Dustin S. Klein
(Downs) to Philip Goldstein. The dissident Brantley Capital Corp. shareholder isn't playing fair in his all-out mission to oust Brantley CEO Robert Pinkas. Goldstein's recent distribution of proxy materials to shareholders compares Pinkas' reign as CEO to that of scandal-ridden business leaders such as former Enron CEO Kenneth Lay and Martha Stewart. Whatever happened to power battles waged on concrete facts and executive records as opposed to unsubstantiated allegations and shareholder fears?
(Downs) to NCS Healthcare. The Beachwood-based company in July agreed to a merger with Genesis Healthcare Ventures while spurning the tender offer of another suitor, Omnicare Inc. Now, as Omnicare pursues legal relief in its battle to acquire NCS, the situation is turning into yet another ugly takeover fight involving a Northeast Ohio company seemingly on its way out of town.
When Aquatech moved into a smaller facility, the owners found savings in places they hadn't thought of before.
By Dustin S. Klein
When James Larr gazed out across the busy production floor at his company's plant in 1997, all he could see was more than 60,000 square feet of wasted space.
Larr is chief operating officer of Twinsburg-based Aquatech Inc., which produces sewer-cleaning equipment. He had just been told by the parent company, Columbia National Group, to cut costs and improve the bottom line. Part of the job, Larr concluded, would mean selling the 160,000-square-foot Streetsboro facility and finding a smaller plant.
But there was more to it than he realized at the time. His original intent was to shave the expense-payments, taxes, utilities, insurance-of excess real estate. In the end, he also found that it provided an opportunity to improve production efficiency and, therefore, margins.
Larr's first action was to get outside help-in this case, CAMP Inc.-to find the right facility. He expected it would have to be about 100,000 square feet.
"We looked at how their existing process was and how it could fit in with the real estate constraints of the building," says Deborah DeRusha, a CAMP senior manufacturing consultant.
When priorities were written down, the total amount of space was not the first consideration. The new building first needed to have high-cost infrastructure already in place: adequate overhead cranes, enough electricity and the necessary HVAC.
The best match, it turned out, had only 60,000 square feet. CAMP's next assignment was to determine the most affordable way to modify the building to squeeze Aquatech in.
That left Larr with the rest of the details-rethinking work flow and designing a floor plan. "Primarily, we were concerned with where we were going to fit everything," he says.
Larr says the tighter quarters required an entirely new layout-which meant revisiting workstation arrangement. Equipment was moved closer together and arranged to better align with the assembly process than the old plant.
And, since there wasn't enough space for a painting room, Larr weighed whether to build an addition or outsource that function. Outsourcing turned out to be less costly.
"We identified where we would put every machine," he says. "We actually placed a footprint on the plans for each one."
That comprehensive preplanning also paved the way for a quicker move, which was one of Larr's goals from the start.
"By having everything identified exactly where it was going to go and who was going to do it, we made the move over Memorial Day weekend," he says.
Lost production? Three days. "But we finished everything for May the day before the move and we had everything in for June," he says. "So we really didn't miss any time at all."
In the year since, Larr has measured not only a significant decrease in overhead, but also a 10 percent increase in productivity. Which has satisfied the bosses at Columbia National Group.
Planning to avoid an Internet disaster
By Dustin S. Klein
Directors at the American Red Cross weren't expecting trouble when they installed Internet access at the Cleveland office, but when you preach preparedness for a living it's only smart to take your own advice.
So it came as no surprise to employees late last year when the nonprofit organization developed rules about surfing the Net. "There weren't any abuses," says Suzanne Seifert, director of human resources. "We just wanted to be proactive."
Simply put, the policies dictate that users should be good Net citizens and not act in a way that could besmirch the organization's reputation. Included in the policies are restrictions against:
- dissemination of obscene, harassing or fraudulent information;
- participation in activities that would damage the agency's image;
- deliberate infection of the system through virus downloads; and
- use of the Internet to acquire contacts for personal financial gain.
Says Seifert, "We certainly have an interest in making sure that people use the Internet because the Red Cross is so spread out. It's one way to communicate and share ideas. But we're also interested that they use it in a way that's consistent with the Red Cross' image."
It sounds like the plot for the next big Hollywood feature, right?
Wrong. It's just one of many real life lawsuits working its way through the court system.
Engaging in an office romance is risky enough as it is, but when that romance involves a supervisor and a subordinate, it's like dancing on a volcano's rim, says Jeff Weber, an attorney at Millisor & Nobil's Cleveland office.
"You instantly have a problem if you have a supervisor dating a subordinate," says Weber, who practices human relations management law. The consequences of that type of relationship, he says, often outweigh the benefits.
There's the possibility of a perceived impropriety by other staff members-such as giving favors to the subordinate. That could be anything from providing a sales lead to steering a favorable project that person's way. "It's kind of hard if you're dating somebody to treat them as objectively as you treat everybody else," says Weber. "It's just not going to happen."
And what if the relationship crumbles?
"If you have people who are dating consensually, what truly is consensual now may not be characterized as consensual later," Weber says. "The subordinate may later say it wasn't consensual and that they were pressured into the relationship because of their career."
To protect managers from these issues some companies have adopted policies forbidding workplace relationships between supervisors and subordinates. So far, the courts have backed these policies, but Weber still suggests carefully worded language which lays out precisely the company's intentions.
"You've got to watch the possibility of drafting a policy that will, say, adversely affect women," says Weber. "You need make sure people know when they're violating it and when they're not. It's also important to put the reasons why you're writing the policy in there-for example, to avoid the appearance of favoritism or accusations of improprieties."
But policies aren't a panacea, warns Weber, who says the only way to avoid problems is not to get involved at all. "A lot of time people just look at what the situation is, rather than how the situation can be perceived and recharacterized," he says. "I definitely would think twice about it before doing it."
Nobody needs to tell you how hard it is to own a business. Its lonely, painful, challenging and often scary. So why would anyone want to own two businesses? Or more?
For some people, nothing else is satisfying enough. For them, the chaos isnt an issue. They enjoy trying to figure out how to organize complex business lives that dont ruin their home lives or their health; that dont interfere with hobbies and outside interests.
It begs the question: Who are these guys?
Nobody really knows how many of these people exist. There is no catalog of them, and in a world that seems to have an association for everything, there doesnt seem to be a group for the committed individualists who are only satisfied when juggling all the variables that come with owning multiple businesses.
SBN collared three peopleKenneth Thompson, Dan T. Moore and Pero Novak, who among them have owned more than 40 business over 36 yearsfor just long enough to get an idea of why they do what they do.
Any revenue is a good revenue
By the time you read this, Kenneth Thompson will be back from running up one side of Mt. Kilimanjaro and down another. If all went according to plan, he got there by hitching a ride on the back of a DHL delivery from Cairo to Tanzania, across the Serengeti Plain.
Thirteen years ago, Thompson picked up long-distance running as a hobby. Since then, he has trekked the first 80 miles of Alaskas Iditarod dog-sled race in minus-65 degree weather; jogged through the jungles of Colombia; survived six days in the Sahara Desert on foot; completed two marathons 500 miles north of the Arctic Circle; and barely outrun Pamplonas infamous bulls.
Thompson approaches business the same way he runswith no discernible pattern but lots of passion and energy.
He buys companies with profit margins that he believes could be improved. Then he develops the business until its ready to sell.
He doesnt do this one company or even one industry at a time. Since the late 1960s, Thompson has bought more than 25 businesses; he once owned 18 simultaneously.
Although hes down to a mere six at the moment, Thompsons been involved with appliances, produce, Christmas trees, cattle, automotive components, motorcycle accessories, computers, credit cards, printed materials and real estate.
Dont worry if you dont know the business, says Thompson, in a blatant defiance of conventional wisdom. Its a couple seminars and a couple key people. The fact that you dont know the business doesnt matter. Youll learn quickly, especially if its an existing business.
Thompsons scattershot approach developed when he was in college at Purdue University. He invested in passive business ventures designed to provide income while he was a full-time student.
These included a Christmas tree business and investments in cattle. Thompson later transferred to his hometown University of Akron, and after graduating, took a job in Chicago with Westinghouse.
That only lasted a few years, until he quit to devote all his time to the businesses hed been running on the side.
In those early years, Thompson learned that it didnt matter what type of business he was in, as long as the company generated steady cash flow. Its just about the only business rule Thompson lives by.
You should always try to buy an existing business, Thompson suggests. I dont care how bad they are. I dont care if they have terrible customer relations or horrible market share. Resurrection is clearly better than giving birth.
An existing company usually also has understated assets on its balance sheet, he says. Theres an established customer base and, perhaps most important, credit from longtime suppliers.
As a beginner, you could never go out and get those credit terms, Thompson says. Cash is vital to the entrepreneur, especially in a start up.
But why several companies at a time? Flexibility.
If theres trouble in the industry of your only business, Thompson says, youre stuck riding out the fluctuations. But several businesses in different industries means security in everything but the worst recessions.
Today, Thompson owns three printing-related businesses and three real estate ventures, and emphasizes that the current lack of diversity is mere coincidence.
Always on the hunt, Thompson could discover an undermanaged box maker tomorrow, or a telecommunications company thats looking to sell. The best businesses are never in the paper, he maintains. Theres never a sign out.
Im an opportunistic entrepreneur, the 61-year-old continues. If you ask a guy what business hes in, hell tell you something like, Im in seeds. Well, I take the position that Im in business.
Thompson occasionally lectures for university-level business courses, but he doesnt offer the kind of advice that makes academic publishers smile.
When I look at the management textbooks, I feel like theyre doing something wrong because they try to force organizations into structures, he says. I know theres a group that says [what I do] is not really the proper thing to do, but I like to measure results. You need to see results.
When he attends social events with corporate executives, Thompson refuses to talk business philosophy because, Ive got nothing in common with those guys.
In pursuit of newness
Dan T. Moore is an engineer in an MBAs body. Accompanied by an advanced degree from Harvard Business School, his fascination with how things workalong with an artists inflexibility about finding the solution to a problemhas driven him from one company to several.
More than 20 years ago, Moore quit his job at Sohio after an unsuccessful effort to push the petroleum giant into the then-experimental credit-card business. At the time, he believed executive management lacked vision and courage.
And in the early 80s, when he was an investor in A. Malachi Mixons acquisition of ailing Invacare Corp. (hes since been elected to the board), he helped his friend by helping to design a better wheelchair.
Since 1969, Moore has founded or bought more than 10 companies. He advises or sits on the board of a half-dozen others, and owns the rights to more than 100 patents.
Today, he operates six businesses. Four of them develop, manufacture and sell impact- and heat-absorbing materials for the auto and other industries.
He set up another to handle acquisitions and oversee research-and-development. The last is real-estate development. Over the past few years, Moore has either started or bought a new company every year, and hes always on the prowl for a sense of innovationsomething he categorizes as newness.
Most of my time is spent on newness, he explains. The change is where the value is. By change, I mean new products and new ideas. The real way to do it is to create something brand-new, where theres no market for it, no one to compete with and no one to suggest what the price should be.
The beauty of that is when youre done with it, you can sell it. Newness is the key to a higher return.
Despite the scores of patents that hang on his walls, Moore never received any formal scientific training. But he was raised in an environment where people did what they wanted to do. That meant exploring his interests and seeing where they led. You have to have a passion for what you do, he says. The old, dull, buy low, sell high gets kind of boring after a while. If you have passion, it leads you into different areas and different businesses. When you do a lot of different things, it makes it very exciting. Sc ience was a field I didnt know much about.
After leaving Sohio, Moore worked as a manufacturers rep in the auto industry and realized he knew nothing about the engineering of the products he sold. I was a little insecure about my job, he admits. So he spent weekends at the library, learning all he could about science and engineering.
Armed with an expanded understanding of the industry, Moore founded the first of several small manufacturing companies, which developed polymers used to rustproof vehicles. As these companies grew, Moore sold them off and used the money to fund new ventures. And each time a groundbreaking technique or product was developed at one of the companies, Moore would proudly add another patent to his collection.
Today, Moores more concerned about big picture issues, but hes still interested in product development. I like to get involved with these inventions, he says. I have a lot of inventions. Even with all the businesses that are running now, I am still constantly involved on the technical side from the beginning.
Moore leaves the operations of each business to hand-picked, aggressive young executives who buy into his vision of constant innovation. He keeps tabs on his companies through regular forums, where department managers meet with Moore to compare notes. The meetings are either weekly or biweeklyeach company gets the level of attention it demands. Its sort of where are we now, what we have to do and whos responsible for it forum, he explains. But its very specific. For example, if sales arent where they should be or if we havent gotten information we need from a department such as R&D, Ill stop a project. It drives them crazy, but we need to know all the details.
That quest for detail is, no doubt, what will lead Moore into his next new venture. Or perhaps hell stumble upon another scientific process that interests him. Either way, its unlikely hes bought or built his last company.
Want it done right? Do it yourself
Everyone who works at Air Technical Industries can recite a story about its owner, Pero Novak:
During ATIs first year, Novak didnt have enough cash to maintain inventory of his only product, a collapsible floor crane. So each night, he would build one for a prepaid order, deliver it first thing the next morning, and then ask if he could borrow it to show to some new prospects.
At the end of the day, he would return the crane and, if hed received an order, build another for delivery the next morn
This continued for almost a year.
In the first three years, the company didnt make one dollar of profit, Novak says. Every buck we got in went right back into the business to buy tools, paint and parts. I did everything myself. I used to build and promote the crane every day. But before I went out to show the crane, I would screen the customer and see if they really needed it. And, if they could pay me.
More than 30 years later, Novaks hands-on approach hasnt changed. His desire to ensure that the machines are sold to the right customers has led to his founding four other companiesall complementing ATI.
Novak just doesnt like to rely on outsiders who may not look out for his own best interests. One thing just kept leading to another. We always have something on the drawing board.
This sense of self-reliance is consistent with Novaks past. He left his native Croatia in the early 1950s and arrived in in Cleveland unable to speak English. He ended up in the military, serving as a pilot in Korea. It was during that timeafter his car broke down somewhere between Cleveland and his military basethat he thought up the idea of a low-cost, portable hoist that could be wheeled into position to lift an engine out of a disabled car.
Today, ATI has more than 1,600 specialized products for moving heavy loads in tight spaces.
The second company, Agile Equipment Co., was founded out of necessity in 1968. Novak was frustrated with distributors who said they were having trouble selling ATIs lifts and cranes.
So he founded his own distribution firm, Agile Equipment, which he now uses to benchmark the effectiveness of other independent distributors.
If it works for us, why isnt it working for them? Novak asks, rhetorically. Probably because theyre not doing it right.
When ATI got large enough to consider international sales, Novak didnt want to hire an import/export firm that wouldnt be loyal to ATI. So he founded his own, ATI International Inc., in 1972. The company ships ATI products overseas and markets them to foreign manufacturers, and represents products from outside companies as well.
When Novak tuned into the amount of money ATI was spending to design and print its extensive product brochures and catalogs, he founded Kingsville Global Advertising Corp. to handle promotional advertising for ATI and other clients.
When he realized the vast financial potential for owning industrial land, Novak founded the Kingsville Global Holding Co. and snapped up several parcelsincluding those where his business were located.
While he admits that owning five related business is time-consuming, Novak says its simply a matter of knowing your objective and determining how to do it effectively. For each company we have a goal, a plan, a set of rules and procedures, he says. I put good people in charge. I encourage them and motivate them and give them a tap on the back.
Meanwhile, Novaks most recent venture is an anomaly; it has nothing to do with ATI. It grew out of Novaks nationalistic pride.
Three years ago, he led an investment group in buying and renovating a hotel in the Croatian city of Zagreb during the governments sweeping privatization effort. The $8 million renovation included 45 ground-level retail spaces and 269 guest rooms.
In the groups first year of ownership, business increased 35 percent; profits, 428 percent. Novak says the turnaround hasnt been an easy job and theres more work on tap. Its been an adventurous thing, he says. But full of trouble. Theres lots of red tape.
But hes still enthusiastic about injecting new life into the war-torn city. In a lot of ways, its an issue of home and country. In others, its the compelling mission of solving a new set of business problems.
Marketing consultant Kevin Kolman says theres no place in a sales call or formal presentation for fear.
Kolman, owner of Fairview Park-based Valugraphix, says overcoming anxiety is learning that a prospects negativity or disinterest isnt always based on lack of preference for products. There are a lot of factors you have to consider, Kolman says. Maybe they were just having a bad day. But if you get a guy with the same negativity twice, you leave them alone and go somewhere else.
Thats because there is always someone who does want to do business with you. The worst anyone can do is say no, Kolman says. My adage is Some will, some wont, so what, whos next? Thats how I got through all those objections early on.
You have to take that negative situation and make it work somehow, he says. At least, make the prospect commit to getting what youve brought with youeither products or informationand then following up with them for another meeting. But you have to have patience and understanding when youre out there. Things happen.
When John D. Pumper arrived at the family construction business four years ago, employees were creating project-related documents with paper and a pen.
Our methods were very crude, explains Pumper, CFO of Cleveland-based DAS Construction. There was an 8-1/2-by-11 paper template for project schedules. Everyone copied it by hand. But what happens is that the project schedule changes, and to change it, you had to start over. What a waste of time.
So Pumper, who left a job in the computer software industry, began a companywide computer integration to bring the business into the silicon age. DAS was founded in 1986 by Pumpers father, John A.; mother, Ann;and brothers, Steven and David. The first initials of the latter three give the company its name. DAS specializes in interior renovations of commercial buildings.
You dont see a lot of leading edge technology in construction, Pumper says. And a lot of our project managers, and employees in general, were trained for work in the field, not the office ... much less computers. I tried to nibble away at their disdain for technology in bits and pieces.
Today, theres a PC on each employees desk. Project managers share documents and project schedule sheets. Company meetings are arranged via e-mail. Computer-based faxing to subcontractors has become part of everyones daily routine. And employees who once had never even turned on a computer say its something they cant imagine being without.
But reaching this point was a gradual process. Pumper says, You dont just come in and change things overnight. We had to move one step at a time.
Build an infrastructure
In 1994, DAS accounting system was the only automated part of the companythree workstations and a small network that ran a DOS-based accounting package. The problem was that. As they were growing as a company, they still had these small workstations, Pumper explains. That was fine when it was a seven-to-10-person firm. If someone needed information, they would go to the accounting department and ask someone to print them out a report.
But as the company grewfrom 45 employees when Pumper arrived to 85 employees todaythe three-person accounting department was inundated with information requests.
A similar problem existed with the one small, non-network computer that sat on top of the receptionists desk: Whenever project managers wanted proposals or letters sent out, they would dump them on the receptionist to type up on the computer. We were getting stuck over there, Pumper says. We write hundreds of subcontracts ,and it was disrupting our work flow.
So Pumper installed a new network and server, laid more powerful cable and increased the systems hard-drive capacity. That laid the groundwork for adding new computers. We developed this infrastructure with the intent that everybody would eventually have access to the file system, he says. I realized that most of this was transparent because people didnt see much change at first. But I had observed how we were doing business and the work flow and realized where the changes were needed.
After the backbone was in place, Pumper installed the first new computer. He placed it in a centralized locationthe administrative assistants deskand connected it to the network server. It was loaded with a Windows-based operating system and a variety of software applicationsdocuments, spreadsheets and an internal fax program. Thats when people saw there was another place to go to get documents produced, Pumper says. And they saw they could work on project schedules.
Excite the masses
It wasnt long before several DAS employees realized the difference in quality and professionalism in the work done on the new computer. Pumper says, As the new workstation started producing documents, people started to see new electronic schedules and began sending the administrative assistant more information to process. They could now visualize this as something they could eventually do themselves.
At company meetings, Pumper plugged his vision to have a PC on everyones desk. I was just trying to get people comfortable with the upcoming changes, he says. The moves were met with some degree of hesitation, but as the improvements continued, people were willing to go along with the planalbeit slowly.
So Pumper recruited two employees who had some previous computer experience. They installed the next two network computers on their desks. I started them off with project scheduling and word processing, he says. It was amazing how quickly they picked it up.
They, in turn, told co-workers how much more efficient the computers made their jobs. Pumper says, I, in essence, recruited them to market the idea to everyone else. It produced a snowball effect.
That snowball snatched up employees like Rick Grenig, a DAS estimator who previously did everything by hand. I had to take a calculator and add everything up before, Grenig says. Now, as much as I plug in, the computers able to do. I didnt even know how to turn on a computer before then, much less use one.
Within a year, every employee was on board. But not everyone was using the computers effectively. That took time. Some simply played with e-mail; others, with text documents or spreadsheets. Only a few actually combined all the computers capabilities and were faxing computer-generated bids and project schedules to clients.
Expand the capabilities
In late 1996, taking their lead from Pumper, several project-managers developed templates to replace the archaic paper-and-pen methods.
We wanted to reuse as much as possible, Pumper says. One guy created a spreadsheet for putting estimates together; another made a letter template. We developed a rich database system with files and documents. People are continually enhancing it and adding to it.
And as the database systems have improved, DAS has added more capabilities to its network systemincluding contact-management programs, internal e-mail and multiuser document sharing.
Pumper says the improvements have translated into more than technology for technologys sake. Sales have quadrupled since 1994, and the companys been tabbed for the Weatherhead 100 list twice in the past two years.
Technology is one of the most difficult things to evaluate at the time you make an investment, Pumper says. You cant tell people to invest money and there will be a certain return on the investment. Theres no equation for that. You can estimate based on tasksit takes X amount of time to complete a task, and using the computer cuts that time by Xbut how can you integrate that information into the business as a whole and put a dollar amount on it? The best you can do is sit back and look at what the investments done.
We are producing more business more profitably with less people than it would have taken otherwise. We also receive more timely and accurate feedback, which translates into better decision-making. So, is it successful for us? Yes. The bottom line results speak for themselves.
In 1997, Crooked River Brewing Co. appeared to be on its way to success. It had a specialty brew featured at Jacobs' Field. There were high-profile corporate sponsorships with the Cleveland Cavaliers and the Medic Drug Grand Prix. And the ink was barely dry on new deals with local beer distributors to carry Crooked River's products to a larger regional customer base.
Then the brewery bumped into the most basic of business problems: cash flow.
It had burned through $750,000 in start-up capital in 18 months-just like the business plan said. But nobody was standing in line to put more money into the brewery, and Crooked River wasn't yet selling enough beer at a high enough price to get along without additional funding.
On Aug. 24, Crooked River was bailed out of Chapter 11 bankruptcy at the last second, when C. David Snyder - flush with cash from the recent sale of Realogic, his own high-flying systems integration firm - made a half-million dollar investment. Here's why the brewery got within spitting distance of liquidation.
Crooked River sold its first beer in the summer of 1994. It seemed like a good time to open such a business; microbrewed beer was earning unprecedented shelf space in the grocery stores, but the fine art of brewing had not yet found its way into every struggling restaurant, tavern and horse track.
But from the start, investors were wary, as they are of any industry that grows a little bit too quickly and is based on the fickle taste buds of the American public. It doesn't matter that Crooked River began with recipes that were accepted and praised by the most discriminating beer tasters.
Explains founder Stephen Danckers, "Gung ho enthusiasm and technique will only get you so far. At some point you need to make a profit. [We] didn't have business experience and know-how. It was always a search for money. Sometimes you'd just forget about it, but it was always there. Finally, it just caught up with us."
In 1994, no bank would touch the deal Danckers was floating around town. Undaunted, he raised $750,000 through a limited partnership-of which he was the general partner-to get Crooked River rolling.
That money was used to buy equipment and expected to last approximately a year and a half.
By 1996, when the seed money ran out, Crooked River was nearing profitability and Danckers wanted to expand. National City Bank extended a $60,000 line of credit-enough to lease a new bottling line and add beer vats, but not enough to feed operations until the company found outlets to sell its new capacity.
The credit line was secured against Crooked River's equipment.
During this expansion phase, Crooked River employed its own small sales force to sell beer to grocery stores, bars and restaurants.
Lacking cash to expand that sales force, Danckers signed deals with six area beer distributors. Sales volume increased almost immediately, hitting 6,000 barrels of beer (equivalent to 84,000 cases) in 1997.
But the new delivery method had its own problems. The marketplace wouldn't swallow a price increase high enough to absorb the sales cost that distributors added, so Crooked River actually earned less per barrel. Says Danckers, "The distributor sucked a big chunk out of our return."
Worse, Danckers noticed that while sales around Northeast Ohio were increasing, Greater Cleveland area sales were slowly sinking. Danckers attributes the downward spiral to the way beer has always been sold-one bar at a time by salespeople who form close relationships with the people who actually pour the drinks.
Distributors, who make their money on the national brands, were too busy to talk up Crooked River. "It used to be that the Crooked River guys would come in and say, 'Here's your beer. What else do you need from us?'," Danckers says. "Those drivers were salespeople for us. We didn't have that anymore."
Finally, there wasn't enough money to continue the brewery's corporate sponsorship obligations-close to $200,000 a year. So even as the distribution failed to spread the Crooked River name, the brewery itself ran out of money to do the same job.
From mid-1997 through early 1998, Danckers was rejected by banks, private investors and venture capitalists in his effort to secure operating capital.
Finally, in early 1998, three individuals joined together and gave Danckers $100,000-Dominic Visconsi Jr., owner of Visconsi Development Corp., James T. Hickey, principal of the Arras Group Inc., and Samuel Hartwell, owner of management consulting firm Newmarket Partners LLC. A second loan - for $10,000 - came from Dr. William Bohl, principal of OCO Leasing Associates, which supplied and leased the brewery's new bottling line.
Then in April, the four were joined by Beachwood venture capitalist Mitch Frankel-owner of Frankel Investment Co.-and together formed Black Forest Investment Partners. The investment group saw potential in Crooked River's future, but only if they took control of its operations. They struck a deal with Danckers, which assigned the brewery's debts from those individuals to Black Forest. As part of the bargain, Frankel was appointed president and all of the brewery's former management staff-except Danckers-were ousted.
Explains Frankel, "[Danckers] went looking for asset-based financing on the equipment, but with the business in a growth phase and with losses, no bank wanted to loan money. They saw it as a venture capitalist's responsibility, someone willing to risk their own money."
But there was also a deeper external problem that an injection of fresh capital couldn't solve. Crooked River's money woes couldn't have come at a worse time-and neither could its entry into the microbrewing industry. After close to a decade of expansion, in which craft brews grew to account for 2 percent of the Northeast Ohio beer market, the microbrewing industry was poised for a shakeout.
Says Frankel, "With the overbuilding of the microbrewing industry, lots of brewers have come and gone. It's made the prices for used equipment drop. That doesn't give a bank great comfort to loan on the equipment. They're scared to be stuck with it and have to liquidate it."
Among the recent local casualties are Ashtabula's Lift Bridge Brewing and Cleveland Heights' Firehouse Brewery.
Black Forest's deal also came with its own caveat. The group invested an additional $90,000 for operating capital on the condition that Crooked River continue to seek additional financing. If none was found, the company would file for Chapter 11 bankruptcy and reorganize.
The reason, Frankel says, is that his group didn't want to make an investment for the sole purpose of paying back debt. That would have left Crooked River still floundering in its fundamental cash flow problems.
What the investment group wanted, Frankel says, was to get some relief from creditors and inject enough capital to get Crooked River back on its feet.
The reorganization plan called for a $500,000 investment - $400,000 to satisfy creditors and $100,000 in operating capital. The rest hinged on new management turning around Crooked River's lagging sales.
One of Frankel's first efforts was to pull the corporate sponsorships. That left the Medic Grand Prix scrambling for a new local beer partner, something Danckers says race management is still fuming about. The Cavaliers were also angry, holding Crooked River to the remaining $18,000 commitment on its sponsorship contract.
Frankel also hired four new salespeople to rebuild the fractured business relationships between the brewery and its customers. "They're going to try to fix the relationships by going to the retailers, the bars and the restaurants," says Frankel. "They'll also ride along with the distributors. We were naively relying on the distributors to push our name. Distributors deliver, but we can't expect them to put displays in stores for us. They're worried about the national brands they're representing."
But in August, it appeared that even the $500,000 investment wouldn't be enough to keep Crooked River's doors open, when the reorga nization plan started to fall apart. First was a revelation that the company's sales have continued to dwindle.
Then, one of the brewery's largest creditors - OCO Leasing Associates (owned by Bohl, one of Black Forest's partners) - rejected the initial reorganization plan, unsatisfied with how little of its $313,000 debt would be repaid under the terms of the deal.
Frankel estimates the brewery continues to lose between $20,000 and $30,000 a month, and there currently are no signs of any turnaround. "That sales drop has been a killer," he says. "The brewery's just losing a lot more than we anticipated."
Frankel was gearing up for a liquidation - which he said would be inevitable without another infusion of $150,000 to $300,000. Over the weekend of Aug. 22, with the Aug. 24 liquidation deadline fast approaching, he struck a deal with Snyder.
That arrangement calls for the creation of a new company - Crooked River LLC, which includes the same investors as Black Forest, except that Snyder replaces Dominic Visconsi Jr. The other principals - Frankel, James Hickey, Sam Hartwell and William Bohl - will invest $40,000 apiece. Snyder will invest $540,000. The first $400,000 of the total will be used to discharge debts under the terms approved on Aug. 24 in bankruptcy court.
The remaining $300,000 will be used as operating capital to revive the brewer's ailing sales. That amount - plus the repayment terms - satisfied Bohl, whose OCO Leasing had rejected the original reorganization plan.
Snyder says he has enjoyed Crooked River beer, and he became interested in investing after hearing the company's main problem was cash flow.
"It was a classic small-business problem," he says. "They were undercapitalized. I just sold Realogic and have some funds I can invest."
City officials were embarrassed recently when a television I-team turned up dozens of felons on the city's payroll. City officials have responded by dumping their employment-screening contractor, a company based in Oklahoma, and putting the entire contract up for rebid. The business is said to collectively amount to well into six figures.
The problem? Industry sources say the city's contractor cut corners by failing to supplement electronic criminal-records searches with the more time-tested method: hiring human investigators to selectively comb through courthouses.
But everybody's doing it
With all the attention spent watching the revolving door at the airport, few people noticed Cleveland Mayor Michael White recently qualifying the new projections for the Cleveland Browns stadium.
Current estimates are at $280 million. That's $33 million over the original budget-or a 13 percent cost overrun.
While that isn't really news, the press release issued by White's office also contained some interesting statistics about other cities. Among them:
- Denver's new football stadium. Original estimate: $240 million. Current estimate: $320 million, or 33 percent over budget.
- Phoenix's baseball stadium. Original estimate: $279 million. Current estimate: $390 million, or 40 percent over budget.
- Anaheim, Calif., stadium renovations. Original estimate: $100 million. Current estimate: $117 million, or 17 percent over budget.
- Baltimore's new football stadium. Original estimate: $200 million. Final cost: $220 million, or 10 percent over budget.
So what's the point? Apparently, that everybody's doing it.
But isn't that the same logic we all used as children when we wanted to do something our parents forbade? Lucky for us-and the mayor-everybody else isn't jumping off the Terminal Tower.
Ad club goes tabloid
In an effort to spur attendance at its public forums, the Cleveland Advertising Association - begun around the turn of the century to police unscrupulous advertising practices and promote the industry - is increasingly turning up the wattage of its speakers.
Last September, the association heard from the principals behind Miller Lite's kitschy "Dick" ad campaign. In October, while it couldn't land superstar golfer Tiger Woods, it did hear from his agent, IMG's Hughes Norton. He discussed "Team Tiger," which nets the golfer more than $18 million annually in commercial sponsorships. In December, the club hosted the since-departed chief marketing officer of KeyCorp, Steve Cone, billing the event as "BANKING EXECUTIVE REVEALS ALL! - sex, sin, golf and banking."
Now, ad association insiders say, the sights are being set on even splashier speakers. Among those said to be at the top of the wish list are boxing promoter and new publisher Don King - a former Clevelander who recently purchased the black weekly Call & Post - and radio shock jock Howard Stern.
Corporate Club breakfast schedule announced
SBN has become a sponsor of the Corporate Club breakfast series, the highly regarded speaker's program developed by Executive Caterers at Landerhaven.
The events are held on Tuesday mornings, with breakfast served at 7 a.m. and the speaker beginning at 7:30. Cost is $25 per person.
The first breakfast is Oct. 6, and the speaker will be Garry Regan, president of North Coast Energy Inc.
On Nov. 3, Bill Sanford, president of fast-growing Steris Corp., will speak.
Other dates and speakers are:
Jan. 12, 1999: David Burner, chairman and CEO, BFGoodrich Co.
Feb. 9, 1999: Michael Salkind, president, Ohio Aerospace Institute
March 9, 1999: Robert Rawson; partner-in-charge; Jones, Day, Reavis & Pogue
For more information and reservations, call Executive Caterers at Landerhaven, at (440) 449-0700.
Pillar Award judges namedMedical Mutual of Ohio and Small Business News have announced that the following people will serve as judges for the 1998 Medical Mutual Pillar Award for Community Service:
- Lee Bailey, executive director, The Citizens League.
- Dr. Nelson Bardecio, executive director, El Barrio.
- Kent Clapp, chairman, president and CEO, Medical Mutual of Ohio.
- Polly Clemo, associate director for institute advancement, Benjamin Rose Institute.
- John Hairston, external programs directorate, NASA.
- Patricia Horvath, associate executive director, The Health Museum of Cleveland.
- Fred Koury, chief executive officer, Small Business News Inc.
The Pillar Award honors businesses of all sizes for showing an outstanding commitment to community service. Nominations were collected throughout August and September, and were due on Sept. 30.
Honorees will be named on Nov. 1 and honored at a banquet on Dec. 3 at Executive Caterers at Landerhaven, and in special coverage in the December issue SBN.
Ups and DownsUps...to the newly renovated Allen Theater. The $15 million facelift of the one-time silent-movie house completes the expanded Playhouse Square Center. A good reason not to go to Toronto.
Downs...to the global economy, which has seen better days. Russia is on the brink; Japan's economy hasn't been worse since Nagasaki; and the Canadian dollar is at an all-time low. Guess we're headed to Toronto after all.
Downs...to the DJIA. Or is that an up? Perhaps a Down? An Up? What do you make of this financial thrill ride? The only comfort is nobody on Wall Street knows either.
Ups...to Jo-Ann Stores Inc. Talk about timing. With the Dow in free-fall and the entire financial world looking for a bright spot, the former Fabri-Centers of America decorated Wall Street with pink cloth to publicize it's new name and ticker symbols. The stunt must of have worked; on a day of record losses, the stock was only down by pennies.
Ups...to sluggers Mark McGwire and Sammy Sosa. Sure, baseball is a big and serious business. But on their way to making history, these guys are having fun. That's worth a couple million a year.
Ups...to Al Lerner. Can we forgive him for what happened in '95? In the end, we gave up Art Modell for Carmen Policy. What's to forgive? If he'll cover stadium overruns, we might even kiss him on the mouth.
Downs...to Ups & Downs. We thought the Dolans would get the Browns. We were wrong.
Since 1984, Terence Profughi has bought or founded an average of two companies a year. He's been doing that since 1984. But it's the deal gone bad that taught him the most important point about planning: Nothing's foolproof.
The year was 1990, and Profughi, CEO of Cleveland-based HI TecMetal Group was putting the finishing touches on what would have been his ninth acquisition.
Seated in the boardroom of the Public Square law firm that represents him, Profughi waited with the would-be sellers of Champion Commercial Industries for news that would either make or break the deal.
The arrangements had been about as straightforward as corporate finance can be: Champion had three divisions; Profughi only wanted two, but was willing to buy the third based on the agreed-upon price.
Then the roadblock appeared. "The company goofed while we were in the process of buying them," Profughi explains. "They sent a letter to all their customers and said, 'We're going out of business.'"
Profughi retracted the letter 10 days after learning of its existence, penning his own to assure customers that Champion was being acquired and not going out of business. But Champion's largest customers had already begun searching for new suppliers.
"The day of the deal, we sent seven salesmen to the seven major accounts on our corporate airplanes," recalls Profughi. "The salesmen told the companies, 'We're closing the deals right now. We want the purchase orders. Are you going to give the business back?'"
Meanwhile, Profughi and the sellers waited.
Finally, when rejections from the three largest customers were relayed back to the boardroom, Profughi had heard enough. "We said to the Champion people, 'We're not going to buy a company with no customers.' And we walked on the deal."
Profughi learned a fundamental lesson that day: It doesn't take much to spoil the best of planning. That's why the soft-spoken man, who has built a local reputation as a master of acquisitions, doesn't leave very much to chance.
He's boiled down the acquisition process into a succinct manual that details everything from targeting potential acquisitions to integrating a new company into HTG, which is a metal joining and heat treating company.
"I've developed a due diligence process," he says. "We use that to go in and answer 74 pages of questions about a company."
The answers are compiled into a document that becomes a diagnostic checklist for analyzing a company's infrastructure-everything from accounting processes and customer profiles to employee benefits and even janitorial services.
Profughi says, "Anything you would need to know if you were an owner about how to manage the company."
Profughi has acquired or founded 34 different companies in the last 14 years. In that time, HTG has grown from 38 employees and annual revenue of $1.6 million to 650 employees and close to $50 million in revenue. In the process, Profughi's role as CEO has changed. Daily operations and integration of new acquisitions are jobs left to President Carmen Paponetti. Profughi's full-time pursuit is identifying and qualifying companies to buy.
Always on the lookout
The acquisition binge began when HTG-then called TecMetal Inc.-developed a new technology for vacuum heat-treating metals. Profughi couldn't find a tool-and-die maker to build the first piece of equipment without a guarantee that future orders would follow.
But with no direct experience in the process, Profughi couldn't make such promises. "We failed miserably trying to get into that market on our own," he recalls. "So we decided the only way to get into the market was to buy our way in."
Profughi looked for a local steel treatment plant to buy, thus providing a guaranteed stream of orders for the new process.
He found Walker Steel Treating and, less than a month after closing on its purchase, he bought Walker Steel's largest competitor, quickly establishing HTG as a market leader and Profughi as an aspiring acquisition artist.
Each of Profughi's purchases is designed to complement HTG's existing businesses. "We don't buy a company unless it fits our core competencies-brazing and welding," Profughi says. "We're not financial buyers, we're strategic buyers."
Every acquisition makes intuitive sense to even an outsider, including the May 1998 purchase of a trucking company.
"We were supporting all of our businesses with their transportation needs," he explains. "But we could never get a control of the real cost of doing that. We looked at that and said it was crazy."
After a financial analysis of the shipping costs between divisions in four states-plus an accounting for the amount of shipping provided to customers-Profughi bought Chardon-based G&W Cartage Inc.
Profughi's aggressive if-you-need-it-then-buy-it philosophy has developed gradually since the mid-1950s, when his parents bought Technical Metal Processing Co.
He first worked in the business in 1968. He was 14. It was a classic mom-and-pop operation that provided a modest family income.
After high school, Profughi attended college during the day and worked as a foreman at night. He was later promoted to salesman and worked his way up to the post of president.
Over the years, Profughi noticed how the brazing and metal heat-treating business was growing more competitive. Not only was the local demand for such work declining, changing technology was driving up capital expenses even as it drove down prices. He concluded the only way for the company to survive was to become a regional player.
He also learned that just because a company isn't for sale today, doesn't mean it won't ever be available. "We always keep a list of hots and colds," he says.
Before his first acquisition-of Walker Steel Treating-Profughi poured over the details of its operations with the owner, one Charlie Abbott. The prognosis: In addition to the purchase price, Walker would need $1.5 million in capital improvements to remain competitive.
"At the time, we were only a $5 million company," Profughi says. "We had debt because we'd just acquired [our own] company.... So we were taking a risk by buying this other company and putting $1.5 million in it... The numbers kept coming back negative. Big negative numbers, like we were going to lose three or four hundred thousand dollars a year."
Profughi asked if Abbott knew of any other companies for sale.
"Charlie said Met-Tech," recalls Profughi. "And I said, 'Aren't they you're biggest competitor?' Charlie said yes. So we contacted Met-Tech the next day.
"We closed the Walker deal in September and the Met-Tech deal in October," says Profughi.
Profughi cut overhead by closing Met-Tech's plant and moving its workforce and operations to Walker Steel.
"We put them together into a bigger unit and put the million-and-a-half into it. That increased the market share and diluted the money into two companies.
It also helped fill in an operational model that Profughi and Paponetti had been working on since buying HTG. Like a much larger company, their business is organized through SBUs-strategic business units. Each of these serves a different HTG niche; there's brazing, thermal treatment, welding, machining and coating.
The SBUs are supported by centralized service groups-including quality and engineering, maintenance services, marketing and finance.
"We've become an expert at fixing troubled companies," he says confidently. "That's really one of the things we do-provide infrastructure and financial requirements to the companies we acquire. I try to blend them into our strategic plan, and they automatically become part of the larger picture."
Profughi prefers to finance HTG's acquisitions from either cash flow or through stock-for-stock swaps. "We don't use brokers. We don't use consultants. We don't use investment bankers. We don't use outside accounting firms," he says.
But as the company -and the size of its acquisitions-has grown, Profughi has faced the reality of the need to assume new debt.
He doesn't have a rule-of-thumb guideline on what percent of revenue will be dedicated to acquisitions. But every year, the budgeting process includes a line item for acquisitions, based on projected cash flow.
When it does pay cash for a new company, HTG seeks 25 to 50 percent equity. Profughi then borrows the remaining 50 to 75 percent to finish the deal.
While Profughi accepts the need for borrowing, it runs counter to what he was taught while coming up through the business, when the philosophy was to avoid debt for any reason.
"We're not big risk takers in terms of wanting to leverage a lot. We won't leverage more than we can handle just to get a deal done. We stick with our borrowing capacity under traditional commercial lending," he notes.
Among Profughi's no-nos are mezzanine financing, asset-based financing and factoring receivables. But he also avoids setting too many policies about the issue. "You don't know what profit opportunities are out there until you look at them," he says. "You can't set too many limits or you'll miss out."
Haste makes money
Between his adherence to the most conservative financing ratios and his crisp due-diligence process, Profughi manages to close deals much faster than the norm.
A "normal" HTG acquisition takes a month. "The most grueling one we did-from the time we said we were going to do the deal to when the deal got done-took 31 days," he says. The shortest? Eighteen days.
It's a pace that surprises outsiders.
"If you have a strategic buyer buying someone else in the same industry, you can typically do a deal within 45 to 60 days," offers Jim Hill, a mergers and acquisitions attorney with Benesch Friedlander Coplan and Aronoff. Hill hasn't worked with Profughi, but he knows the man's work. "Buying into businesses is his sweet spot. He does his due diligence," Hill offers.
In fact, by the time you read this, there's a good chance Profughi has completed yet another deal.
Bringing them in
Buying companies may be easier for HTG than it was 14 years ago, because the formula has never changed. Integrating those acquisitions is another story.
"Integration is either going to be smooth or a whole lot of trouble," admits Profughi.
Once the deal's done, HTG's team invades. "We break down the services-human resources, sales support, marketing, communications and computers, safety programs, transportation services, maintenance, environmental compliance, accounting, quality control," says Profughi. "They go in and go through the new company. They review my due diligence document and extract information from it."
The human resources chief may analyze the health care plan to see if it's better than the one HTG already has in place. Says Profughi, "The one thing we never want to do is take away any benefits. We want to improve their situation, not degrade it."
Others determine any staffing, management or corporate structure needs. In one recent purchase, the new company's managers were immediately given additional responsibility to run an underperforming HTG division as well as their own.
"Everyone always gets worried that they're going to lose their job," says Joe Iovine, who has been on hand for a dozen HTG acquisitions and is manager of the brazing and metal treating strategic business unit in Minnesota. "But Terry goes out of his way to make sure that everyone stays."
Profughi claims that in all his acquisitions, nobody has been laid off. "In an acquisition, those employees will become our employees," he says. "They have to understand our culture. We're going to give to them a choice when we buy the business-do you want to come with HTG or don't you? They almost always do."
It takes just three months for a purchase to be fully absorbed. New employees are put through orientation, where their individual training needs are assessed. After that, they are sent to HI Tec University-a university-style training program that introduces new employees to HTG and retrains veteran employees on new processes the company develops.
Profughi goes beyond other roll-up firms in that he's committed to investing whatever money is needed to make new personnel effective. After taking the risk to buy a company, he says, HTG will do everything necessary to assure a return as fast as possible. That's why all the strengths and weaknesses are assessed in advance. By the time a deal closes, the money has been allocated to fix whatever problems Profughi has identified.
"When they say they're going to bring new technology in, they do it. And they do it quickly," Iovine say. "They've got this process down so pat that it's just like going to work another day (for them)."
If trouble is going to arise, it's usually with people. "The fantasy is that everybody's going to come on board and you're all going to be one happy family," says Profughi. "That's the fantasy. The reality is that change really causes the most amount of problems. The minute you start changing things, people start getting concerned."
Nevertheless, the goal is for everyone to benefit from the deal. "In a lot of respects, when people sell their business they're looking for enhancements in their life," he says. "Improvements. Satisfaction."
These, of course, are lessons learned from experience. "From 1984 to 1995 we just charged into these acquisitions. It was the HI TecMetal way or the highway. Then we learned that you have to go slower in terms of making changes. While we really didn't lose people, we lost a commitment of the owners to stay with us. Their rules were upset."
Always setting a new pace
"When you buy a $150 million business with five plants in four states and two different unions, it's a much more complicated transition," says Benesch Friedlander's Hill. "When you're buying a smaller company, between $5 and $10 million, you do not have those complexities."
Now, Profughi's focus on ever-larger companies promises to make things more difficult.
"The numbers get harder to increase," he says. "We need to pick up our pace with the size of the acquisitions. They need to be larger than they have been-between $1.5 million and $10 million. If we're going to influence our growth in the next 12 months, we're going to have to buy a $20 million company, which is what we're looking for right now."
Profughi's confident he can do that. But, he says, it will require some changes in philosophy-and, most likely, new pages in the acquisition book.
By the way, not long after Profughi walked on the Champion deal, Champion-staggered by the losses of its major accounts-liquidated. Less than a year after that, Profughi bought the assets of the two divisions he wanted in the first place; and he paid far less than he would have in 1990. "They made a mistake," says Profughi. "Big time."