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Cambridge Sound Management: Solving Scale Issues

May 2014

When you start a business with a “game-changing” product, you’re already a step ahead of the growth curve. When Jack Heine launched Cambridge Sound Management (CMS) in 1999, the unique selling proposition of his sound-masking system was not just in the product itself, but in its attributes. “It’s in the simplicity of the installation process,” he explains. “It’s not a consultative product in the sense that most sound masking systems are complicated. In our case, if you can climb a step ladder and get down without hurting yourself, you can have the system installed. Professionals want to be able to get in and get out quickly. And ours is the only system that allows them to do that, know how much it’s going to cost, and feel confident that system is going to work when they walk away.

That value proposition has served CMS well. During the past 15 years, the company has grown at a rate of 30 percent annually. “Thirty percent when you’re making $1 is not so much, but as the revenue continues to increase, the challenges are quite different in terms of running a company where you have millions of dollars in sales,” he adds.

In 2012, CMS began the process of becoming more professionally managed. It moved from Excel spreadsheets to using industry-standard state-of-the-art management tools, and considering an array of other changes designed to help maintain the scale they’d been achieving.

First and foremost was winning their own independence. For several years, Heine had a partner. As CMS began implementing changes, the partner became uncomfortable in a business that he knew increasingly less about. “In this case, CMS was owned nearly 50/50 by an individual and distinct operating company with a couple very small additional shareholders,” says Patrick Padden, senior vice president, Corporate Banking, at Salem Five, who advises the company. Fortunately, CMS was doing annual valuations to regularly ascertain the value of each owner’s share, which made the process of buying out the partner much easier.”

Another step in reaching the next level, according to Heine, is product development. To that end, CMS has been working to build out its line. While still in the research phase, he anticipates that they should be in the market with something as soon as the product development cycle in their industry—roughly two to three years—dictates. “We recognize that, over a time period of three to five years, the sales in that product will start to level out, and we want the company to continue to grow at a rapid rate,” he says. “So what we’re looking at right now is what other products make sense and would allow us to build on our technology base and find some diversity in the marketplace.”

The third leg of the stool is giving talented people a reason to be at CMS. To get there, Heine is has been working out an equity agreement that gives senior employees a small piece of the business. “When you make that kind of offer, the typical problem is that it’s for a finite period of time, so you promise them that you’ll give them a piece of the action,” he says. “If somebody decides that they really want to change their career and move on to another opportunity after five years, it’s unfair to tell them that they can’t. So we’re in the process of determining how to make the arrangement work for CMS and the employee.”

All of these changes—everything from maintaining offshore inventory flow in a growing firm and financing new systems and R&D, to developing employee incentive packages—takes good advice and money. “This year, in particular, has been an investment year, with new systems and hires,” notes Heine. “In addition to taking over the entire ownership of the company, these are challenges that may have scared a lot of banks. Salem Five has hung in there and shared our vision, giving us the financing and room we need to grow. We feel like we have a partner for the long term.”

Help (and Capital) When It’s Needed

CMS has maintained a robust average 30 percent annual growth rate during the past 15 years. To reach that kind of consistency, you have to spend money to make money, and a Salem Five line of credit has been there to help. With recent investments in infrastructure, R&D, and people—and more planned to accommodate it’s increasing scale—Jack and Holly Heine know they have the cash flow support they need to keep expanding CMS today and in the future.