Romney had reservations about Staples
Staples revolutionized the office supply business, but its success was far from guaranteed. Mitt Romney’s recent testimony reveals insight into its rocky beginnings.
This story is from BostonGlobe.com, the only place for complete digital access to the Globe.
It was early 1987, and Mitt Romney was shopping. And he was angry.
He was walking the aisles of Staples, a little-known retail store his firm had bet $1.5 million on so far, and picking up office supplies. Then he waited in line at the checkout counter — for far too long.
To Romney, then chief executive of a fledgling investment firm called Bain Capital, it confirmed what friends had told him: A superstore with low prices was a good idea, but the lines took forever, the credit card machines weren’t working, the staff was “surly.” With just a few stores open since its launch in Brighton, Staples already had big problems.
“I was shopping there myself and found it a frustrating experience,’’ Romney would later say.
Staples went on to revolutionize the way office supplies were sold, and its founder, Tom Stemberg, would become a loyal political backer for Romney in his run for the presidency. But two-decade-old court documents unsealed last week offer a new glimpse into the early days of the start-up, revealing a rocky beginning long before Staples became a polished bullet point on Romney’s resume as a businessman and job creator. The filings, released at Norfolk Probate and Family Court at the request of the Globe, portray a retailer riddled with operational problems and contentious board fights, and shed light on Romney as a hard-nosed investor, leaning sternly on an entrepreneur for results.
Stemberg, a former supermarket executive, believed the inefficient business of small stationers could be improved so companies could buy office supplies in large volume. He hoped to launch a chain of big stores.
He met Romney in 1985, introduced by a partner from another local investment firm, Bessemer Venture Partners. Romney was skeptical that low-margin products such as paper clips and pens could translate into handsome profits. But after studying the market, he concluded that Staples could save businesses money. Bain and Bessemer wanted to be the lead investors. Then came the negotiations, and they were brutal.
“It was a very difficult and painful process,’’ Romney would recall while testifying on Stemberg’s behalf. “We found Tom difficult to deal with from a negotiating standpoint.” His comments were part of the unsealed filings from Stemberg’s divorce case in 1991.
Stemberg and his lawyer were driving a tough bargain, trying to keep “a very large portion” of the company for the founder, while Bain and the other investors were “of course thinking we should take a large portion of the company.”
The talks took weeks, Romney recalled, and they were longer and more grueling than any he and Bain had dealt with in the past. The negotiating process became so difficult, Romney said, that Sandy Samuels, a representative for one of the other investors, threw up his hands, saying, “I can’t take it any more, Mitt, you try.” Romney said he and Stemberg finally wore each other down.
“It was very clearly our intent to [reward] Tom handsomely if the company did spectacularly well. On the other hand, we did not want Tom to receive any reward if he were to turn out to be not an effective chief executive officer,” Romney said in his testimony.
Stemberg, who is now a professional investor himself at the venture capital firm Highland Capital Partners, declined to comment on the testimony from his divorce case, but did not dispute that the Staples negotiations were intense.
Indeed, such contentious face-offs are common, said Todd Dagres, a Boston venture capitalist whose deals have included Akamai Technologies and Twitter.
“The one thing that is an absolute rule is, the most successful entrepreneurs I’ve dealt with have been the most challenging,’’ said Dagres of Spark Capital. “Based on how successful Staples and Stemberg were, and Mitt has been, I would be shocked to learn if it was anything different.” Romney’s campaign declined to comment for this story.
With all the agreements in place, Staples started rolling out new stores. Woburn opened after Brighton, and Providence after that. But sales were ramping up slower than expected, Romney said. Immediately, the blame fell on Stemberg.
“The first area of concern was whether management or Tom in particular was selecting the right sites with sufficient care and whether we needed a different process for selecting sites,’’ Romney said. In addition, Romney was concerned that the stores were short on some merchandise, and that customers were staying away because of those inefficient checkout lines.
Romney said he and the rest of the board rode Stemberg hard. They wanted him to hire a chief operating officer with serious retail experience who could manage the operational issues. Stemberg resisted for a time, perhaps fearful the new executive would replace him, Romney speculated.Continued...