If you read the research reports, category X will rise in sales from $2 million this year to $500 million in a few years. It doesn't really matter what X is, because all the reports are almost identical.
In reality, the only products that are definitely selling well over the Internet are books and music. But if you sell something else, does this mean you can't profit from the Web?
Consider Town & Country Log Homes. Log homes aren't something you'd readily equate with Internet sales, yet the company garners 92 percent of all first contact with customers through its Web site.
"One of the things that makes it work so well is that we have such a narrow niche," says Dave Reed, vice president and marketing director for Town & Country. "We can target our customers very easily. Our customers are people who are seeking log homes and are looking for a specific thing. They are seldom just looking for a home."
In the early '90s, niche publications, color brochures and catalogs were the company's main means of showing the product.
"We decided in '94 or '95 to produce a CD-ROM as an adjunct to or a replacement for the brochure because of the economies," says Reed.
The company could produce a CD with 700 pages of plans and pictures for 65 cents each, as opposed to a 100-page plan book for $10 to $12 each.
"Our Web site really flowed along with that technology," Reed says. "As we advanced electronically, it made sense to sell on the Web because the people interested in our products were likely to have a CD player, Web access and were likely to use it.
"Our site evolved with a combination of some technical advances, along with some general updating. That's the nature of the difference between a site and a printed piece. The site is more like a fluid liquid document; there's always fine tuning. We get feedback from customers and visitors, and new photography gets online much faster. It's as much a communication tool as advertising, per se."
The company was careful in its selection of which technology to use. When virtual photos, which allow the viewer to pan 360 degrees, became available, Town & Country waited.
"We waited quite awhile until the technology got to a better resolution," says Reed. "In the earlier versions, the quality just wasn't there, and that wasn't a direct fit for us. We try to stay away from whiz-bang items just for the sake of saying it's cool. We look at is as, "How will this help the customer get more information about our product?"
The site URL is listed on every printed document the company has, from ads to business cards, to checks and invoices. It also does keyword advertising on a search engine, so when someone types in a search for "log homes" or "cedar homes," its banner comes up.
Of the 92 percent who find the company through the Web, about half found the site through printed materials or shows. The other half comes from links or Web searches.
"There are a number of companies in this business, and you have to do these things just to be ahead of the competition," says Reed. "If you don't do it, someone else will. The real key is to have a narrow niche product. You can do this cost effectively.
"I've listened to people throw around numbers -- like you need $10,000 to have an effective site. In five years, we don't have $10,000 in our site. You can have a quality site on a minimal budget that works, if you are thoughtful about it." How to reach: Town & Country, www.cedarhomes.com
Todd Shryock (firstname.lastname@example.org) is SBN's special reports editor.
Chronic conditions in particular, such as diabetes, low-back pain and asthma, take their toll on businesses through frequent absences, lower productivity and higher health insurance premiums.
In Ohio, diabetes triggers enormous social and economic costs. Statewide in 1996, diabetes led to more than 11,000 deaths, nearly 3,000 amputations and close to 150,000 hospitalizations. Diabetes-related medical costs and lost productivity costs in Ohio totaled about $5 billion that year.
Low-back problems affect virtually everyone at some time during their life. Surveys indicate that one-half of working-age adults have back symptoms each year. Next to the common cold, low-back problems are the most common cause of work absenteeism in the U.S. and the most common reason for filing workers' compensation claims. Nationally, the financial toll on businesses ranges from $50 billion to $100 billion.
Back problems also affect co-workers, who must take on the disabled employee's workload. Although the causes of low-back pain are usually not serious, the discomfort can affect emotions, lifestyle and job performance.
Recognizing the challenges of low-back pain and other high-cost conditions, health insurers are responding by offering employers a new initiative known as care management. Care management programs seek to help patients better manage their conditions; reduce disease-related complications; better comply with their physicians' recommendations; and improve their quality of life. Keeping employers' health care costs affordable is another goal.
Under a low-back pain care management program, employees are identified to participate based on their claims history. Low-back programs emphasize basic patient education. Research shows that when patients better understand their illness, they tend to take better care of themselves and avoid behavior that could increase the risk of back injury.
Once identified, employees are asked to fill out a questionnaire about how their back pain affects their lifestyle. Answers are forwarded to the employees' primary care physicians on a confidential basis to help guide discussions at physician office visits.
Participants receive a guide that helps them understand the causes of low-back pain and how to prevent it. It offers tips about proper lifting, bending and sitting techniques; simple exercises for strengthening the lower back and maintaining flexibility; ideas for making one's home and workplace more safe and comfortable; and suggested lifestyle changes that can improve one's back health.
Participants also receive a video which answers frequently asked questions and explores the latest treatment options. The video offers tips on how to talk to your doctor and provides resources for additional information. Toll-free information lines are available for employees to speak to a nurse or listen to tapes about back pain.
Care management programs seek to support physicians' patient education efforts and help them achieve clinical excellence in treating patients. Physicians receive care guidelines -- prepared by the nation's leading medical authorities -- on the treatment of back problems. The programs are not intended to be a substitute for physicians' judgment or experience.
Care management programs are yielding measurable dividends. In one CIGNA pilot program, low-back pain-related hospitalizations decreased 17 percent and emergency room visits dropped by 16 percent in one year. Additionally, employers' medical costs for low back pain declined 16 percent during that period. Although still in its early stages, care management shows great promise for keeping employees healthier, reducing disease-related absences from work, and containing employers' health care costs. Jannifer Harper, M.D., is medical director of CIGNA HealthCare of Ohio.
Still not convinced a healthier workplace can help your company's bottom line? Consider these facts:
- Low-back pain, diabetes and other chronic illnesses take an enormous toll through employee discomfort, absences at work and high health care costs.
- Care management programs, offered by insurers to employers, identify employees with high-cost chronic conditions, promote prevention and offer appropriate medical care.
- Program participants receive educational materials to help them better understand their condition and take better care of themselves.
- These programs seek to reduce disease-related complications, decrease absences at work, improve patients' quality of life, and contain employers' health care costs.
Mark Goldfarb cannot recall the number of times he and his partners have heard the offer: the promise of easy cash and a name loaded with brand recognition. It is, without question, a tempting lure.
But Akron's SS&G Financial Services has managed to hold its own in an industry rife with mergers and buyouts.
"We've been approached by all the major consolidators," explains Goldfarb, who is a bit reluctant to share many of the details about the suitors who have beaten a path to his doorstep over the last few years. "We really didn't think a lot of their business models made sense. And, at the end of the day, you can have all kinds of services under one roof, but you've still got to take care of your clients."
That is the long and short of the accounting industry. While companies such as American Express and Century Business Services motor through the accounting profession snatching up independent CPA firms, SS&G has managed to keep its name off of the ever-growing laundry list of industry acquisitions.
Instead, Goldfarb and his partners have pursued their own acquisitions. They've spent the better part of the past 18 months transforming the accounting firm formerly known as Saltz, Shamis & Goldfarb into SS&G Financial Services.
First, in March 1999, SS&G acquired Akron's McWhorter & Co. to form the base of its health care practice. Then, it added Chagrin Falls-based employee benefit consulting firm R.C. Morris Inc. and Westlake-based technology consultants F1. Finally, and most recently, SS&G acquired the Columbus CPA firm of Green and Wallace Co.
The deals boost SS&G's annual billings about $5 million and increase its work force to 280, making SS&G the largest independent accounting firm in Ohio and one of the 50 biggest in the country.
"The bean counter is no longer a bean counter anymore," Goldfarb says of the influx of new client services to SS&G. "Or, at least now, there's a different way of counting beans."
These are strange days to be a CPA. The profession was in the process of evolving from bookkeeper to business consultant when the rules changed again. A dwindling pool of qualified professionals, a booming economy and the need for a quick and easy business succession plan have mixed together to fuel an age of rampant consolidation in which you can hunt, be hunted or try to stay out of the way.
How this trend will ultimately affect the more than 44,000 small, independent accounting firms in the United States depends upon whom you ask. Answers vary from "not much" to predictions that many of these small players could end up gasping for air if and when the U.S. economy takes a nosedive.
"There is a strong entrepreneurial spirit alive in the hearts of many of the smaller practitioners. I don't really think they see it as change or die," says Tim Fogarty, a professor and chair of the accounting department at Case Western Reserve University's Weatherhead School of Management. "It's a difficult sell because the phones keep ringing and there are more tax returns to be done."
It's not only the small players that industry observers are worried about. Independence-based Century Business Services' lackluster stock performance of late is an indicator to some that perhaps bigger is not always better. The bottom line is this: It doesn't matter what level of the highly fragmented industry food chain an accounting firm falls into, those in the top office are looking over their shoulders to figure out how to emerge from the changes as survivors.
Keeping up with the competition
Of the 45,000 CPA firms in the United States, few are considered "national." Carve the 100 largest firms from that list and you are left with roughly 44,900 businesses that each have fewer than 50 CPAs.
It's obvious from those numbers that the small accounting firm will not become extinct any time soon, but some wonder why so many were bought by just a handful of big-name players. Industry watchers point to the booming economy, a dwindling work force, business succession planning and client demand as the reasons.
"Part of it is trying to keep up with what's going on with the larger firms -- the Big Five firms," says Fogarty. "They have certainly gotten aggressive in terms of trying to offer their clients one-stop shopping for a diversified portfolio of services and these small firms have not been able to keep pace."
Likewise, Alan Anderson, Senior Vice President of Technical Services for the American Institute of Certified Public Accountants (AICPA), sees the needs of the customer driving the consolidation trend.
"Clients are demanding more," he says. "They like to go to one place to take care of everything."
But while the Big Five -- Arthur Andersen, Ernst & Young LLP, KPMG Peat Marwick, PricewaterhouseCooopers and Deloitte & Touche -- and other players in the profession roll new services into their portfolio of client offerings, many smaller firms can only sit on the bench and watch. Stir in the hefty price of integrating new technology and it soon becomes apparent why some CPA firms look at a merger offer as a life preserver.
"If you're a CPA who has eight or 10 people working for you and you're 55 or 60 years old, what are your options?" says Goldfarb. "Somebody who offers you some cash, stock and an opportunity to continue to run your division of a business is a better option than figuring out whether people in your office have the financial capability to buy you out and the expertise to keep clients."
So what are the owners of small CPA firms doing to help their businesses reach their full potential in this age of consolidation? As it turns out, not much. The booming economy has brought most firms more business than they'd ever seen before, making it difficult for owners to focus on much more than simply keeping up with client demand.
"There really is no panic," Fogarty says. "There is no incentive to change. There is no time to look around and see what's going on. As long as people are happy making as much money as they had in the past, or even a little more, they will certainly stay where they are.
"It's only when they start, as I say, to dream the dream of fabulous wealth, that they start to listen to these consolidators and see the advantage of being part of a larger enterprise."
Strategic movement in the middle
"If I thought there were disadvantages, we clearly wouldn't have done it," explains David Sibits, who has fit in this interview via cellular phone while on the road to visit a client.
Sibits is the managing partner of Hausser &Taylor LLP, a Cleveland accounting firm that made headlines in February when it sold all of its nonaudit business to industry powerhouse American Express.
"Their vision is to be the top service provider to the middle market for tax advisory services. To us, it was a very, very desirable thing to be part of."
Nevertheless, when the 65-year-old, 270-employee independent accounting firm -- one of Northeast Ohio's largest at the time -- signed on the dotted line with American Express, it stood to some observers as an undeniable sign of the changing times. Yet, Sibits does not like the portrayal of American Express as an organization on a ruthless acquisition campaign merely for the sake of building an empire.
He says the decision to sell Hausser & Taylor's nonaudit accounts to American Express was simply a way to combat industry pressures including a thin work force and the rising cost of technology, while retaining the entrepreneurial attitude that has been part of the firm since its inception. It was that combination of benefits that Sibits says other players who courted his firm in the past simply could not offer.
"We're a pretty desirable date to the take to the dance," he says. "This allows us to be the entrepreneurs that we were and still have the benefit of big company involvement. A consolidation into PricewaterhouseCoopers or Ernst and Young or whoever would have changed the entire make-up of the organization. This didn't. It allowed us to be who we are."
A few miles south along I-77 lies the headquarters of a public company that has shared the spotlight with American Express as a major industry consolidator that has aggressively snatched up smaller accounting, employee-benefits and business consulting firms during the past few years. But, after an all-time high stock price of a little more than $25 two years ago, Century Business Services, or CBIZ as it's more commonly known, has hit rough times.
In the past year, there have been accusations of overstated revenue, job cuts and a disastrous quarter that sent CBIZ stock nose-diving to an all-time low of just a few dollars a share.
Recently, the company publicly stated its intent to regain the trust of Wall Street investors through a major internal overhaul; however, calls placed by SBN to the company's headquarters seeking someone to share their side of the story went unanswered. Regardless, CBIZ is the name that rolls off the tongue of many analysts when they point to an example of the very real risks that accompany consolidation.
"It's a bit uncertain if these consolidations are successful," says Fogarty. "I know the CBIZ stock price has plummeted. What the market is saying is that they aren't sure if the efficiency and the gains are real. A lot will depend on how the other pioneers, like American Express, do in this business.
"If they are successful, then a lot of other people will jump in."
Anderson, of the AICPA, agrees. He says it is much too early to declare the consolidation trend either a big winner or a big loser because of mixed results from the industry heavyweights who have already tried it.
"It's hard to see what sort of impact there's been," he says. "Obviously, the first group that really broke the norm and started acquiring CPA firms was American Express. Then you started seeing nontraditional players like Century Business Services and H&R Block doing the same thing.
"The jury is still out on how successful those acquisitions have been for those particular firms."
Bolstering the Big Five
One might expect the Big Five firms to be sitting on top of the accounting profession like kings, simply because of their deep pockets and sheer size. However, the road is seldom that smooth.
It is within the ranks of the Big Five that competition seems the fiercest and pressure to innovate is at its peak. In fact, much of the responsibility of the Big Five firms lies with reinventing the CPA profession in the face of the enormous economic changes spurred by the advent of the Internet.
"We expect right now that 25 percent of our service lines within E&Y will have to be replaced over the next four to five years, period," explains David Price, Area Managing Partner with Ernst &Young LLP for the Lake Erie Area. "Just imagine 25 percent of today's revenue source not even being here four or five years from now and having to replace that because of this changing new economy."
The manual process of tax preparation is slowly migrating to the Web and is one of E&Ys new services. Meanwhile, the practice of sending auditors to pore over financial records is well on its way to extinction, Price says, replaced by a new practice in which clients send information to be audited via a secure Web connection.
In addition, Price says E&Y has determined it does not have all of the core competencies necessary to consider itself a full-service firm, leading it to seek alliances with professional service providers while also trying to strike deals with smaller accounting firms to serve as network partners.
That's not to say E&Y isn't working to internally diversify services. One of the firm's creations was a consulting arm that last May was sold to Cap Gemini after the Securities and Exchange Commission urged CPA firms to avoid providing both accounting and consulting services for the same client.
"The SEC said that accounting firms need to dislodge their consulting groups if they were significant," says Price. "Since ours was very significant, we made a decision to sell them. You're best to have a first-mover advantage. With it, we think we've created a competitive advantage.
"Now, we can do audit work or consulting work for a client, where we couldn't before because of the audit conflict."
E&Y has also partnered with a Washington D.C. law firm to establish one of the first alliances between an accounting firm and law firm on this side of the Atlantic. The practice is common in Europe, and is a trend that most analysts say will grow in popularity in the U.S. over the next few years.
So, at the start of a new millennium and in the midst of a new business environment unlike any experienced before, Price says the best stance E&Y can take is to build a company culture that promotes creativity and the ability to turn on a dime. The firm has already "changed at the speed of light" during the past year and a half, he says.
One of those moves was changing professional attire to "business casual" unless clients request more formal dress. The move was a conscious effort to bring on board employees who might fall outside the traditional suit-and-tie business image for which accountants have been known for years.
"Our theory is, we didn't create this, we're just moving toward it," Price explains. "The more diversity you have in your organization, the more creativity and therefore, the greater amount of innovation."
But what happens when innovation is simply not enough to not only sustain but also grow billing in an industry in which revenue is expected to drop by a quarter in the next five years? That, Fogarty believes, may lead the Big Five into markets now predominantly served by local and regional firms, a move he expects would draw battle lines between the large and the small.
"There are kind of turf battles going on already with some perceptive CPAs trying to expand their boundaries and other ones are trying to protect their boundaries," says Fogarty. "Probably, the Big Five will continue to make inroads into the middle markets and small markets that had traditionally been served by regional and local firms."
So what does a small CPA firm have to do to survive? Most people familiar with the industry have the same two pieces of advice: find a niche and build alliances. Anderson believes that during the next three to five years, it will be key for small firms to brand themselves as experts in providing a certain services or working with clients in specific industries, whether it be retail, hospitality or manufacturing.
A second and crucial part of Anderson's "survival" plan is to take the strength-in-numbers theory behind consolidation and use it to preserve the independence of like-minded small firms. SS&G Financial Services has already created an organization known as "The Leading Edge," an alliance that boasts more than two dozen CPA firms spanning the United States. Robert Littman, a partner at SS&G, explains that the concept was used by the industry for years as a way to increase business, but is more useful in building an alliance of firms with similar philosophies, which can share their expertise and experiences with each other.
"What we did was go out and find firms that were similar in size to us, similar in philosophy and culture to us, so we have the same issues," says Littman. "A firm with 200 people has a whole different set of issues than a firm that has 15 people."
The next step for SS&G is creating an investment services entity that all of "The Leading Edge" firms can buy into that allows each firm to save on the costs of doing business and gives member firms more industry clout than they would have alone.
Today, SS&G Financial Services is unrecognizable from the 15-person firm it was when Goldfarb jumped on board 13 years ago. One look at how far the firm has come, specifically within the past year and a half, and it is not difficult to see that Goldfarb has heeded what is quickly becoming one of the most popular maxims of the Internet age.
It is no longer a battle between the big and the small, but the fast and the slow.
"It used to be that things were the same way year one as they were year two and year three," he says. "It's not that way anymore. You have businesses who were on the top of the hill a year ago, who are literally out of business today because they haven't kept up."It's a very fast-paced business world and our business is no different from that of any of our clients."
How to reach: SS&G Financial Services, www.ssandg.com; Ernst&Young LLP, www.ey.com; AICPA, www.aicpa.org; Case Western Reserve University Weatherhead School of Management, www.weatherhead.cwru.edu; Hausser &Taylor, www.hausser.com
Jim Vickers (email@example.com) is an associate editor at SBN.
Don't doubt that Robert Fortney eats, sleeps and dreams business.
He says it's a fact to which his wife, Ruth, and daughters Katie, Jessie, Megan and Chelsea could easily attest. But lately, the entrepreneurial bug has bitten Fortney again, this time in the form of a new venture called Upfront Commissions. The start-up, in which he is a 50 percent owner, is based upon a simple, but wildly logical business idea.
The idea is to provide real estate agents with their money today from a sale today, keeping a cut for the company while it waits for the deal to close in order to collect. The longer the amount of time until the deal closes, the more money Upfront Commissions stands to collect. For example, Fortney says a 60-day close would cost a real estate professional who wanted to use the service roughly 8 percent.
"We started this business in August, and since November, we have been at basically break even, which is great for a new start-up," he explains. "Over six months, more than $1 million worth of commissions have been generated. Once you get somebody inside the system, there's a lot of repeat business."
Upfront Commissions is currently attracting customers through good old-fashioned marketing, but Fortney says a full-blown Web presence is in development. In the meantime, you can get more information about the service at www.upfrontcommissions.com.
Hearing Fortney talk about his new business venture, one begins to think that sometimes he's having so much fun, he can't believe it himself. The truth is, sometimes, he can't.
"Oh, legitimately, I don't have a job," he says. "I'm doing what I was born to do, and I love every aspect of whatever I do, even though at times it may be stressful, and even though at times I don't know what I'm going to do until I do it.
"I got a lot of people who get a little bit upset with me because they're working at a job and I'm living out a dream."
Almost every Web site has unsold banner ad space. Studies show the average company has 75 percent of its banner space available, leaving business owners a large inventory of virtual real estate that's not making money.
One company has come up with a solution: Turn this empty space into your own branded wireless service.
"We actually allow any company on the Net to create a private-label wireless phone business," says David Steinberg, founder and CEO of Inphonic. "We allow you to sell a wireless phone that our partners activate the contracts for and pay you a percentage."
Here's how it works: Inphonic makes banners and boxes to fit the ad spaces on your site and uploads them to run in the unsold space. When someone clicks on the ad offering a free wireless phone, they are taken to a site customized for your business. For example, Talkcity.com users who click on the phone ads are taken to a site customized for Talkcity wireless.
Users type in where they live, and the site finds the wireless partner in their area to activate the contract. When the person receives his or her phone, it is labeled for the business it was purchased from -- in our example, it would be Talkcity.com.
"Because these ads are running on space that is unsold anyway, this is a zero opportunity cost," says Steinberg.
Inphonic is adding a service to allow users to answer questions about usage patterns, then be directed to the provider with the best deal for their needs.
"Only 25 percent of people in the U.S. have phones, which is the lowest rate of all the industrialized nations," says Steinberg. "That means 75 percent either don't have one now or have never had one. We're aiming for both the 75 percent and those who are already experienced."
Inphonic started working with sites that were receiving 1 million to 50 million impressions per month, but is adding an automated service so that any size business can participate. All you will need to do is upload your logo for use on the site and the phone labels. Larger companies also receive a customized toll free number to help users, while smaller companies will receive a number which, instead of referring directly to the business (such as Talkcity Wireless), will say "Powered by Inphonic." That will also be noted on the site.
"The average consumer looks at their phone 12 to 15 times a day," says Steinberg. "How much do you pay to get your name seen once a day in the paper? This is a great branding opportunity. You get a percentage of revenue for the phones sold, your customer gets a brand name phone and you are monetizing unsold ad space." How to reach: www.inphonic.com
Todd Shryock (firstname.lastname@example.org) is SBN's special reports editor.
At $1,560, it wasn't The Brewer-Garrett Co.'s biggest expenditure, but symbolically, it was one of the most important. The money covered a shortfall between the amount Joseph's engineers calculated the Berea City School System would save with the installation of a new HVAC system and the actual savings.
That the difference was the result of an increase in technology at the school and not in any mistake on the company's part didn't matter. Joseph stuck to the promise.
With millions of dollars in guarantees in the past two years, it's the only check of its kind Joseph expects to sign.
"When they buy Brewer-Garrett, they're guaranteed two things. You get that energy savings, but more importantly, we guarantee performance. We guarantee the job," says Joseph, president and CEO of the 41-year-old Middleburg Heights-based commercial and industrial mechanical systems and services firm and 1999 Ernst & Young Entrepreneur Of The Year winner.
Those savings are guaranteed because Brewer-Garrett completes all the work in-house, including tracking energy usage.
"When you have those capabilities, you can afford to guarantee, to stick your neck out," Joseph says. "We have done the calculation. We are not involved in guesswork or taking a dart and whipping it at the board and say, 'We can save you 4 percent.' We look very, very hard at all the components that we're putting in a new facility."
Joseph's company has completed a number of installations and makes some pretty bold promises, including a savings of $250,000 a year for an eight-building project for Cuyahoga County. The 10-year guarantee will save the county at least $2.5 million. And though he does not expect it to be the case, if his system doesn't live up to the promise, Joseph's ready to sign another check.
Brewer-Garrett also installed a new system in Winterhurst Ice Rink in Lakewood before the National Championships there in February. Joseph's engineers promised an annual energy savings of $74,124. Before the company's involvement, Winterhurst spent $358,700 each year. After the project, the cost dropped $93,222 to $265,478, a 26 percent savings.
"Not only has the Brewer-Garrett project saved us significant energy dollars, but having instantaneous control of the rink environment has allowed us to enhance the skating experience for all of our patrons, from Olympic champions to MITE hockey players," says David McGuirk, Lakewood's Public Works Director.
"Winterhurst is a good example," Joseph says. "(The question became) how much can we save with a new state-of-the-art ice rink vs. an old high-energy user type system? We looked at the customer and said, 'We are so confident that this works that we could guarantee you that you will save X amount per year.'"
The amount of savings is very important for another reason as well, Joseph explains. Whenever possible, the company likes to make projects self-funding -- so that the energy and operational savings pay for the renovation. That was the case for Winterhurst Ice Rink.
The quotes tend to be "extremely accurate," Joseph says. "We take a very conservative approach. And when I say conservative in nature, we want our customers to exceed the energy savings. So not only do they win, they win big."
A few national companies will make similar guarantees, Joseph says, but they can't offer the same level of precision because they farm out some of the work.
"We're a full service contractor and we do soup to nuts programs," he says. "We don't broker the work; we do the work. We do all the mechanical; we design it. We do the engineering, we do the sheet metal, we do the piping. We stay with that job. We do the service. We do all the controls. It's very unique."We want a relationship with our customer, a long-term relationship," he says. "If you've done one job for a customer, you've done something wrong." How to reach: The Brewer-Garrett Co., (800) 686-6869 or www.brewer-garrett.com
Daniel G. Jacobs (email@example.com) is senior editor of SBN.
Seven years ago, I worked with a struggling manufacturing company located in a very old and small building on Cleveland's near east side.
The first time I met the owners, I got a very special feeling that certainly didn't come from their facility or their financial condition -- they were definitely struggling. The combination of low sales and low margins made cash very tight. Paying the owners a decent salary was not even on the horizon.
Yet, they were so positive and obviously committed to making this business successful that I knew this client had real potential.
Today, the company is located in a beautiful new suburban facility and is the market leader in its niche. It has a motivated and dedicated work force and has met its sales projections while achieving an envious bottom line. It is one of those companies and success stories that make a career in consulting rewarding.
So what makes a company like this become a star performer and achieve such lofty successes?
Many factors come into play. But if you analyze any star company, you'll find two common underlying elements: commitment and focus.
Committed to succeed
When I first met the family owners, I could tell they would do whatever it took to succeed. Despite the struggles, they had a true commitment to their vision and eschewed all opportunities to leave the company and take higher paying jobs elsewhere.
They reinvested in the business even when they were taking meager salaries.
Today, that commitment remains. They continue to reinvest, to build the best team possible, to strive to be the market leader and to not rest on their laurels. They develop new products and invest in R&D. The family spends more money on marketing and product development than most manufacturers of their company's size.
Considering their commitment level, I would have been surprised if this company did not succeed.
Focused to grow
But its leaders didn't quit with commitment. When they added their strong focus, they became a sure bet for star status. I have heard it said that no growing business can have too much focus. But to reap the benefits of a strong focus, a company needs to truly understand itself and its environment. Our star manufacturing company really understands who it is, what it wants to accomplish and what it's good at.
To really have focus, an organization needs clear vision. It must understand its niche. That's important because when leaders veer off course into areas outside the company's core competencies and vision, if they know their niche, they will recognize the situation and get the focus back.
Five years ago, we helped the new ownership team of a long-established contracting company develop a strategic plan for the rebirth of the company. Last month, we held a five-year review and update session.
We looked back at the success that the company had achieved over the last five years. It was evident how the team members commitment and focus helped direct and enable its success.
The original plan helped them define their focus. They identified their vision for the type of company they wanted to be, the type of work they wanted to pursue and the growth path they wanted to follow. During the initial planning process, the team made a commitment to that focus, then reconfirmed that commitment throughout the next five years.
At last month's session, as we reviewed the progress of the company, we found that it had achieved nearly every one of its targeted growth goals (including profitability targets). Everyone agreed that the organization functioned today as they had envisioned it would and that overall, the partners were very pleased with where they were and what they had accomplished.
As an outsider who had witnessed their progress over five years, it was clear to me that a good part of their success came form their total commitment, individually and as a team, to stick to the plan and remain focused on their vision.
These are just two examples of star performers that stand apart and have a brighter future than many others. It's not because of their products or markets but because of a total commitment to their plans and to their goals and a clear focus on their visions. Joel Strom (firstname.lastname@example.org) is president of Joel Strom Associates Inc., Growth Management. His firm works exclusively with closely held businesses and their ownership, helping them set and achieve their growth objectives while maximizing their profitability and value. Reach him at (216) 831-2663.
Technology, commerce and the law rarely coincide in a single case. When it does happen, the results can be dramatic.
This convergence occurred in State Street Bank & Trust Co. v. Signature Financial Group, in which the Court of Appeals for the Federal Circuit held that if the requirements of the Patent Act are otherwise met, business methods are patentable. Now, the opportunity exists for capitalizing on the business method patent wave and excluding competitors from using a business method.
Put another way, businesses can now patent the methods by which they operate, thereby creating a barrier to market entry for potential competitors.
Background of business method patents
Business method patents include virtually any method for conducting business as long as the method utilizes a computer aid. Otherwise it meets the requirements in the Patent Act of utility, novelty and nonobviousness.
Business methods can include the way a business is structured, managed, organized or executed. One particular area in which the filing and issuance of business method patents has been embraced is in e-commerce. Many e-commerce start-ups actively seek business method patents to block competitors and stake out their corner of the Internet. They correctly view patents covering their business methods as one of their only assets with potential value.
Business method patents have encountered widespread publicity, thanks in part to a few well-publicized lawsuits, particularly that involving Amazon.com's infamous one-click ordering patent. Media attention has raised public awareness that these types of patents can be another weapon in the battle to beat competitors for market share.
This publicity has also generated concern in some corners that the patent system is being abused.
Concerns about business method patents
Awareness generated by business method patents has naturally engendered concerns. Skeptics have created apocalyptic scenarios such as a single bank foreclosing all other financial institutions from offering home banking services based on a single patent.
Others argue that State Street went too far in liberalizing patent law. The federal circuit, however, has downplayed such scenarios and stated that the requirements of novelty and nonobviousness will preclude these situations.
Over the next few years, the Patent Office and the courts will likely address these concerns. Nevertheless, business method patents appear to be firmly entrenched.
Developing a business method patent strategy
No matter what the concerns and criticisms, businesses cannot ignore that for the foreseeable future, proprietary business methods are patentable and many businesses may be able to protect these methods.
Furthermore, as many financiers seek out promising new technology companies whose primary, or only, assets are their ideas, the importance of protecting these ideas may become paramount to the company's survival. Thus, the savvy business will develop a strategy for protecting its business methods.
For the start-up, a business method patent can often lead to higher valuations and make it difficult for larger, established entities to enter the start-up's market space. Analysts often see promise in a company's intellectual property, and with many start-ups, intellectual property is often one of their only assets. Also, the ability to establish a defined market presence by excluding competitors can be vital to a start-up company's survival and an existing company's growth plans.
Start-ups should look to business method patents as a way to help define their place in the market while providing some breathing room during initial growth stages. Existing companies may look to patents as a way to establish beachheads in new markets.
Another factor driving companies to evaluate and establish programs for protecting proprietary business practices is the unforeseeable future. Since no company knows exactly what patent applications its competitors may have filed, the smart entity will review its practices and attempt to stake out a strong position barring competitors from using the same methods, if only to protect itself from competitors doing the same to it.
Even though the full scope of these patents will not be completely known for several years, every company should assess the extent to which its business relies on potentially patentable methods. Such an audit can aid the company in determining whether rights exist that should be protected, as well as help avoid disputes with competitors. Todd Tucker is an attorney at Arter & Hadden LLP and a member of the E-Group, a multidisciplinary group of attorneys which focus its practice on entrepreneurs, Internet, e-commerce and emerging growth companies. He can be reached at (216) 696-4661.
A quick tour of innovation practices across some of this year's winners easily reveals inspiring themes in how innovation plays out as a critical factor in business growth and development.
At construction industry service firm Fortney & Weigandt, promoting and providing incentives for innovation is a team effort. Profit sharing is leveraged to inspire boundless initiatives that are often more informally than formally organized. According to F&W's maverick innovator, Bob Fortney, "Our goal in life is to take each of the 200 parts of our business into continuous improvement on everything."
Innovation is a welcome strategy in this firm, especially as innovation so often implies risk taking. As Fortney puts it, "Risk taking is what we do. It's what our business is all about." From his perspective, why not focus risk-taking competencies on the very processes and systems that inspire the relationships that make up the heart and soul of the business.
Bill Zimmerman has done a yeoman's job of creating at Computer System Company the kind of new product incubator methodologies that have hatched several technical breakthroughs. By engaging both idea launch and feasibility teams, CSC has reinvented old equipment with new equipment capabilities through innovative engineering and software changes.
Many of the ideas bubble up from a culture infused with the momentum of continuous innovation success stories. In the dramatic cost savings from the equipment redesign, "the idea came from folks working on what we could do with the old equipment," Zimmerman says.
This innovative firm is not from the school where significant corporate initiatives are relegated to higher management altitudes. Instead, as Zimmerman states in one of this year's company newsletters, "We want our employees more involved in determining our future."
At SS&G, similar themes of unleashing ideas companywide are at play beneath the waves of innovation, propelling this self-reinventing firm to new industry shores.
"We encourage everyone to think in innovative ways about the business," says partner Gary Shamis.
Most of the company's new hires are from other professional firms rather than right out of school. Far from the usual NIH (Not Invented Here) management defensiveness, new recruits are encouraged to import best practices from previous work experiences. As the firm grows through mergers, the question, "What are you doing better?" evokes new approaches and a culture of innovative openness.
At SS&G, most innovation starts informally, then migrate to more formal teams that move innovation forward. Background to these efforts is the firm's achievement of being one of the first accounting companies to morph into a more broad base of financial services with a name that replaces owner monikers with an innovative brand featuring an equally broad appealing professional firm name.
Each of these stories demonstrates the ubiquitous edge innovation provides, whether the corporate environment is driven by technology, construction or professional services. Collaborative innovation -- even informally cultivated -- along with the refusal to restrict innovation to a single department or level, continues to be a common denominator in the impact innovation has on the primal triad of cost, quality and delivery. Jack Ricchiuto (email@example.com) is a Cleveland-based management consultant.
Glenn Smith was relaxing in the back yard of friend's home one fall afternoon when he noticed a flock of Canada geese heading south for the winter.
The birds were flying in the familiar wedge formation. After a little research, Smith learned the reason behind their actions.
The bird in the lead serves as a wind foil for the others. When it tires, another bird takes its place and they are able to travel much further together than any single bird could alone.
Borrowing on this cue from nature, the president and CEO named his new Chagrin Falls-based e-commerce/Web consulting company Formation V Consulting.
"There are many leaders in this organization at any given time," Smith says, "but we have a direction and we fly together."
He spent more than a decade working in the consulting business before deciding to venture out on his own. One lesson he learned was to recognize the different sides of the Internet consulting business model -- applications and information technology. Very few existing companies attempted to handle both issues, Smith says, and the ones that did retained a primary focus.
Here's how he set out to differentiate himself from the flock.
Divide and conquer
Smith didn't want to fall into that trap, so the young entrepreneur took a different approach. He founded a second company, World Synergy.
"At the time I thought it was because the cultures were different," he says. "But it's a different way of thinking."
Each company has its own employees who deal with their own unique issues.
The e-strategy model, as Smith calls it, is a continuum from the idea down through the hardware that will ultimately implement it. Each of his companies focuses on specific areas. In essence, World Synergy works with companies to determine what they want to accomplish, how they will do it and how it will affect their business. Formation V deals with the infrastructure, the hardware and the programs.
Customers need both sides. The difficulty at many organizations trying to do both, he says, "is one side of the business doesn't understand the other side and vice versa."
Smith's approach circumvents that problem by creating two companies, each of which works within its specialty.
His e-strategy business model is composed of nine layers divided into two major divisions -- intellectual e-commerce, handled by World Synergy, and intellectual technology, tackled by Formation V. Both intellectual e-commerce and intellectual technology are trademarked terms.
World Synergy handles the first four layers: strategize, application, logistics and marketing. Formation V Consulting deals with the remaining five layers: communications, support, computing environment, security and high availability.
Smith is ready to deem his 2-year-old experiment a success. Clients are able to find solutions to both their IT and their applications needs in one company.
"The relationship that brings these two together is invaluable," he says. How to reach: Formation V/World Synergy, (440) 543-5565
Daniel G. Jacobs (firstname.lastname@example.org) is senior editor of SBN.