Ray Marano

Monday, 22 July 2002 10:06

From a distance

As any entrepreneur knows, nothing happens until someone sells something, and as any salesperson will attest, it pays to ask for the sale.

For RTN, nothing else could be closer to the truth. In fact, RTN landed its first chunk of working and start-up capital by selling a $600,000 contract to its first client-and getting payment for it up front.

How did they manage to do it?

"We asked for it," says Christine Rohe, the company's CEO.

The business that Rohe, her sister and a friend founded in 1994 is growing-and growing fast. RTN offers distance-learning programs for health-care and business professionals. Since starting out selling a handful of seminars to a few regional clients, RTN has grown to include 200 workshops and seminars a year-including 56 live broadcasts in 1998-beamed to 2,000 sites over its network.

Rohe and her sister, Connie, and a friend, Darrell Meador, now president, founded the company after Rohe lost her job as a sales representative for a distance-learning program firm in Texas when that company was sold to a Chicago firm.

Rohe says she had realized long before that her previous employer, a $400 million-a-year operation, had made money, to some degree in spite of itself. Clients harped to her about poor service, such as written course materials arriving after programs had been broadcast.

Rohe says she was convinced that, rather than going to work for another company in the field, she could create an organization capable of delivering good customer service, thereby giving it a leg up on the competition.

RTN first focused on the rehabilitation-medicine market, where money seemed to be allotted in budgets for continuing education in virtually every hospital in the country, Rohe says.

With no capital to launch the venture, she continues, the three founders decided to play to their strengths and sell their idea to prospective clients.

"We went out to sell our way into this business," says Rohe.

After incorporating in April 1994, RTN landed its first contract by July and broadcast its first seminar in October of that year. Since then, it has increased its annual revenue ninefold.

RTN has built its income by selling programming and advertising, and by linking with large firms like HealthSouth Corp. and Beverly Enterprises, large health-care industry companies with substantial needs for continuing education for their staffs.

The company also has made a deal with the Hospital Council of Western Pennsylvania, a membership organization that, among other services, provides educational programs to its members. Under the arrangement, the council will provide satellite signal-receiving equipment to its members, allowing it to offer nearly 200 programs a year to its hospital members. As part of the deal, the council and RTN also will co-produce additional programming.

Rohe enjoys the close relationship she has with most of her 60 employees, many of whom she has known for years. If things continue to go well for RTN, it will be difficult, she acknowledges, to maintain that warm and fuzzy feeling.

"I'm running out of friends," quips the 36-year-old entrepreneur and CEO, who recruited many of her 60 employees from the ranks of her acquaintances, some of whom she has known since grade school, more than a few from her days as a student at Fox Chapel High School.

To accommodate its growth, the company is exploring its options for a new facility that Rohe would like to occupy within the next year, allowing RTN to replace its crowded current quarters in U-PARC.

"We're cramped, and we're running out of space," says Rohe. Under consideration are a building in Crafton, the Contraves building in RIDC Park in O'Hara, and new construction at one of two sites in the North Hills


RTN HealthCare Group at a glance


Financing

Rohe and her shareholders didn't tap banks or venture capitalists to launch RTN. "The banks laughed at us," Rohe says, "and the venture capitalists want too much for their money." Instead, they used their sales skills to sell a $600,000 contract to their first client "Our first contract was our venture capital," Rohe says.


Sales to date

RTN racked up $18 million in sales in 1997, plans to hit $30 million this year and expects revenue in 1999 to breach the $100-million mark.


Operations

RTN operates four main business segments, all related to distance-learning activities. The company provides a yearlong schedule of accredited workshops to physicians and other caregivers in the United States and Canada, motivational seminars to corporate customers through its business television group, and programs for public and private-sector clients abroad through its international group.

It also does multilevel advertising and marketing through its broadcasts, a monthly magazine, and the HealthSouth Back To Health Network, a waiting-room channel broadcast to 2 million patients a month in 1,800 facilities owned by HealthSouth. Advertising is sold on the network, including a $13 million package purchased by pharmaceutical giant Glaxo Wellcome.

RTN will produce 54 live broadcasts this year, using studios at WQED. Its plans for a headquarters include four complete studios and the capability to complete all phases of production, including animation, editing, graphics and animation, and amenities for employees such as a gym and a day-care center. Down the road, Rohe envisions the capability to produce entertainment programming and broadcast it over RTN's network.


Sales strategy

RTN seeks agreements with large entities like Beverly Enterprises and HealthSouth, but it will just as readily contract with smaller clients as well, including smaller hospital and rehabilitation systems, where agreements might be as small as $6,000.

Rohe herself often makes personal visits to the larger entities to close the deals, which can be quite lucrative, she says. A package RTN negotiated with the University of Edmonton, for instance, will bring about $30 million in revenue.


Marketing

RTN uses a direct sales force of 14 to identify potential clients. It supports its sales effort with a lineup of marketing materials, including brochures, videos and Caregiver, a monthly magazine supported by advertisers that goes to all of its clients, "to keep our name in front of them," says Rohe.


Market outlook

The need for ongoing training services is growing in the health-care field. More and more, clinicians and administrators are needing additional education periodically to maintain certification and satisfy continuing-education requirements mandated by credentialing bodies.

Competitive pressures require that health-care providers stay abreast of new treatments and therapeutic regimens. Insurance company certification also can be affected by the level of staff education. With the accelerated pace of change within the industry, says Debbie Ference, vice president of educational services for the Hospital Council of Western Pennsylvania, the value of distance-learning is growing.

"The nature of work and the pace of work and technology are changing so rapidly that they really require more efficient ways to provide some of this instruction," says Ference.

Cost and time factors are critical for health-care organizations and professionals, says Ference. Administrators' busy schedules make travel to the council's headquarters in Warrendale, for instance, a time-consuming proposition for some. Programs they can view at their hospitals or nearby facilities are attractive to them.

And the cost of travel and lodging for professionals to attend programs at remote sites can be cut significantly by using distance-learning, making it an attractive alternative to cost-sensitive hospitals and other health-care providers. RTN estimates that sponsors can save as much as 90 percent by using distance-learning instead of off-site programs, with savings averaging 70 percent.

While distance-learning may not be ideal in every instance, such as wher e a clinician may have to demonstrate proficiency in a procedure or treatment, Ference says it has value for many clinical needs and most management questions that face administrators, such as regulatory compliance or financial management issues.

The council, for instance, sees so much value in alternate methods of delivering instruction that it is developing a four-pronged approach to providing distance-learning to its members, including offering satellite transmissions, information available through its Internet site, and interactive audio and video conferencing.


Biggest challenge

Rohe says she is genuinely concerned that the company will get so big that the connection between the employees that has made RTN successful will begin to weaken.

"I think the biggest problem will be to keep it as personal as it is now," says Rohe.

But there are operational considerations as well. RTN wants to perform its own installation of satellite communication equipment at clients' sites so that it can have more control over a part of the business that it now hands over to contractors, who in turn hire subcontractors to do the work.

That, says Rohe, is not the ideal arrangement, so RTN plans to have its own crews handling the installations.

"We've got to get our hands around that," Rohe says. "We've got to have more recourse, so we have better control over the people who go out on site. They make the first impression on our customer."

Monday, 22 July 2002 10:05

Both sides of the street

On its face, a chance for a $1 million-a-year manufacturer to boost sales by 15 percent in a single chunk might sound like a bonanza, but Bill Bajcz (pronounced "Badges") knew it wouldn't be as easy as simply saying yes.

His company, AMS Electronics Inc., with about 40 employees and all of its operations in Butler, is a contract manufacturer of components including circuit boards, cables and finished assemblies for the electronics industry, and supplies parts in quantities from a handful to the truckload. When one of AMS' customers approached Bajcz to take over all of the production of components that AMS and two other suppliers had been handling, he welcomed the opportunity, but knew that he would have to make some adjustments in his cash flow to accommodate the influx of new business.

The customer, based in Pittsburgh, had become disillusioned with two other suppliers and came to Bajcz earlier this year with a proposal to divert that business to AMS. The deal would mean an additional $150,000 in sales for Bajcz's 10-year-old company.

But Bajcz had little faith left that public entities that could help him take on this new business. He had had some fruitless experiences with the local community development corporation, including a loan application for an $8,000 soldering machine that was approved but never closed because, he was told, there was no money available at the time. When he wanted to expand his operations, the local CDC offered to build a new facility that would have cost $5.75 per square foot initially, but increase annually at a rate where his rent would double in 10 years.

So Bajcz decided to tap his banker, his vendors and his customers for the help he needed to take on the extra business.

Bajcz went to his vendors and asked them to extend their payment schedules from 45 days to 60 days. All have agreed to the terms, says the 61-year-old businessman.

Then Bajcz went to his customers and offered them a 1 percent discount if they agreed to pay within 15 days rather than 30 days, an offer that all have taken and has meant that cash flows back faster to AMS.

Robert Kollar, manager of accounting and auditing with Schneider Downs & Co., says offering discounts for early payment and securing an extended payment schedule from vendors can be good ways to improve cash flow, but to do so, solid, trusting relationships with vendors and customers are essential. Some vendors might interpret a request for additional time as a warning flag that you are in trouble, says Kollar. Asking customers to pay sooner could stir their suspicions as well.

Finally, Bajcz went to his bank, the local Mellon branch in Butler and asked his lending officer to increase his line of credit from $35,000 to $50,000. "He said, 'Let's see what Mellon Bank really thinks of AMS,'" says Bajcz, and the lending officer suggested Bajcz increase his request to $100,000. Mellon came back with an offer to extend the line to $75,000.

Bajcz says he's had a good track record with his banker, a factor that allowed him to increase his line of credit. The line of credit he has had with Mellon has been used primarily to finance short-term cash needs, and funds drawn off the account have generally been paid back within a matter of weeks. His strong credit earned him an advocate at the local bank branch who went to bat for him when he needed more money.

Bajcz says he has also developed strong relationships with his vendors and his customers, which helped when he asked for new payment terms. A small manufacturer in Pittsburgh, for instance, asked for the smallest production run possible of a circuit board. Bajcz agreed to manufacture 10, ship five in the first batch and the rest in 120 days. "He called me a dinosaur," says Bajcz.

Bajcz has had some good luck, too. He ended up getting the extra space he needed at a bargain rate. When the owner of the building that houses his current headquarters-a former Kroger supermarket-went belly-up in a bankruptcy, the buyer of the property offered to give him an additional 3,000 square feet in the structure, increasing his space by 50 percent, and reduced his rent by $400 a month.

Kollar suggests that businesses can consider other ways to improve their cash flow. A company that has been in business for several years and is hitting the $1 million mark might want to do a top-down review of expenses. Businesses can look at planned capital expenditures and decide whether or not they can be deferred; they can look at refinancing long-term debt if rates are favorable; and they can determine if they are being aggressive enough in their collections.

While these steps, as well as the ones Bajcz took to strengthen his cash flow, might appear elementary, small-business people don't always think of them.

"Oftentimes, at a small-business level, those things are overlooked," says Kollar.

Monday, 22 July 2002 10:03

The 'doppo' effect

Want to hold on to your best em-ployees? Help them start their own companies.

That may sound like a contradiction, but that's exactly what the MAYA Group, parent company of MAYA Design Inc. and now MAYA Viz, has done.

MAYA Design, a high-tech product design and development consultant, faced the dilemma of how to retain talented professionals while it simultaneously harbored the intent to remain small, according to Peter Lucas, co-founder and CEO of MAYA Design.

Steven Roth, a former employee of MAYA Design who had the entrepreneurial itch, now heads MAYA Viz, a venture between Roth and MAYA Design that develops customized information-visualization applications for organizations that must manage and analyze large amounts of data.

The new partnership of sorts is based on a concept which Lucas came across called a "doppo," a structure used in Japan to form a federation of companies. The ownership of each company is shared by a parent company and an employee who becomes an entrepreneur. Both, then, share an equity interest in the new venture and responsibility for its survival.

The MAYA Group retains controlling interest and helps bootstrap the doppo by providing seed money, physical space, administrative help and, Lucas says, immediate credibility and market recognition.

With the addition of doppos, the MAYA Group will be more able to "sustain higher-risk ventures as we grow," Lucas says.

But the MAYA Group isn't about to spin off new ventures indiscriminately. Each new company must be complementary to the other units with no overlap in functions.

The initial doppo preparation and launch has been a sobering experience for the rest of the MAYA Group employees. "We've made this a very visible and open process," says Lucas.

Discussions about the doppo concept went on for about two years before implementation, and Roth had to develop and submit an exhaustive and exacting business plan.

While some employees remain interested in the notion of entrepreneurship, Lucas says their expectations are realistic. "There's no doppomania around here."

Monday, 22 July 2002 10:03

A costly $200

One of the challenges that turnaround consultant Robert Chastain has encountered in rebuilding Strobel Machine has been to get the company to focus on costs. One event brought home the value of paying close attention.

A replacement part needed for one of the company's shop machines was lost in transit by the freight carrier. The first box arrived empty, and by the time the carrier located the part and delivered it to Strobel Machine, a week of valuable production time had been wasted.

Chastain suggested that the employee responsible for handling the transaction at Strobel contact the carrier and explain that the delay had cost the company a significant sum of money in lost production. As a result, Strobel was able to get a $200 adjustment in the carrier's bill-an amount that otherwise would have come off the machine shop's bottom line.

Chastain says some of the employees looked at the $200 as a relatively small amount of money as compared to the business that the shop generated, but when he put it in terms of how much time it would take for the employee who made the call to generate $200 worth of profit for the company-about a week's worth of work-it took on new significance.

Says Chastain: "I'm trying to emphasize to them to focus on what they keep, not what they make."

Monday, 22 July 2002 10:02

Pittsburgh's Generation "S"

A pair of California boys, former employees of a fast-growth high tech business, leave to form their own start-up software company, land $4 million in venture capital in a few months and kick it off in a middle class suburban office park complex a stone's throw from their old employer.

Sounds like the Silicon Valley, right?

Could be, but in this case, it's playing out closer to the Ohio Valley, more specifically, in the North Hills of Pittsburgh.

David Nelsen, 38, and Andy Fraley, 34, two former employees of FORE Systems and now partners in CoManage Inc., are striking out on their own to develop software intended for a segment of the telecommunications industry that they expect will experience explosive growth over the next few years. They plan to be at the head of any pack of software companies that decide to jump into this emerging market, and they've lined up the money to do it - and they won't ship their first product, a piece of software that could sell for as much as $1 million a copy-until late next year.

Heightening the anticipation is Adams Capital Management, the venture capital fund providing $4.2 million in start-up money, a group of investors who do only a handful of the hundreds of deals that they look at each year.

"We are funded, now we are moving as fast as we can to find the right people," says Fraley.

Perhaps more importantly, though, the prediction that the region's economic development hopes would be fulfilled by the entrepreneurial seeds sown out of lush success stories like FORE Systems appears to be taking shape. That process appears to be gaining momentum, approaching the critical mass that economic development experts say is so crucial to sustaining such growth. Companies such as CoManage are at the forefront of the procession, attracting heaps of capital from eager investors and breaking into new markets that have explosive growth potential.


The market

Companies such as FORE Systems have developed high-speed communications networks called wide area networks for voice and data communications based on asynchronous-transfer-mode technology. Corporate owners of such networks have decided they don't want the headache of managing them and are welcoming the opportunity to hand them over to outside contractors.

Industry deregulation has opened the market, and as a result, thousands of telecommunications companies, including Internet service providers, cable companies and competitive local-exchange carriers, are getting into the management of such networks.

The opportunity that Nelsen and Fraley see is in developing software to for the service providers which allows them to manage emerging services offered on these huge, complex networks. That is, the software is designed to solve hardware and software problems, calculate billing for network use and determine what kind of actions are necessary to restore the "health" of a network in the case of a failure. In effect, as Nelson describes it, the software offers a "window" into the network.

"This is a relatively small market, and very few people have built management solutions for this yet," says Nelsen. "But this is a very rapidly growing market that will worth billions and billions of dollars over a short term, like five years."

Ironically, there seems to be scant chance the big players will pull the market out from under CoManage, Nelsen says. In their experience, some of it gained at FORE Systems while their former employer considered - but ultimately abandoned - the idea of developing a product similar to what CoManage is proposing, the big companies don't yet have designs on this niche.

"The threat to us is there's somebody out there that looks exactly like us, is well funded, and growing quickly, that will emerge to be a player in this market," says Nelsen.


Of moons and money

While some ventures take years to get off the ground, often for lack of funding, Nelsen and Fraley seem to have pulled off CoManage's launch in a wink. But in many ways, the partners were able to strike while the iron was hot, increasing their chances for success on every front.

"The moons were really aligned well for these guys," says Frank Demmler, vice president of venture development at the Enterprise Corp. of Pittsburgh, a nonprofit entrepreneurial assistance organization that gave Nelsen and Fraley advice early on, helped them with their business plan, and provided them with a conduit to potential funding sources.

Demmler's not suggesting that CoManage has gotten off to such a quick start because of some astrological phenomenon, but a confluence of conditions has made it easier for Nelsen and Fraley to put the wheels in motion.

For one, the venture capital market is flush with money looking for promising deals to fund. Venture capital funds in recent years have enjoyed huge inflows of capital from institutional investors looking for high-growth investments. In 1991, for instance, there was about $1.4 billion in the venture capital pool nationally. For the past two years, funds available have exceeded $12 billion.

Second, while they are first-time entrepreneurs, Fraley and Nelson logged critical experience during their tenures at FORE Systems.

"There's nothing that substitutes for successful experience in an entrepreneurial environment," Demmler suggests.

Nonetheless, the fact that Nelsen and Fraley have been able to land the amount of investment capital that they have is nothing short of remarkable.

"You would be hard-pressed to identify other first-time entrepreneurs who are successful in raising that kind of capital locally or even nationally," says Demmler. "Clearly, the FORE pedigree was instrumental in their raising that capital."

Beyond the impressive resumes Fraley and Nelsen have compiled, they are jumping into a market which they and their investors say has staggering growth potential.

"CoManage was attractive because the telecommunications market is growing rapidly and undergoing rapid change," says Bill Hulley, a partner in Adams Capital Management, which championed the deal with CoManage.


Getting the bug

Nelsen got the entrepreneurial itch almost as soon as he walked through the doors at FORE Systems. A headhunter had courted Nelsen, a Stanford University graduate who was working at AT&T as a product manager and network architect, on behalf of FORE Systems. Nelsen decided to investigate the company as a potential partner in some of the things he was involved with at AT&T. Once he got a taste of the then-small company, he was seduced by the entrepreneurial atmosphere and left the telecommunications giant.

"When you get inside a small company like FORE and you see the energy and opportunity and the excitement, it's different than what a large company can offer," Nelsen says.

That experience prepared Nelsen in a critical way for entrepreneurship, giving him a taste of handling multiple responsibilities in a business environment changing almost daily.

"When you're in a big company, you usually don't have a whole lot of insight into what's happening," says Nelsen. "You know a whole lot about one little area."

Fraley, a native of the Reading, Pa., area, had gotten a taste of entrepreneurship at a tender age. His father, a physicist at Bell Labs, exposed him and his brother to computers when young.

"Early on, we were writing things like games for the Commodore," Fraley recalls. The brothers amassed their skills quickly, and eventually had their own contracting company, doing projects for a company that developed medical applications. It should come as no surprise, then, that the entrepreneurial allure of FORE Systems was enough to draw Fraley away from a job in Sacramento with Hewlett-Packard, where he worked for eight years.


A picky investor

Fraley and Nelsen courted a number of potential investors before settling on Adams Capital Management, a group suggested and introduced to them by Mark Juliano, a FORE Systems alumnus who l aunched ISLIP Media. The Adams Capital offer, which put two of the venture fund's partners on the CoManage board, was the best.

"It was a simple, straightforward deal," says Nelsen.

But it went deeper than simply the investment Adams Capital was willing to make in CoManage. The business knowledge, contacts and experience which the investors offered was value-added for the new company. "It goes far beyond the money that they bring to the table," Nelson says.

Indeed, Adams Capital has experience with high-technology companies, mostly involved in telecommunications, medical and information technologies. Its portfolio has included Scalable Networks, a start-up that was acquired by FORE Systems, Dell Computer Corp. and NetSolve, a network management company.

Hulley says the fund sees 800 to 1,000 proposals a year but does only four to six deals. Adams Capital looks for early-stage companies that have the potential to reach No. 1 or No. 2 in their industry and can "present a compelling value proposition to the customer," Hulley says.


FORE times two?

High-technology proponents in Pittsburgh have long been preaching the mantra of the multiplier effect which successful high-tech start-ups can have for the region. With the kind of launching capital and human resources CoManage is mustering, there is good reason to believe that this venture has the potential to mushroom into the region's next smashing success-the kind of prospect that gets the juices of venture capitalists going.

The principals have worked for large, mature companies in the telecommunications field as well as for FORE Systems through its own high-growth phase. And they won't be stymied by a shortage of capital, or by any notion that other software management solutions may already exist in their niche.

"Dave and Andy are prototypic for us in that they have a fair amount of experience in their field, they're first-time entrepreneurs and the know what they can and can't do," says Hulley.


Power hitters

For entrepreneurs in the high-technology field, FORE Systems is an example of a grand slam. When Fraley and Nelsen joined FORE four years ago, the privately held company did a shade less than $25 million and employed about 100 people. Now, FORE is a public company with 1,500 employees approaching $500 million in annual revenue.

While FORE Systems is far from a run-of-the-mill start-up, it's not out of the question to think that CoManage could signal the beginning of an era of successful ventures spawned by FORE Systems and, perhaps later, by companies such as CoManage. In fact, Nelsen has every expectation that CoManage will spin off additional entrepreneurial efforts.

Demmler says companies such as FORE Systems, fast-growing businesses that attract highly skilled professionals to work in an entrepreneurial environment. will inevitably produce new ventures.

"Companies like FORE will ultimately create some number of spin-out companies," he says.


Fast out of the box

As baseball players avoid mentioning the possibility of a no-hitter after six or seven hitless innings for fear of jinxing the pitcher, no one involved is talking about CoManage as the region's next FORE Systems. But the thought can't be far from their minds as CoManage, in much the same manner as FORE Systems did in the late 1980s, leaps into a nascent industry in anticipation of making itself the market leader.

This start-up won't be without its challenges, however. While money isn't a problem, they know that hitting the company into the high-tech field's bleacher seats will depend on how successful they are at attracting the talent needed to develop the software product that promises to fill the company coffers.

Nelsen and Fraley have worked at a breakneck pace to get their company started, and so far, it has paid off. Barely four months after leaving FORE, the region's most spectacular high-technology success story, they dropped their business plans on the doorsteps of a number of venture capital funds and convinced Adams Capital Management to fund a product they have yet to develop for a market in its infancy.

"This is a huge market, and there are potentially many customers for the technology that CoManage is building," says Hulley.

But in the fast-moving high-tech marketplace, Nelsen and Fraley know that getting a product to market which will satisfy that customer is crucial. Says Nelsen: "Time to market is key for us. These opportunities that are created don't last forever."


Getting human capital

If there is a factor that could restrain CoManage's growth, it will be its ability to attract talent to complete the development of its product.

"Ultimately it comes down to being able to build a team of software engineers," says Nelsen.

High-technology companies these days fret loudly and continuously over the difficulty attracting qualified talent to their organizations. Nelsen is no Pollyanna when it comes to the situation his company faces, but he believes the Pittsburgh region offers some key advantages that will work in CoManage's favor.

"I think it's somewhat of a challenge for everyone in the industry today," Nelsen says, "but there are several nice things about doing this sort of thing in Pittsburgh. Generally, when people do join your company, they stay with a company longer than might be normal in the industry."

"The biggest problem we had at FORE was getting people," says Fraley. He should know. During his tenure at FORE Systems, his department zoomed from 15 to 125 people. He and Nelsen were responsible for hiring, and know what a challenge that might be.

"In recruiting candidates, the toughest thing is getting them to come to Pittsburgh," Nelsen says, but adds he believes the relatively low cost of living in Pittsburgh, the numbers of technical people coming out of local universities, and the overall quality of life will help them attract and retain the right talent.

But the founders' high-tech contacts, combined with a recruitment strategy that includes classified ads and pitches on its to-be-developed Internet site, should give the fledgling company a good shot at attracting the kind of talent it needs. The company, for instance, has attracted Fraley's brother, a Carnegie Mellon University graduate who worked on several high-profile projects at MicroSoft and who no doubt will serve as a prime source of industry contacts.


The ripple effect

Ultimately, the creation and growth of businesses like CoManage mean more jobs for the highly skilled and highly compensated technical employee.

"You create jobs in one of three ways," says Ray Christman, president of the Pittsburgh Technology Council. "You want to see new businesses start, you want to see existing companies grow and, finally, you would like to see technology companies invest in this region."

The growth of entrepreneurial ventures that spawn other businesses leads to job generation and the development of a critical mass that keeps the business-creation cycle going, says Don Smith, executive director of the center for Economic Development at Carnegie Mellon University.

A vibrant high-technology community, he says, will attract other companies to the region, generate new businesses and make the community attractive to highly skilled professionals who can fill the jobs that are created and, in some cases, start their own companies. If that paradigm is valid, then CoManage holds the promise of contributing significantly to the process.

Clearly, Nelsen and Fraley see the possibility that their own venture, even if it doesn't reach the peak their former employer has scaled, can be the springboard for other entrepreneurial ventures.

Says Nelson: "Hopefully, some day people will be leaving our company and starting their own companies."

Monday, 22 July 2002 10:01

Tom Certo

There’s not a lot of flash or dash to Gemini Holdings Inc., at least not a lot that meets the eye.

Nonetheless, Gemini Holdings has accumulated an impressive lineup of businesses in a short stretch of time and plans to grow them substantially this year.

“We think we built a nice, solid group of companies in 1998,” says founder and CEO Tom Certo.

Launched in 1997 by Certo and four other entrepreneurs, Gemini Holdings has acquired two companies in the laundry supply business and formed USA OnRamp Network Integration Corp. and Leasing Capital Equipment Corp. Gemini Holdings also acquired Pittsburgh Applied Research Corp. last spring.

Gemini Holdings sees its biggest opportunities in 1999 with PARC and the laundry supply ventures.

PARC, says Certo, has been able to solidify relationships with companies such as Mobil, attract project contracts with other major players in the petroleum industry and land a lucrative long-term deal with engineering and construction giant Bechtel Corp.

To make its services more attractive to potential clients, Gemini Holdings has invested in a remote on-line data-access network, facilitated by its ownership of USA OnRamp Network Integration, that allows PARC clients to access research data on a nearly real-time basis.

“One of the glaring deficiencies [at PARC] was the inability to provide expedient results to the client,” says Dave Gilpatrick, Gemini Holdings’ chief operating officer.

Certo says the laundry supply industry is ripe for consolidation, with many companies operating in rather limited geographic areas, often under family ownership. Many, he says, are strong players in their respective markets, but may lack the resources or expertise to grow their businesses to the next level.

To prepare for acquisitions, Gemini Holdings has formed USA Clean, a company that manages its two laundry supply companies, including Pittsburgh’s Carman Supply & Equipment Co. and Havnaer Supply & Equipment Co., based in Virginia. With the two or three acquisitions it intends to make this year, Gemini Holdings plans to build its laundry supply business from $12 million-$15 million in annual sales to an operation pulling in $60 million-$75 million a year doing business in as many as 15 states east of the Mississippi.

Not a lot of flash or dash, but potentially, some serious cash.

Monday, 22 July 2002 10:01

Larry Strobel

Larry Strobel didn’t think Strobel Machine Inc., a machine shop his father, George, founded in Worthington, Armstrong County, in 1946, would make it to the year 2000.

On a couple of occasions, Strobel had reason to believe the company wouldn’t make it through the next payroll period. At one point, he had to lay off his own son, and advised him not to expect to come into the family business because it probably wouldn’t survive.

Today, Strobel Machine is looking at a much brighter future, now as a leader instead of a faltering follower.

The reversal of Strobel Machine’s fortunes began in 1997, when Larry Strobel asked Robert Chastain, a lawyer and consultant who has worked in turnaround efforts for family businesses, if he thought he could help the ailing company. After a review, Chastain agreed to take on the project and virtually took over the strategic management of Strobel Machine.

When Chastain arrived, Strobel Machine had just $600 in the bank and was facing a $2,800 loan payment on new equipment. Larry Strobel, who acknowledges his business savvy wasn’t nearly as strong as his mechanical engineering skills, had come up short as a manager. With strict financial management measures, personnel changes and renegotiation with a key creditor, Chastain helped Strobel Machine get back on its feet within a year.

Now, Strobel Machine has spun off a new business, a computer company to handle fiber optics, computer networking, Y2K problems, Web site design and electronic commerce. It’s working on building a network of small machine shops that will participate in a parallel manufacturing effort, bringing together a dozen or more shops to make replacement parts for the coal mining industry, with orders distributed based on factors including capacity available at each site and machining specialty.

Strobel Machine’s recovery has earned it recognition by the state as an Advanced Technology Company, qualifying it for a $300,000 low interest equipment loan from the Manufacturing Equipment Loan Fund. The company also won the 1998 Staples/Hammermill Small Business of the Year Award, a national competition sponsored by five large companies to recognize the efforts of small businesses.

But the most important reward for Larry Strobel may be the knowledge that his company can survive into its third generation. His son is due to be discharged from the Navy this month, and Larry has invited him to come back to work in the family business.

Monday, 22 July 2002 10:01

Christine Rohe

RTN is not a household word. Yet.

Launched by CEO Christine Rohe, her sister and a friend, RTN sold a contract for $600,000 to its first client in 1994 and by 1998 was on track to post sales as high as $30 million.

The company continues to play to its strength producing educational programming for distance-learning programs, and for 1999, RTN is poised to break into new markets. One new venture slated for this year, Fashion Forward Network, is aimed at cosmetology professionals. A second, Sports Education Network, is tailored to scholastic and collegiate coaches, student athletes and their parents.

The company’s biggest challenge will be to continue taking advantage of opportunities while effectively managing its growth. RTN is planning to identify a new corporate headquarters site, where it will take all of its production facilities in-house under one roof.

For Rohe, the challenge will be to retain a sense of being connected to her employees, whom she credits with much of RTN’s success, as the company grows. Rohe realized how quickly the company was growing when she noticed many of the more-recently hired employees, unlike early hires, were unfamiliar to her. She decided to bolster her relationship with the newer people by having lunch occasionally with different departments.

Rohe started RTN largely because she thought she could do a better job providing distance-learning services by satellite transmission than a former employer. The company, which got off the ground providing instruction to medical professionals and fueled its early growth by landing agreements with large firms including HealthSouth Corp. and Beverly Enterprises, has expanded its programming to include seminars and instruction for business professionals.

Last year, it inked a deal with the Hospital Council of Western Pennsylvania to co-produce instructional programming for the organization’s members.

With the kind of growth RTN experienced in its first five years, perhaps Rohe should consider an instructional network for entrepreneurs.

Monday, 22 July 2002 10:00

R&D ramp-up

searchable "

Charles Popovich, professor of marketing at Robert Morris College and a business consultant, tells the story of an entrepreneur who had what he thought was a hot idea. The inventor had come up with a feeding nipple that could be filled with medications and stealthily administered to infants, who spit out substances that don't taste enough like mother's milk or formula.

At first blush, Popovich thought the product might have merit. After investigating, however, the idea collapsed.

The inventor's brainchild, it turned out, would have to be refrigerated to preserve the integrity of the medications. Questioning health care providers revealed that nurses know a simple, yet effective, method of coaxing infants to swallow things they otherwise might not, which involves pinching the baby's nostrils to trigger a swallowing response. Finally, the cost of manufacturing would have pushed the product's price above a point that anyone seemed willing to pay.

According to Popovich, the inventor in question isn't unusual. Too often, he says, product developers become so enamored of their ideas that they fail to do the research needed to determine what the market needs, if a product has genuine commercial potential and the essentials of marketing.

""The big thing they don't know how to do is understand target marketing and market segmentation,"" says Popovich.

Thanks to the Manufacturing Growth Initiative, a new program at the Southwestern Pennsylvania Industrial Resource Center, entrepreneurs now have a potentially better way to develop products and find markets for them.

The Manufacturing Growth Initiative is being launched with the help of a $500,000 grant from the Howard Heinz Endowment. The grant will help offset SPIRC's normal $75-an-hour consulting fee.

Petra Mitchell, project manager, says the program's goal is to help companies develop design tools, reorganize and restructure their product and market development, find resources for technical services and implement better practices in their design activities.

""While companies have been developing new products, they haven't been doing it very efficiently or very effectively,"" says Mitchell.

This is SPIRC's first foray into offering a service that integrates product development and marketing into a more efficient system. SPIRC will help companies develop a structure for product development and marketing that will streamline and improve those functions in much the same way its consultants have helped manufacturers identify needs on the shop floor and come up with solutions that improve those processes.

By the end of the two-year program, Mitchell says, SPIRC expects to have a fully developed model which describes all the steps companies should follow as they go through the product development and marketing processes. At that point, says Mitchell, the program should be sustainable through consulting fees charged to client companies.

SPIRC is identifying companies to work with in the program. Businesses fill out a questionnaire. A SPIRC consultant then meets with company officials to determine whether the firm is a good match for the program.

""We're looking for four or five companies that are really interested in a significant change in the way they approach the marketing and development process,"" Mitchell says.

SPIRC has begun to work with a handful of companies under contract and will look at another 15 or so during the early part of this year.

One company which SPIRC is working with, Mitchell says, is a manufacturer of a made-to-order product. The company, which doesn't have a project management process, wants to develop an off-the-shelf version and is doing basic research in Europe.

The company's leaders are considering bringing the product development phase to the United States because of the potential market, but are concerned they won't have the management structure in place and costs will be excessive. They have asked SPIRC for assistance in market research because they have yet to do a market analysis.

And that, according to Popovich, is the first principle of marketing.

""If there's one thing I pound into my students, it's doing the research.""

For more information about the program, contact Petra Mitchell of SPIRC at (412) 687-0200, ext. 265.

"
Monday, 22 July 2002 09:59

Boomers create the booms

Volkswagen must have smelled a winner when it decided to market an updated Beetle for the 1990s. The car garnered a long waiting list of customers before it hit the showrooms, and sales seem strong for the car that harkens back to the ’70s version of the successful “Bug.”

Not to be outdone, Ford Motor Co. recently revealed it would market a sporty version of the Thunderbird, not a reprise of the bloated version of recent years. Other companies are resurrecting old names and models, many with styling cues that recall dated designs.

Never let it be said that the auto companies don’t recognize a lucrative trend when they see one. I, on the other hand, would have trouble spotting one on a 98-inch high definition television screen.

Which brings to mind a suggestion I made to my friends when I was a teen-ager: I predicted car companies could make a bunch of money by reproducing some of their classic designs, such as the Chevy Bel Air or the Mercury. My buddies laughed, at the time with good reason. There were still plenty of Chevys on the road, and heck, what could be cooler than an Impala SS with a 396-cubic inch V-8 engine?

A lot of guys my age have made a few discretionary bucks and long for the toys of their youth, like 30-year-old hulks of chrome and glossy lacquer. As a result, the baby boomers, who by their sheer numbers have distorted just about every aspect of American life, have created a demand for things like reproductions of classic cars. I heard a while back that a company was indeed going to come up with a copy of the Bel Air, and I’m quite certain its target market isn’t 18-year-old males in ball caps and roomy shorts. My idea, in retrospect, wasn’t so crazy. It was just a little ahead of the curve.

I also remember cooking up the idea in the 1970s for the quick oil change station. I envisioned a drive-through garage with automated equipment that would meter just the right amount of oil into each engine’s crankcase and get you out the door in 10 minutes or so. In all, my idea was pretty close to what Valvoline and Jiffy Lube have put on just about every corner of the suburbs.

At the time, though, I figured no one would pay what it would cost to deliver such a service. Now, every couple of months or so, I take my minivan in for a $25 oil change and a chafing reminder that I didn’t have much confidence in my own ideas. I mollify my regrets by telling myself that the oil companies probably had the idea before I did, but just didn’t tell anyone about it. I told people about it but didn’t do anything. That’s the difference between an idea and a fortune.

One of my enduring passions is music, more particularly, playing the guitar. Anyone who knows a guitar player knows that most are knock-down drag-out nuts for instruments, particularly old classics. A story in the Wall Street Journal a few years ago described how excess cash in the hands of well-heeled baby boomers had soaked up a lot of the vintage guitars and driven prices out of sight, unfortunately for the working musicians.

The draw for collectible instruments is so powerful that at least one guitar manufacturer has found it lucrative to produce customized versions of its ’50s and ’60s models, complete with pitted chrome parts, cigarette burns, chipped, dull paint, yellowed plastic and grimy fingerboards. And they are charging — and getting — about twice the price demanded by the standard off-the-line model.

I’m convinced baby boomers aren’t likely to reverse the attitude that the way to bring joy and meaning to life is by acquiring the objects of their desire or reasonable facsimiles of the same. With that in mind, I’ve focused on discovering what might be the next fad my generation embraces with passion enough to make me rich if I’m in the right business, at the right place and at the right time.

Of course, I’m not going to reveal any of those notions. I’ll say that it’s not going to have anything to do with leisure suits, platform shoes or the Ford Pinto. If I’m successful, I plan on letting the whole world know the same way any self-respecting baby boomer might, by spending every spare moment driving around town in a Chevy convertible with a battered guitar case across the back seat, looking for a place to play. Ray Marano, associate editor of SBN, may not reveal any of his retro-fads, but he is saving space on his office wall for a reproduction velvet Elvis. Enough said. Reach him at rmarano@sbnnet.com.