Ray Marano

Monday, 22 July 2002 09:59

Global warnings

Wat’s the most important skill needed by a lawyer with a practice in international business?

“You have to know how to avoid jet lag,” quips Dennis Unkovic.

Unkovic has no doubt endured frequent assaults on his circadian rhythms, although his manner, cheerful and chipper, perhaps because he lifts weights to stay in shape, belies any disruption of his sleep schedule.

He is kidding about jet lag, but he should know. Unkovic, a name partner in Pittsburgh law firm Meyer, Unkovic & Scott, traveled to Europe and Asia eight times last year, almost once every six weeks. Despite a sustained downturn in the world economy that he and other observers don’t expect to end any time soon, Unkovic, who has worked in 50 countries, suspects he will be just as mobile this year as he was in 1998.

The reasons? Even a depressed economy in Asia, where two-thirds of the world’s population resides, offers a huge market. With contracted product development cycles, he says, U.S. companies can’t hesitate when it comes to entering the international market. And, he adds, every market, good or bad, offers opportunities for the right products or services.

Unkovic got into international law early in his career. After serving as lawyer for former U.S. Sen. Hugh Scott, the powerful Republican from Pennsylvania, during the Watergate era, he looked for a specialty in which there weren’t a lot of lawyers. International law was one of those, and Unkovic landed work with a large French company as entree to the field. Since then, he’s written four books and numerous articles on international business while carving out a healthy practice in international law.

“It’s a very hard field to get into because people want to know you’ve been there,” Unkovic says. “Nobody wants to send you for the first time.”

He’s been successful, at least in part, perhaps, because he prepares carefully before working in a new country. He reads a political history that covers the past 50 or 100 years, learns as much as he can about the economy and briefs himself on the country’s business practices.

But much of his knowledge, such as the fact that Malaysians don’t much care for Americans, comes through long, hard-earned experience.

“A lot of what I know isn’t in books,” he says.

Unkovic’s interest in the countries where he does work for clients manifests itself in the collection of artifacts he’s accumulated in his jaunts abroad. Some are intrinsically valuable, others simply items that caught his fancy in a market or basement. Headhunters’ swords and ornate Japanese mirrors adorn his office walls. Figurines carved from human bones and ancient rifles all carry stories about their history or acquisition, which he’s happy to share with visitors to his Oliver Building office.

But his greatest insights tend to come from his ongoing observations of countries in the Far East, particularly those where his clients venture in search of new markets and opportunities. In many respects, Unkovic becomes their guide in both good times and bad.

The current economic situation in the Far East, he says, would fit into the bad category. Unkovic sees the economic downturn there as a real threat to U.S. businesses, even though the effects haven’t yet become apparent.

“The effects are increasingly going to hurt the small- and medium-sized companies,” Unkovic warns.

The recent declines in reported earnings of large companies since Asian countries began their slowdowns in mid-1997 are a sign that the slide is affecting the U.S. economy, as are the anti-dumping actions taken by American steel makers and layoffs at aircraft manufacturers. Those companies, says Unkovic, are customers to hundreds, and in some cases thousands, of small businesses that provide products or services to them. As foreign business dries up for large business, Unkovic says, smaller companies are likely to feel that pinch as well.

“A lot of the work that small- to medium-sized companies do in relation to Asia is in connection with a larger project,” Unkovic says.

The good news is that Pittsburgh’s economy is less dependent on the Far East than in earlier times.

Pennsylvania’s wood products industry, while not the first to come to mind as one of the state’s most prominent, nonetheless offers an illustration of how a burgeoning domestic economy may serve to mask troubles in markets abroad.

The lumber industry has observed a considerable drop in demand from Pacific Rim countries, especially Japan and Korea, says Rich Conti, executive director of the executive committee of the American Hardwood Export Council and president of Matson Wood Products Co. in Brookville. While the decline in Asian demand has been noticeable, Conti says, the effect on the industry has been softened because of increased demand in the United States and parts of Europe.

“The net effect is not so significant,” says Conti.

But if, as Unkovic suggests, the domestic economy slows, the slumps overseas could become more noticeable. He suggests that U.S. companies should be looking at opportunities in Asia and elsewhere, because of the sheer size of those markets, to carry them through should a domestic slump develop.

Says Unkovic about the opportunities abroad amid stagnant economies: “Even if they’re flat, there’s an enormous amount of potential demand there if you have the right product.”

Monday, 22 July 2002 09:58

Alexander Graham Hell

Forget Y2K. This should be the year that we figure out a new code of telephone etiquette.

Technology continues to outstrip our ability to come up with common courtesies that are consistent with our past practices, yet meet the demands and opportunities which new gadgets offer. That fact is nowhere illustrated more clearly than by modern telephone systems.

I used to work in a hospital public relations department where my boss made answering the telephone the most important task. The hospital, like many other businesses, must have spent a couple hundred thousand dollars on a sophisticated phone system that took voice messages, provided a display to let you know who was calling and other features that, despite their utility, escape me at the moment.

One day, my boss got a jab from her boss, a sardonic administrator who decided that a human being, not a machine, should always answer the telephone in our office. No one was to go into the automated messaging system until he spoke with a human being first. Here is where the absurdity begins.

Our receptionist, a dutiful woman determined to be perfectly compliant, thereafter would tear off in full gallop as soon as the telephone ringer summoned, endangering everything and everyone in her path. That meant that any face-to-face conversation with her, no matter how important, would be cut off and deferred until the incoming call was completed.

Sometimes another call would beckon while she was on the first, in which case she would cut off the first caller in mid-sentence and put that person on hold so she could take the second call. Often the result was that a couple of callers, plus the frustrated co-worker in the office, were left hanging in limbo while the inquiries were answered or calls routed.

All too often, the very people who were to be served by the system found themselves on hold because the person who answered the phone had to take another call.

That’s when it hit me: If these things are so great and we’re willing to spend lots of money on them, why do we break our necks to avoid using them?

In the interest of getting a dialogue started to come up with reasonable standards for the use of the telephone, I’ll throw out a few suggestions:

  • The decision to interrupt an in-person conversation to answer the telephone should be made applying the same criteria that one would use if someone were to turn up at your office unannounced. Of course you need to be flexible. There are calls that demand immediate attention and there are in-person conversations that are less than vital. Just use a little horse sense.

  • Unless you’re expecting to hear from Bill Gates, let incoming calls slip into your automated system when you are on another call. Retrieve them promptly and respond as soon as possible, just as you would if your receptionist handed you a message she took when you were out to lunch.

When you reach an automated system:

  • Follow closely the instructions for leaving a message. Provide details, but avoid relating your life story to a machine or a human.

  • Don’t exaggerate to get results. A public relations person recently left a message at our office and described her call as urgent. In fact, it was a routine pitch for her client.

I’d like to hear your suggestions for a better telephone code of conduct, including reasons why my thinking might be short-circuited. You can, of course, call me at (412) 321-6050, where you will get either me, another courteous human being or our automated system, send e-mail to rmarano@sbnnet.com, or write to SBN, 800 Vinial St., Suite 208-B, Pittsburgh, Pa. 15212. Ray Marano is associate editor of SBN Pittsburgh. Former employers have harbored concerns about his radical ideas concerning use of the telephone.

Monday, 22 July 2002 09:57

Wrangled Wisdom

I stopped in a well-known quick-service restaurant one afternoon. It was the height of the lunch hour, and needless to say, the restaurant was quite busy.

I was unfortunate enough to stand in line behind two women who waited until the young man behind the counter asked “Can I take your order?” before trying to figure out which greasy entree they wanted. They proceeded to engage in a friendly joust with the good-natured fellow, who overindulged the ladies at the expense of other customers.

The woman who appeared to be the shift supervisor noticed that the guy at the register was holding things up and threw herself into a couple of transactions to try to move him along.

At one point, the supervisor looked at me and said, “You’ve been waiting for a while, haven’t you?”

To which I replied something to the effect of, yes, a little longer than I expected or was accustomed to. She took my order, filled it and offered it to me at no charge. I protested, but she prevailed. I thought it was a nice gesture.

It wasn’t her fault that the customers dillydallied, but she did take responsibility for her employee’s inability to keep things moving. I walked away with a good feeling about the restaurant, the company and the manager. Had things gone another way, I might have decided to never return. I might even have provided a little bad word-of-mouth advertising for the place.

I used to work in the retail food business, and had every kind of spoiled foodstuff imaginable shoved in my face. Most complaints were legitimate, although annoying, and I usually managed a smile, an apology and a refund.

Some customers pushed a little farther. Every week, one brought back a quart carton with about a spoonful of sour milk at the bottom, or a tub with a little bit of green cottage cheese in it, complaining that it had gone bad. It was several weeks old, judging by the expiration date.

I wondered why, if she kept getting spoiled products at our store, she continued to shop there. Or why she hadn’t checked to see if her refrigerator was working properly. The answer was simple: She had figured out a way to get something for nothing.

Some of my co-workers would fume over having to give her — or anyone — a refund before doing something short of appointing an independent counsel. The thing they were overlooking, though, was that most of these customers came in every week and spent $50 or $100 or more. Extrapolate that over a year and you’ve got several thousand dollars worth of business from each customer. Put together 10,000 of them shopping every week and you get the picture.

Obviously, you don’t want to let your customers take it too far. One of our shoppers figured out that if she bought certain merchandise, used a coupon to reduce the price, then later brought it back and got a refund for full price, she could pocket the difference. A can of this or a jar of that would have gone unnoticed, but this customer decided she was going to make a part-time job out of her coupon scam.

Conveniently, she never had a sales receipt. She lost it or threw it away or the cashier never gave it to her, she’d claim. It became obvious that this was a scheme that was more than annoying; it was actually causing harm to the companies that issued the coupons.

Enough of this goes on and we stood the real, although remote, chance of being accused of fraud ourselves. This, we decided, was worth putting a stop to. And we did. We required that she produce a receipt if she wanted future refunds. The scam stopped.

How far should you go to satisfy or earn a customer’s loyalty? How do you know if they’re assuming that this is part of the relationship or simply ripping you off? Where do you draw the line? When is it time to give up on a customer, to throw away thousands of dollars of business because it’s just too expensive to handle?

I help business people figure out how to do these things for themselves, but I don’t envy those who have to make these kinds of decisions every day. I certainly don’t know the answers, but I’ll tell you from my experience, a free lunch never hurts. Ray Marano is associate editor of SBN. Reach him at (412) 321-6050 or by e-mail at rmarano@sbnnet.com — assuming he’s not out looking for his next free lunch.

Monday, 22 July 2002 09:57

The great donut rebellion

Paul Sattler knows almost everyone who comes into his Donut Connection shop in Carnegie. He greets people and addresses many of them by name. He pauses briefly to kibitz with the letter carriers and the senior citizens who sit at the counter or in one of the orange booths sipping a cup of fresh-brewed coffee and munch on a doughnut.

He likes his business, accepts the long days that a retailer has to endure and likes calling the shots. He and his wife, Joanne, who helps him run the store, have done pretty well in the last eight years, and he says they are seriously considering a second location.

Jim Edwards operates five Donut Connection stores in the Pittsburgh and Washington, Pa., areas. He’s been at it for more than two decades and, like Sattler, still enjoys a business that is often tough and rarely boring. He’s on the job virtually 24 hours a day, and although he has to handle myriad problems, from equipment failures to personnel issues, he revels in the independence.

But things haven’t always been so sunny for Edwards, Sattler and other former Mister Donut franchisees. The sale in the early 1990s of their former franchiser threatened their ability to keep their businesses afloat and sparked a rebellion by these hardy, independent-minded entrepreneurs.

The backlash ultimately led Sattler, Edwards and others into a successful effort to leave the franchise fold and form a new cooperative organization under a new name and a significantly different — and friendlier — business structure.


A crisis looms

In 1991, Sattler had been a Mister Donut franchisee for about a year. A former Mister Donut district manager squeezed out of his job by downsizing, Sattler opened his own shop. Now, he was facing another change, this one at the franchiser level. American Multifoods, parent company of the Mister Donut franchising operations, had decided to sell the doughnut shop franchise to its giant competitor, Dunkin’ Donuts.

On the face of it, it would seem that converting from Mister Donut to the better-known, slickly marketed Dunkin’ Donut marquee would be a boost for the franchisees. Dunkin’ Donut thought it would be a boon, too, predicting a 40 percent jump in business when the changeovers took place.

But for Sattler, who was still bearing the burden of start-up costs, the expense of renovating his store would have been a crushing burden. Sattler figures it would have cost him $40,000 at minimum to implement the changes Dunkin’ Donuts demanded.

Sattler and other franchisees were uncertain the changes would bring the level of sales that would justify the expenditures. On top of that, fees to the franchiser would have amounted to about 12 percent of sales, considerably higher than what franchisees had paid to Mister Donut.

“I just couldn’t see how I could have been profitable,” says Sattler.

For Edwards, the modifications could have put him out of business.

He estimates it would have cost him $500,000 to make the changes necessary for conversion of his five units to Dunkin’ Donuts. Taking on that kind of financial burden, he says, could easily have forced him into selling his shops.

“The financial end of it was so onerous, with the tremendous advertising fees and franchising fees that they required,” says Edwards.

To make the change even less attractive, Mister Donut, with 36 stores in the Pittsburgh area versus a dozen Dunkin’ Donuts at the time, had accumulated considerable goodwill in the Pittsburgh market.

“It was terribly hard to give up the Mister Donut name,” Edwards says.


What a franchise does

Franchising can be a fast-track way for an entrepreneur to step into business and avoid some of the obstacles faced by start-up owners, according to Ken Franklin, president of Franchise Developments Inc., a Pittsburgh-based consulting firm. He says a franchise can offer a business instant credibility if it has a recognizable image to its target customer.

Franchisers typically offer an off-the-shelf business plan and tried-and-true methods to help an entrepreneur succeed. They can help with site location, marketing and advertising, financing, training and support services. Many entrepreneurs, Franklin says, find a level of comfort in owning a franchise because it makes them feel like they are part of a larger organization, especially in the early stages. That support “is normally what people buy a franchise for. That’s a frightening period of time. That person needs all kinds of help and assistance.”

But that tidy packaging comes at a price. Franchise fees, in addition to the normal start-up costs entrepreneurs encounter, mean in most cases that a franchisee has to hit the ground running. Many franchisers charge a fee for national advertising, and depending on the individual agreement, may stipulate that franchisees undertake periodic remodeling of the businesses to conform to corporate standards.


Beyond the money

There were other things that bothered the Mister Donut owners. Sattler says the Dunkin’ Donuts mentality was fixed on higher coffee sales and more modest doughnut sales than what the Pittsburgh franchisees were used to.

“Pittsburgh’s a doughnut town,” says Sattler.

Still, coffee is a high margin item, and while baked goods offer a wide profit margin, the cost of labor to produce them eats away at the spread. The Dunkin’ Donuts management insisted that profits were tougher to come by because the Mister Donut stores didn’t sell enough coffee. Sattler and the other franchisees agreed, but they didn’t know how to make that change in their customers’ buying habits.

Other programs were forced on them as well, such as a bagel line — efforts costly to maintain yet not widely promising in the eyes of some of the Mister Donut owners.

“You had to do business their way,” says Sattler. “You were more like an executive vice president (than a store owner).”

Dunkin’ Donuts management could be surly and cold, both owners claim. While Mister Donut had been lax in some ways, allowing some franchisees to go for months without paying franchise fees before bringing up the issue, a late payment to Dunkin’ Donuts triggered a nasty letter from the franchiser’s lawyer, plus a $75 bill for the legal fee to prepare the action, Sattler says.

In the wake of the sale of the franchiser, the Mister Donut owners had the options of joining as Dunkin’ Donuts or “de-identifying” their stores, removing all traces of the Mister Donut identity. But a group of franchise owners decided they wanted to continue to operate as Mister Donut.

They put together a legal fund of several tens of thousands of dollars, went to court and sued to be allowed to keep the name.

They lost the suit.


Donut co-op

That’s when they decided to make a go of it outside of Dunkin’ Donuts. But they weren’t interested in starting another franchise. Instead, they formed a buying cooperative.

The group started out with about 100 store owners out of the 500 Mister Donut stores, but lease commitments and other considerations pared the number to about 80. The owners then met in Harrisburg and selected an executive committee to oversee the establishment of the cooperative.

The new company, Donut Connection Cooperative Corp., is essentially a franchise, but without the large franchise and advertising fees. It’s owned by the franchise operators, each of whom pays a small royalty fee on purchases through the cooperative and is required to purchase stock in the company (see sidebar).

The big advantage for the former franchisees is that they save a considerable sum in franchise fees. Rich Beazley, Donut Connection’s general manager, say s franchisees can expect to put $30,000 to $50,000 in their pockets in fees that would otherwise have gone to a franchiser.


Favorable factors

While the transformation was by no means simple, Sattler and Edwards agree that the owners had several factors in their favor.

  • Individual Mister Donut franchisees had three years, ending in 1995, to decide how they were going to continue in business. They could convert to a Dunkin’ Donut franchise, dismantle the Mister Donut identity or close their doors. That bought time for Mister Donut operators to put together a plan for conversion, says Edwards, and present the idea to owners considering their options. “That gave us a chance to get stores willing to switch over,” Edwards explains.

  • The owners already had an arrangement with a supplier and local distributors, so setting up a buying cooperative, the most valuable piece of the program, was relatively easy. The group worked closely with suppliers during the transition, keeping them apprised of conversions so that the suppliers could anticipate changes in their purchasing. They were able to reduce inventories of supplies displaying the Mister Donuts identity and switch over to Donut Connection items.

  • The Mister Donut franchisees were united in their purpose and focus. While they struggled with individual issues, according to Edwards and Sattler, members were willing to compromise and come to a consensus.

    “Not anyone in the whole group got their whole choice all of the time,” says Edwards. “Nobody got too bent out of shape along the way and decided to go their own way.”

    Not insignificant was the owners’ will to succeed without Dunkin’ Donuts.

    “I guess we were just determined to not let Dunkin’ beat us,” says Sattler.

  • Individual operators had strong ties to their customers, so they weren’t dependent simply on the name. Sattler and Edwards admit they harbored fears that sales would tail off once the name was changed, given the strength of the Mister Donut name. Edwards says the owners experienced some anxiety when it came to crafting a new name.

    Beazley, who was working for Dunkin’ Donuts at the time, says the assertion by the owners that they hadn’t lost sales once they made the switch was scoffed at by the competition. But when he came on board to manage the business, he found that sales had, in fact, held fast. He attributes that largely to the customers’ apparent loyalty to the operators and not simply to the name.

    “They’re going to Paul and Joanne’s doughnuts,” Beazley says.

    The name change had little impact on sales due to customer loyalty to location and owners and a new name that clearly defined the business.

    “I would think that with Mister Donut, the location is probably what drove them there,” says Gayle Marco, associate professor of marketing at Robert Morris College. She likens the Donut Connection situation to that of the perceived brand loyalty to particular typesof gasoline that was prominent up until the early 1970s. The brand loyalty was more likely location loyalty, in which customers connected with a particular brand because of the convenient location of a particular service station.


Going forward

With shifting consumer buying habits that indicate a shrinking appetite for doughnuts and other pastries, stores like Dunkin’ Donuts and Donut Connection will likely need to shift their product offerings to include other items, such as bagels, to retain sales. Dunkin’ Donuts has made the shift with bagels and soup to bolster sales. Presumably, other operators will need to adjust to market preferences as well.

For Beazley, the challenge for Donut Connection is in gaining a foothold in markets where Donut Connection isn’t a recognized name. Without a full-scale marketing program, most new franchisee prospects come through word-of-mouth referrals.

True to the independent spirit that led the franchisees to strike out in a new direction, Sattler says it’s not easy to find an operator willing to take the risks, put in the time and effort and be essentially self-reliant.

“Finding the right franchisee” is the biggest challenge for Donut Connection, Sattler says.

Donut Connection offers owners autonomy, but little in the way of packaged solutions for their businesses.

“It’s not a nine-to-five job,” Sattler warns. “If that’s all you think you’re buying yourself, forget it.”

That may be the most important connection of all.

How to reach: Donut Connection, Richard Beazley, (412) 278-1880; Ken Franklin, Franchise Developments Inc., (412) 687-8464

Monday, 22 July 2002 09:57

Entrepreneurial Success

For Mary Cepicka, there’s no magic formula for entrepreneurial success.

“My secret to success is that we did 12 years ago, and still do today, emphasize customer service,” says Cepicka.

Without a doubt, Cepicka lives and does business by that standard. Her company, Temporary Office Personnel Services, or TOPS Inc., has enjoyed a 10-fold growth in revenue since she founded it in 1987.

In the current business environment, says Cepicka, outstanding customer service is all too rare. The entrepreneur willing and able to provide good customer service, she says, is going to be a standout.

Cepicka founded Temporary Office Personnel Services in 1987 after working for five years with Kelly Services. Her business did $1.2 million in business in its first year. This year, Cepicka expects it to reach $12 million in revenue.

Cepicka, who was nominated for the award by PNC Bank, started the business with the financial help of a customer, whose interest she purchased two years later. She got a boost for her entrepreneurial venture with the help of an SBA-sponsored loan in 1990.

Monday, 22 July 2002 09:56

Are you a travel agent?

Escalating health care costs in the last decade gave rise to managed care. Could managed travel be the answer to controlling business travel costs?

Runzhiemer International Inc. estimates that the median annual cost of business travel for American companies is $1.4 million. Obviously cutting even a fraction of that could mean a tidy savings.

John Ackerman, president of E-Travel Inc., a Concord, Mass., company that produces software for just such purposes, says that to realize travel savings, corporations must establish a travel policy consisting of negotiated rates with preferred airlines, hotels and rental car companies. That’s an arrangement not unlike the type struck by managed care companies on behalf of their subscribers with health care providers.

Ackerman suggests companies can enforce their corporate travel policy through online corporate travel management software tools. His company’s software, for instance, allows automatic booking with preferred vendors.

Companies can work deals with an airline for reduced fares, but such agreements usually stipulate they purchase seats on a specified number of flights. Employees traveling on business, however, often have their own agendas, says Ackerman, and regularly stray from corporate policy to serve their own ends, usually to accumulate frequent flier credits for their personal use.

But will employees gripe if they can’t use their own travel agent?

Find E-Travel at www.e-travel.com.

Monday, 22 July 2002 09:56

Time again for golf marketing

Think it takes a lot to buy a hockey team? Imagine what it takes to put on a celebrity golf tournament for charity.

Mario Lemieux gets a lot of help in making the Toyota Mario Lemieux Celebrity Tournament a success. Besides the list of notables who participate in the event June 10-13 at The Club at Nevillewood, local businesses line up to lend a hand to fill the myriad needs that event requires.

Obviously the celebrities are the big attraction, and The Club at Nevillewood offers the venue. But there are many other locals who contribute to the success of the event, which raises money for the Mario Lemieux Foundation and, in return, get a fair amount of marketing bang for their buck along the way.

Most of the foundation’s funds go to cancer research at the University of Pittsburgh Cancer Institute. Among the vendors contributing this year:

  • Duquesne Litho will donate the printing.

  • Metropol/Rosebud owner Robin Fernandez will provide space for the auction party and serves on the executive committee.

  • Pittsburgh Online hosts the event’s Web site and is providing e-mail service.

  • Lemieux’s personal massage therapist, Tom Plasko, will provide massages for the celebrities during the tournament.

  • Guy Volpe of Wholesale Produce is donating fruit.

  • Dennis Gilmore of Carpet Sculptures will provide the carpets.

  • Bill Sarris, Sarris Candies, is donating chocolate golf balls.

  • Jeff Ballilna of Premiere Foliage is providing flowers and plants.

  • Ed Wildauer will cater the tent party and sky boxes.

  • All Occasions will donate party linens.

Tickets are available at Giant Eagle stores, which are offering a discount to Advantage Card members, or by calling (412) 278-1066.

Monday, 22 July 2002 09:55

Lessons of loyalty

For Darryl Robinson, the darkest day at TriLogic Corp. was when the company went to federal bankruptcy court to file a petition for reorganization.

“That was a real low point for me,” Robinson, TriLogic’s vice president, who had been with the company only a short period at the time, describes the company’s Chapter 11 filing in 1997. “At that point, there was a realization that took place that we had a hell of a lot of work to do.”

But for Eric Bruce, the company’s president and founder, rock bottom came not at the point of Chapter 11 bankruptcy, but when a group of key employees jumped ship with one of Bruce’s former partners.

“I value friendships,” says Bruce, president and CEO of the now-reorganized and fast-growing TriLogic. “A very large portion of the people who left here were real close friends of mine, and it was not the best of circumstances.”

Bruce and Robinson see the events from different perspectives. For Robinson, a numbers man relatively new to the company, it is understandable why the bankruptcy would loom large in his memory. He came to TriLogic because he viewed it as an opportunity and a challenge. The fall into reorganization, though, meant long days making tough decisions and facing hard choices, not to mention the possibility that, despite his efforts, the company could fail.

For entrepreneurs like Bruce, however, business-building is a long process of forging relationships based on trust and respect, often resulting in connections that come to feel like, if not manifest themselves in, friendships. It’s one thing when your business goes elsewhere. It’s quite another when your friends and long-time employees do.

Ironically, while questions of loyalty brought the company to its proverbial knees, another kind of loyalty breathed new life into the once-dying company.

Thanks to a few loyal customers and some painful lessons learned on the way to a full turnaround, Bruce and Robinson have almost entirely recaptured their previous success — and created a new company in the process. Here’s how they did it.


The crashes of ’95

All companies hit rough waters from time to time, but with good management and strong fundamentals, most ride out the storms. Any one of the maladies that struck TriLogic in 1995 could have been overcome, although not easily, but Bruce is convinced that none by itself would have destroyed the company he started in 1984. Combined, however, they threatened a knockout punch.

The difficulties began in early 1995 when one of Bruce’s partners left and took 17 employees with him. “It’s very, very difficult to replace that many people in a technology company,” Bruce says.

It’s clear that Bruce doesn’t like to talk in any detail about the exodus of nearly half of his 35-employee work force, the first of a trio of blows that year which buffeted the company and eventually knocked it to the mat. He’s convincing when he says that he has a positive attitude and chooses not to dwell on the painful past or the hint of bitterness that might still be lodged deep in his heart. But there is little doubt that the experience hurt and struck as deeply as the loss of money or the failure of a business might have.

The split came at least in part because Bruce and his partner were at odds over how the business should move forward. His former partner’s solution, Bruce says, was to sell more hardware in an increasingly competitive market that was squeezing profit margins. Bruce saw the company’s future in software and consulting, developing what he calls “end-to-end” solutions for customers, from cabling and software to training and consulting.

Adding to TriLogic’s woes later that year was a virtual halt in orders from the federal government — one of the company’s largest purchasers — stemming from a delay in Congress in reaching a budget agreement.


A laming loyalty

In a cruel irony, Bruce’s loyalty to his hardware manufacturer had left TriLogic vulnerable as well.

“I was a dyed-in-the-wool Digital guy,” says Bruce, who had worked for computer giant Digital Equipment Corp. before launching TriLogic. His company’s exclusive relationship with Digital worked well, and TriLogic still purchases from the company.

But Digital began to have its own problems in 1995. It reacted by pulling in its credit lines for customers who needed to finance the purchase of Digital computers — a move that made it difficult for TriLogic to ship Digital products to its customers.


Bankruptcy

TriLogic grew at a strong clip during the 1980s, and by 1994 had hit the $24 million mark. But sales slipped to $20 million in 1995 and still further the next year. With its mounting problems, TriLogic’s customers, employees and bank began to lose confidence in the company, and sales continued to decline.

By early 1997, it was all too clear: TriLogic would have to reorganize or risk going under. So on Feb.7, the company filed a Chapter 11 petition in federal bankruptcy court in Pittsburgh. If losing his employees was the most painful installment for Bruce, the bankruptcy was the toughest.

“It was probably the worst thing I’ve had to go through,” says Bruce.

With help from Cornerstone Capital Advisors, a downtown turnaround firm, a $900,000 loan from Keystone Minority Partners and a $2.3 million line of credit from PNC Bank Corp., TriLogic got back on its feet — and rather quickly. By August, it had emerged from reorganization, revitalized and on its way back.


Hard lessons

Bruce has come away from the fall and rise of TriLogic with some valuable, if hard-earned lessons, and all indications are that the company has been tempered by its battle with adversity. With new products, some lucrative agreements with private industry and government clients and a shift in focus, Bruce is confident that a return to the $24 million sales mark is on the horizon.

He is eager to put the bruises of the past behind him, but isn’t likely to forget the lessons these lessons he learned during the past four years.

  • Be willing to change directions. TriLogic was launched primarily as a hardware vendor, but as the market became more competitive in the late 1980s and a recession hit in the early 1990s, hardware providers scratched to capture market share and pricing grew cutthroat. Resellers like TriLogic got caught in the squeeze. Bruce says the faster TriLogic ran to keep up, the farther behind it found itself.

    His vision, Bruce says, was to shift the company’s emphasis to services like training, consulting and network design as its primary offerings. His former partner resisted, and that, says Bruce, was partly responsible for getting the company into trouble.

    TriLogic now stress the applications and consulting side of the business. Hardware is still important, but now it’s a “pull-through,” says Bruce, who describes the concept as an additional revenue stream that is fed by the rest of the business.

  • Get outside advisers. Bruce says the help of outside advisers was crucial in getting TriLogic back on its feet. Cornerstone Capital Partners, a Pittsburgh turnaround firm, was key, says Bruce.

    “Believe me, it really helps to have a fresh look,” says Bruce.

    Turnarounds amount to putting a company into intensive care and utilizing professionals in a variety of disciplines, from financial and accounting pros to human resources and marketing experts, to fix the problems.

    “The turnaround professional is going to be working the deal 20 hours a day,” says Don Linzer, a shareholder with Schneider Downs & Co. who heads its mergers and acquisitions group.

    Linzer says a turnaround team will come in and do a quick “smell test” to isolate problems, figure out what’s goin g on and what needs to be fixed immediately.

  • Don’t rely too heavily on any one vendor or customer. “Up until Digital had their problems, they would have done anything for us,” says Bruce. But when Digital began to slip, TriLogic found that it was just another customer.

    TriLogic had a comfortable but ultimately unhealthy dependence on Digital Equipment. When Digital saw the need to pull back, a relatively small company like TriLogic had little leverage against the ailing giant.

    “Don’t put all of your eggs in one basket,” advises Bruce. The company still buys from Digital, but to hedge its bets, has established relationships with a number of vendors, including IBM, Microsoft, Cisco Systems and Novell.

  • Build alliances with strategic partners. “You have to realize that the real way of getting things done in the global economy that we’re dealing with is to have partnerships,” says Bruce.

    TriLogic hasn’t wasted any time in building those kinds of relationships. It has struck a relationship, for instance, with an Australian partner that offers a software product which allows the development of applications. The company also has struck a deal to act as a reseller for Filemark, a Natick, Mass., company that is a leader in information archival, retrieval and distribution solutions.

    Last fall, the company landed a five-year contract with the General Services Administration to provide hardware, software, information technology and desktop and technical training to the federal government.

  • Loyalty helps — if you can deliver. Without strong relationships with a few key customers, TriLogic likely would be out of business today. While Bruce’s loyalty to Digital almost sank TriLogic, his company’s performance for a few key customers proved invaluable in its resurgence.

    “The critical factor for us was we had a couple of customers who stuck by us,” says Robinson. The City of Pittsburgh continued to purchase from the company, and both Robinson and Bruce have high praise for the University of Pittsburgh Medical Center’s decision to continue to do business with TriLogic during its early troubles and through its bankruptcy.

    Bill O’Connor, UPMC’s director of purchasing, says the company’s candor played a role in his decision to continue to work with TriLogic.

    “They gave us fair warning and told us they were going to have problems,” says O’Connor.

    But TriLogic’s honesty wasn’t the only reason UPMC decided to hang in. Over a relatively short relationship to that point, TriLogic was able to demonstrate that it could deliver what UPMC needed.

    “We gave them some very difficult things to do early on, and they performed and acted with very high

    integrity,” says O’Connor. “Everything we asked them to do, they were able to do.”

    So O’Connor went to bat for the ailing company, working directly with manufacturers to ease payment terms and letting them know that they weren’t going to get stuck if TriLogic flopped.

    “We assured the manufacturers that, as long as we got product, they were going to be paid,” says O’Connor.


The last ingredient

Bruce and Robinson are a lot more relaxed these days. Instead of a failed business behind them, they are looking forward to moving TriLogic’s headquarters to a new facility in prestigious SouthPointe, just across I-79 from its current Canonsburg location. That’s a far cry from the situation the company faced just two years ago.

Without the Chapter 11 process, Bruce contends, the company wouldn’t have had a chance to survive. Beyond that, good relationships with customers, access to capital and a willingness to make a fundamental change in the way the company does business have been instrumental in the company’s resurgence.

But there is one factor that may have been the critical one, the one without which the others likely would have gone fallow. Ultimately, says Bruce, survival depends simply on guts and determination. And those, he says, “you have to provide that yourself.”

Monday, 22 July 2002 09:53

Living on the edge

Marcus Ruscitto was playing golf at a resplendent country club in California’s Napa Valley in the summer of 1997 when the call came that sent his life and his company on a wild ride over the next several months.

It’s a ride most entrepreneurs take — a ride that continually carries you to the edge of corporate sanity. It’s a ride that, again and again, drives you to the edge of success or failure as you take breathtaking chances on a road wrought with dangerous twists and turns. And it leaves casualties. But it’s a ride you have to take to avoid the certain death of your venture.

It’s a ride Ruscitto knows well, thanks to a driving test that would prove to be pivotal in the survival and success of this now-weathered young entrepreneur and his growing company. This is the story of that ride.

But make no mistake. As Ruscitto would be quick to affirm, it’s only one experience on a journey that requires the gumption to ride again and again as he lives on the entrepreneurial edge.

Ruscitto and some of Stargate Inc.’s other top brass were attending a trade show when they got word on the golf course from the owner of USA OnRamp, a local Internet-access competitor that Stargate had been seeking to buy: Another company was poised to snatch it.

Stargate’s deadline for raising the necessary capital was at hand. Worse, the company had put up more than $100,000 in hand money that it stood to lose if the deadline passed without a deal. Still, this was an acquisition Stargate considered crucial if it was going to carry out its ambitious business plan.

“They apparently got an offer from a company that was quite large and had the ability to pay immediately,” says Ruscitto, now 29 years old.

Ruscitto’s heart sank. He didn’t let his cohorts know he was thrown off his axis, but inside he was shaken. The news meant that, after months of negotiations, a well-heeled competitor was ready to take the prize that Ruscitto believed Stargate needed to become more than just another Internet service provider.

“A company with a flat growth curve is not where I wanted to be,” says Ruscitto. “That whole deal was what the business plan was all about.”


Make-or-break deal

Prior to that deal, Tom Certo, CEO of USA OnRamp’s owner, Gemini Holdings, and Ruscitto considered themselves friendly rivals in the same emerging industry. They chatted periodically about the future of their respective ventures. They discussed options: a merger, either with each other or another company; acquisition of one by the other; or taking on equity partners.

By the summer of 1997, Pittsburgh-based Gemini Holdings decided the time was right to sell, and Stargate was convinced it was time to buy. USA OnRamp offered Ruscitto an operation with a downtown Pittsburgh presence, a benefit, since Stargate was based in far away Belle Vernon. USA OnRamp brought to the table a skilled labor force of 25 employees, which would double Stargate’s size. It was also its biggest local competitor.

With a large cable company calling on USA OnRamp, Stargate would face an opponent that likely would end up being the proverbial 900-pound gorilla.

The deal wasn’t dead, but it was in serious danger. Gemini Holdings would give Stargate a chance to raise the cash to make the deal work, but Certo wanted something in return and a cushion against anything that threatened his company’s plans for divestiture of USA OnRamp within its timetable.

Gemini’s proposal: Stargate would put in escrow a substantial chunk of cash — more than $100,000 — to extend the deadline for a chance to raise the money to finance the acquisition. If the company failed to get the deal bankrolled within the assigned period, Stargate forfeited the money.

Stargate, like many fast-track technology companies, was long on potential but short on cash, and Gemini Holdings was asking it to give its interest in USA OnRamp some teeth.

“I think they were thinking along the lines of a bird in the hand is worth two in the bush,” says Ruscitto. In any case, Stargate would have to act quickly.

While Ruscitto was convinced he could raise the cash, putting up the earnest money posed a problem.

“We had to beg, borrow and steal the money,” says Ruscitto.

Stealing the money is, of course, hyperbole, but Ruscitto is serious when he says he had to put the company on the line to land USA OnRamp. Failure to close the deal, Ruscitto says, would have threatened the company’s future.

“To languish would have been a best-case scenario,” Ruscitto says. “That was really almost putting the whole company on the table.”

But Certo and the other shareholders at Gemini Holdings had made up their minds. Their best bet was to let go of USA OnRamp, and if they gave Stargate more time to make the deal work and it failed, the delay could put an eventual sale too far into the future to coincide with Gemini Holdings’ own growth plans.


Of youth and ambition

Stargate, an up-and-comer in the Internet provider industry, had grown rapidly since Ruscitto cashed in $100,000 in stock to launch it in 1995. The company arose from the tinkering of his younger brother, Michael, an adolescent techno-wizard who, while in high school, grew impatient with sluggish Internet connections and decided to build his own.

Although Marcus had scant knowledge of the Internet, he soaked up articles from magazines and technical journals, and the brothers formed a venture to sell Internet access services while still in their parents’ Peters Township home. They quickly outgrew their space and moved to a building the family owned in Belle Vernon.

The company grew, but Ruscitto knew that if their fledgling venture were to be taken seriously, it would have to have a presence closer to the Golden Triangle. Growth through acquisition, he believed, was the track that would take the company to prominence in an industry beginning to take off.

When an opportunity came to acquire USA OnRamp, Stargate saw it as a chance to solidify its hold on Western Pennsylvania and become the region’s top Internet service provider.

But Ruscitto met with resistance, not the least of which came from his accounting advisers at Ernst & Young.

“They told me there was no way we would get it together that quickly,” says Ruscitto.


Finding the money

Lining up the meetings to make presentations was itself a laborious task. The company faced numerous cancellations and scheduling conflicts.

“It was almost like cold calls and rejection combined

with the tremendous deadlines,” Ruscitto says. “Every day that ticked away you were closer to that escrow being closed on.”

Ruscitto made seemingly endless presentations to prospective investors, explaining again and again the company’s vision and why the acquisition was the right move. Some appeared eager, only to back out when it came time to come up with the money. Some simply said, “It’s not the right deal.” Others said, “Come around later.” And still others responded, “Maybe we’ll come in on the second round.”

But Ruscitto knew there would be no second round if there wasn’t a first.


Wearing the game face

Ruscitto was feeling the pressure as the days ticked by, but did his best to keep anyone from seeing the strain he was under.

“Even though it was probably eating him up inside, he never really showed it outwardly,” says Shawn McGorry, Stargate’s COO (see sidebar).

When it looked like the wheels were about to fall off, Ruscitto would simply say he had no other option but to get the financing together, says McGorry. Without it, the company was in danger of going under.

Throughout the quest, there was a business to run. The closed-door meetings, the moods of t he executives and the fluidity of the Internet market fueled speculation in Stargate’s work force. Confidentiality and competitive restrictions shackled Ruscitto and the key people on the inside track from keeping the employees informed, but they told them as much as they could.

“We tried to be as honest and forthright to our employees as we could possibly be,” McGorry says. They asked for patience and trust that what the managers were doing was for the good of the company.


A successful landing

Finally, the prime investor prospects were winnowed down to one, Pittsburgh investment banker RRZ Capital, which ultimately took a 45 percent stake in Stargate.

But these deals typically are slow to wrap up. On Nov. 16, the day the escrow was due to close, RRZ reportedly was close to coming across with the financing, but a few crucial details remained unresolved. Stargate and RRZ invited Gemini Holdings to a meeting and told the principals that, subject to due diligence and the numbers working out as they were represented, financing would be available. Certo and Gemini agreed, and by January, the sale closed.

Certo knew he had set the bar high, and realized that it would be tough to pull off the financing in the time allotted.

“I was pleasantly surprised,” he says.” I will admit I had my doubts.”

Certo wanted to give Stargate a chance, given that they had worked on the deal for a considerable amount of time. According to Certo, the fact that Stargate was working with a local investment group meant that it would be more likely to pull off the deal.

Stargate’s employees, too, demonstrated their confidence in the company. On the morning after the announcement that the deal was on, employees treated the top managers to a champagne breakfast at the Belle Vernon headquarters.


Always on the edge

Since the USA OnRamp deal closed, Stargate has moved on to other tasks. Any venture faces its share of growing pains, and Stargate won’t escape at least some of them. Melding two company cultures and networks and moving into a new headquarters in the Strip District have been big efforts, and not without casualties.

A few employees, uncertain about where they fit into the new structure or uneasy about the move to Pittsburgh, moved on to other jobs. And in light of what the company has planned for its future, including an initial public offering in the next two years, there could be a lot more dizzying changes.

Ruscitto claims that Stargate turned cash positive in August of last year. Moreover, the growing company landed a $15 million line of credit from Fleet National Bank of Boston that allowed it to recapitalize and arm a war chest for more acquisitions, such as its purchase of Pittsburgh Online in June. And Ruscitto says others are on the horizon.

With some distance between Stargate and the watershed event that has been so critical in its subsequent development, Ruscitto says he sometimes wonders what the fuss over the USA OnRamp deal was all about. Still, the memory of the discomfort it caused is enough to make even this veteran risk-taker wince.

“I really don’t want to go through that too often,” Ruscitto says.

How to reach: Stargate Industries at (412) 316-7827 or www.stargate.net; Gemini Holdings, (412)391-0404 or www.gemhold.com Ray Marano (rmarano@sbnnet.com) is associate editor of SBN.

Monday, 22 July 2002 09:52

Information by design

As Mark Dietrick fiddled with a drawing from Burt Hill Kosar Rittelmann’s Philadelphia office while his boss simultaneously did the same from his office in Pittsburgh, the full realization of what an information technology revamp would mean to the architectural firm struck him.

An architect by training, it became abundantly clear to Dietrick at that instant — after 18 months of preparation — that the system the company had spent a good part of 1998 building was going to affect it dramatically in the way it would do its work.

Not surprisingly, the professionals at Burt Hill like to be able to work on drawings simultaneously in two or more cities — one of many features provided by the new system. What might seem a little bewildering at first glance is why it took so long to put such a system into place, given that Burt Hill is a large, progressive architectural firm that has never been technology shy.

The fact of the matter, says Dietrick, chief information officer, is that Burt Hill has always embraced new technologies that allow it to do its work more efficiently and service its clients more effectively. And PC Solutions, the Pittsburgh-based systems integrator that assisted Burt Hill throughout the project, has been helping the firm implement such systems for at least a decade.

But the tendency for technology users has been to add technology without necessarily adding connectivity. As a result, technology systems may work well, but operate independently of one another. There’s also a tendency to milk every purchase for all it’s worth, even if it means passing up opportunities to gain productivity or realizing an advantage with new technology.

“I think we always had technology and are at the forefront of bringing technology to our profession,” says Dietrick. “We didn’t always do it in smart ways.”

Now, Burt Hill is at the vanguard of architectural firms in terms of technology.

“They’ve taken the next step that a lot of companies are talking about,” says Steve Wirth, executive vice president of PC Solutions, who describes Burt Hill as among the top companies when it comes to mature networks.

Without connectivity at Burt Hill, drawings for a project in one location might be developed by professionals and consultants in several locations. Shuttling the drawings around by fax for mark-up and changes meant faxing documents back and forth many times or travel by professionals from one office to another.

For Burt Hill, with offices in Pittsburgh, Butler, Pa., Boston, Philadelphia and Washington, D.C., and projects in cities around the globe, the lack of connectivity was becoming a handicap. By early 1998, says Dietrick, the firm realized there was a need for a change and that the time was right.

It was strong financially, there were Y2K issues to be resolved, and Burt Hill saw the need for a system that allowed its professionals to work more effectively among its various offices.

Visioning

The next step was to determine what the new system would have to do. PC Solutions began by interviewing a cross-section of the firm’s employees, including engineers, architects, sales and marketing executives and administrative assistants.

PC Solutions then developed and recommended initiatives that included Internet connectivity, standardized workstations and software, remote access, Y2K compliance and a host of others.

Implementation

With 400 workstations firmwide (most slated for replacement), and more than 50 software applications and connections to the Internet backbone to be installed, the project had to be implemented over a nine-month period.

Integrators swapped the old computers in groups of about 10 users, two groups a week. The changes had to be coordinated with individual office schedules. Employees then received two days of training while the new workstations were being installed.

What to consider

Companies facing a major IT project should realize that it’s not enough to simply throw money at a technology solution, Deitrick and Wirth stress. The decision will affect the entire organization, its clients and its competitiveness. There must be a visioning process that identifies needs and goals. Consider:

  • Top management must buy into the vision.

    “The commitment starts internally with the management of the firm,” says Deitrick. The clients who are most successful, adds Wirth, “have an appreciation that they could be making better use of technology.”

    The vision then must be sold to the rest of the organization by assessing their needs and keeping them informed as the project progresses.

  • Create a master plan tied to the goals of the organization.

    For Burt Hill, having Internet connectivity means that expertise can be more easily exported from one location to another. An architect in Pittsburgh with special knowledge can work on a project out of the Philadelphia office without traveling across the state.

    It also means clients, along with architects and engineers, can view the progress of their projects over the Internet, even if they are in Russia, the Pacific Rim or the Middle East. The firm’s projects and databases can be accessed from computers at an architect’s home or from a laptop or workstation in virtually any office anywhere.

    Offering clients and customers the opportunity to see their projects’ progress and having access to professionals who might otherwise be hard to utilize are appealing to new prospects and offer a powerful marketing edge, says Dietrick.

  • Make a thorough evaluation of the vendor.

    Wirth points out that the reputation of the systems integrator and the suitability for the job at hand should be the first consideration.

    “You start bidding this out and it doesn’t make sense.”

  • Allow enough time.

    Although Burt Hill’s project was completed ahead of schedule, Dietrick acknowledges that sometimes, he wasn’t sure the deadline would be met.

    “It got a little scary there a couple of times.”

How to reach: Burt Hill Kosar Rittelmann, (412) 394-7000 or www.burthill.com; PC Solutions, (412) 394-7094 or www.pc-solutions.com

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