John Ettorre

Monday, 22 July 2002 09:50

Silent infringement

For years, they were located just around the corner from each other in Wickliffe. IWI Inc. and Nettis Environmental Ltd. sold the same line of dust-suppression equipment to industrial plants. For 15 years, they competed hard, with Nettis always in the lead, led by its ace salesman, Dominic Catanese, who ironically had left IWI in 1984 to work for his uncle, Don Nettis.

But last year, just as IWI finally caught up with — and then overtook — Nettis in that portion of the market on the strength of outbidding its rival on some business with giant General Motors, something unusual happened. Someone evidently decided to play games with the metatags from Nettis’ Web site. Metatags are the all-but-invisible computer coding that employ various key words to drive Internet search engines to particular sites on the World Wide Web.

At Nettis, someone smelled a rat.

In late October, as a Nettis official ran checks on the search engines Snap and Infoseek of the Web site the company had launched in July 1997, it became apparent that Web traffic from Nettis — and as many as 10 other distributors of the same pollution-control systems that Nettis and IWI represented — was somehow being diverted to IWI’s site.

The curious coding meant that when a Web surfer clicked on various portions of Nettis’ site, they were immediately transported to IWI’s site.

“That’s a deceitful way to get inquiries,” says Catanese, who says he’s sure it led to some lost business. “I know for a fact they’ve gotten some jobs outside of their normal geographic area, which is Ohio,” he said in February. “These were jobs where they do not have representatives, and the Internet is a perfect tool for this.”

Nettis notified other dealers whom it suspected were also on the receiving end of misdirected Web traffic. But it didn’t stop there. It marched into federal court in Cleveland, represented by a lawyer from the law firm of former U.S. Attorney Bob Rotatori, and demanded that Federal Judge Lesley Brooks Wells dish out a serving of Draconian punishment: $5,000-a-day fines and the imprisonment of IWI officials responsible for the diversion.

And, it warned, in a further bit saber rattling that sounded almost like name-dropping, perhaps Rotatori’s successors in the local federal prosecutor’s office might be convinced to launch an investigation.

“Given that it involves the evolving technology of the Internet, the U.S. attorney’s office may be interested in nipping such obvious fraud and misconduct in the bud by pursuing multiple criminal charges,” Nettis’ lawyer asserted in legal briefs.

Nettis also sued the company which hosted IWI’s site, Maryland-based Digiweb Inc., but that company was released as a defendant after it evicted IWI from its server.

Attorneys for both sides had to quickly come up to speed on the intricacies of the Internet.

“There are not many reported cases” like this, says IWI’s attorney, James Vail, of the Cleveland law firm of Schneider, Smeltz, Ranney & LaFond. As a firm, he says, “We did have to get smart” about the Internet. Adds his counterpart, Richard Stoper, who represented Nettis: “I have some background in intellectual property cases, but this is the first Internet case I’ve had.”

Nevertheless, he points out, despite the medium’s novelty, the legal issues here are really no different than if IWI were to have misused Nettis’ name in a brochure or a radio ad.

For his part, Nettis’ Catanese was outraged that his company was forced to spend any time or money on this issue at all. Nettis was spending tens of thousands of dollars on attorneys, he said, “just to stop someone from using your name. Now that’s a travesty.”

In December, the judge slapped a temporary restraining order on IWI, and that could have been that. But on Jan. 20th, Nettis decided to see where things stood. In a comprehensive Web search, its consultant found that six of the 386 search engines it checked still contained an improper link between the rival companies. Six days later, after IWI was notified of the situation, it took down its site.

To Nettis, its rival was boldly ignoring a temporary restraining order from a federal judge.

“The first time was ballsy, the second time was stupid, ’cause now they’re in contempt,” Catanese said.

Back to the judge it marched, asking further sanctions. But a careful review of the facts and the timelines in court papers suggest a more complicated story. Due to the vastness of the World Wide Web, and the inexact science of recalling data already uploaded to it, IWI was evidently experiencing difficulty in undoing what it essentially conceded it had done — meddle with its rival’s metatags.

In court filings, IWI was pleading with the judge that that shouldn’t constitute a crime. It maintained that by Nov. 10th, just days after being slapped with the first restraining order, it was in full compliance with the court, “because it was taking energetic and diligent efforts to totally eliminate the IWI/Nettis link.”

Within two days of the order, it argued, IWI had recoded the metatag information properly and uploaded it to the Web. And that had eliminated 98 percent of the misleading links. In an affidavit filed with the judge, IWI’s Jeffrey Iacco, son of President Bob Iacco, testified to “demanding in a letter to [its computer consultant], demanding him to try yet again to eliminate the link between Nettis and IWI on the Internet.” Apparently toward that end, the consultant subsequently used a search engine, Scrubtheweb.

The only problem, Nettis later countered, was that those steps didn’t erase improper links on some of the highest-trafficked sites. The escalating standoff, meanwhile, was making an already tense rivalry almost white-hot. When his former boss and now bitter competitor, IWI’s Bob Iacco, was at the same trade show recently, Catanese wasn’t interested in talking to him at all, let alone broaching the topic of the suit.

“I mean, they got their hand caught in the cookie jar. What’s to discuss?”

Knowing the personalities of his former employer as he did, Catanese was sure that the owner’s two computer-savvy sons, Jeff and Rob, were behind the metatag caper. “The two sons put this together, but the father condoned it,” he says. IWI’s Robert Iacco declined comment. “It’s all in the public record. I think we’ll just leave it at that,” he said.

Despite all the charges and countercharges, when the smoke finally cleared in May, nothing too dramatic had happened. In her final order, the judge ruled that IWI must pay its opponent’s attorney’s fees and costs, and permanently enjoined the company from ever again silently infringing on Nettis’ name. For his part, Dominic Catanese sounded at least mildly bitter about the entire ordeal.

In the end, while it won back the money it had shelled out for attorneys, Nettis hadn’t really gained much, certainly nothing like the $3 million settlement that Playboy Enterprises received last year in a similar case before a Virginia federal court. The Lanham Act, the federal statute under which Nettis sued its rival, (ironically, despite the fact that the Nettis name isn’t trademarked), provides only for attorney’s fees for winners.

The next step, proving monetary damages resulting from the alleged fraud, is a much tougher thing, says Richard Stoper, Nettis’ attorney.

“To prove lost business, it’s difficult to make the link,” he says. “And the cost of doing that [in this case] is probably in excess of what they lost.”

Catanese estimates that Nettis would have had to depose as many as 100 people to prove that it had lost business leads because of the metatag diversion. “It’s a sham e that we’d have to prove damages before any compensatory award was made.”

The experience has left Catanese with some bittersweet attitudes about the Internet.

“I always felt that the Web was a way of opening yourself up to the competition. There was a risk they would copy you. I think it’s too late at this point to worry about those kinds of things. You need to exploit what you do best, and that’s what we’ve done.”

Despite the headaches of the last several months, he says, “I’m not going to change our philosophy.”

Monday, 22 July 2002 09:48

He practiced what he preaches

Like a photographer trying to take a perfect picture, an entrepreneur must learn very quickly that focus is everything.”

The opening sentence of a research paper David Deeds once co-authored in the Journal of Business Venturing suggests that Deeds has more than a passing familiarity with the challenges of running one’s own company.

Indeed, during the 1980s, Deeds and his older brother Corky established and then ran a San Diego computer systems-integration company, Light Speed Corp., which they built into a reasonably successful organization before David left to attend graduate school in Seattle.

Like most start-ups, the one begun by the brothers Deeds was exceedingly modest at first. Corky had learned electronics in the Navy, and by the mid-’70s, he was living in San Francisco and hanging around with a group of computer geeks who called themselves the Home Brew Computer Society. He recalls one of the co-founder of Apple Computer showing up.

“[Steve] Wozniak, this crazy-haired kid, showed up with his Apple, all these parts, and it really worked.”

After working as a systems designer in the heating and cooling industry for three years, by ’83, he was back in San Diego, where his younger brother was leisurely contemplating his future after recently finishing his undergraduate degree.

“Hey, get your butt in gear,” Corky says he told him. And thus Light Speed, a custom software and hardware integrator, was born.

“We built it on credit cards and surplus electronics,” David recalls. The brothers were lucky enough to sign on as early distributors of a hot computer-aided design product, which provided special entrée into engineering and architectural firms. Still, in its first year, the enterprise grossed only about $25,000.

By the time Dave left the company in 1989 for graduate school, it was grossing a little over $1 million. The proceeds helped David fund a down payment on a house and put him through graduate school, and helped put his brother’s kids through college, he says proudly.

For a time, it was an ideal partnership. Corky was the techie, who helped keep clients on the cutting edge of the emerging technology. Dave, blessed with superior people skills, did the training. While Corky insisted on the final say as a big brother’s prerogative, they were really equal partners, he recalls.

“We tended to compensate for each other’s shortcomings,” says Corky.

David rode herd on the unproductive tinkering of his brother, a self-described “silicon junkie.” That, says Corky, “was always our biggest point of contention. I always wanted to play with the toys.” He, on the other hand, tried to impress upon his brother that various employees were not interchangeable.

Today, Corky, now 50, is still running the company in San Diego. As it turned out, Light Speed’s best year was the year after Dave left. The company’s gotten steadily smaller ever since.

“I’ve dropped back to one part-time employee,” says Corky, who complains that his industry has become a commodity business. “I make a good living, don’t work too hard and I have a lot of nice toys.”

While he’s no longer affiliated with Light Speed, David says he nevertheless derived a lifetime of useful lessons from the experience, even beyond the grubstake it provided for his further schooling. Today, his students “get sick of my war stories, especially about bootstrapping. But it informs my research,” he says.

“I always tell my students that the definition of an entrepreneur is a person with an idea and no money. So the key to my research is how to get access — to money, contacts, you name it.”

Monday, 22 July 2002 09:46

On the block

There have been lots of other golden periods in this century to sell a company, but perhaps there’s never been a better time to do it than the last few years.

No less an authority than Mark Fillippel, head of mergers & acquisitions for McDonald & Co., recently called the current period “the best M&A market of the century,” and a “great sellers’ market.”

With so much capital chasing after so few remaining prime properties, a lot of business owners who once might never have considered selling at lower earnings multiples are now at least keeping an open mind about the possibility of cashing out. But how should they prepare their companies for the auction block?

Investment banker/business broker Nick Merkle, of Woodmere-based Falls River Group, which this year has brokered the sale of three companies with combined revenues of about $60 million, offers what he calls 10 timeless tips on preparing your company for a sale. Why timeless?

“I look back at what I said 13 years ago [when he got started in the field], and nothing’s really changed,” he says.

His pointers include:

Continue to operate the company as though you were not going to sell it.

It’s an age-old mistake: A business owner puts his company on the auction block, then gets so caught up in that process that he neglects to run the company as tightly as he once did.

The problem arises if the process takes longer than expected, as it often does. A first wave of buyers can easily fail to materialize, and since you’ve let the business slip, it might well be worth considerably less to a later group of bidders.

Besides, says Merkle, “you don’t want to unduly distract your employees by bringing people around for constant tours.” So just stick to your knitting during the sale process and pretend that nothing has changed. Or it will, for the worse.

Be able to give specific, logical reasons for selling.

It’s well-known in the investment-banking field that a lot of owners merely pretend to be interested in selling. Instead, they’re really just fishing for a free valuation or testing the waters for a possible sale years down the road, or appeasing their egos by seeing if their company might fetch as much as their buddy’s did.

“A lot of people claim they’re for sale, and they’re not. Selling a company is a lifestyle decision, not an economic one, because after taxes, they may not have much left,” says Merkle. Buyers, coached by their brokers, are generally skeptical of “sellers.” You can help allay those suspicions by preparing some solid reasons for selling.

Be prepared to note the pros and cons of owning a business.

Similarly, a balanced appraisal from a reputable source will boost your credibility with a potential buyer.

Clean up the premises.

This one’s pretty self-explanatory. As Merkle puts it: “Nobody likes to buy a dump.”

Clean up the books.

Before you hang the “for sale” sign, it would behoove you to go after past-due receivables, settle outstanding loans to officers, sell off old inventory, trim payroll, etc. While investment bankers report seeing fewer obvious no-nos than they once did, like ghost employees, most privately held companies still have their share of financial skeletons in the closet that would raise eyebrows for outsiders.

“You want to have a fairly simple transaction, so getting rid of all these things up front makes it easier” to do a deal, he says.

Purchase minority interests.

Not unlike the previous item, this suggestion goes to the heart of the deal’s simplicity. Buyers want to bargain with one seller, and they typically recoil at the notion of dissenting shareholders.

That makes the deal higher risk and less likely to close. You can shortcut all those headaches by settling up with old partners before you shop the company.

Eliminate related-party transactions.

One of the prime variables in setting the purchase price of a company is the degree to which the cash flow is directly transferable to a new owner. If the previous owner has been playing Let’s Make a Deal with all of his friends and family members for years, it’s bound to depress the price his enterprise would command from an outside buyer.

“If you’re giving special deals to your buddies or getting deals from your buddies, the new buyer may not get them. So they want to be assured that they’re doing business at arm’s length,” says Merkle.

Make a detailed list of all tangible assets to be sold and a list of those to be retained.

The process of selling a business is not unlike selling a home, insofar as buyers and sellers can differ greatly on who gets the curtain rods.

“Very often, the seller’s perception of what he’s selling and what the buyer’s buying are two very different things,” says Merkle. “Often, a seller has different lines [of business], and they might plan on retaining some of those.” So put it all on paper for everyone to see in black and white.

Given the time, report true earnings for at least one full fiscal year, not the profit you may have engineered to minimize taxes.

Only naïve fools and Boy Scouts would be surprised by some of the creative accounting that privately held companies engage in. But when it comes time to sell, it’s in your interest to have kept your sleight-of-hand to a minimum, at least over the prior 12 months.

“To the extent you can have your accountant show clean figures, that’s a big plus” to a potential buyer, says Merkle.

While most private companies, for instance, simply expense capital purchases rather than amortizing them over many years (as the tax code allows and larger companies typically would do), as long as you’ve been fairly consistent in your accounting, there shouldn’t be too much of a problem.

In the end, he says, when it comes time to talk price, “it’s to a seller’s benefit to show the largest profit over the last year, rather than saving a few bucks on taxes.”

Hire a professional merger and acquisition intermediary to help you. You will recapture the expense many times over.

Okay, so this one’s a little self-serving on Merkle’s part, but we decided to let him have it, partly on the theory that 10 tips sounds a lot catchier than nine.

John Ettorre (jettorre@sbnnet.com) is a contributing editor at SBN.

Monday, 22 July 2002 09:45

Everyone’s a peacemaker

One of the oldest truisms in the legal world is that no one but the attorneys win when disputes end up in court.

And with the price of good lawyers skyrocketing and many of the nation’s court dockets more backlogged than ever before, that’s probably never been truer than it is today.

With public revulsion over lawsuit mania perhaps at its peak, even the leading attorneys’ guild, the American Bar Association, has in recent years gotten quite serious about alternative dispute resolution, or ADR, however potentially destructive that might be to their incomes. (One of its top advocates nationally has been Cleveland’s Jose Feliciano, a partner in the firm of Baker & Hostetler and a former White House fellow who several years ago crafted an innovative ADR program in Cleveland.)

Everywhere, it seems, attempts to settle disputes through means other than traditional lawsuits are blossoming. Much of the construction industry, for instance, has begun writing anticipatory ADR provisions into contracts before the work is executed. These clauses spell out how disputes between contractors and clients are to be settled should they occur.

Even the federal Equal Employment Opportunity Commission, for years the toughest cop on the litigation/regulation beat, is getting in on the act. The agency has been aggressively pushing mediation and arbitration of late as a way to winnow its huge backlog of cases. When EEOC Chairwoman Ida Castro came to Cleveland recently, she announced that a special ADR pilot program will soon begin in Cleveland and one other city.

The latest player on the ADR scene is the Better Business Bureau, whose local chapter hears as many as two dozen mediation and arbitration cases between consumers and businesses each month. Actually, says Greater Cleveland BBB vice president of operations Sandy Prebil, the organization has been informally mediating disputes between businesses and consumers for years.

Telephone intake workers are routinely trained on how to counsel irate consumers to push their business disputes. But more recently, she says, the national organization has been putting into place a more formal arbitration and mediation process.

The local chapter, which covers the counties of Ashtabula, Lake, Geauga, Cuyahoga and Lorain, offers free mediation and arbitration service for its 3,500 dues-paying members (dues are set at a sliding scale, but most members pay $325 annually). In fact, “members are sort of committed to going to arbitration or mediation with us,” says Prebil.

For a $200 fee, nonmembers can also take part, though no one can recall that happening recently.

Mediation cases are nonbinding and can only be pursued with the agreement of both parties. Arbitration, however, is binding.

“We do many more arbitrations,” Prebil adds, about 15-20 cases a month vs. just one or two mediations. “Strangely, people like someone to tell them what to do. People get dug in and are sure they’re going to win,” she says, and thus tend not to worry that they’ll be obligated by the ruling should the arbitrator rule against them.

Most cases are launched with a complaint from a consumer, though some arbitrations have sprung from inquiries by a business. Most of the hearings take place at the BBB’s downtown offices (though not during Major League Baseball playoffs, since the office overlooks Jacobs Field, and parking is at a premium then), but some have taken place at a consumer’s home, especially in cases in which the dispute centers on home improvement work.

With the heavy imbalance between mediations and arbitrations, the local BBB has a stable of about five mediators and nearly 35 arbitrators prepared to hear cases. Most tend to involve disputes over amounts of $1,000-5,000, often involving home improvement work, “but one case I can think of earlier this year was for $20,000,” says Prebil.

For more information about the Greater Cleveland Better Business Bureau’s mediation and arbitration procedures, consult the group’s Web site at www.cleveland.bbb.org, or call the BBB at 216-241-7678.

John Ettorre (jettorre@sbnnet.com) is a senior contributor at SBN.

Sunday, 21 July 2002 20:00

All dressed up and no place to go

Spring 1996

This was going to be Jim Peters' day to strut, and he planned to do it in style. He reserved a party room at Don's Pomeroy House in Strongsville and ordered up more than a dozen bottles of chilled Dom Perignon. Then he invited his eclectic circle of friends -- from business acquaintances to fishing buddies -- to serve as witnesses to the climactic moment of his entrepreneurial rite of passage: cashing out.

Now 37, the former Xerox and Johnson & Johnson salesman-who later stumbled into a partnership that would roar into a $9 million information-technology business in just eight years-had become the first in his circle to reach the promised land.

He'd begun the day as so many other business owners do: prosperous, yes, but with his wealth almost entirely on paper, wrapped up in the daily operations of his company, Adams & Reynolds. And he would drift off to sleep that night a certifiably wealthy man, a millionaire several times over.

The paperwork had been signed. The lawyers and investment advisers (including the $800-an-hour M&A specialist he felt obliged to hire to look over the perfectly capable work of his $150-an-hour attorney) had returned to their offices. But for Peters, there was only one thing left; a most important element keeping the champagne corks in place: confirmation that the wire transfer for his half-share from the sale of his business had cleared.

As the lunch hour slipped into early and then late afternoon, there was still no word.

"I had no idea where it was and what that might mean," Peters recalls. "Does it mean that some $20,000-a-year clerk just didn't move the sheet of paper from one file to another [yet]? What are the chances of it really going wrong? Probably very low. But if you're a guy like me, who's gotten where he's gotten by thinking he's managed all his risk, this is a very uncomfortable situation."

His friends gingerly treated him like a pitcher nursing a late-inning no-hitter, anxious to avoid jinxing him. "The last thing you wanted to talk about is the deal," one recalls, "so what happens is you talk about everything but that: some hunting stories and what's going on with everyone else's businesses."

Finally, as the dinner hour beckoned, Peters' lawyer, Kevin Kehoe, strode in, silently wrote the figure on a napkin and showed it to Peters. Out came the corks. "We were drinking [bottles of champagne] like water. They just had to keep bringing them," says Peters.

Who knew what might lay ahead for this young and newly minted millionaire, a father of four? In coming weeks and months, Peters would muse aloud about the unimaginable freedom: to travel, to luxuriate in family time, to leisurely plot his future. All that lay just over the horizon now that he had converted sweat equity into cash. Now, Jim Peters liked to say, he had poker chips with which to play the game of life.


May 1997

It's now a year later and Peters has decompressed from 15 high-stress years in business. "I feel like I've shed about five skins," he says. Now, he shows up to lunch appointments in a gun-metal safari shirt, close-fitting jeans and cowboy boots. "I still have my suits, but I got rid of all my white shirts," he says.

He might have spent the morning wading into the collected works of the twin pillars of investment guruship, Peter Lynch and Warren Buffet, looking for clues on how to manage his nest egg and perhaps find just the right venture to bankroll.

He talks occasionally about "spiritually fulfilling adventures," clearly a counterpoint in his mind to the brass-knuckled Darwinism of business. The son of a speech therapist, Peters now thinks aloud about doing volunteer work with disabled children. "I feel a calling coming," he says, laughing at how bizarre that might strike his former business associates, who, he assumes, considered him more carnivore than do-gooder.

"They would probably fall off their chairs, because my personality in business was very driven. No personality; just go out and conquer." But that was merely an outfit, since discarded, that he donned for battle.

Certainly, he indulged himself with his new windfall, plunking down $100,000 for a red Mercedes coupe not long after selling the company. But that touched off so much neck-craning from neighbors in his working-class suburb southwest of Cleveland that he ultimately thought better of it. "I was just trying to see what it was like being able to afford those kinds of things, but it didn't appeal to me," he says. "I prefer to drive down the street in anonymity." Besides, when he hit a deer with it, "I thought that was God's way of telling me to keep it in perspective: I gave it to you, buddy, and I can always take it away."

He sold the Mercedes and bought a kelly-green Yukon, an oversized sport-utility vehicle more hospitable to family life and less likely to prompt unwanted attention.

For the first time in his life, he has not only excess cash but plenty of time. His lifelong attraction to the outdoors helps fill much of that. A member of both the National Rifle Association and Safari Club International, he has poured himself into hiking, camping and fishing. He visited gun shows, and went bear-hunting in British Columbia. He took the family to Alaska. And he's plotting his biggest challenge yet: an African hunting safari.

In the African bush, even in the company of an experienced guide, one might just as easily become the hunted rather than the hunter, he says. That kind of rush would forever top the comparatively pallid experience of hunting woodcock in the marshy stillness of northern Maine.

His only true business venture-with the possible exception of helping a friend find a broker to sell a company-has grown out of an addition built onto his home.

At the time, Peters was impressed with the father-son team that performed the work, and grew to trust them so much that he shared with them not only his house keys but the code to the home security system. The son, who has an MBA, "told me he had this dream of buying houses, fixing them up and selling them. I talked to my attorney about it," and the wheels were set in motion.

Peters staked the pair in buying a fixer-upper in Shaker Heights, then another in Gates Mills. "I know nothing about houses, nothing about home remodeling or real estate," Peters says. "But what I like is the people. That's the key. If you read Warren Buffet, it's always the people." In the son, he sees himself. "This guy is where I was many years ago. He's coming from nothing."

Eventually, Peters says, he thinks the business can do $1.5 million a year, with pre-tax profits of 35 percent. "It's a no-brainer," he says. Tellingly, he has named it Hunter's Realty, casually ignoring the fact that a well-established East Side player, Hunter Realty, might object.

"We're small potatoes to them" he says, adding that he knows eventually the name will have to change. This informality-surprising, given that he once went through a distracting trademark scuffle when building Adams & Reynolds-perhaps signals that the venture feels more like a hobby at this point than a real business.

Mostly, though, he revels in having time with his four children, who range in age from 8 to 15. Just after selling the business, they finally complete a model they had laboriously been building together in fits and starts for five years.

Formerly the kind of dad who was lucky to make it to half their sporting events, he is now immersed in their lives. He has taken to shepherding them and large groups of their friends to various events, coaching several of their Little League teams. He redirects his empire-building impulse into becoming commissioner of the league. He finds a nurturing side in coaching, likening the satisfaction of watching a bottom-of-the-order kid get a hit to that of seeing a junior sales rep blossom. He takes a special liking to a hard-nosed kid on Ritalin, who clearly reminds him of a younger version of himself. "I was probably borderline A.D.D. (attention deficit disorder)," he says.


Fall 1997

That immersion in his children's lives has taken a few improbable turns, none more bizarre than when he helped prepare a French dinner for 200 nuns, to mark the 500th anniversary of their teaching order (whose members teach in a school his children attend).

"It was probably scarier than anything I had ever done before," he says. In fact, after a year as a father who had no particular place to be most days, he had spent so much quality time with his children that his then 8-year-old son took to boasting: "Gee, how many other dads would sell their business to spend more time with their kids?"

Despite such satisfying feedback, one could detect in more than a dozen conversations after he sold Adams & Reynolds an undertone of regret, a creeping question he felt lingering over his head: Am I becoming a dilettante, and if so, how long am I going to keep this up?

The feeling may have first crystallized one day late in the spring of '97, when he was in the basement doing the family's laundry. "And it occurred to me: I've been down here the last seven days, doing laundry! And it's just not me." He could sense the itch was coming back. But how to scratch it? And on what?


Sometime in the late '80s

In many respects, Jim Peters was the last person one might have expected to become a millionaire before the age of 40. To this day, he thinks of himself as a "working stiff who just happened to be successful." That's not false modesty as much as a residue of his working-class upbringing.

Peters grew up squeaky-clean conservative, a true countercultural for a late-'60s adolescent: a Young Republican Nixon supporter. He took to the outdoors with relish from a tender age, without prompting from his family, which had no interest in hunting or fishing. His father, a salesman of business forms, developed early kidney disease and died when Jim was 21. With the attendant financial difficulties, Peters says, he managed to attend Baldwin-Wallace only because his mother worked there.

On reflection, his dad's professional universe uncomfortably reminded him of the movie Tin Men, about conniving, streetwise aluminum-siding salesmen in 1950s Baltimore. "Salesmen used to play cards; IBM changed all that," he notes, by introducing the concept of an educated, polished, professional sales force. But with only his father's wan example fresh in his mind, he says, "I vowed I wouldn't be a salesman." Xerox foiled his plan, though, by doubling every other offer he received upon graduation. He says he prospered while based out of the Akron office, but only after negotiating his way past a dubious gatekeeper. "The branch manager in Cleveland didn't think I had what it takes," he recalls. "The Akron guy loved me."

Peters didn't stay long, though. Johnson & Johnson recruited him away to sell surgical supplies to surgeons and hospitals.

"While I enjoyed the glamour of it, I realized that my job was the equivalent of selling knives and forks. ... I had to sell, like, 20 of these instruments a day. That's more brainpower than I've got, so I had to get out of that."

Restless, he hung out a consulting shingle with a friend, and four years later met Jenny Zamberlan, an introverted whiz with computer networks. Together, they formed Logica in 1993. The work began coming in from BP America and other blue-chip clients, and it never stopped.

Peters' abbreviated odyssey through corporate America was frequently complicated by distracting background noise. Always, he seemed to hear what sounded, to him at least, like blatant class snobbery. He heard it in the medical community's icy response to his sales calls, "treating me as half-human," he says. Later, he detected a similar tone in the British executives at Logica who pressed a trademark claim (prompting Peters and Zamberlan to change their company name to Adams & Reynolds, their respective mothers' maiden names): "So British, so arrogant-they thought we were using their name as leverage to sell fake Rolex watches or something."

He even heard it when he called Compuware executives in Michigan to pitch them on the sale of his company.

An observer might suspect that Peters is a man haunted by the possibility that he could never measure up to the coldly impersonal demands of the corporate world-what he calls the "mercenary" nature of business. "If you look at most people in business, all they're after is a buck," he claims. "It doesn't generally matter how they make it."

Eventually, he found a comfort level in business by drawing parallels to his off-hours passion. "I finally started treating business like hunting. I just said, 'This is no different than staking out my territory in the wilderness, defending my ground, conquering competitors. It's the same thing, capitalism is the same as nature.' When I concluded that, then I didn't mind the two-faced political bullshit that I had to put up with in business. I just looked at it as getting rained on when you're hunting. Political bullshit was just a wet shirt that you had to wear around."

Peters shows every evidence of having learned how to compensate for that lurking sense of personal inadequacy through scrupulous, at times extreme, preparation. "If I had a business lunch with a guy at 11:30, I would come to the restaurant at 10 o'clock, and I would look over the place, pick out the table," he says. "And I would come back and walk in there like I lived there. It was just a matter of wanting to know what I was walking into. I just always do it that way. Teach your mind what to do, the body will follow."

That rigorous self-discipline, combined with a technically sound partner and a torrid IT market, helped A&R achieve the "hockey stick" growth curve-50 percent annual growth rates for several years running-so universally beloved by venture capitalists and investment bankers. The company landed on the national Inc. 500 and local Weatherhead 100 lists of fastest-growing companies several years running. The larger world was beginning to signal its embrace of this oddly mismatched pair of 30-something partners (who never socialized a moment outside of the office) that started with little but guile and hustle.


The mid-'90s

But just beneath the astonishing numbers and the uniformly rosy public story they implied, Peters knew the ominous truth: The company's fortunes were about to stall, meaning there would never be a better time to sell than now. A&R was growing so fast that a seasoned industry consultant the pair retained as a mentor was warning them that the company would "implode" without adding management structure. Retaining skilled programmers was becoming such a chronic problem that the company was forced to make as many as five hires for every person who stayed.

At the same time, A&R had grown to an untenable size. No longer a small shop, but not large enough, either, to land the biggest contracts in a field increasingly dominated by the Big Six accounting firms and other major national players. ("Companies think twice about awarding you a project equal to your annual revenue," Zamberlan told another publication at the time the sale was announced.)

Peters, meanwhile, was haunted by the example of several local IT consultancies that quickly went from hot shops to also-rans. He was especially rattled by the experience of one local competitor, whose owner went from passing out fat annual bonus checks at the corporate Christmas party and huffily rejecting lavish buyout offers to (according to other industry sources) personally billing clients for his own time, having watched his payroll shrink from 75 people to fewer than a dozen.

"The value of a company is very tenuous," Peters says. "There's no light that comes on and says, 'The value of your company will never be more.' I would advise anyone with a business who can realize one or two million dollars, sell it now. Go out and start something else. Otherwise, you might be holding worthless paper."

So Peters and Zamberlan quickly accepted a purchase offer from Compuware Corp., a $600 million Michigan company Peters had called when he heard it had been sniffing out opportunity in Cleveland. The partners would split $12 million, about 1.3 times A&R's revenues. Zamberlan would stay with the company, while Peters would be shown the exit sign, barred from re-entering the industry for a few years by a noncompete contract.

He struck a cocky public pose-"I'm not a corporate kind of guy; I build businesses and I go on," he told one writer at the time, ignoring the fact that his grand total of businesses built, then as now, was exactly one.

Whether he admitted it or not, he was emotionally bruised, or at least seriously ambivalent, about selling out. When the subject of his former partner arises, for instance, Peters careens wildly between expressing deep admiration and corrosive bitterness. "She had a martyr complex which reminded me of my mother," he says of Zamberlan's refusal to delegate while simultaneously whining about overwork. "When I was done with Adams & Reynolds, I was so sick of the political bullshit with partners that I don't think I'd want partners again. ... I find that most businesses evolve into skirmishes after awhile; they're not really adventures anymore."

He also had a residue of anger with Zamberlan over issues arising from the sale. "She turned on me about a couple of things, after I had built her up," Peters says. Today, he lashes back by referring dismissively to her current role: "Now she's a corporate manager." Zamberlan "respectfully declined" an interview.

At the same time, Peters seems to fully recognize that Zamberlan's lighter touch with people was a key to building the company, and ultimately to making him financially independent. She was good at dealing with people, he admits, "but I was never that sympathetic about people that were not performing, that were not capable. It's not just that winning is everything, but losing is just unacceptable." On the whole, he seems genuinely grateful to her.

He always planned to sell, he says. But even he couldn't have predicted how well they'd do.

"There are a lot of businesspeople who are overly impressed with themselves. There's a lot of luck involved in this. Could I say that I had some brilliant plan that allowed us to get 12 1/2 times earnings-projected earnings, by the way? Could I write you a formula that could ensure that? No way."

The partners, he says, "were fortunate to have interested buyers at a time when we were about to hit a plateau, when we had to work so hard just to maintain what we had."


Spring 1998

In recent months, having passed his second anniversary of clocking out from the traditional working world, Peters is finally beginning to sound as if he has reached a kind of peace about his future. Previously blessed with the wiry, athletic build of a hyperkinetic salesman, he has developed a pronounced paunch. His moment of reckoning in the laundry room turns out not to have been an epiphany after all. "I just don't do laundry anymore," he says.

He recognizes the limitations of his temperament. "I've never been a detail man," he admits. That and his financial independence-stoked by outsized returns from the recent bull market-make it extremely unlikely that he'll ever get back into business in a daily capacity. "I may not be super rich, but I don't ever have to work again," he says. And he seems to understand that that has changed everything, although he continues to very nearly apologize for not having re-entered the fray after two years.

For now, at least, the fact that he's bankrolling one entrepreneurial venture and remains alert for others provides sufficient balm to his slightly wounded pride. "You find me another guy who's got a driven dream, who's got integrity you can see in the dark, who's got discipline that's evident, and I'm going to probably get involved with that guy, whether it's making sandwiches or making auto parts," he says.

Certainly, there was no lack of things claiming his attention in the interim. This spring, he took his family on an Easter skiing vacation in Aspen, Colo., then dropped them off at home before heading back out with his buddies for fishing in Mexico. "They were carousers first and fishermen second," he says, almost sheepishly. "I learned." And three weeks after that, he was set for the big one: his long-awaited African safari. "I don't want to watch the Discovery Channel and think I know what it's like," he told a friend who asked why he was doing it. He had to admit to himself that "I don't know if I have what it takes. I might be wetting my pants." Metaphorically, at least, he would be taking along his talismanic spiritual guide, Death in the Long Grass, a brooding autobiography of a 30ish stockbroker who abandons it all to pursue big-game hunting in Africa.

His wife, Diane, a teacher who is only now retiring from the classroom, has signaled an interest in moving the family to Colorado, so taken was she by the Aspen area. For now, at least, Peters says he's reluctant to uproot his children from their structured, conservative surroundings for a place so full of adolescent temptations. But it's clear he's not ruling out a move, either.

As he approaches his 40th birthday in October-full of obligatory denials that the number has any meaning to him at all-his quirky cycle of intense family engagement punctuated by private indulgence, coaching and funding other ventures, is beginning to sound as if it might constitute an interesting life.

"What you see now may very well be what I'm going to be for the rest of my life," he says. "Seeding things and working with people. That wouldn't be such a bad life. I'd be happy with that."

Monday, 22 July 2002 10:08

Life after the show

Like a lot of professional ballplayers, Rick Manning had a hard time coming to terms with the fact that his playing career was finished. "I never officially retired; they just never called me back," jokes the Indians' former center fielder. "I tried to keep playing-I lied, I cheated, but they wouldn't let me in."

The line is sure to evoke full-throated laughter in audiences, but it also encapsulates a bittersweet reality for men such as Manning, who once earned their living by playing a boys' game. But Manning, a phenom prospect from Niagara Falls, N.Y., who never went beyond high school after he was drafted into the Indians farm system in the early '70s, has nevertheless found a way to remain knitted into the fabric of America's pastime since retiring from the game in 1987, then a member of the Milwaukee Brewers.

Today, he's best known in Cleveland for providing the color commentary on 70 Tribe telecasts each year for Fox Sports Ohio and for appearing in long-running TV commercials for a local heating-and-cooling contractor. For the last four years, he also has coached minor-league prospects during the team's spring training camp. Few people, however, know that in addition to all that, he has become something of an entrepreneur, coordinating affinity packages related to Tribe baseball.

Through a partnership they call K&M Productions, Manning and his partner Rudy Kastelic, owner of a Garfield Heights manufacturing company, produce spring training packages for fans, mount an annual fantasy camp in Florida and even put together a post-season Caribbean cruise where fans can mingle with a few of their heroes.

Many former jocks capitalize on their name recognition in the usual ways. Despite his lifetime ban from baseball, former Reds player-manager Pete Rose still makes a tidy living hawking his pricey autograph at dozens of collector shows each year. The immortal Willie Mays, meanwhile, was roundly condemned a few years ago by the lords of baseball simply for taking a job as a greeter at a Las Vegas casino.

In Cleveland, the list includes auto dealerships (former Browns linebacker Clay Mathews), real estate agencies (Browns cornerback Hanford Dixon, who now has the listing for Art Modell's house), restaurants (too many to mention) and bond sales (Browns wide receiver Brian Brennan is a top producer for KeyCorp).

Rick Manning, who first cracked the Tribe's roster in 1975, chose a slightly different path, perhaps in part because he never attended college. While he says he was approached about a lot of these kinds of opportunities upon retirement, he adds that "I would never do anything like that. I don't give my money to anybody."

Take the restaurant business, for instance. He calls it "one of the toughest and most competitive in the world. I don't know a thing about it, so what are my chances of making money? I may be a guy with a high-school education from Niagara Falls, but I'm not stupid."

Still, when Manning retired and moved back to Cleveland, he wanted to stay involved in baseball in some way. "But I didn't want to coach or manage, because I didn't want to stay on the road." Instead, he submitted a proposal to the Indians to run a fantasy camp.

The team reacted coolly at first. "There are a number of issues that cross your mind when you hire a former player," says Indians vice-president Bob DiBiasio, the institutional memory of the club's front office. "At the top of the list is, how would other alumni feel who also are businessmen?"

But Manning has since come to understand that there was another reason his proposal wasn't embraced at first. "I don't think they trusted me. They figured, here's an old ballplayer, what does he know about it? They didn't think I was a businessman and could handle it. And when I look back now at all the work that was involved, they were probably right. I would have found out in a harsh way how tough this is."

But when he teamed up with the diesel, Rudy Kastelic, it was another story altogether.

Manning first met Kastelic 20 years ago through their mutual friend, former Tribe pitcher and bonus baby Wayne Garland. Kastelic, who owns VIP, a $5-million manufacturer and distributor of home-insulation products, had arranged cruises featuring former Tribe player and broadcaster Herb Score, and Manning asked Kastelic if he could do the same for him. Kastelic called his contact at Norwegian Cruise Line, only to find he had left the company. As Manning recalls it, "He called me back and told me that, and I said, jokingly, 'that's too bad, we'll have to start our own cruise.'" Kastelic apparently didn't get the joke, because a week later, the nascent partners were meeting with a travel agent to get the ball rolling.

The result was the "Dream Team" cruise. Though it wasn't affiliated with the team, the budding promoters did land Tribe stars Charlie Nagy, Omar Vizquel and Sandy Alomar. It drew 225 fans, specially catered to handicapped fans and impressed the Indians' front office. "They did their homework," Manning says. "They went out and checked, and people were satisfied with the service and what we provided. They were pleasantly surprised, I guess you could say."

The team has since agreed to a formal affiliation, and K&M's arrangements partner is now Triple A Travel, which has 17 offices in the region. Three hundred fifty fans turned up for last year's cruise, and K&M expects it will have to cap the number at 400 this year.

The cruise led directly to the fantasy camp. "If we hadn't done the cruise the year before on our own, we would never have gotten the fantasy camp. We proved to the Indians that we could put it together," Manning says. Shortly before the team's spring training opens in Florida each year, K&M now operates a fantasy camp for fans 30 and older. "It's crazy," Manning says. "We haven't even advertised it, and yet we might have to add a second week this year," because the first session fills up by late summer, even at $3,895 a head with a $750 deposit.

The engine behind it all is Kastelic. "He never sleeps," Manning marvels. "He works seven days a week, from 7 in the morning till 8 or 9 at night."

That kind of discipline, combined with Manning's star power and, lately, the work habits that have rubbed off from his partner, has created the kind of word-of-mouth marketing that most companies could only dream of. Says Kastelic: "We threw this spring training package together at the last moment because people were calling, saying, 'can you put something on for spring training?'" Having begun to plan only in January, just weeks before the first pitch in Florida, K&M ended up putting on one of their customary events, complete with the small, signature details that tend to lead to repeat business. "We took people in vans to the games," Kastelic says.

The partnership is 50-50, based on nothing more at the start than a handshake. "We have a relationship that's phenomenal," Kastelic says. "Rick takes certain things and I take other things. I've always said I could never go into partnership with anyone, because I work so much, put so much time in. But I have to say that Rick is the only one in the world that I could go into business with, because he works just as hard as I do."

The Indians' DiBiasio says "the combination of Rudy and Rick, we felt, was perfect for these events. They're both high-profile and very people-oriented events, and they really are a great tandem."

The partners are discussing other possible joint ventures, including some with the Indians, which they decline to specify. The team is similarly tight-lipped about future projects. But DiBiasio does say that "we're in discussions with them about a couple other things now, but what we really like about Rudy and Rick is that their approach is, let's take care of business [we already have] before we think about expanding."

Manning, meanwhile, proudly points to his pale complexion as proof that he's adopted his partner's routine. "Last year at this time," Kastelic approvingly said in late spring, "he had a tan."

If the team finally manag es to win a Series this year on the 40th anniversary of their last championship, K&M will be sitting pretty. Just days after the last pitch is thrown in the fall classic, the company's cruise is set to depart for the open seas. "If they win the Series, it will be perfect timing," Manning says. "That's how it was designed: We figured we'd have the biggest party in Cleveland, on the water, if they win the series. If they win it, people will be calling [to book a spot], but it'll be too late. You have to be already signed up.

Monday, 22 July 2002 10:04

Look no further for a speaker

Are you tired of hearing the same old canned buzzwords on the rubber-chicken circuit? Had enough of your company grabbing the sales director's brother-in-law at the last minute to paste together inspirational speeches for the sales force?

If so, you'd do well to check out the Web site of the Ohio Speakers Association. It lists more than 100 professional speakers, and includes personal information, specialized topics and brief descriptions of their background.

Speakers range from the intriguing - "the funny English prof" - to the goofy: a woman who bills herself as a "nationally recognized image and etiquette expert" and "former international model" and a man whose chief credential appears to be winning the Toastmasters International Speech Contest. There are morticians nicknamed "Digger" and priests who compare themselves to the late minister of hug, Leo Buscaglia. There's even a guy who humbly describes his presentations as a "pep rally for the human spirit."

The association's Web site is www.ohiospeakers.com.

Monday, 22 July 2002 10:03

The price is wrong

Pricing, for consultant Dave Bauders, is really pretty simple. Properly construed, it's a question of divining the relative value of products for various types of customers. And setting one's prices is among the most important variables a company must manage, he adds, "because every dollar of revenue and every dollar of profit has resulted from a pricing decision." He tells prospective clients, many of whom decline to engage his services because of his own lofty prices, that fixing their company's pricing structure can be worth anywhere from 3 to 7 percent of sales.

We asked Bauders-who is president of Strategic Pricing Associates and who prepped at IBM and the consulting firm Booz Allen & Hamilton-to discuss some of the best and worst of what he sees in his subdiscipline.

What's the most common pricing mistake you see companies making?

The most common problem is companies that have sales forces making pricing decisions without discipline. Virtually every company that has a large number of products, a large number of customers, and sales reps making pricing decisions has this problem.

That mostly ends up being mere discounting, doesn't it?

A pervasive problem among people who call themselves salespeople is that they discount rather than sell. Most salespeople are actually just discounters or order takers. They don't actually persuade people of the true value of the product. Or, if they do do it, they're not willing to push those ideas to their logical conclusion, which is to charge more. So they say that they believe they offer more value, but in the end, they don't ask for it.

What kinds of problems result from using cost as the major factor in setting prices?

When you start with cost as the driver, you'll get into two types of problems: The profit you'll add on arrives at a price that's too low, in which case you'll get lots of volume, but people don't have much respect for your ability to sell value. Or secondly, you'll arrive at a price that's too high, and thus relegate yourself to having substandard market share. Most companies are conscious of customer value, but they're not exactly sure of how to integrate that idea into developing their prices.

What's the proper approach to pricing?

The proper approach is to consider the customer characteristics, how the customer values and uses the product, and what types of competitive restraints there are on that. And then to arrive at a price. And when pricing is properly done, cost is a last check as to whether it's profitable or not. You should never start with cost as a driver in setting prices. Unfortunately, most companies have it exactly backwards.

How do industry leaders generally behave in pricing?

Companies that are leaders in an industry will be treated as such whether or not they exercise that leadership. So if you have a company that's No. 1, everybody's looking to them for leadership. And if they don't exercise that, whatever pricing decisions they arrive at will be taken as pricing signals by their competitors. Let's say that a whole industry is facing rising materials costs, and the No. 1 company does nothing to lead prices higher. The competitors view that as being an aggressive play for market share. So [the leader] may lower their prices in response or they may not move at all. But [competitors] will form an opinion about what the leader has done.

How do most companies internally organize their pricing decisions?

You have these three basic functions-finance, sales and marketing-in conflict. Properly, pricing includes all three of those aspects. What usually happens in companies is instead of sharing the responsibility, one of those functions, whichever is the strongest, hijacks it and takes it over. The winner generally is finance or sales; marketing very rarely wins. When sales wins it, you have a problem of a lack of pricing discipline, which is a management problem. When finance wins it, you have a cost-plus problem.

What's the hardest part of turning around a company's pricing strategy?

Changing customers' expectations. You have a company that has taught its customers that it does not have discipline. How do you get back to where you were? It's like when you feed a dog at the dinner table: Every time he nudges you, you give him food. What happens if you stop? Well, for awhile, he keeps nudging you, and he goes berserk. The same thing goes for customers. You've taught them things about you, whether you like it or not. You've got to have a strategy for changing the way they perceive you.

Do you generally recommend shock therapy or a more gradual approach to instituting pricing changes?

Sometimes it's shock therapy, depending on how strong their market position is.

I imagine in your field you have to put special thought into pricing your own services.

I price my work very aggressively, so there will always be a certain number of people who say no. I don't feel depressed or down when people say no-that's just a consequence of my pricing strategy.

How to reach: Strategic Pricing Associates (216) 791-1060

Monday, 22 July 2002 10:03

In the eye of the storm

If the flamboyant Rock and Roll Hall of Fame and Museum is Manhattan, photographer Chuck Gentile is Brooklyn.

Even as he approaches middle age, one can detect in him the fast-talking kid who might once have convinced half his neighbors to buy his special blend of lemonade for two bucks a glass, simply by wearing them down with his staccato chatter.

His photo studio, which he shares with another photographer in a low-rise, mostly residential neighborhood straddling Cleveland and Lakewood, is a study in contrasts. Plain as can be on the outside, inside it's outfitted to the teeth with the tools of his trade, from sophisticated $1,000 lighting units to a small library on photography.

"This isn't a walk-in business," he says of commercial photography, and he prefers that the nondescript veneer betray no hint of what goes on inside. "It's need-to-know."

The 39-year-old has been in training for his trade much of his life. Even as a school boy in North Olmsted, where he still lives, Gentile recalls being deeply impressed by a visiting photographer for the now-defunct Cleveland Press. While in high school, he walked in off the streets and landed photo assignments for the same newspaper. He later spent a couple of years attending Ohio State University, but finished at the Ohio Institute of Photography in Kettering.

Ironically, about five years ago, he produced a poster for Cleveland Tomorrow, the group of leaders of the 50 largest institutions in Cleveland. It depicted a "Ziggy" cartoon superimposed on his skyline shot of Cleveland, and resulted from a collaboration with "Ziggy" creator Tom Wilson, whom he calls a "buddy" from his days at American Greetings.

His fight against the Rock Hall has become something of a rallying point among the creative community, especially in the photography trade. The American Society of Media Photographers, the trade group which has supported him throughout the case, is even using it as a recruiting tool. A full-page ad ASMP ran in a glossy photographers' magazine in September quotes Gentile as saying, "I knew this was a case that could affect every photographer in a big way, but the truth is I couldn't pay lawyers to fight it. That's where ASMP came in."

It goes on to say that "while Chuck Gentile has won a major battle in his trademark suit with the Rock and Roll Hall of Fame, the war is not over. ASMP is going to be with him until it is."

He notes in that ad, as he has throughout the case, that he took his now-famous photograph from a public sidewalk. He even claims to have received assistance from a Rock Hall security guard to help him move some pylons out of the range of his viewfinder. And if one looks closely at the finished poster, you can see the tiny figure of a guard standing unobtrusively against a marble slab which bears the name of the museum.

"I told him, 'don't move, you'll mess up my shot.'"

He never could have imagined, of course, the kind of mess in which the photo would eventually embroil him.

Monday, 22 July 2002 10:00

He gives good phone

Have you ever called a company, only to be greeted by a taped message that sounded like a portion of the soundtrack from the movie Night of the Living Dead? That’s hardly the problem at Allegheny Power Products, in the Collinwood neighborhood.

Call the owner, Tony Viola, and you’ll be greeted by the nearest thing in American telephony to Dick Vitale’s hyperactive sportscasting riff. “Yooouuu’ve reached Tony, at Allegheny Power Products. Please leave your name and number, so that I can take immmmeeeeeediate action on your call ... I’m looking forward to speaking with you, iiiiinn person, veeerrry soon.”

Eventually, we did get through, and inquired: Why the voice mail greeting on steroids?

“I started my company in my basement with two credit cards. Now, we have 22 people,” he says. Since he started so modestly, “I figured the one thing we could do is answer the phone with some zest. With some companies, you call, and they sound dead.”