When Medifast’s savior CEO became terminally ill, the MacDonald family stepped in to put the company on a growth path never seen before.
By Christianna McCausland
Photography by Mitro Hood
When it comes to succession planning, Medifast, Inc. did it under the worst possible conditions. The company’s former CEO, Bradley “Brad” MacDonald had taken the Owings Mills-based meal replacement and weight loss company from near bankruptcy and built it into a multimillion dollar success story. Although Brad had left the CEO position in 2007, he was active in the company as executive chairman of the board. In fall 2011, the terrible news arrived.
“It was about October that my brother called me. I had retired from Xerox and taken a job as executive vice president of Office Max in Chicago,” recalls Michael MacDonald. “He told me he had terminal cancer and six months to live. He asked me to leave my job and come take over his role at Medifast … I went back to my office the next day and quit, packed up my stuff and drove to my first meeting here in Owings Mills.”
In fall of 2011 Michael MacDonald (who had been on the Medifast board) became executive chairman of the board.
Brad MacDonald passed away in April 2012 at age 64.
MacDonald describes Brad, who was six years his senior, as a mentor. “I had tremendous respect and admiration and love for my brother,” says MacDonald, “but I also felt a tremendous sense of obligation to continue the legacy that he created.” Before he died, Brad asked his brother to mentor his daughters, Meg Sheetz and Kellie Pizzico, to take on greater leadership in the company and to use his experience with big business to scale Medifast into a global leader in the weight loss industry. Even as a family grieved, it took on the task of strategically planning for the future.
The entrepreneur and the businessman
If there was anything to be salvaged from the family’s grief, it was that Michael MacDonald arrived at just the right time in Medifast’s trajectory. “[Michael’s] skills were perfect at the perfect time for Medifast,” says Barry Bondroff, CPA. Bondroff is an officer at Gorfine, Schiller & Gardyn, PA, and has been on the Medifast board of directors since 2008. “They needed that type of big, corporate influence on processes and procedures.”
Brad MacDonald was a classic entrepreneur. When he joined Medifast (then called HealthRite, Inc.) in 1996, he immediately confronted the company leadership about unethical practices and was promptly fired. In 1997, he fought back, winning a proxy fight to take control of the company. As the company inched toward bankruptcy, Brad emptied all of his personal assets into the business to save it. According to his daughter Meg Sheetz, now Medifast’s president and COO, Brad’s determination to save the company was rooted in his belief in the power of the Medifast product to change lives.
“I had tremendous respect and admiration and love for my brother, but I also felt a tremendous sense of obligation to continue the legacy that he created.”
Lessons from Medifast
How to execute a successful succession
Most CEOs don’t want to think about leaving their business, let alone planning for a catastrophic event, like death. But the reality is that no one gets younger — even the youngest of CEOs need to plan for the future and stage their companies for life after the founder.
Focus on leadership.
Have a plan B.
“My dad was a very passionate person who never did anything halfway,” says Sheetz, 35. “Some people like that and some people don’t, but if he hadn’t had that intensity, I don’t think Medifast would even be on the charts at this point.”
While Brad was building his career in consumer products, his brother Michael was climbing the corporate ladder. Although he came to Medifast from Office Max, Michael MacDonald spent most of his career at Xerox Corporation where he spent 33 years in sales, marketing and general management and was instrumental in the turnaround in North America as president of the North American Solutions Group, a $6.5 billion division of the company.
“My brother and I have a great understanding of how to make money in business and how to turn something profitable,” says Michael MacDonald. “From a values and beliefs perspective, we’re very similar. The difference is that where he came up with an entrepreneurial approach, I came up in large organizations.”
At Medifast, Michael MacDonald found a good, small business; 2011 revenue was $298 million. But he felt the company had outgrown its entrepreneurial framework and needed to be whipped into shape to survive and thrive in the future.
MacDonald’s big, audacious goal is for Medifast to be a $1 billion, multinational company in five years; he looked at his bench and didn’t see the players to make it happen. One of MacDonald’s first tasks as CEO was to clean house at the management level.
Described as a “bright finance guy,” then-CEO Michael McDevitt was the son of Brad’s college buddy. Looking back, Sheetz recalls that they were all very young; she and McDevitt are close in age and knew each other growing up. While McDevitt was in the CEO position, Brad was still exerting a lot of control from his position as chairman.
“He [Brad] was still in the organization enough to cover any of the youthful mistakes any of us might have made,” she says. “For the period of time that he served, he did a tremendous job,” she continues, but adds that when Brad became sicker and less involved even as the company got bigger, things began to slip. Michael MacDonald, “immediately recognized, based on his previous experience, things we were not doing well and made the changes he felt were best for all of us in the long run,” says Sheetz.
In February 2012, when McDevitt’s contract expired, Medifast opted not to renew, and MacDonald took over as CEO.
“I changed probably 14 managers out of Medifast, and we started to bring in a more experienced management team,” he explains. “When you’re at the entrepreneurial stage of a company, you can get to a certain point, but you need talent to move the company ahead to be a large corporation. We didn’t have the talent or skill sets to get where we needed to be.”
Next, MacDonald brought in consultants to help Medifast create its first-ever five-year strategic plan. The company now operates with more structure, including monthly strategy meetings, weekly staff meetings and regular operations meetings. “We’ve done a pretty good job of putting in more processes, more technology, more big company things in a small company,” says MacDonald, “without impeding the entrepreneurial spirit my brother put in place here.”
According to Sheetz, MacDonald has brought a new level of transparency and accountability to Medifast. For example, MacDonald has put cross-company reporting into place and provided executives with better tools for decision making. “Over the last five years, I’d say a large percentage of my decisions were based on gut and a little bit of prayer,” says Sheetz with a smile. “Now there’s more information in the organization, and [MacDonald] has been the catalyst for that.”
MacDonald is investing in technology, both to keep the online sales side running smoothly and to improve efficiencies in manufacturing. Thanks to upgrades at the plant, workers can crank out four times its previous annual volume, so the capacity for the five-year growth plan is in place. All the dry Medifast products are made at the Owings Mills headquarters. Other products (like bars) are outsourced to partners, though MacDonald is considering bringing more of that in-house, and also hopes to expand the product offerings.
Business is brisk. The revenue outlook this year is $385 million to $400 million. The company exceeded expectations with its first quarter earnings (for the period ending March 31). Net revenue increased to $96 million from net revenue of $88.9 million in the first quarter of the prior year.
“Sometimes that happens by chance, and sometimes that happens by design,” says Bondroff of the revenue increase. “This is by design. I give [MacDonald] and his team all the credit.”
Four businesses in one
Part of Brad’s legacy is Medifast’s four channels of business. The products are available online, through Take Shape for Life direct salespeople, at weight loss centers and through physicians. Carrying all four channels wasn’t always popular.
“In the early days, I was at a lot of investor meetings when, while I wouldn’t say they condemned my dad, certainly they thought he was crazy. They called him the crazy Marine,” Sheetz recalls, a reference to Brad’s 27 years in the Marine Corps (he retired as a colonel). “In hindsight, he was hedging his bets, hedging that people wanted to diet in different ways and that carrying all four models was a way to get the company to forge forward.”
Signs of Success
Medifast is no stranger to SmartCEO magazine, first appearing on the cover of the December 2006 issue of Baltimore SmartCEO.
Over the ensuing years, Medifast has been recognized in multiple SmartCEO awards programs, including the Future 50 awards, the SmartCXO awards, the Circle of Excellence and the Executive Management Awards.
He was right. While some people want to diet anonymously and will purchase the products online, others want the group support provided by a weight loss center or a health coach while another person might prefer to go through their doctor. All four mechanisms remain successful; in 2012 the company grew 20 percent, with double-digit growth in all four channels. It is one way Medifast differentiates itself from competitors like Weight Watchers and NutriSystem, which are single-channel operations.
If anything is being tweaked, it’s the focus on putting even more of the best products in the hands of sales partners. Currently, there are 87 company-owned weight loss centers and another 40 owned by franchisees. “When I got here, one of our changes in strategies is that we’re not going to build any more company-owned [centers] because of the capital investment on bricks and mortar,” says MacDonald. “It’s a lot better for us to let partners do that.”
Medifast also uses partners to sell in other ways, be it through doctors or the network of Take Shape for Life health coaches. This channel, founded in 2003 with Dr. Wayne Andersen, who oversees the network, enlists Medifast’s best spokespeople — those who have used the products to lose weight — as salespeople, like Mary Kay but for meal replacements. It’s a $240 million business with over 10,300 health coaches. Letting partners do the selling allows the company to keep its eye on the prize. “We want to become a world-class manufacturer and distributor of meal replacement products to fight obesity. That’s our goal as a company,” says MacDonald.
For better or worse, one thing Medifast has no shortage of is potential customers as the issue of obesity only grows. It’s a problem not only in the U.S. but across the globe. In that troublesome trend there is opportunity for Medifast. As with its other channels, global expansion will rely heavily on the right partners. For example, the company recently increased its reach when it expanded a contract to have products distributed throughout most of Central and South America (except Brazil) via its partner, Medix S.A. de C.V., a leader in pharmaceutical obesity products in Mexico. Currently Medifast is working to obtain approval of its products in Canada, where the meal replacements will be made available using the online, Medifast Direct, sales model. MacDonald hopes Canadian sales will be in place by autumn of this year.
“We see the international opportunity over a five-year period to be a $100 million-plus opportunity,” says MacDonald.
Same family, different styles
MacDonald enjoys being at Medifast, a company with about 1,000 employees, because unlike a corporate giant like Xerox, Medifast harbors enough entrepreneurial gumption that change can be enacted quickly. The drawback is that unlike a large company with strong, in-house training programs, much of the leadership training onus falls on MacDonald. “We’re trying to do a lot to develop the people in the company so you can scale the company,” he explains.
One thing Brad asked of his brother before he passed away was that he groom his daughter to take on more leadership in the company. “My role with Meg is taking her from being a strong, functional manager to being a leader, strategically, in the business and helping her develop her financial skills to the point that she could do what her father and I are capable of doing.”
Open communication and goal setting has been key to knowledge transfer. “[MacDonald] sets expectations so you always know where you stand,” says Sheetz. “My uncle, because he’s so transparent, is very good at walking you through his decision making, whereas some leaders make a decision and everyone deals with it and moves on,” she continues. “He has a lot of historical knowledge that he shares on a regular basis, which is great.”
“For my dad, Medifast was something he believed so strongly in, [and] knowing his brother, a tremendous businessman, would come in and keep it going, made his last few months on earth easier.”
By all accounts, Brad was a tough guy. His daughter can now fondly recall how her father fired her the first day she came to work for him because she was late. Perhaps it was his background in the military, but Brad is described as a loyal team player who could charismatically rally the troops to his cause and was the person you wanted on your side in a street fight.
Conversely, “My leadership style is that you lead by example, the way you conduct yourself personally,” says MacDonald, who adds that he likes to build strong teams around himself and empower them to make decisions. It’s an open, participatory style. But he, too, can crack the whip when it’s important.
“I’m probably a little less aggressive than my brother was, but if people don’t deliver performance, I have high accountability,” says MacDonald. “That’s why, when I came in here, you saw 14 executives go.”
Nick Valvano, the recently retired CEO of The V Foundation for Cancer Research in North Carolina, has known MacDonald since he was a young man. After graduating from Rutgers, Nick’s brother, the great basketball coach Jim Valvano, asked MacDonald to be his graduate assistant at Iona College. Valvano now laughs that, “Probably the best thing my brother did for Mike was get him out of coaching!”
MacDonald is on the board at the V Foundation, and Valvano says it’s a special relationship. “He’s doing for Medifast what I did for the V Foundation,” says Valvano. “He’s taking care of his brother’s company, he’s taking care of his brother’s kids, he’s doing everything his brother asked him to do.”
When it comes to the board, Valvano says MacDonald is the kind of member organizations covet. His business savvy and connections aside, what makes him an asset is what makes him a good friend. “He’s honest, ethical, trustworthy and you can rely on him,” says Valvano. “He was that way even when he was a college kid. He’s a solid guy.”
Preserving a legacy
“Ethical” is a word that comes up frequently when people talk about the MacDonalds. Even as Medifast toes the line between growing to meet its potential and staying true to its roots, perhaps a history of ethics will be the legacy that prevails.
“For my dad, Medifast was something he believed so strongly in, [and] knowing his brother, a tremendous businessman, would come in and keep it going, made his last few months on earth easier,” says Sheetz. “He knew they shared the same ethics, morals and values. If my dad was scared of anything, it was that someone would come in to the company and tear apart the culture he built. That would have devastated him … my father was more comfortable letting go of life knowing that was taken care of.” CEO
Christianna McCausland is a freelancer writer based in Reisterstown, MD. Contact us at email@example.com.