Kim Palmer

Wednesday, 31 July 2002 11:05

Permanent to temp

Temporary workers are always the first to be affected in a down economy.

"Employers don't want to lay off permanent employees, so they (temporary employees) get hit first," says Sue Ann Costa, ERC consultant.

But according to Costa, "We have seen a slight increase in temp worker requests in May and June, and more manufacturing companies are bringing back (workers) on a temporary basis."

Employment rates have always been considered a lagging economic indicator, but the increase in temporary hiring could indicate the beginning of a slow business recovery.

According to the SBN/ERC Workplace Practices survey, 3.6 percent of the work force of local companies is made up of temporary employees, up .2 percent from last year. The survey also tracked the use of contingent workers, which includes part time, job sharing, telecommuting and seasonal employees. The average percentage of the work force classified as contingent workers at local businesses is down from 7.8 percent in 2001 to 6.8 percent in 2002.

Recent employment numbers also illustrate a change in the way nonfull-time staff is being used. Part of the reason for an increased number of temporary workers and a decrease in the number of contingent workers may have to do with overall hiring trends.

"We are seeing organizations definitely getting more creative," says Costa, and becoming more flexible with what they hire temps to do and when they have to do it.

More and more, Costa is seeing professions that were once always permanent salaried positions change into something else.

"There are people out there that like to be independent, especially on a professional level. They like to move from assignment to assignment." How to reach: Employers Resource Council, (216) 696-3636 or www.ercnet.org

Monday, 22 July 2002 09:32

Liability. Liability. Liability.

In today's tight job market, some business owners are content to simply find a warm body to fill an open position.

However, in this highly litigious environment, some are realizing that hasty hiring decisions can be costly -- not just in terms of money, but also in time and reputation.

A business can be held liable for negligent hiring, which occurs when an employee with a history of violence harms a customer or another employee, either physically or emotionally.

If the employer is aware of an employee's violent or criminal history -- or should have been after conducting a reasonable search -- the company may be liable. For that reason, more and more businesses are opting to do preliminary background checks on prospective employees.

"About 30 percent of businesses now do pre-employment screening," says Jason Morris, president of background information services inc., a pre-employment screening company. Those searches -- which can cost from $35 to $275 -- include Social Security number verification, a driver's license search, employment and education verification, local and federal criminal record searches and a consumer credit check.

When considering background reports, Morris says to keep in mind they are contingent on the candidate's written approval and subject to ADA, EEOC and the Fair Credit Reporting Act (FCRA) rules and regulations. No search can be conducted without the written consent of the applicant.

Even so, background checks are becoming more popular.

The resume game

According to a recent study, more than 30 percent of resumes contain false or misleading information, Morris says. Some industries report that two out of every 10 searches reveal job candidates who have a criminal record they neglected to mention on the application.

A simple verification of an applicant's Social Security number, education history and references absolves prospective employers of liability.

Internal losses

Studies show a 15 percent increase in internal losses that costs U.S. businesses $4 billion annually. Employee theft is estimated to be responsible for 30 percent of business failures.

Morris suggests checking credit reports and searching for public filings, including notices of bankruptcy, liens and other judgments. A federal criminal check will uncover any felony or misdemeanor filings in the last seven years and allow your firm to protect itself against employee fraud.

A federal search will also reveal charges of tax evasion, embezzlement, counterfeiting, bank robbery and other white collar crimes.

Workplace violence

"According to the U.S. Department of Justice, 54 percent of violent workplace crimes reported were committed by acquaintances or individuals well known to the victims," Morris says.

It's possible for a new employee to put a company at risk by exposing other employees, clients and customers to someone who has a history of violence. Conduct a county criminal search to screen out high-risk candidates with convictions for violence, drug abuse or theft.

Training costs

Pre-employment screening can prevent redundant and unnecessary training. As the cost of training employees rises, it's not cost-effective to spend time and money to train an employee who will have to be let go due to a criminal record or lack of experience.

Searches only take one to three days to complete, compared to FBI fingerprint tests -- required for some employment -- which can take up to eight weeks to receive results.

Employer responsibilities

Disclosure is the key word when discussing an employer's responsibility in requesting a search and subsequently acting on any information uncovered, Morris says. Employers must receive a signed waiver before they can request any search.

And, an applicant must be told in writing that the information requested may result in adverse action, such as denial of employment or promotion, reassignment or termination.

Morris says that if that happens, an employer is required to give the applicant an adverse action notice, a copy of his or her consumer report and a copy of "A Summary of Your Rights Under the Fair Credit Reporting Act."

If employers neglect these responsibilities, the FCRA has ruled they can be sued for damages in federal court, he says. And an employee, if successful, may be entitled to recover court costs and reasonable legal fees, and may even seek punitive damages.

Morris predicts that pre-screening and background checks will become more the rule than the exception. He cites examples of insurance companies awarding discounts to companies that perform background checks, recent awards in liability lawsuits and the rising cost of training as just a few of the reasons these services are becoming more popular.

And for some businesses, it is more than just a cost issue. It's a public relations issue. Explains Morris, "If someone steals, you can recover. But you cannot recover your reputation." How to reach: background information services inc., (800) 235-3954 or www.employeescreen.com

Kim Palmer (kpalmer@sbnnet.com) is associate editor at SBN.

Monday, 22 July 2002 09:32

Green Acres

We may never see the end of the industrial gray/off-gray walls and carpet, the windows that won't open or the constant parking battle that plagues the majority of the working masses.

However, recent trends reveal a genuine attempt to make the office a more pleasant place to visit or spend the better part of the day. Business owners have even been known to equip workspaces with couches, coffee bars and basketball hoops or buy $1,000 ergonomic chairs.

The concept of creating an alternative work environment was firmly entrenched in the mind of Marc Orzen, president of Progressive Computing Corp., a computer consulting and training firm, when he realized his company needed to move from its office space in Mentor. After investigating the cost to rent office space in a traditional corporate building, he decided to look into the alternatives.

Orzen ran the numbers on a few options, then invested in a 6.8 acre Mentor/Willoughby estate that includes a 160-year-old, 7,000-square-foot, six bedroom main house, a 3,000-square-foot carriage house, converted stables, a pool, a baseball diamond and lots of wildlife.

It may sound eccentric and expensive, but Orzen insists it's no more so than renting space in a high traffic industrial park.

"Costwise, we are paying less than three units," he says. "What you would pay for this (type of) square footage is outrageous."

But Orzen wanted the move to be more substantial than just acquiring more space; he wanted a long-term investment.

Although most of the main house has maintained a traditional domestic atmosphere, with a grandfather clock in the foyer, it needed retrofitting. Telephone and cable rewiring was needed to set up phones and a state-of-the-art computer training center, but it only took a week for employees to get in and start working.

Orzen and his staff admit there is a hefty amount of upkeep on the seven-acre ranch, but he argues the cost is comparable with maintenance fees in a corporate building and the decision was contingent on its cost-effectiveness.

Such an unique layout provides myriad opportunities for Progressive. The company holds frequent training sessions in either the main house (the old living room) or the carriage house, which has a full kitchen and a pool table. Customers are encouraged to bring bathing suits and swim during breaks or after the session.

They can have lunch in the full kitchen, at the picnic table by the pool or by one of the fireplaces. Orzen sees the campus extras as a plus for client retention.

"Our focus is to make the experience one that is not to be forgotten," he says.

Progressive's campus lends itself to a number of uses, including hosting large user-group meetings.

"The atmosphere allows clients to feel at home," Orzen says. "And, they love to come back. They look forward to coming, and that helps increase relationships."

But it's not only about the clients. Employees also benefit from the nontraditional environment. On nice days, they've been known to work by the pool, which is fully equipped with electrical and telephone lines.

"At our old office, you would go for lunch outside and be sitting in a parking lot," Orzen says.

As to whether a nontraditional office provides too many distractions to be a productive work environment, Orzen says it's not a problem.

"When you are here at your desk, you're working."

The Progressive campus is more than just a weekday office. The grounds are available to employees and their families after work and on weekends.

"My twin boys had their graduation party here," says Karen Lorenzo, director of operations.

Christmas parties, softball practice and afternoons at the pool all add to the insurance Orzen has to carry as a business owner, but he considers it a trade-off.

"I would rather have a few things and take a chance," he says.

As nontraditional as the Progressive campus is, it's also incredibly practical for a growing company. The seven acres allows it to make long-term plans, and with the extra space, there's no need to relocate any time soon. In fact, as Orzen walks Progressive's campus, he points out a building where he plans on housing a daycare facility and a workout center.

Recent studies show that a better work environment contributes to lower employee turnover and absentee rates. Orzen believes this applies to Progressive.

"Over a fourth of our employees have been here for more than seven years," he says.

And, while that may not be better than the industry standard, Orzen is sure his employees "have better tans, are better swimmers and better volleyball players (than employees at other companies)." How to reach: Progressive Computing, (440) 954-9589

Kim Palmer (kpalmer@sbnnet.com) is associate editor at SBN.

Friday, 19 July 2002 06:23

Giving credit

Helping employees increase their take-home pay can be a significant piece of your employee retention program. As tax time draws near, consider educating your staff about the Earned Income Tax Credit (EITC) and the Advanced Earned Income Tax Credit (AEITC).

Developed in 1975 as a welfare-to-work incentive, EITC is a refundable tax credit that supplements the earnings of low-income workers. More than 18 million taxpayers received EITC in 1997, and an estimated 15 million employees are eligible for the AEITC.

EITC

To qualify for EITC, an employee must meet six criteria, including a threshold of $2,400 in investment income and earned income of $31,152. Earned income is defined as (but is not limited to) wages, salaries, tips and salary reductions as a result of participation in retirement or insurance plans.

As an employer, your participation is easy: Notify employees who have no income tax withheld that they may be able to claim a tax refund because of the EITC.

The IRS encourages employers to notify any employees who claim exemption from withholding or have wages less than $10,380 for a single employee, $27,413 for a custodial parent and $31,152 for the guardian of more than one dependent child, that they may be eligible to claim the credit for 2000.

AEITC

Employees can receive part of the credit in their paycheck if they qualify for EITC for the year instead of waiting for the lump sum at the end of the year. The payments are called advance EITC payments and can increase a minimum wage employee take-home pay significantly.

"Only 1 percent of people that are eligible for the earned income credit actually activate it in their paychecks, and typically that is going to be (more than) a dollar an hour raise to your employee," explains Bethany Davin, director of a local welfare-to-work program.

For an employee earning minimum wage, the increase could translate into more than $100 a month.

To qualify, income must be less than $28,000 and recipients must be the guardian or parent of a qualifying child. A qualifying child means any child cared for, including an employee's own child, step-child, foster or adopted children, grandchildren and/or any child placed with the employee.

Have eligible employees fill out a W-5, which you keep on file. AEITC payments are made directly to the employees from the employment taxes normally deposited or sent to the IRS. For more information, contact the IRS at (800) 829-3676 or visit www.irs.gov.

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

Friday, 19 July 2002 05:38

A good sport

It happens all the time. Just when you find that perfect restaurant, little-known bar, great shop or favorite beer, the company goes out of business.

That's what happened to C. David Snyder, former owner of Realogic and now chairman and CEO of Snyder International Brewing Group LLC.

"I saw that Crooked River (Brewing Co.) was in bankruptcy," he says. "It happened to be the beer I drank. So, it seemed natural to help."

Consider it a dramatic change of direction for Snyder, who had spent his career working as a consultant with some of the top firms in the nation, including Arthur Andersen and Cooper & Lybrand. After that, he founded and sold two companies, and in the early '90s, launched Realogic, a local IT consulting firm.

Two weeks before Realogic was scheduled to go public, Snyder and his partners received a phone call that set in motion the changes.

"We got an offer, one of those offers you couldn't refuse," he says. "And it was time to sell."

The sale was supposed to allow Snyder time to relax, but instead, he found himself with too much time and some extra money in his pocket -- a dangerous combination for a man who had no plans to truly slow down, let alone retire.

"I'm one of those guys that will probably do something until the bitter end," he says.

Snyder may be wishing for that end to come sooner rather than later on Feb. 18, when he'll be the guest of honor at "An Evening of Good Sport Networking," a roast to raise funds for Junior Achievement.

Snyder agreed to the roast, presented by the Cleveland Crunch and sponsored by SBN Magazine because, "It's a worthy cause and it sounds like fun."

The event begins with a 3:05 p.m. Crunch game, followed by a cocktail hour from 6 to 7 p.m., then dinner and the roast at 7 p.m. Tickets are $250 a plate, $2,000 for a table of 10.

Snyder admits there's a difference between beer brewing and IT consulting.

"It is a different part of the brain," he says. "It is business-to-consumer and is different because now you have wholesalers and retailers that are selling your beer -- you don't control all of your revenue."

When Snyder assumed the reins of the faltering brewery, he brought with him time-tested business principles to turn it around. He retained most of the brew staff, but developed a new marketing plan and orchestrated a long-range plan for consolidation within the industry.

"You can't be a $1 million to $2 million brewery today and make any money," Snyder says. "It costs too much to run an ad or invest in infrastructure. That's why you are seeing a tremendous amount of consolidation. I had no idea at the time that we were going to get into the beer business. I saw what was happening with the consolidation and I thought it would be good for a roll-up strategy."

Over the past two-and-a-half years, Snyder's been in acquiring mode, snapping up Cincinnati's Hudephol/Schoenling Brewing -- maker of Little King's beer -- and buying a 51 percent stake in the Fredrick, Md.-based Fredrick Brewing Company, a public company known for brewing beer using hemp seeds.

But beer alone isn't enough to satisfy Snyder.

"I'm not a 40-hour-a-week guy," he says. "I could probably hold down a couple of jobs."

And that he does, but on his own terms. Snyder has invested in a number of technology firms nationwide, including Digital Atoms, which is headquartered in the Washington, D.C., area.

"With the exception of beer, it (technology and consulting) is really all I have done," he says. "I have developed a reputation for it, and there were a lot of people who were asking me to get back in. I had a lot of people twisting my arm."

Snyder's arm was twisted enough that he founded a technology consulting firm in Cleveland called Brulant, which means "hot" or "scorching" in French.

To Snyder, business is business, even when it involves the fast-moving world of technology.

"In some ways, it's changed a lot. But in some ways, it hasn't changed at all. It is still about relationships. Technology changes, but you still have to have good people running it."

Snyder says he's enjoying himself now more than he ever has, and he's become an integral part of the Crooked River creative team.

"I came up with Expansion Draft (beer), and it was a great seller for us," he says.

And, Snyder's helped draft slogans like the ones seen at Crunch games, where the side boards read: "Expiration date, born-on date, how about get a date?"

For Snyder, much like frequent product tastings, it's all part of the business.

"We have fun with it," he says. "It's only beer; you can't be too serious about it."

Beer and sports obviously go hand-in hand. Crooked River is involved with most major sporting events in Cleveland.

"People who like sporting events like beer," he says. "There is a lot of statistical evidence out there that says effectively (sporting events) are just a big bar. If you go to the baseball game, you will see people standing in line to get our beer while there is nobody in line to get the other beer."

Beer and sports may go together, but what about a Cleveland-owned beer company that has a stake in a Maryland company, and its relationship to a certain Baltimore football team?

When faced with the question of whether to sell Crooked River beer at the Baltimore Ravens' stadium, Snyder had to make a crucial decision.

"We had an opportunity to sell our beer at Ravens' field and we turned it down," he says. "That should tell you something. We did a deal with the Washington Redskins to sell beer. We sell a lot of beer at Camden Yards, and we were written up in the New York Times about that. But with the Ravens, I just can't do it."

So at least one thing is certain -- on Feb. 18, Snyder won't take any flack about selling out to the minions of Art Modell. How to reach: Snyder International Brewing, (216) 619-7424; Cleveland Crunch, (216) 896-1140

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

Friday, 19 July 2002 05:04

Take two

The bulk of our professional lives consists of the proverbial climb up the corporate ladder.

It takes considerable time and effort to reach the top, often requiring those who attempt it to forgo family vacations, children's Little League games and that all-too-precious commodity, sleep.

And what awaits those who reach the summit?

Often, it's prestige, compensation and stability. For most, this is enough. After several years at the top, it's on to retirement and enjoying the fruits of one's labors. But there are always those who buck the trend.

Call it an entrepreneurial spirit. Label it tenacity. Simply put, there are some business leaders who are not satisfied with standing still or even running in the same direction. For them, there is no greater challenge than starting over.

"If you're a born entrepreneurial spirit, you are in a hurry," explains Don Heestand, senior managing partner and chairman of E-merging Technologies Group. "You have to get it done. You have to get it out there before someone else does. It is a race and it's a rush."

Even so, why leave the prestige and stability associated with leading a large, successful business? For some, it's as simple as a much-needed change. For others, it's as important as a revolution.

New ventures are fraught with unexpected challenges and, of course, risks. Those who choose to take the gamble and start anew welcome the challenges and view the risks as extremely personal.

SBN sought out four entrepreneurs who made it to the top, then left their perches to sow the seeds of business again. We posed one simple question to each: "Why?"

Bureaucratic cholesterol

Don Heestand was one of the founding partners and CTO of Realogic, a Cleveland-based computer software company that was sold to Computer Associates in 1996. He can talk for hours about numbers-driven businesses that grow too fast and develop what he calls "bureaucratic cholesterol."

"(Realogic) just grew so fast," he says. "I became disenchanted when I took an elevator to the 23rd floor and there were two strangers that got off (the elevator). One was a Realogic employee and was interviewing the second person. I didn't know either one of them."

Given the opportunity to chat with the energetic Heestand, it becomes vividly clear why bureaucratic cholesterol -- or any amount of slowing down -- would be unacceptable. His new venture, E-merging Technologies Group, is a professional services firm that specializes in advanced and emerging technology development and deployment. He is involved with everything from computers to welfare recipients to stage-three cancer treatment.

With capital in hand and notebooks filled with ideas, Heestand is a modern day Don Quixote. But instead of windmills, he tilts at conventional corporate structure. Heestand has tackled every issue of the traditional service structure with generous compensation packages, shares in the company and liberal time-off policies. The partners, or punks as he affectionately refers to them, are paid what they are contracted out for and return a percentage in the form of administrative costs or, if they choose, stock options.

What drove Heestand to start over and reinvent the wheel is a love of what he calls "bleeding edge technology." It is the fast and ever-changing world of technology that he could not always pursue at Realogic.

"At Realogic, we called them fastballs. You would chase so many fastballs, and after a while, you would realize that they weren't going to generate any revenue," he recalls. "What I'm allowed to do and what we do here is chase fastballs."

And Heestand chases fastballs with all the passion and urgency of a slugger looking to knock one out of the park.

Smaller is not always easier

Monotony can be mind-numbing, and sometimes it is just time for a change.

"I figured that I had had enough five years ago," explains Jack Bares, founder and CEO of Meritool. "It was getting very repetitive, and I thought it would be smart to have someone running the company that had a lot more energy than I did."

Back then, Bares was CEO of Milbar, a hand-tool manufacturer he founded in 1945. By the time he decided to sell the company, he had been manufacturing tools for companies around the world for half a century. One of the pioneers of successful succession planning, Bares eventually sold his company to one of his four children. The plan was simple and succinct: The company was for sale to any of his children who could buy it from him and the other three.

With his business sold and Bares "well past the age of retirement," as he puts it, the situation was perfect for spending a lot of time on his golf game. But, as he soon found out, people who are high energy and entrepreneurial have a difficult time standing still.

"I don't know how to retire," he says.

Bares immediately founded a smaller hand-tool manufacturer, Meritool, which didn't compete with Milbar. Meritool, he says, was just "something to keep him busy."

His plan was to produce a few simple hand tools that met the specific needs of some former clients. Bares says he thought that by making a product similar to what he was familiar with that running the company would be easy.

"I thought smaller meant simpler," he says. "It turned out to be the opposite."

Simplicity went out the door when a former client requested he work on a power tool that other manufacturers claimed could not be made.

"I didn't know it couldn't be made," Bares says, "so I made it."

Soon he found his small company staffed mostly with former Milbar employees, churning out complex tools for Fortune 500 clients. And, for one of the first times in years, he found himself losing sleep and money.

To boldly go where no one has gone before

Business can be exciting. But there are those who seek change because they find they have an overwhelming desire to do things right.

John Gorman was the program director for WMMS and the station's all-around visionary when the Buzzard was Rolling Stone's sweetheart and Cleveland was playing and bringing to town some of the biggest names in rock 'n' roll -- even before they were the biggest names. Gorman arrived at WMMS when the FM in radio stood for "find me."

But even as one of its foremost innovators, Gorman talks about the day when the FM he worked so hard to build may become obsolete or will at least have to share its now consolidated and commercial market with the up-and-coming -- and more independent -- Internet radio format. And like he was years before, Gorman will be there to help shape the industry. This time, however, it's with his own company, Radio Crow, an Internet radio portal.

By the 1980s, WMMS was the top-billing station in the market. But it wasn't easy. When he took over programming, Gorman had five months to turn the station around. And he had no budget to do so.

"You had to go to the 16th largest market to find a radio station that was billing more than we were (Cleveland was the 21st largest market)," Gorman says. "We were overachieving (in comparison to) our market size."

It was in 1986, when radio was being taken over by large corporations and multimergers. Like any good visionary who sees the end of an era, Gorman took his leave.

But while he was with WMMS, there wasn't an alliance that Gorman didn't make nor an opportunity he didn't take advantage of, and that is what made the station successful.

"It was always struggling," he recalls. "I thought that one of the keys to success was the fact that we had a young staff. For most of them, it was their first job in radio. We all had something to prove."

To Gorman, business, like music, should be progressive, always changing and ever evolving. That's why he took on FM in 1973, when you could only get AM in your car or on a transistor radio, and that's why he decided to leave radio as we know it and jump ship to the Internet.

Quality control

It has been more than 10 years since Jim Biggar was the CEO of Stouffer's-Nestle, and he can still recite the ingredients and thought process that went into Stouffer's macaroni and cheese.

"The secret to mac and cheese is that the cheese we used was between 11 and 13 months aged," he says. "You don't get the full flavor before (that) and too much after. We specified the inside and the outside diameter of the macaroni, its length, the wheat germ that it was made from, and even the percentage of broken pieces."

Biggar retired from Stouffer's after 20 years of overseeing the quality of everything from macaroni and cheese to chocolate. Today, he is the founder and president of Glencairn Development, a small company taking on the rather large task of developing 390 acres of land bordering the Cuyahoga Valley. His development combines retail and residential homes marketed to empty nesters or anyone interested in smaller homes with a lot of detail.

One could argue there is a big difference between making French bread pizzas and developing 390 acres, but for Biggar -- who earned an engineering degree from Case Western Reserve University before taking a marketing job at Stouffer's -- it is all about the product.

"To be successful, I have to have a high quality product," he says. "I've changed businesses, but that fact hasn't changed. I'm a builder and I like to build things."

One walk through the Renaissance Hotel downtown and you begin to experience some of what Stouffer's, under the leadership of Biggar, did for a city that, at the time, was more interested in parking lots than renovation.

But what about the prestige of working for a large well-known company -- sitting on prestigious boards, flying aboard private planes, and knowing that every person you meet knows who you are and where you work?

"There is more imagined prestige than there is prestige," explains Biggar. "And if you think it is there, it really isn't."

In fact, he says, there is often a downside.

"If I would go to dinner in a Stouffer's hotel, the waitress would suddenly know that she was serving the CEO and she is more likely to spill soup on you than any other person," Biggar recalls.

Beyond that, success often carries a price. In Gorman's case, his once scrappy little station that catered to the baby boomers' demand for new music began dominating one of the most advantageous demographics. Because of that, the station was slowly becoming exactly what it was designed to compete with.

"The turning point was 1978," he says. "It was rapidly turning into a big business, with more responsibilities and more employees ... and it became a very different station. We were becoming all things to all people. Looking at it from a business perspective, we were too big. I told them (station executives) we were going to collapse under our own weight."

But while leaving a large and stable company may be cathartic and challenging, it is also fraught with risk, especially when the new venture involves the business owner and the business owner's family savings. One big loss during the start-up phase can be a devastating blow to the company and its owner.

"You do that one more check to make sure," says Bigger. "When you are 60 or older, you can't afford to make a big mistake in your career and recover from it."

Indeed, those chasing after a second career later in life often find themselves taking bigger risks with less of a margin for error. In most cases, these businesspeople aren't risking company money but rather family money. And when you are 30 or 40 years old, it's possible to absorb big mistakes. One simply changes jobs, suffers through a few lean years, then spends the next 20 to 30 years earning the money back.

"I have a much greater appreciation as to what is coming into today's mail," admits Heestand. "A greater appreciation of the collections process and the client management process. If people are unhappy, they don't send the checks,"

Such matters constituted a process of adjustment for Bares, who hasn't taken out a loan since the 1950s and for the first time experienced what it was like for a company to actually lose money.

"It wasn't fun, I can tell you that," he says.

In Biggar's mind, the risk was more substantial at his previous company because losses affected all 30,000 of his employees. He says that in a larger company, one false move or premature expansion can spell the end of thousands of jobs.

"Now, if you make (a mistake), then it's our family that feels it, and that's it."

One staggering difference between large, established firms and start-ups is the abundance of late hours and a lack of infrastructure.

"If something comes up, you are used to saying, 'Hey Joe, fix it.' Well, Joe is not there (in a small start-up)," Biggar says. "In fact, there is no Joe."

Bares says nearly every part of the business that he thought would be less hectic became more complicated with Meritool. But he likes that challenge.

"It refreshed my mind to see the tremendous amount of different things that happen in a company when it is very small," Bares says. "They all get up to the chairman. I find myself dealing with problems that I always had others take care of."

Still, it requires a lot of time to take care of the details, and Bares jokes with his friends that he will one day pare down to a 50-hour work week.

The reality of financial accountability can also be a real eye opener. For some, there is a whole new world of 401(k)s, profit sharing and accounts receivable that "Joe" is not around to deal with. As CTO of Realogic, Heestand didn't even know the company was $16 million in debt when negotiations with Computer Associates were underway.

"The big difference is that I actually understand the numbers," he says. "I'm actually very close to the checkbook, even though I'm not the CFO. But I'm very close ... and it is really exciting."

Then there is the learning curve.

"It is a different business, and obviously I had to learn the business from the bottom up again," Biggar admits. "I felt like a dummy in the beginning. But I've been a dummy before. Your ego gets shot regularly -- I have kids who can do that."

So why do it? Why climb to the top, then leap voluntarily to the bottom to start again?

"It is suddenly like I'm 23 all over again," Gorman says. "Everything that I'm doing today makes me feel like I'm reliving my early 20s."

The perceived challenge is even greater, Gorman says, as he tackles a new and untested industry.

"It is a wing and a prayer," he admits. "I'm also older and there is no guarantee of success. But there is a greater guarantee if you hire the right people and surround yourself with the right people and talent."

"I think the real difference between now and then is that I control my calendar," Biggar explains. "Before, somebody else controlled it. Now, I really do. It doesn't matter as much if I do it on Tuesday or Wednesday."

All four men agree on one issue -- the same traditional business practices they used to make them successful once still work today.

Granted, not all the aches and pains of a new company can be overcome with experience, but as Bares puts it, "a person who has been in business 50 years sees a company completely different. Those starting one for the first time don't know all the problems involved with raising money and financing the company, as well as being able to hire the proper people in the areas that they are not as talented in.

"If you've been in the business world, you came with all that knowledge."

Some of it may be the inherent optimism of knowing you're able to overcome any challenge -- you made it work before so you'll do it again.

"When you first become an entrepreneur, you expect all of the challenges and you know that it is going to be tough," Bares says. "But when you have done it for a while, it is not quite as difficult. You normally take on bigger challenges."

Then there is control. The larger a company, the less you control it. In reality, its infrastructure takes over. Smaller companies allow for a level of creativity and informality that largers ones don't.

"We take pride in the fact that our company has no policies, except for being honest," Biggar says. "Other than that, if we want to have a holiday, we have a holiday."

Biggar agrees and says he doesn't miss the policies and formality that go along with a large corporation.

"I would go stark raving mad if I had to write a manual," he says.

And with innovation comes creation. Gorman and Heestand are drawn to that.

"I'm stimulated by this and it reminds me so much of those old days -- the creative juices are constantly flowing," Gorman says.

The same lack of infrastructure provides Heestand with a sense of control.

"I fly the kite and actually feel the kite," he says. "That is exciting. Maybe the others at Realogic had that feeling, but I never had that feeling that I was actually flying the kite. I'm flying the kite now. It goes up and it goes down, and you have to put more tail on it. But I enjoy it."

In the end, it comes down to a specific type of personality that's needed to launch successful career after successful career. For those people, the game never stops.

"I think it is very important to have things to do to keep using your mind and have a reason to get up each morning," Biggar says. "I'm not patient enough for fishing and my golf is not that good. So I keep working."

Heestand admits he's never been a destination sort of person.

"I've always been a journey guy," he says. "The journey is what I cherish -- the excitement and the game itself."

For Heestand, the big issue is the pace of technology. And while he readily admits he is more driven at ETG than he was at Realogic, he realizes the clock is, indeed, ticking.

For Gorman, the question isn't why stay with what you know but why not find what's going to be in the future.

"If someone would ask me who would I want to align myself with -- the blacksmith or the combustible engine, even though there were a lot more horses back then, I'm going to say combustible engine. Ten years from now it may be a lot different."

Bares still wakes up thinking of business challenges and Biggar still sits on a few boards around the city, although not as many as he used to.

"As you get older, you get away from the strongest heartbeats of the city," he says.

But he has no regrets.

"Now, I don't get the soup spilled on me." Kim Palmer (kpalmer@sbnnet.com) is managing editor of SBN Magazine.

Thursday, 18 July 2002 13:19

Death and taxes

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 12:49

Misplaced energy

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

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.

Friday, 28 June 2002 06:32

Film buff

David Frecka is president and CEO of Next Generation Films, and even though it sounds like a company out of Hollywood, it's not what you think.

Of course Frecka will lead you to believe he's a movie-making bigwig if it gets him out of a speeding ticket.

"I was stopped by a cop for speeding and he asked me what I did for a living," say Frecka. "I told him and he let me go."

But the "Film" in the name of his company refers to flexible polymer-based film for packaging.

Frecka purchased Next Generation in 1985. It's been a bumpy ride at times, but the company has seen profits and growth for the last five years. He spent a lot on technology and state-of-the-art equipment and considers that investment a reason for his success.

But it's a tough business.

"The plastic industry is so volatile that it's easy to lose money," says Frecka. "Resin can go up and down 100 percent in six to seven months. It's all demand-based and sometimes it's a scary place to be."

It became even tougher when a series of health issues forced Frecka to take time off.

"I hired some 'professional managers,' some industry guys, and in a year, they almost had me out of business," he says. "They didn't understand cash flow ... we had big inventories and the company was going out of business."

Frecka returned to work early and "I got some great people and I paid them a lot of money ... I got a good accounting firm ... I told (my suppliers) I knew how bad things were and gave them all weekly updates. That gave them the foundation to wait."

The company is now prospering, but for Frecka, both failure and success are a part of business.

"They don't kill you when you fail," he says. "My success is built more on failures than success -- you can't shoot 100 percent all the time. You try to gain more than you lose." How to reach: Next Generation Films, (800) 88 -8150 or www.nextgenfilms.com