We at Smart Business are again serving as a sponsor of the event in 2004. We've seen it develop and grow every year, in no small part because of the outstanding seminars and speakers offered during the day. Support of the annual event, this year on March 16 at the Westin Convention Center, is a no-brainer for us, not simply because it is, as it professes, a women-focused small business conference, but because of the steady growth it has managed and the high quality of the content it offers to attendees.
We at Smart Business believe that it's in our enlightened self-interest to support the full spectrum and variety of businesses and business owners in the region. As the demographics of the larger society change, so, too, will the look of business leadership.
In short, there will be a lot more women and minorities at the helms of companies in the future, and our very vitality as a publication relies to some degree on our ability to be at the leading edge of what transpires in the Pittsburgh business community. Over the long haul, it's smart on our part to stay in touch with the businesses that will become the mature, successful and leading companies of the future.
As conferences and efforts like Seton Hill's progress and help to close the gap between minority-owned enterprises and the mainstream, the need for events that target specific groups should diminish. And that's exactly the object.
The conference at some point will evolve into one that offers help to virtually anyone who needs it. In a very real sense, though, it does exactly that now. I've attended the break-out sessions and taken in the keynote speakers and gleaned lots business insight and wisdom in the process. For those reasons, it's not just for women. There is plenty of good stuff for anyone who is looking for ways to boost their business acumen, grow their enterprise or expand their circle of contacts.
That's why I won't have those hundreds of women pretty much to myself forever.
If you're building a world-class business, whether you're a man or woman, go to www.e-magnify.com right now. I'll see you there.
It's no panacea for the problem of rising health care costs, but if you're willing to assume the risk for covering the actual costs your employees incur, you might consider a self-funded plan. With a self-funded health plan, you pay the actual costs incurred by your covered employees, plus a fee for administration of the plan, instead of paying a monthly fixed premium.
The American College of Emergency Physicians estimates that 40 percent of all group coverage in the United States is through self-funded plans. Other estimates indicate that 70 percent of all employers have at least a portion of their health coverage under a self-funded arrangement. While self-funding tends to work best for employers with more than 500 employees, smaller groups can structure plans that can cut costs as well.
Insurance companies charge clients to assume their risk. The more risk they assume, the more they charge. With a self-funded health plan, the employer assumes some or all of the risk for providing health care benefits to its employees.
The employer can control the assets of the plan, put them in trust and invest them to its advantage. And, to exercise more control over its costs, it can employ measures that will improve the health status of its workers, such as smoking cessation courses or diet and exercise programs.
J.D. Turco, vice president of St. Barnabas Health System, says the health system initiated a self-funded plan several years ago to rein in its costs, which were increasing at double-digit rates annually. St. Barnabas faced having to pass on a larger share of its insurance costs to its employees and risked them leaving the health system for jobs where less expensive coverage was available.
St. Barnabas, which had already self-insured some of its other risks, including general liability and professional liability, decided to take the health insurance cost issue into its own hands.
"We said, 'Let's control our destiny and put our faith in our managers,'" says Turco.
St. Barnabas isn't alone in facing cost pressures. A survey by benefits consultant Hewitt Associates of more than 500 major U.S. organizations reveals that the maximum added cost for health insurance that employers can absorb over the next five years is 8 percent annually. Hewitt points out, however, that companies are expecting a 15 percent increase in 2004, leaving a 7 percent gap between what employers report they can afford to absorb and the cost increases they anticipate.
St. Barnabas retains Highmark as the administrator of its plans, with Highmark handling the claims and paperwork required. St. Barnabas pays on a "cost-plus" basis -- the health system pays the actual costs of its employees' health care, plus an administrative fee to Highmark. St. Barnabas pays claims on the basis of Highmark's negotiated discounted fee schedule with providers.
Turco says the savings achieved by self-funding its health care plan has allowed St. Barnabas to maintain its level of benefits while holding the line on costs, with estimated savings of $300,000 to $500,000 annually over what it would have spent on a fully insured plan.
To mitigate the risk of a catastrophic loss ballooning costs, employers can purchase stop-loss insurance that kicks in when claims reach a pre-determined level. Individual stop-loss covers any single claim that exceeds the limit, while aggregate stop-loss protects against excessive losses across the entire employee group. HOW TO REACH: St. Barnabas Health System, www.stbarnabashealthsystem.com; Highmark, www.highmark.com
What the president did wrong, however, was what he didn't do. He's not out to kill the steel industry in the United States, but it does look as though it might die a painful death.
As I write this, neither Bush nor any politician, business or labor leader has proposed what seems like the common-sense solution to this issue: Use the tax code to encourage domestic users to buy domestic steel.
There may be reasons that this simple approach won't work. I'm not an economist or a tax expert or a policy wonk, for that matter. But it seems to me that if we provide some incentive for the big users of steel -- automakers, shipbuilders, home appliance manufacturers and the construction industry -- to buy domestic steel, we deflect the cries of protectionism by the global steel dumpers and save jobs here.
Instead of using penalties to keep out foreign steel, why not find ways to encourage wider use of our own steel here?
A tax incentive for steel consumers might appear to some too much like corporate welfare. Funny that giving rich individuals a tax cut while wage earners and small business owners struggle to meet rising health care costs isn't welfare for rich people, but using the tax code to help a struggling industry that provides good jobs for hard-working Americans is a giveaway to a special interest group.
In truth, steel and many other industrial age companies have made pension and health care promises to thousands of retirees. If they fail, those promises could be broken and pensioners could face financial jeopardy.
And guess who will end up picking up the pieces?
I'm not suggesting that tax incentives are the only remedy for ailing industries or even for the entire steel industry. Some companies are inefficient dinosaurs that deserve to go out of business, and the long-term survival of any industry shouldn't be dependent solely on tax breaks.
But if we are to remain a manufacturing force in the world, we need to figure out why the great industries that created unprecedented wealth are failing, and what can be done by government, labor and business to revitalize them. They all have a big stake in the outcome.
Though real estate investments can turn unexpectedly into boondoggles, a venture in one of the fastest-growing areas in Western Pennsylvania seems like a no-brainer. Twenty years ago, however, when Ferree began to acquire real estate in Cranberry, it wasn't as easy to see the potential in a sparsely developed stretch of Butler County just beyond the Allegheny County line. Route 228, the busy commercial and residential backbone that runs perpendicular to Route 19, traversed cow pastures and woodlands through most of the 1980s.
Ferree got the 10-acre site where Brush Creek Commons now sits at a "reasonable" price about 10 years ago, but got cold feet when it came to developing it himself. He sold off a chunk when Amerisuites wanted to build a hotel there, and dealt another chunk to the Pennsylvania Turnpike Commission when the state decided to build a connecting link between the toll road and I-79.
Only then did he decide to develop the remaining parcel.
When Ferree left his family's business in the early 1980s, he thought a string of self-serve car washes in the Pittsburgh area would be a venture that might turn a handsome profit.
The first parcel Ferree found that would be suitable for a car wash was on Route 19 in Cranberry Township. But he saw potential in the site that persuaded him do a quick turn from his original plan and instead opted to develop the property as a shopping center.
Since then, Ferree has acquired and developed four other pieces of real estate, including three other office buildings and a retail strip center along the Route 19 corridor in Cranberry. He has built, owns and manages seven other properties, as well, including holdings in Virginia, West Virginia, Ohio and Maryland. In all, his company, Landmark Properties Group, manages nearly a million square feet of commercial real estate valued at $55 million.
Along the way, Ferree took up flying as a pastime and, eventually, for business as he acquired properties outside of Pennsylvania. A member of the Volunteer Pilots Association, he flew blood to New York after the Sept. 11 terrorist attacks.
Ferree might be filing flight plans more often this year. For 2004, he has set a goal of acquiring $20 million in commercial real estate holdings. To do it, he's on the hunt for two or three deal-closers.
"I need to get some aggressive people that can really go out and go after properties, see a lot of them and cherry pick the good ones," says Ferree.
You've got a pretty ambitious acquisition plan. How are you planning to implement it?
I'm in the process of interviewing. Hopefully, I end up with two people; I wouldn't mind having three guys in acquisitions.
I need more deals. We might get under contract five deals, and we might get one closed. If I can get two or three people getting eight or 10 deals under contract and have two or three good ones, that's even better. So I'm going to go out on a limb, spend a little money on salaries to pay off in the long run.
Is this a particularly good time to make deals, and is that why you are expanding your acquisition force?
No, but if I wait until the time is right, it might take me a year to find the group of good people that I need. I want to do it now, I want to get some people in place, and hopefully they turn out to be good.
How did you get interested in building car washes?
When I got out of school, I went to work for my dad. He had a company that developed chemicals for the steel industry. I did that for a couple of years.
You know, with a family business, sometimes it works, sometimes it doesn't, so I backed away. I had a friend who had a car wash. I could see maybe putting four, five or 10 all over the Pittsburgh area. So I started looking for some sites.
I found some sites that were 10 feet too small; you needed 10 more feet or a car couldn't turn, or the site was 20 acres and you needed three. So I just couldn't find the right size. I saw three acres (in Cranberry) for sale, but I didn't buy it for a car wash.
I started reading articles on Cranberry. The only thing that was there at the time was the old Cranberry Mall. I thought, why don't I build some small shops? So I hired a consultant who specialized in retail and I hired an architect and we got plans and we got a builder.
What interested you about real estate?
I was just looking for pieces of ground. When the ground couldn't be found for the car wash and Cranberry was showing a strong growth pattern, it just seemed like a simple transaction.
You didn't do the building yourself. You had an architect and a builder, you did leases and you did financing. I really thought I had a decent potential for good returns if I could buy right and build right.
Does it take any special skills to do what you do?
It's more of a general business type attitude; let's find deals that work; if we can find something and we can do our homework and we believe that it's a good business deal, let's get our hands on it.
I don't think you need a lot of skills. I think you have to be determined and have a desire to want to learn. I don't think you need to be a financial genius, because if you're a financial genius and you can't talk to people, you're not going to get anywhere.
If you're a great talker but you have no organizational skills, you're going to dance around forever and never get anything done. But if you have a real desire to do something, it's just investigate, investigate, find out the best thing that you can do or the best property, and find a way to make it happen.
I really mean anybody can do it if they set their heart to it. You don't need an IQ of 150. How to reach: Landmark Properties Group, www.landmarkprop.com
That might seem strange at an establishment where most normally go to relax, but plenty of people get the jitters when the MIT Enterprise Forum conducts one of its elevator pitch sessions.
The program allows entrepreneurs the opportunity to stand in front of a roomful of investors, professional service providers and fellow business owners and give a 60-second pitch for their business.
The sessions serve several purposes. They give the money people an opportunity to sniff out potential investment opportunities, and onlookers get a chance to see others try out their pitches in front of an audience and gain valuable pointers for themselves. Entrepreneurs with the gumption to speak publicly about their enterprises get valuable practice for their presentations and feedback to help them improve their pitch.
The most recent crop of presenters ranged from a film producer looking for cash to finance a project to a wireless telecommunications company. Most were selected before the evening of the program, but a few were offered the opportunity to give an impromptu pitch.
One of the objectives of an elevator pitch is to pique the interest of a potential investor as quickly and poignantly as possible.
"The goal is to have someone say, 'Tell me more,'" says Mel Pirchesky, principal in Eagle Ventures and an investor who has put together more than $50 million in equity in more than 30 deals.
Pirchesky, a proponent of entrepreneurs taking the opportunity to practice their pitch every chance they get, was one of four panelists on hand to offer critiques of the pitches. Much of the advice centered on what potential investors are looking for and on presentation styles.
Debra Fox, founder and president of Fox Learning Systems, a former television reporter and another panelists, put a lot emphasis on the subtle messages sent by the presenter's body language.
Several of the pitches, the panelists offered, lacked an understandable explanation of what their business proposed to do and why it would be an attractive investment opportunity.
Ultimately, entrepreneurs looking for money need to be passionate about their business proposition, clear about its value proposition and natural in their delivery.
Says Fox: "One of the most important things about elevator pitches is that you've got to sell yourself." How to reach: MIT Enterprise Forum, www.mitforumpgh.com
Despite the dismal weather and her mild malady, Mistick's spirits and outlook are as cheery as the green, blue and yellow color scheme of the coffee shop.
The Distinguished Service Professor of Entrepreneurship and Public Policy at Carnegie Mellon University's H. John Heinz School of Public Policy and Management is heading a project designed to raise awareness of the value of math and science education among girls.
So what's the connection between math and science awareness and business?
"It's like entrepreneurship; people have to get comfortable with the concept of entrepreneurship and what they can do as entrepreneurs," says Mistick. "This is really about getting comfortable with science and math and what you can do with that skill base."
In the future, says Mistick, math and science skills will be critical for today's youngsters.
The Girls in Math and Science Partnership, a joint effort of CMU, Family Communications Inc. and the University of Pittsburgh, uses video installations in public facilities, including PNC Park and Kennywood Park, where the crowd gets short lessons in math and science illustrated by practical examples involving curve balls or roller coasters.
The former director of Seton Hill University's National Education Center for Women, Mistick is convinced that her job at CMU is every bit as supportive of entrepreneurship as her previous position.
"I'm not moving away from entrepreneurship. I still believe in it," Mistick says.
Her current position, she says, moves the effort "to a nascent stage of entrepreneurship. These are all entrepreneurs-to-be. They are the ones you want in your future."
Smart Business spoke with Mistick about her new job and the importance of math and science education.
What is your role at CMU?
I'm working on a National Science Foundation grant project, with my primary responsibility around math and science, creating "community conversations" around them. That's how I'm defining it.
What we're trying to do is encourage people to understand the importance of math and science, that to really have the right skills for jobs in the future or for entrepreneurial ventures, it would be wise to have a certain level of math and science education in your background, regardless of what you do.
The world is changing and evolving so quickly. Most employers you talk to say they need those skills. These are critical skills, and people that don't have them are really at a disadvantage in terms of the portability of their skills, the flexibility of their skills.
I think we've spent a good amount of time, over a decade, trying to convince people about reading literacy. We're at a new point in time where we want people to expand their awareness of the need for math and science literacy.
Why is math and science literacy so critical?
Life has gotten more complex. There are multiple dimensions to everyone's job functions. That's what's exciting about this.
When I went to Seton Hill, it was about creating an entrepreneurial culture, about getting them to understand the value of math and science. What we know is girls and boys have the ability to learn them, so it's a matter of convincing them that those skills are important. What we're trying to do is take a look at how there's math and science underlying everything you do. We did a video installation this summer at PNC Park. Pre-game, on the Jumbotron, we showed these video spots that take a look at some of the science and math that happen at the ballpark.
What we do with each of these is take a look at the venue we're in and look at the math and science that occurs within it. One of my favorites, they're all my favorites, really, is one that comes up and asks where's the best place to sit in the park if I want to catch a foul ball. It shows so many fall here, so many fall there but that the most fall here.
These are not real heavy duty learning exercises, but what they're meant to do is sort of create a conversation between kids and their parents, mothers and daughters, brothers and sisters, so that they start to take a look at the fact that math and science are everywhere, and they're not something that they can't do or that they're out of their reach.
I think it's just about making people feel like all of it is accessible, that you can understand them.
How can you tell if it has any effect?
The interesting thing is that the project is geared toward doing an installation and then doing an assessment to see how effective they are. At PNC Park, we ask people what they remember about the video so we can tell which ones are most effective, which ones weren't, how much information you can really communicate in 30 seconds.
That's really exciting, because you get feedback about the effectiveness of what you're doing and you can feed that into the next installation. We have a couple of installations at Kennywood. People in the queue -- it's such a great thing; you're standing in the queue, you have nothing else to do except wait to get on the ride, and then here is this just-in-time information about the roller coaster or the Logjammer; where I should sit if I don't want to get wet, will I get wet here, am I likely to stay dry here.
What persuaded you to leave Seton Hill to take on this position?
What was so appealing to me was (the opportunity) to really impact young girls. Our (installations) are sort of focused toward middle-school kids, and they're done in a way that we think appeals to girls first.
But they're not just for girls. They're really for girls, for boys, for families, but what we know is that if we engage girls first, boys will be engaged, too. But if we do the shoot-'em-up kind of video games, they appeal to boys but they turn girls off. Girls don't hear the message at all.
The research says that if the signs are done in such a way that they capture our primary audience, which is young girls, we can also capture the attention of young boys.
How does your experience at Seton Hill carry over to your role at CMU?
At Seton Hill, I had a great opportunity to work with women entrepreneurs, which was just wonderful, knowing what their problems are at the point where they go into business and understanding where their problems are when they're at mid-career.
It helped me to understand what we needed to do better early on. So that's been the most valuable part of it, knowing that if you start earlier, have sort of an intervention that creates greater opportunity at an earlier stage, then perhaps women will start businesses at a younger age, maybe they'll grow bigger ventures, maybe they'll have a more diverse set of skills.
I think that's been very informative to me.
One of the other things I learned at Seton Hill is how tremendously satisfying it is to work directly with people. Sometimes when you work in big systems -- you know, the K-12 system is huge -- it's really hard to see change occur very quickly. But when you work in the informal network, people make the difference in your work on a daily basis.
We spend so much time working, I like to do things where I feel like I'm making a contribution, where I feel like I'm adding somehow to enrich people's experience, and so when I worked at the center, I did so many things that were of an outreach nature, where I got to see people who would say that this was really a great program that changed what I was doing.
When you're working in an informal arena, what you do is out there right away. If you were at PNC Park, you would have seen the video clips. People see them and they give you feedback right away.
How does the population and the business community at large benefit from this?
If we are able to encourage more of our kids, girls and boys, to acquire these skills and stay here, then we create a stronger region and we create a stronger work force for the future. And so many employers tell you that they have to reach outside the area.
People see this as a work force issue. There's funding out there, there are people who are interested in this topic, there's a lot of research being done in this area, and it's because if we don't start, then we lose people. And it's hard to get people to go back and capture these skills.
What's the connection between entrepreneurship and math and science literacy?
Entrepreneurship is a lot about making people open and flexible. You've got to be open to opportunities, you've got to be flexible about taking advantage of opportunities, and this is really about making people curious.
You want people to be curious about how things work, about how things function, and increasingly, people are more responsible for their own futures. They're not going to work at one place forever. You see each one of those moves as a new challenge.
I didn't see it as a disadvantage to go from one job to the next. It takes a lot to make some people understand that.
Our penchant for blaming the companies that have left the region almost makes you think that the crybabies are looking forward to kicking Lord & Taylor around once it's left Smithfield Street.
An antidote to this negativism is a visit to the next 3 Rivers Venture Fair. If you missed the last one, held in September, you'll probably have to wait until early 2005 for the next one.
You won't find U.S. Steel there, nor are you likely to run into someone from Chevron who wants to bring Gulf back to the city. What you will find, however, is an enthusiasm for entrepreneurial activity and an optimism about business and Pittsburgh that is refreshing and inspiring.
Most of the companies were small, some with just one employee, and lots had funny sounding names and were based on science that gave me a headache to try to figure out.
Too often, I think, we view economic development in terms of grandiose projects, like the attraction of a large company to the region that will provide an instant 200 jobs and be an economic engine for the region. That's what Volkswagen promised in the late 1970s, only to take the tax breaks and run.
The real value will be that which we create for ourselves by cultivating the cumulative efforts of hundreds, even thousands of entrepreneurial-minded people launching tiny businesses with acorns of potential that just might grow into giant oak trees of technology. There won't be a lot of FORE Systems, but just a few, even one, will have a ripple effect that will provide the seeds for perhaps dozens of others of companies to sprout.
Thinking big got us two sports stadiums, a third team asking for its own new venue and Downtown planners obsessing over what they're going to do with the Fifth and Forbes corridor instead of letting the private sector figure it out for themselves.
Maybe it's time to think small, to give the best and the brightest some incentives to do business here instead of begging for crumbs from the big companies from outside the region. And we should let the small ones do the big thinking.
Santorum quickly grasped the implications the company's solution could have for government procurement, including defense contracting, homeland security and prescription drug plans.
While Santorum acknowledges that legislators generally view advanced technologies "from 30,000 feet," the impact that CombineNet's technology could have on complex government purchasing matters might bring it into much closer view in Washington.
CombineNet applies "combinatorial science," says Tony Bonidy, the company's president, to analyze purchasing problems and come up with solutions. Unlike reverse auctions, where bid specifications are narrowly drawn for bidders, CombineNet's software solution allows clients to offer bidders "competitive expressiveness," says Toumas Sandholm, CombineNet's founder, chairman and chief technology officer.
That feature, which makes it possible for bidders to craft a bid that works efficiently for them and for a purchaser to look at hundreds or even thousands of scenarios, says Bonidy, offers more opportunities for savings.
CombineNet's approach is to give bidders some running room to allow them to create the best deal for the client by selecting among a variety of options to deliver the specified product or service. The client can look at various scenarios and decide which is most cost-effective.
Bonidy points out a case where PPG wanted to purchase pigments made by only a handful of manufacturers, an instance where it would appear that there would be little opportunity to save. The ability for bidders to select among the options for filling the bid order that would suit them and allow them to deliver the lowest price possible saved PPG millions on a single buy.
CombineNet's challenge isn't finding customers, says Bonidy. Bayer Corp, PPG, Heinz and other Fortune 500 companies are finding value in the Strip District's technology and opening doors to others.
Rather, Bonidy says, it's a matter of deciding where to put efforts to grow the company and producing products that can be sold off the shelf to customers rather than creating customized solutions for every client, which the 53-employee company has done since its 2000 launch.
For now, its efforts are being directed toward the upper third of the Fortune 500, organizations that engage in large and complex purchasing events.
The key for these companies, says Bonidy, is not to beat down suppliers on price.
Says Bonidy: "The companies that are going to succeed are the ones that can extend their bricks and mortar and embrace their supply base." How to reach: CombineNet, www.combinenet.com
Even if you don't know exactly where it is, or you never attended it as a student, you're keenly aware that it is a staple of the local educational establishment. And you wouldn't be surprised to learn that some of its grads -- 125,000 from its network of schools in North America since it was founded -- work for some of the largest and most prestigious corporations in the world.
On the other hand, if you were asked what you know about Education Management Corp., there's a good chance you would picture a blank canvas.
Ironically, the Art Institute of Pittsburgh is a small part of Education Management, its parent organization, a publicly traded company that employs 5,600 people in the United States and Canada, and that posted $500 million in revenue in fiscal 2002. It has posted better than 20 percent annual revenue growth in each of the past five years. Approximately 46,000 students are enrolled at its 42 campuses in 30 cities.
Education Management's tendency to remain under the radar is by design and is mirrored by its chairman Robert Knutson, who was also the company's CEO until Sept. 1, when President John McKernan took over the position. With the company since 1970 and in his current position since 1986, the former investment banker's public profile is about as high as that of his company. Knutson -- and others in the company -- say that's because the focus of Education Management isn't so much on promoting its own brand image as it is on its students and employees.
But if Education Management isn't the loudest on the block, it is one of the busiest and a solid financial performer among publicly traded companies in its industry.
"Notably, Education Management is one of the most consistent operators in the group, meeting or exceeding the Street's earnings estimates for each of the 20 quarters since becoming a public company," according to a January 2002 USBancorp Piper Jaffray analyst report.
Since its initial public offering in 1996, Education Management has grown by acquisition, organic expansion of existing schools and programs, and by adding curriculums. It has assembled a network of art schools, the Art Institutes, in 29 North American cities, and has gone on an acquisition hunt in the last two years, bagging three major education companies and expanding its program offerings.
That record is in contrast to its earlier experience, when it stuck essentially to its flagship offerings through the Art Institutes.
"At the outset, and for many, many years, our focus was in programs in art institutes," says Knutson. "In the last two years, we've broadened our academic program reach through acquisitions."
Not that there isn't a lot of opportunity in art education. Knutson says that just a little more than a million students are enrolled in art institute-type schools in the United States, with Education Management capturing about 3 percent of the market.
An obvious strategy, then, might be to cookie-cutter the Art Institute model, but Knutson says that's not enough to take advantage of the myriad opportunities in education that are available to his company.
"In the meantime, there's a lot else going on in higher education," Knutson says.
The power of an idea
Knutson likes to tell the story of how Education Management introduced culinary arts programs. The eight presidents of the various Art Institutes at the time were gathered at a meeting in 1986 in Seattle, overlooking the Puget Sound. Knutson, who acknowledges that his own culinary skills are limited to poaching fish and frying eggs, raised the possibility of offering culinary training within the Art Institutes system.
Eyes rolled and brows furrowed, says Knutson, and like a lot of new ideas, it got a cool reception.
One of the presidents, however, saw a connection between arts education and a cooking school and initiated a culinary arts program at the Art Institute of Atlanta. The concept blossomed, and other schools in the system picked up on its success.
Today, culinary arts training is offered at 18 of the Art Institutes.
"And I didn't do anything, except introduce the idea," says Knutson.
That approach has been applied repeatedly since, especially more recently. The focus in the past two years has been on acquiring more academically diverse and larger schools, with an eye on combining Education Management's existing competencies with those of the acquired institutions.
In 2001, Education Management bought Argosy Education Inc., a publicly held post-secondary education provider headquartered in Chicago, in a $79 million stock purchase deal. The Argosy deal brought master's, bachelor's and additional diploma programs in health sciences, business, information technology, legal studies and design technology.
Education Management acquired Savannah, Ga.-based South University for $50 million in April, gaining an institution that offers master's, bachelor's and associate's degrees in business, legal, health and technology. In June, it inked an agreement to purchase Cincinnati's American Education Centers in a $116 million deal, adding master's, bachelor's and associate's degree programs in the fields of health sciences, business, legal and technology. The three schools had a combined enrollment of more than 12,000 students.
Adding academic programs to a school location, Knutson explains, gains leverage on administrative overhead and facility expenses.
"As we co-locate and share programs, Education Management's delivery model becomes more powerful," says Knutson.
If, for instance, Education Management acquires an art school with a traditional day student population, it can use its expertise in other academic areas to offer additional degree or certificate programs to evening students at the same location. Degree programs could be fashioned that combine competencies in art education with psychology, for instance, to create a master's degree offered through evening classes.
With widespread Internet access available, distance learning is another component that Education Management expects to grow substantially. The distance learning market for fully online degree programs is growing at a rate of 40 percent annually, according to Eduventures.com, an education industry research firm. More than 350,000 unique students are enrolled in fully online degree-granting programs, generating $1.75 billion in tuition revenue for institutions in 2001/2002.
Traditional education institutions, says Knutson, have been slow to adopt online learning models, an area that the for-profits are embracing. The University of Phoenix, for instance, has 72,000 students taking courses online. The National Center for Education Statistics estimates that about 10 percent of higher education students are involved in distance learning.
"The idea of blended classrooms and online experience really augments the whole education process from the standpoint of students," says Knutson.
And, says Knutson, who doesn't venture far from his office without a laptop, driving the Art Institutes into offering leading-edge curriculums like game design, motion graphics and virtual environments has given the company experience and a familiarity with technology that it can apply in other areas within its system.
A growing industry
The for-profit post-secondary education industry has grown into a big business since the mid-1970s, when schools like the University of Phoenix emerged to take advantage of growing demand for adult education.
"If you look at the statistics, the publicly owned education companies have been growing at a much higher rate than higher education in general," says Knutson.
Indeed, the for-profit education industry has grown substantially in the last two decades. A 2001 report by the Education Commission of the United States reported a 78 percent increase in the number of for-profit two-year degree-granting institutions between 1989 and 1999. During the same period, the number of for-profit four-year institutions increased by 266 percent.
For Knutson, being at the helm of Education Management goes beyond the satisfaction of running a growing, successful public company. The business has held his interest for 33 years because of his regard for the value of education and how it can enhance lives and careers.
"I guess it's fair to say for me that it's a wonderful field of human endeavor because you're surrounded by human success," Knutson says.
Some of the company's principals could face jail time, and the lawyer who advised them on the formation of their business and capital-raising scheme faces sanctions for legal malpractice.
"They got themselves involved in this, in no small part, by the way they structured their business," says Jaffe, a lawyer with Schnader Harrison Segal & Lewis. "Had they had experienced securities counsel, the deals would have been structured entirely differently."
Jaffe, who specializes in venture capital, corporate finance, mergers and acquisitions, corporate governance and restructuring transactions, points to the case as a good reason why it pays to take pains to pick the right lawyer.
Jaffe has been on both sides of the transaction of lawyer selection, as a practicing lawyer, then as CEO of US Interns, a dot-com that later folded, and then back to practicing law.
Too many consumers of legal services don't have a clear notion of the difference between one lawyer and another in terms of competencies and figure that the lawyer who handled their divorce can handle a business acquisition, secure a patent or complete an IPO. Some lawyers, says Jaffe, can't resist taking a case, even if it's not within their area of expertise.
"They're loathe to turn down an engagement because we're in a very competitive business," says Jaffe.
But a lawyer's competence in the particular area where you require expertise is critical.
"One size doesn't fit all when it comes to lawyers,"says Laura Ellsworth, partner in charge of the 60-lawyer Pittsburgh office of Jones Day. "Just as you wouldn't go to a general practitioner if you needed heart surgery, you should not use a lawyer for your important business matters unless he or she is demonstrably competent to handle the specific legal problem at hand."
But technical competence isn't enough. A good lawyer will understand both the legal issues that are at the core of your business and the competitive challenges you face.
"Consumers of complex legal services want lawyers that understand both their business and their industry," says Fran Murraca, a shareholder with Buchanan Ingersoll.
And, Murraca adds, your lawyer should be able to understand your business and craft legal strategies that help you achieve your goals for it.
A good business lawyer, says Jaffe, will be able to balance the legal requirements of a situation with the realities of doing business in your industry.
"Sometimes the very best technical solution, legally, is not the optimum solution from a business perspective," Jaffe says.
Another common mistake business people make is to sharpen the pencil too much when it comes to purchasing legal services.
"Unfortunately, what happens is, all too often, the first criteria is cost," says Jaffe.
But picking a lawyer because his or her fees are low can be risky. While small firms or individual practitioners might charge less, they may not have the depth, experience or expertise that a mid-sized or large firm possesses. Their shortcomings may mean bad counsel or the need to retain additional outside counsel to fix a problem or take on a matter the first lawyer can't handle.
That doesn't mean that small necessarily equates with a lack of skill. Small firms can have very well-developed skills in specialized areas of the law.
"For many years, I have used both large and small firms," says William Day, president and CEO of St. Barnabas Health System. "I have had good results with both. I retained them based on the opinions I received from other CEOs, from exposure I had to them on other boards of directors on which I and they served."
Where to begin
Referrals can be a good place to start when choosing a lawyer, but there are plenty of other ways to identify competent counsel.
Murraca says the best firms' Web sites can provide plenty of information about their core competencies and experience.
Ellsworth agrees, and also suggests checking court dockets online to find out which firms have won cases similar to yours. She recommends checking newspaper articles that mention firms involved with similar situations and consulting business surveys to see what others are reporting about law firms and lawyers.
"Look for a lawyer who listens to you," says Ellsworth. "A lawyer who does all the talking is not listening carefully enough to the specific needs of that given client."
And a lawyer should be able to relate to you and your business issues in clear, everyday language.
"I also sized them up based on lawyer-speak," says Day. "That is, if the attorney spoke at length but said little, I crossed him (or) her off my list."
Making the choice
Jaffe suggests interviewing several lawyers for the job at hand, just as you would if you were hiring someone to fill a key position. You'll get a feel for which is the best fit for your company, and you'll learn something from each that you can apply to the others.
"In the process of interviewing a number of lawyers, the client will become smarter about competencies," says Jaffe.
Jaffe says that any lawyer should have at least a couple of clients willing to provide references that attest to their competence.
"Once you narrow the list to competent, experienced counsel, pick the person whom you like and trust," says Ellsworth. "You'll be spending a lot of quality time with them, so you should like them, and you will need to be able to trust their judgment."
"If (the relationship) is going to be beneficial, it's going to involve pretty frequent communications between you and the other people in your organization," says Jaffe.
Ultimately, a lawyer needs not only technical competence but also the ability to understand the client's business and industry, relate effectively to the business owner and his associates and adversaries, and earn and retain his client's trust and confidence.
Says Murraca: "In the end, it's the entire package." How to reach: Schnader Harrison Segal & Lewis, www.schnader.com; Jones Day. www.jonesday.com; Buchanan Ingersoll, www.bipc.com; St. Barnabas Health System, www.stbarnabashealthsystem.com
Where do lawyers fail?
Some lawyers fail to take the basic steps when it comes to interacting with a client. While technical skill is a requirement for any lawyer, some fundamental business and interpersonal skills are necessary to land and hold onto a client.
William Day has hired, fired and retained a number of lawyers during his 29 years as president and CEO of St Barnabas Health System, and he has plenty of stories about good and bad lawyers.
"I had retained a large Pittsburgh law firm to do some negotiations for St. Barnabas Health System," says Day. "The problem was assigned by the firm to the expert in this specialized area. After warning the partner in charge of our account several times that my telephone calls were not being returned, I suggested a luncheon meeting during which my complaint would be aired."
The partner in charge assured him that the situation would improve, says Day, but his calls continued to go unreturned. Day fired the lawyer and gave the firm another chance, "but the firm nearly lost our business over telephone calls," says Day.
On another occasion, St. Barnabas used a large local firm to handle a critical matter. The lawyer, it turned out, hadn't prepared very well.
"On the way to a hearing, the attorney to whom the case had been assigned asked one of my vice presidents how to spell my name and what my title was," Day says. "By the end of the day, that attorney and firm were fired, and we have not retained them again."