, the company was generating slightly less than $10 million in monthly sales, and had, according to one estimate, about 350 reps on the street. (According to one source, Pacesetter’s 2004 sales were $91 million.) Growing rescission, branch closings, and management’s erratic course intensified salesforce turnover. This produced a cash-flow crunch, evident in December 2004, which caused the company to begin to slowly implode. At the start of 2005, Pacesetter was running out of cash and delaying bills. In January, management announced that from that point forward, employees — who had been paid every Friday — would be paid every other Monday. On April 11, Pacesetter issued a memorandum informing employees that their health insurance had been canceled. By that time, Pacesetter paychecks were, in the words of a former installer, “iffy.” On May 2, those checks began bouncing. By that point the company owed employees thousands in commissions and back pay. In June, Republic Windows stopped shipping to Pacesetter, and other vendors had already ceased supplying the company. “In 16 months, it literally fell apart,” recalls Blue, who left that August, when the company was down to 20 reps.
Online Hornet’s Nest In June of that year, a little more than a year after taking ownership, Iskra and Aloe told the Pittsburgh Business Times that they were moving Pacesetter to Pittsburgh, where the company would occupy 12,000 square feet of the 56th floor of the prestigious Steel Building. According to the story, “only three employees would be relocating with the company from Omaha.” The company subsequently failed to raise the cash to secure its lease.
As people left or were laid off, morale crumbled. Angry and often embittered ex-employees found their way to PacesetterSucks.com, which was soon swollen with postings. What had started as a revenge blog by a pair of disgruntled customers was transformed into an online hornet’s nest of gossip, insult, and innuendo. This turn of events surprised Ken Innes. “Once they started not paying their employees, guest books four and five filled up in two months,” he says, referring to caches of e-mail postings.
In November, Pacesetter filed for Chapter 7 bankruptcy in U.S. Bankruptcy Court in western Pennsylvania.
Phil Schrager describes himself as “deeply saddened” by the fate of the company he once owned. “But I made the decision to give up the ship,” he says, “and in the back of my mind, I had to know that anything could happen.”
So many factors went into the Pacesetter debacle, that it is difficult to single out any one in particular. Other large home improvement companies that used telemarketing as a major lead source — such as K-Designers in California — survived the DNC list. In interviews with REPLACEMENT CONTRACTOR, former employees offer various reasons for the company’s demise. Blue ascribes it to “massive changes, many of them premature, done without thought or consideration.” Onetime IT manager Lee Stafford says Pacesetter’s management “made reactive decisions, not directional decisions.” Lupomech blames the company’s failure on “too many chiefs.”
But what could other home improvement companies learn from this?
“There is,” Bannon says, “a tremendous business out there to be had, but it’s easier to get it than it is to keep it. And if you want to get it and keep it, you have to realize that it’s all about the customer. If I was running a home improvement company, that is something I would drill into everybody’s head.”
