Dustin S. Klein

Monday, 22 July 2002 09:40

Tapping the well

You’ve finally put the finishing touches on your company’s Web initiative and decided that it would be best to launch a dot-com version of your brick and mortar operations instead of using it to complement your current ventures.

Or perhaps you’ve devised a brilliant plan for a pure dot-com business, but don’t have all the funds to get it past the start-up stage.

Now that you’ve mortgaged your house, hit up friends and family for a couple hundred thousand and tapped your bank accounts, business and credit cards, it’s time to begin the search for venture capital funds.

VCs are investment companies in which investors pump money into one central firm whose job is to find solid business investments. As a company succeeds, the VC firm’s return on investment grows as well. In recent years, traditional VCs have branched off into Internet investments, sinking millions into start-up dot-coms, lured by the riches many entrepreneurs have realized.

Admittedly, it’s become tougher to find VC financing as the great shakeout on the Internet has begun. The need to show actual profits has replaced consistent revenue streams. But there is still more VC money out there than there are solid projects.

Here are three critical factors venture capitalists take into account when considering whether to fund your dot-com project:

The people

Strong management teams are essentially what peopleinvest in with any large project, whether it is Internet related or traditional brick and mortar. As few would argue, the world is full of good ideas. But it takes the right breed of people to execute those ideas and turn a notion into successful reality.

“Everything is moving so quickly now that we’re really looking for people who either have past experience (in dot-coms) or some way that allows them to strike relationships and acquire early customers,” explains Shanti Mittra, a partner at Primus Venture Partners Inc. “That’s really a make or break factor.”

Sometimes, however, it’s not make or break, especially if a VC firm believes it can help the management team, says Tim Biro, president of the Ohio Innovation Fund. That’s where experience in investing projects can come into play. It’s something a firm such as Primus or Ohio Innovation can bring to the table as a value-added extra.

“We look for management that’s already in place, but also a willingness to bring on additional management to help make the investment as successful as possible,” Biro says.

One reason behind that is that VCs generally are active investors. They’ll take an equity stake in the company of anywhere between 5 and 75 percent, depending on the stage of the company and level of investment. And they’ll take at least one seat on the board of directors to help guide the business and protect their investment.

Another reason is that because of the very nature of venture capital investments, VCs don’t receive many guarantees in return for their investment.

“Think about all the trouble you go through to get a mortgage for your house,” says Mittra. “Contrast that to VCs. There is no collateral, the management team can get up and walk away. We’re generally minority owners, so we don’t have much control. We don’t partake in the day-to-day management, so we don’t know what’s going on on a day-to-day basis.

“With that type of risk profile, the odds of getting money are that much tougher.”

There’s one final reason.

“People are passionate about what they have,” Biro says. “That’s important. You can’t succeed if you don’t believe in what you do. But, you also have to recognize your own limitations as a manager. You have to be realistic.”

Innovative technology

“You try to get an assessment of what are the advantages of this technology relative to what’s already out there,” explains Biro. “You have to figure out how much of a sustainable advantage can be built with what you’re investing in. Can somebody build a better mouse trap and ace you out?”

Mittra agrees.

“The question you have to ask yourself is whether there’s been any innovation with the technology being used besides just moving the information into a new medium. What we look for is real innovation and value add to the Internet to allow something that’s never been done before.”

Biro says the technology becomes a major factor when considering how much the investment will cost.

“Technology helps determine how much capital it’s going to take to get you where you want to be and the length of time it will take to get a return on the investment, and what that return will look like,” he says.

And with the rapid changes in technology, you have to move fast. Mittra says beware of developing an initiative with technology that will be outdated by the time it hits the market.

Strength of the plan

Primus Venture Partners sees nearly 1,000 business plans each year. Of those, Mittra estimates the firm invests in 10 or 12 deals.

“We like to think every one we do is an original,” she says. “It’s tough to find all the elements we want. You want original ideas. You want the management team that can make deals quickly. You want the solid technology. We realize we won’t always get all the parts, but things have to come together in order to make the right investment.”

One of the key elements of the plan is whether it lays out a specific road map of how the company’s owners plan to move the business from Point A to Point Z, says Mittra.

“You don’t want it to show they’re competing in an overcrowded space. The plan must be solid and it must allow the business to move quickly,” she says. “A lot of people approach us saying, ‘This is the way we’ve always done it. We just want to put a dot-com after our name.’ That won’t do it today.”

Biro agrees, pointing out that Ohio Innovation sees about 300 business plans a year and takes only a select few from that group.

“You try to choose the winners,” he says. “On average, it’s less than 1 percent. You want to be on Secretariat. But you also want Secretariat to have the best jockey possible. A lot of people tell you to get the best jockey, but if he’s riding a jackass, he’s not going to be a race in the force.

“And you want a good betting office to place your bets because you have to get a return on your investment as well. When it comes to a business plan, it must have all the elements that tell you how that company is going to get where they want to go from here.”

How to reach: Ohio Innovation Fund, (216) 830-1172; Primus Venture Partners, (440) 684-7300

Dustin Klein (dsklein@sbnnet.com) is editor of SBN.

Monday, 22 July 2002 09:40

Hatching a plan

With all the growth in dot-com companies, taking them from idea to reality has accelerated beyond a conventional business building model.

The proliferation of incubators — literally, gestation organizations that help a fledgling start-up with affordable space, technology, management, financing, lab equipment and other items the business otherwise couldn’t afford — has helped hatch thousands of dot-coms worldwide at speeds unheard of under conventional business models.

Locally, there are several incubators, with more popping up seemingly every day. Here are a few of the better-known ones and a few upstarts you’ll be hearing more from in the future:

Enterprise Development Inc.

Enterprise Development Inc. is the most well-known and well-developed incubator in Northeast Ohio. EDI is the parent organization that manages the Edison Technology Incubator (ETI), BioEnterprise and the Lewis Incubator for Technology (LIFT). The organization houses more than 30 fledgling companies in four locations and provides business assistance to tenants and clients, explains Diann Rucki, EDI president.

ETI is designed for new and emerging technology-based businesses. BioEnterprise provides laboratory and office space for early stage biomedical device, biotechnology and health-care related start-ups. LIFT is aimed at companies with the potential to incorporate technology and know-how developed by NASA’s Glen Research Center. Among EDI’s graduates are Athersys, Gliatech and Netgenics.

“There’s a lot of start-up activity in Northeast Ohio,” Rucki says. “EDI is designed to help nurture companies along by providing support they otherwise would not be able to get.”

Lorain County Community College

Hand it to Lorain County Community College president Roy Church for recognizing where to focus the future of education and acting upon it. LCCC broke ground in April on its new 2,000-square-foot incubator, which will house up to four start-up computer software, Web design and e-commerce companies.

The incubator will leverage LCCC’s educational facilities while complementing the college’s $6 million Engineering, Training and Development Center. It is slated to open in 2001 and is part of LCCC’s comprehensive plan to grow dot-com companies locally, as well as raise the region’s technological awareness by developing an education, business and technology partnership.

Hatchbox Inc.

Working from a collaboration of the legal, accounting, consulting and Web communities, the appropriately named incubator Hatchbox Inc. hung out its shingle in Fairlawn earlier this year. Hatchbox’s goal is to help fledgling e-commerce businesses develop into mature companies through a steady feeding of legal, accounting and marketing expertise.

Founded by Howard Cleveland, owner of Digital Day (formerly Mozes Cleveland & Co.), Hatchbox’s other partners are Arthur Andersen LLP and Benesch, Friedlander, Coplan and Aronoff LLP.

John Carroll University

Not one to be left behind in the progressive world of educational incubators, John Carroll University in March announced plans to join the fray with its own $60 million, 190,000-square-foot science center. Located within that massive building will be a 7,000- to 10,000-square-foot incubator designed as laboratory space for rent by local businesses as a way to lower overhead costs on basic research.

John Carroll management hopes to leverage educational research undertaken by its students and professors, and envisions the incubator as an opportunity to nurture some of those ideas into full-fledged start-up businesses.

How to reach: EDI, (216) 229-9445; LCCC, (800) 995-LCCC; Hatchbox, (330) 528-0029; John Carroll University, (216) 397-1886

Dustin Klein (dsklein@sbnnet.com) is editor of SBN.

Monday, 22 July 2002 09:39

Ups and downs

(Ups) to Progressive Corp. The insurance giant's Web initiative is a perfect example of how to complement traditional brick and mortar operations with an e-based process. With a proven product and solid foundation to build upon, it didn't take long for Peter Lewis and Co. to make the masses forget about the company's failed E.T. advertising campaign.

(Downs) to Cleveland's biotech community. Gliatech's announced departure -- after the homegrown gel maker's sale to Baltimore-based Guilford Pharmaceuticals -- puts the brakes on what appeared to be successful efforts to keep Gliatech in town. Too bad there's no salve available to heal this wound.

(Ups) to SBN magazine. Seven Excellence in Journalism awards between our Cleveland and Columbus editions show SBN's peers acknowledge that we give our readers what they want -- and need -- every month.

(Downs) to Pony Computers' Planet Know How. The "how to" dot-com start-up burned through a large chunk of its seed capital without much to show for it besides a wake of unpaid contributors and a mediocre beta site. Ironically, one of PKH's first how tos explained how to start a successful e-business. It makes you wonder: Did the company's management team bother to read its own articles?

(Downs) to displaced tenants at Shaker Square. Sure, SBN understands -- and encourages -- real estate makeovers to spur economic growth, but Randy Ruttenberg and Adam Fishman's plans to return the square to its former glory aren't exactly making friends with merchants along the way. Should their initial attempts fail, the duo may find rough times filling space with locally based businesses.

Monday, 22 July 2002 09:39

Information at the speed of light

One of my staff members received the "I Love You" virus a few months back, the very same morning that it made international news.

While other businesses scrambled to minimize the damage, we were lucky. Because our e-mail system uses Eudora instead of Microsoft Outlook, SBN wasn't infected. Never mind the fact that the staff member spent nearly half an hour trying to find a way to open the file.

Over the days that followed, I spoke with dozens of business owners who bemoaned the fact that they were picking up the pieces after one of their own executed the attachment. What amazed them most was the speed at which the virus leapt into their systems and wreaked havoc. But what amazes me most is the speed with which that virus -- and others like it -- spread over the Internet from their point of origin.

In our quest for speed, we've unknowingly unleashed the dark side that efficiency brings with it. But, as with any innovation, we must accept the bad with the good. In the early 1900s, automobiles (and the highway systems that followed) decreased the time it took to travel between home and work, allowing people to live greater distances away from the companies for which they worked.

I'd be willing to bet that there were fewer people trampled by horse-drawn carriages in the 1800s than people injured in auto wrecks during the 1900s.

Speed, however, isn't a bad thing as long as we're willing to recognize the inherent dangers that accompany it. Think about your business. Has your Web initiative made it easier for customers to place orders for products and services? If so, were you prepared for the influx of orders that accompanied more open access to your firm? And, have your shipping, billing and accounts receivable departments been able to step up their pace to keep up?

In our business -- information dissemination -- readers have become more demanding about the smart ideas we provide them with to help them grow their businesses. Business owners regularly ask me when SBN would use its Web initiative to provide smart ideas more frequently than just monthly.

Well, that time has arrived.

You may have noticed on our Web site -- www.sbn-online.com -- a new section under the Cleveland edition called "Top Stories." In it, we'll provide more smart ideas nearly every day. Most of the items you'll find under "Top Stories" won't appear in the monthly print version of SBN, but they'll be every bit as helpful in aiding your pursuit of entrepreneurship.

The next time you see a member of our editorial team around town, be prepared. The information they gather or event they attend may very well end up on our Web site within hours after you see them.

On a final note, we're pleased to welcome Courie Weston into the SBN ranks as a full-time reporter. Courie is a recent graduate of Case Western Reserve University. And, if her name sounds familiar, it's no surprise. Courie's been an editorial intern with SBN since January.Dustin S. Klein (dsklein@sbnnet.com) is editor of SBN

Monday, 22 July 2002 09:37

Tackling a burning issue

It's commonplace these days, groups of employees huddled outside in the cold, taking quick drags on their cigarettes to circumvent no smoking policies, or standing around during the hot summer, enjoying long, lazy smoke breaks.

But that strange new enclosed structure outside a neighboring office building wasn't there until recently, and suddenly, instead of throngs of people lounging in the doorway, you notice the new edifice is packed with smokers, freely gabbing and puffing away.

It's not your imagination. It's a smoking shelter. Over the past 10 years, they've been popping up with greater regularity across the U.S., mostly on the East and West coasts. Approximately 2,500 shelters have been put up by more than 1,200 companies of all sizes, and although we've yet to see one in Northeast Ohio that doesn't mean they're not around.

In principle, the idea seems good: provide smokers with an enclosed shelter so that they can enjoy their cigarettes without having to endure the harsh elements. But it leaves us with one question: What happens when the shelter is packed with people, fills up with smoke and leaves the smokers smelling like, well, smokers?

Monday, 22 July 2002 09:36

On the move

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

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

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

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

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

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

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

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

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

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

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

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

Are you funding this growth internally or externally?

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

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

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

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

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

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

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

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

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

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

Monday, 22 July 2002 09:35

When all else fails

If you're like most business owners, the notion of financing extends only in three or four different directions -- cash flow, bank loans, investors/partners and public or private stock offerings.

But what happens when your company taps out its credit line at the bank, the investors say make do with what you have and it's simply not feasible for your privately held, $20 million manufacturing operation to go public?

Waiting on the sidelines of the funding game are numerous alternative-financing solutions. Which one to consider depends on your company's maturity level, its asset position and your existing client base.

Here are three options worth investigating.

Mezzanine financing

Mezzanine financing is just what it sounds like -- financing that fits on a company's balance sheet somewhere between traditional commercial bank debt and shareholder's equity. It's considered a form of debt, though it's often referred to as an investment, and is used during transitional periods of a company's life.

Typically, a business owner seeks mezzanine financing for things such as equipment purchases, management buy-outs and strategic acquisitions, and only when the company's regular commercial bank is unable to loan it further money and the owners don't want to sell equity in the company to raise more cash. Because they're riskier than traditional bank loans, mezzanine financing loans normally carry an interest rate of between 3 and 5 percent over prime.

"It is a more cost effective and flexible sort of financing," explains Greg Ferrence, managing director of the Ohio Mezzanine Fund Ltd. "It's an option available rather than bringing a partner in and giving up equity."

Mezzanine funds like Ferrence's raise money from institutional investors. In Ohio Mezzanine Fund's case, $9.4 million was secured from such traditional players as Bank One, Charter One Bank, FirstMerit Bank, Huntington National Bank, KeyBank and National City Bank.

The fund's managers then administer the money to businesses in amounts smaller than most traditional loans -- from $100,000 to $750,000. Often, that money is combined with a loan from a larger lending institution.

Purchase order financing

It's not uncommon for a growing business to find itself generating sales faster than the company's coffers can keep up with. And, in the early stages of a company's growth, few lending institutions will extend bottomless credit lines to cover that type of growth.

Worse, even if you can show a stack of purchase orders to substantiate your company's assertion that it needs more cash to meet orders, unless you have an invoice that shows you've already billed customers for delivered products or services, simple purchase orders aren't considered collectible nor lendable by traditional financiers.

That's where purchase order financing comes in.

"We find someone willing to take the commercial risk for holding that order," explains Lee Tenenbaum, president of Chagrin Financial Services Inc. "They put up the money or credit to allow the business owner to complete the transaction, whether it's buying extra raw materials or supplies or having enough money to cover a temporarily larger payroll."

It's a riskier proposition, Tenenbaum says, because the confirmed purchase order becomes collateral for the money. In essence, the lender banks on the notion that the products are presold to customers who will follow through and pay the invoices in a timely manner.

And, as with mezzanine financing, purchase order financing transactions are completed at a higher level of interest than traditional financing. But, says Tenenbaum, it's worth it, considering that in the long run, purchase order financing is done to conduct business that otherwise wouldn't have been possible.

Factoring

Factoring is the practice of selling a company's accounts receivable. A business owner makes a sale and issues an invoice to the customer.

Since most invoices run on 30-, 60- or 90-day payment terms, there's a lot of legroom for a small growing company to run into cash flow problems in the interim.

With factoring, a business owner could sell that invoice to a factor -- essentially an investor looking to make a not-so-high risk investment at a substantial profitable gain -- who advances the business owner cash against the invoice's face value, typically 70 percent or more within 24 hours, explains Tenenbaum.

The factor handles the collection process and the customer remits payment directly to the factor. Factoring fees are negotiated on a case-by-case basis, but because they're generally considered lower risk investments -- there's an invoice issued that's legally collectible -- the fees typically are not as high as for other alternative financing methods.

Size of the invoice, number of customers, total volume of business activity, collection period terms and the credit worthiness of the receivables are all taken into consideration in determining the factoring expense rate. How to reach: Chagrin Financial Services, (216) 292-2802; Ohio Mezzanine Fund Ltd., (216) 573-3738

Dustin Klein (dsklein@sbnnet.com) is editor of SBN.

Monday, 22 July 2002 09:35

Kick start

When North Coast Professional Sports Ltd. sealed the deal last December to buy the Cleveland Crunch from George Hoffman, it was the culmination of a nearly year-long endeavor to purchase what Michael Gibbons, the group's chairman, calls "an undervalued property."

Gibbons -- also senior managing director of investment banking firm Brown, Gibbons, Lang & Co. -- and his majority partners, Paul Garofolo and Richard Dietrich, knew they were inheriting a winning indoor soccer franchise. But the group, which also includes minority owner Gary Zdolshek, also acquired a business with a poorly developed infrastructure that barely broke even each year and participated in a league that lacked strong leadership and seemed to constantly teeter on the brink of disaster.

"It wasn't much of an organization," says Dietrich, the group's CEO and owner of three Northeast Ohio machinery manufacturers. "We essentially built a new franchise. What we bought was a winning soccer team, not a company in the normal sense of the word. The business aspects were nonexistent."

With that in mind, Gibbons, Garofolo and Dietrich spent the bulk of 1999 developing a strategic plan designed to solve those off-the-field problems and, at the same time, keep the Crunch successful on the field. So when North Coast assumed ownership on Dec. 10, 1999, Gibbons and his partners weren't in a position to make drastic changes.

Instead, they sat tight during the remainder of the season and watched the Crunch reach the finals, only to lose to the Milwaukee Wave. Only then did they embark on an ambitious off-season initiative that set in place a new operational model and a new attitude.

Today, as Gibbons, Garofolo and Dietrich ready themselves for their first full year of team ownership, things couldn't be more different. Only the Crunch's winning ways seem to remain. In fact, Garofolo says he's reminded of the old Cleveland Force glory days, when then-owner Bart Wolstein ran a formidable soccer industry in Northeast Ohio and legions of fans packed Richfield Coliseum for every game.

"Any business is made up of people," Dietrich says. "The team is simply a department of the business. You have to be consistent all the way through in order to have a successful business, and you have to be committed to making it happen."

So far, the changes are working. Season ticket sales are the highest they've been since the 1980s. The organization's support staff has doubled. There is a greater emphasis on community involvement through Crunch-sponsored soccer camps.

And, later this month, the National Professional Soccer League will announce a new commissioner that Gibbons and his partners helped handpick from the ranks of the NHL.

Here's how this unlikely trio of business partners has affected change in the professional indoor soccer industry without incurring unnecessary penalty kicks or harming their core product.

Develop a business infrastructure

Among the three majority owners, Gibbons, Garofolo and Dietrich have owned six businesses and founded two sports leagues. They've experienced -- and beat -- the overwhelming odds of making a business successful, both from start-up and from inheriting existing ventures.

"This is a for-profit business," Dietrich says. "As much as we want to win, our true measurement will be winning on the balance sheet."

Though they declined to share the purchase price of the team or its current payroll, professional soccer team price tags pale in comparison to the $530 million paid by Al Lerner for the Cleveland Browns or the Indians' $70 million-plus payroll. For example, owners of the most recent NPSL expansion team, the Toronto Thunderhawks, paid a $250,000 franchise fee earlier this year to buy into the league.

Out-of-pocket expenses aside -- Gibbons says the four partners put up all the money -- Garofolo, the group's president, says North Coast is committed to investing however much money it will take to succeed.

"There's a tremendous opportunity to rebuild this organization and get it back to the levels of financial success that the Force experienced," he says. "It's a matter of getting the structure in place and information into the community."

To that end, Garofolo has doubled his staff -- from 10 employees to 20 -- and tripled the office space for the Crunch's corporate offices, moving from a small Solon building to a larger one in Warrensville Heights. Whereas Hoffman relied on hiring employees directly from college to fill the support staff, Garofolo went with experience, including a former vice president of ticket sales from the Cleveland Cavaliers organization.

He also plucked from one of Dietrich's companies a comptroller who is charged with overseeing the financial side of the business. And, Garofolo introduced technology where it hadn't been used before, installing a state-of-the-art computer network to help the staff coordinate all aspects of the business.

All of this has been with one goal in mind -- reaching or exceeding the level of business success that the original Cleveland Force had in the 1980s.

Getting back there, however, isn't expected to be an easy task.

"There's been a significant drop in support since 1988, when Bart Wolstein tried to sell the team to George Hoffman," Garofolo says. "The deal didn't work out, so Hoffman took a one-year leave and came back as the Crunch. Getting back to those levels will take some time."

But consider what Garofolo, Gibbons and Dietrich have accomplished so far. Season ticket revenue through the end of August exceeds all ticket revenue from the 1999-2000 season. More groups have been booked in advance of this season than the number that attended all of last year. And, 82 percent of season ticket holders renewed their tickets for the 2000-2001 season.

"You have to go out and solicit the orders," explains Dietrich. "And, you have to go on the offensive."

An unlikely alliance

Garofolo, Gibbons and Dietrich had never met before 1994, when Gibbons and Garofolo were introduced on a plane on their way to a meeting with investors for a potential deal.

At the time, Garofolo was acting as a consultant to a friend, Gary Russell, and his North American Sports Camps company, who was looking to break into the football and soccer camp business. Garofolo was considering becoming part of the deal. Gibbons was brought in to assess the deal and, if it looked viable, have Brown, Gibbons, Lang & Co. act as the money source.

"I was there to help raise money for the deal," Gibbons says. "But we determined that he (Russell) only needed a few million. We (Brown, Gibbons, Lang & Co.) normally deal with a $10 million investment. The deal just wasn't economical for us to be in."

Gibbons helped lead Russell toward investors who could fund the project and, as it turned out, Garofolo chose to pass on becoming a partner. Instead, Gibbons and Garofolo were tapped for the company's board of advisers, positions they still hold today.

It was on that board of advisers that Garofolo and Gibbons began talking about other sports-related businesses they could pursue.

"Paul said we should meet with George Hoffman because the Crunch was an undervalued property," Gibbons says. "He had the background with soccer and sports marketing, and I wasn't very knowledgeable about it, but it seemed like something worth pursuing."

Garofolo had followed the Crunch for more than just financial reasons. He was vice president and general manager of the Force under Wolstein. When the Force folded, he left to join the international sports marketing firm ProServ Inc., where he gained a different skill set.

He oversaw national sporting events and marketing efforts and worked with top agents David Falk and Jerry Solomon and clients such as Michael Jordan, Dominique Wilkins, Patrick Ewing, Jimmy Connors and Greg Lemond.

In 1992, Garofolo founded Signature Sports and Marketing, which focused on athlete representation; consulting to corporations, sports properties and their leagues in strategic planning, marketing, licensing and execution; and event management and marketing. He also co-founded the International Basketball League.

So when the late '90s rolled around, he was itching for yet another sports opportunity. To him, the combination of meeting Gibbons and the opportunity to buy the Crunch must have seemed like fate.

Dietrich linked up with the duo through mutual business services representation. He and Gibbons shared accountants and attorneys. Dietrich, who owns Glass Equipment Development Inc. in Twinsburg and Edge Seal Technologies and Leading Edge Distributors, both in Walton Hills, founded a youth soccer program in 1982, and by the late '90s, was considering getting involved in something larger.

An avid soccer fan -- he played in high school and college before coaching youth soccer at the high school level -- he met Gibbons and Garofolo around the time they were looking for sports-related deals.

"We were considering buying the Crunch and doing a sort of roll-up of soccer complexes around Northeast Ohio," Garofolo says. "That's how we met Dick. We eventually decided not to pursue that idea. The risks outweighed the benefits. Instead, we focused on buying the Crunch."

The three owners realized their unique backgrounds would bring a combination of business ownership, league front office experience and financial savvy to the Crunch's boardroom table.

"It was something that had been lacking," Garofolo says.

Strengthen the process and product

While other plans to develop the organization were in motion, Garofolo says North Coast made a strong push to build community awareness about the Crunch and get fans excited. The team was, after all, the most successful franchise on the field in Northeast Ohio, having captured NPSL titles in 1994, 1996 and 1999, and reaching the finals nearly every year.

The first push was to get the players out in the community in front of fans.

"What really separates soccer from other sports is that our athletes are still willing to accept the term role model and work in the community," Garofolo says. "And, unlike other sports' athletes, ours are basically normal-sized guys."

North Coast increased the number of soccer camps the Crunch and its players were involved with this past summer. In 1999, the Crunch hosted 13 weeklong soccer camps for 600 children; this year, the team hosted 54 camps with more than 3,500 participants.

"The sport is truly a grassroots sport," Garofolo says, adding that with an average ticket price of $12, it's a much more affordable entertainment option than baseball, football or basketball.

But, building awareness and getting more people to the games would be all for naught if the league wasn't stable. That had been a serious problem with indoor soccer, going back to the Force days, Dietrich says. It's one reason why team owners leaguewide forced Steve Paxos, former NPSL commissioner, to step down after 12 years while they undertook a worldwide search for a strong leader.

Gibbons, Garofolo and Dietrich spearheaded that search, and later this month, Steve Ryan will be announced as new NPSL commissioner.

Ryan is the former president of NHL Enterprises, the sponsorship arm of the NHL. He's credited, says Dietrich, with putting the NHL on the map. Under Ryan's tenure, he took sponsorship revenue from $2.1 million to $45 million and licensing revenue from $30 million a year to $1 billion a year.

"The NHL isn't the blueprint for us," Dietrich admits. "But, our intent is to see the league elevated in status. We have a good entertainment product. It just has to be marketed better."

Dietrich says strong leadership will help stabilize the NPSL, allowing him and his partners to move forward with their plans of building up the entire Crunch organization.

"He (Ryan) has inherited a league with no infrastructure, much in the same way we inherited the Crunch," Dietrich says. "You're going to start seeing changes in the league now. But those changes will be intentional ones.

"And, if we do our job correctly, we'll help build the sport of soccer, not just in Cleveland but leaguewide." How to reach: Cleveland Crunch, (216) 896-1140

Dustin Klein (dsklein@sbnnet.com) is editor of SBN.

Monday, 22 July 2002 09:34

Pillars of the community

On Dec. 7, 2000, a new group of businesses will join the prestigious ranks of recipients of the Pillar Award for Community Service.

These business owners, employees and volunteers have answered that all important question: Does your company make a difference in the community?

The Pillar Award, sponsored by Medical Mutual of Ohio and presented by SBN magazine, honors companies of all sizes for giving back to the community. Past winners include Arnold & Co. Communications, Cleveland Grand Prix Charities Inc., Restaurant Developers Corp. and John Robert's Hair Studio and Spa.

Also sponsored by Xerox Connect, Mars Employment, Renaissance Worldwide, COSE and The Cleveland Foundation, a group of companies which knows the importance of community giving, the Pillar Award's purpose is to encourage a charitable environment and recognize creative efforts that make a difference through a four-pronged effort to:

  • Publicize the issue of community service as it applies to the realities of today's competitive business world;

  • Share creative ideas about how companies of all sizes are having a positive impact in their communities;

  • Honor companies that go well beyond the minimum expectation of community service;

  • Create a sustaining fund, administered by the Cleveland Foundation, to aid local nonprofit organizations in their mission to serve the people of Northeast Ohio. To date, the sustaining Pillar Fund contains in excess of $20,000.

This marks the third year of the Pillar Award.

Nominations are judged by an independent panel that includes one former Pillar Award winner; Lee Fisher, president & CEO of the Center for Families and Children; John Palmer Smith, executive director of the Mandel Center for Nonprofit Organizations at Case Western Reserve University; Stephen W. FitzGerald, founder of the Nonprofit Newswire; and Judy Barker, senior vice president of civic affairs and corporate contributions for KeyCorp.

Individual tickets and tables for the Pillar Award banquet Dec. 7, 2000 at Executive Caterers at Landerhaven are available by calling (216) 228-6397.

>So who are those winners? Find out next month in SBN. Dustin Klein (dsklein@sbnnet.com) is editor of SBN.

Monday, 22 July 2002 09:33

Great expectations

I love election years. They're full of good, old-fashioned politicking, mudslinging, fund-raising and stump speeches.

This month, we elected a new president who, most likely, talked his way into the White House on a foundation of promises about his vision of the future. Odds are, it won't be long before complaints begin about a failure to follow through on campaign promises.

While politics isn't the focus of this month's column, it is a lot like business. And in business, there are few things worse than someone who fails to execute on a promise made to a customer. Such actions call into question fundamental principles such as integrity, honesty and good faith, none of which can afford to be compromised if a business is to be successful.

In many cases, those promises are made with all the best intentions. But sometimes those promises are made with only one intention: personal gain. So how can you keep your company from finding itself in a position where a customer is disgruntled over false promises?

Work within the constraints of your company's abilities.

If your business provides only Web design, don't offer network design as a bonus if you can't do it in-house or don't have deals with an outsource service provider already in place. It sets unrealistic goals that you won't be able to meet.

I've heard one too many people say it's better to ask for forgiveness than permission. That logic can get your business into serious trouble.

Make promises in good faith.

Don't make promises simply to close a deal and then worry about performing later. When customers or suppliers accept your word that you will follow through on an order, products, service or even a referral, they expect that you intend to honor that promise.

Assuring customers that you'll deliver just to get a deal signed while knowing you won't is not only unscrupulous, it will come back to haunt your business in the long run.

Underpromise and overdeliver.

Few things satisfy clients more than telling them you'll have an order completed on Friday, then delivering it on Tuesday, three days early. It saves customers time, money and worries about whether they'll be able to complete their own business transactions in a timely fashion.

I once asked a salesman who had been honored as top in his industry what his secret to success was. He responded, "I always make promises to my customers that I not only know I'll be able to deliver on, but 99 percent of the time I will be able to exceed their expectations."

No wonder he's been so successful.

In politics, unfortunately, there's never been a candidate who's triumphed in the poll box after proclaiming on the campaign trail, "I don't know what I'm going to be able to do for you if you elect me, but whatever it is, I'll do what's within my means."

In business, however, that same philosophy may help your company prosper. It's worth considering. Dustin Klein (dsklein@sbnnet.com) is editor of SBN.