Monday, 22 July 2002 09:37

The New Reality

If you want to start a company that will attract venture capital funding, make it a dot-com.

Sage advice if you found yourself in 1999 carrying the proverbial pick and shovel into the whirlwind gold rush that was the Internet. But that was then.

At the time, you could dazzle the world with little more than unabashed gumption and a great idea to sell books or vitamins or health advice or even virtual women's communities to the world while almost thumbing your nose at conventional business.

But they seemed to forget a seemingly minor detail called revenue. And profitability.

Wall Street didn't, though, and many of those high-flying companies, whose valuations once transcended reason, have been taking it on the chin ever since. The whole Internet space, as the techies call it, has ventured at least part way back to Earth.

Now, an e-future seems to be emerging that is built not on New Economy vs. Old Economy, but rather on a reasonable partnership between the two that embraces new business paradigms while acknowledging the strength of good, old-fashioned relationships and other traditional business fundamentals. The driver behind much of this New Reality? The venture capital community itself.

"There's no use trying to be the 23rd pet food site," says David Whitmore, managing partner of Highgate Ventures (formerly i-Gate Ventures), a venture capital fund that spun out of i-Gate Capital (formerly Mastech). "The business-to-consumer market is not the place to be."

Gold rush temptations

Whitmore, who runs the $75 million venture fund from Westport, Conn., admits he was tempted -- if ever so briefly -- by the mad gold rush last year as he watched company valuations temporarily skyrocket.

"I was very envious," he says, laughing only because he didn't yield to such temptation. "It seemed that, with the right management team and story, you could go public and make a lot of money on paper."

The key phrase, of course is "on paper," because many of those high-net-worth entrepreneurs eventually watched as stock prices -- and their net worth -- dropped from, say, $40 a share to little more than $1, in some cases, virtually overnight.

Sean Sabastian, managing principal of Birchmere Investments and general partner of its Birchmere Ventures II venture capital fund, puts the valuation adjustment into perspective: "Until they're at break-even, they're not really a company. They're just spending other people's money."

Thanks, but no ...

That hasn't stopped start-ups from trying to raise huge amounts of capital, however. But when they approach Sabastian, he has a thing or two to say.

"Thanks, but no thanks," he says. "We've walked away from more opportunities on valuation. We try to maintain a rationality, and we try to stay away from the froth."

His advice to such firms in this New Reality environment: "Get real, pretty bluntly."

Sabastian is in a pretty good position to say that. His firm's first venture fund, funded by steel company magnate Richard Simmons, chose an early winner in FreeMarkets Inc., even with the company's dramatic drop in stock price after losing General Motors as a customer.

Recently, Birchmere teamed up with the principals of local venture capital veteran CEO Venture Fund to create the Birchmere Ventures II, a $75 million fund that plans to invest upwards of $5 million per investment -- and not all in Internet companies.

A marketing investment?

At the recently established Pittsburgh operation of Silicon Valley-based Redleaf Group, Doug Goodall, senior director of the Pittsburgh investment team, offers a similar observation, particularly when it comes to the business-to-consumer market.

"What we discovered was that, from a technological innovation standpoint, not much was going on" in many of last year's much-hyped B-to-C market, says Goodall, who recently joined Redleaf after spending the previous 18 months overseeing the establishment of the state-funded InnovationWorks, which funds high-tech start-ups. "It had to do with the percentage of dollars needed to invest in technology vs. TV ads and marketing.

"We started seeing companies spend 10 cents of every dollar on technology and 90 cents of every dollar on marketing. It was a pure marketing play."

Goodall adds that many of the start-ups played a rather dangerous game of "trying to steal consumers from one channel to another." But, he stresses, "the next thing they needed to do was keep them.

"We call it the 'dot-wall' category because these were the technologists who ignored business fundamentals," Goodall says. "If there's a digital highway, there's also digital roadkill."

Internet infrastructures

So what do these Internet-oriented venture capitalists really want as the New Economy high-tech market goes back to bring the Old Economy into this hybrid New Reality?

"Core technologies," Goodall explains.

While there's no denying that Redleaf targets Internet-oriented companies, it's looking for early-stage technology applications in the business-to-business space that provide infrastructure support to a business -- support that doesn't necessarily discard traditional business practices but which enhance them or make them more efficient.

For example, Goodall says, Redleaf is interested in Auction engines targeting specific industries which enhance current supply-chain channels rather than replace them. Case in point is one of its recent investments, a company called FurndX in North Carolina.

It's a commerce exchange for the furniture industry that matches the supply side of the business to the raw component side, "making the existing channel more efficient. It's the second generation of e-commerce. It has to blend new technologies with other parts of the team, and it can't be that disruptive" to business relationships and other traditional fundamentals, Goodall says. "We like it the old-fashioned way."

In other words, "Our goal is speed to revenue, with profitability right behind. It used to be just speed to market."

Redleaf, which seems to approach the investment game differently than most venture firms, is seeking some of that infrastructure technology at the earliest of embryonic stages in some cases. In fact, Redleaf has just struck a partnership with the University of Pennsylvania's Wharton School of Business to serve almost as a technology transfer center whose aim is to quickly commercialize the most promising of technologies coming out of academia.

Asked about rumors that Redleaf may be working on a similar arrangement with Carnegie Mellon University, Goodall declines to comment.

So far, Goodall says, Redleaf has available an estimated $203 million for investment globally, although the firm plans to raise another $400 million in a second round in the near future. It typically will invest between $3 million and $5 million in start-up ventures.

And by the end of the year, the firm hopes to aggressively search for attractive deals via as many as 12 offices globally. It currently has nine offices from coast to coast.

Highly differentiated

Birchmere Ventures likewise is aiming its financial muscle at B-to-B technologies which are "highly differentiated" in their respective industries, Birchmere's Sabastian says.

"We want companies where the managers exhibit deep domain knowledge."

The firm also is looking for earlier stage companies with the potential to return at least 10 times the value of its initial investment. However, depending on the situation and risk factors, Sabastian says, Birchmere will consider those with the potential to earn the firm as little as two times to as much as 20 times its initial investment.

At Highgate Ventures, David Whitmore says the venture fund has always focused on Internet infrastructure development companies and services. He is most interested in start-ups "where the Internet is viewed as another channel, another business strategy."

He mentions wireless/mobile telecommunication investments, as well as companies developing Web-driven voice recognition systems in terms of infrastructure "plays," as he calls them. Whitmore is also interested in application service providers (ASPs) that develop open-source software platforms that allow businesses to use the Internet as simply another tool to do business more efficiently both internally and externally.

Quick to cash-flow positive

Whitmore expects his investments to break even on a cash flow basis within roughly 18 months of the investment.

"They need to become cash-flow positive relatively quickly," he says.

Since March of this year, the fund has invested roughly $14 million in six start-ups, with another 18 opportunities in the pipeline for capital. Meanwhile, Whitmore and his partners in Pittsburgh, San Francisco and Portland, Ore., have reviewed at least 500 plans. The firm is moving forward with plans to raise $150 million for yet another venture fund to tap into the opportunities available.

Says Whitmore, "We really have a lot of opportunities." How to reach: Birchmere Ventures, (412) 803-8000; Redleaf Group, (412) 201-5600; Highgate Ventures, (203) 221-7747

Daniel Bates (dbates@sbnnet.com) is editor of SBN.

Published in Pittsburgh

John Rodella remembers vividly the day his father took him and his sister to an office products show at the former Civic Arena.

He was five then, and rather impressionable. He remembers what he describes as two giant televisions with small screens across the room from one another. On top of each stood a large commercial television camera that was wired to the opposite TV. In front were "big, black radial-dial" telephones.

He stood in front of one camera while his sister stood in front of the other. When they dialed each other on the phones, they could see each other on the TV screens as they talked. And laughed.

"And there was a sign that said these were going to be in every home in 10 years," Rodella says. "I thought it was really very cool."

That was in 1962. Nearly 40 years later, that lofty prognostication still hasn't transpired. But that hasn't stopped Rodella, with help from his brother, Joe, and another partner, from making it his crusading mission.

It's a mission which he says will finally position his company to capitalize on its years of effort as videoconferencing enters the Internet age.

Max Headroom

From that moment at the Civic Arena, videoconferencing remained little more than a dream, encumbered by technological shortcomings.

"What happened at that point was that there wasn't enough technology in the telephone lines to bring video over the telephone," says Rodella, a 40-something successful entrepreneur with a youthful enthusiasm and a small ponytail to solidify that image.

When the technology finally arrived for the masses around 1980, the earliest versions of videoconferencing equipment were, as Rodella suggests, "Max Headroomish," with delayed, strobe-like movements transmitted on the screen. Still, he followed the technology with a distant fascination -- even after he and three partners started a company that provided cost-recovery software systems for law firms and other professional services firms.

In 1992, Rodella wrote white papers that examined the progress of videoconferencing, and he was hooked. Shortly thereafter, his company, RoData Inc., became an early distributor of videoconferencing equipment from PictureTel.

"I liked it," he says. "I thought it was cool. I felt it was within the way RoData selected products to sell."

So he spent $87,000 on a complete demonstration package, and within a day, a company called to rent it. RoData reportedly generated $508,000 in revenue that year.

Reluctantly long term

Little did Rodella know, however, that he would have to adopt a long-term, missionary mentality approach to his new venture.

"It was just hard to sell the stuff," he admits. "It was expensive. A room could cost $100,000, and yet the quality was poor. The network was so darned expensive. So in 1992, I became the Johnny Appleseed of videoconferencing."

Unwavering ambition aside, Rodella admits he miscalculated the fortune he expected to earn in short order by selling lots of equipment. His flaw: "I thought people would buy two the first year, and then sales would explode after that. But that didn't happen."

As a result of the miscalculation, he had hired extra people to handle all of those sales.

"We stepped on our tails and overbuilt because we thought the industry was moving ahead," Rodella says. "But the industry didn't live up to what it was supposed to do, and it damned near killed us.

Higher speed, lower cost

Fortunately for Rodella, the technology went the way of most in this age, continuing to improve and drop in price. At the same time, telephone lines were becoming more advanced, allowing for faster and cheaper transmission of voice, video and data. That led to major price reductions in the equipment.

"People are paying $5,000 today and getting quality that they once paid $100,000 for," he says.

In 1997, when Rodella came to the conclusion that PictureTel hadn't been improving its technology fast enough, he forced the issue by adding other videoconferencing brands, including Polycom and Vtel, to his stable of products -- to the serious dismay of PictureTel. But he quickly eased concerns because, with the ability to virtually corner the market in videoconferencing equipment, RoData doubled the sales of its PictureTel equipment.

In 1999, RoData generated $7.5 million in revenue on the equipment. But the real growth, Rodella expects, will come soon as higher-quality videoconferencing equipment finally converges with high enough quality Internet signal transmission that will allow for professional-looking meetings in real time over the Internet.

As the Internet-driven market expands, Rodella says he expects to hit $10 million in sales this year, with the greatest reward coming in five years. That's when he expects the company to grow to $50 million in annual sales.

"As of April, we are the largest videoconferencing dealer in the domestic United States," Rodella claims.

And the Internet can only make that better, he believes.

"The videoconferencing industry will enjoy a heyday like never before." How to reach: RoData, (412) 316-8888, www.RoData.com

Daniel Bates (dbates@sbnnet.com) is editor of SBN.

Published in Pittsburgh
Monday, 22 July 2002 09:37

Fisher Scientific's surplus solution

You have a large company with a commensurately large and complex problem to solve. It's obvious that technology is the solution, right?

Well, sure it is. But identifying just the right technology, how to acquire it and the best way to do it is the real trick to pulling it off.

Fisher Scientific has tackled such a problem with EinsteinsGarage, an online auction site that went live earlier this year with 12,000 items and $8 million in starting inventory. The solution seems simple enough, but the company's experience demonstrates that simple doesn't necessarily translate into easy.

Fisher Scientific, a $2.5 billion manufacturer and distributor of scientific instruments, equipment and related products to labs, schools and universities, was experiencing growing difficulty in dealing with the large quantities of surplus, returned and damaged products it had to liquidate.

Here's a glimpse at the scope of the problem: Fisher Scientific handles products manufactured in its own facilities as well as 3,200 independent suppliers and thousands of other producers. With warehouses spread out geographically, 260,000 products and a quarter of a million customers, the company had a logistical albatross on its hands.

Excess inventory, after all, ties up space, capital and human resources to hold, handle and liquidate it. In short, it's a pain and it can be expensive.

That problem became acutely apparent a few years ago when Fisher Scientific streamlined its distribution system and cut its warehousing facilities by a third, down to 20. It then squeezed its surplus inventory into fewer buildings, making the problem even more glaring.

Enter Rob Carskadden, now 33, and EinsteinsGarage's general manager. Carskadden had a penchant for being assigned to solve quirky and troublesome problems since joining the company in 1996. He had been looking at the issue of duplication throughout the company's operations, and was eventually handed the challenge of solving the surplus inventory problem.

Fisher Scientific had, in the past, tried to deal with the problem in the traditional way, with on-premises auctions at the warehouses. But the auctioneers knew little about the products, the company didn't get the attendance it had hoped and Fisher Scientific still had to handle fulfillment.

"It was an utter failure," says Carskadden.

Doing it in house

Carskadden concluded that no one knew Fisher Scientific's business better than the company itself, so why not handle it on its own? Most of the rest of the pieces were in place -- employees had the product knowledge and they knew how to purchase, market and distribute. Creating a marketplace for the products, it seemed, was the obvious choice.

Carskadden began by consolidating the surplus into a single location, the company's Raleigh, N.C., facility. Then he came up with a business plan for an e-commerce site, put on a 20-minute PowerPoint presentation to the company's top brass and got the OK to implement the concept.

"They said, 'Hey, run with it,'" Carskadden recalls.

He stumbled at first, however. Carskadden tried to use off-the-shelf auction software provided by a vendor, but found that he had to go to the added expense of paying software integrators to link it with Fisher Scientific's existing information technology. That led to the decision to use an applications service provider, or ASP, to set up, maintain and host the site.

Why an ASP?

As EinsteinsGarage discovered, using an ASP may be the wise route for any company considering an e-commerce solution, says Michelangelo Celli, director of marketing for CommerBuilder Inc., a Pittsburgh-based ASP.

While large companies may have the internal information technology resources to do the job in house, many, nonetheless, are choosing to use an ASP because of the shortage of information technology talent and the technological barriers. Mid-sized and small companies, says Celli, simply can't do it themselves.

But simply choosing an ASP is no guarantee of success, Celli warns. Unlike selecting an Internet service provider, the decision to use a particular ASP is not easily or inexpensively undone.

"When you choose an ASP, you need to understand that you're making a long-term investment," says Celli. "You're picking a partner. It's expensive to move after you've set up your business on their applications."

The EinsteinsGarage site is up and running, and while it did a modest $120,000 in sales in its first few weeks of operation, Carskadden has good reason to believe that revenue will grow substantially. The Winterberry Group, a market researcher that focuses on e-commerce, forecasts that the so-called "e-surplus" market will grow from $7.8 billion in 1999 to $93.3 billion in 2002.

Fisher Scientific has on its e-commerce site 90,000 registered users, a group that EinsteinsGarage plans to contact by permission-based e-mail. Additionally, Fisher Scientific in June acquired PSS World Medical, Inc., a leading specialty marketer and distributor of medical products and a potential source of additional surplus products.

The scope of EinsteinsGarage has expanded considerably since it was conceived. Other companies can put their own online sites within EinsteinsGarage and it has added calibration and repair services to its offerings, as well as product locating capabilities. It can help purchasers identify the best way to transport a purchase, and, in some instances, arrange to have some kinds of equipment donated to charity.

In the end, Fisher Scientific's executives asked themselves what they did well and what they wanted to accomplish, then identified someone to help them achieve their goal.

"No one knows our products and services better than we do," Carskadden says. "But I didn't want to have to manage the technology." How to reach: EinsteinsGarage, www.einsteinsgarage.com; Fisher Scientific, www.fishersci.com; CommerBuilder, www.commerbuilder.com; The Winterberry Group, www.winterberrygroup.com

Ray Marano (rmarano@sbnnet.com) is associate editor of SBN magazine.

Published in Pittsburgh
Monday, 22 July 2002 09:37

A note from our sponsor ...

Imagine your refrigerator linked directly to the supermarket or your TV able to find specific programming on its own. Such Net-driven appliances are just a part of what promises to be an exciting future for the Internet.

There's much to come -- and much learn. That's why Nauticom, one of Pittsburgh's first and largest Internet Service Providers, is pleased to sponsor SBN's first "Guide to the e-Future," which is filled with insight into what's yet to come.

The Internet has revolutionized the way the world does business. Its doors are always open, allowing companies of all sizes to enjoy unprecedented control and convenience, efficiency and speed of delivery, and an ever-increasing variety and quality of content -- all with relatively simple navigation and operation.

But the Internet is not just about business. You can learn online from some of the best universities in the world. At Nauticom, we offer more then 240 online courses, ranging from basic PC use to high-level technical curricula, for home or office use.

And our Nauticom Sports Network (NSN) specializes in live and archived online broadcasts of regional high school and college sporting events, simulcast with a network of radio affiliates. The first of its kind, NSN is experiencing phenomenal success after just one year in operation and is expanding into Eastern Pennsylvania, Texas, Florida and Ohio.

NSN is evidence that the Internet has become an ideal medium for entertainment.

And that Net refrigerator and TV? Soon they won't be just the stuff of a fertile imagination. They'll be on store shelves and maybe in your own home.

However, innovation isn't enough to assure the Internet's continued growth. The proliferation and affordability of computer systems, software and connectivity are enhancing the Internet's evolution into a public utility, but several other factors are critical --including an economical, secure, dependable broadband technology such as Digital Subscriber Line (DSL).

Nauticom was one of the first to invest in and deploy DSL in the Golden Triangle for both residential and small business markets. This technology can carry large amounts of information at the high speeds necessary for transmission both to and from the consumer.

In addition, Internet backbone services need to increase their capacities, and computer manufacturers must continue to design and build servers capable of handling millions of requests.

Lastly, if innovation and investment in the Internet are to continue, governmental agencies must ensure fair and open competition.

With the infrastructure growth in place and fair business practices assured, the only limitations will be in the mind and imagination of the entrepreneur.

To paraphrase Al Jolson in the first talking movie: You ain't seen nothin' yet. Mark Steward is vice president of Nauticom, which he founded in his home in 1989. Nauticom is a wholly owned subsidiary of North Pittsburgh Systems Inc. It is one of the most comprehensive ISPs in the nation, providing Internet connectivity with dedicated circuits for reliable access, virtual hosting solutions, Web site design and development, registration services for domain names and search engine listings, LAN and WAN installation and services and e-mail services.

Published in Pittsburgh
Monday, 22 July 2002 09:37

Strategy for success

It took Thomas Sullivan just eight years to drive the company he took over from his father from $11 million to $100 million in revenue. That was 20 years ago.

Today, Republic Powdered Metals' revenue stands at $1.95 billion and its success comes from aggressive acquisition and mandatory innovation, says Sullivan, the company's chairman and CEO.

The company's acquisition approach is so novel that it led industry analyst Timothy Gerdeman of Lehman Brothers to offer this observation: "You (Sullivan) and (Vice Chairman and CFO) Jim (Karman) were essentially the Lewis and Clark of the chemical industry and doing a lot of great acquisitions over the past couple of decades."

Sullivan's acquisition strategy is simple: "We buy businesses that don't need fixing and we let them do their thing," he told SBN last year.

Stimulating innovation is not as easily explained, though it is a mandatory part of business for the world leader in specialty chemical coatings.

"At the operational level, we live by new products," he says. "It's through new products and new marketing that is generally the only way we can keep our margins where they should be."

Sullivan says the company's goal is that in any given year, 25 percent of its volume should come from new products developed over the previous three years.

"It's important to maintaining stable margins in a business of disinflation, which is what we've been through in the past several years," he says.

Sullivan adds that innovative thinking is not necessarily a process that can be taught; and it's an inherent trait he looks for in his employees.

"The most creative people that I can think of need little motivation because they do it on their own," he says. "They love what they're doing."

Within the company's operations (as opposed to at its Medina headquarters), employees are encouraged to think out of the box and "not discouraged from coming up with wild, wacky ideas every now and then," he says.

RPM's first acquisition was in 1966, when the company bought St. Louis-based Reardon Co. (maker of Bondex products). Since then, it has overseen 81 purchases and 20 divestitures, all part of the industrial products industry, which includes roofing systems, sealants, corrosion control coatings, floor coatings and specialty chemicals. RPM's products include the well-known name brands Day-Glo, Rust-Oleum and DAP.

The company began a restructuring plan this year that includes cutting 23 facilities. The plan was developed to help cut operational costs and streamline operations, but so far, it has resulted in an earnings drop. RPM's fiscal year 2000 earnings ended a 52-year growth streak for the company.

Sullivan attributes the 17 percent decline in earnings from 1999 to 2000 to operating disruptions caused by implementation of the restructuring plan, along with large profit shortfalls at some of the company's operating units.

While sales for the 2000 fiscal year totaled $1.95 billion, a 14 percent increase over the prior year's record sales of $1.71 billion, net income was $78.6 million, compared to $94.5 million in fiscal year 1999.

Sullivan said in a public statement released in July that operating profits of the StonCor Group fell significantly below the company's plan because the group encountered difficulties in assimilating the Carboline unit into StonCor, particularly in its foreign markets.

He added that the Testor and Bondo operations also performed below expectations and RPM is addressing issues affecting the underperforming business units. In addition, a $52 million restructuring and asset impairment charge, along with restructuring-related expenses of $8 million -- primarily discontinued inventories and plant closing transitional expenses --were charged to earnings during the year.

There were other reasons for the disappointing results that Sullivan addressed during the fiscal 2000, year-end conference call.

"What I would like to do is talk about the what and the how, and most importantly, what we're doing to correct this past year and how we missed the mark so badly," he says. "In addition to growing RPM by a billion dollars in the last five years and absorbing our largest acquisition in DAP, last August we announced two major programs -- a restructuring program and a reorganization program.

"This caused the lack of focus by our operating people, and in part, probably by some of our corporate people, on what's so important to us in past years, namely, planning and growth. And obviously, it also cost us our 53rd year of consecutive record earnings.

"Why? We did too much, too soon when you put the restructuring and the reorganization together. In restructuring, we failed to understand the pitfalls that most programs of this nature have," he says.

Sullivan does not expect remaining costs associated with the restructuring program to affect future earnings.

"The positive earnings impact of this program will begin to be seen in the 2001 fiscal year," he says. "Earnings growth in 2001 will get back to our more traditional levels, upwards of 10 percent or more."

Sullivan recognizes that even an innovative operation occasionally faces some growing pains.

"Although this past year has been very painful, in the long run, I am confident that the restructuring and the reorganization programs will serve RPM well."

The Medina-based company has 96,000 shareholders, 6,800 employees and hundreds of sales and technical representatives. Its products are sold in more than 110 countries and manufactured at 72 plant locations in 14 countries.

RPM common shares are traded on The New York Stock Exchange under the symbol RPM. Of its total 1999 sales of $1.7 billion, approximately 60 percent was generated by industrial products sold worldwide and the remainder by branded consumer goods sold primarily in North America. How to reach: RPM Inc., (330) 225-3192 or www.rpminc.com

Connie Swenson (cswenson@sbnnet.com) is editor of SBN Akron/Stark.

RPM's industrial maintenance products

Tremco waterproofing

Alumanation roofing coatings

Paraseal membranes and Vulkem, Dymeric and Monile sealants

Carboline, Plasite, Mathys, Alox, Westfield and TCI corrosion protection

Dryvit exterior insulation finishing systems

Stonhard and Duracon industrial and commercial floor coatings

Day-Glo fluorescent colorants and pigments

Wolman industrial lumber treatments

Fibergrate and Chemgrate fiberglass reinforced plastic grating

American Emulsions textile additives

Euco concrete admixtures sold by Euclid Chemical Co.

RPMs consumer products

Rust-Oleum and Stops-Rust rust-preventative coatings

Painter's Touch, American Accents decorative

Zinsser primers and sealants

Bondex and Plastic Wood patch and repair products

Wolman deck coatings, sealants and brighteners

Thibaut wallcoverings

Bondo and Marson auto repair compounds

Mar-Hyde auto body paints

Varathane, Watco, Mohawk and Chemical Coatings woodworking and wood finishing products

Testors and Floquil model kits, coatings and accessories for the hobbyist market

Pettit, Woolsey and Z-Spar marine coatings

DAP caulks and sealants

Published in Akron/Canton
Monday, 22 July 2002 09:37

Goliath's challengers

Mark Goldfarb and Gary Shamis aren't just small-town gladiators making a stand against greedy Goliath competitors.

They are the managing partners of SS&G Financial Services Co. -- a regional, full-service accounting firm with offices in Akron, Cleveland, Columbus and Cincinnati -- who are making their mark, making a point and making it easier for independent firms to compete in the financial services arena.

"There are top quality firms like ours around the country that are very successful, have deep client relationships and strong community ties, and don't want to sell out to large corporations," says Goldfarb, explaining that SS&G is often approached by big-boy firms hungry to buy local practices to create financial services conglomerates. "Like other independent firms, we're tired of large multinational rivals targeting our clients, and we want to find ways to compete." (See SBN, August 2000.)

And so they have, in ways that would impress Marvin Shamis, the founding father of the 32-year-old practice also known as Saltz Shamis & Goldfarb Inc. To provide superior client service, foster entrepreneurial growth and safeguard against industry consolidation, SS&G's managing partners are launching a steady blast of innovative ideas and leveraging the potency of like-minded industry alliances.

Making a mark

To boost retention rates and brand SS&G as a cutting-edge financial services practice, the partners debuted offerings unique to traditional CPA services. For example, SS&G was one of the first nonnational firms of its kind to introduce a product like SS&G Investment Services. The partnership with R.C. Morris Inc., a local employee-benefits consulting firm, augmented SS&G's employee benefit offerings.

The partners then introduced SS&G Healthcare Services to assist physicians with practice management, contract negotiations, strategic management, billing and collection issues.

To provide operational and managerial consulting to the restaurant and hospitality industry, the firm partnered with Carroll Consulting, a restaurant and hospitality consulting firm. And this spring, SS&G enhanced its IS consulting practice by merging with F1 Ltd. to create SS&G Technology Consulting.

"Offering all these services is unheard of for a traditional accounting firm, but we realized the capabilities would set us apart from other accounting firms," says Goldfarb. "It's also allowed us to grow at an unparalleled rate."

Making a point

To establish a competitive advantage, Shamis arranged a meeting of several top national independent accounting firms, and last fall, "The Leading Edge Alliance" was formed. The consortium is the first international association of its kind designed to help large independent accounting practices leverage the strength of a multinational firm, while maintaining individual local expertise.

Goldfarb says the outcome has been "overwhelming" in that, to date, the consortium includes 25 domestic firms, and a recent partnering with an international association secured a combined membership of 245 firms in 68 countries -- and more than $600 million in annual revenue.

"Through this alliance, we can tap into global resources of cutting-edge knowledge from leading experts and deliver even more value to clients," Goldfarb says.

And since the power of The Leading Edge is based upon the strength of its regional affiliates, this June, SS&G merged with Greene & Wallace, the fourth largest independent accounting firm in central Ohio. The merger made SS&G the largest independent accounting firm in Ohio and an employer of about 240 people.

"We can grow and receive awards, but it all comes down to serving your clients by coming up with innovative ideas to help them with their businesses," says Goldfarb. How to reach: SS&G Financial Services Co., (330) 668-9696

Published in Akron/Canton
Monday, 22 July 2002 09:36

Steering in the right direction

When it comes to workplace safety, worries about employees falling or cutting themselves while using a piece of machinery should not be at the top of your list.

A greater risk to employees -- and others -- is simply driving company vehicles.

After all, the National Safety Council lists motor vehicle crashes as the leading cause of accidental deaths, a term its even changed to "fatal unintentional injuries" in an effort to stress that all accidents could be prevented.

"For the employer, you have employees out there so their safety is of concern [and] the general public's safety is of concern," says Joe Tulga, program manager for the Safety Council of Central Ohio.

Injury or death isn't your only risk when employees are on the road, either.

If you include lost wages and productivity, administrative, medical and employer costs, as well as motor vehicle damage, every fatality resulting from an auto accident costs $980,000 on average and each nonfatal, disabling injury costs $35,600, according to the National Safety Council, which cites 1998 figures. Even in less serious crashes, in which property damage and nondisabling injuries occur, costs average $6,400.

In addition, the image of your company is at risk when you have company vehicles on the road.

"In a way, [the vehicle] is a moving billboard out there, and if you have drivers racing around, it's not good PR for you," Tulga says.

Think your employees have a slim chance of being involved in a crash? Consider this: In Columbus during 1998, one in every 24.4 of 667,252 registered vehicles was involved in a crash, according to the Ohio Insurance Institute, which cites its sources as the Ohio Department of Public Safety and Ohio Bureau of Motor Vehicles.

ICI Dulux Paint Centers takes the risks seriously. It requires employees to take a defensive driving course through the National Safety Council -- and renew their certification through the course every two years.

"Our company philosophy is safety is our top priority for our customers and for our staff," says Mark Frost, regional operations manager. "Defensive driving is a tool that's used to help promote awareness. That's what safety is -- it's thinking about it and providing awareness."

Defensive moves

The defensive driving course many businesses take through the Safety Council of Central Ohio is called DDC-4, the 4 standing for the four-hour duration of the course.

Frost says his region has opted to send employees to classes to become trainers. The result is more flexibility in times the company can offer the class as well as more cost effectiveness.

For example, he formerly spent $45 each time he sent one of his nearly 70 employees to the course. Now, Sean McCarthy and another employee in his region provide the training instead. Although it cost ICI $300 for each trainer's certification and another $650 for each teaching kit with materials, the course booklets for each student cost only $2.50.

This means ICI can now train all of its employees in house for less than two-thirds of the $3,150 it would have cost to send each of them to the driving course. The company also saves on the work time it would lose if employees drove to the course instead of taking it on site -- another service the Safety Council offers.

"From people who work in stores to [sales] reps to vice presidents, we cover everybody," McCarthy says. "Whether they drive every day or not in our company vehicles, they are required to take the training."

The course covers rules, regulations, responsibility, vehicle maintenance and driving conditions, Tulga says. For example, it explains the benefit of the three-second rule -- allowing three seconds to elapse before you drive by the same point the car in front of you passed, a method to establish safe following distance.

Attendees learn about antilock braking systems and how to avoid crashes. They also complete a worksheet to show the costs of being involved in a crash.

"You go through driving habits and how to improve on your driving habits and how to recognize hazards," McCarthy says. "It teaches you to be more aware of your surroundings."

Instructors touch on alcohol- and drug-related crashes and share statistics.

"We're not allowed to call them accidents -- they're crashes," McCarthy says. "A traffic crash is not an accident; it is a result of a driver or drivers not doing everything reasonable to avoid the collision."

A continuing journey

Frost could not specifically say what results he's seen from the defensive driving course because overall safety incidents are down in his territory after the implementation of many safety programs -- not just the driving course.

Among other ICI safety procedures:

  • Employees receive forklift training and are certified in the vehicle's use.

  • Gloves and steel-toed boots are required for certain duties.

  • The company holds monthly safety meetings at each paint center; employees often watch safety-related videos and even take tests related to safety issues.

  • Each paint center has an appointed safety contact person who coordinates those meetings and is in charge of doing a monthly store inspection to check everything from the condition of the floor to electrical outlets to fire extinguishers.

  • Each center has a designated safety area, where items such as first aid kits and flashlights are stored.

Another facet: employees are not permitted to use a cellular phone while driving. In fact, they can't even use it if they're riding in a vehicle.

"We're zero tolerance when it comes to safety," Frost says. "When something is abused, like cell phones, termination is the penalty. There isn't room for tolerance when it comes to safety." How to reach: Joe Tulga, program manager, Safety Council of Central Ohio, 225-6092 or joe_tulga@columbus.org; National Safety Council, Defensive Driving Program, www.nsc.org/psg/ddc.htm. Another source of traffic safety information for businesses is the Ohio Partnership for Traffic Safety, 466-3250, www.trafficsafety.org/states/oh/opts.cfm.

Joan Slattery Wall (jwall@sbnnet.com) is associate editor of SBN Columbus.

Published in Columbus
Monday, 22 July 2002 09:36

The will to succeed

A quick tour of innovation practices across some of this year's winners easily reveals inspiring themes in how innovation plays out as a critical factor in business growth and development.

At construction industry service firm Fortney & Weigandt, promoting and providing incentives for innovation is a team effort. Profit sharing is leveraged to inspire boundless initiatives that are often more informally than formally organized. According to F&W's maverick innovator, Bob Fortney, "Our goal in life is to take each of the 200 parts of our business into continuous improvement on everything."

Innovation is a welcome strategy in this firm, especially as innovation so often implies risk taking. As Fortney puts it, "Risk taking is what we do. It's what our business is all about." From his perspective, why not focus risk-taking competencies on the very processes and systems that inspire the relationships that make up the heart and soul of the business.

Bill Zimmerman has done a yeoman's job of creating at Computer System Company the kind of new product incubator methodologies that have hatched several technical breakthroughs. By engaging both idea launch and feasibility teams, CSC has reinvented old equipment with new equipment capabilities through innovative engineering and software changes.

Many of the ideas bubble up from a culture infused with the momentum of continuous innovation success stories. In the dramatic cost savings from the equipment redesign, "the idea came from folks working on what we could do with the old equipment," Zimmerman says.

This innovative firm is not from the school where significant corporate initiatives are relegated to higher management altitudes. Instead, as Zimmerman states in one of this year's company newsletters, "We want our employees more involved in determining our future."

At SS&G, similar themes of unleashing ideas companywide are at play beneath the waves of innovation, propelling this self-reinventing firm to new industry shores.

"We encourage everyone to think in innovative ways about the business," says partner Gary Shamis.

Most of the company's new hires are from other professional firms rather than right out of school. Far from the usual NIH (Not Invented Here) management defensiveness, new recruits are encouraged to import best practices from previous work experiences. As the firm grows through mergers, the question, "What are you doing better?" evokes new approaches and a culture of innovative openness.

At SS&G, most innovation starts informally, then migrate to more formal teams that move innovation forward. Background to these efforts is the firm's achievement of being one of the first accounting companies to morph into a more broad base of financial services with a name that replaces owner monikers with an innovative brand featuring an equally broad appealing professional firm name.

Each of these stories demonstrates the ubiquitous edge innovation provides, whether the corporate environment is driven by technology, construction or professional services. Collaborative innovation -- even informally cultivated -- along with the refusal to restrict innovation to a single department or level, continues to be a common denominator in the impact innovation has on the primal triad of cost, quality and delivery. Jack Ricchiuto (jack@yournextinnovation.com) is a Cleveland-based management consultant.

Published in Cleveland
Monday, 22 July 2002 09:36

Supporting innovation

Every year, the Innovation in Business Conference is possible because of the dedication and support of its generous sponsors.

They choose to be a part of the event because of their commitment to innovation, not only within the general business community, but within their respective industries and, of course, their companies. Here, then, in their own words, are their reasons for their involvement and their views on the importance of innovation.

Anthem

Joseph LaGuardia, vice president of Ohio sales for Anthem, encourages his employees to work innovatively, whether it be in service, sales, network marketing, management or distribution. In his mind, all aspects of a company can stand a little forward thinking.

"I believe in innovation," says LaGuardia. "And I believe in recognizing and encouraging businesses in our community."

That helps explain why the giant health insurance firm co-developed the Innovation in Business Conference with SBN magazine in 1999. In this, the conference's second year, Anthem has helped facilitate the drive for recognition of Northeast Ohio's premier innovators.

According to LaGuardia, innovation is also the Anthem philosophy.

In the health care industry, insurers and their partners face a consumer-driven industry more and more. Thus, he says, "We need to respond effectively to market conditions, government regulations and customer expectations."

Arthur Andersen

Paul Schlather, managing partner of Arthur Andersen, says his firm became involved with the Innovation in Business Conference because he believes in innovation.

"We're in the infancy of what I like to call the technology revolution," says Schlather. "If we're going to be players, we have to be involved; and the earlier you get involved, the better off you're going to be in the long run. Technology drives the changes we see taking place today, so you have to be prepared."

To ensure that it remains competitive and innovative, Arthur Andersen employs what it terms the "Exceeds" model in dealing with customers to maximize customer satisfaction. The model has been used for years in the manufacturing sector, exemplified by customer surveys and questionnaires, but has largely been ignored in the service industry. Arthur Andersen strives to change that pattern.

"We never used to ask customers, 'How are we doing?' or 'What can we do better for you?'" says Schlather.

Now, he sees better communication between employees and clients and a better overall understanding on everybody's part.

Brouse McDowell

Chief Operating Officer Carol Thomas says that Brouse McDowell has always fashioned itself to be an innovative law firm.

"Innovation is critical to a business' success," she says.

Thomas says she would rather a business be proactive in getting legal help than reactive. That, she says, shows people are being innovative and taking risks.

"People shouldn't wait," Thomas says. "They need to plan on a strategy now."

Innovation has been Brouse McDowell's hallmark, says Thomas, "because not only has it made everyone more effective, but it has reduced clients costs."

Clients save money in travel fees and phone call charges with Brouse McDowell's "E-room" service, a collaborative work environment that allows clients and lawyers to work together in real time on documents. Now, clients and lawyers can sit at their respective computers working together virtually.

Soon clients will be able to go a step further and log in securely at Brouse McDowell's Web site to view their billing status, see documents their lawyers have prepared for them and leave messages for lawyers.

"Innovation keeps the firm competitive and allows it to attract good employees," says Thomas. "It allows them to go home and be with their families because they can access their documents and information at all times."

Sarcom/Frontway

Mary Rose Daugherty, area sales manager of Sarcom/Frontway, has seen a definite need for innovation in today's changing marketplace.

"Customers are demanding change to happen at a rapid speed," she says. "Consulting firms need to adapt to the demand for such rapid change."

To answer these demands, Sarcom/Frontway has created what Daugherty calls a "custom engagement model" to custom design the process of dealing with each individual client. Under the model, employees are empowered to solve customer problems and handle issues immediately that under other circumstances could have taken longer to address. Satisfying customers at the point of contact helps develop a more loyal client base, Daugherty says.

This is Sarcom/Frontway's second year of involvement with the Innovation for Business Conference, and Daugherty says the company got involved because "it's a good way to help support the Cleveland community."

ICG

Matt Wajda, ICG director of sales, says innovation is a must.

"As a provider of business communication, ICG recognizes the need to continually innovate in order to meet customer demand and remain a leader in a very competitive industry," he says.

According to Wajda, customers constantly develop new ideas for how they buy and sell products and services.

"Our customers are innovative, and therefore, we must be as well," he says.

In the telecommunications industry, the "two Cs" drive innovation: competition and customers. Says Wajda, "To maintain and grow its customer base, a company must stay in touch with not only its customers' needs but predict and address future needs as well."

This is ICG's second year of involvement in the conference.

Product Imagineers

According to Kevin Kolman, CEO of Product Imagineers, businesses are responsible for reinventing ideas to stay ahead in today's competitive market.

"Ideas are tomorrow's hot ticket items," says Kolman. "Innovation means trusting in oneself for others to follow."

As a creator of promotional marketing solutions, Product Imagineers puts emphasis on the customer's needs.

"Being able to focus on customers with new product campaigns to help get their name in the lights is critical," says Kolman. "We strive to create unique and innovative marketing programs that help focus on the positive."

Because competition and innovation go hand in hand, Kolman notes that being innovative is "like being tapped into the biggest universal search engine there is."

Product Imagineers is in its second year of involvement in the conference, and supplies the awards to conference honorees.

Pfizer

In the pharmaceutical industry, staying one step ahead of your competitors is not only the key to success, but the key to long-term survival. Pfizer, the giant pharmaceutical manufacturer, takes innovation as seriously as the next guy.

"Innovation is the key to improving health, and advances in research technologies and genomics," says Celeste Torello, manager of pharmaceutical communications for Pfizer.

Forward thinking aids Pfizer because it aids consumers -- those who benefit directly from medical advancements and who drive business and competition.

Innovation leads to "increasingly empowered consumers, new tools to help us work smarter," says Torello. "All signs point to a new era of opportunity in health and well-being."

Published in Cleveland
Monday, 22 July 2002 09:36

On the move

In the more than a decade since she left Sohio (now BP Oil) in 1989 to found Thermagon Inc., Carol Latham has proven that innovation can, indeed, drive success.

Working with just an idea -- a way to dissipate the debilitating heat generated by semiconductor devices in computers -- Latham has built a loyal customer base and developed a company that's in constant growth mode.

Her company's client list includes such heavy hitters as Unisys, IBM, Motorola, Silicon Graphics, Dell, Intel, AMD and Cisco, and continues to grow. Latham recently moved her company from its West 25th Street digs to a larger building on Detroit Avenue in Cleveland to accommodate new equipment and an larger work force.

Last year, Thermagon expanded from 48 to 81 employees, in the process reaching $11 million in revenue. She employs numerous innovative approaches to her work force, including teaching new hires multiple business functions as part of their training.

This year, Thermagon is approaching 100 employees, and Latham says the company should top the $17 million mark by year's end. So what drives this innovative Visionary on her quest to provide the best product -- and company -- in the marketplace?

SBN sat down with Latham to discuss her business philosophy and what's been happening with this multiple award recipient.

Growing companies often find themselves faced with temptations to expand beyond their core products. Is that true with Thermagon?

We manufacture thermal management materials that go between the parts of an electronic system. Everything we make has that focus. Historically, everything was polymer-based, but now we're doing work with nonpolymer-based materials. That's the type of diversity Thermagon explores.

The biggest chunk of our business is the interface materials -- the materials we put between the CPUs and the components -- and the heat spreaders. There is a smaller, but growing rapidly, part of our business as well -- the circuit board materials that we sell. We've doubled our bookings on those since January.

What's spurring your growth in a sector that's begun to slow a bit?

There's a slowdown in the technology sector. Companies like Agilant have recently announced problems, which are really experiencing supply problems. If anywhere in the supply chain someone can't produce, then you have a problem. That kind of thing tends to slow the economy down a little bit.

For Thermagon, our concern is that we use so much of certain raw materials, that in order to support our growth, we have to guarantee no problems in our supply line. Luckily, the semiconductor industry is booming, and telecommunications isn't far behind.

Are you funding this growth internally or externally?

Until 1999, when we got into this building project, we didn't have any debt. Now we have a line of credit and strong cash flow. We work from the cash flow first and borrow the rest. Financially, we're on very solid ground.

You've been known in the past to travel around the globe a lot, visiting many of your customers on a regular basis. What's happening on a global level?

I haven't traveled quite as much this year as last year. A lot of our international business last year was generated by U.S. companies manufacturing overseas. It looks like there's more being manufactured here than there used to be.

There's a lot of activity in places like Mainland China, Japan, Taiwan and Korea, but we're finding the U.S. sector is actually growing the quickest. That may be because a lot more manufacturers are using contract manufacturing. That's made things a bit more complicated because it causes us to deal with more than just the OEM (original equipment manufacturer).

Because of that, to track the business and determine where it's being manufactured becomes a chore. What may be manufactured in China today may be manufactured in Taiwan tomorrow and then again in the U.S. after that.

Could you touch on the importance of continuous innovation within your industry?

The ability to adapt is imperative. You have to know where to be and when. There's a tendency to get complacent in what you're doing, but you have to consistently try new things and shake the company up a bit.

For example, when I go overseas a couple times a year, I always have an audience. People are interested to hear what's going on with Thermagon because we constantly introduce new products, talk about testing capabilities and I often help solve problems on the spot.

As a company, we're really on the move. But it's a real challenge. People say it's great to be expanding the way we are, which it is, but most people don't know how difficult it is to absorb this type of growth in business. New products are continually being developed and introduced -- about quarterly.

That's keeping with the fast-moving changes that occur in the electronics industry. How to reach: Thermagon, (216) 939-2300

Published in Cleveland