Dr. Bob's Chloraseptic Success Story
Welcome to my new blog in a blog. "Value Added" is my place to write about one of my favorite subjects: Successful business people. How they got that way. And how they stay that way.
I also hope to write about investing. I don't play the stock market much. I invest in mutual funds, though I own about dozen blue chip stocks. No, what I do is save like mad, live beneath my means (although I have a soft spot for The Palm) and invest for the long term. Very long term. Like 10, 20 years long term.
Dr. Robert Schattner is the sort of self-made man who allows me to write about both business success and investment strategies.
The 82-year-old businessman and former dentist became immensely wealthy (he won't tell me how much) by inventing Chloraseptic, the ubiquitous sore throat medicine.
Dr. Bob, as I call him, phoned us a few weeks back to say he was selling his startup, a company built around a disinfectant called Sporicidin, and pretty much retiring from the businessman/inventor profession. I recently wrote a story about him, describing how he used his millions to buy a professional basketball franchise, the now-expired Virginia Squires of the as-well-expired American Basketball Association.
He also made a run at a bunch of other franchises, like the Washington Redskins, San Diego Padres and Philadelphia Eagles.
What I really wanted to know more about was how Dr. Bob turned a conversation at a New York cocktail party 50 years ago into a hugely successful business career.
The short version of the Chloraseptic story goes like this: Dr. Bob, then a practicing dentist, is at cocktail party in 1952 when a guest asks him if it is possible to disinfect the mouth after having a bunch of teeth pulled. Dr. Bob starts mulling it over on the ride home from the party and decides to start experimenting. Working late nights after work, he mixes different combinations of chemicals in his "laboratory," a five-gallon jug he keeps behind a shower curtain in his bathtub. Eventually, he invents a mouthwash that kills germs and serves as an anesthetic for the throat.
That turns out to be easy part. Now, how he had to figure out how to get millions of people to use it.
"I bought bottles from a wholesaler and hired a printer to make the labels and filled the bottles with Chloraseptic ..... I went to some big companies at the time and they said if I didn't have sales to show people would buy it, then they weren't interested."
So Dr. Bob had to create demand. He started visiting dentists in Hempstead, Long Island, offering a bottle and a postcard to return to him with a questionnaire on how they liked the product. A third of the cards came back and the response was positive.
Dr. Bob had good intuition. He delivered the samples in 8-ounce bottles because they looked more like store size. But finding someone to make his product wasn't so easy. One bottler stiffed him on the business, and a printer refused to refund Schattner when he misspelled Chloraseptic. Another put deodorant in the bottles instead of the moutwash.
"When you are a little guy going in to business, you can't argue," said Dr. Bob. "You gotta find somebody else to do the job. I called my brother Sam for advice and we found Mifflin McCambride, a bottler in Riverdale, Md., in Prince George's.
Over the next seven years, with no money, Dr. Bob built up demand. He'd visit dentists and leave samples, hoping they would give them to their customers, who in turn would go looking for the product in neighborhood drug stores. He would then give away a case to the drug stores, saying they would only have to pay for reorders.
"I called it payment on a reorder basis," he said. "Timing is everything."
As demand for the product expanded, Dr. Bob reinvested every penny of profit into more bottles and more distribution. Within a couple of years, he had pushed demand out to Chicago and Indiana and throughout the Northeast. At one point, he claimed a tax loss of $164,000. Dr. Bob sold his dental practice to fund his budding distribution network.
"I decided to go for broke. I sold my practice for $33,000. I went into debt. I had my practice money and I was trying to save money. Everything went into samples. I was sending sample cases to wholesalers. At one point, I got a call from a wholesaler in the Midwest, telling me the bottles were frozen. I called those my frozen assets."
He said finding wholesalers proved to be easier than getting paid. "Sometimes I had to wait 60 days to get payment from wholesalers. I didn't have money. At one point, my bottlers said they wouldn't bottle any more if I didn't pay them."
He caught a break on after meeting, James Roosevelt, FDR's son, on an airplane. Roosevelt helped him get a loan guarantee from the Small Business Administration that tided him over.
Dr. Bob's approach reminds me of a quote I read by billionaire J.R. Simplot, the nonagenarian Idaho potato king, who made his fortune on McDonald's french fries. "Build, build, build," said Simplot, or words to that effect.
"There was no big turning point," said Dr. Bob. "The company just kept getting bigger and bigger ..... If there was a watershed, it was an ear, nose and throat specialist who said I had a great sore throat medicine and to 'go visit every ear, nose and throat physician' I could find."
"When we got to $1 million in sales, the phone started ringing. American Home Products [now Wyeth], Schering, Ex-Lax and others were calling. By this time, I was getting clinical studies done. I had a whole series of studies."
That prompted a headline The Washington Post: "New Mouthwash Outdoes Penicillin."
When he sold the company to Norwich Pharmaceutical, Dr. Bob bagged $4 million in cash and 10 percent of Chloraseptic revenues for the next 15 years. He gave his father around $400,000. He gave his brother, Sam, about $1.6 million and Dr. Bob kept $2 million.
He eventually teamed up with another entrepreneur, real estate investor Charlie Bresler of Rockville, to invest in barges and in oil rigs and in a leasing business. Dr. Bob even bought a bank.
"Charlie was more astute than I was. Charlie had the money and expertise. At one point, Allied Irish Bank bought out First National Bank of Maryland, where I sat on the board, and had to divest themselves of the barges. We invested and did very nicely."
For the last several years, Dr. Bob has been closely following the stock market. He has a system which he calls "charting the market," that was taught to him by a man at Dean Witter. I didn't fully understand it, but it sounds like Dr. Bob buys blue chip stocks when their price dips a certain amount.
"For the last several years, I have been accumulating banks, oil and blue chips. They have been very good to me. Right now, I have faith in the oils. Stocks today are safer than they were a year ago. Why? They are cheaper. But their earnings are still there. I could be wrong, but the truth is that on that sort of basis, and with an election year, there are a lot of indications that this market has juice to go. I have a feeling we are building a base here. When the market drops 300 points, everybody is selling."
That's when Dr. Bob, the Chloraseptic Man, buys.
March 4, 2008; 1:38 PM ET
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