From its very founding, the Securities and Exchange Commission has contained some curious ironies. Established in the wake of the market crash of 1929, which ushered in the Great Depression, its founding director was future presidential dad Joe Kennedy, who made his fortune through bootleg hooch and brazen stock manipulation of the type the SEC was mandated to police.
While the SEC today remains the prime cop of the vast American securities markets, responsible for flushing out Ponzi schemes and insider trading, since 1992 the agency has also been directed by Congress to look out for the special needs of smaller businesses. In other words, an agency known for its crime-busting rectitude in matters involving the big guys simultaneously serves as statutorial ombudsman for smaller concerns.
That was the message SEC officials brought to Cleveland recently in what they billed as a town meeting, the 11th such gathering the SEC has convened around the country. Among the initiatives the agency has taken or is proposing to take to help small business are:
- exempting from SEC registration requirements the awarding of stock to employees of small companies;
- permitting the raising of up to $1 million a year in seed capital;
- raising from $25 million to $50 million the threshold for companies which would be eligible for SEC small business programs;
- raising from $5 million to $10 million the threshold amount at which equity offerings will be subject to SEC reporting and registration requirements. That threshold went from $1 to $3 million in 1982 and $3 to $5 million in 1986;
- permitting small companies to raise up to $5 million a year through exempt offerings of securities, using unaudited financials, which substantially reduces the offerings cost.
The upshot? As the SECs deputy for small business, Barbara Jacobs, put it, None of these exemptions makes you a public company.
Perhaps the most potentially valuable initiative is the agencys decision to relax its quiet period rules to permit companies considering going public to test the waters without first pulling the trigger. These tough rules have historically governed the period leading up to a public offering, but the change gives companies considering an IPO the chance to test the waters of investor interest by, for instance, posting notices to that effect on their Web site. The agency concedes this change is a response to the tremendous volume of securities information available on the Web.
At the same time, SEC officials stressed that none of this loosening of its regulations will apply to instances of securities fraud, which continues to be tightly monitored. As if to drive the point home, on the very day the town meeting was held in Cleveland, SEC enforcement officials in the Washington headquarters splashily announced the agency was charging 44 individuals with fraudulent promotion of stocks through the World Wide Web.
These alternative methods for raising corporate capital come as the IPO market has cooled. But the SEC seems bent on making the case that even where successfully completed, the cost of taking a company public is quite high. Attorney Michael Ellis, of the Cleveland law firm of Kahn, Kleinman, Yanowitz & Arnson, noted that for a typical IPO which raises, say, $35 million, the costs for related legal, accounting, printing and insurance services will be well into the hundreds of thousands of dollars. And that doesnt even include the 7 to 13 percent of the deal that goes to the brokers raising money, he said. Plus, theres the significant loss of latitude in managing ones company, as well as the public markets heightened short-term pressure for financial performance.
The agency says it is throwing considerable resources at the small business segment. The SECs small business unit, which as corporate finance division director Brian Lane noted had just three people 15 years ago but which now has 25 analysts and attorneys, gets probably 50 calls a day from companies trying to sort out the best option for raising capital.
We will be your ombudsman, he said. Lets hope it wont be the enforcement division.
The SEC is promoting various methods for more easily raising capital without triggering securities laws.
Okay, so youve built your Web site and invited customers and potential customers to visit. Does that mean you can sit back?
Unfortunately, it seems some e-commerce sites are doing just that. In a recent study, the New York-based online research organization Jupiter Research found that nearly half of all top-ranked Web sites took longer than five days to respond to e-mail inquiries or never responded at all. Thats a big no-no, according to Jupiter, which argues that the standard for customer service on the Web is higher, not lower, than for traditional mediums.
Among its suggestions: that customer service sites include some kind of auto-acknowledge feature, which can acknowledge having received the message and estimates of the time frame for a substantive response.
A Northeastern Ohio chapter of the American Cash Flow Association is being formed. The group is open to anyone interested in joining, but organizers say it will be of interest primarily to professionals involved in buying, brokering or selling debt instruments or income streams, or who have a fiduciary relationship with clients.
The chapter, which has a dozen members, was set to have its first meeting in January, on the subject of business plans. While bylaws are not yet finalized, annual dues are expected to be $50.
For further information, or to join, contact Carolyn Perry, of CKP Funding, at (440) 423-3466.
In a move pregnant with possibilities, the 4,000-member Direct Marketing Association in October merged with another national trade group, the Association of Interactive Media.
If the marriage of these two industry segments made sense nationally, one would think that a merger would make equal sense on the local level, right?
Well, not really, says the Northeast Ohio Direct Marketing Association, which has no formal affiliation with the DMA but maintains plenty of looser ties.
"The most formal thing [to build bridges with cyberspace counterparts] we've done is to put together programs for the Communications Know Show," says NODMA president Kim Kaifesh. "And at our monthly meetings, we do probably one or two programs a year related to interactive, Web, e-commerce, all of those buzz words."
And if she has anything to say about it, that's about as far as the 200-member NODMA will go in cozying up to the new kid on the block. Kaifesh, you see, is a major accounts manager for a mailing house, Great Lakes Marketing & Mailing in Brunswick. "The mail is not going away," she says, "which is good for us."
So youre stuck looking under every conceivable rock for good employees, just as the information explosion in the form of the Internet takes off as never before. Its at precisely that intersection that some opportunists spy a unique opportunity.
Denise Geisler, director of marketing and Internet services for Staffing Solutions Enterprises, is also the creator of Careerboard.com, a regionally focused job-matching Web site launched almost two years ago. After a promotional push, which began in earnest last January, its now logging well over one million hits a month from 54,000 distinct users.
Still, for all that success, Geisler says no company should put all its recruiting eggs in one basket. She counsels companies to continue to trod traditional recruiting paths such as job fairs and industry networking in tandem with mining the Internet for candidates. You get a very limited response from any one method. You need to do them all, she says, and then carefully track which are working best.
But one of the most easily overlooked places to cast about for quality people is also one of the best: a corporations own Web site. Thats an especially good place to post job openings, she argues, for at least two reasons. Anyone who has found their way to your Web site, for whatever reason, is almost by definition a captive audience, someone who probably has some knowledge of your business or another connection to your company.
Perhaps even more important, this posting method is more likely to nab the attention of passive job seekers, not those actively searching because theyre out of a job. While the Internet is loaded with hundreds of thousands of resumes there are 4,000 on Careerboard.com alone those currently employed are considerably less likely to post their resume, for obvious reasons.
But site design counts. The job-posting space on your site cant be a little, hidden button on your Web site. It should be an integral part of the site, and it should send the signal that were always looking for good, qualified people, she says.
While many companies are hesitant to post detailed information about the openings and salary ranges of the positions theyre seeking to fill, Geisler recommends erring on the side of putting more information on the Web rather than less. That will only ensure that candidates will come into an interview better-prepared, more knowledgeable about your company.
Finally, she notes, companies that post what amount to job-recruitment ads on the Internet need to toss out everything they ever learned about writing for print. In traditional print classified employment ads, clients pay by the word, and thus the focus is on being brief and punchy. On the Web, though, where length is no limitation where in fact most browsers enjoy the information-rich environment the emphasis is more on crafting well-targeted key words.
When youre dealing with the Internet, people are doing searches based on key words, she says. So youd better make sure you talk their language when constructing the ad. Toss out buzzwords understood only by internal audiences in favor of words, which will induce a greater number of surfers to stumble upon your site.
With qualified employees in such tight supply in a booming economy, says Geisler, the whole job-search process has turned around. Companies have got to sell themselves. And thats a big departure from how you used to write print ads.
Ohio had better get going on investing in science and technology infrastructure, or it stands to fall further and further behind its counterparts in economic development, a former top state official recently told software executives in Cleveland.
Dr. Glen Browning delivered his broadside to members of the Northeast Ohio Software Association (NEOSA), which under energetic executive director Jim Cookinham has become perhaps the leading forum for issues related to the new regional economy.
The former Voinovich adviser, Dr. Brown, who served as the states science and technology adviser for two years before recently returning home to Chagrin Falls, was unusually frank for a political appointee. He complained that in his two years in the job, he encountered only two Ohio legislators who you could talk to about science and technology. The rest, you had to talk to them about economic development. As for the public, he said, the public in general likes science and technology, but they dont know what it is.
On an ancient overhead projector which had the unfortunate effect of highlighting his message about the need for cutting-edge technology programs he listed the weaknesses of the present management of state science and tech programs:
- Too little programatic interaction between state departments.
- Weak to nonexistent advocacy for science and technology to both the public and state legislators.
- An unwieldy state science and tech council. Its too big, in my opinion. Its got about 25 people. In the two years I was in Columbus, they had eight meetings and three quorums. To make matters worse, he added, it had no representatives from small business or venture capitalists. They are all critical to what were trying to do with science and tech.
- No plan which ties the various activities into a coherent whole.
He said the lack of budget earmarked for the office was a major stumbling block. When I first went down to Columbus to be science and technology adviser, I said, OK, how much money do I have? I found out it was none. Well, when you say youre an adviser but you have no money, people dont want to talk to you. I was finally able to talk them into $1 million in the first biennial [budget] and $2 million in the second, to leverage federal funding.
He called upon the new governor, Bob Taft, to establish a technology action fund of between $5 and 10 million.
Still, he concluded on a gloomy note. While Gov. Taft has proposed an Edison Information Technology Center, he said the reality is that there will be enormous political pressure to invest whatever surplus state funds are available in the K-12 education budget.
Instead, he proposed raiding the states infamous rainy day fund, a favorite stockpile of former Gov. Voinovich, which now bulges with around $1 billion. If we take 10 percent of that fund and invest it in science and tech, we might push off that rainy day for a long time.
Its fairly routine for business owners to be good career planners, the kind of people who obsessively scribble down their personal and business goals every day, week, month or year.
But Steve Pattie takes that approach a giant step further: He requires all of the employees of his landscape-design firm to do the same.
His business grew from his love of the outdoors. He began as a landscaper at the age of 13, and not too many years later was making a real living from it.
I tried to get a job, but nobody would hire me, he says.
So, by 1966, at the age of 15, he was in business as Pattie Landscaping, which his brothers ran for him while he was away at college. By 18, he had hired his first landscape architect as a subcontractor.
The enterprise has since grown into The Pattie Group Inc., a landscape development firm in Novelty, organized into design, landscape construction and landscape management divisions. The staff includes everyone from hourly lawn-maintenance grunts to registered landscape architects, even a nursery staff that oversees plant stock grown for customers. (About 80 percent of employees are on salary).
Its burgeoning reputation for first-class horticultural design projects have gone as high as $300,000 has brought some unique opportunities: Four years ago, The Pattie Group designed an 8,400-square-foot garden for a show at the Cleveland Botanical Society. Its been called the worlds largest indoor display garden.
But Pattie has always been equally concerned about growing then retaining good employees.
I think it costs us 10 grand when we lose an employee after you put two or three years of training in them, he says.
He places the price tag at seven times that for senior sales people. And so hes tried to bring the same green thumb he has for elaborate horticultural projects to the area of internal employee retention.
And the proof of his approach is in the numbers: He says the company had 100 percent retention last year and more than 98 percent the year before.
How does he do it? By pushing goal setting deep into the organization.
Weve always been good planners, he says. I still go back and read my goals from when I was 13.
But about five years ago, when he noticed that his management staff wasnt filtering down to the rank and file the same goal-setting and planning approach that he was preaching for the managers, he initiated a change.
Everybody in this company is required twice a year to update their goals personal and business, Pattie says. And that helps the managers know what the guys are thinking, and to help make a career path for them.
Rather than lose bright, ambitious junior people, that process helps the management team organize a customized plan that lays out to an individual how he or she might make a well-paying career of the field.
To supplement those efforts, he develops what he calls a nice farm system for entry level people by hitting the podium at career days whenever he gets the chance.
We never turn down a career talk or a seminar on horticulture, he says.
His goal is to drive home one key point: contrary to what young people might imagine, there really are long-term career opportunities in the industry, as well as in The Pattie Group. Those in sales and management, or project foremen, can make as much as $50,000 a year, Pattie notes.
The competitive pay is only part of the story, though. He also supplies the staff with in-house classroom training in horticulture, conflict management, even personal finance. And in an industry thats more weather-sensitive than most, he generally guarantees the staff 40 hours of work year-round.
All of those threads have apparently built unusual employee satisfaction: In addition to the high retention rate, he notes that a lot of employees are now giving two to three months notice before leaving. One even gave a years notice.
None of it came easily for Pattie, though. He remembers tougher financial times, when he borrowed money from his parents, even from the organizers of Dale Carnegie courses in order to attend the training. In the end, it all worked out, and left him with an enduring sense that a determined entrepreneur can get through just about anything.
I guess thats where I learned you can work anything out.
As a former Marine and a veteran of three decades in the banking industry, Ed McKeon had faced more than his share of challenges. Hed seen combat duty in Vietnam, and once managed dozens of saucy, high-powered New York saleswomen.
More recently, hed been tapped to turn around a small bank that was losing $75,000 a month.
But now, at 53, an age when most bankers are thinking more about their golf attire than finding a new pinstriped hill to climb, McKeon faced perhaps his toughest hurdle yet. He was just three days away from a self-imposed deadline for assembling the start-up capital for a new bank in Medina, and his group was several hundred thousand dollars short of raising the total it needed.
There was plenty of initial excitement when his group filed its public offering of stock with the Securities and Exchange Commission in February 1998 for Western Reserve Bank, a start-up, or de novo bank.
And then its dead, he says, as potential investors waited till the last possible moment to climb aboard. Finally, on July 1 of last year, with the clock ticking down the final few days on a three-month start-up window, McKeon gathered his board members and asked them to bring their checkbooks. The board was suggesting that he leave the door open to extending the seed-capital phase for yet another three months, but McKeon knew that We couldnt go through this three-month process of waiting again.
For him, at least, it was now or never.
So while his secretary began accepting additional checks from board members, he and the staff hopped in their cars and drove around Medina for one last push, actually picking up checks from fence-sitting investors. One was for more than the $320,000 maximum the group was accepting from any one investor.
In the end, it worked. In a three-day push, the group raised another $1.8 million from about 90 investors, and the bank, which had won final approval from banking regulators only days earlier, was ready to open its doors in October, with $6.4 million in seed capital from more than 400 individuals.
Its been mostly uphill ever since. The bank which focuses its efforts on Medina and contiguous townships, but which does about 30 percent of its lending in Summit and Cuyahoga counties projected to the Federal Reserve that it would hit $17 million in total assets after 12 months. Instead, Western Reserve found itself at $27 million after just eight months.
Now, he says, We have a list of 35 people who want to invest and cant get in.
For the native New Yorker, a 31-year veteran of the banking industry, this was a long way from his roots in the world of large banks, where his clients were once the likes of ITT, General Motors and Xerox, and his competitors institutions such as Chase Manhattan and Bankers Trust.
Still, things both large and small seem to be breaking his way these days: He did eventually lose that rash.
Western Reserve Bank, says chairman and CEO P.M. Jones, really started as a fantasy of mine.
The president of a Medina-based leasing company a man so creative he once leased a herd of dairy cattle Jones had watched in growing frustration as industrywide consolidation was leaving the area without any locally controlled banking institutions. Old Phoenix Bank, a Medina institution since the Civil War, had been purchased by First National Bank in the mid-80s, but that institution largely left it alone.
Now, more than a decade later, another banking merger, this time involving FirstMerit, meant that all operations would be centralized in Akron. It caused a severe disruption in Jones leasing business. But for the Medina community, it was more a matter of local pride: Tiny Farmers Bank of Spencer, headquartered in a town with a single traffic light, was the last bank in the county that was locally owned and controlled.
Jones wasnt alone in his complaints: Other business people and pillars of the Medina establishment were also upset. And all of a sudden, I had 10 guys who wanted to start a bank, Jones recalls.
Because he had banking in his genes his grandfather, father and brother had all been bank presidents Jones was first among equals. He did his homework, driving to North Carolina to pick the brain of a banker hed read about whod done a start-up.
And he hired former Ohio banking regulator Hal Nichols, now a Toledo-based banking consultant, to begin designing a plan. A veteran of perhaps a dozen de novos, Nichols track record was enviable: In his first deal, Capital Bank of Toledo, $13 million of start-up capital has been transformed in about a decade into a $900 million bank.
But the group needed an industry veteran to operate the bank day-to-day. Jones heard about a banker named Ed McKeon from Cleveland business man George Klein. McKeon, who moved to Ohio in 1973 to join The Huntington Bank in Columbus, was making a name for himself by turning around a troubled bank with a rogue board, Enterprise Bank in Solon, that had been losing $75,000 a month before he came on the scene.
In that assignment, McKeon had to contend with low internal morale, as well as problems arising from the banks mixed reputation. Ed came out on top from the 40 resumes we got, Jones recalls.
Certainly, Medina Countys pleasing demographics made it an ideal place to establish a new bank. The booming area, once largely a farming community, was becoming a favorite destination for suburbanites from Greater Cleveland and Akron looking for less crowding and more land. And the new arrivals were often of the upscale variety: Countywide, the average household income nearly doubled between 1979 and 1989, from $24,000 to $43,000.
Other banks from outside the area, noticing those same demographics, are in varying stages of expansion to Medina. But Western Reserve has an edge that other competitors cant easily match: Its broad ownership base of local movers and shakers.
The bank has been able to call upon a wide assortment of pillars of the community to open doors, make contacts and turn up leads. To begin scrubbing up business, says McKeon, We started out calling our owners, starting with As.
And theyve helped stimulate so much, he says, that We havent gotten past the Cs, he says. Instead of having 10 or 20 owners, we have 418 owners, who open doors for us. And were almost reacting to their door-opening, rather than trying to kick the door down ourselves.
Community banking is really a pretty simple proposition, McKeon says. In this era of ever-lower-service banking, Western Reserve is simply returning service to the customer equation.
None of this is rocket science. Were just operating the bank as you [customers] would want to see. Firing everybody and trying to get computers to answer the phone may not be the way to go.
As he leads a visitor on a tour of the bank, outfitted throughout in rich cherry wood, well-plumped Queen Anne chairs and plush carpeting, he boasts about the banks unusual design features. There are no ropes herding customers here and there, and tellers are seated at desks near the front door.
People ask whether were going to get into private banking. Well, private banking is just the big banks attempt to be like community banks. This may be upscale, he says, but its upscale for the masses.
But there are also drawbacks to life at smaller banks, beginning with fewer internal resources. These days, when he designs a new sweep account, a cash-management product offering clients a vehicle for getting the highest return on their accounts, he has to take the lowest-tech approach. Years ago, he recalls, when he oversaw such a project, he simply called upon a group of computer programmers for help.
Its all served to keep him humble. For years, McKeon has maintained a friendly rivalry with a former colleague as they moved up the ladder in the banking industry. Now, with his friend heading a $4 billion bank in Minnesota, McKeon recently conceded defeat.
You finally won, he told his pal, because you have $4 billion, and I have zero. His friends response? Yeah, but youre having more fun.
How to reach: Western Reserve Bank, (330) 764-3131
Its all in the details
In the coming battle for banking supremacy in demographically attractive Medina County, Western Reserve Banks Ed McKeon, a veteran of three decades in the banking industry, leaves little to chance. Heres a sampling of some of his tactics.
Every employee is an evangelist. Most banks employ a courier to pick up sacks of money from customers. Western Reserve employs someone who doubles as an evangelist.
I dont just want a guy picking up bags. Hes out talking to people about the bank, like a customer service rep, says McKeon.
Toward that end, the banks part-time courier is a veteran teacher, blessed with the gift of gab. Hes got to be the best-educated courier in the history of the banking industry, says McKeon.
Similarly, McKeon insists that his tellers are the highest-paid in the county, Because we want the best. They touch more people in a day than Ill touch in a month. And in banking, nobody takes care of the tellers.
Even in banking, a sense of humor has a place. Banking and bankers are famous for being pretty dry. But a sense of humor pervades Western Reserve. On the day SBN visited, a life-sized poster of actor Humphrey Bogart was propped up in a back room.
Asked about its meaning, McKeon says; Bogart has shown up all over the bank; he gets around. Hes shown up in drag in the mens room. Hes shown up in the vault in the morning.
Bend over backwards for customers. While the sign on the door says the bank is closed at 4 p.m., McKeon says his staff has been known to unlock the doors to facilitate customers as much as an hour and a half after the ostensible closing time.
Similarly, theres plenty of give in the banks overdraft policy: On the first occurrence, the bank will make a courtesy call, and waive the $17 overdraft fee. The second time, the bank goes Dutch, splitting the charge with the customer. After that, the full charge will be applied. You cant do that when you have a million customers, says McKeon.
Build in the personal touch. McKeon makes a point of writing personal thank-you notes to every customer. Thus far, thats meant more than 1,500 notes, which he writes at home in the evenings.
While he admits to having his staff address the envelopes, he writes all the notes himself, in long hand, and includes his direct phone number. That can lead to some surprises: When customers use that number for routine inquiries, Theyre a little bit startled, because they just called to get their balance, he says.
Does it sometimes seem as if your longtime accountant, that calm, analytical, type-B personality, has recently taken booster shots?
Where once he may have been content merely to visit with you occasionally for a chat about the balance sheet, perhaps throwing out a couple of ideas about better managing cash flow, does he now seem to routinely explore you and your entire operation for opportunities to layer in other than his traditional services?
Does he, in short, seem to be trying to turn himself into a management consultant?
Youre fully justified in your suspicions, because the accounting profession is indeed going through a bout of serious soul-searching about its place in the financial marketplace. As a wave of consolidation has hit the profession, making the large accounting firms larger, and as even smaller firms have begun adding related in-house offerings such as financial planning services, the traditional mid-sized accounting firms catering to privately held businesses are left with something of a quandary: How best to position themselves in the escalating competition for clients?
You can hardly blame accountants for not wanting to remain pigeonholed in the role of bookkeeper, auditor and tax-return preparer. After all, as automated accounting packages increasingly penetrate the market there are scattered reports that companies as large as those with $2 and $3 million in annual revenues are using them to prepare tax returns accounting firms throughout the country are trying to head for higher, drier ground.
And what looks best? Why, business consulting, of course, where large shops like Andersen Consulting make billions of dollars in fees.
But for dozens of smaller and mid-sized accounting firms in this area, the question remains: How to recast their services, and where to find higher-level consulting talent?
Consider the firm of Zalick, Torok, Kirgesner, Cook & Co. As accounting firms go, its resolutely middle-of-the-pack. With offices in Broadview Heights, Medina and Mentor, it employs about 30 professionals, 43 people in all. It has a few hundred corporate clients, the majority in the service sector, but plenty in manufacturing, too. And it has more than its share of automobile dealerships.
It, too, is struggling to keep up with the changes in its industry. However, says principal Tom Bonus, I really believe that the consolidation our industry has gone through has done the industry a favor, because with consolidation, you wont be able to sit on your hands and crank out tax returns. If you want to prosper, youd better provide value-added services.
Which is where Bonus comes in. About a year and a half ago, he joined Zalick, Torok from the larger, better-known firm of Cohen & Company.
They understood the need to grow in the value-added area, he says of his current firm. Armed with an MBA and a deep Rolodex from his many years in accounting, he now heads up a group called the business growth specialists.
By whatever buzzword it goes, the notion is fairly simple. Our job as a business advocate is not to have all the answers. We just need to ask good questions, he says, sounding like a consultant. The client typically knows his business better than any outsider. In the short run, every client should be a good technician, but then pull back to be a thinker for his business. And hire others to work in his business while he works on the business.
Take a recent engagement in which he convened a focus group with the employees of one client, who owns about 20 fast-food franchises. He got the employees together for some unstructured talk, with the goal of eliciting useful operational insights to pass along to his client. His findings? The middle-management group was weak.
When I put together a matrix [of responses], the client was amazed. In his 20 years, he hadnt found some of this.
This kind of value-added approach, of course, is utterly dependent on accountants bringing to the table the kinds of business analytical skills that go beyond delving into the numbers though thats obviously crucially important, too. Now, they must also be able to wade into the softer issues involved in running businesses, like personalities.
Bonus defends traditional accountants.
A CPA is like a continuing MBA theyre in and out of a lot of businesses, and they see a lot of things, he says.
At the same time, he readily concedes they will have to broaden their perspectives. While in the past, accountants mostly performed discrete tasks such as audits, Now were being asked to change to something that doesnt have a beginning or an end. When does adding value end? It involves reading and thinking and going to client meetings where you dont know how it will come out. When I went to that [client] focus group, I didnt know what to expect.
These more amorphous assignments can be a challenge to the [traditional CPA] compliance mentality.
In the meantime, dont be surprised if you never again bump into a self-described accountant at a cocktail party.
When people ask me what I do, I dont say Im an accountant, says Bonus. I say Im a business growth specialist.
John Ettorre (email@example.com) is a contributing editor at SBN.
David Deeds research ranking IPOs by metropolitan region has uncovered a number of surprises. But the one that seems to bother him the most is how much more successful the Minneapolis/St. Paul area has been than similarly situated Northeast Ohio in producing new public companies.
According to his research, in the period between 1988 and 1996, the Minneapolis/St. Paul metro region produced more than 150 initial public offerings, while Cleveland had just 32. This yawning gap is striking, since the two regional economies seem otherwise to be so similar. Moreover, the hoary Rust Belt excuse doesnt explain the disparity, since Minneapoliss weather is even colder than Clevelands, and its economy isnt much older and thus more mature.
Someone has yet to give me a reason as to why we cant do it if they can, he says. Its hard to say that Minneapolis has some great endowment that we dont ... we have equivalent infrastructure. Ill put the Case (CWRU) research up against the University of Minnesota, or the Cleveland Clinic up against the Mayo Clinic as catalysts for new commercial ventures.
Struggling to account for the stark difference in the numbers, he wonders aloud if it could be attributed to the role played by giant consumer products such as 3M or Medtronics (a large Minneapolis-based medical instruments company) in spinning off new companies. Maybe its the Mayo Clinic, he adds, nevertheless sounding doubtful.
In addition to the yawning gap in the total numbers of IPOs between the two areas, its the fact that Minneapolis has them in interesting categories that most troubles him. Minneapolis had 22 IPOs in the business services sector, for instance, while Cleveland hadnt any. And in the business category of measuring, analyzing and controlling instruments, Cleveland had but a single IPO in that nine-year span to Minneapolis 21.
For now, at least, the metropolitan mystery will probably have to remain unanswered. But Deeds hopes to shed additional light on the Cleveland-Minneapolis anomaly by delving further into the particular histories of the various newly public companies, with the aid of a research assistant.
These business genealogies, as he calls them, will explore the background of the founders and trace the route they took to becoming established. All this documentation should help him move closer to a real explanation for the sharp regional disparity.
What it wont do, of course, is help close it.