Flopsy, my white, lope-eared rabbit, usually growls, stomps or bites at me when I get near his cage. But when furry white Samantha passes by, you can almost see Flopsy smile.
It was love at first sight, at least for Flopsy, so it didn't surprise me that the rabbit took off in search of Sam the day I let him roam free in my house. Like a good entrepreneur, Flopsy set his goal, his vision, and set out on that long journey to capture it. His wily persistence led him from room to room, searching under tables, beneath the couch and upstairs to the master's bedroom, where Sam is known to hide under the bed. And there she was.
I watched Sam dart from room to room, followed closely by Flopsy, who simply wanted to do as rabbits do. When Sam changed directions and darted the other way, Flopsy changed as well. And Flopsy used his strong back legs to overcome any obstacle, from footstools and kids' toys to the couch and even my curious Rottweiler.
Flopsy did everything right in his pursuit, and his diligence was about to pay off. Sam, tired of running, stopped long enough for Flopsy to catch up. Flopsy, of course, took this as a sign and tried to do as rabbits do.
Sam hissed and fur flew. As Sam dashed away, poor Flopsy just sat there with his now-scratched eye and dampened ego, wondering what had happened. While Flopsy thought he was doing everything right, he didn't consider one minor detail in his epic pursuit: Sam is a cat.
The top managers of F.B. Wright Co., this month's cover subject, thought they were doing everything right, too. They knew they needed a good succession plan as the majority owner got older. In their pursuit, they hammered out a plan that would give more stock to several top managers over time, and they took out insurance policies to purchase the company in the event of the owner's untimely death.
Then the owner died suddenly.
Tragic though it was, the new president and top executives thought they were prepared. The buy-sell agreement kicked in, the insurance came through, and they figured life would go on at the company as expected. But they didn't consider a few minor details in their pursuit: cash flow and people.
Unfortunately, life never goes on unchanged with a change in ownership, whether caused by death, sale or other factors. The new owners hoped that wouldn't be the case, but it was. They spent all of their insurance and other money on the purchase of the company but left little reserve funding to operate it. At a time when cash flow was already tight, that became a painful oversight that has taken the firm several years to overcome.
Then there were the people. The owners thought their top people would stand firmly behind them through and after the sad transition. Several top sales representatives didn't, though. The proverbial fur flew, and the new owners were left sitting there, bruised and dumfounded.
The moral of this story: Specifically, make sure you've covered all potential concerns when arranging for your company's succession. More generally, always be prepared, which means ongoing strategic planning -- an exercise that forces you to look beyond your next horizon as you move forward.
Perhaps if Flopsy the lope-eared rabbit had done his homework and truly planned strategically, he may have realized he was diligently chasing the wrong dream. Doing all of the right things didn't change the fact that Sam is a cat. And the cost? A miserable rabbit with a damaged eye and twisted dreams ... and a $68 vet bill. Daniel Bates (firstname.lastname@example.org) is editor of SBN magazine.
In the tradition of this New Economy, Pittsburgh-based Cable Design Technologies (NYSE:CDT) leads an aggressive but quiet charge.
The company, with 27 manufacturing branches throughout the world, has grown into a leading producer of the very infrastructure that allows the Internet world to communicate. Gigabit connectors and cable, riser cables, coaxial backplane applications, active and passive fiber optic components -- all of this aptly describes what CDT represents as it supplies the global connectivity for this New Economy.
But it really doesn't describe how the company has evolved from traditional Old Economy wire and cable manufacturing to a highly profitable New Economy conglomerate generating almost a billion dollars a year in total revenue.
To answer that question, you'll have to forget about the New Economy for a moment. And forget about the new technologies that the company continues to develop or acquire. And even forget about the fact that, while Internet and other high-tech companies will come and go, any company moving forward will need the kind of cable and wire infrastructures that CDT provides.
The answer doesn't lie so much in the innovation or global manufacturing capabilities, though both are important. Rather, it can be found in the business philosophy of the company's commanding leader, Paul Olson, who has been running the firm and its estimated 5,000 employees since its inception in 1985.
Call him old-fashioned or even Old Economy, but Olson's business philosophy is fundamentally simple and as old as commerce itself. He believes that people relationships still matter.
"We've created a culture where creativity is valued and entrepreneurship is encouraged," Olson wrote in a recent capabilities booklet. "We acknowledge that individual effort makes a difference -- a difference to our customers, our shareholders and to our future growth."
That doesn't make him a pushover, though. Olson, in his mid-60s, is a large man with big hands, a serious handshake and the demeanor and posture of a proud general. In fact, it may be no coincidence that one of his all-time heroes is U.S. Army General George Patton Jr.
"He was a leader who was on the front lines with all of the people who were getting shot at," Olson says with admiration. "He was the soldiers' general. He was a great leader."
But talk to this 40-plus-year veteran of the cable and wire manufacturing industry, and his seemingly gruff exterior turns to a humble, almost unbridled passion and enthusiasm for the business and the armies of people helping him build it.
"That's just Paul's style and personality," says Michael Steinberg, a research analyst with Emerald Research in Pittsburgh, which follows CDT's performance. "He's very enthusiastic about what he does. When I first met him, I expected to see someone who was burned out, unaccepting of change. But I think he's more passionate about the business than he ever was."
As a result of that continued drive and people-driven enthusiasm, Steinberg says, "The company has been executing on all cylinders as far as business strategy goes."
Last year, CDT generated about $684 million in revenue, with a net income (before nonrecurring charges) of almost $43 million. With help from new acquisitions, Olson hopes to reach $1 billion in total revenue within a year, as long as the company hits its growth goals.
That record was enough to convince Elliott Schlang, a research analyst with Cleveland-based LJR Great Lakes Review, to issue a strong buy signal earlier this year for investors considering CDT for their portfolios.
"It's their record -- compounding 18 percent a year for the last five years in earnings per share -- and their ability in integrating acquisitions without a ripple," Schlang says of what has attracted him to the company.
As a relatively new follower of CDT, Schlang says he isn't familiar with Olson's management style and business philosophy, but adds, "You don't compile a consistent high-growth record while treating people badly."
That growth, Olson explains, comes from a philosophy that each employee is an active participant in that growth, with each being recognized for both group and individual effort and excellence.
"In the culture of our company, we have a very fluid organizational chart," Olson says. "We have lots of people with lots of titles. But they're people who grab the ball and run, you know, 'Give me the ball and let me play.'
"I hope I'm the visionary," he continues. "I establish the parameters, but then I hope they play ball. I'm trying to make one gigantic team work together and, at the same time, let the individuals shine."
Olson describes his role as one of orchestra conductor.
"I'm like a conductor in the symphony, who may request a little more noise on the bassoons and less on the drums."
He acknowledges that approach becomes more difficult as the company grows, but he's not about to turn his employees -- any of them -- into faceless numbers that simply do what they're told.
"People don't want to go to work and have someone telling them what to do," Olson declares. "Companies will do well if they let people run with the ball."
Olson began his cable and wire manufacturing career in sales at General Cable in New York City in 1959 after graduating from Hobart College in upstate New York. Eventually, he made his way to corporate giant General Electric Corp.
That's where he got his first taste of the large, rather impersonal, corporate mentality. As he tells it, he managed to build up a large territory of customers in hopes of impressing the company enough to climb the corporate ranks quickly.
"I wanted to create something -- I wanted to be a winner and have fun doing it," he says of the experience.
The reality, however, was less than inspiring, he laments. Olson says the company continually changed the standard of success as employees were about to reach the previous standard.
"You never seemed to get to the next level," he says. "Finally, I got frustrated with it and said, 'The hell with it. How do you ever get ahead in this company? I'm going to be here forever.' So I left."
To this day, he maintains a bittersweet impression of that impersonal corporate mentality.
"I hated working for big corporations," he says. "It's confining, constricting."
That frustration served as the foundation for the philosophy that has helped Olson turn CDT into a connectivity infrastructure powerhouse. In 1985, he decided to venture into the business himself via the formation of an investment group to acquire a Massachusetts-based cable and wire manufacturing company.
At the same time, another investment group had just purchased West Penn Wire in Washington, Pa., and decided to go after the Massachusetts company, as well. That group hired Olson to run the entire company, which then acquired the Massachusetts firm. Olson was off and running.
Today, he not only continues to grow the company, he also owns more than 600,000 shares outright, along with about 400,000 stock options. At press time, the stock was trading at around $25 a share following a stock split.
The premise of the lesson Olson learned from his large corporation experience? "Don't ever build a company that gets so restrictive that your employees lose a sense of where the company is going. That's how you lose your identification and become part of the mob mentality." He calls such people "automatons."
Says Olson: "If I start telling people how to run their company, I lose their creativity."
Olson says he has built his company by hiring "competitive self-starters" or acquiring them as part of his extensive industry consolidation strategy.
"I treat people like I wanted to be treated myself," Olson says. "And I certainly wanted to be listened to. I want competitive self-starters who can sell their ideas to the rest of the company."
He says active participation in the growth process makes his employees better satisfied with what they do.
"They're happy, and if they're happy, they're working," he says.
Olson says he not only pays higher wages than industry averages to attract top management talent, he also grants employees stock options, with all managers on a bonus/incentive compensation program. Fifty percent of their compensation, he says, is determined by the success of the company overall; the other 50 percent is determined by the success of the manager's individual division.
Success, Olson adds, is based on bottom-line operating profit.
The importance of relationships
Olson doesn't confine his people-first business philosophy to his employees. In some ways, he harbors a disdain for voice mail, e-mail, the Internet and anything else that potentially cuts out the interaction between real people in the industry.
For him, relationships -- which can take years to cultivate with trust and integrity -- come first, even in the New Economy.
"People buy from people," Olson says.
Jane Strauss, director of public relations for CDT, describes that statement as one of many "Olsonisms" which have become well known within the walls of CDT.
Says Olson: "Can you think of the horror of not being able to meet with people? People don't go to malls to buy things. They go to interact with other people. For us, it isn't just about buying a product from a supplier. It's about buying from a supplier you have confidence in.
"There's always a low bidder, always a guy who will give it away for nothing."
Emerald Research's Steinberg says he's quite impressed with Olson's relationship-building ability.
"He's very good with relationships," he says. "He has quite a network. You won't find too many CEOs in the same business for 40 years. You absolutely need contacts and networking to stay alive in this business."
Olson, in spite of so-called New Economy paradigms and aggressive technology company strategies that put speed to market before all else, says he will stick with his people strategy as he aims for the billion-dollar mark and beyond for CDT.
"It's holding the individual higher in the company than other companies do," Olson says. "It's the individual contribution [to the team.] If it stops, what is there after that?" How to reach: Cable Design Technologies, (412) 937-2300; Emerald Research, (412) 338-0852; LJR Great Lakes Review, (216) 621-1330
Daniel Bates (email@example.com) is editor of SBN Pittsburgh.
Paul Olson's "Olsonisms"
Cable Design Technologies Inc. President and CEO Paul Olson may not fancy himself a business philosopher, but he has become known for what other employees call his "Olsonisms." Combined, they make up a rather well-rounded philosophy for growing a large company.
And, if the company's performance is any indication, the philosophy is a sound one. Consider the following:
- "Business is very much like war. You have to have fine communications, be on time and take initiative. After you do all of these things, you have to have luck."
- "If you're not making mistakes, then you're not working. There are no .500 hitters in our company."
- "If you can't do it, don't say it; if you say it, then make it happen."
- "People buy from people."
- "We don't have any kings or princes in this company."
- "You treat people like you want to be treated yourself. And I certainly wanted to be listened to."
When my Craftsman lawnmower seemingly died a miserable, choking death about five years ago, neighbors told me I should see Harry Blaine across the creek.
I couldn't afford a new lawnmower at the time, but Harry had several old ones for only $25 each. So I bought one, figuring I'd get my money's worth even if it lasted only a year.
"And by the way," I told him, "I was going to throw away my old lawnmower, but you're welcome to have it for parts."
Harry, ever the country gentleman, graciously accepted.
Two years later, my lawnmower died, so I went back to Harry to trade in the mower for a "new" one. He said he had just the thing for me, and it worked pretty well. When he rolled it out of his repair shed, it looked oddly familiar.
That's because it was my old Craftsman. He made another $25 that day, and the lawn mower which I had thrown away continues to serve me well to this day.
Old Harry Blaine isn't exactly what you would call New Economy. At 89 years old, he has lived through his share of old and new economies, depressions, recessions and prosperity. But in the little village of Midway, Harry has become a legend of sorts, known for a sixth sense that allows him to take what the rest of us discard -- broken drills, saws, sanders, clocks, lawnmowers -- and give them new life.
Sporting his trademark straw fedora with plastic poinsettia and a wide, friendly smile that doesn't even try to disguise a missing front tooth or two, he plies his hobby -- his gift -- at yard sales, flea markets and even the neighborhood trash in search of throwaways with potential.
Obviously, he's not in it for the money. That's not what Old Harry is about. For him, it's an attitude, a way of life. He's sort of the quintessential face of the Old Economy.
For the New Economy, however, Harry serves as a shining example of why we shouldn't act so hastily in disregarding or discarding the Old. For the Old still have a thing or two to teach the New when it comes to business and life.
Rescuing and reviving the old is nothing new for Harry, whose generation will never quite understand the wasteful, disposable mentality of the 21st century. He says it all started back in the late 1930s, when he began to work for the Pennsylvania Railroad. While waiting for his train at the Fourth Avenue station in Pittsburgh, he found himself wandering regularly into a scrap yard nearby.
"They'd get junk in and throw it away," Harry says. "I'd find drills and old saws. So I'd talk to the scrap man and give him a quarter or 50 cents -- whatever they were worth as scrap." And then he'd fix them up and sell them.
Why would he bother?
"It takes a lot of time and patience, but I enjoy doing it," he says, laughing. "And otherwise, they would go to waste when someone else could use them. Sometimes I see nothing wrong with them but a broken wire."
Sometimes, I see nothing wrong with the Old Economy but a proverbial broken wire. So why are the drivers of this New Economy so eager to prove the Old broken and obsolete? I'm all in favor of new business paradigms, new and more creative ways to look at the way we approach business and life.
But youthful, arrogant gumption and whiz-bang Internet technologies aimed at pushing aside the Old Economy aren't always the prudent answer. Sometimes, all we need is a new wire or two, and the patience and passion to see the value in what already is, whether it's a lawnmower or an Old Economy industry. The new technology should simply make it better.
Old Harry Blaine, who may walk a bit slower these days and take each day more in stride than he used to, doesn't even know what the New Economy is or what he may be missing. But what he still can offer is the simple wisdom of the ages. And he's not blind to what this New Economy has done to a lot of people.
"Are they foolish?" I ask him, sitting in a basement surrounded by his idea of a New Economy -- rebuilt or recycled power tools and clocks.
"A lot of people are," he agrees, after a long pause.
"People today have all kinds of money," he says. "It ain't like it was in the old days, when we didn't have the money. We had to fix things ourselves. Just because they have money to spend today, they shouldn't just throw things away."
Of course, with an extra $50 in his pocket at my expense, Harry is grateful that I did. And, for the chance to know Old Harry Blaine and gain some of his wisdom, so am I. Daniel Bates is editor of SBN.
Tell me what you think, good or bad. E-mail me your opinion at firstname.lastname@example.org or send me a letter via SBN magazine, 800 Vinial St., Suite B-208, Pittsburgh, PA 15212.
What's your price?
By Daniel Bates
Everybody has a price, or so the saying goes. The question is, how do you determine it?
Oakmont-based SelfImage Business Associates, apparently weary of teaching difficult pricing formulas to its clients, decided to automate the process. So the firm has come up with Foundation Finances, a customized computer software program that provides pricing and break-even analysis based on the raw data you plug in.
Among the program's benefits, says Jo Ann Forrester, founder and president of SelfImage Business Associates, is the fact that it presents an immediate picture of the company's overhead; it shows the impact of that overhead on profits; it automatically adjusts prices for increased costs; it sets recognizable goals for each day of the year; and it analyzes the impact of wages and salaries on profits.
"Our clients were the driving influence for us to develop this program," Forrester says. "Finding themselves caught between the competition and the need to bring in sales, many companies underbid the jobs and literally sell themselves out of business. Our program clearly defines the limits of profit and loss and helps them make informed decisions in a competitive situation."
For more information about the software, contact SelfImage at (800) 550-5282.
Many don't, according to Robert Marino, president and founder of Pleasant Hills-based Tri-Tech Services Inc. Call it a pet peeve or perhaps a passion, but quality and the processes developed to achieve it are Marino's life. His engineering consulting firm, which he launched 11 years ago from a broken-legged card table in his basement, focuses largely on quality issues as Marino and his staff of 50-plus employees preach such virtues that, he says, are often forgotten-especially during good economic times.
Like many of the region's engineers, Marino honed his skills-and passion-at Westinghouse Electric Corp., where he worked for more than 12 years at the Bettis Atomic Laboratory. Since launching his own company, he has managed to expand his services in quality, management processes and training into full-service offices into Greensboro, N.C., and Mishawaka, Ind., and he hopes to open a Western office in the near future.
In this month's One On One interview, Marino offers a clear and poignant wake-up call to the many manufacturers today who think they can maintain success without making quality a priority in every aspect of their businesses. And many such manufacturers do exist, he says, which easily could leave regions like Pittsburgh buried in the dust of its global competition. Here's what he says:
Define true quality in manufacturing and in business in general today.
True quality is reviewing and understanding and establishing standards of operation in all of the processes in business. That starts at order entry at the front door, through sales, through manufacturing and production, through inventory control, research and development, engineering, testing, shipping and receiving. It encompasses the entire process-all the processes that are involved in an operation. That's what quality should address, and that's what quality is all about.
If you miss any one of those processes, you're probably missing completing the circle.
Is that what standards such at ISO 9000 and total quality management encompass?
As a matter of fact, ISO 9000 was produced because there were God knows how many different standards that existed out there, so that any particular company would be audited in any year's time by as many as 20, 30, 40 different auditors representing different companies that all had different ideas about what that particular vendor's process should look like. So that becomes a giant headache when you're going through that too often in a year's time.
The ISO standard was something that was long overdue. It's an item that, finally, the European community sat down with the European common market and decided to create an industrial standard that would encompass all of the factors they felt were important to produce a consistent, good-quality product time after time. They created the ISO 9000 system.
The beauty of that system is that it has become broadly accepted internationally. So instead of companies being audited 30, 40, 50 times, if they can show their customers that they are, in fact, certified ISO in their systems, most of those audits disappear. Most people will accept the fact that you are ISO certified as representative of your commitment to producing goods and solid products.
Looking at TQM and ISO standards, how would you describe the state of quality today from a broad perspective in the United States?
Unfortunately what happens in the U.S. is kind of a strange circumstance. When the economy is really going well, as seems to be the case in our nation today, and profits are increasing substantially, one of the things that executives seem to do is cut back on their interest in quality-which seems strange. But what happens is that business is doing so well and order books are filled to the brim-they couldn't take any more orders if they had to-and, as a result, they start looking for increased ways to improve profitability. One of the things they cut out of the cost system is quality. They make a determination that everything is fine and that we don't need to spend this money. So they start dropping out of and putting aside all the systems that they had previously developed. And what happens is a very slow slide back to increased scrap ratios, increased customer problems and so on and so forth.
Is that more the exception than the rule or more the rule than the exception today?
In my observation, I think we see more of it than we should. Now when the economy is not very good and things are tough, business is tight and competition is high, now the reverse seems to take place. Now they start looking for ways to improve their product, ways to beat the competition, so that their order books get refilled. So now comes the influx of quality or the attention to it, which then creates a better product and produces it more efficiently, reduces the scrap ratios, and now the business starts rolling back again. We see this over and over again.
Do many companies simply use quality as window dressing and a sales tool without truly practicing it?
We have had clients who, upon entry into their business and talking to them about establishing quality systems, say to us, "Just get us a nice red, leather-bound book with all of the information in it, and we'll put it on the shelf here. That's really all we want. We don't really care about it, but we want to be able to show someone when they come into the business that, oh yes, we have quality, and we'll pull out the book and show them the book." But that's it, and it isn't real. It's too bad, but we see too much of that.
One particular company I can tell you about. As I talked to the president of the company, we were taking a tour of his facility. Through the tour I saw an area where there was quite a bit of scrap product. I asked him what kind of scrap ratios they had, and he said, "We run somewhere around 27 percent scrap ratio, 25 to 27 percent." And I said, do you realize that's enormously high? And he said, "Well, we're doing very well. Our order books are filled, our profitability is the highest ever-we're doing very well."
When we returned to his office, I made him an offer that we could reduce his scrap ratio, guaranteed, to at least 5 percent or less. His comment to me was, "Bob, look outside that window-do you see that car out there?" I said, do you mean the Mercedes? He said, "Yep, and it's brand new. I get one every six months. This business is doing better than it ever has. Profitability is so high, that I couldn't care less."
The offer I made to him was that, if you don't care, I'll tell you what. I will reduce your scrap ratio to at least 5 percent, and you give me the difference in profitability that you gain from that, and that'll be our fee. He laughed and said..."No." What can you do with that? We could have saved the man probably in the millions [of dollars].
How do you react to that?
Well, it's a shame. It's a shame. The reason it's a shame is that's really waste. That's terrible. That's waste. What he should have done is taken advantage of this, reduced that scrap ratio down, further increased his profitability, and if he didn't want the money, then invest it in doing things with other businesses or other opportunities to help growth and also provide jobs for people and provide better conditions in general. That's what the whole country is supposed to be about.
But from his perspective, he gets that Mercedes every six months, so why should he care? What do you tell him?
I guess that's kind of an attitude. It's one I don't believe in, and I don't subscribe to it. Truly, I didn't enter this business to get rich. Money is not a factor in what I'm trying to do. It's not a goal that drives Bob Marino. The things that drive me are that, if I can improve factories, if I can improve industrial activities to where they're operating more efficiently, they're operating smoother and job conditions for the people who are there are better as a result of consistent systems and guidelines for them to work under, I'm happy. Growth is created, new jobs have been produced, the country is doing very well, we're not allowing foreign competition to beat us back so that we're second, third or fourth class. I'm happy about that.
In this region specifically, do you see any prevalent trends regarding attention to quality, good, bad or indifferent?
I think the ISO system and QS system [quality program for the automobile manufacturing industry] have a tremendous opportunity to create gains in the field of professional quality far beyond anything that has ever been done in the past.
There was a time when all you had were inspectors. And those inspectors were people who had no formal education. They had really no understanding about the function at all. They were simply put into the position and told, here, go measure this.
As time has evolved and with the invention of quality assurance, there's been an upgrading. Now various credentials exist so that you have various standards that you're expected to meet, and you now find degreed individuals more and more in the field of quality so that you're getting a complete upgrade in the knowledge that's there. The whole field has improved from the standpoint of the expertise of the individuals who are in it.
But we're still faced with one problem, and this problem has been in existence since time one. If you show a company a coffee cup, the executive can look at it. He can touch it, he can feel it, he can hold it, he can see it, he can smell it. That's a tangible kind of item. Many times in the field of quality, he can't see anything, he can't feel anything, he can't touch anything, therefore he doesn't feel it has any value or any worth. So if he's paying a dollar for the coffee cup, he sees it. He's getting a coffee cup for a dollar. When a quality system is being put into play, the definition of that, what is he getting for that dollar, is a little less apparent. Quality is not quite so simple as producing a tangible product. That problem continues.
How is the attitude around Pittsburgh, relative to other regions?
The worst. When we look back at the history of Western Pennsylvania, it's a very old state in comparison to others. The culture of the area has always been, if you can't fix it with a five-pound sledge, you just take a 10-pound sledge. That has sort of been the culture we've had in this part of the country. We seem to be behind in a lot of things. We have an old Puritan type of heritage here, and it still continues today.
What would you say is the single worst shortcoming of local business owners when it comes to quality?
I think probably the biggest shortcoming is they won't listen. More often than not, you can't even get them to sit down and listen. They typically look for a very quick fix for a $1.98. If they get someone to walk in the door and do it for $1.98, and they can go talk about the fact that they're installing quality, they're happy. Whether they got anything for it doesn't seem to matter. It's "we can say now that we've adopted quality," and that's a problem here, no doubt about it.
What are some particular areas within their operations that reflect the worst quality problems?
I think the biggest issue is management. Very often we find that, what they think is going on in their factories and what is actually going on in their factories are two different things. When we get into the processes and we get into the research in establishing systems and return with information back to the management and we tell them this is how the procedure should be, they'll look at us and say, "No, that's not what we do, we do it this way." We then have to tell them, no that's not the way you're doing it. We've actually taken some management people out into their own factories said, here's how you're doing it. The result is they shake their heads and walk away. When we've had the opportunity to do that, we usually end up making a very solid client, as we've opened their eyes very dramatically with what we've uncovered.
So what does this say about these companies, where the management doesn't even understand the seriousness of this?
I think in many cases the management doesn't get right out on the floor-and I don't mean getting out on the floor just to walk through, wave at people, say hello and shake hands. I mean actually seeing and hearing what is really going on. It doesn't happen that often.
Identify the top four or five quality problems that companies face today.
After training, hiring practices is number two, and number three-not necessarily in any order-how they handle promotional activities [job promotions] within their companies. And then there's the transmission of information-communication. Number five is understanding their customers. Number six is general attention to their businesses.
Now, what are some possible solutions that companies can employ to improve their quality?
We might take these six items I just gave you and start with the first one. And that's training. What they should do is to adopt a standard training system where different employees involved in different jobs have some kind of standard training program that they have to go through and then, periodically, are measured against to assure that they are functioning in a consistent fashion.
The next one was promotional activities. Unfortunately, we find this occurring so many times it's appalling. There's a good-ol'-boy network out there, and if you happen to be a good friend or a good buddy of this guy and he's in the right position, you get promoted. Whether you're qualified for it or not, it doesn't matter. We see this in industry all across the country.
Feed that back into what we're talking about, and what does that translate into? You promote someone who is not as qualified, and you get a lesser-quality of job produced in that position. And you also discourage others and create morale problems-and those people almost give up because it seems like, no matter what they do they're not going to get it anyway, so then you end up with complacency in the job place. And there's a lot of that-an awful lot.
Communication is another item. Oftentimes, the people sitting in one particular facet of an operation will understand, recognize and know what it is they're looking for. But for whatever reason, that information never finds itself filtered through the entire system so that, somewhere along the line, the ball gets dropped and the rest of the people who also have a participation with this never really get the message. Sometimes months go by-sometimes years-before that message ever exists.
In understanding the customer, I think oftentimes, when products are purchased, the people who are selling those products don't have a good strong feel for what the customer really wants because the customer himself is not really sure what he wants. So what we find as we investigate their quality systems is that there will be products that are purchased, and they're totally wrong for the usage that they're intended for. And this is part of what comes out, believe it or not, in the design and development of quality systems. It's not that anybody is trying to snooker anybody. It's simply a communication error between what the customer wants and what the supplier is trying to supply.
When you talk general attention to business, I think, in many cases today, the people who sit at the top of companies have, for one reason or another, not really involved themselves in all aspects of the business . I'm talking about all aspects of the business, not just the aspect that you're most familiar with.
So that's something many more business leaders need to be doing today?
There's no question in my mind.
Now, how important are quality and quality standards going to be as we lead into the 21st century?
I think with all the other nations of the world developing and all the technology around the world increasing, the computer age where unbelievable amounts of information are available at the snap of a finger or at the punch of a key, which allows a lot of [underdeveloped] nations to get their hands on leading-edge information instantaneously, we're going to see a lot more competition. As that competition continues and we end up with more industrialized nations, we had better be sharper and sharper and sharper in this country, or we're going to find ourselves becoming second, third or fourth class.
Few people will ever forget the day in 1989 when Alaska's pristine Prince William Sound drowned in 11 million gallons of crude oil delivered by the oil supertanker, Exxon Valdez, as it ran aground. The news captured it all-volunteers scrambling to nurse individual birds, seals and other wildlife; others trying desperately to clean the spewage from rocks and sea.
And while the news media didn't quite capture the full business implications of the tragedy, few will forget the ultimate cost to Exxon in criminal, civil and administrative penalties: $1.1 billion.
Behind those penalties was a mild-mannered, rather unassuming man who might fit the stereotype of back-office accountant better than that of formidable lead prosecutor for the U.S. Department of Justice. Yet there he stood, the attorney who led the charge to exact the most expensive penalty ever from corporate America in a case that should stop most companies in their tracks-especially if they lack effective corporate compliance programs.
That man is Charles De Monaco, a Pittsburgh native who grew up in a blue-collar home in a blue-collar neighborhood to become a prosecutor feared by those in corporate America who disregard government regulations.
He served early on as an assistant district attorney in Allegheny County before moving on to assistant U.S. attorney for the Western District of Pennsylvania and, ultimately to assistant chief of the Environmental Crimes Section of the U.S. Department of Justice in Washington, D.C. He spent his last 15 years there.
But now De Monaco is back in Pittsburgh bringing his corporate compliance experience and insight to bear working for none other than corporate America itself. As counsel for Pittsburgh law firm Dickie, McCamey & Chilcote, he is preaching-albeit with a nice-guy approach-the virtues of compliance to those who might otherwise have had to face him in court. And lost.
This is what he's telling his clients:
What was the biggest significance for business owners today that came out of the Exxon Valdez case with regard to environmental compliance?
The biggest message that came out of the Exxon case is that it's extremely important for corporations to have an environmental compliance program and to have a code of conduct-procedures and guidelines-in place that would help employees to know what their standards are and what the policies are and for companies to know how to deal with a situation when it comes about.
...Exxon had a very good history as far as corporate America was concerned. Nonetheless, it had a problem when an oil tanker ran aground in the Prince William Sound and approximately 11 million gallons of oil spilled. Now, the sentencing guidelines weren't in effect as far as preparations were concerned when that went aground. So what Exxon was guilty of was a situation when there was a huge loss as the result of an oil spill and they were going to have criminal, civil and administrative liability for that conduct.
As far as Exxon was concerned, they responded very well to the spill. They voluntarily paid $2.3 billion before there was a settlement with the government. And the settlement with the government, a total of $1.1 billion both for civil and criminal disposition. And of course, Exxon, in addition, pled guilty, and Exxon Shipping pled guilty to certain violations of federal environmental laws.
As a result of that, the lesson to be learned is that accidents may happen, but a company has to do all that it can do within its power to make sure that those accidents don't happen and, if they do, they respond to them appropriately.
Exxon pled guilty to a violation known as the Migratory Bird Treaty Act, and Exxon Shipping Co. pled guilty to the Clean Water Act and the Migratory Bird Treaty Act. It was a total disposition on the criminal side of approximately $125 million as far as the net penalty was concerned. And of course on the civil side it was approximately $1 billion, or $900 million for a total of $1.1 billion.
How does the government look today at companies that do have standards and compliant measures in place and still have accidents?
The government policies make it very clear that the government takes into consideration in a very favorable way the company that has an effective compliance program. That mitigates a company's exposure to criminal and civil liability and, in certain respects, may even avoid criminal disposition. For example, in the environmental field, the government has a policy that went into effect in July of 1991. That policy makes it very clear that if a company has in place an effective compliance program and if it's diligently monitored and the company makes voluntary disclosures to the government, that the government will treat that company in a very lenient way.
Likewise, the inspector general for Health and Human Services has made it very clear that in the health-care field, there will be leniency for those companies that have in effect a compliance program.
But those companies that don't have a compliance program, then they're not going to receive leniency from the government, whether it be in the health-care field, or the environmental field, or any other field, for that matter. And when we take a look at the United States sentencing guidelines that became effective in November of 1991, the guidelines make it clear that if a company has in place an effective program to prevent violations of law, whatever penalty has been assessed against them will be minimized because of that program.
Have you seen that to be the case now?
Absolutely. This deals primarily not in the environmental field but in the other fields where a monetary fine is assessed based upon guideline computations. And when you take a look at guideline computations, there is this multiplier factor that goes into effect. If a company, for example, has a program to prevent violations of law then there is a reduction in the penalty. That is set forth in great detail in the sentencing guidelines.
So it's not really a subjective thing so much if it's well documented?
You're right. If it's well documented and the government is satisfied that the program is effective, then there is that type of leniency that the courts will be able to accompany. It's not a matter of seeing an actual case or example. It's really a matter of a black and white letter of the sentencing guidelines that makes it very clear.
Is it much more clear now than it was back in your heyday with the government?
Absolutely because, back then, even when Exxon ran aground, the sentencing guidelines were not in effect for corporations. When Ashland Oil [spill] occurred here in the Pittsburgh area in 1988, that's another example of when the sentencing guidelines weren't in effect at that time as far as corporations were concerned. That doesn't mean corporations didn't have corporate compliance programs. Many corporations, of course, did. But in 1991, that set the standard, that corporations had to have that in place and had to have it maintained. Otherwise, if there was a violation of law and there was a criminal sanction, it was going to hurt corporations that didn't have those kinds of compliance programs in place.
Are many of the laws in place now based on the precedence set by Ashland Oil, Exxon Oil and some of these others?
Not to discuss this in a real personal sense, but rather a more general sense, certainly the efforts that the government put into place after the effective date of the sentencing guidelines set the stage. For example, there was a case in Miami where a court ordered that a corporation have an effective compliance program in place and to have it diligently monitored. As a result, the company did it, and since that time, a number of other courts have imposed a very similar type of compliance program.
It was a great learning experience for me to be involved in those types of prosecutions because one would lead to another then to another, then to anothe r, and as a result, it's now standard.
Looking at compliance in general as far as standards that have been set across the board, how fair are the government regulations right now, particularly for smaller companies?
For the smaller companies, those companies have to comply with the law, just like the larger companies. But the government, from my perspective, is extremely fair. For example, with the Environmental Protection Agency, they have a program in place that, if a company is small and they have a program in place, all that company has to do is really coordinate with the region of EPA, and the EPA will help the small company understand the regulations and get into compliance.
So long as there's that dialogue that occurs between the regulated agency and the corporation, normally that corporation is going to be fine. In addition, the EPA has set up some pilot programs where a larger company will be the mentor for the smaller company to help that smaller company stay in compliance with the law.
So has the government, in fact, moved into an era of being helpful first, then, hopefully, there won't even be compliance issues down the line?
From my perspective, a corporation that in good faith tries to comply with the law and seeks the assistance of the regulator community such as the Environmental Protection Agency or the office of the Inspector General if it's a health-care matter will significantly benefit itself and avoid legal exposure. And so long as the government knows that that company is making a good-faith effort to comply, the chances of there being sanctions against that company are slight.
However, if a company disregards the regulations and doesn't put in place an effective compliance program, then, of course, if something goes wrong, that company can be hit very hard with fines and penalties.
Does the government come down even harder today now that there are some of these advocacy efforts on the part of the regulators?
I think so. The reason for that is because if a corporation doesn't take advantage of the remedies that are there and the services that are there, and they don't try to make a good-faith effort to comply, then they're going to be below the industry standards because that's not the industry standard in this day and age. As a result of that, you're right, the corporation may get hit a lot harder by the government for not having those programs in effect and not taking advantage of the services that are available.
How costly is compliance today?
Compliance really is just a cost of doing business. Compliance, when looked at from solely a legal exposure, may be viewed as costly. But when looked at as helping a company stay within the industry standards and become more efficient because of better morale of employees, then it's a reasonable cost of doing business, where that investment cost should come back to the company in multiples.
What would you say to companies that don't want the government anywhere near them, even if they're not trying to hide anything-where the mentality is that they don't want to open their doors to the government?
By doing an environmental compliance program or other compliance program in general, it is not getting the government involved in your business. It's really your business staying involved in your own businesses.
Pittsburgh companies apparently have pushed past the national trend in networking their computers together.
According to the latest results of the IKON Index, a national survey of 1,200 MIS managers at mid-sized companies, 50 percent of Pittsburgh companies surveyed have their entire computer systems networked. Nationally, only 42 percent of the companies are connected. Another 20 percent have partial networks, and 29 percent plan to make the connection over the next three years.
Another telling finding: Forty-four percent of those Pittsburgh companies surveyed say they rely on their CEO and other top management to make the final purchasing decision when it comes to new equipment and technology. In addition, 69 percent of Pittsburgh companies have access to the Internet, up from only 45 percent a year ago, and 73 percent use the Internet as a research tool. And 70 percent use the Internet for internal communications.
The IKON survey included companies with more than 50 employees and $5 million in revenue, throughout 15 major metropolitan cities.
She discovered expensive wood trim under the paint, golden oak floors under the asphalt tile, and even the original working shutters in an old stable/carriage house out back. With the help of ornamental iron fencing and truckloads of topsoil, she converted the sprawling parking lot into a colorful Victorian garden with brick walks, trellises and antique statuary.
Then she bought a burned-out 19th-century mansion in Shadyside. And she moved again.
Now Sampson faced a dilemma: What was she going to do with the North Side home she so loved and transformed? She didn't want to sell it, yet she couldn't occupy two local homes. So, she did what any creative entrepreneur would do: She simply turned it into a business.
Another business, that is.
Her new venture, Victoria House Bed & Breakfast, joined the ranks of her advertising agency, women's clothing boutique, restoration company, urban-loft development company and even a so-called Victorian "celebration center." By all accounts, this high-energy, eccentric, self-proclaimed "hippie earth mother" is part artist, part visionary. Combined with a heavy dose of focus, discipline, unyielding attention to detail-and at least 80 employees, however, and she also becomes what one might describe as the consummate accidental entrepreneur.
Indeed, this isn't a story about diversification strategies or even extreme entrepreneurship, for in many ways she's an entrepreneurial enigma. Rather, it's about the philosophies of an eclectic businesswoman who has found a way to have fun bringing her marketing and sales skills to bear on a lifelong desire that has little to do with money or corporate success. Yet in many ways, her passion and energy have brought her both.
The aesthetic thread
Her desire seems almost too simple: "There's not really a thread there except that they all-and it's probably not one that most people would see-incorporate an aesthetic value of things," Sampson, now 47, says.
You certainly don't have to search far to find examples of her passion come to life. Every room in the bed-and-breakfast inn, for instance, offers intricate Victorian details, from the paint and wallpapers, to the ornately carved furniture and other decorative props. Similar details prevail throughout her other buildings as well-all details introduced by Sampson herself, according to those who work closely with her.
Perhaps the most telling evidence of her artistic passion for aesthetic detail can be seen within the framework of the company she formed with her husband, Ben Sampson, who also is president of the Sampson Group, a third-generation family-owned real estate development company. His company develops about 100 lots a year and also manages 2 million square feet of industrial and office park space that it owns and leases.
Together, they run Frontier Lofts Inc., which is developing an old brick warehouse in the Strip District into a residential condominium complex called The Strip Lofts. Their company also is transforming a 19th-century schoolhouse on the South Side into another residential loft complex. On any given day, then, she worries about color schemes for her buyers, ceramic tile styles and colors, whether a particular loft is ready enough for her to do her faux painting-which she does herself-on pillars and walls.
"It's an obsession," says Sampson's husband, Ben, about her. "She's obsessive about the details. She's eclectic, innovative and artistic. I think she's extremely talented."
What seems most unusual, though, is the fact that she spreads that same passion for detail over at least six businesses-most of which she started, almost accidentally, out of her aesthetic passion. Take, for instance, Victoria Hall, a sprawling 19th-century mansion in Bloomfield, which spent a century as a private girls' school, Ursuline Academy, and convent. Sampson says she used to drive past it frequently to admire its potential grandeur.
"It was just the most incredible piece of architecture-it knocked me out," she says.
Then one day she garnered the courage to approach the nuns in the now-defunct school about seeing the place. She told them she wanted to buy it.
"One of the nuns asked me what I'd do with it," Sampson says, "and I told her, 'when you call me, I'll think about it.'"
When the nuns did call, Sampson purchased the building and converted it into a lavish Victorian-style celebration center with a ballroom and dining hall, six banquet rooms and a chapel that can seat 160 people for weddings and other events.
Sampson formed her advertising agency, JMS Advertising, after her restoration company, Allegheny City Restoration, renovated another small building. She initially had trouble selling it, she says, so she put the ad agency in it. And she says she opened the Station Square-based women's clothing boutique, Full Moon Rising, because she was tired of having to travel to New York City and elsewhere to find the eclectic mixes of clothes she likes to wear (she says she also happened to grow up in a retail environment, which gave her some knowledge of the business).
Getting past the detailsWith such scattered interests-and her obsession for detail, you would expect Sampson to maintain only a peripheral grip on her many businesses as she tries to grow each one. As Jack Roseman, associate director of the Donald H. Jones Center for Entrepreneurship at Carnegie Mellon University, says in general: "Business is too difficult for most people to be part-time entrepreneurs. There are entrepreneurs who do that, but most aren't all that successful.
"To be successful, you have to have the uncanny ability to focus," continues Roseman, who has never met Sampson. "You have to spend 18 hours a day, six days a week, focusing on just that business."
Sampson admits to being a workaholic who puts in her 18 hours a day, but she says she can't see herself picking just one business and running with it.
"My personal mission is to maximize every minute of my day because I think life is so very short, and there's just so much to do," says Sampson. "The reason I keep going from one thing to another is because it's all 'me-driven,'' Sampson says. "I'm a big hippie earth-mother, it's true. So I'm a provider, a facilitator. That's my job.
"Everything I've done professionally has really been me-driven," she says. "For instance, I find a building and it's condemned and going to be torn down. The only way I can justify buying it and pouring lots of money into it is to find a use for it. So the use for it usually requires opening that business because nobody else wants to. I started the construction company because I found a building and couldn't find people to work on it. I thought, this is stupid. How does anybody ever get anything done? So I put together a construction company."
How she does it
How she manages it all, though, seems to be what sets her apart. So far, her formula for success has served her well, with few exceptions. This is how she does it:
1. Hire energetic, loyal employees and take care of them. "She always has our best interests at heart," says Rebecca Ezykowsky, who runs Full Moon Rising for Sampson. "She loves her work and she loves her life, and you can see that come out in her. She takes an interest in us. She instills quite a bit of loyalty in us."
Sampson's personal assistant, who calls himself only Charles and lives in the Sampsons' carriage house on the Shadyside property, adds: "I have found it amazing what she accomplishes-and how much she puts her people first."
Taking care of those 80-some employees, Sampson admits, can be a challenge, given th e diversity of her staffs, not to mention her customers.
"Certainly their problems are diverse," she acknowledges. "It's a little different to deal with potential brides and their problems at Victoria Hall, and chefs and their problems, and construction people and their problems, and women on shopping excursions who have a very different set of attitudes and demands. So I think the most challenging part is switching gears and knowing who I'm talking to, what I need to say to them, and what they will hear."
Maintaining such a close relationship with her employees, though, is crucial to her success, Sampson says. "A big part of everything I do is the people who help me do it," she says. "If I didn't have them, let me guarantee that I wouldn't get through the first hour of my day. I couldn't do any of this.
"I hope the reason I have them-and I certainly don't pay them the big bucks-is we communicate well, and I have some consideration for their work lives. I give them space."
2. Stay consistent in your management style. Sampson describes her management style as "really easy" and, contrary to the stereotypical high-energy entrepreneurial spirit that seems to dwell in her, she says she's terribly consistent and predictable.
"I think I truly do wear a lot of different hats, and I probably have some different mannerisms, but I think I'm an extremely consistent person," Sampson says. "I think that, if you interview any of my staff, they will tell you that, after you work for me for a while, you can pretty much predict what I'm going to say. I think I'm pretty consistent in what I will expect and what I won't deal with well."
When asked about what she doesn't handle well, she quickly offers two situations: lying and stealing. "It just incenses me to have someone lie to my face about anything," she says. "I really would like to think I can trust all of my employees."
3. Delegate, delegate and delegate. Given her array of daily responsibilities, Sampson says she has had to learn to delegate many of her tasks.
"I'm not a control freak," she insists. "If someone says, 'hey, I want to be in charge of this,' I say, 'hey, that's a great idea. You go for it.' And when I give someone authority, I never say, 'you shouldn't have done that without asking me.' When I give someone authority, I give them limitations-you know, when you get to a certain point you've go to call me. But I've never admonished someone for making a decision in my absence."
Ezykowsky agrees. "Joedda lets me make my own mistakes," she says. "She's not always happy about it, but she's very patient. For instance, when I would buy a line of clothes that then wouldn't sell well, she was, like, 'did you learn a lesson from that?' She's definitely not a hoverer.
"She likes to be involved, and you can't slide anything past her," Ezykowsky adds, "but she's amazingly focused on the big picture. That's why we work well together."
And how do Sampson's employees accomplish so much for Sampson? Says Rita Formhals, who does the bookkeeping and accounting for Sampson's many businesses: "God gave us wings."
4. Learn to decisively solve problems. On a recent workday, Sampson had to decide where her landscapers were to put shrubbery around her property-before 8:30 a.m. Then she faced a dilemma about a customer's request for stainless-steel appliances. Then it was off to a tile store to choose ceramic tile and grout for a loft buyer who wanted his space to stand out from others. Then she gently confronted construction subcontractors about potential delays in laying hardwood floors, completing the main stairway, getting air-conditioning units to all of the floors before the elevator was removed and what to do about old wooden shutters that didn't adequately fit the windows in her Bedford School loft project. Yet she never once paused for fear of becoming overwhelmed. She merely made decisions on the spot.
"I get about 20 calls a day saying such and such happened, and what do I do about this?" Sampson says. "So I have to have a very good ability to problem-solve."
5. Work hard, play hard. While Sampson does put in the time at work, she says it's just as important to feed her creative side by playing just as hard.
"I think I'm extremely high-energy, consistently and constantly," Sampson says. "However, I am very definitely of the work-hard, play-hard ethic. I'm a creative person, so it's really mandatory for my ongoing good nature to play hard, vacation and rest and feed that creative energy. I'm not a person who hasn't had a vacation in five years."
That, she says, is what it takes for people like her to avoid burnout. "A lot of people of my nature tend to burn out and tend to become difficult to live and work with because they are just so completely strung out on the power and the energy that it's not fun anymore.
"I don't think I ever got to that wall," she adds. "I have worked with people like that and realized that it's not fun for them or the people around them. The creative part of my brain is the most important to me. I don't function well creatively if I don't have some new input-seeing new beautiful things somewhere else."
6. Know when to say when. One of Sampson's biggest challenges continues to be knowing which ideas to follow and which to leave alone. This is one lesson she has learned the hard way.
Case in point is her Cafe Victoria, across the street from Victoria House B&B. For several years she had watched a 19th-century residence deteriorate from bad to worse-directly across from her inn. "It was absolutely a flophouse," Sampson says. "It had been student housing for 18 years. It was dirty, in tremendous disrepair, noisy, and transient-everything you didn't want for a neighbor when you've put a lot of time, energy and money here. So it made me nuts."
Of course, she then bought the dwelling, which turned out to be the first home of the man who started American Standard Plumbing back in 1875-76. In typical Sampson style, she then found a use for it: She partnered with someone who always wanted to run a restaurant, invested in restaurant equipment and a liquor license and turned it into a fine-dining restaurant. Six weeks later, she says, her partner walked out-and three days before Sampson was to leave for a vacation to Tahiti.
Six years and much frustration later, Sampson finally decided she was trying to do too much. She recently closed the restaurant and now has it for sale through restaurant and tavern broker Terri Sokoloff and Specialty Tavern Restaurant Brokers in the North Hills.
Sokoloff says she is glad for the listing because she loves working with Sampson. "She's vivacious and a mover," she says. "She knows exactly what she wants and goes about it in a more creative way than most entrepreneurs. She's a doer, and I admire that. In my business, I meet with a lot of talkers and a lot of dreamers. But she does what she says she will do."
Even when it means running a restaurant for six years. "Six years is a long time for a business that you never had any desire to have and you're not particularly enamored of," Sampson says. "I can't say I every really enjoyed it. I found it a very difficult one since I have a family and can't be there for dinner every night to run the place. And it wasn't financially a good thing for me. It wasn't rewarding for me.
"At this point, I really am doing as much as I feel I can humanly do," she says without regret. "I decided that this was the one business that brings me the least pleasure, brings me the least money and requires a lot of tending. You need a full-time persona to keep it going, and I don't want to be there full time."
The lessons she learned from that are twofold: First, she says, don't take your next step until you're "100 percent into it emotionally, physically and financially. If you're on the edge and it doesn't feel quite right but it seems like a great idea, then don't do it." Second, she suggests that entrepreneurs shouldn't pursue new ventures without making sure they are doing the best they can with their current ventures first.
"If you're still floundering and working out the kinks and having problems with your staff and your finances, you probably shouldn't move on," she says.
In most cases now, Sampson says, she tries to put her ideas-and she says she has lots of them-into more realistic perspective rather than pursuing every one, like she did at one time.
"I think I was like that maybe 20 years ago-and I probably drove a lot of people crazy," she concedes. "I probably lost friends, husbands and relatives over that. But I would like to think I have evolved, and I try to harness and focus. I realize that some of my ideas are best left on the pillow the next morning. They're not all great ideas. They're not all feasible."
But that doesn't always mean she won't at least try, which gets back to the passion that makes her stand apart.
"It's really hard-it's one of my greatest challenges trying to think about those things that will really bring me enjoyment," she concludes. "I am definitely a confessed workaholic. I love to work. So it's really important to me that I'm enjoying what I'm doing. If I'm not, then I would just be a really pathetic person with a lot of money."
And a large collection of restored Victorian homes. SBN
Like many business owners, he slaves over every detail, from napkins to the taste of the beef brisket his five restaurants serve. He tests potential employees, picks the next restaurant site, and raises capital. He has trudged through the tough times and celebrated the good times. He has controlled, in many ways, his own destiny as he has managed to position his restaurant chain for aggressive growth ahead.
Until now, that is.
Sofranko recently made perhaps one of the most difficult decisions an entrepreneur has to make-stepping out of the way of your own growth and ego. He hired restaurant management veteran David Head, who previously was president and chief executive officer of Kansas City, Mo.-based Houlihan's Restaurant Group. His task: to take the company where Sofranko says he couldn't effectively take it on his own.
So how does such a serious decision bode in contrast to the typical entrepreneurial spirit? And how painful a process is it?
This month, we asked Sofranko how he managed to do what most entrepreneurs dread-and where many ultimately fail. His biggest challenge ahead: staying out of the way, of course. Here's how he's faring:
How would you describe your management style up to now?
If there's a management style that's classified as entrepreneurial, it's aggressive, passionate, high-energy, sometimes not enough focus. You're kind of out there shooting a shotgun, perhaps sometimes saying 'would this work?' or 'would that work?' We've seen plenty of changes at Red River over the years, from menu to people and philosophies, and the way we're going to do things. So I think it's a little more like that shotgun. I think that's also indicative of a young entrepreneur. I was 26 when I first started and 37 today.
I think that, as a person matures and your business sense matures, that kind of progresses.
Also my style was that I have to have my hands in everything. It was that way for a long time. I'm not defending myself, but I think, when you're building a company and bringing on people, whether a talented management team or restaurant managers, you want to have your hands in it as much as you can. And I think that is a certain style that is pretty much indicative of an early-stage entrepreneur. That was my management style then.
Now I'm psychologically and personally shifting-or adjusting-this style a little bit to an understanding that I'm not going to know everything. I'm not going to be involved in every day-to-day decision.
Until now, what were you involved in on a day-to-day basis?
Really, everything-finance, marketing, advertising, employee profiling, raising capital, doing site-selection and real estate deals, graphic design, menu pricing, food costing, selecting menu items. Everything that was involved with this program, I was involved in, from top to bottom. In 1987, I was the meat-cutter for three or four years. I cleaned out the grease trap and did the dirty work.
Why couldn't that continue for you?
I think the goal all along was that barbecue was-and is still-an untapped niche in the restaurant industry. As we have grown or changed or evolved-evolved is really the word here-we have responsibilities to people who have given us money to build Red River. If I was the restaurant manager in Wexford today, it would be very difficult for us to grow or for me to spend six to eight months interviewing people for David Head's position or raising capital.
I think there are just these stages you can almost block out, certain time windows, and the ultimate goal. The goal from 1985 to 1998-the same goal-is to establish Red River as the leader in the barbecue segment, first regionally, then nationally. Then, hopefully, if everything works out and all the moons align, we'll be able to give a return to our investors and, at the same time, keep our customers coming back, build sales, keep the menu fresh, and put all of those pieces together.
I've told my manager that our investors did not give us money because we're a charity. They gave us money to provide us with the opportunity to build a business, to make a living, collect a paycheck. And we have to always remember that, at the end of the day, we have to provide a return somehow. That's the goal. It might not be as much as they want, or it might be a big or little return. My best day will be the day when I can write a check back to my parents, back to my family and friends who supported me in 1985, when a geophysicist was looking at barbecue. That will be one of the best days of my life-other than when my children were born.
When did you know it was time to step back and let someone else run the show?
We were building the organization and, because it's my first time around on this road, I probably didn't fully understand the talent it really takes to become a regional or national chain-the kind of talent you really need to put this baby together.
I think when it became apparent was a year or year and a half ago. Things weren't going quite as smooth in operations. We have five units, and there were issues that we should be able to manage pretty easily. They weren't being managed. It was operations-hot food, fresh food, figuring out systems for our sauce procedures or how our sauces were delivered, decor, the interior look and feel. Everything was just kind of...if we really want to be who we say we want to be-the leader in a niche, a national player, the Outback Steakhouse of barbecue-I probably underestimated the talent that it really takes to get there. Maybe I was being naive along the way or whatever.
I also think it came to light when we were out there putting a financial deal together with an investment banking firm in New York, and because the stock market was doing so well, the cash-on-cash returns that a restaurant concept would need would be up to 40 percent or better. The market is maybe at 20 or 25 percent, so if I'm going to take a risk with Red River, I'm going to need 40-plus. Actually, now that the market is coming down, it actually should benefit us in a year from now.
The vision in my mind is the combination of us bringing on a David Head and his management team and some real talent that takes the food up a notch.
The comment I've used so many times is that we were a good restaurant, but we weren't a great restaurant. We were fairly consistent but not always consistent with our delivery at the restaurant level.
Many of the procedures really were me. I never worked at another restaurant chain in my life.
When you're one restaurant, I would never even have talked to a David Head. You talk to the talent you can get. Now, once you get to five, you're a decent-sized little restaurant company, and you have a tremendous growth opportunity. That's why the David Heads of the world come on board. You kind of take what you can get. It's a situation where you try and attract the best talent you can for the stage you're in.
Talk about the transition. With the ego at stake, how do you concede that you need to step back and let someone else take charge. Talk about admitting your shortcomings.
Certainly, there's pride there. You can't let your ego and your pride take over what you really know and don't know. I'm very good at some things. David Head will tell you I'm very good at raising capital. And I'm very good at selling the concept. But am I the operator? No. I know a lot about the business, but I don't have that talent.
The question is, do I still believe in the barbecue niche? Yes. Do I have the talent to take it to the next level? No. To go good to great, that's a big step, but you really need the talent.
My philosophy my entire life has been to keep learni ng, keep getting better and better at what you do, whether it be smarter and wiser, or whatever. I think what we've done with Red River is we have gotten better and better.
How difficult was it to relinquish control-to actually go through that process-to somebody else?
I'm still going through the transition now, but when it's your baby and you look what you've built from ground zero, you're very proud of it. It's almost like you're sending it off to college. You look at what's best for your baby-what's best for the company, but you have to keep in mind that it may be my company, but it's really not my company. Others have bought into it.
I'm actually more proud of the word 'founder' than I am of chairman or CEO because I started this thing. But in relinquishing control, I think you have to look inside and see what's best for the company and the shareholders. I think you have to look at it from the standpoint of, can I take it to the next level? And if you're being honest with yourself, my answer was 'no.'
How hard was it to be honest with yourself?
I'm a very good visionary guy, the one who puts the puzzle together. But I'm perhaps not a good maintainer or a good mature-company developer. I'm a very good early-stage guy.
How tough really is it, then to let go?
It's probably still sinking in. So when I walk into the restaurants now or I hear something that I didn't know about where a decision was made, I initially get a little upset, but I still think that's just the transition.
Even in the last couple of weeks, I found a couple of things. But it was like, OK, Ron, keep your mouth shut.
If you haven't already prepared a "worst-case scenario" environmental crisis-management plan for your company, you may want to get started.
So says the U.S. Environmental Protection Agency, which reports that an estimated 66,000 organizations throughout the country that handle any of 140 toxic, flammable and volatile substances will be required to have such a plan in place by June 21, 1999.
Companies affected include chemical manufacturers, wholesalers and retailers of propane, and municipal facilities such as public drinking water systems, wastewater treatment plants and public utilities, among others.
"Companies and facilities affected by the Accidental Release Prevention Requirement: Risk Management Plan under the Clean Air Act Section 112( r ) should begin planning now," says W. Michael McCabe, regional administrator for the EPA's mid-Atlantic region, based in Philadelphia. "The risk management plan submitted to EPA will be immediately available to state and local government agencies, the general public and all interested stakeholders."
Of those 66,000 entities, 9.7 percent are agricultural retailers; 9.5 percent are food processors, food wholesalers and other refrigerated warehouses and cold storage; 5.4 percent are chemical, petrochemical, petroleum refining, and paper and related industries; 2.3 percent are wholesale chemical distributors; and 43.6 percent are propane retailers and users.
McCabe is quick to note that the requirements do more than simply serve to prevent major damage in the event of an accident. He says the companies benefit from improved operating performance due to better training and safer operations, fewer employee injuries, better community and employee relations, and a reduction in down time caused by equipment malfunctions.
"In the broadest sense, risk-management planning relates to local emergency preparedness and response, pollution prevention at facilities and worker safety," McCabe says. "In a more focused sense, it forms one element of an integrated approach to safety and complements existing industry codes and guidelines."
For more information about the requirement, contact one of several local Small Business Development Centers or the EPA's hotline at (800) 424-9346. Its Internet address is www.epa.gov/swercepp.
Energy 2000 conference
Energy suppliers, energy service companies, trade associations, regulators, clean-energy advocates and technology companies from around the nation will be converging Nov. 10-11 on Harrisburg for "Energy 2000: Creating a Clean Energy Future."
The conference, at the Harrisburg Marriott hotel, is designed to explore how the state's new competitive electricity market can foster the development of new renewable energy sources.
Invited speakers include Vice President Al Gore and Assistant Department of Energy Secretary for Energy Efficiency & Renewable Energy Dan Reicher, among other heavyweights. It's sponsored by the Pennsylvania Campaign for Clean Affordable Energy, a statewide network of consumer and environmental organizations. For more information, contact Jan Jarrett at (717) 697-2111 or visit the following Web site: www.paenergycampaign.org.
New Energy Ventures, which only recently entered the Pittsburgh energy provider market, doesn't want to wait too long to take its services to the rest of the country. That's why the company has launched a series of ads aimed at Congress and the U.S. president to convince them to federally introduce a more competitive electric industry.
"If New Energy Ventures were able to provide power to every federal government facility in a fully competitive energy market, we could save taxpayers hundreds of millions of dollars a year," says Michael Peevey, president and CEO of New Energy Ventures, which bills itself as the nation's largest retail energy service provider. "Once we get past the temporary hurdle of paying off utilities for the high-priced investments they made in power plants-the so-called stranded-debt problem-competition will reduce electricity prices at least 25 percent nationally, and as much as 40 percent in some states. For the federal government alone, that could mean annual electric energy cost savings of at least $870 million."
Finding clean air online
The Foundation for Clean Air Progress says the nation has experienced considerable progress against air pollution. People just don't know about it.
For that reason, the foundation has created its own Web site at www.cleanairprogress.org to better inform people. The whole point of the Web site is to demonstrate the fact that, as the foundation points out, U.S. pollution laws are working.
The Web site includes information about air quality trends across the country, information about how individuals and organizations can help reduce pollution, and some "striking facts" about the success of current pollution reduction efforts.
"There is an alarming lack of public understanding about the state of air quality in the U.S.," according to Allen Schaeffer, foundation secretary. "Nearly two-thirds of the public thinks the air we breathe today is worse than it was 10 years ago, when the exact opposite is true. It is critical⊃that people have an accurate understanding of the situation."
It's "green" power
A new program launched earlier this year by the state and some electricity suppliers now identifies electricity products that come from at least 50 percent renewable resources.
Called the Green-e Program, the logo flags products that not only demonstrate the use of renewable resources, but also those whose non-renewable-resourced energy has equal or lower air emissions and no nuclear power beyond that used for the electricity the customers would have had if they did not switch.. The renewable resources include the sun, water, wind power, sustainable biomass (including landfill methane), heat from the earth or energy conservation.
"The Green-e logo gives customers the confidence of knowing that their electricity protects their health as well as their wallets," says Jan Hamrin, executive director of the San Francisco-based Center for Resource Solutions, which administers the Green-e program. "Now⊃they can send a powerful message about protecting the environment with a single decision. Switch to green power."