The Heart of a Company
By Leigh Buchanan is a senior editor at Inc.
Source: Inc. Magazine, original publish date June 2002
Kenny Kramm, a slight, gentle-spoken man of almost preternatural calm, is the founder and CEO of $5.7 million FlavorX Inc., a fast-growing company based in Bethesda, Md. But not so long ago, the only thing Kramm wanted to start was a family. By 1992 he was married to his college sweetheart, with a three-year-old daughter and a second child on the way. After a stint on the creative side of advertising had left him feeling dissatisfied and vaguely unclean, Kramm had sought refuge in the family business, a cozy, old-fashioned pharmacy that he expected one day to inherit. There he labored comfortably alongside his parents, working the counter and passing the time of day with the store's mostly elderly clientele, much as he had done
At age 29, Kramm had never so much as toyed with the idea of starting a company. What's more, he possessed a trait incompatible with entrepreneurship: He was perfectly content with his life the way it was. "It wasn't the kind of life you would read about in Inc. ," says Kramm. "But it was good."
Back then, the only thing troubling Kramm was his unborn child. Though she was now healthy, his first child, Sarah, had been born two months early, blue and not breathing. During her second pregnancy his wife, Shelley, developed toxemia; the couple awaited the new baby's birth with trepidation. On February 6, 1992, Hadley Kramm was born at 28 weeks, weighing 3 pounds, 10 ounces. Still, "she was fine," says Kramm. "She had an Apgar score of 10. We were so relieved. We thought it would be okay."
But when she was 10 days old, Hadley -- still in the hospital because of her weight -- stopped eating. Her skin mottled. The Kramms haunted the hospital corridors by day, spending fretful evenings at home with Sarah. They alternately summoned hope and dismissed it as a dangerous luxury. Then "we got the call," says Kramm.
Obeying the summons, the Kramms rushed to the hospital. There "the resident led us into the NICU carrying a flashlight because it was the middle of the night," recalls Kramm. "He shined it on Hadley, and her eyes were rolled back in her head." The resident insisted it wasn't a seizure, and so did other residents who attended Kramm's daughter during that long President's Day weekend. "They said it was just 'seizurelike activity,' and it went on for three days. Three days, " says Kramm. Finally, on Tuesday, a physician confirmed that yes, Hadley was experiencing seizures and needed immediate treatment. She should have had it days earlier.
Kramm believes his daughter's seizures may have resulted from a massive brain hemorrhage caused when she was given asthma medicine by mistake. (The hospital denied responsibility, the Kramms say. They also say they were too exhausted and demoralized to sue.) Whatever the culprit, the damage was extensive and irreparable. Hadley's life would thereafter be defined by a long list of debilitating ailments, the most serious of which were continual seizures, a blood-clotting disorder, and cerebral palsy. She would need help with some of the most basic functions for the rest of her life: She might never live on her own. "When you have a baby you have boundless hopes for them," says Kramm. "All we could do was ask, what is the best we can hope for? Will she be able to walk? Will she talk?"
For many families the introduction of a child so disabled is not a single shattering event but rather the beginning of a lifetime of fraying relationships, periodic despair, and shuttered possibilities. It could have gone that way for the Kramms. Instead, Kenny Kramm mustered the energy -- even at his life's emotional ebb -- to begin a venture that far exceeded his earlier ambitions. Driven to take back some control of his family's future, he launched a company that is both inspired by and intended to financially secure his daughter Hadley.
FlavorX Inc., which flavors liquid medicines for children, is a family business because it leverages the diverse talents of Hadley's extended clan. But it is also a family business because it helped save a family.
As a pharmacy technician, Kramm knew young children hated swallowing medicine, but it had never seemed like an earth-shaking problem. Hadley made it one. Home from the hospital, his infant daughter balked at the four daily doses of phenobarbital she needed to prevent grand mal seizures that deprived her brain of oxygen. "She would clamp her mouth shut and you couldn't get it open," says Kramm. "If you did get it open, she'd hold the medicine in her mouth for half an hour until she'd start crying and it would come out all over her. That was worse because we didn't know how much she'd gotten, and we were afraid of giving her more in case she got too much." The Kramms erred on the side of undermedication, and as a result Hadley's seizures continued, sending her to the emergency room over and over again. "After two or three months we decided we couldn't function like that," says Kramm.
Then one day in May, Kramm's father, Harold, suggested sweetening Hadley's phenobarbital with flavorings used by candy manufacturers. When the pharmacy shut its doors on those warm evenings in late spring, father and son would repair to a small counter in the back of the store and stand there for hours, mixing the medicine with varying amounts of whatever flavors they could get their hands on. They experimented with cherry, wintergreen, grape, peppermint, and cinnamon: Kramm would taste each by taking a bit on his fingertip and touching it to his tongue, then rinsing his mouth with water.
The combinations that Kramm deemed most successful he carried home to Hadley in diminutive dosing cups. "She rejected at least 10 before she finally accepted banana," he says. "When she swallowed it, that was the first time in months that I felt I had some control back in my life."
Center Pharmacy, which is in Spring Valley in Washington, D.C., shares a building with several pediatricians' offices and an annex of Children's Hospital. Word of the Kramms' success with phenobarbital spread, and soon their neighbors began sending down patients with all kinds of prescriptions to be filled and flavored: everyday children's antibiotics, as well as medicines for more serious conditions, like phenytoin for seizures and digoxin for heart arrhythmia. As more and more customers requested the flavorings, Kramm, who had been a business major, saw an opportunity to increase sales with a distinctive offering. And the notion of helping children was therapeutic, since he could do so little for the one child that mattered to him most.
Kramm recognized immediately that variety was key to the new offering's appeal. So he used some of the store's young customers as a focus group to test flavor combinations. Does sour apple clash with Zarontin? Wouldn't mixing chocolate and Biaxin only make matters worse? He continued to taste-test every concoction himself and began compiling a formulary of optimum drug and flavor recipes. In each case, the amount of flavoring had to be carefully controlled so it wouldn't dilute or destabilize the medicine. (The flavorings -- all commercial products -- were already approved by the FDA.)
Center Pharmacy, which started life in a nursing home, had always catered to elderly customers. But after Kramm placed an ad touting the flavoring service in the Washington Post, parents and their finicky offspring swarmed the pocket-sized pharmacy from as far as 25 miles away. The Kramms began stocking toys and other child-related products. Within a few years, the clientele changed from 90% geriatric to 90% pediatric. Meanwhile, the pharmacy's sales overall jumped from $600,000 to $3 million.
"When you have a baby, you have boundless hopes
for them. All we could do was ask, will she talk?"
But that growth only partly salved the anxiety that Kramm felt as he watched his personal expenses mount. At the pharmacy, he was making $70,000 a year. What with medications (Hadley routinely took at least four, including ones for seizures and blood clots), operations (she needed surgery every two years because her muscles became so rigid that her feet turned in), various therapists, special equipment, and modifications to their home, the family was spending as much as $100,000 a year on Hadley alone.
Kramm and his wife worried obsessively about what would happen to their daughter after they died. "I couldn't bear the thought of her unable to support and defend herself, at the mercy of people that did not love her," says Kramm. "We needed enough money to make sure she would be taken care of for the rest of her life."
Though Center Pharmacy was solid, Kramm also fretted about its future. Huge chains such as CVS, Rite Aid, and Kroger were swallowing up or driving out smaller stores, while third-party reimbursements were spiraling downward, taking a further toll on independents. "We'd seen some of our friends go out of business," says Kramm. "I wanted a backup plan in case something happened to the pharmacy."
FlavorX is a family business because it leverages
the diverse talents of Hadley's extended clan.
So in 1995 Kramm took $15,000 from his personal savings and a little more than $200,000 that his father gave him from the pharmacy's profits, and launched FlavorX as an independent company. It would sell its "systems" -- consisting of the formulary and refillable sets of flavorings -- to other pharmacies. "It was a risky thing to do because we had such large expenses at the time," says Kramm. "But those expenses were only going to get larger. We had to make it work."
Center Pharmacy is a curious seedbed for an innovative, fast-growth company. The 36-year-old neighborhood business is comfortably old-fashioned, competing on personal service rather than price. Staff and customers are on a first-name basis, home deliveries are common, and the Kramms themselves will drive to other pharmacies to pick up something for a customer if they're out of stock. They even give out their home phone numbers. "I can remember many instances," says Kramm, "when my dad would get called out in the middle of the night because a hospice patient needed a pain medication or somebody had some other emergency."
From a very young age Kramm helped out in the store, sliding fliers into envelopes, pasting price stickers on bottles of laxatives, whatever needed doing. Over the years he had absorbed his father's philosophy that having a family business is less about passing on than about pitching in. Consequently, there was no question in the entrepreneur's mind that his father would do more than just bankroll the new company. Kenny Kramm possessed business and marketing skills. But Harold Kramm understood the technical details of compounding -- the practice of customizing medicines to meet individual needs. A pharmacist himself, he knew the target market as well as anyone.
The only problem: Harold Kramm was as comfortably old-fashioned as his business. Impressed by what the flavoring service had done for Center's bottom line, he saw no need for the service -- or Kenny -- to ever outgrow the store. His son argued that it was time. They'd put in three years of development on the product and had 50 pages of flavor and medicine combinations in their formulary. (That number has now risen to more than 500 pages.) They could make life better for millions of children instead of the few hundred who patronized the store.
And, if it worked, they'd be helping Hadley. "All my decisions, at that time and since, were influenced by Hadley's situation," says Kenny Kramm. Slow growth was not an option: He wanted financial security and he wanted it soon. "I felt I had to accomplish my goals as quickly as possible," he explains. "That made me much more aggressive than may have been natural to me."
The issue came to a head in the summer of 1995. The National Association of Retail Druggists was meeting in Las Vegas, and Kenny Kramm saw the conference as the perfect opportunity to test the concept's acceptance. Harold, by contrast, saw it as "a waste of time and money," says his son. But, in a rare instance, Kenny's entrepreneurial instincts overrode his filial ones. "I told him he could either join me or I would go alone," Kenny recalls. At the conference, FlavorX's no-frills booth attracted long lines, and the embryonic company signed up its first 20 accounts. Harold was convinced, and "I guess for the first time I really was too," says Kenny.
But the real battle -- or what passes for a battle in such a polite, soft-spoken clan -- erupted when Kenny Kramm suggested FlavorX sell its system to chain stores. In Harold's eyes, it was a deal with the devil. "My father is not a fan of the chains," says Kenny. "When we started, all he wanted to do was help his granddaughter, but in the first two years something like 5,000 independent pharmacies went under. As one of the survivors, he wanted to do something for the other survivors."
Bowing to his father's wishes, for three years Kenny Kramm sold exclusively to independent pharmacies, touting his product as a sling to wield against Goliath. "We actually turned down the chains -- it was stupid, stupid, really stupid," he says. "I didn't want to upset my father and I didn't want to be screamed at by our independent customers for selling out. But the independents were going out of business, and I didn't want the company to die because I made a bad decision."
So in 1999 Kramm, whose confidence had been growing along with his company's sales, decided to target the behemoths with or without his father's blessing. To make it easier on his father he began with a local chain -- Giant, now owned by Royal Ahold -- dragging Harold along to meetings with their new customer. "My father had watched Giant grow, which made it easier to get used to the idea," says Kramm. "And when he saw that we sold 150 sets in one hour, it started to make sense to him."
Standing beside his son, Harold Kramm -- still dapper at 73 -- shrugs gently. "At least the independents had a few years to get it established," he says.
The son's strategy is paying off: FlavorX has grown at a five-year rate of 786%, landing on the Inc. 500 list in 2002; it's been profitable every year but one. "Kenny has made this thing into something so much bigger than I had ever imagined it could be," says Harold Kramm. "He is a very talented boy."
FlavorX moved out of the Center Pharmacy building in 1998, but it didn't go very far: The company's headquarters are just five miles away from the family business. The two places are even closer in spirit, displaying on their walls some of the same snapshots, mottoes, and posters, including one proclaiming 14-year-old Sarah's anointment as Miss Teen USA for Maryland. Kramm's office is a gallery of portrait-sized family photos and homemade artworks. ("Hadley does a lot of handprints," says the CEO.) On his desk rests a memo pad emblazoned with childish drawings of one girl in a wheelchair and another clutching a shopping bag. "From the Dad of Sarah and Hadley" reads the legend across the top.
Today the dad of Sarah and Hadley is conferring with the uncle of Sarah and Hadley -- a.k.a. Woody Neiss, the company's chief financial officer and Shelley Kramm's youngest brother. Neiss, who four years ago left a well-paying job at PeopleSoft to enlist in the family mission, has just returned from a three-day trip to Australia, where he accepted the Thomas Alva Edison Award for Innovation from the Young Entrepreneurs Organization. The trophy -- a century-old phonograph, one of the originals peddled by Edison's company -- is fragile and bulky and clocks in at 60 pounds. Neiss carted it home on the plane himself so he could present it to FlavorX's 40 employees at the Monday-morning staff meeting. "I couldn't wait," he says gleefully.
"All of my decisions, at that time and since, were
influenced by Hadley's situation. That made me
much more aggressive."
What makes the FlaxorX model innovative is not the idea of flavoring medicine -- a practice that has been applied, unsystematically, by other pharmacists in the past -- but the idea of choice. Children are able to select from a menu of 42 flavors. The options include such appealing flavorings as strawberry cream, root beer, and chocolate silk pie; pharmacists pipette in the recommended amount. "Choosing their own flavors makes the process fun, and once the child has made the choice, he's invested in it and is much more likely to take the whole prescription," says Kramm. "He'll take it even if tastes crappy because he doesn't want to admit to his mother he was wrong."
Stores pay on average $800 to $1,000 each to join the program, which gets them the 556-page formulary, in-store marketing materials, and a rack of small glass vials filled with plummy-purple grape and pearly peaches 'n' cream. Refills cost about $10 a bottle. "We're like Gillette," says Neiss. "We make our money off the reorders."
The company has been expanding its line: In 1999 it introduced flavorings for veterinary medications (Kramm tastes all those too), and it's developing pour-on flavors for special-diet dog and cat food. In the human realm FlavorX recently launched PediaPop -- a lickable, flavored electrolyte replenisher for kids with diarrhea. Far more ambitiously, Kramm and Neiss are talking with a small drug company about creating a branded line of over-the-counter medicines that would apply the Baskin Robbins methodology to off-patent medicines. "We would label it FlavorX acetaminophen, for example, and with each bottle there would be different flavor packets you could buy," says Neiss, an animated guy who is caf to Kramm's decaf. "You could just pick a packet off the rack and add it yourself."
"It would be silly to sell when we're at this high-
growth stage. Right now the grand scheme is to
go public in two to four years."
FlavorX runs lean, generally developing new products with deeper-pocketed pharmaceutical companies. The company also outsources manufacturing and deploys a young, chiefly part-time sales force to talk up the brand among doctors, who in turn urge pharmacies to buy the systems.
Only one area is impervious to economies: testing, on which the company has spent more than $1 million. Beyond ensuring safety, testing is an important barrier to entry that protects Kramm's company from competitors who might want to copy its model. "Each flavor has to be tested with each medication, and there are more than 400 medications, so it's a huge hurdle for any start-up," says Kramm.
The company's brand equity and proprietary formulas, as well as the scientific validation meant to intimidate would-be competitors, make FlavorX an attractive acquisition target. "I get calls once a month or so from someone asking if we're interested in selling," says Neiss. "But we're building so much value in the company that it would be silly to sell when we're at this high-growth stage. Right now, the grand scheme is to go public. Hopefully in two to four years. Hopefully."
Once a boutique service in a single store, FlavorX is now offered in about 10,000 chain pharmacies, 1,500 independents, and 300 hospitals. The progress of the company's human inspiration has been less sure. At age 11, Hadley Kramm can say barely 30 words, uses a walker or wheelchair, requires support to sit up, and still wears diapers. "Hopefully, by the time she's 12 she'll be potty trained," says Kramm. He pauses. "I never thought I'd be saying that. 'By the time my child is 12 she'll be potty trained.'"
Hadley's disabilities have had little effect on her Audrey Hepburn looks: elfin, silky-browed, with the tender vulnerability of beauty easily bruised. At the Kramm home on a March afternoon, she is dressed in a diaphanous red top, pink-trimmed sneakers, and blue jeans that barely crease as she totters stiff-legged across the playroom floor, her thin hands clutching the back of a chair. "Say your name, Hadley," Kramm coaxes his daughter. Gamely, Hadley pushes out the h, but the rest of the word collapses into a plaintive sound too tenuous to be called a sigh.
The playroom, like other parts of the Kramm home, is a riot of toys and books -- they are heaped in boxes, piled on shelves, cascading from baskets that hang from the ceiling. "We want to keep Hadley stimulated, and you have to buy a lot of toys to find one she'll respond to," says Kramm. "And we're always buying things for Sarah to make up for ... the lack.... " He pauses. "I know we probably shouldn't do that," he says finally. (For the record, Sarah shows no sign of having suffered from a lack of anything. Upstairs she is on the phone, rattling on euphorically about the modeling agency with which she has just signed.)
Toys are the least of the family's expenses. The Kramms just moved into a larger home so Hadley could have a room on the first floor. ("She's getting too big to carry up the stairs," says Kramm.) They have many modifications planned: a ramp to the front door, a bathroom equipped with a transfer station so Hadley can get out of her wheelchair and into the shower, lower counters, rails along some walls, wider doorways. The 11-year-old is outgrowing her two $4,000 wheelchairs and will soon need another. And her parents have ordered a special adaptive bicycle to help develop her legs, which, until recently, she had never used.
Then there are the specialists. The Kramms employ a full-time au pair and a roster of therapists -- occupational, physical, speech. Hadley has also had multiple operations, including several to treat her hypertonia, which causes her muscles to grow rigid. "It looks like she's smiling about something," explains Kramm, referring to a grin that seems unwilling to stop at Hadley's ears. "But really, the muscles are all tightened in her face. She can't stop."
But just because the smile isn't real doesn't mean Hadley's not happy. Kramm thinks she is, and he means to keep her that way. How much money will that ultimately take? "I have no idea," he says. "Millions. It would probably take millions for me to feel comfortable that she will be taken care of."
Even as Kramm waits for the security he craves, FlavorX performs an important psychic function for all the members of its founding family. "This company has been my salvation," says Kramm. "It's let us all respond to the situation in ways that draw on our strengths and that aren't about wallowing in depression or giving up. It's put something positive into our lives."
Hadley's Other Legacy
Like her husband, Shelley Kramm went through a dark time after Hadley's diagnosis, suffering from panic attacks and depression. But unlike her husband with his budding enterprise, she had no source of distraction, no mental sanctuary where she could still be in control. "I saw what Kenny was doing and I supported him all the way, but I also wanted something for myself," she says. "Only I didn't know what."
The answer came on a spring day in 1995 during a visit to a local playground. "Sarah ran to this pumpkin coach and started climbing on it," Shelley Kramm recalls. "I looked around and realized there wasn't a single thing in the whole park that Hadley could play on, or where Sarah and Hadley could interact. So Hadley and I went and sat down on the side and watched Sarah. And I looked at Hadley and she was crying. She understood."
That was the beginning of Hadley's Park Inc., a nonprofit that designs and builds playgrounds equally accessible to children with and without disabilities. Shelley Kramm, a former interior designer with no experience running an organization or raising money outside the parameters of a bake sale, persuaded Montgomery County, Md., to donate an acre of land and raised $1 million from individuals, corporations, grants, and the government. To get ideas for the park she talked to physicians, therapists, and parents of disabled children, and enlisted Sarah's Brownie troop in a yearlong study of disabilities.
The first Hadley's Park went up in 1996, in the family's hometown of Potomac. It has ramps leading up to a pirate ship, and a transfer station to help children move from their wheelchairs into a castle or a frontier village. The swings have backs to support riders with no upper body strength; many signs are in Braille, and the soft, springy ground is surfaced with recycled tires. "I don't want people to have to deal with wood chips and barriers and beams," says Shelley Kramm. "This is supposed to be common ground."
Today there are five Hadley's Parks in the Washington area and 15 more in development around the country. And while the venture does nothing to bolster the Kramms' finances, it has done as much as FlavorX to heal the family's spirit, to keep it whole. "So many people in situations like this, their marriage has taken a blow," says Shelley Kramm. "I think all those hours Kenny and I stayed up late talking about our projects, talking about what we were going to do, that was the make or break point for us."
"And we didn't break," says her husband. "So now we're making something."