Firing the Boss

Darrell S. Freeman understands that in some ways, entrepreneurship is like flying a plane. As a pilot of a Piper Meridian, a single-engine turboprop, he routinely has to adjust for wind conditions, alter attitude or altitude, or roll left or right if necessary. As founder and executive chairman of Nashville-based Zycron Inc. (No. 86 on the BE Industrial/Service Companies list with $29.3 million in revenues), he also realizes the need to make adjustments within his company as circumstances dictate.

So he did something few entrepreneurs do–he fired himself. “The problem was that it didn’t grow. I attributed that stagnation to myself,” recalls Freeman, adding that he believes CEOs often overstay their terms. “I had gone past my shelf life and just because I was the owner did not mean that I should have stayed in that role. If I’m not performing, if I can’t grow the company to the next level, then I’m not the right person for the job,” he says.

So in early 2007, he brought in Steven Howard Smith to helm the company. Freeman felt Smith had the experience to grow Zycron since, as an executive with SCB Computer Technology Inc., he helped grow that company from $2 million to $150 million before it was acquired by CIBER Inc. Since then, revenues for the information technology services firm have risen some 60%–a growth rate Freeman attributes directly to the hiring of the new boss. Now the duo and their team look forward to continuing the growth track and reaching Freeman’s goal of turning the be 100s newcomer into a $100 million enterprise.

A Steady Ascent
“We work with IT departments and [chief information officers] and we manage every facet of IT including other vendors,

software purchases, hardware purchases, and more important applications such as delivery and applications maintenance,” explains Smith. With clients that include the Tennessee Valley Authority and FedEx, the company derives some 60% of its revenues from government contracts.

(Continued on next page)

Among Zyrcon’s clients is Hospital Corporation of America, which owns and operates 164 hospitals and approximately 106 freestanding surgery centers in 20 states and London. “[Freeman] has good people on his leadership team.  He’s a good businessman and understands our business,” says Noel Williams, senior vice president and chief information officer for HCA, which has about 60 Zycron consultants at various locations. “We have used them to help with our electronic health record implementation, to help with custom in-house application development. They’re very good business partners.”

Despite a stagnant economy, the company has generated fairly impressive growth. Revenues grew from $21 million to $29.3 million in 2010. Management projects the company–which was started by Freeman in an office the size of a closet with $2,000 in savings and a bunch of credit cards–to reach $35 million by the end of 2011.

First Flight
Freeman’s background initially was in electronics, having attended Kirkman Technical High School. After graduating he moved to Atlanta and by his own account, “nearly starved to death. I had an apartment with three roommates, and times were very, very difficult,” he recalls. But fate intervened. A friend dropped out of Middle Tennessee State University and asked Freeman’s help moving his belongings. Freeman, who grew up in a family of five where neither parent graduated high school, was surprised at what he saw.

For someone sharing a cramped apartment with three other adults, collegiate life was a virtual paradise. “I said to him, ‘You

mean to tell me this is your own dorm room with your own phone?’” recalls Freeman. “And, he said, ‘Yeah.’  ‘And there’s a cafeteria where you can go eat?’  He said ‘Yeah.’  I said, ‘Well, this is where I’ve got to go to school.’” And in the fall of 1983, he enrolled at MTSU.  Freeman would earn his bachelor’s degree in computer technology and later a master’s in industrial studies from the university.

(Continued on next page)

After just a year in corporate America and at the age of 26, Freeman decided to become an entrepreneur. What he lacked in experience, he made up for in youthful exuberance. “That’s what you do when you’re young, and you don’t have any idea about the potholes that lie ahead, and you’re not thinking about all the problems that you might run into,” he says. “At that point, I didn’t try to count what the obstacles would be. I just decided I’d do it.” Among those obstacles was–as one can imagine–insufficient capital. Freeman maxed out all his cards and found himself with nearly $30,000 in credit card debt.

Course Correction
Making matters worse, the initial company was in a low-margin business–buying, reselling, and installing computer systems. “If you wanted to buy a computer from me, or two computers, I would charge those computers on my credit card. When I sold them to you, I would bill you,” Freeman recalls. “Hopefully, you would pay me within the time period needed before my bill was overdue. I can remember going to get gas one day and my credit card was not taken because it was overdue.” The company’s first contract: a $9,000 network installation in 1992 for Minorico Supply Co, a local industrial business.

Profits were scarce and with e-commerce taking off in the ’90s, competitive pressure skyrocketed, forcing retailers to lower prices. Zycron’s current model was no longer sustainable. Fortunately, Freeman knew that successful entrepreneurs have to be flexible and be prepared to adjust their business models. “I saw that coming and said, ‘Hey, we’re going to focus on the service side of the business because it’s very hard to commoditize a service,’” Freeman says. “Also, with a service, you get a chance to add some value and establish relationships with the clients.”

The strategy worked and by year’s end in 2006, revenues grew to $19.4 million, a 17.8% increase over the prior year. But Freeman says the company hit a wall and wasn’t confident the company would continue to grow at a rate he was happy with, which was closer to 25%. As the chief executive, Freeman says the fault was his.

(Continued on next page)

Becoming a Co-pilot
In early 2007, Freeman recruited Smith, who started in IT back in the ’80s. He also had a track record for revenue generation, having helped grow a prior company from $2 million to $150 million in annual revenues during his more than 14-year tenure. Nearly one-third of that growth came by way of acquisitions. “A lot of times the reason a guy can’t let the reins go is ego–if you’ve built it you believe no one can run it like you can,” says Smith. “But Darrell didn’t say that. He called me and said ‘I don’t think I can take this thing anymore by myself.  I can’t propel it the way it needs to be propelled.’”

Smith hit the ground running. “The elements of success were already here, but I knew

we needed a management structure. Darrell didn’t have anyone else in an appointed senior leadership position,” recalls Smith. So he and Freeman filled several positions, either internally or otherwise, including a chief operating officer, an executive vice president of sales, and a director of IT governance. Then Smith oversaw the acquisition and installation of an internal software system that tracks performance and discerns trends. “We’re now seeing things we didn’t understand before–things we’re doing right and things we’re not doing right.”

Once the management team and internal systems were set up, Smith began to create a culture of discipline and accountability. “We judge ourselves internally as if we were publicly traded,” he says. “We don’t answer to Wall Street, but we answer to each other. For instance, how does Q2 of 2011 compare with Q2 of 2010? What trends have affected us? We have a very strict budgeting process.” With those measures in place, the company has experienced steady growth and now has its sights set on other regions–domestically and internationally.

According to Smith, the company recently launched Zycron Latin America and is in final talks with a new South America-based partner, Productura de Software Latin America (PSL), a renowned software provider. The team sees potential future growth in other regions as an avenue to reaching Freeman’s stated goal of taking the company to the $100 million level. “We plan to do most of our growth organically. We don’t mind growing at 10%, 15%, 20% a year,” says Freeman, 46. “I’ve seen companies come and grow, and go out of business. In some cases, the growth is what killed them. We want to make sure that we grow at a rate that we can digest.”