Picking Up The Pieces

On Aug. 17, 1998, a simmering economic crisis in Russia culminated in the sudden devaluation of the country's currency, the ruble. On that day, a Polish manufacturer named Kazimierz Wierzbicki realized that 60% of his company's export market had just disappeared in the blink of an eye. Wierzbicki, founder of the Polish company Trefl s.a., had foreseen problems in the economy of Russia, his largest export customer. But he could not have imagined how devastating an effect the resulting crisis would have on his business. Trefl was Poland's first manufacturer of jigsaw puzzles. It was Wierzbicki's baby, a company he had started in 1985 with only two employees -- himself and his brother. He had nursed it carefully through its tenuous first years and built it slowly, with revenues rising steadily to reach an all-time high in 1997. With the ruble's devaluation, how-ever, Wierzbicki faced the very real possibility that in a matter of weeks he and his company could be bankrupt. The former coach of a girls' basketball team and himself an avid athlete, the 52-year-old Wierzbicki describes his personality as that of "a born sportsman" -- that is, a competitor, and someone who is always trying to achieve the seemingly impossible. Yet the events of Aug. 17 led him to seriously consider selling his now-shattered firm to a large Western games manufacturer and finding another occupation. Ultimately, however, Wierzbicki decided to proceed on his own. He was not about to let go of his company, nor was he willing to stand by and watch it die. Instead, like any good coach, he sat down and drew up a game plan. In just seven days, Wierzbicki crafted and began to implement a three-part strategy, a course of action that not only saved his company from extinction, but actually improved its prospects for future growth. And all this from a man with no formal training in business or management, a man who started his company with what he calls "the enormous amount" of $100, a man who, before 1984, had never even seen a jigsaw puzzle. Beautiful pictures, personal vision Kazimierz Wierzbicki was born in the Baltic seaport town of Gdynia and educated at the region's School of Higher Pedagogy and Academy of Physical Development. He was a mathematics teacher in local schools before leaving the profession to become the coach of a girls' basketball team in one of Poland's popular amateur leagues. In 1984 he traveled with his team to France to participate in an international tournament. Unable to afford hotels, the team stayed in less expensive rented rooms in private homes. Wierzbicki remembers that the landlady of the house in which he stayed had "many beautiful pictures hanging in every room." At first glance, he believed they were original paintings. Upon closer inspection, he discovered that the "beautiful pictures" were not paintings at all, but images assembled from thousands of small, irregularly shaped pieces of cardboard. They were the first jigsaw puzzles he had ever seen. In the years following World War II, puzzles, as well as many other consumer goods, simply didn't exist in Communist Poland. Wierzbicki was so intrigued by his discovery that upon returning home he made a decision. Despite the fact that he had no training or experience in business or management, he would do something that no one else in the country had ever tried-start his own firm to manufacture and distribute jigsaw puzzles. "I was educated by my parents, not by the system," he says. "I grew up with the idea that you can learn to accomplish anything, if you believe strongly in what you're doing." To obtain permission to start his company, Wierzbicki told inquiring officials that the puzzles he planned to produce were intended for use solely as educational tools in academic settings. To illustrate, he showed them the design for his first puzzle-a panoramic landscape of the picturesque Hel peninsula, a pine-covered finger of land that juts into the Baltic a few miles to the northwest of Gdynia. "You see?" he said. "Teachers can use the landscape for geography lessons." The authorities accepted Wierzbicki's rationale and gave him permission to start operations. But how to begin? Die-cutting machines, hydraulic presses, other necessary tools and even cardboard were hard to come by in Poland, and new equipment manufactured in the West was prohibitively expensive. Wierzbicki tapped his $100 life savings to rent a 30-sq-m space in the cellar of an existing company in Gdynia. He filled the cellar with old, sometimes decrepit machinery that he purchased at minimum cost wherever he could find it. His brother Tadeusz, an engineer, adapted the used equipment to meet their needs, even fashioning knives for the die-cutting machines by slicing up the spring mechanisms of old wind-up clocks. Because individual puzzle pieces often resemble shamrocks, Wierzbicki chose the name Trefl for his company, using the Polish word for the clover-shaped symbol that denotes the "club" suit in a deck of playing cards. In July 1985 Trefl produced its first puzzle -- the Hel peninsula landscape, in 100 pieces. Not one would be sold to schools. Instead, Wierzbicki loaded up his old car and began calling on retail shops in Gdynia. His sales pitch always began with an explanation of just what a jigsaw puzzle was. After covering Gdynia, Wierzbicki moved on to nearby Sopot, a resort town just a few miles down the Baltic coast, and then farther southeast to Gdansk, a major port city and shipbuilding center. Trefl's first puzzle proved so popular that Wierzbicki was hard-pressed to keep up with demand. The company could produce no more than 30 to 40 units per day, and growth was further stymied by a long-standing government edict limiting the number of employees of private companies to no more than 15. During the 1980s sales were so brisk that even when Trefl hired the maximum allowable number of employees the company had to run three shifts a day around the clock. At the end of 1990 a post-Communist government lifted the old strictures on employment. In 1991 Wierzbicki obtained access to more stocks of cardboard and additional second-hand equipment, and Trefl could at last turn out enough product to fill orders from throughout Poland. By this time the company was producing 60 different puzzles in various sizes, all from designs created in-house. Recognizable names A relative novice, Wierzbicki knew it was important to continue learning as much as he could about all aspects of business. He spent a substantial portion of every working day talking with other manufacturers and entrepreneurs, always looking for new ideas. One of the ideas he came across was the concept of licensing, which would prove to be a fortuitous discovery. Just as Trefl was hitting its stride early in the 1990s, Walt Disney Co. hired representatives in Warsaw to help sign commercial licensees in Poland. Wierzbicki knew the potential benefits of the Disney connection, because by then he understood the value of licensing. He also knew that Disney characters would be an immediate popular draw in his country. Even during the bleakest years of Communist control, Disney films managed to play on Polish screens, and Wierzbicki and his contemporaries had grown up watching and loving them. It turned out that Mickey Mouse and Donald Duck were as well known in Poland as they were in Peoria. Wierzbicki contacted the Disney representatives, who jumped at the chance to align themselves with an established firm like Trefl. In 1993 Wierzbicki negotiated a licensing deal himself, obtaining the right to use all Disney characters in his puzzle designs. There followed similar agreements with Warner Bros. cartoons and the Belgian owners of the Smurfs, to name but two. By 1995 Russia, Ukraine, and many of the other states that comprised the former USSR had become Trefl's most important export markets. Demand from the East grew the company's revenues to such a degree that in 1997 Wierzbicki bought a Krakw maker of playing cards and added those products to his line. That same year Trefl's total pretax profits were greater than those of all but 10 other private companies in the Gdynia-Sopot-Gdansk tri-city area, and its 26% profit margin was the highest in the region. The future looked rosy. Eight months later, when the Russian ruble was devalued, Trefl's exports to the East immediately dropped to zero, and Wierzbicki found himself only weeks away from insolvency. Thousands of fledgling firms throughout Central and Eastern Europe went belly up within months-in some cases, within days-of the ruble's devaluation. Some of Wierzbicki's closest associates and friends advised him to look for a partner in the West to whom he could sell all or part of his company. He considered that solution quite seriously, but in the end he rejected the idea. "I decided, 'We will not surrender,'" he remembers. "No way." How did Wierzbicki save Trefl? Once he had absorbed the shock of the Russian collapse, it took Wierzbicki only seven days to create a restructuring plan for his company. He immediately began to cut the workforce, initiating layoffs gradually so as not to induce panic among the remaining employees. Ultimately, he eliminated one third of his payroll. At the same time he limited production by focusing solely on established top-selling items. The second element of Wierzbicki's plan was to build new markets. He quickly set out on an odyssey through Western Europe and the Middle East, stopping in more than a dozen countries and hawking his wares to wholesalers, retail chains-anyone who might listen. Unlike the managers of many firms in Poland at the time, Wierzbicki always had insisted on maintaining the highest possible production standards at Trefl. Consequently, the excellent quality of his products, combined with their low cost, proved to be powerful incentives for the potential customers with whom he met. In a relatively short time he had inked distribution deals with customers in seven countries from Germany to Cyprus, and he was actively pursuing accounts in Canada and Israel as well. The final element of Wierzbicki's strategy was to maintain cash flow by finding new markets for Trefl's services. Since he had existing graphic, printing, die-cutting and packaging capabilities, he started producing custom items for advertising agencies and their clients-brochures, point-of-sale displays, cards, and so on. He even made specialty puzzles ordered by specific companies for use as promotional items. He took on virtually any job that would keep his people employed and his machines running. By the end of 1998, Trefl was back from the brink. (Incredibly, even at its lowest point the company never posted results worse than break-even.) That same year Trefl earned ISO 9001 certification, a testament to Wierzbicki's continued focus on quality issues. And in 1999, Trefl's recovery was sufficient to allow another expansion of the product lines, this time including stationery, ring binders, and file folders. Today Trefl produces some 800 different products, including the widest assortment of Warner Bros.' licensed-character puzzles in the world. In addition to his existing licensing agreements, Wierzbicki has also signed with Lucasfilm Ltd. and is negotiating with several other companies. And despite its near-death experience in 1998, Trefl still considers Eastern European countries to be its prime markets and is actively attempting to initiate joint ventures in Russia and Ukraine. Trefl uses its die-cutting expertise to create packaging for, among others, L'Oreal hair-care products. It also is buying a Polish producer of school notebooks, as well as one of the country's largest manufacturers of educational games. The business plan for 2000 calls for $20 million in sales, but Wierzbicki believes the actual figure will be closer to $25 million. This year Trefl is moving all production and warehousing operations to a huge complex of buildings on more than 18 acres of land in Gdynia, hard by the largest container port in northern Europe. The company has remained lean, employing just 340 people. Yet it continues to open new distribution channels throughout Europe, the Middle East, and Asia. Wierzbicki believes his Gdynia facilities will have to be supplemented with additional space within two years. Within five years he expects Trefl to be the second largest puzzle and game maker on the continent, after Germany's Ravensburger AG. In hindsight, it would seem that Trefl's 1998 crisis was less a challenge than an opportunity. Indeed, even as his company faced extinction Wierzbicki recognized that he could seize the moment to explore and initiate new directions. To outsiders his actions at the time might have appeared to be a tremendous gamble. But Wierzbicki views that period in a different light. "Because conditions in Poland are not perfect, the development of successful Polish companies depends on individual managers," he says. "They must have knowledge and they must have professionalism. But, above all, they must have imagination."