Chicago (1685)

With increased regulatory demands and constant threats of fraud and misconduct, businesses have to watch their backs, especially when it comes to finances. In many cases, having a traditional accountant is not enough. Instead, you may need someone who has not only accounting skills, but investigative and analytical skills as well. In other words, you need a forensic accountant.

“Forensic accounting enables business owners to get control over possible financial fraud and mismanagement and, more importantly, to deter it before it occurs,” says James P. Martin, CMA, CIA, CFE, managing director at Cendrowski Corporate Advisors LLC.

He says forensic accountants can help companies design effective antifraud controls and mitigate the risks of future lawsuits. They also might be used to quantify economic damages in instances where value and/or profits might be lost, or in cases of business valuations to uncover reported income or expenses.

Smart Business spoke with Martin to learn more about forensic accounting.

How does a forensic accounting engagement differ from an audit?

First and foremost, forensic accounting engagements are nonrecurring and are only conducted at the request of a firm’s management. Audits, conversely, are recurring activities. Forensic accounting engagements are targeted assessments of specific areas of a business; they are not general assessments of the business as a whole or its financial statements. 

The methodology employed in an audit is also quite different from that used in forensic accounting engagements. Audits are conducted primarily by examining financial data, whereas forensic accounting analyses are conducted by examining a wide variety of documents and interviews. 

Lastly, the goals of forensic accounting engagements are yet again very different from audits. The goal of the latter is to detect the presence of material misstatements, irrespective of their cause. Audit activities are in no way designed to help an organization deter fraud, though they may detect such activity.

Because many frauds begin on a small scale, they may go undetected by auditors if the size of the fraud is below the auditor’s threshold for materiality. Moreover, even if the magnitude of a fraud is greater than the auditor’s threshold for materiality, a fraud may remain undetected by the auditor if it is well concealed. Forensic accounting engagements can be specifically tailored to deter fraud and potentially prevent it.

Can forensic accounting techniques be applied proactively?

Forensic accounting techniques can be used on a proactive basis in many instances, including the deterrence of fraud. More specifically, forensic accountants can proactively analyze an organization’s internal control process to determine areas of weakness and help the organization swiftly remediate these issues.

How can organizations use forensic accountants to help deter fraud?

Fraud deterrence focuses on removing one or more of the three causal factors of fraud: motive, opportunity and rationalization. Only when each of these factors is present can a fraud occur. 

Motive and rationalization are generally dependent on personal situations over which the organization may have little control. This is why the opportunity for fraud is often the prime target of fraud deterrence engagements, as this factor can be controlled by an organization. 

How can forensic accounting techniques be used in cases of business valuations?

Valuation professionals who are trained in forensic accounting may have significant experience in data mining and analysis, affording them the ability to supplement typical valuation techniques with information uncovered as a result of forensic accounting activities.

This additional information could result in a markedly different valuation from that which might have been calculated without the use of forensic accounting techniques, as valuations are extremely sensitive to underlying assumptions.

James P. Martin, CMA, CIA, CFE, is managing director at Cendrowski Corporate Advisors LLC. Reach him at (866) 717-1607 or jpm@cendsel.com.

Insights Accounting is brought to you by Cendrowski Corporate Advisors LLC

 

 

 

 

Wednesday, 28 August 2013 05:41

Move beyond “shiny and new”

Written by

Say the word “innovation,” and immediately you think about business legends like Steve Jobs and Jeff Bezos, as well as the companies they created – Apple and Amazon. Too often, however, we focus on the people who have been tabbed as innovators and the companies that develop those breakthrough products, services and solutions, such as Apple’s iPod and iTunes, or Amazon’s marketplace and unique ecosystem.

True innovation goes much deeper than a single leader’s vision. It is an all-encompassing philosophy that permeates an organization and defines its purpose for being. For me, at least, I prefer to think about innovation in its broadest terms, extending its definition to include corporate cultures and innovative management styles. Think about how Facebook and Microsoft are run, and how at both organizations employees are a key factor in the idea creation, or ideation, process.

Now, think about the breakthrough products that eventually went bust. Hopefully, you don’t have a basement full of Beanie Babies, boxes of Silly Bandz, or a home library filled with laser discs. It is more common to land on a singular breakthrough product that temporarily revolutionizes your industry rather than develop a product through a process that’s repeatable or scalable. And, just as true, no matter how innovative and creative your management team’s style may be, without the proper processes in place to push ideas through a system that takes them from mind to market, you’ll eventually have trouble keeping the lights on.

It all comes down to developing a culture imbued with innovation at its core. But this also requires having a servant culture in place where every person who works for the organization thinks about the customer first.

Consider San Francisco-based Kimpton Hotels, where employees strive to create “Kimpton Moments” by going above and beyond with guests and delivering memorable experiences.

Kimpton overcomes the inherent limitations for creating new innovative products that being a boutique hotel chain includes by approaching innovation through its employee interaction – and then rewarding employees for their creativity. For example, when team members put in the extra hours to ensure world-class service delivery, the hotel chain has sent flowers and gift baskets to their loved ones. And when they create an innovative service experience, the company rewards staff members with such things as spa days, extra paid time off and other goodies.

And then there’s the Boston Consulting Group, a management consulting firm that’s known for developing innovative business processes and systems for its high-end clientele. Part of BCG’s internal process is a focus on team members maintaining a healthy work-life balance. When individuals are caught working too many long weeks, the company’s management team issues a “red zone report” to flag the overwork.

Talk about innovation! And no product, service or solution was developed, marketed or sold.

And finally, few organizations are more innovative than DreamWorks Animation. But beyond plugging out groundbreaking animated movies, the studio’s culture embraces empowerment and innovation. Employees are given stipends to personalize their workstations so that they create whatever inspirational atmosphere they need to succeed. And, as the story goes, after completing Madagascar 3, the crew presented a Banana Splats party, where artists showed the outtakes.

Not only are these three companies known for being innovative in their respective industry spaces, they also share the honor of being members of Fortune’s 2013 “Great Places to Work” list.

So how do you take the first steps toward transformation or put those initial building blocks in place to begin the journey? There’s no magic formula, but there are some common traits – and they revolve around empowerment and establishing a culture that cares. 

Innovation organizations

  • Are open-minded and ask “What if?”
  • Teach team members how to see what is not there and identify opportunities in the marketplace to take advantage of those gaps.
  • Develop cultures where innovation thrives through open and honest communication.
  • Flatten the organizational structure and recognize that innovation can come from anyone and anywhere.
  • Make innovation, itself, a cyclical and continuous process.

Stop and take an internal assessment of your organization, your team and of yourself. If you can’t check a box next to each of these five traits, stop and ask yourself why. Then begin your own journey to greatness.

Sir Tim Berners-Lee recalls a time when computer users around the world were quite nervous about the power of Netscape.

“A lot of people thought, ‘Oh, wow, a clingy and controlling Web company. What do we do about it?’” says Berners-Lee, director of the World Wide Web Consortium (W3C) and inventor of the World Wide Web. “Then they weren’t worried about Netscape anymore. They were worried about Microsoft, and they worried about Microsoft for a long time. Then they woke up one day and said, ‘Wait, the browser is not the issue. It’s the search engines.’”

Today, it’s the social network that has people worried, says Berners-Lee. But whichever medium is in society’s crosshairs, he says the fear is very similar in each case.

“When you have a monopoly, it slows innovation,” Berners-Lee says. “It reduces competition, and it’s generally not good for the market. One of the most important things about the Web is it being an open platform. The ’Net is a neutral medium. I can connect and you can connect, and we can talk. That is really important to an open market and democracy.”

One of Berners-Lee’s primary missions with the W3C is to ensure the Web is being used to its full potential. But it is also to make sure it remains an independent entity so that everyone who wants to has the opportunity to tap into that potential.

“If you can start tweaking what people say or you can start intercepting their communications, it’s very powerful,” Berners-Lee says. “It’s the sort of power that if you give it to a corrupt government, you can give them the ability to stay in power forever. It’s healthy for us to not put the Internet directly under the control of the government, but to have a set of multi-secular organizations at arm’s length from government acting responsibly and taking many views.”

Still plenty of room to grow

Berners-Lee helped launch the World Wide Web Foundation in 2009 to bring the power of the Web to more people.

“Maybe now 25 or 30 percent of the world uses the Web,” Berners-Lee says. “That’s still a massive gap and a massive number of languages where there still isn’t a lot on the Web. There’s a lot of culture that isn’t represented and a lot of countries where they haven’t the backbone for a good Internet base.”

The foundation has designed and produced the Web Index, the world’s first multi-dimensional measure of the world’s growth, utility and impact on people and nations. It covers 61 developed and developing countries, incorporating indicators that assess the political, economic and social impact of the Web in that country.

“The higher level of the Web Index is looking at impact,” Berners-Lee says. “Is it really affecting the way people do politics? Is it really affecting the way you do education? Is it affecting health?”

The recent turmoil in Egypt was a wake-up call to many who are connected to the Internet, but have started to take its power for granted.

“They thought the Internet was like the air, that it would always be there,” Berners-Lee says. “And people started asking the question, ‘Who could turn off my Internet?’”

Fortunately, there are countless efforts underway from those in the technology industry not to restrict access, but to take the Web to even greater heights.

“The art is designing it to work with all kinds of devices because different customer segments are going to use different devices in different countries,” Berners-Lee says. “If you’re designing something new on the Web, you need to make sure it works on all devices.”

 

How to reach: World Wide Web Consortium, www.w3.org

The greatest challenge of opportunity is said to be the ability to take the next step and understand what it will take to maximize that opportunity and achieve growth. Amy Rosen knows the importance of that comprehension.

“The skill set of an entrepreneur involves understanding how to create a business,” says Rosen, president and CEO for the Network for Teaching Entrepreneurship (NFTE).

Andres Cardona, who grew up in a rough neighborhood in Miami, is one of the best examples of this entrepreneurial spirit.

“He was on the verge of dropping out of school because his mom had lost her job, and he had to help contribute to the household,” Rosen says.

Fortunately, Cardona had become involved with NFTE. His natural leadership skills, along with the knowledge he was gaining from NFTE, empowered him to do something that would not only help his family, but also other youngsters in Miami.

Cardona founded the Elite Basketball Academy, an organization that would help kids hone both their basketball and leadership skills. He began with one kid and was making 70 cents an hour. Now, he’s a CEO with more than 150 kids, a staff of employees and he’s making money. He’s enrolled at Florida International University studying finance while he runs his business and supports his mom.

“I’m sure it will be the first of many businesses he runs,” Rosen says. “This is just a kid who needed to have his eyes opened to opportunity and learn some basics about business.”

A great place to start

The mission of NFTE is to work with young people from low-income communities, such as Cardona, and engage them in a different vision of opportunity and success.

“It’s basically an entrepreneurship class where they actually go through the whole business-creation process,” Rosen says. “At the end, which really gets to our mission, we want kids to actually connect school with opportunity so they stay in school. Kids start learning how to multiply fractions because they are figuring out their personal return on investments in their new company. We want them to start much earlier thinking about their future.”

Rosen points to Cardona as an example of a youngster with a great gift. But in too many cases, with too many young people, those gifts go unrealized and the child becomes an adult with nowhere to go.

“We want them to have a vision of success and whether they become entrepreneurs and create their own businesses or bring to their jobs and their employers an entrepreneurial mindset. That’s going to give them a much better chance at success,” Rosen says.

The work being done by NFTE fits like a glove with EY’s mission to drive entrepreneurialism in the business sector.

“Our cultures are so aligned around entrepreneurialism in general and we are all running competitions and promoting the notion that we need more entrepreneurs to solve problems,” Rosen says. “Now we have partners on every single one of our boards worldwide. They don’t have to be asked to do it. They really like doing it.”

Cardona was featured at the recent EY World Entrepreneur of the Year Award program in Monte Carlo. Other budding young leaders who have risen through NFTE also have been honored by EY.

“In every city where we have an operation, they feature our winning entrepreneurs,” Rosen says. “So the kids get an opportunity to network and see what success looks like and to go to the kinds of places they’ve never been and participate that way. And they get a sense of recognition for their work.”

Rosen says there’s nothing better than working with young people to prepare them for what lies ahead.

“If you’re going to give back, why not work with kids who need it the most and actually teach them and help them to be entrepreneurs,” Rosen says. “That’s what is going to grow our economy and create stability.”

 

How to reach: Network for Teaching Entrepreneurship, (212) 232-3333 or www.nfte.com

Although manufacturers can expect modest 2 percent growth through the remainder of 2013, the brief lull gives opportunistic executives a chance to prepare for an uptick in business next year.

Gus Faucher, senior economist for The PNC Financial Services Group, attributes his optimistic forecast to a rise in business investments, fueled by the resolution of murky tax and sequestration issues, and the continuation of record-low interest rates.

“I think the U.S. will maintain an edge in high value-add manufacturing because we have highly skilled, productive labor,” Faucher says. “Maintaining our competitive advantage requires ongoing development of our manufacturing workforce.”

As the economic recovery proceeds, in what areas will spending accelerate most? Manufacturers of home building products and materials, furnishings, appliances and so forth should have a strong 2014, thanks to the rebound in the residential real estate market. In turn, those manufacturers will purchase more production equipment, raw materials, parts and other items. The wealth effect in real estate will stimulate growth throughout the supply chain.

Will rising global demand for U.S. made products including semiconductors, medical devices and specialized materials manufacturing propel employment gains over the next few years? Post-recession hiring will wane next year as manufacturers look for productivity gains from workers added since employment levels bottomed out in early 2010. Although manufacturing is back up to 12 million workers, that’s still well below the 2006 peak of 14.2 million. The mantra continues to be: Do more with less.

How could the expansion of the shale oil industry affect manufacturing? Shale oil exploration and extraction will be a boon to ancillary industries and all U.S. manufacturers that rely on natural gas for production, since it will lower energy costs over the long-term. Moreover, it will give America a much-needed competitive advantage in today’s spirited global marketplace.

 

Augustine (Gus) Faucher is a senior economist for The PNC Financial Services Group. He is responsible for contributing to the preparation of PNC’s U.S. economic forecast and alternative economic scenarios.

Wednesday, 28 August 2013 03:28

Talent- Driven Innovation Books for CEOs

Written by

The Rainforest: The Secret to Building the Next Silicon Valley

Victor W. Hwang and Greg Horowitt

Regenwald, 304 pages

What makes places like Silicon Valley tick? Can we replicate that magic in other places?  How do you foster innovation in your own networks? Victor W. Hwang and Greg Horowitt propose a radical new theory to explain the nature of innovation ecosystems: human networks that generate extraordinary creativity and output. They argue that free market thinking fails to consider the impact of human nature on the innovation process.
These ecosystems, or Rainforests, can only thrive when certain cultural behaviors unlock human potential. The authors provide practical tools for readers to design, build and sustain new innovation ecosystems. The Rainforest challenges the basic assumptions that economists have held for over a century and will transform the way you think about technology, business and leadership.

 

The Coming Jobs War

Jim Clifton

Gallup Press, 220 pages

Drawing on 75 years of Gallup studies and his own perspective as the company’s chairman and CEO, Jim Clifton explains why jobs are the new global currency for leaders. To win, leaders need to compete. The business community needs to double the psychological engagement of workers so that it can compete with cheaper labor. Perhaps most importantly, leaders need to recognize universities, mentors and especially cities as a supercollider for job creation. There’s not a moment to waste: the war has already begun.

 

Innovation Nation: How America Is Losing Its Innovation Edge, Why It Matters, and What We Can Do to Get It Back

John Kao

Free Press, 320 pages

John Kao first offers a stunning, troubling portrait of the recent erosion of U.S. competitiveness in innovation, then he takes readers on a fascinating tour of the leading innovation centers, such as those in Singapore, Denmark and Finland, which are trumping us in their more focused and creative approaches to fueling innovation. He then lays out a groundbreaking plan for a national innovation strategy that would empower the U.S. to marshal its vast resources of talent and infrastructure in ways that will produce transformative results.

While government regulations and prices for energy and raw materials influence manufacturing competitiveness, having a talented, innovative workforce was deemed the most critical factor in a country’s ability to compete in manufacturing, according to the 2013 Global Manufacturing Competitiveness Index by Deloitte.

Unfortunately, the U.S. is lagging behind other high-wage nations such as Germany and Japan when it comes to innovation in its manufacturing sector. And we’ll continue to lose ground if executives wait for colleges to churn out science, technology, engineering and mathematics graduates.

“We can’t wait for someone else to fix it. The talent issue needs to be addressed today,” says Jennifer McNelly, president of The Manufacturing Institute, a non-profit affiliate of the National Association of Manufacturers.

Experts may not agree about the existence of the so-called skills gap, but they unilaterally concur that manufacturing executives can jump-start innovation without breaking the bank by tapping into widely available brain trusts.

Cultivate collaboration

Collaboration is the secret sauce of innovation, John Zegers says. The director of the Georgia Center of Innovation for Manufacturing, Georgia Department of Economic Development, says creativity doesn’t evolve from one person — it comes from inviting different perspectives.

“Whether you’re trying to solve a problem on the manufacturing floor or develop a new product, it’s critically important to garner feedback from everyone who touches the product,” he says.

Historically, manufacturers have expected engineers to be their innovative spark plugs, but the notion of the lone innovator is fading amid the shortage of engineering talent. Today, 90 percent of managers view the manufacturing workforce as full partners in solving problems, improving processes and satisfying customers, according to the 2012 Manpower Manufacturing Workforce Survey.

Moreover, cross-functional teams comprised of accountants to shipping clerks are using their detail orientation and intimate knowledge of supply chain processes to streamline procedures and create new efficiencies.

“Involvement creates ownership and ownership inspires creativity since employees feel empowered to make changes,” Zegers says. “Plus, the cost of marshaling existing resources toward a problem is negligible.”

At the same time, garnering input from people in dissimilar roles broadens a team’s perspective and buoys critical thinking by injecting a dose of cultural and ethnic diversity. Of 321 companies surveyed by Forbes, 85 percent agreed or strongly agreed that diversity is key to driving innovation in the workplace.

 While many organizations want the benefits of high-stakes innovation, their culture won’t support it. Executives who resist outside-the-box ideas or penalize failure may unconsciously stifle creativity. If you champion the efforts of cross-functional teams by removing the barriers to innovation and sponsoring a culture that shuns the status quo and rewards risk-taking, the seeds of creativity will sprout and bloom, but only under the right conditions.

Close skill gaps through training and education

Manufacturing executives frequently bemoan the dearth of workers capable of mastering today’s increasingly hi-tech, team-based roles, yet the answer to the problem could be right under their noses.

About 20 percent of all American jobs are now in the STEM fields, with half of those open to workers who don’t have a four-year college degree, according to a new analysis by the Brookings Institution, who refers to these workers as the second STEM economy. Second STEM workers come from high schools, community colleges and vocational schools and are critical to the implementation of new ideas since they advise researchers on feasibility of design options, cost estimates and other practical aspects of technological development.

Manufacturers bear some responsibility for their predicament according to Manpower, since most companies are not recruiting for manufacturing talent as if they were knowledge workers and are not managing them as a knowledge workforce either.

Specifically, they’re neither developing their current employees nor building a pipeline of technically proficient talent to meet near-term hiring needs.

“There are plenty of 40-year-olds working in the industry who were trained in a different way,” says Rick Jarman, president and CEO of The National Center for Manufacturing Sciences. “The talent is there, they just need retraining and development.”

Investing in daylong seminars that use simulation to teach lean manufacturing concepts, kaizen events, overall equipment effectiveness, value stream mapping and so forth can yield big dividends, Jarman says. Workers who understand modern manufacturing concepts may enhance a company’s penchant for innovation.

Plus, ingenuity is a teachable skill. Employees can learn the fundamentals of the innovation process and start generating money-saving, useful ideas after attending a short, four-hour training course. Plus, upgrading your current staff is less risky and time-consuming than developing novices.

Since manufacturing will see a 50 percent increase in the number of mature workers over the next decade, companies should consider this workforce segment as they assess their near-to-medium-term talent acquisition strategies. Innovative organizations are pairing mature workers with technically savvy new hires to facilitate knowledge transfer and mentoring.

Indeed, some industry veterans have the ability and desire to learn advanced technical skills like computer numerical control, machine tools, computer-aided design and manufacturing programs or even robotics, if given the chance. High-potentials are being offered tuition assistance because having a technically competent workforce is critical to innovation.

“Manufacturers can’t capitalize on groundbreaking technology or invest in computer-aided machinery if they don’t have someone to operate it,” McNelly says. “This is just one example of how the skills gap can impact innovation throughout an entire industry.”

Employers can close debilitating talent shortages in as little as three to six months by raising their expectations and requesting certified workers from local community colleges. McNelly cites a pilot program in Northeast Ohio as an example of successful educational alliance. Community colleges provide NAM-Endorsed certified training to students to prepare them for advanced manufacturing careers.

“Just showing up is no longer enough,” McNelly says. “Employers need certified employees to thrive in a manufacturing environment that’s grounded in teamwork.”

Enticing high school students is a long-term solution to looming talent shortages in manufacturing. To succeed, executives need to change students’ perception of the industry.

Offer them apprenticeships and invite students to tour plants so they can see that there’s more to a manufacturing career than standing on your feet all day, says McNelly.

“Show them a distinct career path and the technical aspects of the job, or else bright students with a flair for innovation will pursue opportunities in other industries,” she says.

Cross boundaries to expand your brain trust

Augmenting the creative efforts of a modest staff by crowdsourcing ideas and suggestions from customers and stakeholders is a new approach gaining attention. According to Newsweek, Unilever established an open innovation unit to work with outside partners in 2009, which increased the share of external ideas that are adopted by the company’s business units from 25 percent to 60 percent. Even Starbucks is asking stakeholders to help develop ideas to reduce waste.

While it’s possible to solicit ideas via social media and traditional focus groups, many companies are using online discussion boards to engage outsiders in stimulating conversations with executives and engineers. The back-and-forth banter encourages participation and helps flesh-out creative ideas in real time.

If a shortage of engineering expertise and technical know-how is stifling R&D, one technique is to borrow the requisite expertise by tapping the brain trust at your local college or university.

“Many colleges and universities will gladly provide research, access to labs, professors and engineering students to local manufacturers,” Zegers says. “They can help you develop cutting edge technology or solve problems without adding to staff. They can even help defray development costs by connecting manufacturers with grants or matching funds from state and local governments.”

Collaborative R&D is another way to leverage external expertise and technology in the quest to develop cutting edge products and efficient manufacturing processes.

“Manufacturers can reach the end game faster by pooling intellectual capital and sharing the investment and the return with partners who have complementary talents,” Jarman says.

If you don’t have the wherewithal to source partners and manage large-scale projects, you can still enjoy the benefits of collaborative R&D, by engaging an intermediary.

The National Center for Manufacturing Sciences provides neutral, third-party collaborative project oversight. Or, seek out industry programs that form strong multi-disciplinary teams by matching willing partners with experts from universities, government labs and external funding sources. Collaborating with engineers from the U.S. Department of Commerce’s Manufacturing Extension Partnership or other public/private partnerships is yet another option.

The opportunities to innovate are endless, even for small manufacturers, if executives go out of their way to broaden their talent circles.

“There are more than 300,000 manufacturers in the U.S. and endless opportunities to collaborate,” Jarman says. “Some of the most creative ideas are coming from small and mid-size manufacturers who have crossed boundaries and barriers to pursue talent-driven innovation.”

 

How to reach: National Association of Manufacturers, www.nam.org; The National Center for Manufacturing Sciences, www.ncms.org; The Georgia Center of Innovation for Manufacturing, manufacturing.georgiainnovation.org

Wednesday, 28 August 2013 07:14

The God of Greek Yogurt

Written by

 

Back in 2005, Hamdi Ulukaya stumbled upon a classified ad for a yogurt plant recently closed down by Kraft. After initially ignoring the ad, Ulukaya had a gut feeling that he should at least visit the plant.

It’s a good thing he listened to his gut. Otherwise the story of his company, Chobani Inc., may be very different today. After seeing the plant Kraft had for sale, Ulukaya bought it on the spot and went to work perfecting the recipe for Chobani Greek yogurt based on his belief that everyone, regardless of income or location, deserved access to delicious, high-quality yogurt.

“I grew up with yogurt,” says Ulukaya, who is founder and CEO of the New Berlin, N.Y.-based company. “Being from Turkey, a big part of our diet was yogurt.”

It wasn’t just a gut feeling that made Ulukaya visit the plant, but it was also a gut feeling that Chobani would make it in the world of yogurt in retail.

“I didn’t analyze it too much,” he says. “It was nothing but a gut feeling. Everyone I knew that had a knowledge of business were looking at the category and at who was closing a plant, which was Kraft. Everyone who looked at the idea was against it.

“I would be convinced for a day by the people I talked to and then the next day I’d change my mind. The only thing I knew was there was a big opportunity in yogurt.”

Here’s how Ulukaya built a yogurt empire that has gone head-to-head with category veterans Dannon and Yoplait.

Keep the faith

Chobani began with the hiring of five employees. However, the initial employees, including Ulukaya himself, lacked the experience in launching a yogurt company.

“I built the company based on people, not with experience from before, but willing to learn and try anything,” he says. “We had a bunch of people that had never done this before. None of us had run companies. None of us had worked in high levels of companies. None of us were from Fortune 500s.

“Whatever you look for in people to bring them into a company — none of us had it. Most of the people came in from an entry-level position and now they’re leading departments. Chobani not only became a business that grew, but Chobani was like a school to us, including myself.”

With that mentality Chobani’s first yogurt hit shelves 18 months after Ulukaya bought the Kraft plant, and has since grown to become America’s No. 1 yogurt.

“It was not easy, but what we found out was what is seen and what is reality are two different things,” Ulukaya says. “The category was owned by two major companies. Dannon and Yopliat owned about 70 percent of the market, and they had been there for years. As a startup, you go to the specialty stores first. That’s how you start and you grow and once you reach a certain level then you go to the big retailers.”

Ulukaya didn’t want to do that. He wanted to go to the big retailers first and be in the regular dairy isle.

“That was a crazy idea and nobody thought that would go, but at least we tried,” he says.

“When we tried, we convinced one retailer in New York, ShopRite. The result from that was we were able to expand to a couple of other retailers. After the second or third customer that we had success with for our yogurt I knew it wasn’t going to be about selling — it was about making enough. So from that moment on I lived in the plant.”

Chobani has grown from five employees to almost 2,000 today. The company started out with one truckload of milk a day and now uses more than 4 million pounds daily. Its products are now available nationwide as well as in Australia, the UK and Canada. 

Build a culture that breeds passion

Chobani’s success has been driven by Ulukaya’s passion, which earned him the title of EY Entrepreneur Of The Year 2012 U.S., and subsequently, the 2013 World Entrepreneur Of The Year. That success has also been a result of Chobani’s culture of delivering the highest quality.

“We have a reason for doing what we are doing,” Ulukaya says. “We want to make an awesome product for everybody. We want to make it nutritious, delicious and accessible. While we are making it, we want to build things around it. We want to be a part of the community. We want to be places where we can make a difference. That gives people reasons to get together and do something awesome.”

As Chobani has expanded and its core team has grown-up, it’s been important to transfer that culture and belief to everyone else.

“That passion was so strong, and I think we are so connected to our business. I am personally so involved in the business, especially in the plants, that having those one-on-one conversations and being an example, not just preaching and putting things on the wall, but by living it and putting in hard work, affects us more,” he says. “We built Chobani on those qualities.”

Chobani has gone from nothing to $1 billion in five years. That kind of growth can be stressful, but Ulukaya enjoys what he does and that’s what pushes him forward.

“It has its highs and lows, because let’s face it, it’s not easy,” he says. “They asked Steve Jobs what was the most important thing in business and he said, ‘Passion.’ If you don’t have passion you would give up when things get difficult. We have so much passion and love for what we do that it becomes a part of our life. I personally don’t separate my personal life from my business, because I’m doing something that I love.”

Ulukaya calls that passion “The Chobani Way.” He doesn’t expect any of his employees to have to pretend they enjoy what they’re doing or act differently than who they are.

“I have never become different depending on whether I was involved in business or in my personal life,” he says. “You don’t have to pretend to smile. You come as you are and you just try to learn it. That became ‘The Chobani Way.’”

How to reach: Chobani Inc., (877) 847-6181 or www.chobani.com

 

 

If you are an entrepreneur, and you see what you think is a growth opportunity, you may be tempted to take the advice that’s been offered many times: risk all you can and jump in head first.

But if you catch your breath, the proper decision at that time is not really what to do. Your analysis lies more with if you think the opportunity is one for growth.

With that in mind, Smart Business interviewed some of the world’s greatest entrepreneurs and the leadership at EY about growth opportunities. These business leaders come from the more than 60 countries at the recent EY World Entrepreneur Of The Year conference in Monte Carlo.

 

“We’re looking at China and other Asian countries. The key to that market is to have big internationals that are creating value for their communities where we can sell our products. These are the kind of countries, those that can generate big internationals, that we are looking at.”

Martin Migoya, CEO, Globant

Entrepreneur Of The Year 2012 Argentina

 

“I have been tracking where I see money going. Where is the most foreign direct investment happening? Africa is clearly one. In South America, Colombia has been coming much more into its own, as have Indonesia and parts of Southeast Asia. Those are some of the markets you’ll start to see. Mexico is another one you have to watch because it’s close to the U.S. and its leaders have had change in their political landscape to be more pro-business.”

Herb Engert, Americas Strategic Growth Markets Leader, EY

 

“One of the ways that we encourage innovation is we partner with a lot of technology startup companies. We look for alliances and what’s next in technology that can drive improvements and enhancements in our industry.

When we see a technology that’s promising we’ll start working with them and provide them with real-world market feedback. That gives us the data and confidence to help them get to commercial deployment.

Our people are always looking for innovative ways to do things with the discipline of knowing that at Chevron we have to represent our brand and stand behind everything that we do and our customers expect us to keep them on that proven level of technology.”

Jim Davis, President, Chevron Energy Solutions

 

“I am in one of the newest economic blocs to emerge from Latin America, the Pacific Alliance, which seeks to create a Latin American gateway to Asian markets. Chile, Colombia, Mexico and Peru are members. The bloc hopes to make the commercial, economic and political forces among the members work more closely together.

The entrepreneurs representing Colombia chose me to be in that alliance two years after it was founded. What it is going to do is to join the market of those five countries — it is one market for everyone.”

Mario Hernandez, founder and president, Marroquinera

Entrepreneur Of The Year 2012 Colombia

 

“There continue to be tremendous opportunities in Brazil; it’s a big country, a big market. It will be back on the world stage even more with the 2014 World Cup and ultimately the Summer Olympics in 2016.

But when you look at Spanish-speaking countries, certainly Mexico is attracting a lot of direct foreign investment. The new administration, the federal government there, has definitely got a strong commitment to entrepreneurship.

We are seeing that as being important to them, and we are working with them on a number of different initiatives as the U.S. State Department and others try to help foster more entrepreneurial startups and more entrepreneurial growth in Mexico, both big and small.”

Bryan Pearce, Americas Director, Entrepreneur Of The Year and Venture Capital Advisory Group, EY

 

“There are always things you can do to improve and grow your business. You should be rethinking and retooling it every chance you get. The key thing is making sure everybody in the organization understands the story, where you’re going, are you going to get there in the belief that you are doing the right thing. People want to know their purpose, so that’s for me the biggest area to keep the energy going — keep a sense of purpose very strong.”

Dr. Alan Ulsifer, CEO, president and chair, FYidoctors

Entrepreneur Of The Year 2012 Canada

 

“Always be seeking new opportunity. Always be looking for new technologies, innovation and creativity within your people. The best ideas within our business have come from the people inside our company. You have to give opportunity to your people. Tell them it’s OK to be wrong and make mistakes. That’s important so people will learn from those mistakes and come up with better ideas.”

Lorenzo Barrera Segovia, founder and CEO, Banco BASE

Entrepreneur Of The Year 2012 Mexico

 

“The growth driver in the world is coming from entrepreneurs. They are the ones driving economic growth and driving job growth. If you look at leading indices of companies, they churn much more rapidly than they ever did before.

“It used to take 20 years to have a half of a churn in some of these indices. Now it takes four or five years. It’s because the entrepreneurs are building businesses so quickly. We have to keep investing and keep recognizing their strengths.”

Jim Turley, retired global chairman and CEO, EY

 

“It’s important to understand where the trends are going. So communication and information is important. I fully support the free market system. It’s a great way to understand where the best new ideas are coming from and where the value lies. We keep an eye on our competitors on technology and on alternative learning aspects. So to the extent that the web provides a better way to educate more students more efficiently, we’ll be using that.”

J.C. Huizenga, founder, National Heritage Academies

 

“I built the company based on people, not with experience from before, but willing to learn and try anything. We had a bunch of people that had never done this before. None of us had run companies. None of us had worked in high levels of companies. None of us were from Fortune 500s.

“Whatever you look for in people to bring them into a company — none of us had it. Most of the people came in from an entry-level position and now they’re leading departments. Chobani not only became a business that grew, but Chobani was like a school to us, including myself.”

Hamdi Ulukaya, founder, president and CEO, Chobani Inc.

Entrepreneur Of The Year 2012 United States and 2013 World Entrepreneur Of The Year

 

“Companies attracted by the Latin American market have to decide where to establish the operations in Latin America. They have many opportunities: Sao Paulo; Buenos Aires; Santiago, Chile; or maybe in Peru. But in Uruguay, there is a very small market. You have to operate with a different concept, much like an offshore company, to operate in Latin America.”

Orlando Dovat, founder and CEO, Zonamerica

Entrepreneur Of The Year 2012 Uruguay

Another year of EY’s Entrepreneur Of The Year Awards has come and gone, but the stories told and the lessons learned are far from over. Each year EY’s entrepreneurial programs get bigger and better and the entrepreneurs involved are getting more creative and leading more impressive companies than in prior years.

For instance, Hamdi Ulukaya, the founder and CEO of Chobani Inc., was named Entrepreneur Of The Year 2012 U.S. He went on to win 2013 World Entrepreneur Of The Year, making him only the second entrepreneur from the U.S. to win the world award.

This summer Smart Business caught up with a few of EY’s leaders, Herb Engert, Americas Strategic Growth Markets Leader, and Bryan Pearce, Americas Director of the Entrepreneur Of The Year Program, to discuss how these programs have evolved and talk about some new ones that are being developed.

It should be noted that EY itself is going through a leadership transition with the retirement of Jim Turley, global chairman and CEO. Smart Business spoke with him as well to understand the future direction of the company.

Here’s what we learned.

How are you effectively developing a seamless global leadership transition?

Turley: We announced Mark Weinberger was going to be my successor well over a year ago, probably 14 or 15 months ago. It was interesting because unlike many of our competitors who do this very quickly, we realize this is a really important transition.

The reason we gave ourselves 15 months of transition is because we’ve got 170,000-plus people around the world. So we take our time; we do this well.

How do you see your legacy?

Turley: If there is a legacy it’s our people culture. We’re a special place. More experienced folks join EY from our competitors than ever leave us to join the competitors. They come and they say it’s because of the culture we have.

What is one of the greatest marketing challenges moving forward?

Turley: Everybody has realized now, much later than we realized some 34 years ago, that the growth driver in the world is coming from entrepreneurs. They are the ones driving economic growth. They are the ones driving job growth.

I think we have to keep investing in and keep recognizing their strengths. But we don’t do this for our own marketing. We do this because of the impact entrepreneurs are having in the communities where they live, and they weren’t getting the attention in the press when we started the program some 27 years ago. Increasingly they are getting the visibility they need.

How did the issues discussed at the WEOY program relate to what’s going on in the U.S.?

Engert: They’re directly correlated. Everybody is talking around the issues and challenges in the world economy, which is growth, jobs, investment and innovation.

When I think about innovators and some of the companies that have come through the EY programs, they are companies that are disrupting, or said in another way, addressing a need, demand or service. In some cases in emerging markets they are replicating what might have already been met in another developed market.

That whole concept of replication and foreign direct investment, at the root of it, is what entrepreneurs are all about and it’s going to bring parody to the global world. A stage like WEOY puts it in perspective and how it’s all tied together.

Pearce: The companies that are here have been successful in growing their companies perhaps in their domestic or regional markets and this gives them a great opportunity to meet counterparts that are operating in other parts of the world. At a minimum, they may learn a little bit more about those markets. Ideally, they may meet people who are potential partners, strategic relationship candidates or people who could help them in some way to expand their own business into expanding foreign markets.

How do you plan to apply the information gained in the WEOY program into the Strategic Growth Forum this fall?

Pearce: The WEOY and the series of strategic growth forums that we do around the world are definitely part of getting knowledge to entrepreneurs as well as networks to entrepreneurs. When you bring those two things together, they learn more about how they can grow their business, run a better business, access capital and develop their people.

It’s a focus on the five important pillars around customers and growth: people, operating effectively, capital and managing risk. You get insights into that here and you’ll get insights into them at strategic growth forums.

How has the program content developed with WEOY?

Pearce: We have added a lot of content to what has historically been a program only focused on awards. That knowledge and greater focus on networking with each other obviously has been well received by the entrepreneurs. They came to WEOY to meet their colleagues, but also to learn and so we had people coming in as keynote speakers and panelists.

We have also created a series we are calling E exchanges, which are groups of 10 to 15 people sitting around the table with common issues. These E exchanges will be very helpful for people to get to know each other and to really get into some of the down and dirty, nitty-gritty of what they are doing to tackle problems in their own business.

Are there any particular countries where you see big opportunity?

Engert: I have been tracking where I see money going. Where is the most foreign direct investment happening? Africa is clearly one. In South America, Colombia has been coming much more into its own, as have Indonesia and parts of Southeast Asia. Those are some of the markets you’ll start to see. Mexico is another one you have to watch because it’s close to the U.S. and its leaders have had change in their political landscape to be more pro-business. It’s the No. 7 GDP nation in the world.

What does the Entrepreneurial Winning Women Program mean to EY and how is it developing?

Engert: The Winning Women Program is a recognition program, but it is so much more. It really is a development program. We really focus on recognizing the women and giving them an award, but we’re putting them into an EY incubator where we give them the opportunity to participate in a lot of different aspects of thinking about the strategy of their business, their financial plans, how they approach media, branding, PR and investors.

We’ve learned a lot in the last five years of this program, and I’m proud to say we are expanding that around the globe.

Pearce: One of the recognitions that we had was that women are 48 percent of business owners in the world. They’re starting up businesses at a rate more rapid than men right now. But part of the challenge is scaling. You don’t tend to see the women-led businesses scaling as rapidly as others do.

What I think has really been the strength of the program is that there is more than just an award. There is ongoing education. They are recognized through the awards program, but also get mentoring and other skills to help them build better businesses. And then we bring them to events like WEOY.

We will have virtually all of them at the Palm Springs event in November. So they have that opportunity to get integrated in with our EOY award winners and other great entrepreneurs and find partnerships and boards of advisors and directors and various other things that can help them to scale their business.

So we began that in the U.S. We are now rolling that out to Canada and Brazil this year and looking at more rapid rollout into other countries because it is certainly a great opportunity to help support these women as they grow these businesses around the world.

What about the addition of a family business component?

Engert: The Family Business Award was put in place because family businesses are the bedrock of communities. They’re the unsung heroes.

Most private companies are family-owned businesses and a lot of public companies are actually family-owned businesses as well. A significant amount of them are multi-generation family businesses and it creates a focus on that market segment.

It’s a totally different class of business with different needs and attentions. So we are trying to celebrate family business, which will provide a lot of great learning and perspective for us.

Pearce: Our definition is that families are those at least in the second generation or beyond. Not only do you have all the same challenges that another company, private or public, would have in growing the business, but now you have this added dimension wrapped around it of family dynamics.

We try to bring them together with each other so they can learn from other families how they are handling those same kinds of challenges around family integration, succession, fundraising, liquidity, and all of those kinds of things, and then we are able to provide services to them as we look at managing through those same issues.

Across the 25 programs regionally in the U.S. we had more than 200 nominees this year that want to be considered for the family business award, which was a great start.

Can you explain a little bit about Endeavor?

Engert: We have a partnership with Endeavor. They are focused on building a better working world themselves and investing in and promoting entrepreneurs in emerging markets around the globe. The Endeavor model is wonderful because it’s entrepreneurs who are opening a local chapter, but have strong ties to the global connections of Endeavor that help bring entrepreneurs and perspectives to bear.

Endeavor is a great program and we’re proud to be partners with them. I look forward to Endeavor expanding further around the globe because they are a key difference in some of those emerging markets.

Pearce: In many of the countries that they operate in, particularly in the Americas and in Latin America, we’ve got strong relationships with our EOY program.

For example, this year is the first year that we’ve had EOY in Uruguay, and that really began as a partnership between Endeavor Uruguay and one of our former partners who is on the board. We were able to team together and the initial EOY gala was combined with the Endeavor gala. We had more than 800 people attend in year one. So it shows you the power of entrepreneurship and certainly the power of the partnership between Endeavor and EY.