Kim Palmer

Wednesday, 26 May 2004 11:59

Living the American Dream

Fady Chamoun breaks into a large grin as he watches four senior women amble through his restaurant's front door just moments after it opened for lunch.

"It's great to see them in here," says Chamoun, owner of Aladdin's Eatery. "These women wouldn't have come in here five years ago."

That, he says, is because the traditional Lebanese food that Aladdin's serves has only recently become a more mainstream option. Attracting non-Lebanese senior women into a place where the main spice staple is garlic -- loads of it -- and the menu items include hummos, tabouli, baba ghannouj and pita breads, has taken a bit of time.

Chamoun, who cut his teeth in the restaurant industry in 1972 while he was a graduate student at the University of Michigan, has gone to great lengths to reach out to new customers. He claims that 75 percent of his customers are women, who, he says, like the lighter meal options he's introduced to the menu in recent years.

Restaurants have always been unofficial cultural ambassadors and have served as an outlet for new immigrants to make a good living and employ family and friends. The past 20 years have seen the rise of a variety of ethnic restaurants, from Thai to Cuban to Middle Eastern, and the entire food industry has benefited from a trend toward preparing fewer meals at home.

All of this suits Chamoun just fine.

He started with one Aladdin's restaurant in the mid-1990s after selling his portfolio of Little Caesars franchises. Today, he boasts 17 Aladdin's locations in five states, more than 1,000 employees, a centralized training facility and an independent bakery and commissary. Under Chamoun's frugal eye, the restaurants have experienced 30 percent annual sales growth over the past few years and he has not suffered a single location failure. He chalks up his success to hard work and experience, but also admits that good timing factors into the equation.

However you explain it, one thing is clear - Chamoun has almost helped introduced affordable, quality Lebanese cuisine to Northeast Ohio and parts of the Midwest. His Aladdin's empire includes locations in Cleveland, Columbus, Youngstown, Pittsburgh, Chicago, Washington, D.C., and two in Virginia. Not too shabby for someone who didn't never planned to stay in the United States after graduation.

Humble beginnings

In 1972, Chamoun, 19, arrived in the United States, determined to earn a graduate degree in engineering from the University of Michigan, then return to Lebanon to help run a water plant near his hometown.

Political timing, however, was not on his side.

During the 1970s, political unrest marred Lebanon and it endured violent clashes with Israel. And an influx of Jordanian and Palestinian guerrillas would later use Lebanon as their base for the Palestinian Liberation Organization.

But for Chamoun, there was another issue -- his name.

Camille Chamoun (no relation to Fady) was Lebanon's first president and prime minister during the 1950s. He was overthrown in 1958, then elected to the National Assembly in the 1960s. By the 1970s, the name Chamoun carried both power and controversy across Lebanon.

So when the time came for Fady Chamoun's anticipated return home, he not only had secured a job in Detroit, but also found "in many parts of the country, it wasn't good to have the same last name as the Christian Maronite prime minister."

That left him with a serious decision.

"I could have gone back home and made about $12,000, or stay here, where I was making $25,000 a year," he says.

Chamoun chose to stay.

The job he had secured was with Little Caesars restaurant, a chain of pizza shops. He began working there during graduate school making pizzas, and by the time he graduated, he'd earned a series of promotions -- to store manager, then franchise coordinator for the company's owner, Mike Illitch.

His decision to stay in the United States and work for Illitch put Chamoun in a position to capitalize on the meteoric rise of the pizza chain.

"Back when I started, we got our biggest rush after the bars closed," Chamoun says. "We were open from 3 p.m. to 2 in the morning."

At that time, pizza was more of an easy way to grab food than a regular meal. But Illitch was convinced there was serious potential for something more.

"He told us that pizza was going to be hot, and that Italian food was going to be the next big thing," Chamoun says.

He was right. Little Caesars went from 80 locations to 5,000 in less than 10 years. One year during Chamoun's tenure, the company opened a record 600 locations in one year.

"I learned a lot, those years," says Chamoun. "A lot more than in college."

Change of pace

Before Chamoun left the company in 1993, he owned 40 Little Caesars franchises. More important, he learned every aspect of the restaurant business, working in sales and management, fine-tuning his people skills and understanding how to purchase and produce food. And, he developed his own unique business philosophies.

It was those philosophies that led to Chamoun's break with Little Caesars.

"I was watching what was going on around me, and I thought it was on the way out," he says. "Twenty stores in one city is too much. It was the flood of pizza delivery places that hurt us most."

Another thing Chamoun noticed was the changing American diet. He recognized the popularity of Italian and Mexican food, and the growing popularity of Lebanese and Middle Eastern cuisine.

He also understood that this new direction would require educating consumers about the product.

"The food is a philosophy," he says. "It's about culture. And it takes time to build that up. You sit down and try this new food, and then understand what it's made of."

So Chamoun liquidated his pizza franchises, walking away with just $10,000 after paying off all his debts and loans, and set off on his new course. After more than a year of searching, he came across Rankin's Deli, a small deli on Detroit Avenue in Lakewood.

Rankin's was owned and operated by John Poulos, who was looking to sell. Poulos wanted $70,000 for the deli, which was $60,000 more than Chamoun had, but accepted a $10,000 down payment and monthly installments.

Aladdin's Eatery was born.

At first, Chamoun concentrated on improving the existing items on the menu. But he slowly began to add new items and focus on healthier Lebanese foods.

"We started with the easy stuff ... hummos, falaffel and shishkebab, and little by little, added more," says Chamoun.

Soon, the corned beef sandwiches and other deli items were replaced with pita breads and tabouli.

Because of his lack of finances, Chamoun called in favors and took on a partner. During the day, he sold sandwiches. At night, he supervised renovations to the restaurant, or did the work himself. He mortgaged his house and borrowed money from his closest friends.

Eventually, Aladdin's popularity took hold, and Chamoun not only became cash flow positive, he also opened a second location in the high foot-traffic area of Cedar-Fairmount in Cleveland Heights, taking over an existing restaurant.

"One day, it was an Italian place," he says. "We came in over the weekend, and by Monday, it was an Aladdin's. I don't think we lost one customer."

The key to Aladdin's success, says Chamoun, is having both a strong lunch and dinner crowd and plenty of carryout traffic. Those were lessons he learned from Little Caesars.

"I used my experience to duplicate what I had done at Little Caesars," he says. "Carryout takes care of overhead -- about 30 percent of sales are from carryout."

In the industry, Aladdin's falls into the "quick casual" category, loosely defined as a restaurant that combines high-quality ingredients, offers fresh, made-to-order menu items, has a limited or self-serving format, is upscale or or has highly developed decors, and a check averaging $7 to $10. Aladdin's seem to fit that bill.

The décor at each Aladdin's is upscale, the restaurant holds from 60 to 80 seats, an average visit takes under 30 minutes and the average bill for two is easily under $20.

Chamoun is well aware that quality food and good customer service will only be appreciated if there is the proper audience. So he spends a good amount of time analyzing prospective locations for his continuing expansion.

"You have to find the right corner, the right location," he says. "You have to spend time. You can not make quick decisions," he says.

Successful strategies

The first thing you see when you walk into any Aladdin's is a blinding display of mouth-watering desserts and cakes. But Chamoun doesn't consider this antithetical to his commitment to health and nutrition.

"You have to balance health and taste," he says. "It's strange for some people to understand that you can have cake and still eat healthy. But it's all balance."

Chamoun has done what many restaurants hope to do -- provide unique, fresh food that is not easily duplicated, maintain profitability and keep costs low.

As with any restaurant, food costs and overhead are fundamental success indicators. Anything over 30 percent spent on food costs must be mitigated, so Chamoun's philosophies for his recipes pose several challenges.

First, he demands fresh ingredients. He uses spices that, until recently, had to be imported from multiple suppliers. That made it difficult to control costs.

"You work within the system," he says. "That covers us so that the quality comes out the same. If you give your customers consistency, they will give you the same."

Chamoun is serious about consistency, so much so that even Aladdin's prices are the same in every city. A falafel in Cleveland or Columbus costs the same as one in Chicago or Washington, D.C.

And all Aladdin's restaurants must be located within a seven-hour drive of Aladdin's commissary, Jasmine's Bakery in Cleveland, where the pita breads are baked and the hummus and tabouli is made daily from fresh ingredients.

Jasmine's, which Chamoun founded in 1997, is a profitable distribution company, bringing in more than $2 million each year in sales and employing nearly 40 people.

"Everything on our menu is made fresh," he says. "We start with dried beans and fresh spices. When you get pita at any one of our restaurants ... it was cooked less than 12 hours ago."

Pre-made pita is easily purchased, and he could use canned beans in his vegetarian chili, but that's not why he got into the business. And that's not what the consumer wants, either.

"Everything now is about nutrition and labeling," says Chamoun. "People are concerned with what they eat these days."

Finally, Chamoun is adamant about the franchise-type set-up of his expansion restaurants, and every location must have an owner.

Expanding empire

Considering the high degree of education that Chamoun says comes with his cuisine, you'd think a targeted marketing campaign would be critical to his success. But you would be wrong. He has not spent one dime on advertising of any kind.

"It's all been word-of-mouth," he says proudly. "I've gotten so much attention from the media -- articles and reviews."

Chamoun readily admits part of Aladdin's success has been its timing as a member of the growing quick-casual restaurant trend. Although quick casual only accounts for about 2 percent of foodservice sales, its growth is projected to reach as high as 20 percent in the next few years. So he has good reason to ride the trend as long as he can.

That said, he is quick to point to Aladdin's zero percent failure rate and the fact that sales are up 30 percent over last year as other reasons his expansion is picking up steam.

He has his eye set on reaching 100 restaurants within the next five years. To do this, he says he'll stick to his strategy of growth through cash flow and profits rather than by incurring any debt.

Targets include more restaurants in Virginia, and entry into markets in Maryland, Kentucky, Illinois and Indiana -- all fertile territory that won't require him to break from his "seven-hour" policy.

And to accommodate expansion, Chamoun recently purchased additional office space adjacent to his original restaurant in Lakewood, where he's setting up a training center.

"It's not out of the question," he says when asked if he could turn Aladdin's into the next Chipotle or Little Caesars. "We can get as big as we want. We have plenty of time and can move as fast as we want."

And although he is clearly satisfied with how far he's come since 1972 and with where he sees the company heading, he does wish he could change one thing.

"I wish I was 20 years younger."

How to reach: Aladdin's Eatery (216) 932-4333 or aladdinseatery.com Associate Editor Deborah Garofalo contributed to this report.

Thursday, 29 January 2004 19:00

High-tech trash

Commercial hazardous waste is a cradle-to-grave issue for the companies that produce it, and incineration and disposal processes must be managed and documented properly.

Ross Environmental Services, a waste management firm, has the daunting task of keeping up with the disposal needs of its customers -- large industrial companies with an ever-changing pallet of products and byproducts -- all the while maintaining compliance with EPA regulations.

"We have to stay in compliance, but we are focused on improving the operation of the plant," says Maureen M. Cromling, president and CEO of Ross Environmental Services. "We're always concerned with the combination of those two things, to add values and meet compliance."

There are so many aspects of proper waste management that the only way to do it cost-effectively and efficiently is with the proper use of technology.

"You have to take all these pieces and make them into a system that is integrated," Cromling says. "The storage of data is an important part of the technology. If the data is there but not accessible to the right person at the right time, then you just have technology for technology's sake."

For Ross, this means all data on every waste shipment must be available to be checked, tracked and evaluated, and it must be accessible to the company's scientists, engineers, floor personnel, EPA and customers -- online and in real time.

In addition to being available at the 1,800 information stations in Ross' new plant, data is transmitted by handheld scanners connected by radio frequency to a centralized database, allowing waste to be tracked in real time.

"It really allows us to run the operation much more efficiently," Cromling says. "There is a tremendous amount of data that goes into the operation of the plant, and technology allows us to do things on a real-time basis."

But the real challenge doesn't lie solely in technology upgrades; it's also in the training and buy-in of the employee base. Cromling says any changes must go beyond increasing efficiency.

"If the technology isn't applicable or user-friendly it won't be used in the right way," she says.

With buy-in, training and careful implementation, Ross has seen significant improvements.

Says Cromling, "All of our employees have communicated that the new technology has made it easier to do their jobs." HOW TO REACH: Ross Environmental Services Inc., (440) 366-2000 or www.rossenvironmental.com

Thursday, 29 January 2004 19:00

Web insight

Technology service companies, much like manufacturers, have seen phenomenal change over the past 10 years.

"I wore a sandwich board that said, 'Ask me about the Internet,' and wandered around the Galleria," says Andrew Holland, president of EYEMG - interactive media group, about how he advertised his firm at the beginning, in 1993.

"We had the one-page, five-page and the vaunted 10-page Web site with the 'Contact us' function," he says.. "Everyone remembers the contact us form. It was a black hole. You input (a) question, and someone might get to you in a million years."

But what EYEMG has done that many of its contemporaries didn't was figure out a way to keep up with changing technology and adapt that to the changing needs of its mainly industrial and manufacturing customer base.

"Northeast Ohio is rich with the type of company we focus on," says Holland. "They want that end-to-end integration."

But, he admits, that extremely difficult to accomplish.

"Manufacturers have complex systems," Holland says. "And in many cases, they have embraced technology quicker than service industries. They saw the necessity, not so much for e-commerce, but for technology support."

There are a few keys to maintaining success in the technology services field, he says. First, the company uses Linux, an open source platform, as its base.

"We work with the basic ingredients -- flour, sugar, eggs and water," says Holland. "That way we are not beholden to Betty Crocker. We want control ... we want to be down on an atomic level when we create these programs."

Holland contends that software upgrades and licenses are the real cost in using commercial software applications, and by using basic software, the company can adapt more easily and with less cost.

"We don't have to wait for releases of commercial software," he says. "That software is all about planned obsolescence."

Another issue for most of EYEMG's customers is content management -- the ability to internally change and affect content quickly in-house.

"The ability to create and maintain content, not by an IS expert, is one of the biggest issues we deal with," Holland says.

EYEMG also offer client Web site hosting services, allowing companies to deal directly with it for technical service provider problems.

"We host 90 percent of what we build," says Holland. "On the business side, it give us continued revenue ... and it gives the customer less vendors to deal with."

HOW TO REACH: EYEMG - interactive media group, (330) 434-7873 or www.eyemg.com

 

Friday, 30 January 2004 07:23

The great buy in

Mike Weidner flips through an interim report on his computer about last August's power outage. The report points the finger at a sagging power line that made contact with a single tree as the cause of the blackout in the Northeast which affected 50 million people.

"Power lines and trees don't always get along," says Weidner, CEO of Appraisal, Consulting, Research and Training, known as ACRT Inc.

The company, which specializes in utility training and urban forestry, arboricultural, environmental and horticultural sciences, provided assistance in the Joint U.S./Canada Power System Outage Investigation. The report was released in November.

ACRT is a 100 percent employee-owned company, or ESOP, but Weidner doesn't own a single share or participate in the ESOP plan. That's because he's the stepson of the company's founder, Dick Abbott, who in May of last year transitioned the company from a 30 percent ESOP to a 100 percent ESOP. And according to federal guidelines on family succession, Weidner is not eligible to participate.

But that hasn't stopped him from focusing on doing what's best for the company his stepfather founded in his 50s in 1985, at an age when many of his generation were thinking about retirement rather than entrepreneurship.

"It is still the management's role to take care of the company," Weidner says. "We are not looking for consensus on everything; you are never going to get everyone to agree with what's being done. I went from having one boss to having 256 bosses."

That one boss was Abbott, who spent several decades at Kent-based Davey Tree managing a department that performed work similar to that of ACRT.

"I enjoyed what I did," says Abbott. "They (Davey Tree) didn't see the business opportunity and decided to shut it down. So we (Abbott and his wife, Sue) mortgaged everything we owned and closed out an IRA. We had a certain amount of confidence we could make a go of it."

The Abbotts began modestly, launching ACRT as an arbor training firm with utility companies as its largest clients. Among other things, ACRT teaches people how to climb trees and work around utility lines. Weidner points to a rather thick manual on his desk and explains, "We actually wrote the book on how to do it."

When it came time to consider succession planning, Abbott opted to pursue cashing out 30 percent of his company with the employee-ownership option.

With an estimated 10,000 ESOP companies in the United States employing approximately 11.5 million workers, ESOPs are a common succession option. But the circumstances that led Abbott to move from 30 percent employee ownership to 100 percent employee ownership are unique.

So is how his employees rolled up their sleeves and tightened their belts in order to make it happen.

The case for an ESOP

The ESOP was created in 1974 as part of a federal law designed to encourage employee ownership by allowing certain financing and tax incentives. An ESOP is complicated and customized for each situation, but at its core, it is essentially a pension trust that receives shares from the company.

In most cases, an ESOP acts as a succession plan for a company's owner or owners. Through a series of loans and mirror loans, often using qualified retirement funds as collateral, employees are able to buy out the original owner and, in return, receive shares in the company.

The bank (or private investors) makes a loan to the company, often accompanied by a mirror loan that the company then extends to the ESOP. The company pays the original owners, and the stock is put into the ESOP.

Each year, the company pays back part of the principal on its ESOP loan, and stock is released to the company in amounts proportionate to the amount of the loan.

An ESOP can comprise any percentage of a company's overall ownership. For example, some companies only achieve 30 percent ESOP status; others finance 100 percent ESOP ownership.

The process is long, complicated and a lot of work for the original owner. But it produces a mutually beneficial result -- cash for the owner and ownership for the employees.

"No matter who owns the company, trying to achieve more employee involvement is 'in'," says John Logue, director of the Ohio Employee Ownership Center at Kent State University. "The thought is that the best ideas come from employee participation and communication."

"It was very important to the Abbotts to sell the company to the employees," says Weidner. "They wanted to make sure the company stayed whole. With the ESOP, there are enormous benefits and enormous risks. People want to take care of a company they own a part of. We've increased profitability and employee longevity."

Structuring the ESOP

Abbott and his management team began the ESOP process in 1998 by converting 30 percent of the company to employee ownership.

"The first 30 percent took several years to implement," says Diane Bartlett, ACRT's CFO and vice president of finance.

To speed the process, Abbott and his wife donated some of their shares to the ESOP trust.

Of the estimated 10,000 ESOP companies in the United States, ACRT stands out as the only one Bartlett knows of with a completely egalitarian, flat share structure.

"It is highly unusual," Bartlett says. "I've done research and I know of no other company that is structured this way."

Share distribution, she says, is usually tied in with compensation, wages or seniority, and is dependent on the number of years of service with a company.

"It is usually a mix," Bartlett says.

But at ACRT, every employee has an equal stake in the company.

"That was something that the employees determined themselves," Abbott says. "They looked at the various ways the ESOP could be structured, and the committee decided."

Bartlett's voice contains an air of excitement when she explains the fundamental advantages of the ESOP.

"I know of no other situation other than inheritance that works the same way," she says. "If you are a regular employee at a company, you have to work long and hard to just get something to buy a share. In an ESOP, you don't have to put up anything. It's not profit-sharing. The company is divvied up, and the profit passes through to you."

Pulling together

ACRT's conversion has proven successful. Since 1988, sales have grown by 5,000 percent, and the company experienced its most profitable year in 2001 when it converted to 100 percent ESOP ownership.

But it almost didn't come to pass.

In 2001, just as Abbott and his wife were finalizing conversion of the company's remaining 70 percent ownership to an ESOP, ACRT's largest customer, Pacific Gas & Electric, filed for Chapter 11 bankruptcy.

PG&E's bankruptcy status was confusing to ACRT's bank and vendors because they associated bankruptcy with not getting paid, and they believed ACRT was not going to get paid by its largest customer.

"The biggest hurdle was to explain that we were still doing work with them and still getting paid," says Bartlett.

Instead of delaying or even abandoning the ESOP conversion, Abbott and his management team stayed committed to the process and turned to the employees for help.

"We contacted our people and asked them to tighten their belts," says Bartlett. "And we went to our suppliers and asked for better terms."

The employees rose to the challenge. They suspended their vacations, increased billable hours and sought creative ways to decrease costs.

"The employees did it themselves," Abbott says. "They determined there were things they had to do ... they came up with the ideas and implemented them. If we had tried to implement them ... if we had said, 'We're going to defer your vacation and maximize your hours,' there would have been a rebellion. Being an ESOP made all the difference in the world."

Abbott and his team also analyzed the company's business processes to determine how to be more efficient. They tracked company costs, looked at invoices and scrutinized billing procedures.

"Everyone needs to revisit their processes," Weider says. "We live on myths. You have to revisit to find out your own myths."

Paying off

One of the most significant changes that arose from the process was a decrease in supervisory costs. A new hierarchy, which better fit with the ESOP, was also created. And, as at other companies that employ an ESOP model, employee self-policing increased.

"What we see in these companies is a reduction in re-work and wasted effort," Logue says. "The employees produce a good product the first time ... and they need less hierarchy and supervision."

A closer look at ACRT reveals a certain synergy. The employees were only able to realize the goal of 100 percent ownership by first making the kind of sacrifices that only an owner would usually make with regard to the future of the company. In some ways, the whole process became a self-fulfilling prophecy.

"The bankers stood by us ... but they were watching," Bartlett says.

As a result of the moves, ACRT had a good year, paid off a lot of its debt and became 100 percent owned by its employees.

"Now, we have to answer to employees," Bartlett says. "I think many employees understand the whole picture, that it is long term. The potential is so tremendous, you can't get caught up in every little thing that comes down the pike ... and if you do your part, the company as a whole is going to move forward."

Communicating the ESOP message is always a challenge, says Weidner.

"We have a relatively young company, with the kind of work we do," he says. "So how do you explain the benefit of an ESOP or a qualified retirement plan to a 22-year-old?"

To do that, management set up an ESOP education committee, which holds regular meetings with employees on everything from ESOP basics to quarterly numbers.

"We thought it would be better coming from employees rather than management," Weidner says. "But we still don't have it all figured out. They say it will take three to five years for the employees to really feel the ESOP is important to them."

With 265 employees in 22 states, facilitating ESOP understanding is no small feat. The education process includes numerous ESOP conferences, ESOP seminars and ESOP meetings. There is an ESOP section in the monthly newsletter, and employees sit on the company's board of directors.

Sometimes, Bartlett says, employees think the situation at ACRT simply is too good to be true.

"There are some skeptics," she says. "It is like they have been handed this package and they keep waiting for it to blow up. They keep waiting for the other shoe to drop." HOW TO REACH: ACRT Inc., (800) 622-2562 or www.acrtinc.com; The Ohio Employee Ownership Center, (330) 672-3028 or www.kent.edu/oeoc

Wednesday, 17 December 2003 07:00

A private affair

It's an understatement to say that the days of irrational exuberance are well behind us; the days of companies going from start-up to initial public offering (IPO) in a week are over.

And as some private companies decide not to go public due to the increasing burden of the SEC and Sarbanes-Oxley Act requirements, other public companies are examining the costs benefits of going private.

"There are companies that are currently public that are delisting and defiling from the exchange," says Irv Berliner, partner in the corporate department at Kahn Kleinman.

"There is a lot of it going on, and the exchanges will throw you off if there are not enough shares trading and not enough shareholders," he says. "Some are doing it voluntarily. and they are the most interesting."

It's possible, under the right circumstances and under specific SEC guidelines, to take a company from publicly held to privately owned status, and more companies are taking advantage of that option. But why take this step when less than a decade ago, it seemed like even lemonade stands were going public?

"There are a million reasons," Berliner says. "And in order of importance, the biggest reason is cost. Because of Sarbanes-Oxley, the cost has gone up a tremendous amount. For a small company, it can cost about $250,000 each year to comply with SEC (regulations), and for a big company, it's closer to $1 million."

So why, in the IPO heyday, did it seemed like a good idea for even the youngest, smallest companies to go public?

"There (were) a lot of reasons to go public. They had a good story to tell, and the VC firms wanted liquidity ... the companies wanted to continue to grow," says Berliner.

But with the market downturn and increased fiduciary responsibilities, access to capital became more limited, and smaller companies are not receiving the benefit of being public.

In the case of some smaller companies, Berliner points out, "The earnings are going up but the stock is languishing, in part because there is no analyst who covers the company."

Going private is not an option for all companies; SEC requirements specify that a business must fall within certain parameters. To go private, a company must have 300 or fewer shareholders of record. That may sound like a small number, but investment funds or clearinghouses for investors count as just one shareholder of record.

Once the decision to go private has been made, two scenarios can play out after delisting; there can be a buyout of shareholders by existing management or a merger/acquisition by an outside group.

After a buyer makes a proposal, it has to get shareholder approval and present detailed information to the SEC. But for some companies, it's the only way for the business to realize its actual value. And there is always risk involved.

"A couple of things could happen," Berliner says. "When the deal gets announced and the stock price spikes, the shareholders may want more. And there's always risk another buyer comes in because you put the company in play."

For some companies, however, the cost savings is worth the time and the risks. And the move allows them to think long term instead of focusing on quarterly results to appease shareholders.

"I think there are more candidates, especially in this area, for (going private)," says Berliner about local businesses. "And more companies should be thinking of it." How to reach: Kahn Kleinman, (216) 623-4912 or www.kahnkleinman.com


Hear that whistle blow

One major component of the Sarbanes-Oxley Act is whistleblower protection. And although the legislation was passed awhile ago, the guidelines surrounding the protections have just recently been made public.

The Occupational Safety and Health Administration will handle complaints of discrimination and/or retaliation under the Sarbanes-Oxley Act. OSHA recently published an interim final rule regarding guidelines and procedure for reporting and handling whistleblower complaints.

* The Labor Department is required to send notice to the alleged offender named in the complaint and provide 60 days to respond.

* An investigation is launched only if there is a presumption that the discriminatory action was a result of or would not have taken place unless the protect action (whistleblowing) had taken place.

* If there is a reasonable cause to believe the discriminatory behavior occurred, the Labor Department must notify the parties of its preliminary findings and proposed relief, which may include reinstatement, back pay, interest and special damages.

* Parties then have 30 days to object to findings and proposed relief and request a hearing from an administrative law judge.

Thursday, 20 November 2003 11:28

Part of the whole

Many companies expound a philosophy of giving back to the community, and many employees donate their time, effort and skills to nonprofit organizations.

But only a handful of companies have integrated corporate giving and employee involvement as successfully as Family Heritage Life Insurance Co. of America.

In a little more than a decade, FHL has fully integrated charitable giving into every aspect of its business process. From Day One, Howard Lewis, founder, president and CEO of FHL, has tied business success to outreach.

"Outreach is part of our culture, and they know that it is expected, but our people have responded to what we have promoted," says Lewis.

This outreach includes a monthly sales incentive program based on sales performance. If a salesperson exceeds a certain goal, a percentage of that excess is donated to a charity designated by the company as the charity of the month. And an employee-run program, For a Healthy Life, encourages employees to take one-half paid day annually to volunteer for the charity of their choice.

It's all about including employees in the corporate culture of giving back, says Lewis.

"You can get people involved or start writing checks," he says. "We actively try to get people involved."

Many organizations benefit from FHL's generosity, including St. Jude's Hospital, which has received more than $500,000 in donations from the company. St. Jude's, breast cancer awareness and other health-related charities receive the bulk of FHL giving because, as a supplemental health insurance company, employees come face-to-face with the devastating effects of chronic and fatal disease every day.

"What we do really matters, and it really helps people. We use our intelligence to help other people," says Lewis about both the product he sells and his company's philanthropic work.

But for him, it all goes back to the way he treats his employees, who are given incentives to do well both in the company and in the community.

"Everyone in the company has an equity position," says Lewis about his agents. "Our motto is: We build people; people build our company." How to reach: Family Heritage Life Insurance Co. of America, (216) 520-2800 or www.familyheritagelife.com

Thursday, 20 November 2003 11:24

Contract sport

The name of the game for most companies is cash flow. But when the economy slows, slow receivables can negatively affect liquidity.

One approach to better managing receivables -- in good economic times and bad -- is to effectively enforce payment contracts with customers and clients.

"There are competing factors," says Thomas Lee, partner in commercial litigation at Taft, Stettinius & Hollister. "There is the cost of pursuing litigation and the cost of the company's time to do that ... When times are good, it's often not as important because revenue is not as critical."

The irony is that in bad economic times, businesses have a greater need for the money but fewer resources to enforce contracts.

Lee says there are ways to avoid contract disputes with your customers.

* Be more selective of the clients that you have and that you acquire. "There need to be controls over salespeople, who may get into contracts with people they shouldn't. There should be some sort of review process," Lee says.

* Request a personal guarantee from the business owner. Getting an owner to personally provide collateral for products or services may be necessary in the case of a start-up or a company on the verge of or post-Chapter 11.

"You need to know how that client is doing financially. You can find this out from trade publications, published tax liens ... and other records that are published online," says Lee.

* Build into the contract interest penalties for late or slow payment. These are enforceable, and if the contract dispute goes to trial, those amounts can be included in the monies owed.

* Stay on top of all accounts. "The best protection is to bill periodically and frequently, and keep track of what has been paid and what is owed," says Lee. "If there is a question whether a payment is made, it complicates things."

It is also important to make the customer aware that you know the contract has been breached.

"There's a lot of poker playing in this," Lee says.

Just making a phone call to resolve the issue "gives you a bigger club to wave and puts you in a better position to settle," he says.

In any case, it's better to handle slow or late payments in a professional rather than an aggressive way, Lee cautions.

"It is business, not personal. If you make it personal, then your judgment is impaired," he says.

If legal action is unavoidable, there are a few options. If the contract is for less than $15,000, you can pursue action in municipal court. In municipal court, the process is quicker than if you end up in common pleas court, where a trial could take years to schedule.

"It all depends on what judge you draw and the caseload, but an average civil case can take up to two years to get to trial," says Lee. "The strongest impetus to settle is when both parties are faced with the cost."

In some cases, mediation or alternative dispute resolution are options. Lee says these are effective for situations in which there are genuine issues on both sides, but refers to it as "split baby results" because it is rare for an arbitrator to award everything to one party.

"Usually, if you can reach a business accommodation without involving legal counsel, you are better off. The party suffering the breach will never be made whole," says Lee of any legal contract dispute. "In most cases, you'll unlikely be able to recover damages with attorney fees and the time and effort." How to reach: Taft, Stettinius & Hollister, www.taftlaw.com


Little big firm

The current economic climate may be more hazardous for mid-sized law firms than for the large firms and the smaller legal shops that surround them.

Dozens of big-name, well-established mid-sized firms have dissolved in recent years.

In the July issue of American Bar Association Journal, the cover story, titled "Caught in the Middle," analyzes the reasons mid-sized firms have been so challenged recently.

The article explains that:

* In effect, mid-sized firms are forced to compete with both larger and smaller firms. These firms can't duplicate the lower fees of the small firms or deal with the overhead costs of trying to keep up with big firms.

* Mid-sized firms are often more vulnerable to defections by key partners or practice groups. These firms are more likely to have a single lawyer controlling a greater percentage of the business.

* Many experts believe that mid-sized firms can thrive by developing one or perhaps a few niche practice areas. Mid-sized firms should focus on one or two areas because clients won't believe they can do everything a big firm can do.

The American Bar Association Journal article also notes that many lawyers maintain that mid-sized firms offer the right quality of life and a flexible environment to practice law that neither larger nor smaller firms are able to provide.

Monday, 22 September 2003 13:13

Road to Wellville

With so many great universities and medical facilities here, the question is often asked, "Why hasn't Northeast Ohio developed more technology companies?" Until recently, one impediment was an antiquated law regarding academic ownership.

"The law was in place because if you were a faculty member of any public university and the government was providing funds for the research, the idea was they shouldn't benefit personally," says Len Cosentino, a shareholder in law firm McDonald Hopkins' business development practice. "The realities of today's economic development made this an obstacle to creating jobs. (A few years ago), they amended that law. Now any faculty member or other employee that does research can own an interest in a company."

The idea was that there would be more incentive for doctors and scientists to move their work beyond the academic journal and into the entrepreneurial world if they could personally benefit. But the process is complex, and -- especially with medical and pharmaceutical products -- long.

"There are a variety of different ways to commercialize technology," says Cosentino. "The university comes up with ideas. And some of those ideas they patent, and either through tech transfer (commercialize it) or license or sell the technology to a player in industry."

Outside of the Midwest, tech transfer has become the lifeblood of some communities, with technology meccas popping up around these universities.

"Stanford is a good example, but you have the University of Illinois, Carnegie Mellon, MIT and Harvard," says Cosentino. "There are a couple of reasons for that. Those schools tend to be on the coast, and there is more of a culture of technology investment and an infrastructure in place that fosters that investment. It's not so much that there are more inventions but more of an environment of investment."

In reality, a great idea stays just that unless an investor can be persuaded to take a chance.

"The change in the law is one step, and the public attention in press and politicians are now on board," says Cosentino.

One good sign is that Northeast Ohio got the lion's share of the most recent granting of $29 million in the Third Frontier Project, which grants money to promote the advancement of technology in Ohio. Two other grants -- one to stem cell research and the other to neuro-stimulation -- have also been awarded to local research.

The real challenge lies in getting the private investor and venture capitalist to take a risk on new technology.

"It is not a lot different (from other investing), although sometimes the time frame to market is longer, and depending on the level of regulation, it can take many years to see a return," says Cosentino. "You need patient investors, and you might need more time in developing the product from conception to get real money."

Patient money -- and more of it -- is what the area needs, and it needs it sooner rather than later.

"(Tech transfer) is very lucrative to the medical institutions and to the local economy," says Cosentino. "There are companies here that have good product, but if they leave, they leave because the money is not here and they are getting investment from elsewhere, because the tech investment community infrastructure is elsewhere.

"But one day, I hope we will be known as a knowledge economy. And with everything here, how could we not?" How to reach: McDonald Hopkins, (216) 348-5400 or www.mhbh.com

Monday, 22 September 2003 13:10

Broken China

Things can be made more cheaply in China.

That's a perception that U.S. manufacturers are dealing with and will continue to deal with it in the years to come.

Luckily, that's not that whole story.

There is much more to a good product than the cheap labor that creates it, and that's what smart manufacturers have taken advantage in their ongoing attempts to keep customers.

"The cost savings are so great that the other issues are inconsequential," says Owen Kelly, president of Alcon Tool Co., an industrial knife manufacturer, on why so many of his customers have gone to vendors overseas or moved plants out of the country.

Even before the great migration to places like South America and China, larger companies were consolidating their suppliers.

"They had a ton of vendors and they were trying to whittle them down," says Kelly. "One of our biggest customers, 3M, created supplier programs in order to weed out inefficient vendors."

Companies like 3M didn't want to continue taking all the risk. They didn't want a lot of inventory. And they wanted their suppliers to comply with expensive new infrastructure, Kelly says.

"We have taken on a much bigger responsibility for production," he says. "What has happened now is that we've taken the pressure off manufacturers."

Kelly knew he had to bend to meet the needs of his customers; that's what his customers could expect and get from his company that they couldn't get overseas.

"When business was good, everyone got fat," says Kelly.

Just-in-time and lean manufacturing have changed all that while putting much of the onus on the smaller guy.

"I had inventory, and my customer did, too," he says. "There was even some in transit. But all that has changed."

To further complicate matters, even as his competitors went out of business, Kelly still had to compete with them.

"What is happening is that as these companies lose market share, they become sales agents for offshore interests ... because they know everything," he says.

All of this meant that he and other manufacturers had to change their strategy.

"(Before) we were focused on Fortune 500 companies, the low-hanging fruit," says Kelly.

But as he watched more and more of his customers leave the country, he reacted. Kelly and Alcon worked with the company's remaining customer base and offered them a host of new services they hadn't thought of previously, all the while working on increasing efficiency and driving down costs.

Alcon specifically worked with 3M to conform with its systems, and even came up with plans for reducing costs. "We knew we had to do something new and something fresh or we would get hammered," says Kelly, "They challenged us to come up with some suggestions."

To stay in business, Alcon didn't just accommodate its big customers, it made aggressive moves to increase their customer bases and offered smaller companies services similar to what it was offering the likes of 3M.

"You have to stay with who you've got ... you have to stay with them and do whatever they want," says Kelly. "We give them the service that the big boys got but they couldn't afford before."

Flexibility and quality has allowed Alcon to stay in business and grow during one of the most difficult consolidation periods in U.S. manufacturing history.

"Seventeen percent of growth is new business," and Kelly says most of his new business comes from smaller players. "We've had tons of new accounts. They are not huge but they add up." How to reach: Alcon Tool Co., (330) 773-9171


Credit where it's due

Finally, some good news for manufacturers. Not great news, but good is better than bad.

It seems that lenders may be loosening their hold on capital and extending some to manufacturers.

According to the National Association of Credit Management (NACM), manufacturing experienced an improvement in three of the four factors regarding credit availability, sales and dollars collected.

The NACM publishes the Credit Manager's Index, which showed a modest improvement in favorable factors and less of a decline in unfavorable factors in the manufacturing sector in August relative to July's numbers.

One favorable factor that declined was the amount of credit extended to companies in the manufacturing sector, although the decline was much slower than the previous month. In addition, increases in rejections of credit applications and filings for bankruptcies were minor.

On the other hand, the service sector, after seven months of improvement, had declining numbers in August. September's numbers suggest a slowing of growth in the service sector.

The CMI data has been collected and tabulated monthly since February 2002. The index is based on a survey of approximately 500 trade credit managers. Source: National Association of Credit Management

Tuesday, 26 August 2003 13:02

The buck stops here

The story goes like this: Ohio State was beating Michigan 44 to 14 when the Buckeyes scored again. Legendary Ohio State coach Woody Hayes decided to go for the two-point conversion, which subsequently failed, leaving the final score 50 to 14.

When asked why he decided to go for two points, Hayes replied, "Because I couldn't go for three."

What does this have to do with manufacturing and Glass Equipment Development? Well, everything, if you ask Ron Auletta, president of GED and a self-proclaimed Hayes fan.

"A lot can be learned from the game of football and what the Bucks were able to do in two short seasons," says Auletta, referring to Ohio State's recent national championship. "Finding the right coaching or management team was the final ingredient to the Buckeyes' success."

Leadership, however, is just one part of a company's ability to succeed. Auletta says you also need employee participation, accountability and empowerment.

"The old perception is, 'Who would want to work in a factory?'" says Peter J. Chojnacki, director of marketing.

But times have changed. In the last six years, Auletta has moved GED, a glass fabrication machinery manufacturer, away from dangerous, unrewarding factory work and toward the world of clean, lean manufacturing.

"Since 1996, we have the same amount of people working here, but we manufacture much more," says Auletta. "We reduced floor space and tripled sales. Now we make only one machine's worth of parts."

Add to that a 96 percent on-time machine development rate and a 100 percent install rate, and the result is a highly efficient operation. The key to that efficiency is communication with employees.

"There are no surprises ... any issues, anything wrong, and it's up on the board," says Chojnacki. "The metrics are on the board, even whether or not we are on time for shipping."

The board is where GED employees are informed of everything from shipping commitments to financial projections.

"Anyone on the floor can stop a machine from shipping," says Chojnacki. "Everything is measured on its quality at the end of the line ... there is not a lot of finger-pointing."

The idea is that employees become empowered to make decisions, but it was not an easy transition.

"It took several years to change from an 'I'm doing the best we can' to 'What can I do better?' mentality," says Auletta. How to reach: Glass Equipment Developers Inc., (330) 425-3876