Morgan Lewis Jr.

Tuesday, 26 November 2002 08:14

A holiday wish

In 1997, then newly elected Things Remembered president and CEO Suzanne Sutter knew she wanted her company to support the Make-A-Wish Foundation, but wasn't sure quite how.

"I knew I wanted to sell a product, because I not only wanted to raise money but I also wanted to build awareness of the value and magic of a wish because we knew how it touched us," Sutter says.

It wasn't until Sutter was contacted by 8-year-old Elysia from Boardman that she had her answer.

Elysia, who was terminally ill, asked the Make-A-Wish Foundation to give a personally engraved gift to her family and friends so they had something to remember her by when she was gone. The Foundation put her in touch with Sutter, who donated to the girl 62 gifts of her choice, all engraved with her message.

The next year, Sutter commissioned a Christmas tree ornament engraved with Elysia's message, with $2 from every sale donated to the Make-A-Wish Foundation. The ornament was an undeniable success throughout the personalized gift store chain's 800 locations.

"Not only do her friends and family remember her from that experience, but we told thousands and thousands of people across the United States about Elysia because every gift is dedicated to her memory," Sutter says. "I got my employees involved, I got my vendor involved and I got customers involved."

To date, Highland Heights-based Things Remembered has raised $700,000 for the Make-A-Wish Foundation and is slated to break the $1 million mark by the end of the holiday season. This year, the program was expanded with a special gift box that can be purchased year-round, with $5 of every sale going to the Foundation.

Aside from Make-A-Wish, Things Remembered gears its community service work toward organizations that support families and children, like the Domestic Violence Center and the Fresh Air Camp, a summer camp for ventilator-dependent children.

"We're very focused on children and families, because our customer is a mom, and she's very family oriented," Sutter says. "That's what's near and dear to my heart and the hearts of our employees." How to reach: Things Remembered, (440) 473-2000

Friday, 30 August 2002 07:06

Challenge update

 

Two of this year's COSE Business Plan Challenge winners are busy, but in different ways. Here's what they have been up to.

 

Home Team Marketing

Football season is just beginning but Home Team Marketing has already scored.

Home Team Marketing brokers sports sponsorship agreements between high school athletic programs and companies. It has landed sponsorship deals with Burger King, Cleveland State University, Charter One Bank, Tops and Todd Associates Insurance for Home Team's network of 70 schools.

The companies receive signage at the games, inserts in the programs and announcements on the public address system.

Home Team was the "Best of Show" winner in the COSE Business Plan Challenge.

 

Tea Jones

Tea Jones founder Sarah Jones is re-evaluating her plan for a chain of tea cafes, while she revamps her first business, Phoenix Coffee. Jones plans to redecorate her six cafes with artwork by Morris Everett, who owns The Last Moving Picture Company in Kirtland.

She will repaint the cafes with Phoenix Coffee colors, purple and gold, and hang vintage travel posters from Everett's shop.

"It fits in with who we are and our atmosphere because they look exotic and interesting," Jones says.

Everett's posters will be for sale in the cafes.

Tea Jones was the "Female Business Enterprise" winner in the COSE Business Plan Challenge.

An estate planning technique so effective and popular that the president of the United States recently proposed its abolition is the Qualified Personal Residence Trust, better known as QPRT (pronounced “Qpert”). Whether QPRTs will be abolished is difficult to predict. However, under current law, this technique could provide significant estate tax savings as a component of your estate plan.

A QPRT allows you to transfer your residence, your vacation home, or both, to your children at a gift tax value well below the fair market value of the transferred real estate. To create a QPRT, an irrevocable trust is created and your residence (or vacation home) is transferred to the trust. Typically, when a husband and wife determines to take advantage of a QPRT, two irrevocable trusts are created and each spouse transfers a one-half interest in the home to his or her respective trust.

Under the trust document, each spouse retains the right to occupy the real estate transferred for a set number of years. At the end of that set number of years, one spouse’s trust provides that the principal of the trust (one half of the interest in the real estate) is given to your children while the other trust provides that the principal will continue in trust for the benefit of the nondonor spouse for his or her lifetime.

At the death of that spouse, the principal (the other one half interest in the real estate transferred) is given to your children. Under such an arrangement, you can assure that at least one spouse has the right to live in the transferred real estate for his or her lifetime.

To illustrate the tax advantages, assume the value of your home is $600,000, you and your spouse are 50 years of age and you transfer the home in trust for 15 years. Under IRS tables used to value your children’s interest in the trust, if the transfer had been made in November 1998, the value of the gift to your children would be $205,038 (one half from each spouse). If the term of the trust were 20 years, the value of the gift to your children would be $134,340 (again, one half from each spouse).

Any such gifts to your children would reduce, dollar for dollar, each spouse’s “applicable credit amounts” ($625,000 per person for 1998, but to increase to $1 million by 2006). This applicable credit amount represents the amount of property each of you may give to your children, or other nonspouse beneficiaries, during your life or upon death, free of federal gift and estate taxes.

Thus, by using the QPRT, you have: (a) given an asset to your children with a fair market value of $600,000 at a significantly reduced gift tax value; and (b) removed the appreciation in your home from your estate.

These tax advantages are only achieved if you survive for the term of your trust. Therefore, when choosing the term, you should choose a term of years well below your life expectancy when the gift is made.

During the term the real estate is in the QPRT, the trust property must consist almost exclusively of the real estate initially placed in trust. You may, however, sell the real estate in the trust and substitute another residence. Also, if the property is sold during the term of the trust and you don’t wish to purchase another home, it is possible to retain the proceeds of the sale in the trust and pay yourself an annuity until the end of the trust term.

The primary disadvantage of a QPRT is that your home will not be includable in your estate at your death, and therefore, will not receive a step-up in basis. If the home were includable in your estate at death, and your children were to sell the home shortly after your death, your children would probably pay little or no capital gains tax on the sale, since their basis in the home would be the fair market value of the home at your death.

However, if your children receive your home under an effective QPRT arrangement, their basis in the home will be your basis (i.e., the amount you paid for the home plus any improvements made to it). But even if your children realize capital gains on the sale of your home, those gains are presently taxed at 20 percent, significantly less than the federal estate tax rate, which starts at 37 percent and could be as high as 55 percent.

While QPRT is not for everyone, it provides an attractive method of reducing estate taxes and should be explored. Since proposals for its abolition have been considered, you may miss an opportunity if you wait too long.

John Houston is a director with Houston Harbaugh, a downtown Pittsburgh-based law firm. John Hartzell is an associate with Houston Harbaugh and a Certified Public Accountant in Pennsylvania. For more information on this subject, contact Houston at jhouston@hh-law.com or Hartzell at jhartzell@hh-law.com.

Monday, 22 July 2002 09:58

Split-dollar 101

If you’re a high-net-worth individual who desires to exclude the net death benefits of an insurance policy from your estate while still having access to the policy’s cash value to fund personal retirement income needs, consider setting up a private split-dollar insurance program.

Here are the basics.

In a private split-dollar arrangement, the ownership rights in the life insurance policy will be split between two parties — a subject addressed in IRS Private Letter Ruling 9636033. In that ruling, a taxpayer created an irrevocable trust naming his brother as trustee. The taxpayer retained no powers or authority over the trust property. Furthermore, the trust agreement specifically precluded him and his wife from acting as trustees.

The trust provided that, during the lifetime of the taxpayer, the net income and principal of the trust were to be paid, at the discretion of the trustee, to the taxpayer’s children. At the taxpayer’s death, the trustee could, at his discretion, distribute income and principal to the taxpayer’s wife and his issue. The trust was to terminate at the later of either the death of the taxpayer’s wife or when all the taxpayer’s children reached the age of 25.

Initially the taxpayer contributed cash to the trust, which was used to purchase a life insurance policy on his life. The trustee then entered into a collateral assignment split-dollar agreement with the taxpayer’s wife. Under the agreement, the trustee was designated as the owner of the policy and was to pay the cost of the pure life insurance coverage, as determined by various published insurance rates and tables.

From her separate property, the taxpayer’s wife was to pay the remaining portion of the annual premium, which would be added to the cash value or investment component of the policy.

To secure the wife’s interest in the policy, the trustee assigned certain rights to her and agreed to execute a promissory note evidencing the trust’s indebtedness to her. Under the agreement, the rights assigned to the taxpayer’s wife were: (1) the right to receive a portion of the proceeds payable on the taxpayer’s death equal to the wife’s interest under the split-dollar agreement; (2) the right to receive the cash value of the policy, if the policy was surrendered by the trustee, less any outstanding loans made from the policy to her; and (3) the sole right to borrow against the policy.

The IRS in its ruling determined that the payment of the policy premiums by the trustee and the taxpayer’s wife pursuant to the split-dollar agreement would not result in a gift to the trust by the taxpayer’s wife, and the insurance proceeds payable to the trust would not be included in the taxpayer’s gross estate.

The benefits of this split-dollar arrangement are:

1. The taxpayer’s wife has access to the policy’s cash value during her lifetime through tax-free withdrawals or loans. As long as the taxpayer and his wife remain married, the taxpayer, indirectly through his wife, may use the policy’s cash value to fund his personal retirement income needs.

2. At the death of the taxpayer, the net death benefit of the policy will not be included in his estate and may be used to benefit his wife and children.

3. The amount of the gift to the trust by the taxpayer is small, so only a correspondingly small portion of his annual gift tax exclusion ($10,000 per year per person) is used. Use of the annual gift tax exclusion does not reduce the applicable federal credit ($650,000 in 1999) available to each person.

There are, however, some disadvantages of a private split-dollar arrangement. Consider the following:

  • If the parties to the arrangement divorce, the noninsured wife has, as an asset, the cash value of the policy, which may or may not, depending on state law, be equitably distributed between them.

  • If the noninsured wife dies before the insured does, the policy’s cash value will be an asset in her estate. This asset must be considered when planning the noninsured wife’s estate. In particular, her estate-planning documents must restrict the insured’s (her husband) rights with respect to such cash value. Otherwise, the policy’s death benefits might be included in his estate.

While you can’t rely on Private Letter Rulings since they are relevant only to the specific facts upon which the ruling is based, the ruling discussed above, and other subsequent rulings, provide considerable comfort that private split-dollar arrangements will be honored by the IRS.

John Houston is a shareholder and John Hartzell is an associate attorney with Houston Harbaugh, a Pittsburgh-based law firm. Reach Houston by e-mail at jdhII@hh-law.com and Hartzell at hartzell@hh-law.com.

Monday, 22 July 2002 09:37

Estate of confusion

If Congress has its way, the federal estate/gift tax may become extinct. But what does that really mean for tax planning purposes?

If the repeal is enacted, it could take as long as 10 years to phase out the tax -- and 10 years is a long time to leave yourself open to significant, although decreasing, tax liabilities. Others are doubtful that the repeal will ever take place.

In the face of these uncertainties, what are you supposed to do?

Wait and see?

If you feel confident that the tax will be repealed, you might want to consider doing nothing at all. If you don't make any changes, and the tax is repealed, you've avoided spending money on tax planning fees and you've avoided the tax.

The primary benefit of taking the wait and see position is that you won't waste dollars on tax planning strategies that complicate your life while not reducing your tax bill. If you're young and in good health, this might be an appropriate strategy.

This holding-pattern strategy, however, is not ideal for everyone. People who are older or in only marginally good health may not want to take the risk that they could die without taking tax-reduction steps. Dying with a taxable estate can subject your property to taxes of up to 55 percent of its value, more if retirement plan assets are part of the estate.

People with a low risk threshold, or with pre-college aged children, elderly parents or other dependents to support over the long term may not want to leave estate/gift taxes to chance, either. If the tax is not repealed, taking tax-reduction steps may be more difficult to in later years.

Make gifts

If you'd rather not take a chance that the estate/gift tax will become extinct, or if you think, like many people do, that a gradual reduction (but not elimination) of the tax is more likely, consider making gifts to individuals and/or charities and begin sooner rather than later.

The real goal of tax planning is to eliminate some of your wealth so that you won't be taxed on it later. If, for example, you are in your 30s or 40s, own a successful start-up company, are comfortable with your retirement program and anticipate continued growth in your business, consider giving some of your wealth away while you are alive.

Many gifting strategies result in a dramatic reduction in the property subject to tax, and many are structured so that no gift tax is payable. But if you have to pay a gift tax on the gifts, the tax paid will, in all likelihood, contribute to a smaller taxable estate at death.

One risk to this, however, is that if your assets suddenly depreciate as a result of a market downturn or other factors, you may not have enough wealth left to live comfortably. Another risk is that if the tax is repealed, you've given away some of your assets and received no tax benefit.

Spring for an estate plan

Another option is to create a tax reduction plan now, despite the possible repeal, but refrain from enacting it until the uncertainties go away. You'll be spending some of your assets to create this plan, but that will be the extent of your losses, whether the tax is repealed or not.

Perhaps the most prudent thing to do is to conduct a cost/benefit analysis with an adviser who can help you calculate how much you could lose should the current estate/gift tax remain in force. With that information, you can take a calculated risk and not an uninformed one. David Henry (dhenry@hh-law.com) and John Hartzell Jr. (hartzell@hh-law.com) are attorneys who provide estate planning at the Pittsburgh law firm of Houston Harbaugh. Reach them at (412) 281-5060.

Monday, 22 July 2002 09:33

The enemy of casual Fridays

Dressed to the nines in a navy pinstriped suit, complete with a small white boutonniere in the lapel and a linen handkerchief in the pocket, Dick Blake bemoans the modern state of dress and behavior in offices.

"The biggest mistake corporate America has ever made was they invented the casual society," Blake tells a captivated group of young Eaton Corp. executives at a business etiquette seminar. "As we dress down and down, our behavior goes down and down, and hygiene goes down and down. Top corporate people wear their uniform and their uniform is business dress."

Blake's business etiquette seminars, which he's been teaching for 25 years, are not just about clothes. Phone etiquette, office interpersonal relations, table manners, even basic courtesy, have all fallen victim to the "casual society." One of Blake's top pet peeves is the way most businesspeople -- from the CEO to the receptionist -- finish phone calls with the infantile "bye-bye."

"You know where 'bye-bye' comes from? You were sitting in your high chair, and that's what you were told to say when your grandmother was leaving," Blake says. "So what does a person do? Twenty years later, they get a call from a corporation -- a billion dollar company -- and a client calls up and he says, 'Yes, he's busy right now, we'll talk to you later. Bye-bye!'"

It's not just the loathsome "bye-byes," either. Business conversations are rife with "How ya doin'," "Uh-huh," "Yeah," "Huh?" and don't get Blake started on how co-workers unload their personal problems to fellow employees and gossip with them.

"Keep your problems to yourself, people have problems of their own," Blake instructs.

Whether you want to believe it or not, deterioration of proper speech, behavior and dress in the workplace has an effect on the bottom line.

"Every company is known by the employees they have. Each employee is a walking advertisement for the company. Now, is it good or is it bad?" says Blake, whose client list includes The Cleveland Clinic, Ritz-Carlton Hotel and the U.S. Air Force. "You can buy a full-page ad in the newspaper, but if your employees look bad and act bad and do you so much harm, sooner or later, you're going to lose more customers than you can get."

In every seminar, Blake includes his five steps to greeting a client, which he guarantees will not only help a you keep customers for life, but turn you into the center of attention at every party and make you the person everyone wants to meet.

He calls them the Magic Five Steps to Popularity.

Smile

A smile lets the client know you're happy to see them right away, before you say a word. Blake says you should develop the habit of smiling constantly.

"A smile is the most important thing because it shows that we're human beings."

Compliment

Obviously, a compliment makes a person feel good. We all like to receive compliments, so why don't we give out more of them?

"Based on how many compliments you give out to your fellow employees, your customers, anyone that you meet, is just how much you're liked," Blake says. "Because if you're not giving out, I can assure you you're not liked."

Ask a question

Try to avoid business-related questions out of the gate. Ask about the family, the recent vacation, the new house, anything you might know about the client's life.

"Until you have asked a person a question about their life, you haven't shown one bit that you even care about them," Blake says.

Listen

After you ask that question, listen to the response. The most telling sign that you don't care about who you're with is if you don't listen while the person is talking, Blake says.

"Listen your way to success. Look at the person and give them your attention. The attention span is very difficult to work on, but it must be developed. To sit down for an hour with a client or with a date and give them your attention and get them to feel good being around you, that's the objective in life."

Praise

After clients speaks, praise them for their idea, thought or deed. It's a strong finishing note that they won't likely forget.

"When you praise their idea,they become 10 feet tall, walking into the sunset," Blake says. "You purchased yourself a lifetime client because you were the one to give of yourself, to walk on over, make this person feel better, boost their self-esteem and then you sold yourself.

"The secret to business and social skills is to sell the other person on themselves and then you've sold yourself." How to reach: Dick Blake, (216) 831-5463

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

Monday, 22 July 2002 09:32

Not your grandmother's Junior League

Mary Harriman was not like other New York City debutantes in 1901.

Concerned by the poverty-stricken settlement homes on the Lower East Side of the city and, we can assume, rather bored with the endless cycle of tea parties and cotillions in her daily life, she delivered food and medicine to the mostly immigrant population in the area.

Harriman, only 19 years old at the time, founded the Junior League with about 80 of her debutante friends. Eleanor Roosevelt became one of its first members in 1903. Today, the charitable organization has 296 chapters in four countries with more than 193,000 members.

Most of today's members have little in common with Harriman. They are young executives and working mothers from a much more ethnically diverse background than its founders. The organization has been forced to change to suit its members' hectic schedules, but not ignore its mission of community service.

The Junior League of Cleveland was founded 85 years ago, and is one of the oldest in the country. Thanks to the changes it's made, membership has held strong, with 75 to 100 new members annually. It has also discovered that having a membership well-connected in the business world reaps benefits for the League itself.

"In our League, about 75 to 80 percent of our women members work outside of the home, so you can see how that would automatically require a major change in how you do your business," says Denise Naskali Grcevich, president of the Junior League of Cleveland. "Most of our women are coming in equipped with skills: attorneys, lawyers, physicians, architects, schoolteachers, nurses, they're already equipped with business savvy to run an organization."

Done in a day

The Junior League used to schedule some of its community projects at 10 a.m. every Tuesday. Then organizers found it was almost impossible for members to commit to that kind of long-term event, especially on a weekday morning.

Some community projects were rescheduled for weekends, and presented well in advance to the members so work and family appointments could be planned around them.

"We still do have the ongoing projects, but we also do more of a one shot kind of approach," says Bonnie Marcus, the League's sustainer membership representative.

The organization's most popular one-day event, Race For The Cure, a 5K fund-raiser for breast cancer, started seven years ago at the Junior League's headquarters with fewer than 5,000 runners. Today, more than 20,000 participate, making it the largest footrace in the state.

Networking

Although it is an organization dedicated to community improvement, the League has also served as a business networking opportunity for the hundreds of women executives who are members. Those connections have helped the organization raise funds, save money on events and streamline League operations.

"It's interesting, because a few years ago, we might have relied on our spouses more for those opportunities," says Grcevich. "But with the way our membership is now, the majority of our members are working, and those are the folks making those connections."

One of the Junior League of Cleveland's prominent members, Jacqueline Woods, is the former CEO of Ameritech of Ohio, and led a fund-raising effort to raise $100,000 for the League's community center.

Skill building

What makes the Junior League different from some of the 2,000 other nonprofits in the Greater Cleveland area are the broad-based training courses available to members. The Junior League Leadership Institute offers classes and seminars in investing finances, educating children, drug prevention and awareness, fund-raising, business collaborations and teambuilding.

The training isn't Junior League specific, either, says Grcevich.

"You learn about a whole array of nonprofits and you have those general skills to apply in any one setting," she says. "At another nonprofit, you might only learn about that organization."

Business skills are built informally as members take on leadership roles within the League.

"I'm an engineer and all I do is sit and design all day, but I don't do a lot of presentations," says Katherine A. Ott, who works for HNTB in Cleveland and is the treasurer of the Junior League. "I found that I needed to take more of a leadership role and interact with more people and this organization has helped me build those skills." How to reach: The Junior League of Cleveland, (216) 321-6300

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

Monday, 22 July 2002 09:32

Letting go

It's usually the hardest decision a business owner has to make: Who to hand over control of the company to when they retire and how to do it.

When a son or daughter has joined the company, the decision would appear simple. Yet, often, there are loyal employees who have been with the company longer than the heir apparent, who know the business better and who seem more committed to its future.

Kent State's Ohio Employee Ownership Center works with the owners of family-held businesses and each year holds a series of seminars at CAMP Inc. that grapple with such issues. At the kick-off seminar in October, James D. Vail and Charles F. Adler of Schneider, Smeltz, Ranney & LaFond stressed the importance of planning as soon as possible for departure from the company, even if you can't finish the plan.

"It's better to have an imperfect plan than nothing at all," Vail says. "You've all heard the war stories: 'Sure, Dad knew what was best, but he couldn't get around to giving up control. So he did nothing.' It's much worse to do doing nothing than to get at least half of the way there."

Unfortunately, few business owners relish the task of sitting down and figuring out what will happen to their company when they are gone or no longer the top decision-maker. If you fall into this category, keep these sobering facts in mind: Of all business succession failures, only about 10 percent are attributable to transfer tax. And in Australia, for example, which does not have a transfer tax, the same percentage of businesses fail between generations as they do in the United States.

Here are some factors to consider in your succession plan.

Soft issues are important

The most critical part of succession planning is not deciding the different classes of stock or deciding whether to do an Employee Stock Ownership Plan. The most important part is figuring out what's most important and setting priorities, Vail says.

"What about passing on this business is most important to me? Without that, you're letting the cart lead the horse."

Lifetime giving

If you are looking to design a succession plan and haven't started to pass down the assets of the company to whomever you plan to have run the business, you're setting yourself up for a big tax bill when you eventually retire. It's a good idea to start an annual exclusion gift of $10,000 or $20,000.

"Your assets are going to come down for now, but if you look at the family wealth, there's going to be a huge difference," Adler says. "Half of estate planning is timing."

Phantom stock

If you have a valued employee whom you want to stay with the company, but you want to pass the business on to your children, consider phantom stock as an attractive financial bonus for your loyal manager or administrator.

It's not actual stock, but the employee receives a bonus depending on the growth of the company after the owner steps down. The payment can be spread out over several years or delivered all at once. The strategy is also called Stock Appreciation Rights.

Don't wait on Washington

Since Congress passed the estate tax repeal last year, there's a lot of speculation among estate and succession planners about what to tell their clients, Adler says.

"Right now, most advisers are not advising people to make taxable gifts because of the state of flux of the tax law. Even if they do repeal the tax, all the goodies are at the end. There's a 10-year phase-out."

Basically, if you're stepping down soon, plan as if the estate tax law will still be in effect.

Consider a sale

While it may seem the unthinkable, if your main concern is getting the most value for your company when you step down, you'll put it on the market and sell it to a strategic buyer, Vail says.

"You're probably going to maximize your return," Vail says. How to reach: Schneider, Smeltz, Ranney & LaFond, (216) 696-4200; Kent State University's Ohio Employee Ownership Center, (330) 672-3028

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

Monday, 22 July 2002 09:32

Independence in Independence

Only months after starting work as the director of marketing for a top Chicago software design firm, Mark Johnson received a phone call from a familiar voice.

It was Joel Goldstein, owner of Goldstein Group Communications Inc., a small, rapidly growing public relations and marketing firm in Independence. Goldstein asked Johnson if he wanted to join his firm. Johnson politely declined the offer, but the call sparked his interest.

Three months later, it was Goldstein on the phone again.

"I said, 'We're just continuing to grow and take on additional work and we really need you,'" says Goldstein. "After much persuading, he said yes. I'm a persistent salesperson when going after a client."

That kind of recruiting tenacity and the lure of a rapidly growing firm with an entrepreneurial spirit attracted Johnson, who joined in May as an account manager. The firm also attracted Jeff Kenyon, who joined Goldstein after serving as director of marketing communications for Keithley Instruments and director of corporate communications for Pioneer-Standard Electronics, a $2.6 billion, Fortune 600 company.

However, Kenyon's story is a little different. His former companies were clients of Goldstein's, so the two men had known each other for 10 years. After two years at Pioneer-Standard, Kenyon in May wrote a letter to Goldstein expressing interest in joining the firm, much to Goldstein's chagrin.

"I got the letter and thought, 'Oh, darnit.' Agencies like for their clients to stay where they are. Not move around," Goldstein says.

Later that month, the two men had lunch and Kenyon sold Goldstein on the idea of letting him come to work for him because Kenyon was attracted to the firm.

"To be honest, Jeff is a more senior person than we had ever hired before, and I didn't really know how to do that," Goldstein says. "We started talking about what it would mean if he came here, the effect it would have, and I started to get excited about it. He really showed me it was a great idea and a good thing to do."

For Kenyon and Johnson, who had never worked at agencies and were used to larger companies, Goldstein's firm offered advantages the corporate structure couldn't.

Life on the cutting edge

Because of its size, Goldstein can launch new marketing and advertising techniques faster than the bigger firms because he and his smaller team can make decisions faster than they could in a corporate environment. It doesn't take as long to put ideas into action.

"I really think he's going to be the hottest agency in town in the next few years," Kenyon says. "I had exposure to a lot of other agencies in those other jobs and I didn't see any doing the kind of focused work that he's doing."

Johnson, who had worked for a Chicago advertising firm in his career, wasn't eager to get back into the industry, but the environment at Goldstein's firm sold him.

"Having done this for a while, I know a lot of stuff, and I wanted to find a place to work where I could use those skills and that knowledge. I knew I could do it here."

A hands-off environment

Corporations can get bogged down in layers of management and disparate divisions. Employees working on a project often don't feel a sense of ownership or a sense of accomplishment when it's done.

Goldstein's firm offered a break from that culture for his most recent corporate recruits.

"I think at some point, you have that burning desire to have some entrepreneurial spirit," Kenyon says. "The opportunity to feel somewhat entrepreneurial, and some of the challenges that I can define and accomplish on my own is what I wanted."

Goldstein adds, "We allow our people to work autonomously. People like that."

Developing a better compensation package

Goldstein keeps an eye on what other agencies are offering in salary and benefits and tries to keep his packages above the average.

"Coming to work for a small organization, we have to have benefits that are competitive and maybe even better. We do have benefit provisions that I know are better than what's available (elsewhere)," he says.

Ultimately, it's not the financial benefits that helped build the team of experts Goldstein has put together.

"Joel's technique is not high pressure, it's showing enthusiasm and telling the person, 'I really want you to come work for me,'" Johnson says. "You don't hear that every day. You have a boss who complains about things or a boss who doesn't tell you what a great job you're doing, and here's a person who really wants you.

"That's an effective technique." How to reach: Goldstein Group Communications Inc., (216) 573-2300

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

Friday, 19 July 2002 05:37

Don't give up

At first blush, she's modest and soft-spoken, but Rebecca Braun lives up to her surname when she begins to speak.

Braun's ambition and intelligence hit like a combination punch and her verbal excitement spreads to whomever she's talking with, especially when she's pitching her business, SupplierInsight.

Brushing the snow off her parka and red wool hat, she enters the dark, empty dining room of the University Club early on a mid-winter day. Invigorated, either from the subfreezing temperatures or just sheer enthusiasm about her company, Braun is loaded with energy. This despite the trials and tribulations she's endured over the past few years she's devoted to bringing SupplierInsight to market.

"Don't give up," she says.

It's her No. 1 rule, and the most important lesson she's learned from the last three years.

"Believe in your product and believe in your team," she says. "If you believe deeply enough, other people will see that. They may not understand completely, but you can push through that. You can build a team around that, investors around that, a product around that and a company around that."

A Harvard Business School graduate, Braun majored in linguistics and minored in Russian as an undergrad with aspirations of becoming a spy for the CIA. Those cloak and dagger dreams were shattered once the Soviet Union fell apart in the late 1980s and interest in Russian studies plummeted.

"It was a superpower," Braun recalls with a smile. "Now it's a little country nobody really cares about. I still enjoy embarrassing myself trying to speak four words to people I meet on the street."

In 1998, Braun and her husband, Charlie, moved from Boston to Shaker Heights so she could take a job as vice president of Kirtland Capital Partners, a Cleveland-based management buyout firm. She previously was a principal at The Pantheon Group in Boston, a strategy consulting firm.

While the safe, corporate lifestyle was appealing, for Braun, it wasn't enough. There were business ideas brewing in her head that she just couldn't shake. The Internet was changing commerce and she watched as her friends and co-workers left their jobs to pursue new opportunities. But that heady atmosphere vanished upon her arrival in Cleveland.

"I was surprised by how little people were speaking, thinking or dreaming about technology," she recalls. "I wasn't necessarily thinking about starting a company, but I got here and saw so much opportunity."

Braun and her business partners, Bart Blackburn and Chuck Scholl, originally planned to launch a business-to-business e-marketplace where users could buy and sell engineered materials and components. But in their research, they discovered the hardest part of doing business online was matching the right suppliers with the right buyers and vice versa.

Finding the lowest price wasn't the sole answer. Braun says she learned that buyers didn't know who was reliable, who was responsive to disputes and who was honestly equipped to do business over the Internet. That's when the trio developed the SupplierSeal Solution, an electronic seal that contains ratings on industrial suppliers.

The SupplierSeal tracks the supplier's industry certifications and association memberships, reference checks, facility reviews, e-readiness and dispute resolution ratings. Not only does it help buyers feel better about the company they're doing business with, but suppliers benefit as well because they're able to stand out from the pack and have an impartial party validate their credentials.

And, with estimates revealing that 86 percent of purchasers are expected to be online within two years in search of sourcing information about their suppliers, SupplierInsight was suddenly ahead of the game.

It begins with R&D

Braun and her team left their jobs and spent three months talking to suppliers and buyers and conducting market research to develop the product.

During this phase, Braun encountered a crisis that many start-ups face -- questions about when they would be able to sell the product.

"A product needs to get out to market. It needs to be released, and that's a challenge," Braun says. "I think we managed to do that right. We've got a nice robust product, and we're getting it out at a good time."

One thing that hasn't changed from the early days is the company's daily business strategy meeting, which Braun calls "gut wrenchers." The idea is based on a speech she heard by Keith Krach, CEO of Ariba Inc.

"If you're not making life or death decisions for your company every two months, you're doing something wrong," Braun says. "Every two months, something comes up that is such a huge decision that it could kill your company. But, you've got to do it because it could propel your company ahead."

Targeted financing

Like many of Braun's start-up peers, SupplierInsight's founders went in search of financing to complete product development at a terrible time --the beginning of the Great Shakeout.

In early 1999, investors nationwide lost millions as slipshod dot-coms fell by the dozens. Not only was it hard to sell a new Internet idea to an angel investor or venture capital firm, but some were downright rude.

"It is a challenging and humbling experience," Braun recalls, adding she's not bitter about the treadmill she was forced to run upon. "I would do it again in a heartbeat. You learn a ton by going out there and having people walk over you. They are the doubters, the skeptics, and they should be.

"They teach you a lot and they make your product and your company better."

SupplierInsight's investors -- including a recent influx of cash from Cleveland-based Capital One Partners -- are what Braun calls "medium involved." They are a mix of investors who are there every day and those who don't want to be involved but believe in the business.

"They're incredibly experienced and bright," Braun says. "There are varying levels of knowledge, which is perfect. If everybody knew everything about the industry, that could actually be dangerous."

Braun won't reveal the size of the investments garnered as a result of her tenacious fund-raising, saying only that it is a "standard seed deal."

Strategic partnerships

Braun and her partners developed two key strategic partnerships to help spread SupplierInsight's presence over more of the Web and help fortify its reputation among investors and customers.

Late last year, the company linked up with eWinWin, a locally-based e-marketplace that allows both buyers and suppliers to lower prices through demand aggregation. As more orders are placed for a given product, the average unit price is automatically lowered for all buyers.

The system, developed by eWinWin founder Greg Mesaros, allows suppliers to cut costs and improve efficiency through planned production. SupplierInsight will benefit by getting its SupplierSeal offered to suppliers who use the eWinWin site. Braun says Mesaros is "an industry visionary."

In January, the company partnered with National Quality Assurance Inc. to conduct SupplierInsight's facility reviews for suppliers. NQA will inspect operations, quality systems, manufacturing processes and plant infrastructure.

With those partnerships in place -- and thanks in part to the Internet's continued growth --SupplierInsight now reaches potential customers in 46 countries. That's key in today's competitive manufacturing marketplace and opens the door for it to take advantage of emerging markets in China, Korea and Taiwan.

"That is a driver which is undeniably the way of the future," Braun says. "I see a steady growth trajectory for the company. I think big and then act small. I would like our company to be as successful as TRW, Eaton or FedEx. You might say that's huge, but of course it's huge. You wouldn't be in this unless you thought it could be huge.

"But you have to start with steady growth and see where that takes you." How to reach: SupplierInsight, (216) 781-1100 or www.SupplierInsight.com

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