Ray Marano

Monday, 22 July 2002 09:51

Showdown!

For better or worse, Allegheny County is about to enter an entirely new political era that could make or break the region’s lagging business climate.

Gone will be the county’s outdated three commissioner system and, as some might suggest, the old-line Democratic machine that drove it. It was a system marked by a few successes, such as the building of the airport, but marred by unrelenting political infighting, strange alliances, cronyism and patronage.

Terms such as “embarrassing” and “disgrace” are bandied about almost casually by some to describe county government in recent years.

Now, the county has been granted that rare opportunity to change its ways. And that means a chance to catch up with the rest of the country in terms of economic development and prosperity.

But politics is politics, and the future of this region, unfortunately, will be determined by the tenacity of the political leaders vying for the new position of county executive.

On the Republican side is James Roddey, a consummate businessman, entrepreneur and everyman’s board member who views himself as the political outsider in this race. And in some ways he is. He’s never run for political office, and his resume includes such well-placed leadership positions as president of Turner Communications Corp. and Rollins Communications Corp.

He shares in the ownership of — and helps run — a handful of successful small companies in the region. And you would find it easier to figure out on which local civic boards he hasn’t served.

But make no mistake: Roddey is as much on the inside as any elected politician — for behind every elected official are strategic players orchestrating their campaigns.

He has been an influential force for local Republicans, chairing more than one statewide election and serving as a delegate to the 1988 and 1996 Republican National conventions.

On the other side, is County Coroner Cyril Wecht, a card-carrying member of the old-line Democratic machine. Without question, he’s a working man’s scrapper who won’t run from a good fight. And he has the credentials to back him up.

As a lawyer, doctor, politician and world-renowned forensic pathologist, he commands a high level of respect. He’s well-connected politically across the state.

Clearly, this race is, in many ways, a cut-and-dried contest of contrasts: Republican vs. Democrat, businessman vs. politician, white-collar attitudes vs. blue-collar. But change is the order of the day.

How either will effect change in the government, and, ultimately, in the region, will determine how prosperous this region becomes. Do they each have a vision and a plan to bring that vision to life?

The following interviews give some insight into such change, if, in fact, they believe change is necessary. Then it’s up to you. We hope this helps you make the right choice. But keep one thing in mind: This is only the beginning.

James Roddey

Five years ago, you said that, while you actively work behind the scenes in local Republican politics, you would never get involved in running for political office yourself. Now here you are. What changed your mind?

In those days, I didn’t envision that we would have a home rule charter and that we would have a single county executive. As I’ve surveyed the political landscape, running for mayor was pretty much an impossibility, with a 6-1 or 8-1 disadvantage of the registration. I had no interest in going to Washington and no interest in going to Harrisburg, and, quite frankly, no interest in being one of three county commissioners.

But as I worked on home rule and worked to get that passed, it became apparent that a single executive could make a real difference in providing leadership, so that’s why I got interested.

Why is that different than having three commissioners?

Well, you always have to have a partner in making any decision. Sometimes it’s one partner and sometimes it’s another partner, which means it becomes very political. You start trading. One partner wants something, so, “OK, I’ll go along with you on this vote, but I want you to vote for something else.” It just doesn’t lead to efficient government.

Let me say what this hasn’t done for us. This community has not been very competitive in the last five years while the country has enjoyed its greatest economic boom in history. Allegheny County simply missed that boom.

We missed it because we never had a consensus in the community of what our vision of this region should be. We didn’t have any focus on what we were trying to do. We had no plan. If you don’t have vision, you don’t have focus and you don’t have a plan, then you don’t have leadership.

One of the key qualifications of leadership is to provide all of that — to create a goal, to create a vision, to put together a plan and execute it and keep everybody focused on the plan.

If we haven’t had a plan, what have we had?

We’ve had confusion. We’ve had bickering. We’ve had fighting. We’ve had one group pitting their interest in one group against another, constant turmoil in the county government and with the city. It’s remarkable that we’ve progressed as much as we have considering that we really never had the kind of leadership we should have had.

But we have marvelous resources here, resources that are certainly beyond the scope of other cities that we would consider our peers or our competitors — places like Cincinnati, Columbus, Ohio. They’ve really gotten ahead of us in creating jobs and in development and attracting companies. And they’ve done all these things with far fewer resources than we have.

Now, back to the original question, why are you stepping forward?

I think it’s time that I step forward and try to provide the kind of leadership we need to take us into the next century. My public and community career has been based on solving problems, whether it was at WQED, the Port Authority, or the Regatta, I’ve often been called in to fix a problem, and we’ve got big problems.

I came to the conclusion that, No. 1, there was a need for somebody to step forward, and, No. 2, I could win. And No. 3, it’s something I want to do. I care a lot about this community. It’s been good to me.

I’ve been here almost 21 years. I’ve had successful businesses. I’ve had a good business career. I’ve had very fulfilling community experiences. And I’m frustrated that we aren’t doing better, that we aren’t realizing the potential of this region.

I think there are some very basic things we need to change, and I think I can change those. I don’t see my opponent really making any significant change. So that’s why I’m running.

What portion of your time as county executive do estimate would be spent on economic development activities? What kinds of activities will you pursue?

First of all, the Home Rule Charter mandates that we hire a county manager who will run the day-to-day business of the county. While I would be involved in policy decisions and certainly involved in decisions about hiring key positions, I would let the county manager run the business of the county.

I would think certainly that in the first four years, economic development would probably consume 50 percent of the activity of the county executive. It’s the No. 1 issue, it’s the No. 1 need, and it should be the No. 1 activity of the county executive.

Now, economic development encompasses a lot of things. It encompasses development of the airport, and it involves creating resources to work with, so we’re going to have to make government a lot more efficient

I know it’s a radical idea to suggest to politicians that we should have business discipline and business sense in government. But when I talk about business and government, I’m not talking about making a profit. I’m talking about setting goals, making people accountable, expecting people to show up for work and put in a full day’s work, and expecting people to treat the citizens of Allegheny County like customers, which would certainly be a novel idea.

As the first county executive, your actions would, to some degree, set precedents for those who hold the office in the future. Of all the things you would be responsible for, what would be your priorities?

Fixing the assessment system is a very high priority. We have a Third World assessment system. It’s an embarrassment, acknowledged as the worst system in the commonwealth and perhaps the worst in the country.

It’s politicized. It’s not professional. It’s unfair. So we’ve got to fix that.

Getting the property tax lowered is very high on the list. We can’t be competitive in this community unless we get our property tax lowered. But in order to do that, we’ve got to cut the cost of government. We’ve got to make government more efficient. That’s all one package to work together.

What ideas to spur e)conomic development would you most like to implement?

First of all, we have wasted six years at the airport. We’ve had really no meaningful development there. We have a wonderful airport, and we were promised 20,000 jobs. After six years, we don’t have any more new jobs at the new airport than we had at the old.

This year, they broke ground for a hotel at the airport. Every airport in America has a hotel. It’s as if we didn’t know we needed one. We just got around this year to tearing down the old airport after six years, as if we didn’t know that we needed to tear it down. And probably the most revolutionary idea of all is we’re going to have a gas station at the airport.

The airport is a good news/bad news story. It really represents a triumph in government in getting the airport built and a failure of government in having zero development out there. So that’s No. 1. I think if we can complete an air cargo facility, industrial parks, office complexes, I think we can do a lot of economic development right at the airport and on that property.

Beyond that, I think we need to look at some of the disadvantaged areas of this community. There’s a project going on in Homestead that represents about a $300 million investment. I think projects like that in other areas of the Mon Valley could be very, very important to us.

We need to create tax-free enterprise zones to encourage businesses to come in and utilize available property. If I know how to do anything, it’s marketing. I certainly would make that sort of the centerpiece of our economic development effort — that we market the region in an intelligent way.

My assumption is that your main focus would be on marketing, once you’re done changing infrastructure. Does a lot of this come down to being an effective marketer, whether it’s marketing the resources we have or drumming up enthusiasm for the region?

That’s true, but it’s more than just being a cheerleader. First of all, you’re correct in your assessment. We’ve got to sell, and we’ve got to sell ourselves first. Everyone within the community has got to feel good about what we can do together. We’ve got to build a consensus.

We really have never gotten all of the interests in the community together. We’ve been fighting among ourselves. We need to let the rest of the world know about our resources.

Everything is marketing. You’ve got to sell people on ideas, on creativity. But we can do it.

Allegheny County, while a distinct political entity, is indisputably the hub of the region. How would you balance your role as Allegheny County executive with that of a key representative of southwestern Pennsylvania?

You can really divide the job into two areas. Delivering services is Allegheny County’s responsibility, and we’re really not concerned about going across borders. We’ve got to be sure everybody has adequate fire and police and garbage disposal and that we have good transportation, that we have a good health and human services network.

Economic development is the region. If we bring another Sony in and it locates in Beaver County, that’s going to be a win for the region. That’s going to help Allegheny County.

If we bring enough companies in, if we have enough economic development going on in the region, we won’t have to worry about Allegheny County. We’ll get our share, but we will always be the hub.

What is your opinion of the efforts by the Pittsburgh Regional Alliance to increase visibility of the region? How would you complement or improve its efforts?

I think the concept is good, and I think it’s the correct concept to bring organizations together under one umbrella to do the marketing. I’m sure we have all of the organizations under the tent as securely as we need them. There seems to still be some division of effort.

Secondly, I think they got a very slow start for a variety of reasons, trying to build a consensus, trying to break down some of the barriers between some of the fiefdoms that exist.

Their plan is a good plan. I think the plan has a great deal of merit. I think they’ve identified what the problems are, and I think they understand what needs to be done. The big problem is resources. They don’t have enough money to execute. The plan as they have presented it now will be very minimal. Really, we need more resources.

What would you say has been your greatest success and failure to date?

I’d have to break it down into several categories. I’ve had great business success with several of our businesses. Probably Star Cable represents a real business triumph. We’re in the process of possibly selling Star Cable, and it’s certainly going to sell for a whole lot more than we put in it when we started.

We had a great success with Pittsburgh Outdoor Advertising. I think we paid $13 million and sold it in three and a half years for almost $35 million. So that was a success.

In terms of public, I think the Port Authority, where we had a $22 million deficit and a horrible, horrible patronage system and were losing $2 million a year; we turned that around, balanced the budget and eliminated patronage. It was tough.

Now for failures. If you go back all through life, I failed to make the Olympic team. I ran track for a good part of my life when I was young, and that was a big disappointment. I thought I had a shot [in the 400-meter hurdles] and was not able to do that.

I’ve had some business failures, but I don’t know that anyone is good at listing their failures. I probably have some enemies who could do a much better job.

Why should people vote for you?

Because I don’t need the job. Therefore, I can do what’s right. I don’t have to worry about getting re-elected. I don’t have to surround myself with political cronies, make promises I can’t deliver, or appoint people to things because they made contributions.

I’m not looking to build a political career. This is about fixing the problems of the community.


Dr. Cyril Wecht

What portion of your time as county executive do you estimate would be spent on economic development activities? What kinds of activities will you pursue?

I can’t give you an idea about percentages. That’s a fascinating question. I would say this, that there’s not an awful lot that doesn’t come eventually back to economics in government. You talk transportation, you talk of bringing in new business, you talk about developing new programs to permit people to provide vocational skills so that you’ll have that kind of work force.

Everything comes back, perhaps, to the dollar bill and the purse. So you really have to define that more, but I think I understand what you’re saying — matters that are more closely related to what I would call hard economics. Obviously, it’s a very, very big part of what you do, but I can’t give you a percentage. And of course I’ll never function that way. It reminds me of when I used to be quite a good violinist in my younger days. I practiced four hours a day, and six on Saturday and Sunday. I had a rigorous schedule, so much time for scales, so much time for etudes and so much time for other things. But I can’t do that with government. You’ll take it as it comes and you’ll deal with what you must. But economics will be the No. 1 matter.

As the first county executive, your actions will, to some degree, set precedents for those individuals who hold the office in the future. Of all of the things you would be responsible for, what would be your priorities?

The number one thing is to strengthen and stabilize that which is here — to make certain that we can do everything possible to enhance the businesses that exist. Since it’s my understanding that probably of all the businesses in America — maybe 70 percent are what would be characterized as small businesses — that obviously includes to a very substantial degree small businesses. So when we talk, as I do and everybody else does, about bringing in new businesses from elsewhere in America [and] from abroad, we talk about what we can do to help these people, about taxes, financing, other special accommodations we can offer.

I have said repeatedly all that is good and necessary, but first, before I go hustle the ABC Widget Co. in California to build a satellite operation here, I want to see if we have a widget company already existing and make sure that we’re not intruding upon them. It’s very easy sometimes to be attracted by the face and figure of a new secretary, but you have to remember that you have a wife that’s been around for a while. So you’ve got to remember the people who’ve been loyal to the community, have produced for this community, given of themselves and so on. I think that their needs must be addressed first.

Also, I would want to find out from them what we need in that particular field of endeavor. Are they capable of doing that or are they interested in doing that? Do they plan to stay in business? Would they like to be complemented by the acquisition of a similar business and so on. Think of restaurant clusters. You would think, perhaps, that wouldn’t it be better to have your restaurant all by itself somewhere. Well, it seems that in some locations you have a whole bunch of them. This person likes Chinese food, that one likes Italian food and this one just wants a deli sandwich. Maybe it’s good to have these clusters and spin-offs. I intend to find out from the appropriate agencies, organizations and individuals, through the grapevine and so on, who’s out there, who’s looking to expand, who’s looking to come east, who abroad is interested in coming to America. I intend to utilize business people to the greatest extent. They would be the major component of what I refer to as teams, ambassadors without pay, that I want to have help me do these things.

It’s obvious then that business people will be the key people. They won’t be the sole members of the team; we want to have appropriate individuals who can address the questions the entities elsewhere will have. So we’re going to have appropriate representation, but we’ve got to have people who know and understand business, who talk the language and appreciate economics.

What ideas to spur economic development would you most like to implement?

I think growth and development has to be the No. 1 priority. The development of rapid mass transit has to be another major priority, and since that can’t be done overnight, it has to be decided upon and commenced immediately so that in my lifetime I’ll be able to put the shovel into or break that bottle of champagne on something that would have started in the year 2000.

Straightening out the property tax assessment mess, that will be a priority matter: to eliminate the inequities and inefficiencies, to professionalize and de-politicize [it]. That should not be too difficult to accomplish. That does not seem to me as formidable a task as the other things I mentioned. Then, to develop the airport infrastructure to the fullest extent possible, to utilize our airport as Atlanta has done. Here we are midway between Chicago and New York, Canada above us, Washington and Baltimore to the southeast, Cleveland to the west. I think we’re strategically located, so that’s an important thing.

Young adults not coming back to their homes and remaining in Pittsburgh, that’s another major point and serious problem. I would say probably two-thirds of kids from middle-class homes who go away to good colleges and universities aren’t coming back to reside in Pittsburgh. We can’t continue to let that happen. We’ve got to find programs and very specific undertakings that are designed to reach out to these young people.

Allegheny County, while a distinct political entity, is indisputably the hub of the region. How would you balance your role as Allegheny County executive with that of a key representative of Western Pennsylvania?

It’s something I commented on to a congressman earlier today from an adjacent county. I look upon Allegheny County as the hub and not the entire wheel. We’ve not been sensible or sensitive enough to the surrounding counties, to our loss as well as to our shame. By failing to involve all of the outside counties through their governmental and business leaders, we have failed to develop the clout that we could have as a region to its fullest extent possible.

I chatted with commissioners from Beaver County; they were never invited, they were never told about things that were going on: the airport hangar terminal, the airport authority and so on. You can’t deal with people like that. This is Southwestern Pennsylvania, and we must develop this as a region to compete with the greater Cleveland area, the greater Baltimore area and other areas. I’ve known these people for a long time, politically, governmentally, personally, and I look forward to the opportunity to involve them for the purposes of making this a significant region.

What is your opinion of the efforts to date by the Pittsburgh Regional Alliance to increase the visibility of the region? How would you work to complement or improve on their efforts?

They’ve done a good job, and they’re an important entity. I intend to work closely with them. David Shapira (chairman of the PRA’s board) is somebody I’ve known for a long time. Our daughters went to school together, and they are very close friends. I have already had a couple of meetings with him. I think it’s an important organization with a good objective and programs. What they do and how they do it is their business, but I intend to work with them and with all of the other existing groups. I want to learn more about how they differentiate and distinguish themselves one from the other because it’s my impression — and a number of other people have actually said it to me — that there’s an overlapping, there’s redundancy, which, of course, leads to inefficiency, confusion, and not to mention perhaps less bang for your buck. But I’m not going to dictate, I’m not going to take over corporate Allegheny County. But I want to play a more active role.

Monday, 22 July 2002 09:51

Accounting for lifestyles

At Sisterson & Co., people are always coming and going. And that’s the way they like it.

It’s not mass confusion. In June, Sisterson & Co. implemented an alternative work schedule program for its 75 employees, and so far, it’s working as planned. The firm’s main criterion, meeting the needs of its clients, does not appear to have been compromised in the process.

“People’s alternative work schedules don’t seem to be getting in the way of getting it done,” says Donna DeFilippi, a tax partner at the firm who was closely involved in the process of developing alternative work arrangements.

When executives decided to reinvigorate the firm a few years ago with a new strategic plan to lift it out of the doldrums, they wanted to give their staff a big say in how the 73-year-old company was going to accomplish the task.

Leaders concluded that employees needed a more detailed system for performance evaluation that would focus on development and implementation of their career goals, rather than simply pay raises and supervisors’ evaluations of past performance.

But Sisterson & Co. wasn’t satisfied with simply a new evaluation system. One of the proposals that came out of discussions that led to a new strategic plan was establishing alternative work arrangements that would fit the evolving and contrasting lifestyles of employees.

“As part of that, we thought the next thing we wanted to tackle were lifestyle issues,” says DeFilippi.

Sisterson & Co.’s timing is probably right.

“In order to retain the best employees, companies need to move and provide as one of the benefits flexible scheduling,” says Kevin Klinvex, a partner in Select International, a Pittsburgh-based employee selection and recruitment consulting firm.

His company has seen a number of professional services companies move toward similar arrangements, nearly always with positive results. With such arrangements, says Klinvex, companies send a clear message to employees that they value performance over simple adherence to set work hours.

Sisterson & Co., like many businesses, is finding it more difficult to attract and retain talent. Pulling from the other end is the demand that the company be willing and ready to serve its clients, primarily private companies with annual revenue of between $5 million and $150 million. So it came up with a way to better meet employees’ scheduling needs while making sure the change didn’t interfere with its ability to meet clients’ accounting and consulting requirements.

Company executives thought the only way to ensure buy-in was to have employees engaged in the planning and managers involved so that employees understood and had an opportunity to provide input.

To set its strategic plan into motion, Sisterson & Co. hired a consultant to work with the staff and develop a list of issues that were important to them. High on the list was the desire for flexibility in work schedules. Over about six months, much of it during their busy season, the employee task force came up with a variety of new work arrangements. Managers reviewed them and made suggestions to tweak the proposal.

Employees now can work under one of the following structures:

Flexible work arrangements. Employees can vary their schedules from day to day, choosing either to begin or end their workdays earlier or later than standard times, as long as they are on the job during the core hours of 10 a.m. to 3 p.m.

Staggered hours. Employees commit to a fixed schedule each day, say 7 a.m. to 3 p.m. This works well for administrative employees who need to be available to others in the firm at predictable times.

Part time. Employees can choose to work fewer than 40 hours a week.

Variable schedules. Some employees work full time during busy periods and part time during slow times.

At Sisterson & Co., employees simply apply for an alternative work schedule. But during the planning stages, the firm wrestled with how it was going to grant requests and if it was going to require justifications on the part of employees to grant an alternative schedule. In the end, the essential criteria is whether the request can be filled while still meeting the needs of the company’s clients.

“We decided there is not going to be a reason,” says DeFilippi.

The process has had some pleasant secondary benefits, says DeFilippi. First, because employees were involved early on in the planning process, they saw first-hand what it was like to come up with solutions that would work. For instance, they had to decide how part-time employees would be compensated.

Second, DeFilippi says, the varying arrangements tend to make managers take a more disciplined look at what staffing needs will be in coming months. She says some employees say they are more productive when they have greater control over their schedules, a notion with which Klinvex generally agrees.

“It creates more of a challenge to get the work done and done well, but so far, it’s working,” says DeFilippi.

And working is, after all, what it’s about.

How to reach: Sisterson & Co., (412) 281-2025 or www.sisterson.com; Select International, (412)358-8595

Monday, 22 July 2002 09:49

Branson Northeast?

Several years ago, Pittsburgh Mayor Sophie Masloff made an outlandish proposal. Let’s build a new ball park for the Pirates on the city’s North Shore, she offered. Sophie was nearly laughed out of town, her suggestion dismissed as the height of foolishness when most folks figured that Three Rivers Stadium was sturdy and serviceable enough to last well into the next century.

Well, Sophie got the last laugh. Today, the region has two new playgrounds under construction on the North Shore, one each for the Steelers and the Bucs.

Now is the time for the local arts, entertainment, cultural and tourism communities to get together and lobby for another kind of venue in the region. Why not promote Pittsburgh as a popular entertainment center? With a long tradition of supporting the performing arts, it would seem natural — and relatively easy — for us to develop into a tourist destination for travelers who are eager for entertainment.

We’ve done well with the Pittsburgh Symphony, the Pittsburgh Ballet and the Civic Light Opera. Let’s expand on that success in an industry that we understand and which is as natural to us as heavy industry once was.

Not too long ago, some folks in a hamlet in Missouri decided that the town could become a destination for people seeking an alternative to the glitz of Las Vegas or the expense of New York for entertainment. Today, Branson, Mo., a town of 3,700 residents, where gambling remains illegal and you have to search out a bar or a liquor store, is one of the top tourist destinations in the United States. Every year, 5.8 million people travel to this Ozark Mountain town.

They go there to be entertained, visit historical sites, eat in the restaurants and shop in the malls. Branson’s done it by attracting several big-name entertainers who are a bit past their prime but still eager to perform and quite able to draw an audience. The entertainers get a venue that relieves them of having to endure the rigors of the road, and tourists who have little interest in black jack or one-armed bandits can see entertainers as diverse as Moe Bandy and Andy Williams.

There’s no reason in the world that Pittsburgh couldn’t become a sort of Branson of the Northeast. With an effort to draw in a few artists to take up residence in the area for, say, six months out of the year, it could happen. The scenario would go something like this:

Approach some entertainer who’s a household name but who doesn’t quite fill the stadiums like he or she once did. Offer him or her a home in a fashionable part of town, build a venue named after the star and start selling the tour packages.

Get one or two successes, and pretty soon you’d find more wanting to cut deals here. Log half a dozen or so more and the deals won’t have to be so sweet to land others. Pretty soon, you’ll have banks and accounting firms and soft drink makers and supermarkets vying for naming rights. How does the Shop ‘n’ Save Eric Clapton Theater sound? What about the Mellon Bank Phil Collins Supper Club?

Dismiss this idea as harebrained if you will, but consider the $500 million development effort under way on the North Shore that originated in a nutty suggestion. There are, apparently, some people thinking along these lines.

Look at the Pepsi Cola Roadhouse out in Burgettstown, a stone’s throw from Star Lake Amphitheater. One or two more facilities like it along Route 22, and you’ll have the makings of a tourist destination.

Why not do something like that in the city? A lightly dismissed comment by Sophie led to new stadiums. Maybe a little tomfoolery could give this one legs.

Ray Marano is associate editor at SBN. But in a gesture of full disclosure, he also is a part-time country music singer and guitar player who would like nothing more than to trade in his typewriter to perform nightly at his own Ray’s Rowdy Honky-Tonk Roadhouse.

Monday, 22 July 2002 09:48

Mirror, mirror ...

At this brief moment, the conference room at Campos Market Research stands oddly quiet and empty, except for Texas transplant Yvonne Campos, founder and president of this downtown Pittsburgh-based market research firm, and her interviewer.

This room usually bustles with customers of the firm’s clients as Campos and her staff skillfully mine for information and feedback that will help her clients grow their companies or adapt to change. Usually, her clients and others sit in a room on the other side of the two-way mirror that graces one wall, quietly taking it all in.

On this particular day, she looks into that mirror only at herself — a driven, dynamic entrepreneur who has built up a sizable and respectable market research firm in almost 14 years, as she contemplates the future of her own business and how she might get there. Her conclusion: If she wants to launch into a new era of aggressive growth, she’d better practice what she preaches.

So began an odyssey that brought careful reflection, vision and a healthy dose of good old market research — from an outside firm, no less — in shaping the Campos Market Research of the future.

The cold, hard truth

Without question, taking a hard look at your business isn’t an easy task. Ron Sofranko, an entrepreneur who started Red River Barbecue in 1986, was virtually broke by 1991 and on the brink of bankruptcy when he finally took the time to reflect and plan.

“I had no cash, I was $500,000 in the hole, there was a recession and I had personal guarantees on everything,” Sofranko told SBN in 1997. Pulling his company out of the slide meant taking an honest, painful look at his business and placing trust in outside industry professionals who could evaluate the business objectively and make recommendations that its owner might not be willing to consider or able to recognize.

Make no mistake — Campos Market Research wasn’t in danger of failing. But management knew that planning for substantial growth relied on getting an unvarnished picture of the business as it was and where the opportunities and obstacles existed. That included capturing the honest attitudes of its clients.

“We do the same kinds of things for some of our clients,” says Campos in her gentile hint of a southern drawl. But Campos realized that turning that same process on her own company would have severe and inherent limitations.

Campos founded Campos Market Research in 1986, a few years after coming to Pittsburgh to work for a company that established an office in the city to do market research for Heinz. She realized that no other firms in Pittsburgh offered market research services on a comparable level to those available in other similarly sized cities.

“I always wondered why Pittsburgh wasn’t on the map,” Campos says.

She decided to do independent consulting and eventually formed her own research company, which she has built into perhaps the most recognizable of its kind in the city, serving both small and large clients with its market research services. Over 13-plus years, the client base has been shifting from smaller businesses to include larger, more sophisticated companies.

That has presented opportunities, as well as challenges.

“When you’re as successful as that and you have a lot of clients coming at you with projects, you can be reactive,” says Andrew Field, the firm’s executive vice president.

Campos realized that some restructuring was in order a couple of years ago and began to build a management team that would support a more ambitious plan for the business. She hired a vice president of operations who could help devise a new structure for management and identify human resources needs. During that period, she hired Field, a former vice president of marketing for TCI, as well.

The management team huddled and decided that many of the firm’s clients likely held views which, if uncovered and articulated, could reveal important market intelligence for the company.

“Equally important to any other measure, if not more, is a gauge from your customers right from their mouths of their perceptions of your organization,” says Field. “The greatest favor a customer can do for an organization is to tell the truth.”

Campos and her team decided to uncover some of those truths by employing the same methods they use when compiling information for their clients. They wanted to gauge overall satisfaction among clients, what they thought of the data they received and the analysis that was provided.

They were seeking comments about service and what could be done to improve it. And they wanted to gain a sense of what kinds of consultative services their clients might be considering purchasing and how well-equipped they thought Campos Market Research might be to provide them.

But uncovering those views would not be as simple as doing quantitative research through a large-scale telephone survey of its clients. And Campos’ employees certainly couldn’t do it themselves. Campos realized that doing the job effectively would take qualitative research, conducted by highly trained researchers who could probe clients carefully to get them to reveal the most candid impressions and opinions that they harbored about the firm.

But using her own researchers, she finally concluded, could impose a built-in bias. That’s when she decided to seek outside assistance.

“You’re in much better shape with a messenger who has no ax to grind,” explains Field.

Choosing a researcher

Choosing an appropriate firm to do its research wasn’t an easy chore, even for a company that has extensive contacts in the industry. Campos Market Research does work for other market research companies and, conversely, has others do work for it, so it had no shortage of candidates for the job.

But the list was whittled down to just a handful after the initial cut. The Campos team needed someone who could be objective and had no vested interest one way or the other. That eliminated most local companies.

They set a budget of $10,000 and needed to identify a firm that would complete the task within that limitation. Although Campos Market Research could have saved money by choosing a local company and doing some of the work in-house, it eventually settled on a Washington, D.C. company.

The work itself

The Campos Marketing Research team chose a random cross-section of clients to undergo intensive qualitative interviews designed to uncover their attitudes toward the company and discern what kinds of market research services they might be seeking in the future.

They chose a mix of clients that included both small and large firms with whom they had done a variety of projects. They picked current and recent clients, as well as others for whom they hadn’t done work for quite a while. They made no conscious effort to exclude an account for which things hadn’t always gone smoothly.

About 30 companies were interviewed.

What they learned

Their clients, they found, wanted more from them. The interviews time and again revealed that their clients weren’t simply interested in good research. They didn’t simply expect to find out how their product or service is viewed.

They were looking for Campos Market Research to be more proactive, to bring the data to life and help them with their planning processes and strategies.

“The key thing we learned,” says Campos, “is that our clients want us to take the key role in leading the market research area.”

In other words, they didn’t want the researcher to collect the data and simply hand it over. Companies, they found, are looking to market researchers to take the process a step further, to look at the data, interpret it, and, in many cases, make recommendations about what strategies they might implement to produce the desired results.

“They want us to understand who they are and what they’re facing,” says Field.

That realization has opened up new possibilities, says Campos, presenting the potential to become more hands-on with its clients in the marketing process. She also sees the danger in squandering those opportunities that the research confirms are available.

“Our clients want us to take the lead role,” says Campos. “Not that we didn’t know that, but to see it and hear it makes a lot of difference. It makes it clear, very concrete to me, that they’re waiting for us to take the lead. If we don’t do that, then shame on us.”

Brand awareness

A pleasant surprise was that the company’s own brand image seemed strong.

“There’s truly a core of people who know Yvonne,” says Field.

But both he and Campos realize that a definable image can be a handicap as well as an asset. If you’re recognized when you walk through the door, it could be as a company that does one or two things well, but is not necessarily associated with other services you might be able to provide.

“Anything that’s a strong brand or position locks you in,” says Field. “General Motors has a hard time saying ‘We stand for something new,’ simply because they’ve been there so long.”

Despite the possible limitations a recognizable brand may encounter, Campos sees it as a tremendous asset that can be leveraged to sell expanded services.

“It’s a great opportunity to get in the door and say, ‘This is what we’re doing now,’” says Campos. “Now, we’ve got to create a new message that goes with that.”

More demanding clients

Campos says it’s too early to talk about the specifics of the services the company is considering offering, but it is a fairly safe bet that they will include those that take advantage of state-of-the-art telecommunications technology.

A review of market research companies reveals that many are offering services such as Internet interviews as research tools.

Globalization of business has changed practically everything about the way companies conduct commerce, and that means a market research company that expects to grow will almost certainly have to be well versed in international business. The Campos management team, Campos says, realizes that the way it structures its business in the future and the services it offers hinge on the changing needs of its existing and prospective clients, a mix that promises to lean more toward larger companies with more complex needs.

Those clients aren’t going to be looking for the traditional ways of judging their positions and potential in the marketplace. More than likely, they will be seeking expertise that will bring the data to life and help them make critical decisions about how they conduct their business.

“What we really found is that data is looked at as a commodity,” says Campos. “You can get data anywhere, you can buy data anywhere. It’s really what you learn from it that makes a difference, and that’s where we’re trying to differentiate ourselves.”

A confirmation

In the end, the research Campos Market Research commissioned revealed no great surprises or secrets. Its clients want more, and the company is putting together the corporate structure and the services to provide it.

What the research did do, however, is what it is supposed to do, to a great extent. It confirmed many of the assumptions that Campos had formed through her direct and indirect experience with her company’s clients.

“It really encouraged us and validated it for us,” says Campos, and did so, she points out, with a reliable precision that the company could offer its clients but not itself.

“You just can’t do it for yourself,” says Campos, “You just can’t.”

How to reach: Campos Market Research,

Ray Marano (rmarano@sbnnet.com) is associate editor at SBN.

Monday, 22 July 2002 09:45

Missing identity

When Gemini Holdings sold its successful Internet service provider, USA OnRamp, to Stargate Industries in 1998, the holding company’s top executives thought enough of the name to make sure they reserved ownership rights to it.

The name, after all, had earned considerable brand equity for Gemini Holdings through its Internet business. But perhaps more important, it also represented the company’s less well-known side — its then-emerging network integration division. The name, they figured, had gained enough recognition to bring credibility to the network integration side. And it did.

What they didn’t figure was that the name would continue to remind people, even a year and a half later, more of the Internet side of the business than of the network integration side.

This year, the company decided that, while keeping the old name had served its purpose during the transition, it was time to make a change.

Ultimately, executives traded USA OnRamp Network Integration Corp. for NetwoRx, a name they believe does a better job of concisely describing what the company does — computer network management services. The experience highlights just how tricky it can be to name — or rename — your business.

When to let go

The company struggled with the issue of the right name for its network management services company. David Gilpatrick, vice president and chief operating officer of Gemini Holdings and chief overseer of the holding company’s computer services business, remains staunchly convinced that the USA OnRamp name opened doors that otherwise might have remained closed once the company sold off the Internet side of the business.

But he admits the name didn’t quite describe a network integration company that bills itself as a “virtual MIS department,” providing service for companies that find it impractical to have a management information systems person on its staff. USA OnRamp worked crisply as a name for an ISP, but became a bit unwieldy when “Network Integration Corp.” was tagged on.

To some degree, the name created confusion, as it was widely associated with the ISP business, not a computer network management firm. Still, the company grew to $3.5 million in annual revenue, with 100 active commercial clients and 20 school districts — all under the old name.

But to wait until it had more clients, Gilpatrick reasons, would have made the transition to a new name that much more difficult.

And because profits in hardware had just about dried up, USA OnRamp had been aggressively shifting its emphasis to network services rather than hardware sales. After taking those factors into consideration, the company made the decision — the change would have to come early this year.

After 40 hours of meetings and brainstorming sessions, Gilpatrick says, he came up with the new name in a flash, outside of all of the group activities. Still, the time invested to create a new name was far from wasted.

“The 40 hours were absolutely critical,” says Gilpatrick.

The process, he says, forced the company to focus on all of the elements of the name change, from its descriptive qualities to how it could be used in marketing efforts.

“If we hadn’t done that,” says Gilpatrick, “we wouldn’t have known where we were going with it.”

The roll-out

To introduce the new name, NetwoRx trickled information to clients a few months before its formal adoption, mentioning the coming change in e-mails and posting it on its Web site. In the meantime, the company’s marketing director worked on the new corporate identity.

On the day the company mailed its official announcement to its clients, personalized and signed by company executives, NetwoRx employees, including Gilpatrick, called their clients’ offices — attempting to contact the company owner, if possible — to deliver a personal announcement of the change.

Employees changed telephone and voice mail greetings to reflect the new name, and a week later, the company aired radio commercials for NetwoRx, delivered by Pittsburgh talk-show icon Fred Honsberger on KDKA radio during drive time. In all of the communications, Gilpatrick says, he made sure the message to clients remained consistent and clear: While the company’s name was changing, its ownership and management remained intact, and clients could expect a seamless transition.

Too slow to let go?

While Gilpatrick maintains that the company might have been a bit slow in making the change, the decision to use the old one to jump-start the network integration business was a sound one, giving the business added credibility. But the change was needed, he acknowledges, to move the company aggressively forward.

Still, he says, name isn’t everything when it comes to success. While the wrong name can hold back a good company, a great name won’t make a success of a poor performer. In the final analysis, customers care about results, from NetwoRx or any other business.

Says Gilpatrick: “The bottom line to the customer was, ‘Hey, is my service going to change?’”

How to reach: NetwoRx, www.usa-networx.com or (412) 391-4382

Ray Marano (rmarano@sbnnet.com) is associate editor of SBN.

Monday, 22 July 2002 09:44

Who wants to make a fast million?

I’m one of a handful of people who didn’t watch the ill-fated episode of “Who Wants to Marry a Multi-Millionaire?” back in February.

That’s not because I found the notion of some narcissistic buffoon having his pick of a bevy of beauties for his bride revolting, necessarily, but because I just didn’t get caught up in the pre-broadcast hype.

I have a vague recollection of hearing about it before its airing, but with all of the information my small brain has to try to process each day, some of it is bound to be missed.

The show, while a particularly smarmy attempt to attract the voyeuristic and dull, is no more and no less revolting or vapid than much of the pap that finds its way onto the airwaves. Pity the poor broadcasters. They find themselves in the position of having to compete with the Internet, as well as endure longer work weeks and incidental responsibilities such as childcare.

So they come up with programs that revolve around real encounters by police with players in trailer park tragedies and users of controlled substances. They follow a troupe of teen-agers on a pointless trip in a Winnebago, fretting over entertainment careers going nowhere or their parents’ disapproval of tongue piercing.

Then there’s the police chase show, in which fleeing criminals wreak havoc on Camrys and Cadillacs. And there’s the spate of TV game shows that have sprouted on the airwaves trying to take advantage of the success of “Who Wants To Be a Millionaire?” Most will run for a few months, only to be replaced by an equally mindless collection of programs that will capture the imaginations of advertisers, if not the viewing public.

For someone who wants to make a fast buck, there’s opportunity in the next big wave of hit programming. Here are some suggestions to get you started:

“Hard-Bodied Software Engineers” — A Fox Network movie that follows the escapades of bulky nerds who write computer software. Includes a guest appearance by Steve Jobs playing an arrogant computer hardware company executive — oh, he’s not acting.

“Venture Chase” A reality program that follows entrepreneurs trying to run down their first round of venture funding. Lots of scenes on airliners and in hotel rooms, and endless suppers of Chinese take-out. By the fifth installment, in a reality within a reality program, the VCs have taken control of the program’s production company and fired its founder, all caught on tape.

“Bankers Wrestling Federation” — Contenders in classifications including CEOs, senior vice presidents and vice presidents. Good guys with names like the Loan Arranger and Lion of Credit grapple with Hy Interest and Red Tape, fighting over mortgage rates, service charges and basis points.

“Different Coats” — A sitcom based on the ups and downs of running a family-owned paint retailer. “Mom,” played by Rosie O’Donnell, and Randy Quade’s “Pop” have inherited Pop’s pop’s stores, but the patriarch, played by Charles Durning, won’t get out of the way. Hilarious encounters with OSHA inspectors, paint brush salesmen and interior decorators. The kids get into the act, too, with sibling rivalries and succession crises inspiring several story lines.

“Hot Copy” — A drama about journalists on the trail of blockbuster business stories and ... never mind. I’ll keep that one close to the vest for now.

Ray Marano (rmarano@sbnnet.com), dramatist, broadcast wannabe and associate editor of SBN, spends most of his days on the trail of Hot Copy for SBN ... wishing he were a millionaire.

Monday, 22 July 2002 09:42

Family recipe for success

Most people in Western Pennsylvania identify the Del Grosso name with tomato sauce products, familiar items in the region’s supermarkets and food stores for the past 35 years.

What most might not know is that, while the sauces originated with an old family recipe, the product was launched out of another family business — an amusement park.

Fred Del Grosso and his wife, Mafalda, the company’s founders, owned a café in Altoona in the early 1940s, where they served Italian food featuring Mafalda’s mother’s tomato sauce recipe.

They sold the restaurant in 1946 and, with the proceeds, bought Bland’s Amusement Park in Tipton. Meanwhile, they began to experiment with a variation of the original recipe and started production of Del Grosso sauce in small batches in the kitchen of the park’s on-site restaurant in 1949.

They continued to produce it at the amusement park until 1978, when the company moved into a 40,000-square-foot plant. They expanded the plant in 1995 and are currently adding a 54,000-square-foot addition.

The Del Grossos attribute the success of their business to their parents’ work ethic and insistence on producing a superior product. Fred Del Grosso believed, says Jim Del Grosso, that hard work equaled success.

“When my father was alive, he always stressed using the best ingredients,” says Jim Del Grosso, president of Del Grosso Foods.

The family also understood that all its members would work in some part of the business, say the Del Grossos. By age 10 or 12, each child was assigned responsibilities. Today, all seven siblings play a major role in the business.

Del Grosso has survived as a regional company in the face of stiff competition from big brands such as Ragu and Prego because of its name recognition, says Jim Del Grosso. Far from retreating from the much larger competitors, the company is introducing three new Del Grosso sauce products this year to help it remain competitive with the national brands.

Del Grosso sells its sauces to most of the major food retailers and many restaurateurs in the eastern United States, either under its own brand or packaged as a private label item.

The family business also includes the Altoona-Tipton Speedway, a go-cart track on the site of an historic automobile racetrack, a water park and a miniature golf course. Combined revenue of the businesses has reached nearly $20 million.

While Joe and Jim oversee most of the operations, they insist that all of the family members, including their mother, now 86, have a direct role when it comes to major decisions that affect the business.

“We may do the daily operations,” says Joe Del Grosso, “but all of the family members are involved.”

Ray Marano

Monday, 22 July 2002 09:41

Age of litigation

A three-year dispute between Knickerbocker Russell and one of its employees was settled this year in a jury trial, but not before the company ran up $150,000 in legal fees defending against the claims of a former employee in an age discrimination suit.

While most such claims are settled before they reach trial, the tiny minority that advance to the courtroom, like the case Knickerbocker Russell faced, can be distracting and draining on a company’s resources.

Knickerbocker Russell rents and sells equipment to building contractors, with most of its revenue coming through its force of sales representatives who cover specific sales territories. The reps, who own their own trucks, are paid on a straight commission basis. They contact customers and potential clients in their territories and are responsible for transporting equipment between Knickerbocker Russell’s facility and the customer’s.

The work can be strenuous and demanding, but it can also be financially rewarding. In some cases, salesmen earn six-figure annual incomes.

“They can make a pretty good living, especially if they hustle,” says Howard Creese, vice president and general manager of Knickerbocker Russell.

A lagging effort

Through the early 1990s, however, one salesman’s performance consistently lagged behind the others. Despite several discussions with the employee about his performance and some remedial actions the company took to help him get his sales up, including having Creese accompany him on some of his daily runs to try to identify new customers and help him work more efficiently, the employee’s sales, according to Creese, remained unacceptably low.

In 1996, Knickerbocker Russell’s management decided to fire the 51-year-old salesman, replacing him with a 30-year-old employee who had no prior sales experience.

The fired worker thus initiated an action against Knickerbocker Russell, claiming age discrimination because the company terminated and replaced him with a younger worker. Further, according to his lawsuit, he maintained that his sales hadn’t fallen off because of a lack of effort on his part, but because the company had slashed his sales territory in half and had given the more lucrative portion to a younger salesman.

Documentation shortcomings

To complicate matters, Knickerbocker Russell had left itself vulnerable to an age discrimination suit on a couple of fronts. While it claimed it had spoken with the plaintiff on several occasions regarding his performance, none of the discussions had been documented.

Eric Reif, a partner with Pietragallo, Bosick & Gordon and one of the lawyers who represented Knickerbocker Russell, explains that it is not unusual for smaller companies to fail to document such actions. He advises that it is important to do so, however, if the business owner wants to protect his company against age discrimination actions.

Questionable comments

Additionally, Reif explains that during some of those discussions, a company official made comments that could be interpreted as age-related, remarks that could have been damaging to Knickerbocker Russell’s case.

“Companies have to be very careful about any type of comment, even if it’s in a joking context, that can be construed as being age-related,” says Reif.

Fortunately for Knickerbocker Russell, its lawyers were able to mount a successful defense based on a number of facts. First, they pointed out during the trial that the company had little motivation to get rid of a salesman who was a good producer, since salesmen are paid on a straight commission basis.

Second, company officials testified that the plaintiff had made comments on several occasions intimating that he was well off financially and didn’t need to work.

The discovery process confirmed that, in fact, the plaintiff had accumulated considerable wealth, a revelation that Reif says he believes blunted some of the sympathy that juries often harbor for an employee who has been fired and alleges age discrimination.

Finally, the company had a large proportion of long-time employees, some with 30 or more years of service. A majority of its workers, in fact, were over the age of 40, including Creese and the vice president of sales.

“I think that gave the jury a good understanding of why the age claim made no sense,” says Reif.

Beyond its direct costs, the case created disruption and distractions at the company over its run through the legal system. Five days of court appearances by managers and the company’s owner took key people away from their jobs, and other employees in the company thought they might have to testify.

“Some of the people were pretty anxious and nervous about being called to testify,” says Creese.

Avoiding litigation

Going to court can be costly, especially if a plaintiff wins the case. An employer who loses can be forced to reinstate the worker, pay back wages and cover the plaintiff’s legal expenses.

While it may not be impossible for an employer to avoid age-discrimination claims entirely, Reif advises that there are things companies can do to lower their risks.

Many such actions begin with the filing of a complaint with the Equal Employment Opportunity Commission or with the state Human Relations Commission. Those agencies will launch an investigation that involves contacting the employer to gather information.

Reif advises employers to seek counsel even before any investigation has begun or they have been contacted by a government agency. Details provided to the investigators may not be complete or may provide information that could be used against the employer by the plaintiff, Reif warns.

Reif says that employers may even want to consider purchasing insurance to protect themselves in the event that an employee files suit.

While some companies may not have full-fledged human resources departments, discussions with employees regarding their performance should be documented in any case. If an employee is terminated, employers should describe in detail the reasons for the termination. Employers may consider using a prepared script to be read to the employee when dismissal takes place and making sure that at least one other person witnesses the transaction.

And it pays to take care when it comes to filling a vacant position. It’s important to be able to demonstrate that the company hasn’t excluded anyone on the basis of age in the process of promoting someone or finding a replacement.

Says Reif: “You ought to be able to justify that decision and show that the criteria was fair.” How to reach: Pietragallo, Bosick & Gordon at (412) 263-2000

Ray Marano (rmarano@sbnnet.com) is associate editor of SBN magazine.

Monday, 22 July 2002 09:38

Life after venture capital

Derek Minno sits at a keyboard in Jovio's headquarters giving a demonstration of how the technology developed by the company he's heading will add convenience for TV viewers.

Showing others how the technology works and, by extension, how the company proposes to make money, is a switch for this venture capitalist turned entrepreneur. Not long ago, Minno, once a partner with Pittsburgh-based Point Venture Partners, would have found himself at the other end of the interaction, taking in a presentation by and asking questions of an eager entrepreneur looking for a round of venture funding to propel his company to the next growth stage.

As CEO of Jovio, Minno has opted for a path that is, in some ways, more demanding and frenetic, something to which most start-up entrepreneurs would attest, than even the role of venture capitalist. After spending years combing business plans and market research to identify promising investment opportunities, Minno now finds himself at Jovio, a business that proposes to impose some order on the clutter of programming available on hundreds of cable and satellite television channels.

Essentially, the technology will allow television viewers to record selected television programs offered through their cable or satellite providers and play them back on demand, all controlled from a personal computer. It is one of a number of ventures seeking to offer "time shifting" of programming, which allows viewers to choose, via PC, the programs they want to record and store them on a set-top box provided by the user.

The shows are recorded in their entirety, commercials included. Jovio inserts a one-minute ad, tailored to the viewer's demographic profile, before each recorded program. Even if users fast forward through the inserted commercials, a brief, still impression of the advertiser's message will appear when the viewer hits the fast-forward button. As Jovio's founders envision it, the service gives advertisers access to tightly targeted groups of consumers. Users will be able to access the service at no cost, with commercials providing Jovio with its revenue.

Forrester Research, a company that studies online business, has concluded that digital set-top boxes will be in more than half of U.S. homes by the end of 2005, and 87 percent of homes will pay for TV programming, either through cable or satellite providers. The boxes will enable interactivity and on-demand content, Forrester contends, changing how consumers use, watch and buy TV.

"A nice career move"

Minno spent better than a decade in the world of venture capital, including time as a founding partner of Point Venture Partners. Now, with venture capital looking like it's heading for a heyday in Pittsburgh, why has he opted for a fling with a start-up?

"This is a great opportunity -- that's one of the big things," Minno acknowledges. "I came to the conclusion that I didn't want to travel halfway around the world to invest venture capital because I had a young family, and international travel isn't all it's cracked up to be.

"For me, it's a nice career move." I've seen venture capital from a lot of different perspectives now."

While he's in a new industry, Minno's segue to direct entrepreneurship wasn't all that abrupt. While involved as an investor with Safeguard Interactive Inc., a company that backs up computer hard drives over the Internet, Minno spearheaded the effort to engineer relationships with other companies, including Intuit and StorageTec, the Louisville, Colo., company that purchased Safeguard Interactive last summer.

One of Minno's partners, Bill Krewin, was president and a founder of Safeguard Interactive. A third partner, Richard Roberts, is an advertising and marketing expert with 25 years of experience.

In a sense, Minno has arrived at his original destination. After graduating from Carnegie Mellon University in the early 1980s, he looked around for an entrepreneurial opportunity in Pittsburgh. Unfortunately, business development wasn't the hottest game in town at the time, and Minno says he couldn't identify the right situation.

"As I learned about venture capital, it seemed to be the next best thing to being an entrepreneur," says Minno.

He ended up in a venture capital operation within Mellon Bank's trust department and got an education in venture investing over the next three and a half years. Later, he helped found Point Venture Partners.

You never leave the office

Minno has found life as a business builder something of a contrast to that of a business bankroller. As an entrepreneur, for instance, particularly in an early-stage venture, you never leave the office.

"In venture, you can sort of leave it," Minno says. "You're checking reports, you're doing research, but day to day, you kind of walk away from it. In this situation, you really can't."

Case in point: they're considering installing a shower at Jovio's Century Building headquarters.

Being closer to the business changes perceptions about it.

"Sometimes from that 30,000-foot view, everything looks OK -- you sort of rest a little easier at night," Minno says. "When you're on the ground, you can see the challenges businesses have."

Money isn't everything

Being in the operations role of a company has changed Minno's view of business in other ways, too. For one, he sees the role of capital differently.

"As a venture capitalist, you have the view that money's the most important thing in these companies, and I think when you assume more of an operating role, you realize that money's just a part of it. There are certainly other important parts."

Such as human resources.

"This is an environment where you have to manage people. Venture is an environment where you have to manage money," Minno says. "Managing people is a lot harder than managing money, because they come with all of their particulars that you have to be aware of."

While it is more challenging in some respects, Minno says he enjoys the independence and control that being an operating executive offers.

"I think you're certainly a lot closer to the action as an operating executive, and I think I like that," Minno says. "You control your own destiny more."

And, while venture capital is no easy way to make a living, Minno is finding that running a start-up might be even more challenging.

"In a sense, it's a more intense professional life," he says. "I'm probably working as hard as I ever worked."How to reach: Jovio, www.jovio.com; Forrester Research, www.forrester.com

Ray Marano (rmarano@sbnnet.com) is associate editor of SBN.

Monday, 22 July 2002 09:37

Competitive exodus

Bob Montanari saw it coming.

The 46-year-old entrepreneur figured his old bosses at General Nutrition Companies Inc. wouldn't take lightly his leaving and launching of The Nutrition Club, a retail and online business that would compete against them in the sale of vitamins and other nutritional supplements. Montanari's new venture is targeting Pennsylvania and six other states for its initial development of company stores and plans to franchise throughout the United States, with ambitious plans for as many as 1,000 stores in the Northeast within five years.

Despite some differences in the way that The Nutrition Club, based in Robinson Township, intends to structure its corporate and franchising operations and market itself, the companies compete in the fast-growing nutritional supplements industry. And several other former GNC executives and managers followed Montanari to the new venture.

Without question, Pittsburgh-based GNC, with 1999 revenue of almost $1.4 billion and some 4,200 corporate and franchise stores, dwarfs The Nutrition Club. In fact, a merger of GNC and the Dutch company Royal Numico N.V. last year created an entity with combined annual sales of $3 billion. Nonetheless, Montanari says he had little doubt that GNC would not take the actions of its former employees lying down.

He was right.

"Yes, absolutely, we did anticipate it," says Montanari of the legal steps his former employer took.

General Nutrition Companies Inc. promptly sued Montanari, president and CEO of The Nutrition Club, and another former GNC employee, even before The Nutrition Club opened its first store in Robinson Town Centre in April. GNC alleged that the former employees took trade secrets with them and enticed other employees to work for The Nutrition Club.

The two parties settled before the case came to court, and both are restrained by the terms of the settlement from commenting on it. GNC didn't respond to SBN's inquiries about the suit, but Montanari says that the action hardly caused a blip on the radar screen of his new company, in large part because the executives expected it.

And, he says the concept for The Nutrition Club remains as originally conceived.

"We're real, real happy with the model that we've developed, and we've not had to change anything as a result of that lawsuit, not one thing," says Montanari. "The business plan is definitely intact."

A hot topic

In retrospect, it's not surprising that GNC took action against Montanari and The Nutrition Club. While there are differences, The Nutrition Club competes in essentially the same market segment as GNC.

Montanari worked for GNC for almost five years as director of sales in its franchising operations. Ultimately, six key GNC employees left to work for The Nutrition Club, all with experience in key operations areas such as real estate, construction and store operations.

The start-up

Montanari was approached with the idea of starting The Nutrition Club by a wealthy investor who made his fortune in the sports nutrition field, a fast-growing slice of the nutrition products industry, and who wants to maintain a low profile. Montanari says he was attracted to opportunity for several reasons.

"First and foremost, I saw no upward growth in GNC franchising, and I've always been an entrepreneur at heart," Montanari says.

On the other hand, the nutrition products industry -- a market forecast to grow 7.5 percent a year until 2003, when sales are expected to reach $16.6 billion -- holds plenty of opportunities for a new retail concept that will aggressively pursue franchising.

Montanari won't disclose just how much investors have dished out to launch The Nutrition Club, characterizing it only as "extremely well funded." Some published reports have suggested capitalization of as much as $15 million.

The plan they put together calls for making the most of others' entrepreneurial drive, combining a bricks-and-mortar operation with an e-commerce business and creating progressive incentives for consumers that will avoid cutthroat pricing and replace it with customer loyalty.

"We spent several months making sure that we were significantly different," Montanari says. "We didn't want to get attacked on price."

The Nutrition Club spent close to $1 million to put together a package of incentives to keep customers coming back. The result is an array of enticements, including a schedule that offers bigger discounts as a customer's total purchases over time accumulate.

By providing basic information to join the "club," customers receive a 5 percent discount on purchases, up to $499.99. The discount rate increases until they reach $1,500 in purchases, at which point they get 10 percent off everything they buy. Other incentives include promotions for club members and bonuses for reaching spending levels during specified quarters.

Few company stores

The Nutrition Club is planning only a handful of company stores, mostly to demonstrate the concept and provide training for franchisees. The model puts the heaviest emphasis on franchise development, with plans to have up to 90 percent of its stores owned by franchisees.

Greg Helwig, The Nutrition Club's director of franchising, says organizations that try to split their efforts between franchise and company-owned operations inevitably face decisions that pit the interests of each against the other.

"You can't balance both and do it well," says Helwig.

The corporate entity may be able to sustain a price war with a competitor, for instance, because of its deeper pockets, but franchisees with more modest resources may not be able to stay in business for long if they are forced to operate under slimmer margins.

That contrasts with GNC's operations, with only about a third of its stores owned by franchisees. Additionally, GNC has plans to open 1,500 stores within Rite Aid drugstores.

Avoiding ruin

Given the right set of circumstances, The Nutrition Club may never have gotten out of the gate. A protracted legal battle waged by an outsized competitor could have easily derailed the company. Montanari, however, maintains that the legal fight didn't distract The Nutrition Club's team.

The reason? "Quite frankly, it's called preparation. We actually had meetings prior to this ever occurring about the potential of GNC suing us," he says.

So how were they able to focus their attention on the development of a fledgling business, despite being under the pressure of a lawsuit pursued by a large public company?

Montanari says he and the other executives retained every document that came into their possession, noted every phone call and backed up and printed out every e-mail message to deliberately create an extensive paper trail of The Nutrition Club's activities. They even stapled resumes and cover letters to their envelopes and stamped them with the receipt date.

They retained documents from correspondence to inquiries about franchising and conducted meetings to prepare for depositions. Overall, they accepted the fact that they might be sued and geared up for the possibility.

The result, says Montanari: "It didn't affect us." How to reach: The Nutrition Club, www.thenutritionclub.com; GNC, www.gnc.com

Ray Marano (rmarano@sbnnet.com)is associate editor of SBN.