For Doug Bergeron, slowing down has never been part of the plan. He didn’t slow down after leading the buyout of VeriFone Systems Inc. from Hewlett Packard back in 2001. In fact, he spearheaded the turnaround of the struggling San Jose, Calif.-based company to return it to profitability. A decade later, VeriFone’s U.S. business has more than doubled to $500 million in revenue today, an accomplishment that somehow pales in comparison to the company’s global expansion.

“That’s pretty impressive, but what’s more impressive is that we grew our $100 million international business to $1.2 billion, 12 times the size of what it was when we purchased it,” says Bergeron, CEO of the company, which provides electronic payment systems and solutions such as credit card terminals.

Now that VeriFone has run out of time zones for expansion, Bergeron says his next challenge is mapping the road for the company to grow to $3 billion in revenue.

Partner up

To set the strategy for the company, much of Bergeron’s time goes to finding ways to merge and partner with companies that can further its vision for point-of-sale payment solutions. Last August, he announced that the company may spend up to $1 billion annually on acquisitions in emerging markets and data services. Around the same time, it acquired the electronic payments company Hypercom Corp. for approximately $485 million.

“We’ve realized that we’re an integral part of the payment system but we need partners,” Bergeron says. “We’re not going to do this on our own.”

Bergeron seeks out partnership opportunities that can be meaningfully large in furthering the company’s major goals.

For example, in 2011VeriFone partnered with Google to incorporate Near Field Communication technology into the company’s payment systems and introduce Google Wallet, an Android application that allows consumers to make payments with their phone using virtual versions of their credit cards.

“It’s hard to participate with 25 small companies,” Bergeron says. “It’s better to pick ISIS, which is AT&T and Google, Groupon, partnerships with companies like that, that have staying power and a lot of financial resources. We know that we have confidence that we can get shoulder to shoulder with them and move a market.”

In addition to seeking partners with big shoulders, Bergeron isn’t ashamed to say he always looks for a good deal.

“We will never overpay for anything,” he says. “Remember we paid $50 million for VeriFone in a market that is $4.2 billion today.”

You also want to partner with businesses that complement things that your company is already doing.

“I look for businesses where part of the problem gets fixed by being inside VeriFone,” Bergeron says. “Maybe they lack international distribution. Maybe they lack an R&D capability that we have internally. Maybe they have great products but a lousy sales force. We have a great sales force. So I look for something that not only is a good value, but once we put it inside and take some time tuning it up, that the outcome will be a much better outcome than it would have been before.”

Lastly, try to acquire companies where you could take some of the managers and make them great managers within your business. Bergeron has brought on a number of VeriFone managers, presidents and executive vice presidents through acquisitions.

He makes it clear that once people join VeriFone, there is no combining cultures.

“I’ve seen companies go broke trying to bend over backward trying to merge their culture with your culture,” Bergeron says. “We’re a very successful company. It’s a great culture. It’s fun. It’s fast. It’s feverish. But we’re not going to compromise our culture for a company that we bought.”

To protect your culture, it’s important to treat people as common citizens of the company from day one so they don’t feel like outsiders.

“They are not from the other guys,” Bergeron says. “They are not from the competition. They are VeriFone. We’re a better company for that as a result of it.”

Make strategic investments

To double the size of a billion-dollar business, it’s no longer about deciding which markets to enter. It is about building out existing businesses and services. That begins with casting a wide net to find new and profitable business opportunities.

“We’ve taken the philosophy that we have to invest prudently and not wildly, but we have to have our nose in almost everything,” Bergeron says.

One of the newer markets Bergeron is excited about is taxicabs. While you couldn’t use a credit card in a taxi three years ago, today the company’s electronic payment technologies are universal in taxis throughout New York, Boston and Philadelphia. The key is to look for broad market opportunities, he says. Pick markets with lots of upside, and don’t pick too narrowly.

“A lot of stuff we have our nose in will never ever pay off for us, but that is the price of admission to having the certainty that all of the stuff that does move on from trial to mainstream, VeriFone will be a part of,” Bergeron says.

As a leader, you can’t be overconfident and think you know how to pick all of the winners from all of the losers. You innovate successfully by staying actively involved in many different projects and experiments.

“If you try to be too cute and say I’m going to work on this project, not this one, this one, not this one because I want to optimize my spend … inevitably you probably won’t overspend,” Bergeron says. “That’s for sure. But you are going to miss some of the winners.”

Once you’ve found what seems to be a profitable market, you’ve got to get completely committed.

“Don’t just allocate a little bit,” Bergeron says. “If you are going to pick some projects, get committed and put some wood behind your efforts.”

That may mean taking an initial hit to surface an idea with customers, whether it’s offering the product or service for free initially or on a trial basis. To get retailers get on board with Google Wallet, for example, Google has provided large subsidies for many retailers to be able to upgrade the VeriFone systems with the technology.

“Often in the beginning of new innovations, you have to make it free just to offset the chaos that you’re asking a customer to go through,” Bergeron says.

“We are counting on retailers coast to coast to post these pilots saying, ‘I want to be part of that. I see a lot of consumers wanting to use their phones as a method to pay. I want to get a piece of that.’”

In other cases, such as with putting credit card capabilities in taxis, it may just take some evangelizing until people begin to see the benefit.

“With usage, people find that people spend more on plastic,” Bergeron says. “Governments collect more sales tax. Everybody wins with the electronification of payments. Typically the resistance is fairly short-lived.”

Either way, the goal with any investment of time and resources should be stimulating business.

“Ultimately, beyond the chaos, if customers aren’t willing to pay for something then it’s likely that no incremental value is being delivered,” Bergeron says.

While it takes some patience to evaluate an investment, a CEO needs to have the operating discipline to be able to call a dog a dog. If an investment isn’t profitable, move on and spend your time, money and R&D expenses elsewhere.

“Things do sometimes take longer to progress than one would like, but there comes a day in the evolution of any project where milestones aren’t being met,” Bergeron says. “Customers aren’t adopting. Customers aren’t paying. I think economics can be a great determiner.”

Cast the roles

Bergeron says to scale properly, make sure the right people are in the right positions over time. One of the main ways companies don’t scale properly is by not making sure the right people are the right positions over time.

“They think that it’s the same job, the same skill set,” he says. “It’s not.”

Bergeron gives the example of Asia, which used to be a $50 million division for the company. “When Asia is $250 million, like it is going to be next year, that’s a whole different set of skills,” he says.

“The guy running Latin America is running the company, in a sense, bigger than VeriFone was ten years ago.”

Bergeron says it is his responsibility to ensure all employees in the first two levels of top management are the right people for their jobs every year. In a company that was approximately 30 percent larger in 2011 than it was the previous year, one year can make the difference in someone outgrowing his or her job.

“It might be that there is some terrific employee somewhere in this organization whose skills and whose drive and whose capabilities have tripled in the last 10 years,” Bergeron says. “But guess what? We are six times larger, and that person has fallen behind.”

Today, the company has 700 U.S. and 2,800 international employees. When you’ve reached a certain size, developing the next generation of leaders is no longer a matter or training.

“At a certain level of executive management, there really is no training,” Bergeron says. “We’re not IBM. We’re not going to be sending people to Harvard for a summer workshop.”

Instead, you need to work with people to improve their skill sets in areas that can prepare them for the jobs they will be filling, for instance, by exposing them to different experiences.

“Part of the human development business is identifying areas of growth, and not just saying here is where you need to grow and walk away, but giving them a chance to work on those areas and providing the necessary additional experience,” Bergeron says.

“If there is a guy that I think is going to be running a continent one day, not just a country, and my concern is he doesn’t have multicultural experience, then I make sure that I take him out of his comfort zone and I give him a couple of countries where they don’t speak English. He has to travel there and learn how business is done another way.”

Bergeron believes that the company’s commitment to promotion from within is a cultural strength. It motivates people that if they work hard they can scale with the business.

“I want to give people at least the more-likely-than-not chance that if they continue to improve, there is going to be another bigger job for them if they want it,” Bergeron says.

With rare exceptions, very few of the company’s current executives and managers were outside recruits.

“For the most part, people who are running large countries, large continents today, were sales people that became product managers, that became country managers and just continued to overperform at every level,” Bergeron says.

As for Bergeron, his board is still giving him the thumbs up as the right CEO for the job. With the company six times the size it was when he took the job, it seems like a pattern that won’t break soon.

“I guess I scaled pretty well because the board has kept me,” Bergeron says.

“Time will tell, but it sounds like it’s going to be a very exciting next three or four years here.”

How to reach: VeriFone Systems Inc., www.verifone.com

The Bergeron File

Douglas Bergeron

Chairman and CEO

VeriFone Systems Inc.

Born: Windsor, Ontario, Canada

Education: York University in Toronto, Canada — B.A. with honors in computer science; University of Southern California — M.S.

What was your first job?

I had a paper route from age 10 to 16, gave accordion lessons from 16 to 20, and played accordion on Friday and Saturday nights in a wedding band.

What is one part of your daily routine that you wouldn’t change?

I love reading to my kids before bedtime when I'm not out of town.

Who are your heroes in the business world and why?

I admire Larry Ellison for his tenacity and unwillingness to accept no for an answer.  I try to live by that motto myself.

What is your favorite part of your job?

I love communicating to employees, customers, and investors. I love taking complex concepts and boiling them down to memorable and relevant simple themes.

Bergeron on the benefits of mobile payment technologies: The early word is that consumers are very anxious to replace a fairly simplistic experience that is the use of a credit card with a more robust experience that the retailer may know more about you based on the fact that your phone is a rich source of data for you. And as long as you permit it, the retailer may like to know who is there, why you are there, where you were before, what you are buying, (offering) some of the benefits that come from online purchasing, (such as) the one-click Amazon experience where they are suggesting other things to buy and knowing where to ship things automatically. There is an opportunity to create a richer customer-to-retailer experience once we start replacing cards with phones.

Published in Northern California
Tuesday, 06 September 2011 14:58

Thinking about expanding your business?

Canada and the United States enjoy an economic partnership unique in the world, sharing one of the world’s largest and most comprehensive trading relationships. Growth in bilateral trade between Canada and the U.S. increased by almost 10 percent between 2009-2010. In 2010, total trade between the two countries exceeded C$502-billion, with C$1.38-billion worth of goods crossing the border every single day. For this reason, businesses looking for their first international foothold invariably look to Canada first.

While Canada is geographically proximate and closely tied to the U.S. by a common language and culture, there are distinctive legal, business and regulatory differences of which any business looking north of the border should be aware.

Taxation

Tax considerations will drive the structure of virtually any expansion into Canada. If it is desired to consolidate the Canadian operating results with those of a U.S. parent for U.S. tax purposes, consideration may be given to using a fiscally transparent entity, such as an Alberta or Nova Scotia unlimited liability company, having regard for the anti-hybrid rules in Canada’s tax treaty with the U.S. Such entities are taxed in Canada in the same manner as any other Canadian corporation. It is also possible to carry on business in Canada through a branch of the U.S. parent. There may be Canadian withholding tax on cross-border payments of dividends, interest or royalties. Canada’s tax treaty with the U.S. contains certain exemptions from and reductions in Canadian withholding and other taxes that may be applicable in certain circumstances. Canadian transfer pricing rules require cross-border payments for goods and services to be made on arm’s-length terms.

Foreign investment review

Every acquisition of control of a Canadian business or the establishment of control of a new Canadian business by a non-Canadian is notifiable or reviewable under the Investment Canada Act. Generally speaking, an investment that is reviewable cannot be completed until the responsible federal minister has declared the investment likely to be of “net benefit to Canada.” A monetary threshold test applies to the determination of whether an investment is reviewable. A higher threshold applies to investments by non-Canadians that qualify as “World Trade Organization (WTO) investors” or to acquisitions from WTO investors that are not Canadians. This higher threshold does not apply to investments in the following sensitive areas: uranium production, transportation services, financial services and culture businesses.

Beyond the Investment Canada Act, there are Canadian ownership and licensing restrictions on businesses providing, among others, telecommunications, transportation and financial services. Canada has also identified certain culturally sensitive areas, such as publishing and broadcasting, that may be subject to ownership restrictions.

Corporate and securities laws

Canadian corporate legislation exists at both the federal and provincial levels while securities legislation only exists provincially. Mergers and acquisitions transactions are broadly similar to those in the U.S. Private transactions are effected as share or asset purchases while public transactions proceed as take-over bids (tender offers), amalgamations (mergers) or plans of arrangement (a court-supervised process more flexible than a merger).

International Trade

Canada is a member of the World Trade Organization and a party to the various WTO trade agreements. Canada and the U.S. are both parties to the North American Free Trade Agreement (NAFTA). Therefore, many of Canada’s customs and trade laws should be similar to those applicable in the U.S.

All goods imported into Canada are subject to Canada’s customs and sales tax laws. Issues such as tariff classification, valuation, origin, marking and labeling should be considered before commencing to ship goods to Canada. It is important to properly structure the Canadian business in order to minimize or eliminate customs duties and taxes whenever possible. Determining whether NAFTA rules of origin are satisfied (and supplying documentation if they are) will avoid potential civil liability for non-compliance with customs laws and manage customs costs.

As Canada’s Export and Import Permits Act imposes significant restrictions on the movement of goods into, around and out of Canada, it may impact the valuation of operations and strategic planning. However, virtually all domestic regulation in Canada is subject to NAFTA, and certain American parties may request review of an alleged violation by a NAFTA panel.

Antitrust

Mergers that exceed certain prescribed thresholds are subject to mandatory pre-merger notification under the Competition Act. These mergers cannot be completed until the parties have submitted their respective notifications and the mandatory waiting period has expired, been waived or terminated early. All mergers, regardless of whether they are subject to pre-merger notification, are subject to the substantive provisions of the Competition Act.

Intellectual Property

Canada’s patent eligibility is based on “first to file,” unlike its American “first to invent” counterpart. Novelty bars, the obviousness test and prosecution history all differ vastly from the U.S.

The importance of licenses is heightened in Canadian trademark law, which requires licenses even for wholly owned subsidiaries. Canada has not adopted the Nice International Classification System, which provides a distinct cost advantage. Registrants can also renew trademark registrations without proof of use.

Privacy

Canadian privacy legislation requires informed consent to the collection, use and disclosure of personal information, instead of merely notice of those purposes as permitted in the U.S. Public as well as non-public personal information is covered by legislation, which applies to affiliated organizations and third parties. There are both provincial and federal privacy standards that apply to the collection, use and disclosure of personal information before, during and after a transaction.

Information Technology

Federal misleading advertising, provincial consumer and French language protection laws may apply when parties use the Internet for sales or advertisement purposes. Provincial sales taxes may apply to software licenses depending on the server and user locations. This may result in double tax if not structured strategically. Custom software use by an affiliate may result in loss of provincial sales tax exemptions.

Blake, Cassels & Graydon LLP (Blakes) is one of Canada’s leading business law firms with more than 550 lawyers in offices in Montréal, Ottawa, Toronto, Calgary, Vancouver, New York, Chicago, London, Bahrain, Beijing and associated offices in Al-Khobar and Shanghai.

John Kolada is the Chicago Office Managing Partner of Blake, Cassels & Graydon LLP. Reach him at (312) 739-3612 or john.kolada@blakes.com.

Stefan Timms is an Associate of Blake, Cassels & Graydon LLP. Reach him at (312) 739-3625 or stefan.timms@blakes.com.

Published in Akron/Canton

Merv Dunn was having a moment of truth with himself. He realized he was frightened to go global with his company, Commercial Vehicle Group Inc. At that time, the company was only in the United States and had 95 percent of its business in one area with only two customers.

“I was afraid to start with it,” says Dunn, president and CEO of the vehicle component manufacturer. “But I was afraid of failure if I didn’t. I looked at my biggest competitor. I saw that they had stayed in North America, and they weren’t developing as the kind of company that I wanted to be. I was afraid if we did not go, we would not be successful, and we would dry up.”

There was another problem. The economic downturn of 2008-09 threatened not only the company’s health but its five-year strategic plan. The plan’s vision for growth and diversification geographically and in market use was at risk.

The first step was to start at the top, then work through the company to pare expenses.

“I took a 10 percent pay cut and so did my direct reports,” he says. “Then we put in a 10 percent pay cut across the board. In some cases, it was furloughs. They worked four out of five days a week. Some people we had to let go totally ? that was our last choice.”

And above all, the work continued. The team stayed true to the strategic vision. Global projects undertaken during the recession began to bear fruit.

When the 2010 sales figures came in, CVG tallied $598 million, up 23 percent from 2009. The company is in eight countries now.

Here are some tips on how Dunn helped stabilize the company as it gained strength to venture overseas.

Stay in focus

Dunn knew it was important to follow the strategic vision.

“Two years ago, there were a lot of people who didn’t think we were doing well,” he says. “They were questioning the strategy and they were questioning even internal management. When you started explaining your strategy and why you’re making these certain moves, then the overall company sees it. You may have pockets that still disagree, but once you can get them to understand why you’re making moves, I think then you get the buy-in.”

The vision needs to stay in place in good times as well as bad times.

“First of all, if you withdraw and pull everything in, you might as well tell everybody in the company that you’re closing,” Dunn says. “If you’re not working hard during the down cycle, then they lose confidence that you’re going to be here when the up cycle comes.”

Keep an eye on your competition because if they go under, you have a chance of getting their business. Develop contacts that could pay off with tips for new business.

“We get calls from customers who say, “We can’t get deliveries out of these guys. They seem to be having financial problems. Will you look at their product and quote it for us?’”

It’s not uncommon that if you follow those steps, you’ll see the benefits in more ways than one.

“It’s not unusual to pick up the business, and it’s not unusual to get a little better price for it because you’re going in with a product from a company that’s known to have a technically superior product and is known to meet its commitments ? and also does it in a consistent manner, and is honest,” Dunn says.

Hold on to staff such as the research and development department and assign them to develop new products or services.

“We developed three new products,” he says. “When you’re doing that, your people have confidence that they’re doing the right things and that you’re leading them the right way. In coming through an economic downturn and surviving that stronger, people kind of have confidence in that we know what we’re doing.”

Successes will encourage the employees, boosting their energy. Dunn used it as a rallying point.

“To come through it like we did, people are kind of walking on a cloud, saying, ‘Hey, you know, we’ve got a good game plan. Let’s keep after it,’” he says. “The successes that they’re seeing right now, it’s just tremendous, with the growth, and the different markets, the different customers. There’s just an excitement level. It’s like a basketball or football game. You start scoring, and your competition comes out with different plays, and you’re still scoring on them. People get pumped.

“You don’t always have to have what some people would consider the best team or the best captain, but if he’s winning, they get confidence in him quickly and they get excited.”

Be honest, consistent

The approach to take when expanding globally is really not that much different from the tactics you would take when building here at home.

“First of all, you’ve got to be honest,” Dunn says. “You’ve got to be competent in your abilities, you’ve got to trust your abilities, and you’ve got to be consistent. If I go there and they ask me to do something, and I don’t think there’s a chance in hell that I can do it, I tell them I can’t do it.”

People want honesty, no matter how hard the news is, and no matter which country is involved.

“If I tell them I’m going to deliver, when I’m going to deliver it, and I deliver it ? news travels. If I don’t deliver it ? news travels.”

Another important consideration about global expansion is to make sure the customer wants you to be there.

“A lot of people have had the attitude over the years, ‘Build it and they will come,’ or ‘We’re not going to build it until we know for sure we have customers,’” Dunn says, noting that finding a middle ground often works.

Go in small, and then with your technology, and quality and delivery systems, grow the confidence of the domestic market.

“That gives you the ability to start growing in leaps and bounds very quickly,” Dunn says. “But you have to be there in some form or you’re not going to get business because they don’t want somebody they can’t talk to.”

Do your homework. Get yourself in the geographic areas where your customers need you and learn about the country.

“You have to know the culture of the country that you’re in,” he says. “I would want people to get to know my culture if they were coming and putting a plant in my country, because to be able to turn my plants over to them, I need to know the culture, and I need to have trust in them.”

Gaining trust also involves patience. Subtleties in conversation can be misunderstood, for instance, when agreements are made. Be aware that some cultures place importance in not disappointing the other person.

“You’ve got to keep asking the same question and peel the layers of the onion back,” Dunn says. “See how consistent it is because many times you have to sort out the fact from the perception.”

When it comes to managing sites overseas, look at various options. You may find someone who already works for you that shares the culture and who could be given a management position.

“Usually, we can find somebody in our company that speaks the language,” Dunn says. “We’ve grown people either through acquisitions, we’ve selected the best talent, and if that talent was better than someone else we had in our company, we’d put the other person in a different role and we’d put this guy in the lead role.”

Ensure quality and buy-in

Concerns about quality are not limited by geography, and by following a simple rule that workers should treat a product like they were going to purchase it, many problems can be avoided.

“I think there are concerns about quality of products made in any developed country let alone an emerging country,” Dunn says. “Treat it like it’s a product that you’re going to buy. Do you want to be hassled taking something back that doesn’t work?”

The labor force in emerging countries can be trained just as in any other country.

“The people have to learn how to work in a factory when they’ve not been used to doing that,” he says. “Those lessons you’ve got to teach, and you’ve got to teach them until it’s second nature.”

You can do your global expansion alone, or take on a partner. Either way, make sure your reasons are solid.

In one country, Dunn built his own plant.

“I didn’t want to go in there and worry about that I might have a partner who didn’t see the same strategic vision as we had and the same commitment to the customer that we had.”

But in another country where CVG had already had some business dealings, it may be another story.

“I probably will have a partner, because we’ve been using engineering services,” he says. “We’ve had a strong relationship with someone over there that I feel has the same commitment to customers and the same commitment to innovation and to the employees and to the leadership.”

Once quality is secured, you also need employee buy-in.

“I believe in honesty,” Dunn says. “If a customer calls me with a problem, I don’t try to figure out whose fault it is. I want the problem fixed, and then we’ll deal with whose fault it is. It’s important to fix the problem, but it’s more important to fix the problem than to fix the blame.”

Not only does that lead to successful customer service, but it sends a message to the employee.

“Once you have a win, your team looks at kind of why you win. If they look at it and can see it was because you made the right strategic decisions and you make the correct day-to-day calls in the huddle, they buy in pretty quickly,” Dunn says.

Buy-in is something that needs to be addressed constantly with the staff, at all locations.

“If they don’t have confidence in the decisions that you are making and the outcomes that are happening, then they lose focus real quick and lose interest,” he says.

Give the employees the straight story no matter if it is something you don’t want to be honest about.

“Sometimes when you’re standing in front of a group and you get questions, you’ve got to say, ‘I just can’t discuss it right now.’ And, there are sometimes when you’ve just got to say, ‘Look. That’s not going to happen.’ Then there are sometimes you can go, ‘Yes, we agree with it and that’s what we’re going to do.’ You’ve always got to be honest. You’ve got to be consistent. You’ve got to trust your abilities. And you have to constantly stay in contact with the customer. Those are the kind of things that I push from my leadership role.”

If the leader can show his human side, the effects can be immeasurable. Dunn puts a high value on the experiences he has had with employees, even when a plant closing was imminent.

“I said, ‘We can’t be competitive here, and the customer is not happy,’” he says. “We’re in an economic depression with our end market, and we’re just not going to be able to keep it open. And I’m standing there, and I am thinking, ‘Oh God, how long can this take? I don’t want to do this. I don’t want to tell these people, but I’ve got to.’

“And at the end of it, there were these two older women who came up to me and said, ‘We’ll be OK. We’re worried about you, because we know how stressful this is on you. We know how hard this was for you to do. But we’ll be OK, so don’t worry about us.’  Two men said, ‘Is there anything we can do to help? Can we do anything to save it?’ I said, ‘Well, we can try. But I don’t think there’s any way to, to be honest,’ and they said, ‘We know how hard you have worked to keep it open. And we’re going to keep on working.’

“You know, that damn plant is still open. It doesn’t have near the employees it had, but they’re still adding to the bottom line. And they made it through the worst economic depression in this industry. The competitor liquidated and they got the business back after all these years. So it taught me that being honest with everyone is critical.”

How to reach: Commercial Vehicle Group Inc., (614) 289-5360 or www.cvgrp.com

The Dunn File

Born: Dayton, Ohio

Education: Eastern Kentucky University, master’s degree in operations management

What was your first job?

My first job was at 11 on a tobacco farm picking tobacco blooms. It was a buck an hour. That was a lot of money with my dad not able to read or write and my mom with a third-grade education.

What was the best business advice you were ever given?

I was fortunate enough when I got out of college to end up working for a guy that I had strong admiration for. One thing he always stressed to me was, ‘Try to think through your decisions. Don’t make them emotional. And most of all, be honest. Be honest with yourself more so than anyone else. And be true to who you are.’ My whole life I’ve competed against Harvard grads, MIT grads, and I have an undergraduate degree from Eastern Kentucky University. You’ve got to have something else to go along with it. I think being able to handle confrontation and being straightforward are probably the things that he taught me that I’ve stuck to. Have confidence in yourself. He said you’re here for a reason. You’ve got the job for a reason.

What’s your definition of success?

I consider success that as a person, when I see that my family is successful and then I look at my company and I see the people that are here are being successful, we’re being successful because the customer wants us, and to be wanted is a success. For me, seeing my company come out of this crisis, and people want to be part of my company, I consider that a success. It has to be wanted to be a success.

On taking risks: I don’t want to be 85 sitting on a front porch saying, … ‘I wished I’d tried that!’ I left a great company where I was president to jump out on my own in private equity. I screwed up, got with the wrong partners, lost a lot of money, started over again, did the same thing and won ? came out with good success because I learned from my failure. I think it’s always go

Published in Columbus

Chris Cicchinelli wishes he knew how to speak more languages or at least paid more attention in his Spanish classes, because his company has started to expand into international markets.

Pure Romance Inc., an in-home party company that sells a premier line of relationship enhancement products, expanded into Puerto Rico last year and now has 750 consultants selling products there.

“I wish I would have taken more Rosetta Stone or more Spanish when I was in school,” says Cicchinelli, president.

Now that the company has successfully started its quest to break into international markets, it’s looking to open locations in Johannesburg, South Africa, Sydney, Australia, and Manila, Philippines, within the next year.

2010 was the company’s biggest year yet, seeing 40 percent growth, which resulted in revenue in excess of $120 million and 50 new employees.

“We’re growing in all of our Midwest markets and all throughout the United States,” Cicchinelli says. “We were also very fortunate that we started doing some international growth last year. We are really beefing up our infrastructure to continue our growth trajectory for 2011 into 2012.”

While the organization has been able to grow domestically, Cicchinelli has found international growth offers a few challenges he hasn’t had to face until now.

Here’s how Cicchinelli keeps his company on a rising growth curve.

Consider each decision carefully

It’s no secret that every company wants to see growth. However, not every company is fully prepared to take on the challenges that growth brings with it.

“Making new decisions for the company and what the right decisions are for the company and the growth aren’t always easy,” Cicchinelli says. “You have to be upfront with everybody. You have to be as honest as you can. As long as you are upfront, honest and have an open dialogue it will get you far.”

If growth is something you’re looking to achieve, it is imperative that you are ready to take on the challenges.

“You have to look at everything [in the company],” he says. “You have to look at what’s right for the company from a perspective of new product development if you’re looking at it from a manufacturing route. You have to ask yourself questions. How’s it going to affect my end consumer? How’s it going to affect my sales rep out there selling? How does my company internally get behind what we are out there doing? All of those factors are important before you make a decision. You have to also sit down with key individuals in your office and talk it through. It’s not a dictatorship, it’s a democracy. You have to sit and talk about things and how that will affect all aspects of your business.”

Looking over all aspects of your business and making sure your plans will work or at least have a good shot at working is a big time commitment.

“Time is definitely a challenge,” Cicchinelli says. “You’re constantly working in the business from 9 to 5 and working on the business after that. I’m working on the day-to-day pieces, making sure that the core competencies of our business are done during those hours and from 5 o’clock until maybe midnight we are working on new development and making sure we have all those pieces covered.”

Because growth takes so much time and effort, it is important for not only yourself but for your employees to be able to celebrate the successes you see along the way.

“There were points and times where we would just go from one project to the next project to the next project,” he says. “It was like, alright, great job, let’s shelve it. No celebration, no congratulations, it was just move on to that next thing. We run so fast all the time that I want to make sure that the culture of my company is always positive and celebrating victories, even the little things. Personally, I’m trying to make sure that I’m celebrating those internally and I’m celebrating those with our staff. Those are things I had to overcome as a leader and making sure that we did celebrate that stuff.”

Celebrating success may seem obvious, but it is a big factor in your employee’s moods and demeanors. You can’t skip over any victory, large or small.

“Life is really short and the people that are around you are very important,” Cicchinelli says. “You spend more time with them then you do sometimes with your own family as leaders. You want to make sure that you congratulate them and you continue to boost them, because it is the right thing to do for your culture and your company. Celebrate the little successes that you’re going to have along the way because sometimes when you grow, you can grow so fast that you forget about everything that you’ve done and all the things you should be proud of. As a society, sometimes we forget about that and we just go through the motions and we forget about all the things we have to be thankful for in life.”

Expand to foreign markets

Before you can expand to any new market, foreign or domestic, you have to research where you want to expand. You have to take the time to get to know that market and have an understanding of whether your company can compete there.

“You have to do the research to make sure that there is not a lot of competition for the product that you’re selling,” he says. “If you’re selling printers or if you’re selling cars or whatever, you need to do the research either online, in business magazines, newspapers or even people on the ground in that market. You have to use anything you can to help you make the right decision.”

Finding a good reason to break into a market is step one. Once you understand the opportunity in a market, you have to gain an understanding of the culture there.

“Culture has been the most important thing anywhere that I’m traveling,” he says. “We spend a lot of time understanding culture. How do we interact with them? How will they take these products? How do we make sure we don’t offend anybody when we are talking about sexual health or sexual relationships? Culture has been our biggest thing for us to overcome.”

To understand how the culture of a new market works, you have to take time to visit and gain firsthand experience.

“You have to absorb as much as you possibly can,” Cicchinelli says. “Spend as much time as you possibly can in those markets. That’s one of the things that I’ve been able to do is I’ve been able to spend a lot of time and really get to know the people better. You have to take the time to build a relationship and better understand each other.”

Build relationships with people in your organization that want to help your company grow. Also, find people who live in those markets who can help you. That can make a huge difference in your company’s success.

“You have to find some people you trust,” Cicchinelli says. “Find some people in your organization that have got your back and don’t mind putting the extra hours in. You also have to make sure you find somebody that wants to grow up in the company.

“Find somebody that is either an expert in those locations or is someone on the ground in those locations. We have a person who’s on the ground in South Africa and I have a person who’s on the ground in Australia who is really helping guide us through.”

Don’t underestimate the importance of having someone with knowledge of the market and your industry.

“You’ve got to meet with the people that know your industry the best or know what type of industry you’re in to help make some of these decisions with you,” he says. “You have to make sure that you’ve got someone who has experience with whatever your product category or whatever your product line is to direct you where to open up and what the best way to communicate with the people of that country is. Once you have that then you’re putting your plan together and you’re implementing.”

Reaching the implementation stage is a big accomplishment and once you’re there, you have to keep pushing forward without hesitation.

“Once you make a decision, go fully committed,” he says. “You can’t go into these places, especially in the foreign markets, and be 99 percent in. You have to be 110 percent in.”

Fill your company with strong people

Pure Romance’s growth hasn’t just been about finding the right markets to break in to. The company has more than 100 very strong employees that understand the business and help keep it moving forward.

“As you continue to grow, make sure that you have the right team around you and the right people around you,” Cicchinelli says. “Make sure that you’re not just throwing people into position as life rafts so you can actually get your nose above water. You want to make sure that you’re interviewing your people and making sure that you know who you have in your organization.”

Finding the right people involves making sure they have the skills and the attitude to fit within your company.

“You need to think about using things like Myers-Briggs or some sort of analysis when it comes to not only looking at someone’s skills and talents but also whether they are going to fit into your culture,” he says. “If your culture is fast-paced and these people aren’t going to survive in a fast-paced market you have to know that before you hire them.”

Pure Romance is also a believer in promoting from within. The company gives employees every opportunity to learn different areas of the business so they can be better prepared to move up the corporate ladder.

“Most people that have been promoted from within have shown … understanding that their job is to help others and to lift not just themselves but to lift others up,” he says. “The ones that have moved up have worked in multiple positions within the company. So they not only know accounting but they know operations. Those are the ones that have been very successful in the company because they know all aspects. They don’t know just their job, they know what their job is and how their job can affect other departments.”

Allowing employees to gain knowledge of other areas of the company will help encourage company interest and make for stronger employees.

“You’ve got to first tell people that you’re promoting from within,” Cicchinelli says. “I think some companies sometimes don’t think that they have the talent inside and they try to hire out. I’m a firm believer that cultivating a strong culture means that you have to promote from within. You have to make sure people know that there are opportunities inside the organization for them to continue to grow. Sometimes it’s good that those things come from the CEO and not just the HR person.”

You have to present these opportunities for your employees and ask if they are interested in other areas of the company.

“I think it’s asking your employees and asking if they’d like to learn other areas,” he says. “The more jobs that they understand or know in your office the better off you will be in the long run. Empowering employees gives them the ability to have as much love for the company as you do. They will be able to cross-train the different people in the different departments, they’ll be able to have a better understanding of the flow of the business and at the end of the day they will be able to educate your consumers or your sales force so you can increase your revenues and be more efficient. And they may see things that you as the CEO or business owner may not see.”

HOW TO REACH: Pure Romance, (866) 766-2623 or www.pureromance.com

The Cicchinelli File

Chris Cicchinelli

President

Pure Romance

Born: Naperville, Ill.

Education: Attended Mount Union College

You played football in college. What position did you play and what did you take away from that experience?

I played defensive back and it taught me how to be a team player and how each person’s role is very important to the success of the whole team. We won two Division III national titles there — ’96 and ’97.

Who are some people you admire most in business?

My mother, Patty Brisben. She’s a true entrepreneur, and one of those people that started something most people saw as taboo, and she’s been very passionate and laser-focused on what she is going to do. Another person would be Steve Jobs. I like the way he approaches things. He is very innovative and has put some good people around him. A.G. Lafley would be another. He was a Cincinnati guy and what he did for Procter & Gamble was amazing. I would want to figure out how he did what he did.

If you could do something dangerous one time without consequence, what would you do?

I would travel to the moon. I would do it just to say I’ve done it, but the other reason is to see how pretty Earth is from up there.

Published in Cincinnati

As more businesses enter the global marketplace, the currency exchange rate is becoming a bigger player in their decision making. Companies want to know where the currency is heading. Many companies rely on their bank for this information, but as former Fed chairman Alan Greenspan once said, “To my knowledge, no model projecting directional movements in exchange rates is significantly superior to tossing a coin.”

The currency markets are affected by economic growth expectations and interest rate differentials, and there is no way to predict how exchange rates will react to either of those events, says Don Lloyd, senior vice president, Capital Markets, Associated Bank.

“Today’s big drivers include the rising price of oil caused by unrest in North Africa and the Middle East,” says Lloyd. “Rising oil prices create fear that the U.S. economy will slow, which, in turn, drives the Federal Reserve to be accommodative. But U.S. interest rates are only part of the equation; the other side is the interest rates affecting the other countries you’re dealing with.  Specifically, the interest rate differential and expected changes create changes in investment decisions.”

Smart Business spoke with Lloyd about hedging strategies to maximize opportunities and minimize risks.

What kinds of companies should consider a hedging strategy?

Any time there is a cross-border flow of funds, companies need to understand how foreign exchange hedging works and how it can reduce their risks. There are five types of businesses that should consider hedging.

First, any company buying or selling goods overseas is a good candidate, as an organization that makes or receives payments in more than one currency may benefit. Second are overseas subsidiaries of companies based in the U.S., which face two kinds of foreign exchange risk. There’s transactional risk, which applies to accounts payable and receivable. When money trades hands and two or more currencies are involved, a risk exists that could be mitigated with a hedging strategy. The other is translational risk, which applies to your balance sheet. For example, say an Illinois company pays for an overseas plant in foreign currency. At the end of each year, it has to value the plant in U.S. dollars for its balance sheet and may lose equity because of changes in the exchange rate. However, proper hedging can help eliminate this risk.

Third, local subsidiaries of foreign-owned companies can benefit, depending on whether the foreign exchange risk is handled by the parent company or the subsidiary. Fourth are firms that send payroll overseas, and, finally, anyone who invests overseas should consider hedging options.

What volatile markets do businesses need to be aware of?

China, a major trading partner for U.S. businesses, has a volatile currency. China is quickly developing its banking system and monetary policy but still has a ways to go. And changes in its interest rates tend to be extreme because the economy is growing so quickly. Over the next 10 years, volatility should decrease, but, for now, it remains a significant threat to China’s trading partners.

In Europe, the debt crisis facing countries such as Italy, Greece and Ireland affects all countries that use the euro, with uncertainty resulting in volatility. We will continue to see volatility in foreign exchange rates in 2011 and 2012 as the complicated global recovery takes its course.

How can companies reduce volatility?

Organizations doing business overseas can reduce volatility in their income statements and more accurately forecast cash flows by using tools to hedge their foreign exchange risks. Some people mistakenly associate hedging with speculation and think they’ll be taking on more risk, but hedging limits risks.

How can companies determine which hedging strategy fits their situation?

There are three categories of hedges. The first is forward outright purchase or sale, in which a company locks in a rate today to be used in the future. Money doesn’t change hands until settlement day, and you lock in your profit margin on goods you’re selling. The value of this hedge is the certainty that it provides, i.e., a company will know today what exchange rate will be used in the future.

However, some companies use this hedge and then, if currency rates move in their favor before the transaction settles, they are not happy because they would have come out ahead if they had done nothing. Unfortunately, the company is only looking at one side of the equation, and tends to focus on the change in the exchange rate being a good versus bad decision, rather than the real value of taking an unknown (where the exchange rate will be in the future) and making it known (by locking in a rate today.) In that case, the company has the right idea but has chosen the wrong product. What they want is an option.

With options, you lock in the right, but not the obligation, to sell at a specified price. You pay an up front premium, with the amount dependent on the strike price you choose. You get 100 percent protection from adverse exchange rate movements but dollar-for-dollar gain if the currency moves in your favor.

Yet, some companies do not want to pay a premium up front, so should consider a structured option, where you put two or more options together to reduce or eliminate the premium. You start by buying a regular option, but to reduce that premium, you also sell an option to your FX provider. You earn premium for the option you sell, which reduces or eliminates your cost of the structured option. Then you will be fully protected if the currency moves against you, but you benefit if the currency moves in your favor.

Companies should educate themselves on how to maximize their business opportunities and minimize their risk in foreign exchange markets by identifying exposures and implementing appropriate hedging strategies. <<

Deposit and loan products are offered by Associated Bank, N.A. Member FDIC and AB-C. Equal Opportunity Lender. Equal Housing Lender. Loans subject to credit approval.

Don Lloyd is senior vice president, Capital Markets, Associated Bank. Reach him at (312) 861-1501 or Donald.Lloyd@AssociatedBank.com.

Published in Chicago

The mass exodus of manufacturing from the United States to China has reached the level to be considered a threat to our national security.

Between the 1940s and the 1960s, American industrial might was unequal in the world, and a solid domestic economic base was established. Until 30 years ago, our industrial might and the strength of the American economy were the driving force in our foreign policy dominance worldwide.

Reduced investment in the nation’s infrastructure, reduced investment in education, the national policy of permanent entitlement programs, reduced investment in long-term research and development, and squandered resources on grossly overfunded military spending and on privatization schemes resulted in the massive increase in the size of government and in the quality deterioration of government services.

The 1970s and 1980s promotion of globalization and lax regulation only accelerated the loss of American manufacturing jobs and factories. When we should have been investing in the industrial sector modernization and promoting policies to strengthen and increase the dwindling middle class and eliminate income inequality, we went on a binge that benefited Wall Street’s greed at the expense of the manufacturing sector, which had created the middle-class lifestyle under which so many Americans flourished.

Since 2001, the country has lost 42,400 factories, including 36 percent of factories that employ more than 1,000 workers (which declined from 1,479 to 947), and 38 percent of factories that employ between 500 and 999 employees (from 3,198 to 1,972). An additional 90,000 manufacturing companies are now at risk of going out of business. Prior to the banking collapse of 2008, U.S. industries, such as machine tools, consumer electronics, auto parts, appliances, furniture, telecommunications equipment, and many others that had once dominated the global marketplace, suffered their own economic collapse. Manufacturing employment dropped to 11.7 million in October 2009, a loss of 5.5 million or 32 percent of all manufacturing jobs since October 2000. The last time fewer than 12 million people worked in the manufacturing sector was in 1941.

China today reportedly controls about 93 percent of the world’s supply of precious minerals. These minerals are the main component for the manufacturing of printed circuit boards, which are in every component in personal computers, cell phones and MP3 players. Printed circuit boards also control cars, our airliners, our industry, and our high-tech military systems and weaponry.

Our tax base is shrinking, because of the loss of manufacturing and production capacity, while our spending is beyond our means. We are borrowing trillions of dollars from foreign nations to pay for the runaway overspending. Many of these nations, like China, oppose our policies of freedom and democracy, and because of the decline in our economic dominance, they are emboldened to commit acts of oppression against other nations.

As we plunge deeper in debt to them, they are openly demanding that we change our foreign policy and position of support to people, to ideology of freedom and to nations threatened by China, Iran and other oppressive governments.

It is a slippery slope where our own internal freedoms will be challenged by these nations. We must pull the alarm lever now and bring our factories home before we become global slaves instead of a nation of free and proud people.

Amir Soas is an associate professor of national security and Near East studies at Tiffin University where he teaches Counter Terrorism and Counter Intelligence Analysis, Weapons of Terrorism, Forensic Anthropology, Emergency Management, and Arabic. He is certified as an indirect instructor in emergency management for the Department of Homeland Security, Institute of Domestic Preparedness. Soas is an honorably discharged veteran of the United States Marine Corps. During his service, he received meritorious promotions and the good conduct medal.

Published in Cleveland

Every day, it seems the social media world is growing, making the physical world around us appear that much smaller. With those changes, the line that previously separated our personal and profe

ssional lives has blurred as websites and applications like Facebook, LinkedIn, Flickr and YouTube provide the ability to connect with family, friends and business colleagues to share information, news, videos and photos.

So what exactly defines social media, and where is this new frontier headed? More important, how can we best take advantage of what’s out there?

Who better to answer those questions than Jeff Weiner, CEO of LinkedIn, the Web’s largest and most powerful network of professionals.

Q: Social media means different things to different people as well as companies. What would be a good definition of social media?

A: Broadly defined, it is the creation of content, information and knowledge, distribution of it, consumption of it, and leveraging social interactions. Whether that’s a status update, sharing an image, a video or a blog post, even re-tweeting a headline or sharing a headline — those are all examples of social media.

I think the social interaction component, the virality, really takes what historically has been behavior we all have done offline, and when you bring it online and digitize it, it starts to scale and moves at a speed with which we haven’t seen previously. It really has the opportunity to change everything it touches.

Q: So what do you see as the true cultural sea change that is being caused by social media?

A: This goes way beyond brand building and customer outreach, which is how many organizations are using social media a basic level. Leveraging social platforms is going to fundamentally change the way we work and how business gets done. It’s going to really revolutionize and disrupt all of it. So whether it’s the way you hire people, find your dream job, transition from cold calling to warm prospecting by leveraging the power of first-, second- and third-degree relationships, or whether it’s exchanging and sharing information, knowledge, insight and data that you need to derive insights to make better and more informed decisions, I don’t think people can really afford not to participate within these platforms.

Q: Since it’s going to be everywhere, where would you start?

A: It starts with recognition. There are three behavioral changes we focus on the most at LinkedIn. First is the way in which we represent our professional identity. Think about that for a moment. The way in which individuals now build their professional brand starts with their profiles. And those profiles, when they’re kept fresh and relevant, are search engine optimized so that when people search for your name or the names of people like you with your experience, your skills, your aspirations, you’re the first thing they see when they do that search on Google.

This ability to carve out a piece of digital real estate that you, yourself, can control to put your best foot forward is an incredibly powerful and valuable dynamic. It’s not just the individual; it’s also your company. There are over a million active company profiles on LinkedIn. And these company profiles not only represent who you are and your company’s identity, but they enable you to build your talent brands, establish the way in which you’re going to recruit and how you recruit, and build word-of-mouth around your products and services. So identity is an absolute cornerstone.

The second is building your network. I think historically, when people hear the expression ‘professional networking,’ they think of the guy at the conference who is handing out as many business cards to people as possible, just building the Rolodex. That’s not what we mean anymore. We mean the way business gets done.

If we believe the world is getting flatter, more global, more digital, more networked, this is the way business gets done — it’s the way people are tapping knowledge, exchanging information — and if you’re not taking advantage of that and building out your network, your competition is.

And then lastly is the whole notion of sharing information and knowledge — collaborating, sharing business intelligence and competitive intelligence. To be able to really derive this kind of insight from whatever networks or social environments you’re operating in becomes an enormous advantage versus those folks who aren’t able to do the same.

Q: Are there some good ways to create a company’s social media strategy, and how do you measure a return on investment from that strategy?

A: Pursuing a social media strategy for the sake of having a social media strategy is not the right thing to do. It will end up being a big waste of time. And it wouldn’t surprise me if a lot of folks are doing it because they’re told this is something you have to be doing right now. But try to figure out how you take your organization’s top priorities and leverage social connectivity to create greater value. That, I think, is a very, very smart thing to do. So trying to align your priorities and objectives makes a lot of sense.

If you’re trying to go out and do recruiting using social tools, how is that going to benefit your organization? Explicitly, there are ways of measuring that.

Historically, people are filtering through hundreds or thousands of active candidate resumes. Now technologies exist that you can find the perfect person, which creates huge efficiencies for your recruiters. They can target the ideal candidate instead of constantly spending 90-plus percent of their time saying no.

For your salespeople, how are they tapping first-, second- and third-degree relationships to eliminate cold calls? Think about the effectiveness of tapping warm prospects and how much more business you’re going to be able to do as an organization. That kind of stuff can be measured.

And then there’s the implicit stuff, such as how your company, in and of itself, can leverage social connectivity. A group or the ability for your organization to share news or insights that one person in the company has identified as being valuable to everyone else in your organization is going to be a little more challenging to measure the explicit ROI of that. But implicitly, as people start to share that kind of information, best practices and knowledge, your organization is going to work more productively.

And so it comes back to what are your objectives and how are you going to leverage these technologies to achieve greater productivity.

How to reach: LinkedIn, www.linkedin.com. Read the entire interview at www.sbnonline.com/weiner.

Published in Dallas

If someone told you that you could drop your operating costs by 40 percent, would you listen? If that same person said you could you save between $70 and $150 per user per year in energy savings alone if you tried something new, would you try it?

A lot of companies are listening, and those same businesses are trying something new — cloud computing and software as a service (SaaS) — and reaping the many benefits, which start with the aforementioned cost savings.

“If you don’t have the money to invest in IT, in hardware, in software, in upgrades or you don’t have the expertise, then the cloud offerings are compelling,” says Philip Lieberman, founder, president and CEO of Lieberman Software Corp., which provides solutions used by large national defense and large corporations.

Jeff McNaught, chief marketing officer at Wyse Technology says that 80 percent of an IT budget, in many cases, is spent just to keep the lights on.

“It’s about saving money, and there’s a tremendous amount of money to be saved,” McNaught says.

McNaught’s company builds a device that replaces the PC, uses one-tenth the energy of a PC and connects you to the cloud. The device doesn’t make a lot of noise, but more importantly, it doesn’t cost a lot of money.

“When you look at cloud computing, operating expenses can drop by about 40 percent a year, and that’s real money,” McNaught says. “These devices use one-tenth of the energy of the PCs. Now you’re really talking about saving real money.”

How cloud works

So the idea of saving that much money has caught your attention, and now you may be asking, “What exactly is this whole cloud computing thing anyway?”

“The idea behind it is other companies would be able to achieve economies of scale by providing the services and capabilities that you would normally host in your own organization within your infrastructure,” Lieberman says. … “You’re outsourcing to another company some of the more fundamental things that may be better off done externally.”

Dave Hitz is the co-founder and executive vice president of NetApp, a company that sells enormous amounts of storage to people that need it. For example, Yahoo stores all of its e-mail accounts on his equipment, and the special effects for “Avatar” were stored on his equipment, as well. His company doesn’t offer cloud services, but many cloud environments are built on top of his storage. From his perspective, Hitz sees two different definitions of cloud computing.

“Definition No. 1 of cloud computing is you no longer buy a computer,” Hitz says. “You access computing service over the Internet to somebody else’s data centers, and they spend the capital and they hire the people to build them and they do everything, and all you do is pay a monthly bill and access the service over the Internet. Style No. 2 of cloud computing is a completely technical definition (that) has to do with if you’re going to build a data center, what does the architecture look like? And if the architecture has a lot of shared infrastructure, then people tend to call that kind of environment a cloud computing environment.”

His first definition is another benefit to cloud because it eliminates many IT headaches because, being honest, how often do you have an overly positive IT experience?

“I imagine people would say they’re experience with IT has been less than optimum,” says John Dillon, CEO of Engine Yard Inc., a company that delivers an environment for software developers to write programs that run inside the cloud. “The reason is you spend so much money building all this infrastructure, that going the last mile, which is where you write the application that interfaces with the human, the user, doesn’t get the attention, doesn’t get the money and doesn’t get the investment.”

The idea of the cloud is essentially that you plug into the wall, and you get a whole data center.

“It’s IT as a service, just as you get electricity or water,” Dillon says. “In business, you, in most cases, don’t have your own power plant, you didn’t dig your own well, you didn’t build your own building, you don’t have your own fire department or police department. So why on earth do we basically give power to a group to build something that has been built before in-house, and then hope it works?”

Dillon also points out that in the United States, capital expenditures are a huge expense. In fact, about 50 percent of capital expenditures in America are information technology.

“Unbelievable,” Dillon says. “How many people are getting the ROI on this? What’s happening with the cloud is some big companies are saying, ‘Look, I’ll build the data center.’ It’s changing who buys, why it’s bought, and it changes the capacity and the economic decision-making process around IT.”

Moving to cloud technologies can take some of the capital expenditures and turn them into operational expenditures instead.

“The advantages are no software loaded, the data is backed up automatically, when there are upgrades, the vendor does the upgrade,” Lieberman says. “It becomes less of what would be a (capital expenditure) and becomes a monthly (operating expenditure), so the cost is known, fixed and predictable, whereas the upgrade cycle of equipment and software and hiring IT can be significant and unpredictable.”

When you look at how much money most organizations spend on their IT systems, these cost savings are a big driver and will, ultimately, be a game changer for business.

“Amazon, who is a leader in cloud technology, told me that they think it’s a $1 trillion a year potential business,” Dillon says. “So if there’s a trillion dollars at stake, that means every company within 50 miles of here is going to make a really big bet, and it’s so disruptive because the buyers are going to change and the sellers are going to change.”

The other benefit aside from cost is that everything that is on your PC is now in one location that can be accessed from anywhere — not just from the PC itself — and that comes with numerous benefits.

“When you take your software and your applications and your data and you move it to the cloud, something’s happened,” McNaught says. “First off, the cloud is the data center of your company and you can always get to it. You’re connected to the Internet, so you can get there from home, from the conference center, from the airport. And guess what? Because it’s not on a PC with a hard drive failing and memory getting filled up, it’s protected. It’s backed up. It’s secure. So the cloud provides this real opportunity to take the things that make up our work life, and within five years our home life, as well, and move them to this one place where we can always find our stuff.”

Questions to ask when considering cloud

Now that the technologies have changed, and many of the previous issues have largely been addressed, it’s easy to jump right into the cloud, but Lieberman says you still have to ask smart questions when considering your options.

First, it’s important to carefully consider the security approach that a cloud provider takes before you sign on with them.

“The quality of security varies widely from one vendor to another,” he says. “Most of what they do is opaque. They don’t explain much other than they just say, ‘Trust us — we’re insert your name — Amazon, Microsoft, Google — and we know about security, so trust us.’ When it comes down to the gory details, it’s not as transparent as would be available for a large enterprise.”

Lieberman says you should ask a provider how its  security actually works and request a copy of its SAS 70 report and be willing to sign a nondisclosure agreement so you can look at how the security actually works.

“By God, you should actually read it and compare them from one company to another or find someone with a long attention span and a lot of coffee and expertise in understanding how to read it to read it and understand if you want to go all-in with this provider,” Lieberman says.

He also says to make sure that you are comparing services and don’t go with the first cloud provider you come across.

“The fundamental mistake that most small and medium-size businesses make when they outsource to cloud providers is they don’t read contracts,” Lieberman says. “They do not negotiate. They don’t try to get competitive bids. They simply take the first thing they see and do it.”

He says you can’t take this approach because some of the largest companies may not best fit your needs, and some of the smallest companies may not have the security you need — small and large businesses alike have been known to go under.

“You have to be careful, and you really have to have your eyes open,” Lieberman says. “It may, in fact, be a good idea to engage somebody in IT or with expertise who can help you get competitive bids and guide a better decision.”

Along that vein, if you decide to start using cloud technologies, you also have to recognize that you can’t rid all of your IT staff in doing so.

“Even if you have the cloud, you have to have someone to interface with them because they will ask technical questions, so you can’t rid of all your IT, but you will need someone to assist you with making this happen,” Lieberman says.

It’s also important that you don’t become so reliant on your cloud technology that you haven’t thought about what to do in case your provider doesn’t work out.

“What’s your Plan B if this doesn’t work out?” he asks. “You better have a Plan B. Always have a Plan B when it comes to this. Even if you’re going to host it yourself, what happens when that hard disk crashes? You have to have a Plan B — not, ‘Let’s call the IT guy.’”

Lastly, Lieberman says you ultimately have to make a decision based on your business and not on what’s cool. He uses the example of buying an iPad versus buying a laptop — the iPad may look really cool, but your needs may actually require you have a laptop.

“Sometimes cloud, in many technological solutions, are fashion decisions rather than business decisions meaning that you may pick technology that sounds sexy and compelling, but you really haven’t thought it through from your own business perspective,” he says.

How cloud can affect you

While Lieberman provided a lot of points to really ponder that some could view as negatives, it’s important to remember that cloud does have far more positive benefits.

“Cloud isn’t the solution to all problems,” he says. “It does represent a unique opportunity for small and medium-size shops that don’t have dedicated IT, in which case, they would find that the cloud solution providers can provide a compelling Op-X opportunity to offload many of the things that they have.”

Experts also agree that cloud technology is the way business of the future is moving, and that it really does need to be embraced on some level.

“I’ve had the opportunity to ask a lot of CIOs, ‘How is cloud computing affecting your business? How much cloud computing are you using?’” Hitz says. “The most common answer I get is, ‘It doesn’t affect our business at all yet, and we’re not using it at all yet.’ I will tell you that almost all those CIOs are wrong. They’re already using it but not thinking right.”

Hitz says that CIOs need to think differently and brings up the early days of the transition from the mainframe to the PC as an example. In those days, if you asked a CIO if he or she had a PC strategy, many said, “Oh no, that’s not part of what we’re doing,” but half the employees had PCs.

“When data started leaking out the door because somebody lost their PC, who do you think the CEO went to beat up?” Hitz says. “The CIO, and the CIO said, ‘Well, PCs aren’t really IT.’ Those are the CIOs that are gone. I predict the exact same thing is going to happen to the CIOs who think that cloud computing isn’t happening in their business. … There’s an enormous amount of work that CIOs need to start thinking about — how do I get my arms around all the cloud contracts that are being found in little places scattered around.

“It’s affecting a lot more than people are realizing because they’re not defining it broadly enough. If they look at that broader definition, the stuff they’re already sort of doing or in denial about, that stuff is a pretty good road map to where the future is headed, just more.”

Not only is it affecting how your business will run, but it’s also going to change the game for how new companies enter the market. Brian Jacobs is the founder and general partner of Emergence Capital Partners, a Silicon Valley-based venture capital firm.

“Silicon Valley is very much a startup culture — there’s always something starting up here, and it’s important to note that cloud computing also changes the economics of a startup,” Jacobs says. “A startup today doesn’t need as much capital to get going because of cloud computing. A developer, who could be an independent contractor, an engineer who’s working at a day job and at night has a new product he wants to develop — he can log in to a platform as a service like Engine Yard, and they can start developing their product without a single dollar of investment. They can work for free developing the product until they’re at the point they can introduce it to the market.”

As a result, the venture capital industry is much different than it was 20 years ago. In fact, Jacobs’ company started in 2003 with the idea that more and more technology would be delivered as a service as opposed to built by companies within their four walls.

“Cloud computing and software service has really hit technology like a giant wave and all of these business models are service providers — companies that are building technologies and not selling to their customers but operating it on behalf of their customers and charging their customers a monthly fee in exchange for that service,” he says. “That’s a different kind of venture capital and that’s the focus of Emergence Capital.”

Aside from all the ways that cloud computing will change business, it’s also changing how employees approach their jobs. While people can work from home in their pajamas, it’s often difficult, and in many cases, employees don’t have access to everything that they could if they were on their PC actually in the office.

“Cloud computing lets you access your work environment, and you’re on your couch — maybe in your pajamas — and you’re doing real e-mail and doing real work, and yeah, maybe your boss is getting a little more work out of you, but you’re doing it, quite honestly, voluntarily because you get to work in your environment, you’re not in the office, you’re not sitting in front of the computer in the office and you probably have better TV shows on,” McNaught says. “The technology that cloud computing provides is about saving cost and delivering additional benefits.”

To give you a real example, Hilton Hotels decided to close its physical reservation centers and send all of its reservationists home with these devices that connected them securely to the Hilton system.

“What Hilton found was they could close all those buildings and save those costs of real estate, and they saved all the energy costs of running the PCs in the buildings, and they found the employees were happier because they were working from home — maybe in their pajamas but nobody could tell, and they were working over secure devices, so Hilton didn’t lose any data, and they were working over a device that didn’t have the complexity of the PC, so they weren’t calling the IT staff out to their homes to fix this,” McNaught says. “Cloud computing allowed Hilton to save money in so many ways that satisfaction increased, and they found that people working at home would take a lower pay. They saved on all sorts of fronts. Cloud computing has a transformative effect on all kinds of business.”

Cloud computing is changing the way businesses start and operate, and if you recognize and embrace that, it can make all the difference in how successful your organization can be.

“The reality is, as companies try to find ways to grow and compete in an ever more challenging economy, you have to do something different to be different than your competitor,” McNaught says. “If everyone is using the same old client server architecture — the PC connecting to the server — you really don’t have many opportunities to compete.”

How to reach: NetApp, www.netapp.com; Engine Yard Inc., www.engineyard.com; Wyse Technology, www.wyse.com; Emergence Capital Partners, www.emergencecap.com, Lieberman Software Corp., (800) 829-6263 or www.liebsoft.com

Published in Los Angeles

In today’s global economy, protecting your company’s good name is more important than ever. You’ve worked hard for customers to create a positive association with your brand, so if someone is putting your trademark on an inferior product and selling it, you’ve got a major problem.

Not only have you lost that customer, you’ve also lost other potential customers who are turned off by your brand based on the negative comments that came from the person who bought the counterfeit product.

“It’s very important to police counterfeits because they cheapen the brand and create bad publicity,” says Luis Alcalde, of counsel with Kegler, Brown, Hill & Ritter’s IP, Litigation and International Business areas.

Smart Business spoke with Alcalde about how to protect your brand in the international marketplace.

Why is brand protection important?

A trademark or service mark owner has a legal obligation to take action against infringers. For example, when you file a trademark and you start using it to create an association with your products or services, someone else may start using the same trademark. If you know about it, but you don’t do anything about it, and later you decide to take legal action, you could have waived your rights.

Trademarks have to be renewed after so many years, so failure to police or challenge infringements can create problems when trying to enforce or renew a trademark. There are technical, legal reasons to police your trademark, primarily to argue that you haven’t waived your rights.

From a business perspective, the reason someone creates a trademark is to create an association in the minds of your consumers with your product or service. Over time, these associations become more valuable. Whenever you walk into a McDonald’s, you have certain expectations. Those expectations have been created over many years of associating the name with certain types of food and service. The only way to create that association is to put a lot of effort, time and money into making sure that your products or service lives up to the association you create.

What can happen when a company is not vigilant about brand protection?

Without any of the work the trademark owner has put into it, infringers place your trademark on their product and profit from it. In that sense, they are stealing your intellectual property. Beyond that, depending on the quality of the counterfeit, you may lose sales as well. In many places where counterfeit goods are sold, the vast majority of consumers know they are getting a fake. They never thought they were getting a real Rolex watch for that price, for instance.

The trademark owner who knows these cheap products are being made and sold may not be motivated to do much about it, because they are not losing a customer. Frankly, you have someone walking around advertising your product — not necessarily the way you want it advertised, because it may be poor quality, but it is still free advertising.

However, you still have to do some policing because of the legal aspect — so no one later claims you waived your rights. In that scenario, you may focus on the big infringers, like people selling a high-quality imitation that may cause you to lose real customers.

For instance, if a famous luxury brand is selling a handbag for $2,500 and someone is selling a high-quality counterfeit bag for $700 to $1000, that’s different. Someone who can pay $1,000 for a bag is a potential customer.

How can you address liability concerns?

The counterfeiting of some types of products, like automobile or airplane parts or products that are ingested like pharmaceuticals, could lead to injury or death. In addition to the loss of brand image and the loss of consumers, you have the problem that these counterfeits can kill. That creates liability issues. Your company may get sued because someone says they drank your product and got sick, or the brakes they bought failed. You, as the manufacturer, need to find out if the offending product is legitimately yours. Companies have to continue to embrace anti-counterfeit technologies like smart tags, holograms, molecular marking and other tracking tools that identify legitimate products.

What steps can you take to protect your brand?

First, you need to make sure your trademarks are up to date and filed in every jurisdiction where you are doing business or intend to do business in the near future. The second step is to police the areas where you notice that infringement is taking place or where you think your customers would be buying. Many companies have enforcement programs in place. They hire private investigators or law firms to hunt down infringers. When they find these people, they have a procedure in place to bust these people and prosecute them — civilly, criminally or both.

Also, police the Internet: eBay, Alibaba, all the large Internet vendors. If you notice unusual drops in sales in certain areas, it may be due to counterfeiting issues. Be vigilant to your business and consumers. When you see infringement, whether it’s on the Internet, the streets or with your own customers, find the source and take action.

Why is it necessary to be proactive when protecting your brand in the international marketplace?

The same legal issues of policing it and the same business issues apply internationally. There is no central trademark; just because you file in the U.S. doesn’t mean you’re protected anywhere else. Countries that are members of the Madrid Protocol allow filing with a single application in English. But many important and major countries or markets are not members of the Madrid Protocol. So, in many instances you have to file your trademark in the individual countries in which you want it protected.

Luis Alcalde is of counsel with Kegler, Brown, Hill & Ritter’s IP, Litigation and International Business areas. Reach him at (614) 462-5480 or lalcalde@keglerbrown.com.

Published in Columbus

Doing business in China is complex. It requires more than simply a global understanding of business and a need. Rather, it’s a combination of numerous factors — economic, cultural, geographic and political. So it should come as little surprise that those who understand it best are, themselves, complex.

Dr. Robert Lawrence Kuhn is one of those complex individuals. He’s authored or edited more than 30 books, including the first biography of a living Chinese leader published on the Chinese mainland. He’s been an investment banker and led a top M&A firm. He’s provided consulting services to Fortune 100 CEOs and entrepreneurs. And he’s also a well-known television producer who created and serves as host of the popular PBS “Closer To Truth” series.

For more than 20 years, Kuhn has worked with China’s senior leaders, advising them on economic policy, technology and science, culture and media, Sino-U.S. relations, and international communications. Simply put, he’s one of the world’s foremost authorities on doing business with China.

“Every company has a China strategy whether they know it or not because of China’s impact on the world,” says Kuhn, whose past business expertise includes time as co-owner and president of The Geneva Cos., an M&A firm that represented privately owned, middle-market companies and between 1991 and 2001 initiated and closed more than 1,200 transactions and conducted thousands of corporate evaluations. In 2000, Kuhn sold The Geneva Cos. to Citigroup and subsequently became senior adviser to Citigroup Global Investment Banking.

In 2005, Kuhn wrote “The Man Who Changed China: The Life and Legacy of Jiang Zemin,” which was China’s best-selling book that year. In 2009, he penned “How China’s Leaders Think: The Inside Story of China’s Reform and What It Means for the Future,” which featured Kuhn’s discussions with more than 100 Chinese leaders and officials.

Kuhn, also founder and CEO of The Kuhn Foundation, was a keynote speaker at Ernst & Young’s Strategic Growth Forum in November 2010. After his presentation, Smart Business sat down with him to discuss what executives should know if they want to better engage with the fastest-growing economic power in the world.

Dr. Kuhn, what should American business leaders be thinking about with regard to China?

It’s the second-largest economy, approximately 30 percent of the size of the U.S. But on purchasing power parity, it’s more than half the size of the U.S. Within 20 years, China will be the largest economy in the world.

There are a lot of issues in China in terms of imbalances and needs, and that’s causing a great industrial transformation. But there are a lot of opportunities. Senior leaders tell me — the leaders of the country — that there are some things that have changed in China, reform-related, some things that have not changed, and some things that will never change. What will never change is the need for economic growth and the need to serve the people.

As you look at the issues that China has, and the imbalances, you look at certain industries that will have huge opportunities — social services, health care and education, as well as energy. For smaller companies, particularly for entrepreneurs, there are great growth opportunities in China.

China is a market that has its own characteristics, its own cultural characteristics, its own way of doing business, and the fallacy is that this is only good for big business. China is actually trying to compete more with the big businesses and people over there are looking for more entrepreneurial businesses to partner with. So for American entrepreneurs to associate with Chinese entrepreneurs as they mutually fight the big companies in both countries, that is something that’s supported by Chinese leadership. So the opportunity is definitely there.

How should CEOs and entrepreneurs begin to identify those opportunities?

This is complex. The first rule I have is that you have to like doing business in China. If it’s something that you don’t like and don’t want to do, you really shouldn’t do it. The investment is more in time and your commitment than in financial resources. You have to meet people. You have to see a diverse number of people in your area.

One way to think about it is in terms of your industrial area. Another way is geographically, if you have certain geographic areas that you explore. You will need to have introductions with leaders and potential business partners in several different cities. Then you will see diversity. You will see diversity geographically, you will see it in your industry, whatever industry you are in, and you will begin to get familiar with talking to and getting to know the right people.

Obviously, you should have good advisers — people who know the ground. There are a dozen or so major accounting firms. Of course, (Ernst & Young LLP) is my favorite. I work with them. But all the big accounting firms and consulting companies have different facilities that can be utilized. There are many different ways to go about it, but you shouldn’t be blind.

Another principle is that you should be important. Whatever you do, whoever you are going to work with, you should be important to that individual. If you are an entrepreneur, you get somebody who is going to introduce you to the mayor of a big city. Suppose you get the meeting and you say, ‘Wow, that’s terrific.’ Really, it’s not, because you are not important to that mayor if you are only a small company. They may do it as favor to whomever introduced you to them. I could get you lots of meetings with a lot of people at high levels because they’ll do me a favor. But it’s really of no benefit because where does it go from there if you’re not important? So you always try to be important to whoever you are going to meet. If it’s another company, if it’s an official, you want to be able to bring something that’s important so that they really pay attention to you on a long-term basis.

So what makes you important to them? How do you know?

You have to have advisers, so that you know what the individual is looking for and a certain size company they’re looking to partner with. It’s not something that can be answered in generalities. Rather, it has to be in the specifics of the individual company. Look at it this way:  What does that company have? What is its competitive edge? How big is it? And what does it do?

If it’s a business that is generating revenue — $20 million, $100 million, $1 billion — keep in mind that some people in China are paying to get connections with companies of a certain size.

Then, you have to find the people on the other side where what your company does and what you have to offer is important to them. You have to target the content for people interested in the content, and then the size for that project that is appropriate. If you are building a factory or providing a service, you have to know what people want and what would make you important to them.

Because of my background in corporate strategy and mergers and acquisitions and now substantially in China, very quickly I could look at a company and say, ‘Here’s what you should be doing.’

There are people who can sense that, and they’re the ones you need to be working with as advisers in order to do it the right way.

Does it take a lot of self-analysis by the entrepreneur or CEO to get it right? What I mean by that is when companies think about their market strategy — the niche market they serve, the problems they solve, the solutions they bring to the table and how they can position themselves to compete here — does that translate well to how you should approach your business strategy in China?

Everything you do that’s good business in the U.S., you should do in China. Then you have other things layered on top of it. Everything is applicable because that’s just good business sense — strategy, environmental analysis, strengths, weaknesses, opportunities, threats. You’ll see where you’ve got it right and what works for you. Then in China, you have an additional factor — government.

But it’s more granular than that — it’s geographies, it’s companies that are competing, it’s the marketplace. When you are doing business in the U.S., the other companies are your competition and you analyze the competition. But in China, especially for a smaller company, most likely whoever you end up working with will want to do some sort of a partnership.

It may not be an equity joint venture; it may be licensing or joint marketing. There are a lot of structural opportunities, and with those, you are going to form relationships with other Chinese companies. Those relationships are very different than the relationships you would form in the U.S., so in addition to the analysis that you’ll do about why you should be doing in business in China, you must realize that, unless you are leading a large company, you are going to be partnering with someone.

What happens if you don’t find a good partner?

Finding that right partner is critical, and it’s your biggest decision. There are a lot of good stories and a lot of horror stories. Sometimes, people make a decision to partner with one company and give them exclusive rights to all of China. That may turn out to be a good decision. Or, it may turn out that the industry you’re involved with is a very regional industry and that decisions are made regionally.

So if your partner is a company from Guangzhou or Xiamen or Guangdong province and you want to do business down with Shanghai, forget it. The Shanghai people are not going to want to do business with a company that has a partner from Guangzhou and is considered a regional player. So you really have to be very sensitive about what you’re doing and who you’re working with before you make your decisions.

So you really need to spend a lot of time on the front end, analyzing all the factors involved, correct?

Certainly a lot of front-end work is necessary in terms of meeting people, getting familiar with the companies, governments and regions, and understanding how it works. I always advocate taking multiple paths before you begin to even think about making your decision. You should be looking at three or four different approaches — that can be different potential partners, different geographies. I like to work with different geographies, and again, it has to be something where you’re considered important.

If you work in a province, unless your company is doing $700 million or more, you’re not going to meet with senior leaders of that province. You may be working on a municipal level. It depends on who the entrepreneur is. And, there are different associations in China that promote entrepreneurship as opposed to fostering government, state-owned enterprises.

There are a lot of different ways you can do this; you’ve just got to get a feel for it before you really start to make decisions. You shouldn’t marry the first girl you date.

Talk about the importance of understanding the cultural differences. I’ve heard stories about how treating business deals the way we would in America can be a deal killer.

There are some natural business instincts that we all have, and those are all good. But in China, you can’t expect to immediately get down to business. There has to be trust and loyalty built first.

Here’s an example of what doesn’t work:  One venture that I was involved with took a long time to put together. The people from the U.S. side had an old-school superiority attitude toward China. They would dictate that they were going to be coming to the city, landing at 1 p.m., expecting a meeting at 2:30 p.m., then at 6 p.m. they had a plane out. They expected that meeting to happen.

But it doesn’t matter whether you’re dealing with a government monopoly or a regional government that is powerful, doing things like that doesn’t sit well. That is really impolite in China — coming in and only expecting to have a meeting. Maybe (the potential partners) expect a dinner afterward, where you get to know each other. So that’s a little bit more of that cultural finesse that’s necessary so people feel good about building a relationship. You need to do that with several different groups as you go forward. It’s not something that once you do it, and then you do your deal, that you can forget about. It’s a commitment. And you need to keep coming back.

The most successful people in China from big companies are the ones where the CEO will come here multiple times a year. That’s the commitment you make.

China is very rigorous in terms of its matching of people that you do business with. If you are working in a city and you have the mayor of a small city — if your business is that size — the mayor will only meet with the CEO of the company. He can’t meet with the No. 2 guy. The No. 2 guy will meet with the vice mayor or someone of that stature. In China, it’s planned in a very socially appropriate way.

You mentioned trust. What does it take to build trust in a country like China, and how big a role does it really play?

It’s becoming more rule-of-law-oriented, but contracts do not mean the same thing here as they mean in the U.S. If a company doesn’t want to honor a contract for whatever reason, they can always find reasons to do so, and your choice is to sue. Suing actually has become more effective now. You can sue. It can be enforced that you can collect. Ten years ago, you couldn’t do any of that. But now you can.

That doesn’t mean it’s good to sue. You don’t want to get to that point. Still, you have to recognize that contracts are not meant to mean what they do in the U.S., and memorandums of understanding, MOU, don’t mean that either.

If you sign an MOU, we’ll say, ‘Wow, we’re going to get that deal done.’ But no, it really means that we had a nice meeting. That’s all it means. It’s a formalization that they can show to their boss, just like a call report — I met with this company, and I can report it to my superior

In that sense, there are different cultural aspects, though those differences are getting less distinct as China becomes more sophisticated. But some of those characteristics will remain a long time. Just as it takes awhile to build that trust, that trust is an entry barrier to others. If somebody else comes along and offers a tiny bit better price, if that trust is there, that won’t matter. Even that’s becoming less true in today’s China. Nonetheless, there is that benefit so that trust is something that can move a company’s ability to do business in China forward.

Everyone agrees that China is the next great superpower, but what does that really mean and what’s next in terms of the country’s evolution?

In every area of human endeavor — economics, business, finance, culture, science, technology, sports, media and military — China intends for its efforts to be among the best in the world. There isn’t a sector that they are not focusing on improving. In every industry of importance, any industry at all, China is going to be developing its companies.

Now, those companies are going to compete with each other, so there are opportunities to ally with some of those companies at whatever level you are working at, in order to help them on their rise. My favorite word in dealing with China is “alignment.” If you try to do exactly what you are doing in the U.S. just to compete and make your company as big as possible and as successful as possible, that ultimately won’t lead to true success in China. You have to think about alignment with government policy, the leaders with whom you do what is in their interest, so that you can align with that.

Sometimes, what seems to be suboptimal from an alignment point of view is actually far better. There are many situations in which getting a smaller percentage of the company will actually turn out to be a greater wealth builder for you, for your company, than if you had a higher percentage, because it incentivizes the other side. You always want to be a resource that that other company uses.

People have stereotypes. They say, ‘Well, how can you trust the Chinese?’ They come at it from the viewpoint that the Chinese were all one entity that gets up in the morning and has a conference call about how to fool the foreigners and get all of their money. That’s, of course, ludicrous. What in fact is happening is that the different Chinese companies within fiercely competitive markets will try to use you as a vehicle, not to cheat you in any way. They don’t care about that. What they care about is competing with their other mortal enemies in that industry.

So if you can help them compete with the other people in their industry, that’s what they are interested in. Even on a provincial or city basis, they compete with each other — cities within provinces, within provinces. All of that is much fiercer in China that it is in the U.S. There’s some competition between states, but nothing like there is in China. So the idea is that you want to be a resource in the right way to one of those main competitors so that they see you as a resource. Then you become valuable, maybe even more valuable than you would in the U.S. And in those situations, even if you have a smaller percentage of the deal, structured properly that can be worth a lot more.

How to reach: The Kuhn Foundation, www.closertotruth.com

Published in Akron/Canton
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