Cleveland (5895)

Thursday, 18 July 2002 13:19

Death and taxes

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Which is worse -- death or taxes? Thomas M. Zaino says the latter doesn't have to be a hassle for business owners.

Appointed tax commissioner by Gov. Bob Taft in 1999, Zaino oversees 1,300 employees in 11 divisions with nine regional offices and collects $18 billion in state taxes. In his short tenure, the former partner with PricewaterhouseCoopers has helped revamp Ohio's estate tax administration and has been the champion of technology's integration in the Ohio Department of Taxation's filing and collection procedures.

Considering his organization benefits from the taxes Ohioans pay, Zaino's support of technology tax credits and the simplification of tax rules for the self-employed is very business friendly. SBN Magazine talked with him about new developments in Ohio estate tax processes and other issues that affect Ohio business owners.

What are the most common mistakes business owners make when filing taxes?

Math errors, failure to fully complete forms and appropriate schedules, failure to attach schedules, miscalculating apportionment factors, improper treatment of allocated income, using old or nonexistent account numbers and failure to make timely estimated payments of tax.

We have seen more and more tax changes for self-employed and part-time employees. Do you see this trend continuing?

Last year, the IRS reorganized itself into four business units, one of which is called the Small Business/Self Employed Operating Division. This shows the emphasis that the IRS places on this segment of the taxpaying public. Eventually, changes will be made in either the tax law itself or in how the IRS administers the tax law as it applies to self-employed individuals. I would guess that the changes will simplify compliance with the tax law, rather than the enactment of brand new tax benefits.

Recently, there have been a number of tax breaks directed toward the owners of small businesses. What will their effect be?

In late January, Sen. Chris Bond of Missouri introduced the Small Business Works Act of 2001. It contains a number of provisions designed to help small business. Those include an increase from 60 percent to 100 percent for the deduction for health insurance costs for self-employed individuals. There is also a repeal of the Alternative Minimum Tax (AMT) for individuals after 2004. Between 2001 and 2004, the AMT is reduced by 20 percent each year.

The AMT is a computational nightmare for corporations. In fact, three separate sets of depreciation schedules have to be kept by corporations just to comply. The bill would eliminate the corporate AMT for corporations with gross receipts of less than $7.5 million for the first three years of the computation period, and this amount increases to $10 million thereafter.

The bill would help small businesses stay competitive by making the research credit permanent. It would allow taxpayers with gross receipts of $5 million or less over a three-year computational period to avoid using the accrual method of accounting. Similarly, taxpayers with less than $5 million in gross receipts over the three-year computational period would be able to avoid using inventory accounting.

It also increases the amount of equipment purchases that small businesses may expense each year from the current $24,000 to $50,000, and increases the phase-out threshold from $200,000 to $400,000. And, the bill allows depreciation of computer equipment and computer software over just two years.

There have recently been changes in Ohio's estate tax law. How will they affect small business owners or family-owned businesses?

The bill affects estates dealing with a date of death on or after Jan. 1, 2001. After that date, as long as a business interest belonging to a descendant meets certain qualifications, the value of that business interest, up to a maximum of $675,000, can be deducted from the value of the descendant's gross estate for Ohio estate tax purposes. If a qualifying business is passing from generation to generation and the value of that business is under $675,000, that business passes Ohio estate tax free.

The bill also provided a major tax cut of almost $200 million for Ohio families over the next two years. For dates of death on or after Jan. 1, 2001, an estate with a gross value of $200,000 or less does not have to file an Ohio estate tax return and will not pay any Ohio estate tax (the previous threshold was $25,000). This amount increases to $338,000 for dates of death on or after Jan. 1, 2002.

The Alternative Minimum Tax hasn't been extremely popular. Why do you think that is?

When the individual Alternative Minimum Tax was originally enacted in l969, it was aimed at millionaires who paid no income taxes. Today, it is beginning to hit an unintended target: middle-class taxpayers. In testimony before the Senate Finance Committee on March 8, it was noted that in 2000, the AMT affected 1.3 million taxpayers. In the next decade, that number is expected to jump to 17 million taxpayers.

While the AMT currently targets high-income families, the number of middle-income taxpayers earning between $50,000 and $75,000 a year hit by the AMT would skyrocket from less that 1 percent in 2001 to a whopping 32 percent just 10 years later.

Why the increase in the number of taxpayers who will have to deal with the AMT? Because of the lack of indexing of the AMT rates and exemption amounts, as well as the expiration of temporary tax credits, all of which protect taxpayers from the AMT. Congress will have to do something about this, but the cost in potential lost revenue is quite high. How to reach: Ohio Department of Taxation: (888) 405-4039 or www.state.oh.us/taxKim Palmer (kpalmer@sbnnet.com) is managing editor of SBN Magazine.

Thursday, 18 July 2002 13:13

Tapping resources

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There's no question anymore that technology must provide a return on investment.

The payback comes in the form of smart tech, a distant cousin to working smarter and a core competency of companies that are here today, here tomorrow.

Does that mean every chair is occupied in the IT department or that a partnership is built with an outsourcing firm? Not necessarily. Business leaders need to look within their company's own four walls for technology management.

One Ohio school manages its information systems like a business, a practice that saved it a quarter million dollars by putting "inside power" into practice.

Robert Agnew is director of Information Technology at Baldwin-Wallace University. He is responsible for more than 2,000 ports, 40 servers and all telecommunications on campus. Agnew says the number of IT jobs being created exceeds the number of people entering the market. The answer to the technology gap may lie with employees knowledgeable about the company and looking to add to their portfolio of skills.

Whether it is a secretary who steps forward or an engineer with very logical thought processes, many employees may be more successful with programs and systems than anyone can predict.

"Those are the people you want to encourage to get further training," Agnew says. "That's an untapped resource."

The Perry School District in Lake County looked in house for the installation of a new technology infrastructure. The Perry High School student-run company Perritech joins the big "T" with the 3 Rs, and students receive a nontraditional education that combines real-world technology with business experience and classroom training.

The student-run company was created in 1998 with a $100,000 grant from the state of Ohio. The original goals included providing practical experience with in-class instruction. The result has been not only surprising but lucrative -- a cost savings of $250,000 to the school district in three scant years.

Perritech employees assisted with the upgrade of the district's technology and act as the help desk for the 1,300 computers used by teachers, students and the administrative staff on campus. One-third of the student population is involved in some aspect of the technology program, and 15 students who have qualified in specific computer certification courses make up Perritech.

The thinking-outside-the-box mentality has Perritech reaching out to local businesses after school and on weekends. Students manage software installations and hardware repair and trouble-shoot systems problems, all at competitive rates, with revenue fed back into the company. How to reach: William Sarvis, (440) 259-9379 or www.sarvisb@perry-lake.k12.oh.us; Robert Agnew, (440) 826-2700 or ragnew@bw.edu

Deborah Garofalo (dgarofalo@sbnnet.com) is associate editor at SBN Magazine.

Thursday, 18 July 2002 13:08

Sell what your market will bear

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The economic slowdown is clearly upon us.

Middle managers are reacting to presidential mandates to cut expenses, while presidents scramble to hit the results they have promised. For those whose job it is to sell and market, the consequences have been clear -- prospects and customers are taking much longer to make and keep commitments.

And when they buy, they are most likely to buy only those products and services that reduce immediate and unavoidable pain.

Businesses are preoccupied with cutting back, saving money and preserving the status quo. Until the initial shock of the slowdown wears off (and for younger professionals, their first time may take longer), fewer buyers will have the will to invest in the future. While more aggressive and confident businesses are already seeing opportunities at the expense of their more timid competition, how do you sell to the anxious buyer or customer who is preoccupied with the present?

Simple. Repackage and reposition your product or service to deliver reduced costs and greater efficiency. Promote the cost savings and business preservation aspects of your business instead of promising increased sales.

Many businesses directly or indirectly help their target markets increase sales. They include e-businesses, direct marketing, printing and advertising firms; professional services including legal, training and accounting; transportation, distribution and wholesaling; and motivational and incentive products, programs and services.

If your business fits into one of those categories or is in another that helps businesses grow, it's time to take a look at how you go to market.

Preserve market share, stop revenue erosion

Just as owners and presidents are asking their staffs to cut costs, they are worried about protecting their own revenue forecasts. In spite of the contraction, it is harder to reduce a sales goal than it is to cut expenses. Every business has too much riding on hitting sales numbers. Results have been promised to partners, investors and bankers.

This represents an opportunity. Pull out the list of features, advantages and benefits you have developed for your product or service and revise it. Make your product or service more compelling.

Describe how practical its features are. Discuss how cost effective its advantages are. And promote how beneficial it is in retaining customers and revenue.

Refocus on customer retention

If all sales and marketing efforts are designed to find, keep or grow customers, now is the time to emphasize customer retention. Keeping the customers you and your clients have is essential, because they are more profitable and obtainable than new ones.

Your competitors may start aggressively targeting them. Above all, your reputation with them should translate into their loyalty.

If your customers agree that keeping existing business is paramount, modify and emphasize what you sell in terms of helping your them to:

  • Streamline their reordering process

  • Take cost out of how they serve existing customers

  • Improve the buying experience of their current customers.

  • Increase profit margins and sales to reordering customers.

  • Construct barriers that reduce their customers' desires or ability to switch suppliers.

Now more than ever, your customers are focused on reducing risk. If you are in the business of helping companies to grow their sales, start by helping them to keep what they already have. As your customers feel more confident, they will become optimistic about growing their business.

Andy Birol (abirol@pacerassociates.com) is president of PACER Associates Inc., a Solon-based firm that provides expert advice to owners and leaders who need to grow their businesses. He can be reached at (440) 349-1970 or at www.pacerassociates.com.

Thursday, 18 July 2002 13:03

Lessons of the drug trade

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On his first undercover drug buy, Akron narcotics detective Timothy Dimoff forgot to do his due diligence.

He emerged from the drug dealer's house pumped up about the smooth, 45-minute buy. But when he returned to the undercover police van parked down the street, his superior officer told him the battery pack on the microphone hidden beneath Dimoff's clothes only lasts for 20 minutes. Several key moments of the transaction were lost.

"When I got out of there, somebody educated me," Dimoff says. "I didn't jump into an angel investment not knowing how long the batteries were going to last. You have to know what the timetable is. You have to know how fast you're going to do it.

"And if you don't do it right, you don't get the right information, then you don't do it. You don't take chances."

Dimoff retired from the Akron Police Department after 15 years. He spent 11 years in the narcotics department and was injured 13 times. He's been shot at, but never hit by a bullet. He was cut once by a knife, and suffered three back injuries and a smashed jaw. After a year of rehabilitation, he decided to apply his detective skills to a new career.

Dimoff is not only an angel investor, he's also president of SACS Consulting & Investigative Services Inc., based in Mogadore. Although no longer chasing bad guys, he incorporates the same skills he used as a detective. He also uses many of the same business practices drug dealers use to turn a profit, except with angel investing, the payoff is legal, and usually slower and much less profitable than the illegal drug trade.

"(Drug dealing) is the fastest turnover of all businesses in the world, including the types we're involved in," Dimoff told a captivated group of investors at a meeting of the International Angel Investors Institute - Ohio. "Last year, only one person made more money in the world than the illegal drug trade: Bill Gates, $74 billion. Illegal drug trade, $54 billion."

Here are a few of the business practices investors -- legal and illegal -- need to use, according to Dimoff.

Learn from the best

Just off the police force, Dimoff didn't know much about being an investor or an entrepreneur, so he bought a lot of people lunch. He found investors and learned from them, then asked who else he should talk to.

Did he ever make mistakes? Of course, but that's what you have to expect.

"I took my licks, took my bumps and learned the hard way, like we all did," he says. "I didn't get where I am by myself. I got here because a lot of great business people took the time to tell me how to get there."

Don't go it alone

As with drug dealing, starting your own business or investing in one is a team effort, Dimoff says. In both professions, you need financiers. You need people who will protect you, and those who will help prevent you from making mistakes.

In both trades, you need people to help you learn the market and break into that market. You need people who are going help you improve the product.

"Illegal drug dealers, they do the same thing," Dimoff says. "They get their money, they go down to Florida, New York, California, they get their drugs, they get the big payoff. We're both investors and we both take chances.

"The only difference is if they get caught, they go to jail. If I get caught I just lose my money. I like those odds better."

Due diligence

On the flip side, when Dimoff was busting drug dealers, he needed every bit of information about them that he could find. When he and the SWAT team busted a drug house, they'd have an informant map out the entire space -- where the drugs were, where the dealer kept any weapons, where they slept.

Everything down to the last closet was on paper before he and his officers stampeded through the doors.

"There was no second chance in that game," Dimoff says. "Angel investing, there's also no second chance. You can lose your money if you don't know what's behind the door."

Speed

Drug raids changed while Dimoff was on the force. It used to be him and a couple of officers would break down the door with sledgehammers and secure the home in a couple minutes. By the time he retired, two SWAT teams of 12 men broke down each door and secured the house in less than 12 seconds.

Dealers never had time to react. It's no different with an angel investment -- you can't waste time.

"Speed is of the essence," Dimoff says. "Once you get your investment, once you're moving, you need to grow that investment and get it to that second level. Amazing how two different trades, one legal, one illegal, have so much in common." How to reach: SACS Consulting, (330) 628-6393

Morgan Lewis Jr. (mlewis@sbnnet.com) is a reporter at SBN Magazine.

Thursday, 18 July 2002 12:49

Misplaced energy

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After labor, energy consumption is the most expensive budget line item in the production and manufacturing process.

Sixty percent of the energy used in the United States is derived from fossil fuel -- a nonrenewable resource -- meaning there will always be a premium placed upon it. As the nation's attention remains focused on the energy crisis on the West Coast, a series of rate hikes in Ohio's utility market have left many business owners at the mercy of what is quickly turning into a nasty storm.

With the onslaught of deregulation in Ohio and across the nation, market factors that affect the supply side of the utility industry are coming into clearer focus. Transition costs -- used to recoup investments in such as things as nuclear power plants -- and other unforeseen supply issues have created an unstable market, but all is not lost, according to Craig Kasper of K & H Energy Services.

Your best bet is not to play the market in search of today's lowest available prices for your business, Kasper says. Instead, develop a long-range strategic plan to significantly reduce energy consumption.

The remainder of Ohio's deregulation plan went into effect earlier this year, removing restrictions from the supply side of the industry. Unlike California's plan, Ohio's targets the retail and wholesale markets with the intent that a competitive market will lead to lower consumer prices.

Good intentions notwithstanding, cold winters, fuel shortages and increased summer spending have pushed energy prices up to some of the highest rates ever seen. In response, many manufacturers and other high energy users are beginning to worry.

What it all means

As a result of deregulation, utility costs are now unbundled. Instead of a single charge per kilowatt hour, energy bills reflect different charges for generation, transmission, distribution and transition. Previously, all of those were combined into one rate on the bill.

Transition costs are the most controversial. They constitute the stranded assets left to the public utilities companies by such projects as construction of power plants -- many of which are outdated and shut down. But under an agreement reached by the Ohio Legislature and the utilities, the act of recouping those costs has been spread out over several years to reflect only moderate rate hikes for consumers, the largest group of which is high energy using manufacturers.

Because the utilities spent in excess of several billion dollars on those investments, experts predict a five- to seven-year period before all the stranded costs are recouped. After that, consumers are expected to see real supply costs for the first time.

In layman's terms, that means the high cost of running a manufacturing plant -- which has increased drastically in recent years -- is likely to remain that way for quite a while. For owners of other types of businesses, if you're using a lot of energy, for now expect prices to stay high.

Supply vs. demand

It's been said that with adversity comes enlightenment. In light of a changing market and increased costs, business owners, especially small- and mid-sized manufacturers, need to re-evaluate their energy usage and its relation to overall product cost.

Ironically, as with many complex business issues, it's the smaller companies that have to expend otherwise nonexistent in-house resources to develop solutions that larger competitors can develop much quicker.

Kasper says that despite this, it's time to accept the inevitable and begin to approach the problem with an eye toward the future.

Business owners must ask themselves, "What can I do to improve my energy use so I can save money?"

"It is more of an awareness issue because the price of electricity is going up and the question is, what can I do (as a business owner) to hedge against it," Kasper explains.

In the game of supply and demand, he estimates that customers without high usage contracts will find themselves at the mercy of the market and save only 5 to 7 percent while the market is adjusting to transition costs.

But on the demand side of the equation, if you look at how your company uses energy and devise a plan to maximize its use, the savings can be between 10 and 20 percent.

Develop an energy strategy

Kasper suggests evaluating bills from the last 12 months to establish an average energy cost.

"That tells you how your energy costs are being derived," he says. "Are you paying any penalties, and what are your major cost drivers?"

From there, pinpoint where your business is using the most energy and why. At that point, it's a matter of devising a proactive plan to bring down those costs.

One of the first things that must be determined is your company's load profile. The load profile determines the tariff or rate a business pays for its utilities and is determined in part by peak demand. Higher demand often translates into a higher charge per kilowatt hour.

"If you have a high demand, where you might be paying demand charges, that is the highest amount of energy you are using in a given month," explains Kasper.

That means that in some cases, a business can actually use a low rate of electricity overall in a given month, but if there are peaks at a higher rate, even once a month, the higher rate is charged for the entire month's energy usage. Kasper says high demand rates have been know to constitute anywhere from 50 to 100 percent of a bill.

For manufacturers, that peak may come from short periods of time when high energy sucking equipment is running.

"Look for ways to eliminate that demand," Kasper suggests. "Rather than let it peak, have a generator pick up that load. Or, instead of turning on all of that equipment, stagger it."

Staggering equipment use is an effective way to keep consumption lower. While overall energy use remains the same, there are no high usage charges tacked on the bill.

Get the most out of your usage

One of the simplest ways to achieve higher energy efficiency is to replace old equipment, lighting and HVAC systems with new energy saving counterparts. While that may mean you'll incur some upfront costs, in the long run, it's an investment you'll get a strong return on.

Shifting high demand times from on-peak to off-peak hours is another means of saving. It varies from business to business, but on-peak hours usually fall between the hours of 8 a.m. and 8 p.m.

Because of higher demand during those hours, the utility charges users a higher rate. The idea is to create penalties for using large amounts of energy during high demand times and incentives to use energy during lower demand hours. Kasper suggest running equipment at night or adding a third shift to offset costs.

Other options

If prices remain as high as they have been -- or spike upward due to a colder-than-average winter -- alternative methods of energy will become the norm rather than the exception. Kasper predicts that co-generation will become a larger part of energy management.

Co-generation is the process of using local gas wells, landfill gas, waste product incineration or waste heat to augment or even replace traditional energy sources. Experts say it can improve energy efficiency by up to 70 percent.

In the end, the issue is about more than simply the rising price of energy and how it affects your business. It's about how your business uses or, in some cases, misuses, energy, and the effect it has on your company's bottom line.

Kasper, who has spent 38 years in the utility industry, suggests looking at energy costs not just as a means to save money in this highly volatile market, but as a way to improve profitability.

"Look at your (energy) cost (in relation) to your cost of product," he says. "That cost is where you might want to look to lower the cost of the product out the door. That is where the savings is going to affect the bottom line."

And while no one can predict what the future of utility deregulation will bring, unlike California's poorly thought out policy, Ohio's is one that other states can follow. If both sides follow through on what's expected of them, competition will increase, prices will eventually fall and business owners will change the way they look at their energy costs.

"Make a strategic commitment to develop a plan." Kasper says. "From a competition standpoint, if you aren't doing it, your competitors will be." How to reach: K & H Energy Services, 440-519-2570

Kim Palmer (kpalmer@sbnnet.com) is managing editor of SBN Magazine.


Deregulation terms

PUCO -- Public Utilities Commission

FERC -- Federal Energy Regulation Commission

LDC -- Local distribution company

Supply/Generation -- Source of the utility, unregulated portion of utility

Transmission -- Process by which utility is transported from source to the LDC. Transmission is regulated by the FERC.

Distribution -- The final stop before utilities reach the consumer. Distribution is regulated by PUCO.

Unbundling -- The separation of generation, transmission and distribution charges

Tariff -- The rate of the utility

Stranded assets -- Unrecovered costs of utility development

Transition costs -- Monthly charge as a result of stranded assets, assessed in utility bill

On-peak/Off-peak -- Respective terms for high and low energy usage periods

Market development period -- The five- to seven-year period when transition cost will be assessed

Co-generation -- Creation of energy from alternative sources, ie. waste heat and on-site natural gas wells

Thursday, 18 July 2002 12:45

Digital buzz

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With more than 100 years under its belt, Penton Media Inc. is best known as the publisher of traditional industry trade magazines, including its flagship, Industry Week.

In recent years, the Cleveland-based media giant has strategically focused on establishing footholds in the emerging new media marketplace and targeting fast growth industries for new niche publications.

Penton has vaulted to the top of a $12 billion industry, backed by its 51 publications, numerous trade shows and a wide array of Internet and broadband products. The company's aggressive pursuit to develop multiple revenue streams has been spearheaded by Tom Kemp, who assumed Penton's top spot in 1996.

Kemp combined Penton's conservative fiduciary approach with a forward-thinking strategy to move the publishing titan into a new age. SBN Magazine sat down with him to discuss Penton's focus and his view of what the future holds for traditional print publishers in an increasingly digital world.

Penton has made quite a few changes. In what direction is the company heading?

We're shifting from being just a print magazine publishing company to becoming a fully integrated B2B media company. We serve our vertical industry communities through three core channels -- in print with our magazine, in person through tradeshows and conferences and increasingly through online information.

We want to be content rich but distribution neutral, connecting buyers and sellers through priority content. We are not as concerned about the channels of distribution; we are more interested that we provide consumers with content in any format that they want. They read newspapers and magazines, attend conferences, go to trade shows for their industries and use the Internet for information or up-to-date news.

For suppliers, we want to provide an integrated marketing approach. Sure, they want to advertise in magazines, but they also exhibit at trade shows, sponsor conferences and want to reach their customers through online services.

How do you facilitate an integrated market approach?

What is important is that Penton has a leading media product in all three channels serving these vertical communities. We have a strong magazine and a strong magazine brand. We either develop or buy trade shows and conferences in these markets and develop an online presence through Internet activity.

In addition to serving the traditional markets -- over the years, Penton has served manufacturing and design engineering -- part of our strategic plan was to diversify the markets and particularly those markets that have strong growth.

The most important strategic move we made was buying a company called Mecklermedia in 1998. We are now the leading B2B media company, serving the world's fastest growing technology -- the Internet.

Traditional print publications rely heavily on advertising revenue. Will the Internet create similar revenue streams? If not, how will it be profitable?

Part of the challenge is to figure that out. We have a lot of Internet initiatives. Initially, the Web sites consisted of an electronic version of our print magazines. That doesn't take advantage of the capabilities of the Web, so in the second generation, we've developed products that are more in tune with the Web itself.

A good example is PlanetEE, a site for the electronic engineering OEM market. It has vast resources of editorial content, market information and databases. It also combines and aggregates information from about 10 different magazines and is a vertical portal for electronic engineers with more information than they can get from any one magazine.

The challenge is that we are developing products and putting them out there. But these are new media models and new revenue models.

Everyone is trying to figure out the Web and how to utilize it for e-commerce, information resources and to generate revenue. Disney is shutting down its go.com portal. A lot of traditional media companies were aggressive in developing Internet media products, but now are retrenching or downsizing because they feel less threatened by Internet-only or dot.com competitors.

The slowing economy has put pressure on the underlying core business, particularly in regards to advertising. They haven't seen the return on that investment relative to revenue and profit growth.

A year ago, people were excusing Internet losses. That game is over. The financial community is judging Internet investments just like any other investments. You have to show returns and good traction in terms of revenue growth or else you're in trouble.

What will the year 2001 bring for Penton in terms of revenue?

We have Internet media products in all of the market sectors we serve. These are Web businesses that are generating revenue. About 33 percent of our 2000 revenue (came from) the Internet and broadband sector, but those are through traditional media products like our trade shows, conferences and magazines serving that industry.

It is the best of both worlds: Proven media products that are highly profitable but are in a fast growing, dynamic industry.

For the year 2001, we expect about 52 percent of revenue will come from publishing properties and print publishing, 44 percent will come from trade shows and conferences, and 4 percent from the Internet.

We also diversified our revenue streams. Three years ago, 90 percent of our revenue was from publishing. We have aggressively diversified that so as we move on, 44 percent will be coming from our trade show portfolio this year.

In fact, our trade shows have a higher margin; that 44 (percent of revenue stream) translates into 65 percent of profit that will be generated from our trade shows.

How does that compare to five years ago?

Five years ago, Penton was basically a nonentity in the trade show business. As recently as 1998, 12 percent of our revenue came from trade shows. In 1997, five percent of our revenue came from trade shows. In 1999, it was up to 30 percent. Last year, it was 39 percent, and now it's 44 percent.

We have been growing at about 24 percent per year in revenue growth. So not only has the percentage increased very dramatically, but it's also a fast-growing base of our operations.

You've had many acquisitions in the last few years. Will that trend continue?

We did 15 acquisitions in the two-and-a-half years since we became a public company. Those acquisitions have furthered our strategic plan to diversify the markets we serve and to capture those markets.

Our acquisitions tend to fall in two categories -- the smaller one or what we call "bolt on acquisitions" that strengthen and support our current market position, and the larger strategic acquisitions that give us a leadership position in new market sectors. We will continue to execute acquisitions that make strategic and financial sense to our shareholders.

We spent about $300 million last year on acquisitions, but we still have a good leverage position and strong cash flow. We have a strong balance sheet, so we can continue to execute acquisitions. However, we never want to overleverage the company or put it at risk.

How is Penton hedging the new media part of the company against the recent market downturn?

One of the things we did, which at the time was not very popular but in retrospect has proven to be very wise, is that we never carved out our Internet businesses from the rest of the company.

A lot of companies were packaging and launching new businesses with outside financial investors and would spin off with the prospect of doing an IPO when Internet valuations were so astronomical. We always felt that we wanted an integrated media approach. It was very important not to separate the Internet businesses from our offline businesses.

We had a lot of offers from financial people and from Internet media companies to package our assets into a separate business and all make lots of money. But we didn't think that was the right thing to do for the long-term strategy for our company. What we will do is do it in a prudent way, a way in which the underlying core business can afford to invest in the Internet but achieve profit goals.

If you look at our financial reports for this year, we have told the market we will have about $400 million in revenue, up from $300 million for the year before, which is a 33 percent increase. We also told the market that we expected to go from $67 million in cash flow to between $90 million and $93 million. That is about a 30 percent cash flow operation profit increase.

All the while, we'll be allocating about $7 million worth of investments for our Internet media products.

Will the Internet ever replace print media?

People aren't going to stop reading magazines or newspapers because of the Internet. If we look at history, no new medium has ever supplanted an older medium. Everyone thought that radio was going away when television came along.

Everyone thought that the theater would go away when movies came along. Each of these mediums has unique characteristics and we have a unique experience with them.

The Web is excellent for searchable information or up-to-the-minute news and information. It is not very compatible for reading long, detailed information. I don't think that people are going to stop reading the newspaper on the bus or on the train and just utilize the Web.

Clearly, it will have an effect in terms of the marketing dollar being spent on what print does best, but not try to duplicate what the Internet does better.

What role will advertising play?

Advertising is going to continue to grow on the Web, although so far the Web has not proven to be a very good medium for static advertising like banners and buttons. The key will be an interactive experience.

It will be where they can get much more in-depth information than just reading an ad on a screen. Print is a richer advertising medium, but it doesn't have the interactive or purchasing capabilities of the Internet.

Because it is going to be a competitive channel for marketing dollars, there will be more pressure on pricing levels in the traditional media. We are interested in maximizing the marketing dollar for our supplier customers. We are less concerned about where they spend those dollars and more concerned that they spend them with Penton. That's why we have trade shows.

When they (customers) are ready to market on the Web, we will be there to catch their dollars and also carry their print advertising. That's why it is important to have an integrated media channel. You become much more of a strategic partner and supplier to your customer than simply offering pages of advertising in a magazine.

We can sell them an integrated media campaign that combines both forms of media.

What is the future of Industry Week, taking into consideration the slowdown in the manufacturing industry?

Industry Week, in one form or another, has been around for over 100 years. It had a very good year in 2000 and is off to a good start in 2001. Industry Week has a unique position because it focuses on the senior executive management in manufacturing companies and focuses specifically on manufacturing as opposed to broader base management magazines like Fortune or Forbes or Business Week.

It continues to be quite healthy and profitable and provides a unique kind of information. The readers love the magazine.

We are pretty bullish. We don't see the growth in the print properties that we see in the Internet properties or in person, but they tend to be very stable and a consistent source of revenue.

How is the recent economic slowdown affecting Penton?

Every day, you read about companies like Chrysler and Amazon.com laying off people. It's a concerning backdrop, and I think that the common perception is that the economy is not in good shape right now. But the question is, how long will it take to recover, and will it get worse before it gets better?

Most companies are subject to macroeconomic issues that they don't have any control over. Our jobs as managers is to make sure that we manage our companies in a superior manner irrespective of the environment in which we find ourselves.

The true measurement of management is not how you manage in the good times. It is pretty easy to manage when things are going well. It is how you manage your company and steer your business through the more difficult, more treacherous times of lower economic growth or even recession. That's the real test.

What do you see Penton doing in the next year or two?

We had remarkably fast growth last year. I wouldn't expect to see the same levels next year. We have already told the market that we expect a revenue increase to reach over a half a billion dollars for the year 2001, and our operating cash flow to exceed $100 million this year.

But clearly, the economy has slowed down faster than anyone expected. The Fed is reacting, but it takes several months for the economy to catch up. How to reach: Penton Media Inc., www.pentonmedia.com

Kim Palmer (kpalmer@sbnnet.com) is managing editor of SBN Magazine.

Wednesday, 17 July 2002 13:06

What's at your core?

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One key to business success is knowing your strengths and weaknesses.

Too often, companies find themselves in trouble because they venture outside of what they are good at. Quite often today, you hear that you should really know your core competencies -- what it is your company does or specializes in that will give it a competitive edge in the marketplace.

In any leadership position within a company, it is very important to know what sets the company apart from others. It is important for this message to be articulated throughout the organization so each person is on the same page.

For example, we at SBN Magazine are in the publishing business. When someone asked me what our core competencies are, I said we write stories, sell ads, mail out our publications to top decision-makers within each company and gather information about our readers to develop our database.

After giving it more thought, I realized the importance of the answer -- so much so that we decided to focus on each point to see how we could further develop these areas. Below is a detailed version of our core competencies and how we are mastering them.

1. Content generation -- Our unique approach to local business coverage has the garnered the recognition of the journalism community, as well as of our readers. In the last year alone, SBN Magazine has received eight awards for excellence, including SBN Magazine Cleveland being recognized as the best business publication in Northeast Ohio.

2. Sales and marketing -- SBN Magazine has developed an extensive client list that includes an array of industry-leading organizations such as UPS, PNC Bank, AT&T and Arthur Andersen.

3. Market reach -- SBN Magazine saturates almost 100 percent of its desired targeted audience in its markets. Out of our targeted audience, 92 percent of the people who receive our publication are decision-makers by title.

4. Market knowledge -- SBN Magazine has developed an extensive database of buying trends of middle market companies.

I challenge each of you to put yourselves through a similar exercise if you haven't done so already. If someone were to ask you to name your core competencies, could you? Once you have outlined each of them, come up with a plan on how you can focus on each area and take it to the next level this year.

Are you performing as highly in each area as you should be? Outlining your competencies and examining how well you're performing in each area can give you insight into which parts of your company need the most attention.

Performing this type of analysis is another way to keep your edge in an increasingly competitive environment. Fred Koury (fkoury@sbnnet.com) is president and CEO of SBN Magazine.

Friday, 28 June 2002 07:00

Testing the market

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Arthur Brown started ChanTest Inc. in 1999 with two employees, and in three years, has grown the company to 18 employees and $2.4 million in revenue by testing more than 400 drugs. The Cleveland-based firm specializes in testing the safety of drugs for pharmaceutical companies and drug discovery research, and has been profitable since its inception.

One of its keys to success has been recognizing the need by regulatory agencies worldwide for pre-clinical tests that could predict whether noncardiac drugs might cause sudden cardiac death.

Chairman and CEO Brown developed a testing method that was a strong predictor of this side effect and has been in great demand by the pharmaceutical industry, which has seen several drugs with sales of greater than $1 billion pulled because of the danger of cardiac arrest.

"We deliver good lab practice products of the highest quality with fast turnaround time," says Brown. "We can do this because we have the most outstanding group of research scientists dedicated to these ion channel-based assays anywhere in the world."

This range of expertise sets ChanTest apart from its few competitors.

"We serve a small niche market with an essential product and we have assembled the most firepower in the world to deliver the product," says Brown.

Despite its current proficiency, Brown knows the company has to keep getting better and faster to stay on top.

"The biggest challenge will be technological -- development of assays that are faster and cheaper than ours," says Brown. "We meet this challenge by being beta site tester for the instrument companies that are trying to develop these new technologies. Because we have the largest experience in our market, we are attractive collaborators for these companies."

Brown also has other goals to keep the company moving forward.

"During (the next 18 months) we will bring a fast, cheap high throughput safety testing screen online," says Brown. "This screen will complement our present products and give us a large competitive advantage. We will accelerate our drug program this year. Over the next two years we will develop a more general platform of ion channel target discovery that will be based on and utilize our present expertise in ion channels." How to reach: ChanTest Inc., (216) 332-1665

Friday, 28 June 2002 06:55

Follow the leader

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Good leadership is hard to come by. Every day, you hear about company executives who have committed fraud or are just bad leaders. They didn't live up to the responsibilities of good leadership, and our trust in them was violated.

When was the last time you asked your employees if they trust you? People take their employees for granted, and that's a big mistake.

I see six ways to build better trust between you and your employees that will make you a better leader

1. Communicate. It's better to overcommunicate than not communicate at all. This can be done through daily, weekly or monthly e-mails, newsletters or managers' meetings.

2. Take a genuine interest in your employees' financial situation. If an employee is having financial problems and you are in a position to help, why not extend an interest-free loan that can be deducted out of future paychecks? It costs little, and the gesture will go a long way.

3. Take a genuine interest in your employees' personal situation. Flextime is a great way to allow employees to deal with childcare, eldercare or sickness in the family. Employees appreciate flexibility.

4. Give recognition when deserved. Surveys show employees crave recognition as much as or more than money. Show them you appreciate their efforts.

5. Show a clear direction for the company. People need to be able to see the future of the company, as well as their own future. It's important to share goals and objectives that pave the way to success.

6. Share key performance measures of how you run the company. Everyone should know what variables are used when making decisions. For instance, one variable could be return on investment and the timeframe in which you expect to get that return.

Leadership is not to be taken lightly. The more you care about your people's needs, the greater the chance that you will be the person leading them. Even when you think your employees are wrong, if you listen carefully, they're probably telling you something about your business that needs correcting.

In the current economic climate, you can't afford to ignore them.

Friday, 28 June 2002 06:48

Out of print

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Step into a Verizon Wireless store and you'll see posters, window stickers, countertop displays and packaging bearing colorful photos and graphics designed to catch your eye.

Verizon doesn't print those -- it's in the wireless phone business. Westlake-based Shamrock Cos. Inc. takes care of that.

But Shamrock doesn't only design and print marketing materials. Its CEO, Robert Troop, has found in the 31 years he's been in the printing business that you have to diversify if you want to keep growing.

"I'm a good listener," Troop says. "The greatest source of information of how you develop your company comes from the client and your employees."

When Troop purchased Shamrock in 1989, office PC software and laser printers were rapidly destroying the need for its business form printing services. Troop responded by adding products like brochures and magazines, trade show display panels and consumer market packaging.

"I wanted to keep selling the business forms, but we needed to expand on that," Troop says.

To reflect the shift, Troop changed the company name in 1991 from Shamrock Forms Inc. to Shamrock Graphics Inc. Meanwhile, he acquired a small graphic services company to reinforce the change in strategic direction. That division was incorporated separately under the name Shamrock Creative Services Inc.

In 1997, Troop launched Popular Products Midwest Corp., a specialty advertising company that prints company logos on pens, coffee mugs, apparel and customer gifts and promotions.

"We wanted to eliminate multiple vendors for our large accounts and become a one-stop shop," Troop says. "That way we could create more programs for them at a higher level and really bring value to the table."

On top of the printing services, Shamrock warehouses and distributes its clients' marketing materials or promotional gifts. Although seemingly unrelated to its core printing and design services, warehousing and order fulfillment are in high demand.

"That is our single largest area of growth," Troop says. "There's a greater sense of urgency for us, so we do a better job at it than if was outsourced."

Troop combined the three divisions in 2000 under the name The Shamrock Cos. Inc. Sales have increased more than 200 percent in the last five years and Troop's added 22 employees in the last three years for a total of 103. How to reach: The Shamrock Cos. Inc., (440) 899-9510