Todd Shryock

Friday, 30 September 2005 10:51

The Klipsch file

Born: Indianapolis

Education: Bachelor of science, industrial education, Purdue University; MBA, California State College - Long Beach

First job: Delivering newspapers at age 9

Career moves:

Assigned to the Air Force Space Systems Division for four years testing weapon systems. Joined IBM and worked on computers, left to be an entrepreneur. Entered the health care business and worked in that area until buying Klipsch Audio in 1989. Also serves as chairman and CEO of the NYSE-listed Windrose Medical Properties Trust.

Biggest challenge in business:

Buying Klipsch Audio in 1989. It took us until 1995 to decide how we would grow the products and how we would grow the channels of distribution and create a successful company in the long term.

Whom do you admire the most in business and why?

C. Michael Armstrong, retired chairman and CEO of AT&T, before that chairman and CEO of Hughes Aircraft and before that one of the top three or four people at IBM. Mike was my manager at the IBM Co. during my stint here in Indianapolis. He was smart, ethical, hard-working and clear in what he does and why he does it.

Biggest lesson:

I build my companies on ethics and respect for the individual. Those two criteria separate out a large population into a pretty small group, and so ethics and respect for every individual are critical, but from a business standpoint, I would tell you that reasonable expectations are one of the keys to success.

Wednesday, 31 August 2005 12:17

United front

Dollars from donors can be hard to come by for nonprofits, so it’s imperative to use every last cent as efficiently as possible to achieve the maximum benefit for the community.

When Anne Goodman took over as executive director of the Cleveland Foodbank six years ago, there were three organizations in the community all aiming for the same goal: The elimination of hunger.

But having three organizations meant there were obvious redundancies that were wasting money that could be going to feed the hungry instead.

“I believe personally that the nonprofit community has an obligation to use donors’ dollars as wisely as possible,” says Goodman. “We want to take care of feeding the hungry, but we need to be running like a business and eliminate redundancies or extra money being spent. An increase in efficiencies is imperative.

“When I started out here, we had three organizations overlapping between what we did and what they were doing. We had individuals and foundations giving to all of them, but our customers were the same. There were some clear duplications.

“We at the Foodbank saw a crucial need to increase the efficiency of the foodbank system. We felt like it was a moral imperative. In order to maximize the dollars spent, we needed to consolidate efficiencies.”

Taking the vision from concept to reality required careful negotiations with the other organizations.

“It is a delicate process with any organization because there is a lot of ownership the staff and board feel over what they are doing, and that’s tremendous,” says Goodman. “No one took anyone over, we just began conversations on what could be possible. It took awhile, but they were all open to the notion and interested, so we just kept putting one foot in front of the other. The first merger was with Food Rescue of Northeast Ohio.

“When it actually came about and it was time for the first merger, everyone was on board. All the fears had been allayed and nothing was lost by either organization in the process.”

By working out all the details beforehand, the whole merger process went smoother. Everyone knew exactly what they were supposed to do and how they fit into the new, larger organization. But getting to that point wasn’t easy.

“Everyone wanted to maintain the way it was, but it wasn’t that simple,” says Goodman. “The way we did it, we shared the vision with the staff and the board and then worked through the difficult details. If you take the time to gather buy-in and hear the different vantage points there are, then you end up with a whole institution wanting to merge rather than a few strong-willed people trying to get their agenda across.

“It took time building that consensus. Everyone got to weigh in, because there is a lot of fear when you do something like this.”

Merging with the Greater Cleveland Committee on Hunger, which ran the Harvest for Hunger campaign, took even more planning because there were numerous government and related nonprofits involved in its common cause. It took meeting with all the invested parties over the course of a year, but that resulted in a seamless merger.

The overall vision had to be broken down into smaller component parts to solve problems as they arose.

“We had to take the difficult or complicated chunks and take a good look at them so there was a road map of how literally to do it,” says Goodman. “As an example, in the first merger, we had an operation that did boxes in and boxes out of food. We were merging with an organization that did a bunch of produce. We had to have a bunch of people look at how to integrate that.”

While there was a lot of enthusiasm from all sides about the merger, carefully integrating the staffs was a priority.

“There’s that uncertainty of change,” says Goodman. “We tried very hard with our staff to acclimate everyone to what was going on. The day we merged, I met with each one of them individually.

“The more upfront work you do, the better. Paying attention to employees in advance and what their concerns are is important. At the end of the day, it’s the employees that will make it work, so taking care of them is crucial.”

How to reach: Cleveland Foodbank, (216) 738-2265

Monday, 29 August 2005 09:19

Bold predictions

When Jack Noonan took over Chicago-based SPSS in 1992, his goal was simple: Survival.

“When I started, we were about a $34 million company with $20 million in debt, and we were out of cash,” says Noonan. “My vision was very short-term. It had all to do with profitability and getting some new technology out the door.”

Noonan also was saddled with the company’s financial responsibilities.

“I was either lucky enough or unlucky enough that the day I was introduced to the board, the CFO resigned,” says Noonan. “So I walked through the door and became CEO and CFO and signed every check. You’d be surprised what you learn doing that.”

Noonan brought the cash burn-rate under control by putting a stop to the ordering of everything from paper clips to PCs, and he required a written justification for all supplies and capital purchases. He also eliminated the use of contractors, consultants and temporary labor, required executive review of all travel and reduced the costs of product packaging. He personally reviewed every invoice, looking for the nice-to-haves versus the need-to-haves.

SPSS, which stands for Statistical Package for the Social Sciences, is software created by three Stanford University graduates to analyze the massive amounts of raw data collected by researchers. The founders incorporated in 1975 as demand for the product grew and new uses were found. The software could analyze data, then predict possible outcomes, allowing for anything from NASA measuring the likelihood of part failures to the National Forest Service measuring incidences of injuries and bear encounters.

By 1992, the founders realized it was time to bring in professional leadership, and Noonan was hired. And once he brought stability to the company, he took it public to pay off its debt.

“We were instantly profitable, and it was a lot easier to manage the business,” he says. “The IPO was a very pragmatic decision. We only raised enough money to pay off the debt. We then did a follow-on offering the following year and raised enough money to do some acquisitions and move forward.”

Acquisitions were important, because when Noonan took over, SPSS had just one product. Diversifying the product base was one challenge, but Noonan also had to create a vision for an industry niche that didn’t exist; there was no other company to model itself after. The potential of predictive analytics was huge, because the software was now being applied to predict consumer behavior and was of great interest to retailers.

“One of the things we’ve done, we have in our strategic planning process something we call a strategic filter,” says Noonan. “It defines the business we are in and also defines the businesses we are not in. We use that strategic filter for all of our acquisitions, internal technologies and processes we implement.

“One of the component parts of our strategic filter is that we clearly focus on predictive analytics, but we also have another constraint, that is, we focus on people data. As we’ve looked at acquisitions, we literally found analytic applications that were profitable, growing and interesting but had nothing to do with analysis of people, understanding behaviors or changing them. So we’ve walked away from those opportunities because they were not core to what we believe our future is.

“In the entire company, all the component parts, whether it’s technology or how we go to market or how we manage the business, it’s all under the predictive analytics umbrella. If it doesn’t fit, we’ve divested it, and we have divested portions of our technology over time.”

Noonan has strung together nine acquisitions since 1992 and grown the company from $34 million to more than $224 million in annual revenue.

“If you look back over the last 13 years, about half of our growth came through acquisitions,” says Noonan. “The other half has come organically by being able to continue to grow the technology we’ve acquired. I think when we started acquisitions, because we were a single-product company, we focused on the three Ts: Technology, technology and technology.

“We were literally growing the product offerings within the same analytic space we’d always been in. We weren’t changing the business, we were broadening the (array) of like technologies and like offerings.” In 1992, SPSS was the first company to offer a Windows-based statistical software package, giving it a competitive advantage. By 1998, Noonan realized it was time to innovate again.

“There were a number of changes that was clear that needed to be made in the company,” says Noonan. “We needed to move from a desktop set of offerings to an enterprise set of offerings, which meant the technology needed to be more scalable and needed to run in a server environment and continue to support the desktop user.

“The technology we had needed to be componentized so parts could be used to build new offerings. This also would allow additional acquisitions to be integrated more easily.”

By breaking down its software into its base components, the company can respond more quickly to customer demands and create better customization features without having to reinvent every aspect of the product. This leads to more flexibility, quicker turnarounds and, ultimately, greater profitability.

“More and more, across the company, this componentization and reuse of technology is so important,” says Noonan. “If I have an analytic algorithm, I can use that same algorithm in an SPSS desktop application that I would use in a Clementine data mining product that I would use in a predictive call center application. More and more, we are trying to build technology that can be used across multiple tools and applications.”

Four years ago, Noonan changed the company focus from the three Ts to the three Cs.

“We now focus on capabilities, customers and cash,” says Noonan. “It makes sense because we have a broad enough product line now that, as we look at acquisitions, it’s important they come to SPSS with some specific market expertise and bring capabilities in that area foremost, and along with those capabilities, the real proof point is customers. Last, but not least, cash is king. You don’t want to spend a lot of money on it.”

The idea is to bring in a company with deep knowledge in a particular market, such as banking, and then apply SPSS’ expertise in analytics to get the most out of that market.

“They need to be strong on domain experience but either have weak or no analytics,” says Noonan. “We bring in the expertise and are able to integrate robust analytics with their applications.”

Noonan’s formula for acquisitions has been to fully integrate the new business into the new one.

“We typically bring the technology of the new business under the technology arm, the sales under sales, the service under service, and we roll forward vertically integrated,” says Noonan. “It’s always hard to integrate cultures. We try to make all the changes the first day. There’s typically a due-diligence process you go through, and there’s a time when the acquisition is public and a time period that it takes to finally complete the transaction of 30 to 90 days. During that period, you do all the planning, and the day the signature happens is the day you tell the staff what their new role is, and you align the combined entity around the combined strategy.

“All the organizational changes are made simultaneously. Everyone on Day Two knows what their job is and can focus on their new role.”

Future indicators
SPSS now commands a customer list that includes 95 percent of the Fortune 1000 and all 50 state governments, and has a suite of 40 products. It’s come a long way, but Noonan is still defining the niche at the same time SPSS defines new products.

“I believe the application of predictive analytics is in its infancy,” says Noonan. “The collection of data is also in its infancy. The amount of data about the operation of a corporation is growing exponentially. The opportunity to turn that into useful business information or knowledge or having decisions made automatically by software is in its infancy.”

The software enables analysis of human behavior and can automatically apply ways to change it. For example, if someone calls the call center of a telecom company, the software can immediately analyze the buying habits of the person, calculate how likely he or she is to leave the calling plan and deliver a personalized script to the employee to decrease the chances of the person canceling the company’s service.

“Our technology is used for many, many things,” says Noonan. “It does everything from prioritizing collections for the finance department to improving the recruiting process for students at academic institutions, identifying the best customers and finding new ones.”

But even with all the potential, it’s still difficult to sell because the ultimate end result is out of SPSS’ control.

“It is a tough sell because when you think about the application of this technology, it’s not just plugging it in and seeing a return on the investment,” says Noonan. “You use this technology to change your business processes, so not only do you have to be willing to make a change, you have to proactively make change in your organization. You’d be surprised at how many people talk about change but are unwilling to proactively make it.”

The potential for the niche SPSS has defined has plenty of room for growth. Market research firm IDC predicts that the market for predictive analytics will be $3 billion by 2008, and states that ROI for this type of software is 145 percent, much higher than for other business analytical software. SPSS reported an increase in diluted earnings per share of 18 percent in its first quarter, and is recognized as the industry leader by analysts. The news coming from the Sears Tower headquarters is almost all good these days, and the potential to keep it that way is high.

“I have a smile on my face these days,” says Noonan with a laugh. “The one thing I will say as I look at where SPSS has come from and what the future is, is that the opportunity for the application of this kind of technology has barely broken the surface of the places where the technology should and could be applied to increase the effectiveness of almost everything we do.”

How to reach: SPSS, http://www.spss.com

Wednesday, 27 July 2005 11:45

Cost control

Health care costs are often listed as a top concern by business leaders.

Some companies have faced multiyear double-digit increases and watched as health care costs ate into profitability. Shopping around only gets you so much savings, and scaling back services can hurt recruiting efforts.

The Health Savings Account might be an option worth considering.

HSAs are a relatively new option (legislation created them in 2004) that allows participants to control their own health care spending. Plan participants must also have a high-deductible health plan.

“The idea behind them is to make consumers more aware of the actual costs of health care services,” says Janet Trautwein, vice president of governmental affairs for the National Association of Health Underwriters. “HSAs are good for everybody. The employer provides a high-deductible health plan and also makes a contribution to the HSA that goes with it. The money in the account is designed to cover what’s not covered in the deductible.”

Employees can use the money in the HSA for a variety of health care expenses.

“It can be used for any number of things not covered by the plan: Eyeglasses, dental or even over-the-counter medication,” says Trautwein. “Any amounts left over roll over from year to year.”

Because employees have direct control over how the money is utilized, it is in their best interest to shop around and use the money wisely. That puts the dollars and the health care decisions directly in the hands of the consumer.

In March, 1 million people were covered by an HSA.

“That’s a very quick start-up for any type of new plan design,” says Trautwein. “There is lots of interest among employers of all sizes.”

There was some fear that consumers would simply not obtain services if they had to pay for them out of their own money, but so far, that hasn’t proven true.

“The statistics don’t indicate they are not obtaining services,” says Trautwein. “They are shopping around more and using generic drugs.

“One of the nice things for the employer, though some don’t like the idea, is that the employer is not responsible for making sure the participants are spending the money on the right thing,” Trautwein says. “They don’t have to turn in a claim like they do on a flexible spending account. If the person gets audited (by the IRS, which oversees the program), and they can’t show what they spent the dollars on, then they’ll have the problem, not the employer.”

Some employers are uncomfortable with putting the consumer in charge because the company’s contribution to the account immediately becomes the property of the person — there is no vesting period. Even though the company is not responsible for misspent funds, some do not like the idea of the potential for improper use. But as a result of putting the responsibility on the shoulders of the employee, the company’s administrative burden is very low.

“Employers can offer an HSA through a 125 plan, which they probably ought to do because it gives them an immediate tax break,” says Trautwein. “These plans can be very simple for all involved. It’s much easier to understand coverages because it isn’t a co-pay for this or that, a percentage of coverage for one procedure while something else isn’t covered at all. It’s very straight-forward.

“Employees like it, because something like acupuncture that might not be covered under another type of plan would be under an HSA.”

By offering an HSA under a 125 plan, employers also can be much more flexible as to offering employees at different levels of the organizations varying amounts of contributions.

“With an HSA, people are more careful of what kind of health care consumer they are,” says Trautwein. “They ask a lot more questions, and they’ll be in better health if they do that.”

HOW TO REACH: National Association of Health Underwriters, www.nahu.org

Tuesday, 05 July 2005 09:06

The next big thing

David Morgenthaler looks at innovation on a grand scale. The founding partner of Morgenthaler Ventures isn't interested in mundane improvements; he's looking for life-changing innovations.

Many executives would consider a new, efficient inventory management process innovation. Others would restructure their distribution system and call that innovation.

Morgenthaler looks far beyond that. To him, the combustion engine is innovation. The Internet is innovation. Innovations change the way we live. Those other things are just slight gains in efficiency, not innovation in its truest sense.

When someone invents a true innovation, it can change a region almost overnight, serve as a driver of economic development and spin off other related innovations for decades. Look at what the automobile industry did for Detroit or what the computer chip did for Silicon Valley.

Morgenthaler spends his days trying to predict what the next great life-changing innovation will be and which entrepreneur or company holds its secrets. He heads Morgenthaler Ventures, and with an $800 million venture fund and $2 billion total under management, a lot of investors think he might find it.

Do you think you have it? If you are based in Northeast Ohio, the odds are against you. And that's part of the challenge the region faces now and in the future, and why Morgenthaler spends a lot of time looking for the next big thing elsewhere.

"Each new innovation that comes along is like a big fruit tree," says Morgenthaler. "When the tree gets mature, the low fruit has been picked. The automobile was the innovation that created the low-hanging fruit in the first half of the 20th century."

Northeast Ohio benefited from the auto industry and the spin-offs it created, but the semi-conductor eventually supplanted the automobile as the driver of innovations, and the region missed out on new opportunities as a result.

"Fundamentally, this region has picked all the low-hanging fruit," says Morgenthaler. "This region basically missed the semi-conductor, which was the economic driver of the second half of the 20th century. If you missed the semi-conductor, you missed out on one of the most important parts of innovation.

"When a technology matures, your low-hanging fruit has been picked. What remains is high up the tree, which means it is hard to do, hard to get to and very expensive in capital investment."

In Northeast Ohio, as the automotive industry matured, there were fewer and fewer innovations. The same thing has happened with semi-conductors.

"If you wanted to go into making semi-conductors in the 1950s, you could do it for a few thousand or a few hundred thousand," says Morgenthaler. "If you wanted to do it today, it would cost somewhere between $3 billion and $4 billion. If you want to get into semi-conductors, that fruit is way up the tree. It's still an innovation that's going on, but the low-hanging fruit has been picked."

Cleveland was happy with the prosperity the auto industry brought. The area had developed world-class expertise in all kinds of metal fabrication and other auto-related skills but missed out on new opportunities.

"We missed it because we were happy and prosperous with essentially what the auto had done for us," says Morgenthaler. "Today, our competitive advantages in the region are principally in health care services. You get a certain amount of spinout from those kinds of places, a certain amount of medical devices and medical discoveries, but the big medical discoveries are mostly therapeutic and coming out of the small biotech companies. That's where there is still some low-hanging fruit."

He says that innovations are spun out of needs, and increasingly, technology is the driver behind those innovations. With most of the technology centers located elsewhere in the country, it becomes harder for a local company to find the next big thing.

"That is the underlying problem in the area," he says. "We were so prosperous in the '60s, the leadership in the region was not very concerned about the next wave of technology because they were happy with the one they had.

"The mature regions with the mature technologies have the problem that many of the innovations have been picked. You don't get new innovations as often. There are again corollaries to that in the sense that if you don't have a lot of innovation coming along, then there are not a lot of opportunities for entrepreneurs, so they'll go where the innovations are coming, which is why Silicon Valley is loaded with entrepreneurs and serial entrepreneurial managers."

This is part of the brain-drain you hear so much about. You need the top managers who know how to apply new inventions or ideas in a way that can make them marketable.

"There are not enough innovation opportunities," says Morgenthaler. "Consequently, we don't have enough people here trying to pull out and commercialize innovations. It becomes a critical mass problem, the result of which is this region lags behind, as do other regions."

The horse race

Morgenthaler uses a horse race analogy to describe what it takes to have a successful innovation. There's a horse, a rider and the race. The innovation is the horse, the entrepreneur is the rider and the market is the race.

"Look at the innovation and the entrepreneur that drives it: the horse goes nowhere without the rider," he says. "A great horse with a lousy rider means the rider falls off the horse, and that's 60 percent of your failures. A great rider with a slow horse is not good enough to succeed. A great horse with a great rider but with a small market is like running at the county fair with a prize of $50. You win the race, but what do you get paid?

"In this region, we haven't been generating enough of the horses because we are in the old technologies and missed the new ones. Because we are not turning up enough horses, the riders are not hanging around. Very often, when you want an appropriate rider, like a serial entrepreneur, they are not here. If you try to talk them into coming from Boston or Silicon Valley, it's hard to do."

The lack of critical mass in new companies means it's a high-risk proposition for the entrepreneur. Because the failure rate of young companies is high, there's a good chance the entrepreneur will have to find another job, and that's much easier to do where there are a large number of start-ups. If one venture fails, he or she can find a new opportunity without having to relocate.

So what is it going to take to increase the region's chances of being part of the next great innovation? A combination of good science, good government and good luck.

Morgenthaler is seeing some positive developments starting to take shape.

"I think things are beginning to happen now," he says. "Universities have to understand our needs today. They need to understand the technology transfer functions which, in the last few years, they have finally done.

"Government is funding fundamental research where you advance science and knowledge. Most industries can't fund that, it's too far upstream. Science helps us understand what goes on. Science tells us why the sky is blue, but how do we make any money off the fact that the sky is blue? What you do in a beaker in a lab can show effect, but that's not commercial. You have to develop the technology. Technology enables innovation."

Discoveries are often made by accident, and where they are commercialized is often a matter of where the entrepreneur lives or went to school. Making the area attractive to start-up companies will help keep the critical mass the region needs to attract the serial entrepreneurs needed to run them. Morgenthaler says venture capital is available if the three keys -- the horse, the rider and the race -- are all in place. The critical mass will attract more venture capital money to the region.

"We're not the key, innovators are the key," he says. "If we don't have innovations, we don't have anything to finance. Entrepreneurs walk around looking for horses. He sees a market and a way to fill it -- he sees a race and a horse."

But right now, there just aren't enough winning entrepreneurs in this area.

"We venture capitalists look at the business model," says Morgenthaler. "We say, 'OK, sub in Chinese labor costs and show how you can compete and win. You have to have a business plan that will work and not just a hope. Nothing is more worthless than someone who comes in and says, 'I'm just a good clean American boy and I want to work hard. Give me a fair chance, and I'll win.' The Chinese don't spend any time worrying about whether you have a fair chance or not. You better have some sort of comparative or entrenched advantage. I like to call it an unfair advantage. They have an unfair advantage as far as labor costs and a huge market. We stay up nights worrying about that.

"You have to put an integrated plan together and that market is what it is. Markets are unforgiving. They don't care. We are all consumers. We all walk into a store with money in our pocket. It's a very democratic process. We look at the goods, look at the price and the money in our wallet. We decide yeah, we want it, or no, it's too damn much. That's what a market does."

How to reach: Morgenthaler Ventures, www.morgenthaler.com

SIDE

Local contender

While David Morgenthaler usually finds companies that interest him in other states and regions, he has found one locally that he deems worthy of risk.

Five Star Technologies, a small nanotech firm located near Cleveland Hopkins Airport, has attracted a package of $4.5 million in investment by a group led by Morgenthaler Ventures.

The company has a process involving hydrodynamic cavitation that can be used to improve existing materials or create new ones at the nanoscale. It can be used to improve anything from drug delivery to making better metals.

Whether the firm has the key to the next big thing or is a multimillion dollar science fair project for Morgenthaler remains to be seen. With venture capital, you never really know which way it will end up.

Morgenthaler once invested 10 years and $250 million in a Nobel Prize-winning process by another company that made human RNA act catalytically. Eventually, they were able to get it to do good things.

"But not good enough," says Morgenthaler. "So that money was all wasted. Technology may or may not be able to produce an innovation that people want.

"Five Star has a great way of making nanodimensional particles. Now we are working to find uses for the product. I can make a hell of a lot more nanoparticles than I can sell at the moment."

Jim Mazzella, president and CEO of Five Star Technologies, is confident that he has the right team in place to find the success Morgenthaler, his company and the region all want.

He says that attracting experts in the life science areas will be a challenge as the company continues to grow, but that he is seeing government support for young technology companies to help them along the way.

"I feel like it's going in the right direction," says Mazzella. "I see support from Gov. Taft and the Third Frontier Program for technology like this. Community investment is critical for the state to acquire the next generation of technologies. It's something other states are doing, and we've got to at least stay on par and be very effective and efficient with the money that goes into development in the early stages."

Mazzella says one or two success stories can lead to other spin-offs, which, in turn, can attract more venture capital. As the reputation of the region grows, venture firms start looking at Northeast Ohio as a viable place to invest. Successful companies also create the pool of talent needed for new start-ups.

"One example, and I wish there were a lot more, is Steris," says Mazzella. "We now have a pool of former Steris people who are involved in other start-ups. It's one example of what we need dozens of, but it won't happen overnight. You have to build one successful example at a time."

How to reach: Morgenthaler Ventures, www.morgenthaler.com; Five Star Technologies, www.fivestartech.com

Wednesday, 29 June 2005 09:34

Full compliance

Ted Frank had a vision of providing software services that would help companies manage their governance, risk and compliance initiatives.

Frank, president of Axentis, had this vision before Enron and Sarbanes-Oxley reshaped how corporations looked at those risks. So when companies started to look at ways to manage new legal requirements and prevent another Enron, Axentis was poised to meet this need and posted a 67 percent increase in sales as a result.

Frank also envisioned providing his software as a service hosted on his own servers rather than on those of his clients. This was not common practice at the time, but Frank thought the most cost-effective and efficient way of delivering up-to-date information to clients was through a hosted environment.

Today, Axentis has more than 600,000 users in 100 countries, and sales continue to grow. It has clients with a total of more than $700 billion in sales, including BP, Cinergy and Schering-Plough.

The company was also ranked as the No. 1 managed service vendor of its type by an independent research firm, beating competing products from IBM and Microsoft.

Frank attributes the company's continued success to communicating effectively with employees and surrounding himself with the right people. Each employee is encouraged to express his or her opinions via regular staff meetings and one-on-one conversations. He explains the rationale behind key corporate decisions so everyone understands his vision. The result is a close-knit staff that works well together.

The customer comes first, but staff members are given wide latitude in determining how best to support the customer in the context of their jobs. Financial incentives are great, but Frank has found giving employees the freedom to define their day is a big reward.

How to reach: Axentis, (216) 896-8300

Wednesday, 29 June 2005 05:51

Market pull

Scott Rickert has big goals for his nanotechnology company, Nanofilm Ltd.

"Become the next Dow Chemical in Cleveland, Ohio," he says.

Rickert, president of the company, set out to create a specialty chemicals company 20 years ago. After a rough start, including a time in the late '80s,when bankruptcy was considered, Rickert has found the right strategy and the right markets for his product.

Nanofilm technology is used in a variety of consumer products, including cell phones, eyeglasses, touch-screens and underwater cameras. The nanofilm forms a protective, ultra-thin coating around the product it is affixed to.

Nanofilm repels dust and is impossible to penetrate. Rickert uses his product to help companies make their products better.

He uses a "market pull" strategy to develop new markets and create new products. The company identifies the need, identifies its target and creates the nanotechnology to fit the target's product. This approach allows Nanofilm to focus on the demand set by consumers and continually grow its customer base.

The company is fully integrated in the optical and transportation industries, and is expanding its applications in the health, household and energy industries.

As a result of this strategy, the company is profitable and considered an industry leader 20 years after its founding. It continues to be spotlighted in the nanotechnology field for its ability to produce products and profits while many nanotechnology companies still have only prototypes and patents.

The company is on its second and third generations of the original technology and is developing new products and platforms.

Rickert encourages innovation from throughout the company and instituted a formalized award for performance and innovation, and he encourages employees on an informal basis every day.

How to reach: Nanofilm Ltd., (216) 447-1199

Sunday, 22 May 2005 20:00

Processing growth

When Sky Bank needed a new processing facility to handle its growth, it looked to Greater Cleveland for an optimum location.

Sky, which through acquisitions and internal growth has gone from assets of less than $5 billion in 1998 to assets of $15 billion today, has operations that stretch from eastern Indiana to western Pennsylvania and include the northern half of Ohio.

While a lot of transactions are handled electronically, paper still goes back and forth between Sky and the Federal Reserve Bank here, so a Northeast Ohio location made perfect sense. It would also help serve a growing local client base.

"We really honed in on Cleveland because of the proximity to the Fed and the proximity to interstate highways that are central to our network," says Dick Hollington, president for the Cleveland region of Sky Bank. "We looked at over 100 sites. We really looked comprehensively throughout Greater Cleveland.

"We really honed in on Brecksville because of the ease of getting to the Fed and the highways, the major postal facility there and the economics of the facility we were able to find that had the capacity to handle our needs and growth."

Sky leased a 30,000-square-foot facility, leaving room for future expansion.

"We'll have about 60 people there," says Hollington. "There is a lot of room for growth. By no stretch of the imagination are we full. I would imagine that we could probably double our capacity at the facility."

Working with local political officials is an unknown factor in any project, but Hollington says Brecksville helped keep it on schedule.

"We had a lot of interaction with Brecksville," he says. "The guys we were dealing with were extremely cooperative and really easy to work with. In November, we started talking to the city, and we were open and operating in May.

"I think one key to working with local officials is to go to them early. I think as soon as you hone in on the particular government in the area you'll be, the sooner you can build a relationship with key people there. Any project like this has real time constraints, and the earlier you form a relationship the better able they'll be able to meet your timetable. No one likes having an emergency dropped on their desk."

Team NEO also helped the company with the project, providing demographic information and feasibility studies that helped narrow the potential sites.

"It's information we probably would have had to have done on our own," says Hollington. With that information already in hand, the company didn't have to spend extra money or take the time to have a study done.

A well-defined plan helped Sky keep the project on schedule and on budget.

"A clear game plan is vitally important," says Hollington. "You have to have the right people involved in the plan. In this case, there are a lot of different areas involved, and you have to have your internal experts involved along the way with a clear game plan to execute.

"We have a very well defined project management protocol within Sky. Every week, the leaders of the core team met to update the status on the tasks that needed to be completed, issues were uncovered that needed to be resolved and we made sure we were meeting the time frame and cost parameters and delivered everything as it should be. That's how we run all of our acquisitions and projects."

How to reach: Sky Bank, www.skyfi.com

Don't forget the people

Opening a new facility like Sky Bank did can present some brick-and-mortar related challenges, but don't forget to plan for the people component as well.

Sky, which has about 60 people in its new operations center in Brecksville, transferred a few veterans but will predominantly be using new hires.

"Hiring and training of people is absolutely critical," says Dick Hollington, regional president for the Cleveland region of Sky Bank. "It takes having people hired in advance, taking time in getting them trained doing simulations and bringing the facility online in a fashion so that everyone is comfortable with their jobs."

Sky's experience with completing a dozen acquisitions over the last seven years helps.

"We learn something in every one," says Hollington. "We game plan on how to bring new people into Sky. We train on our culture, processes and products. It really makes a big difference to have a program in place when you have to do a facility like this. If you haven't done it before, think through what are your most critical issues and what's the most important thing you can do to get your people up to speed quickly. Most people think the real estate portion is a big deal, but the people side can be more important and harder than just making the equipment work."

Monday, 23 May 2005 12:30

Back to the future

Sometimes you have to look to the past to find the answers that elude you today. Times may change, but often the underlying principles of success for a business remain the same.

Black and white photographs hanging on the wall show how things were, but sometimes they are inspiration for how things should be.

It was just such a photo that inspired Frank Sullivan, president and CEO of Medina-based RPM International Inc., back in 2001. The $2.5 billion manufacturer of industrial and consumer paints and sealants had fallen on hard times. Wall Street was enamored with cutting-edge Internet companies with ideas about moving commerce to the virtual level. Companies with bricks-and-mortar facilities and tangible products were frowned upon by investors who saw limited growth potential in the old industries.

RPM couldn't have been any further from the Internet bubble. The company makes products such as Rust-Oleum brand paint, Day-Glo colorants and DAP caulk, and no one saw much potential for selling spray paint over the Internet.

The company was also completing its first restructuring, giving investors one more reason to look elsewhere.

"In the midst of the restructuring, our stock went from $16 to $8," says Sullivan. "It was a combination of our first-ever restructuring and maybe market questions as to whether we could do this thing right, and it was the first time our earnings went down in our history because of the restructuring charges we took. It was the height of the whole dot-com Internet bubble, and the valuations for our types of businesses and those of our peers were dropping anyway.

"It was a tough period of time for me. I was leading the charge on the process that closed 18 plants and reduced our head count by about 800 people or 10 percent. The market didn't believe the story we were telling them, as evidenced by the stock dropping. Everyone was talking about the 24/7 economy and how the world had changed forever. I was feeling pretty bad."

An old photo provided the inspiration Sullivan needed to start thinking positively again. A picture of his grandfather, his car and a license plate with the number 168 got him thinking. 168 had always been the favorite number of his grandfather, who founded the company. It is the number of hours in a week and serves as a reminder that everyone has a limited amount of time and a duty to use the gift wisely and productively.

"I was sitting in my office at home doing some work, and I stared at a photo of my grandfather next to his Lincoln with the '168' license plate," says Sullivan. "Being the bright math major that I am and in the midst of feeling bad, I looked at the 168. It dawned on me that this was the number he had been talking about for decades. Even in the '50s and '60s he was telling everybody that there are 168 hours in a week and we need to put them to use, whether you are working hard or having fun. He said that we have been given two gifts: Life and the time to do something with them, so use them to the fullest.

"With all the things swirling around us about the new economy and Internet, it dawned on me that 168 and 24/7 were the same thing. The value of 168 is the value that is instilled in this business. It allowed us to go from a small business in a garage to a $2.5 billion company today that is still very entrepreneurial. It was like an epiphany for me looking at that photo and realizing that 24/7 was the same as 168. Maybe the world wasn't changing all that much. If we had the courage of conviction to stick to what we thought would improve the business, then things would work out."

Fundamental principles had gotten RPM this far. When Sullivan looked at that photo, he was reminded of that fact and knew that those same principles would move the company forward once more.

Restructuring recovery

Sullivan needed to boost the morale of a company that was still sluggish following a restructuring that started in 1999.

RPM's business model had been to acquire smaller, entrepreneurial companies and provide them with the financial support, marketing and distribution to achieve results they couldn't achieve on their own, all while leaving the existing management in place.

As the result of a series of acquisitions over the years, the company had accumulated 30 independent units reporting to RPM. There were 38 different IT platforms and 70-plus manufacturing facilities, 40 of which were making paint on a one-shift basis.

The restructuring combined the units with related products into six groups, the number of IT platforms was reduced to five and some plants were closed while others increased production.

Increased efficiency was a must because customer consolidation, particularly on the consumer side, had shifted a lot of buying power to just a few buyers.

"Our margins were being squeezed, and growth was slowing," says Sullivan. "The cost of acquisitions, which we had been doing successfully for the prior 30 years, was going up, and our valuation was going down. We realized we had to do something."

The corporate office put together a broad-based strategy that would address the core problems while involving the managers of the operating units as much as possible.

"We gathered our top operating people and then basically laid out for them what was happening," says Sullivan. "Then we said, 'You guys have to fill in the rest. Each of you has to go back and put together plans on how you can execute this.' Some grumbled, and none of them were happy because nobody likes to close a plant or let people go, but everyone went back and filled in the details and put together a plan to execute the reorganization. Then we did what has always been a hallmark of RPM, which is we executed it."

With the reorganization done, Sullivan needed to convince his managers that RPM would survive, even though it wasn't a hot Internet company.

"We had an executive management team retreat in the summer of 2001," says Sullivan. "I talked a lot about using strategies, using tools from our past. I used quotes from my grandfather. I told them how we had really relied on these fundamentals to get this far. There was a lot in the world that is changing, and we have to be responsive to that change, but the great businesses are great in part because they have solid principles and fundamentals they don't abandon.

"I think in some cases, bad businesses are, over time, in trouble because they don't have those principles or fundamentals and they don't know what they are about except making money. In the short term, that can work, but in the long term, it is not sustainable."

The three keys

Sullivan says that from a big-picture standpoint, the three things that matter most to success are strategy, attitude and execution.

"Strategy, in many instances, is pretty basic," he says. "It's just making sure you are in the automobile steering wheel business instead of the buggy whip business. It's hugely fundamental in nature, but in a lot of instances it doesn't change much, or at least it doesn't change much if you have a good strategy.

"Some people overthink it. Having a good one is vital, but contemplating your navel forever about strategy is a big distraction."

Attitude comes with having the right people in place to execute your strategy.

"It goes back to what my grandfather said: If you don't have the right people, a good strategy doesn't matter," says Sullivan. "A lot of that is just creating an environment or atmosphere for people to succeed. They have to believe what they are doing makes a difference. They have to be motivated and engaged, and if they have that, they are going to beat the next guy."

RPM has created that atmosphere by letting people do the jobs they are good at. Part of the company's acquisition strategy is to find organizations with strong management teams and leave them in place.

"We never bring in RPM people," says Sullivan of newly acquired companies. "We are either acquiring a family business or a free-standing business that's part of a larger company that has its own strong ma nagement team. One of the key factors for us is that there is a good management team that will stay and run the business. Of our companies, 40 percent are still run by original family members, the founder or second- or third-generation family members.

"We have not lost the entrepreneurs that have joined us, even though they realized a lot of liquid wealth in the process of selling to RPM. We are proud of that, and it's a real strength of ours."

In fact, it's what Sullivan says separates RPM from the competition. It may be a $2.5 billion company, but it's made up of a bunch of smaller, entrepreneurial firms.

"At a management meeting, I asked the newest guy what the experience was like after being a part of a larger global organization for a year," says Sullivan. "He said he felt like he had joined the entrepreneurs' club, and that was music to my ears. If after a year with RPM, he still feels like an entrepreneur, then we are continuing to adhere to our fundamentals."

This system allows RPM companies to respond to change quicker because decisions are made at a lower level.

"We empower people to make decisions and make plans they can commit to and go out and do," says Sullivan. "There isn't a hierarchy where people are waiting to be told what to do. Honest to God, there is no one in this office that has anything to do with, or knowledge of, customer pricing or competitive shifts at the product-line level. That's all at our operating companies, and it is their job to make decisions and get it done. I think that's a vital part of why we've been able to grow internally 5 percent in an industry that typically grows 2 to 4 percent.

"Our challenge as we get bigger is to continue to be that. It's what sets us apart. A lot of analysts or people on the outside are saying, 'Why not bang everything together?' I don't think that's our intent. We have a 48-person corporate staff. As one of our operating people told me in a sort of backhanded compliment, 'One of the great strengths of RPM is that with a corporate staff of only 48, you don't have enough people in your corporate office to really screw up a good business.' I thought about it for a minute, laughed and said, 'Yeah, that's right!'

"I'm real sensitive to statements like that and about joining an entrepreneurs' club. It's those types of statements that tell me we are still practicing what we preach."

With a strategy in place and an atmosphere that creates the right attitude, all that's left is execution.

"Having a great strategy and a collection of people, that doesn't get it done unless you can execute," says Sullivan.

Part of achieving solid execution is having people who believe in the plans they are implementing, and that comes from involving them in the planning and giving them the freedom to manage.

"The tactical or day-to-day decisions are not made at the corporate office," says Sullivan. "They are made by incredibly good leaders who are running units they are very proud of. In many instances, they have a family heritage at the business and are close to people there and in the market."

Planning is done from the bottom up, not the top down. In March, all the managers come in to present their plans for the fiscal year that begins in June not only to Sullivan but to their peers in other units. The plans have one main goal: growth.

"We also have here a passion and culture for growth," he says. "It's something I inherited. We've grown revenue every year of our existence no matter what the markets have brought our way.

"In essence, the plans are answering the question of how they are going to grow. In that process, we don't provide any corporate guidance on growth rates, numbers or anything. Our business is diverse enough with different dynamics where it is reasonable to expect the projected results to be different. Our challenge is to grow. Give us a growth budget. Give us a growth plan."

Other than that demand, the planning process is from the bottom up.

"They figure it out," Sullivan says. "Some grow 2 percent, some grow 12 percent. We pound through the budget process to determine where the best growth opportunities lie. It goes back to execution. Our people put together growth plans and go out and execute them."

People are rewarded for performance with bonuses that are tied directly to the plan.

"If you want to create a culture of growth and execution and the discipline that goes with it, you have to talk about it, plan for it and pay for it," says Sullivan.

With the plan for each unit coming directly from the people who have to implement it, everybody knows exactly what is expected of them.

"It eliminates anybody saying at the beginning of the year, 'This is a bunch of malarkey. We can't meet that plan; they don't know our customers or market.' We don't do that," he says. "Our one demand is that they put together a plan for growth. If you focus them on growth, rather than coming back with excuses on why the market will inhibit their growth, they will come back with plans. If I'm an operating guy and I put together a growth plan with good ideas, then I can say, 'Hey RPM, you've got to fund it.'

"That's the real challenge and discipline in the planning process: You have to balance good growth plans with disciplined funding with an eye to the bottom line. Anybody can fund growth. Funding profitable growth is the trick."

Continued success

Fast forward to today. Most of the Internet stocks that were the darlings of the investment world have long since melted down and been forgotten

Sullivan's restructuring plan worked, and the inspiration from the old black and white photograph put the company back on track. Investors now believe the story Sullivan tells.

The stock price has been between $16 and $20 since September of last year. Compound annual revenue growth has been 5 percent. Compound annual net income growth has been 19 percent. Cash generation has improved dramatically, and the company has been supporting its acquisition program with cash while at the same time reducing its debt level.

"I think the real lesson is you need to have sound fundamentals, sound philosophies that are fundamental to who you are and what you do beyond any financial results, and you need to have the courage and conviction to execute the strategy you think makes sense," says Sullivan. "I firmly believe the right way to build a company is to take care of employees and let them do their job. If you do that, you will be able to attract top talent, attract customers and build shareholder value.

"For a long time, the focus of the business community was the opposite. They were starting with shareholder value and how they could meet the short-term numbers. That translates to what are the strategies to take care of the customers, and the employee base is just a contribution that is no different than the equipment and capital you put in a business. I think that could not be further from the truth. Shareholder value is an end result, not a strategy."

Sullivan faces the pressure of not only running a $2.5 billion company but also of being the third generation to head the business.

"We've got a lot of pride here in what we do," says Sullivan. "We have really great people that really get it done. But from a day-to-day perspective, in terms of how we compete and succeed, I'm the most expendable guy in this place. I'd like to think for the long term that what I do makes a difference in terms of philosophy or strategic perspective.

"My grandfather laid down the marker and set the philosophies. The guy that really put them into practice is my father, Tom. So far, my distinct contribution is to be smart enough not to screw up the good work and excellent strategy inherited from them."

Sometimes it might take an old photo to serve as a reminder of which path to take, but Sullivan knows that the strategies created by his father and grandfather will always be inherent in the success of RPM. The "Value of 168" is part of the company culture and has kept the company focused on its basic philosophies, even when the m arket didn't approve.

"We ended up with what turned out to be a good strategy, the strategic adjustment turned out to be right and people approached it with the attitude of understanding what they had to do," says Sullivan. "Everybody executed and got it done."

How to reach: RPM International Inc., (330) 273-5090 or www.rpminc.com

Friday, 22 April 2005 11:24

Training day

If you are like most executives, your anti-harassment policy is probably safely tucked away inside your company handbook. Employees have signed off on it, so you sleep well at night thinking you're protected.

Wake up. You haven't done enough.

"You can't just put it in your handbook," says Joel Makee, partner at Taft, Stettinius and Hollister. "You have to have a tracking mechanism. You have to show all employees have access to it."

If you have shop or maintenance employees who don't work at a computer, and your handbook is on the company intranet, you have a problem. But more important, you need to make sure everyone understands the rules, and the best way to demonstrate that is through training.

"On a periodic basis, and we recommend every three years, you need to train on the basis of those policies and keep track of who you train," says Makee.

How you conduct the training will depend on how many employees you have, but training needs to be thorough. Dillard's department store lost a harassment case even though it had a policy and showed a 10-minute video to explain the rules. The court ruled that wasn't enough.

"Our recommendation is that you have someone come in and do some training," says Makee.

The courts love to see not only a policy but training sessions where employees are instructed on how the policies apply and are presented with hypothetical examples of what is and what isn't harassing behavior.

"It shows a real earnest attempt by the employer to get across the idea of what kind of culture you want in the business," says Makee. "You can't just put a video out in the lobby and expect the court to recognize that you've got the full package. A full package is having a policy and having sessions where they are not only described but given examples."

Once you have a proper policy with regular training in place, you need to make sure that all complaints are followed up on.

"If you publish a policy and train people, and someone violates the policy and you don't do anything to them, employees will talk," says Makee. "They know what's going on. If nothing happens, then you have another set of problems. You have to follow all the way through.

"It's all part of demonstrating you are serious about these policies. If there is a place to go and you can make your complaint, and there is a recognized procedure for handling the complaint and they talk to you about it, that is part of the employer demonstrating respect for the employee and the law."

By bringing in an outside trainer, you also gain a potential ally in the courtroom -- someone who doesn't work in the company who can describe the commitment level of the company to get employees to understand the policies.

Not everyone will be committed to the training, but under Ohio law, individuals can be held personally liable for harassment. This can be used to motivate managers not only to take the training seriously but also to abide by the policies and make sure everyone under their control is doing likewise.

"I like to say that what training and policies always provide us is a good story to tell in court," says Makee. "It's wonderful to tell about policies that people know about and get trained on. That's absolute proof of the type of culture the business is trying to create."

How to reach: Taft, Stettinius & Hollister, www.taftlaw.com or (216) 241-2838