Daniel G. Jacobs

Monday, 22 July 2002 09:42

A legal web

Assisting business owners with new enterprises is run-of-the-mill stuff for most law firms practicing in the corporate arena.

But when a client requested help opening a venture in South Africa, the attorneys at Kahn Kleinman Yanowitz & Arnson knew they were out their realm.

That didn’t mean they couldn’t help, however. Kahn Kleinman is part of the Commercial Law Affiliates, an association composed of 5,000 attorneys in 210 law firms representing 70 countries. Helping in this case meant referring the client to a South African law firm.

“We called, sent an e-mail, and about an hour later we had the company formed,” says Richard Rivitz, a partner with Kahn Kleinman. “They’re a South African affiliate and (together) we could get things done. The same thing happened in Japan. We needed some answers on how to do some security offerings in Japan.

“We called our affiliates there and we were able to get answers just off the top of their heads that were extremely valuable, that made it possible to go ahead very quickly because of that.”

As business is increasingly global, more and more companies are requiring that type of work.

“The need to have reach all over the place used to be only a problem of the very biggest firms,” says CLA Executive Director Wendy Horn. “As technology has made it easier and cheaper to be in multiple places at once, the number of times you need to find a lawyer somewhere else has increased. Companies literally don’t have the time to do due diligence on their own to track down a lawyer.”

In the last few)months, Kahn Kleinman has referred nearly 20 clients to firms in other cities or countries.

“The main reason that we joined, and the one that is still the driving force, is to serve our existing clients wherever they need to be served,” says Rivitz. “We can pick up a phone to a law firm basically anywhere in the world. The CLA network gives us the opportunity to make referrals to organizations that have the same philosophies and size and response parameters that we like to think we have.”

When a client is referred to a CLA member, the attorneys at Kahn Kleinman can be assured the client will be treated well. That was the case when a client was being sued in Minneapolis, Rivitz says. The referral firm took the case and did a “fantastic job.”

That left the client happy and Kahn Kleinman happy, and the referral firm received fees for a case it most likely wouldn’t have seen except under those circumstances.

What separates the CLA from other legal affiliate organizations is the review process.

“The CLA has asked several firms to leave that don’t match up to the standards,” says Rivitz, who has served on the organization’s board of directors. “We don’t like to see that happen, obviously. If clients are unhappy with a referral, the whole thing doesn’t work. It’s all about serving clients. If clients aren’t serve, then there’s no reason for the organization to exist.”

The CLA is a nonprofit organization with a staff of 10 and an annual budget of about $1.6 million. Member law firms pay dues, ranging from $1,500 to as much as $15,000, depending on the size of the firm and the city in which it practices, to be a part of the affiliation.

In addition to providing quality services to clients wherever they do business, there is also the issue of competitiveness.

“We’re an option or a way for independent law firms that aren’t part of a giant firm to be competitive with their clients that need help increasingly all over the world,” Horn says. “What’s happening right now in the legal industry is that the various firms are merging into larger groups, so there are fewer players and fewer individual law firms. And it’s because clients, even small clients, are selling their products or performing their services all over the place at once.

“Technology has made those smaller companies be able to be global that much faster.”

It’s a trend that will only continue, says Horn.

“In the past, giant law firms may have followed just a few giant clients around the world setting up offices wherever they were doing business. Now medium-sized and even small companies are selling their product or distributing it in 50 countries at once.

“You’ve got all of these law firms that are trying to merge so that they’re bigger and so they can afford to service these clients all over the place.”

How to reach: Commercial Law Affiliates, (612) 339-8680; Kahn Kleinman Yanowitz & Arnson, (216) 696-3311

Daniel G. Jacobs (djacobs@sbnnet.com) is senior editor of SBN.

Monday, 22 July 2002 09:41

Speed of sound

You can almost see Noah Webster spinning in his grave. Technology has driven new words into the dictionary at, well, e-speed.

Of course, it’s that very technology that allows the folks at Webster’s to keep up with the pace, so maybe we can call it an even swap. The latest wave pushing the lexicon envelope is the Web-accessible phone. The folks at Airtouch Cellular have compiled a new list of phrases to introduce their new mobile Web service.

Are you ready for a little language lesson?

Old: Internet browser

New: Microbrowser (it fits on your phone)

Old: My phone ... is a phone

New: My phone is a calendar, to-do list, address book, Web browser ... and a phone.

Old: PDA (personal digital assistant)

New: Smartphone (PDA functionality integrated with phone, fax and Internet access)

Old: Typing

New: Triple Tap (messaging on a phone by tapping the numeric keys to get the desired alpha symbol)

Old: Wired

New: Unwired or untethered (still tapped in, but not with cables)

Old: “My Internet connection is faster than yours.”

New: “My wireless Internet device is smaller than yours.”

Old: Pull (extract information — user initiated)

New: Push (info sent to your phone by personalized Internet service in addition to “pulling”)

Old: Your favorite site

New: Your own tailored site on your Web browser phone

Old: Info when you want it

New: Info where (and when) you want it

Old: Surfing from your office

New: Surfing while waiting in line for coffee

Old: Sitting down for a session on the Web

New: Mobile Web

Old: Point & click

New: Tap & scroll

Old: E-mail me

New: Message me

Old: Keyboards

New: Keypads

How to reach: Airtouch Cellular, (800) AIRTOUCH

Daniel G. Jacobs (djacobs@sbnnet.com) is senior editor of SBN.

Monday, 22 July 2002 09:41


Glen W. Lindemann remembers the days when he felt obligated to apologize for being Figgie International. Even after the once mighty, billion-dollar conglomerate was carved up and the bulk of its divisions sold off, the name “Figgie” still rang cold in the marketplace.

“The first year or so that I was involved in corporate (activities) before we changed the name (to Scott Technologies Inc.), I’d have to explain, ‘Yes, it’s Figgie International, but it’s a different company, it’s different management,’” says Lindemann, CEO and president of Scott Technologies. “I’d go through 10 or 15 minutes worth of almost apologetic explanation before finally getting to the growth story.”

That’s not surprising, considering the heavy baggage that weighs down the Scott/Figgie saga. Any business identity change is complicated, but in Scott’s case, that baggage has made the explanation even longer and the turnaround that much more difficult.

“During the early 1990s, the company fell off-track,” says Mark A. Kirk, senior vice president and CFO, trying to sum up the company’s past. “It lost its focus and found itself in a serious liquidity crisis. The company was in bad need of cash and lost a significant amount of money.”

In simpler terms, former owner Harry E. Figgie Jr. was ousted after a flawed capital investment strategy aimed at automating numerous manufacturing operations left the company in serious debt and its books muddled. When the dust finally cleared, the business was in dire need of a complete overhaul.

Recalls Kirk, “It was almost a survival process. (We said) ‘Let’s just survive. Let’s divest what we can. Let’s get the cash we can. Then we’ll see where we go from here.’”

Picking up the pieces from the rubble was not easy. The new management team — led by John Reilly and Lindemann — developed a highly focused strategic plan to pare the company back to its core, then slowly begin the process of rebuilding it and its name.

Today, with Lindemann at the helm, the company has come full circle, assuming the identity of one of its first acquisitions and strongest divisions, Scott Aviation. Lindemann says the goal is to continue Scott’s growth through the acquisition of companies that complement its line of safety equipment.

“Scott has always been one of the stars within the Figgie company,” explains Larry Baker, an industry analyst with Legg Mason Wood Walker Inc. who follows Scott. “Now that it has emerged as an independent company, it has allowed people to focus on it more clearly. The track record there is excellent and the outlook is very strong. (Scott) is by far the strongest name in their market, in both the health and safety side of the business, as well as the aviation side. We’re urging people to buy the stock.”

The glowing industry reviews are drastically different from those just a scant six years ago, when the Figgie family was ousted in a high-profile shake-up. That set in motion a slow, deliberate return to profitability. And despite the strength of Scott Aviation, as the sole survivor in the company’s massive divestiture, it was left to deal with the aftermath and handle the messy clean-up duties.

But before it could move forward as a new entity, as with the nearly two dozen divisions that were sold off, Scott had to shed its Figgie stigma. Here’s how Lindemann and his team made true believers out of the disenchanted.

Find your sweet spot and exploit it

The focus of the Figgie growth strategy was evident in its business operations of the 1970s and ’80s — function as a conglomerate of multiple companies in different disciplines. The thinking was that the broad-based structure would allow the holding company to weather ups and downs in each industry.

“That was a philosophy for the time,” Lindemann says. “But I’ve always been a great believer of focusing in on your core strength and what you do well.”

That may help explain how Scott Aviation flourished under Lindemann, even in the dark days leading up to Figgie’s eventual implosion. It also explains the new management team’s philosophy after Reilly succeeded Figgie Jr. as company CEO in 1994. At the time, Lindemann was a member of the board of directors and head of Scott Aviation.

Over the next few years, the new team sold off 27 divisions, leaving three — Snorkel, Scott and Interstate Electronics Corp. — as the base for recovery efforts. But even that wasn’t focused enough, and in 1997, the company rid itself of the Snorkel division, which built aerial work platforms. Two years later, IEC, the electronic flight guidance systems manufacturer, was sold as well.

“We really had some businesses in the portfolio that we should not have been in,” Kirk says. “We felt like we needed to reallocate capital in the portfolio, so we divested IEC, which was a business that really just didn’t have good synergy with the rest of our core businesses.”

Scott Aviation was the sole remaining entity. Lindemann and his team had discovered its sweet spot — safety equipment — and the organization was flush with cash for future acquisition of complementary businesses. Explains Kirk, “We created a significant war chest of cash through strong operating cash flow and (selling) every noncore asset that we had.”

Even before the divestiture of IEC, Lindemann and the board realized the Figgie name had to be jettisoned.

“(One concern was) the name itself and the legacy it brought,” Lindemann says. “That’s one of the reasons we changed the name — because we are a different company. Ultimately, we presented to the shareholders the idea.”

A whopping 98 percent agreed.

The change symbolized more than just a break with the past, Lindemann says. It represented the fact that a new company had been formed, especially since Scott Aviation inherited the Figgie name simply because it was the strongest division.

“Our stint within the Figgie conglomerate didn’t really change the direction or the market that the company served,” says Robert G. Berick, director of corporate communications and investor relations.

Rebuild trust

The evolution, de-evolution and rebirth of Scott Technologies reaches back nearly 70 years, to 1932, when Earl Scott, an inventor with a knack for developing aviation products, launched a small firm out of his basement. Shortly after the outbreak of World War II, Great Britain turned to the United States for help equipping airmen with breathing equipment for high altitude bombing runs against the German army.

Scott’s firm was contracted to produce oxygen generators. The inventor parlayed that success into a viable company, which he sold in the late 1960s to the fledgling Figgie. Years later, when Figgie’s massive sell-off was over, it was Scott that survived.

Figgie’s problems stemmed from racking up too much debt, an irony not lost on those familiar with one of Harry Figgie’s ventures into publishing. His 1992 book, “Bankrupt 1995: The Coming Collapse of America and How to Stop It,” spent nine months on the New York Times best seller list.

Figgie wrote about the country’s deficit crisis and the impact it would have on American citizens, as well as on the global economy, when the U.S. becomes nationally bankrupt. He offered suggestions on how to avoid financial ruin.

Hindsight proves him wrong about the country, but he should have applied the advice to his own business. Instead, the company borrowed heavily to acquire businesses and update manufacturing plants. The new divisions couldn’t generate enough revenue to sustain the growth and posted losses in excess of $100 million a year.

Reilly was brought in to keep the company from sinking after Figgie Jr. and his family were forced out in 1994. It was Reilly and his team that started carving up the company. They developed the plan to rebuild Figgie and instilled a renewed sense of trust among shareholders, customers, suppliers and industry analysts.

Today, Scott Technologies is truly a different company than its predecessor was. While Figgie was a Fortune 500 behemoth with more than $1 billion in revenue in 1990, Scott’s revenues of $201 million are more than enough to satiate the management team and shareholders.

But attitude changes and belief in the system don’t arrive overnight. It’s not that easy to bring people back to the table without a hint of skepticism in their eyes when they’ve been burned before.

The company’s first step in rebuilding trust was making sure the cornerstones chosen for the effort were the right ones. All signs pointed to Scott.

“Looking at the three businesses that they had, if you had to have one business that you wanted to be associated with over an economic cycle, Scott was the one,” Baker says.

With the right foundation in place, the new management team set out to make over the company’s tarnished image. That required addressing the sordid issues of the past, something today’s team doesn’t shy away from.

“It’s part of the turnaround and the transformation,” Kirk says. “To appreciate the value that is here today, you’ve got to reflect on the value that wasn’t there a few years back.”

With Scott, there were solid financial returns to pin the rebuilding effort upon. Even in Figgie’s worst financial showings, the Scott division accounted for most of the company’s revenue. And while the division didn’t grow as quickly as the numbers reflected it should have, it was only because much of the money was funneled back into Figgie to keep it alive.

Today, Lindemann acknowledges that was done for survival purposes, but says it was frustrating, especially since he was forced to hold back payments to vendors when the cash just wasn’t in Figgie’s accounts.

“I lived through those eras. Believe me, I know what it was like to be running a division where you had a lot of the corporate overhang that was just killing you,” he says. “We had these wonderful dreams of building a big company. We wanted people to see our results and focus on that. Now, they’re finally able to do that.”

The turnaround was mired with highs and lows. The company’s stock dropped to a low of about $6 a share in the mid-’90s before rebounding recently. In early April of this year, it hovered around $19.

“We clearly demonstrated how we’re going to be a different company and how we plan to grow the company,” Kirk says. “Back in late ’97 when Glen got up here, it was really just a promise. In ’98, it was, ‘We’re building the infrastructure and we’re building the game plan.’ Nineteen ninety-nine really was the year, I think, in the investment community’s eyes, that we really did start the new growth chapter, and we clearly demonstrated to folks how we’re capable of making this a new company. This year, we’ve really started to separate from the past.”

Scott’s reversal of fortune is clearly visible in its earnings reports. Sales reached $201 million in 1999, a 14 percent increase from the $177 million posted in 1998. Kirk expects that trend to continue.

The growth, we think, is just beginning,” he says. “In 2000, we expressed that we intend to grow 15 percent.”

That belief, also present among other company leaders, is tied to recent results. Scott went from an $8.5 million loss in 1998 to $50 million in black ink last year. It’s the type of leap that causes others to stand up and take notice.

“I still participate in a lot of the trade associations and it’s great to be congratulated by your competitors,” Lindemann says. “(It’s nice) to finally be rid of the burden of the past and finally be able to demonstrate a great company. Even the competitors recognize that.”

Growth through acquisitions

If divestiture is a sign of the company’s past, acquisition is the mark of the future. Scott recently announced its third acquisition — Kemira Safety Oy of Finland, a manufacturer of respiratory safety equipment. The move came shortly after last December’s acquisition of Av-Ox Inc., of Van Nuys, Calif., a company that maintains and overhauls oxygen equipment for the airline industry which had 1999 sales of $10 million.

There are more acquisitions on the horizon, Lindemann says, due in part to $65 million in cash earmarked for acquisitions and a $75 million credit line. But don’t expect Scott to suddenly start buying companies in a flurry now that it can. The additions reflect Scott’s long-range plan — steady and targeted acquisition.

“We have to be careful,” Lindemann says. “The investment community looks at what we do. If they can’t see the synergies, if they can’t see the benefits to the shareholders, they’ll write it that way and our stock goes down.”

That helps explain Lindemann’s choosy philosophy. Last year, he walked away from seven or eight deals rather than pay for property that was overvalued due to a white-hot seller’s market.

“We kick the tires and we realize the value’s not there,” he says.

It’s also a matter of complementary operations.

“You find a lot of acquisitions are unsuccessful when companies just buy and strip out costs,” Kirk says. “Ultimately, if you can’t grow the two businesses together, then you don’t create any value. Growth of the top line has to be an important element.”

The acquisition of Av-Ox, and a previous acquisition of Scott Bacharach Instruments, were designed to enhance Scott’s position in the marketplace by expanding product lines and leveraging existing distribution channels. The thoughtful process has not gone unnoticed by industry observers.

“It’s been a sound strategy and very well executed,” says Baker. “A key market, commercial aviation, is in a downturn and they’re still able to put together positive earnings.”

In 1997, Scott titled its annual report “Focus” as a reflection of the company’s new approach. In 1998, the report was “Safety in Numbers.” It was partially a play on words, but also an indication of the important numbers reflected in the company’s growth. That year, Scott conducted business in nine of the 11 largest cities in the country. It dominated 60 percent of the commercial aviation market. The final numbers: $177 million, Scott’s sales record at the time.

The 1999 annual report, which went to press last month, is titled “Focused, Strengthened, Growing,” which represents the three-pronged business strategy. One can only speculate what words will emblazon the 2000 annual report.

Though the turnaround seems complete to outside observers, it’s not. Lindemann says Scott will not rest on its accomplishments and still has much work to do in re-establishing the company’s reputation and strengthening its position in the marketplace.

“We’re a new group of people and going forward,” he says. “The old Figgie philosophies and troubles are theirs. We’re a new company, a new story, and that’s what I want to look at going forward.” How to reach: Scott Technologies, (216) 896-1333

Daniel G. Jacobs (djacobs@sbnnet.com) is senior editor of SBN.

What’s the first thing that comes to mind when you hear the word “Amazon?”

If you’re like most people, you probably mumbled the phrase “dot-com” without even considering the huge river flowing through South America. That, says Dave Cochran, an associate in the Intellectual Property Practice at the law firm of Jones, Day, Reavis & Pogue, is what makes Jeff Bezos’ Web site such a strong brand.

Ten years ago, the word Amazon meant only one thing. Today, it’s got a double meaning.

Everything about a Web site should be designed to draw people in and have them come back. A good domain name can help distinguish your operation from your competitors’, a distinct advantage in any marketplace.

One key to turning your Web address into a strong brand is to register something that has nothing to do with your product or service.

Think weird. Pick a brand that’s odd and does not relate to what you’re doing,” says Cochran, who gave his advice to a gathering of business owners and attorneys at the Jones Day e-commerce conference sponsored by Conley, Canitano and Associates Inc. in March.

Amazon has nothing to do with books, but Bezos was able to change the vernacular. The ordinary, the descriptive, simply won’t do that.

There are a number of electronic postage sites, but none that stands out the way Amazon.com does from its competitors. The sites where you can download stamps have weak brand identity, Cochran says. Someone searching for your product or service is just as likely to connect to a competitor.

Thinking weird, as Cochran puts it, shouldn’t be the only consideration when you register your domain name. You must also think creatively. While many consider one or two variations of their domain names, Cochran suggests there is much more to consider. For example, if you ever try to visit the White House’s Web site, be careful to type Whitehouse.org and not Whitehouse.com. The latter is an adult site containing pornography.

The same thing happened when search engine AltaVista failed to register Alta-Vista.com. The company paid the former owner of that URL a considerable sum for rights to the name. Finally, you may also want to consider common misspellings of your company’s Web address.

Cochran offers one more caveat: You may want to register the “sucks” version of your domain name.

That’s because it’s not unusual for disgruntled customers to launch their own spiteful Web site trying to denigrate your product or service and calling the site “yourcompanynamesucks.com.”

If that happens, when customers around the world type in keywords that would lead them to your site, right below it is the “sucks” site. If you register it first, at least you can control where that site leads and what it says.

How to reach: David Cochran Jones, Day, Reavis & Pogue (216) 586-7029 or dcochran@jonesday.com

Daniel G. Jacobs (djacobs@sbnnet.com) is senior editor of SBN.

Monday, 22 July 2002 09:40

The state of HR in Northeast Ohio

For more than a century, Northeast Ohio has been a leader in the manufacturing sector. But as the American economy shifts from materials to information, area businesses struggle to accommodate the change.

From finding workers to incorporating technology, from finding new sales and distribution channels to redefining the supply chain, nearly every aspect of your business is changing. The bottom line: you’re groping for answers.

Those answers might be found within your own company in an unlikely place — the human resources department.

“The more that we can home grow or attract great talent into the region makes our Northeast Ohio organizations more competitive,” says Patrick Perry, president of the Employers Resource Council. “It isn’t just the fact that we have wonderful sports teams here and great culture and revitalization, you still have to have a great place to do business. And if you’re going to have a great place to do business, you better have a wonderful talent base, and that stretches from health care to information technology to sports teams to manufacturing to retail and financial institutions and biotechnology.

“Northeast Ohio is one of the richest in terms of industry diversity, which provides us a competitive advantage from an attraction ability to bring in good talent, because you have multiple opportunities with the 22 contiguous counties that make up Northeast Ohio.”

The main struggle for area businesses is how to best take advantage of this bounty.

“Northeast Ohio is probably one of the leading regions as far as human resource management in the country for a couple of reasons,” says Perry. “There is incredible strength in local HR professional societies. There are about 13 different professional societies in town that are long standing and have a strong active membership. (Also) there are a number of leading edge initiatives in Northeast Ohio.”

A well-structured company has a human resources department woven through every nook and cranny. It is that important.

“An HR department should be fully integrated into the entire organization,” says Perry. “If organizations are not doing that today, typically they’re hurting somewhere. The organizations that we see today that are truly competitive in their industries — one of the common denominators — is that they have a strong HR function.

“That HR function typically reports, if not to the CEO, to a key senior management position that can make decisions quickly.”

Simply defined, HR consists of benefits and compensation. Money isn’t always the answer, though it’s not likely your employees would refuse a raise. But there may be things they’re looking for that are far more important. That’s something Perry’s found as part of a growing trend.

Employees have objectives beyond greater salaries. Often, they are looking out for their futures, which are tied to the projects they’re working on today. And that is, of course, tied to their co-workers. So one thing they want is not just competent co-workers, but people who can excel.

There’s just one problem with that — today, you’ll encounter problems just finding enough workers to staff your company completely. According to a survey conducted by the ERC for SBN, nearly half of all Northeast Ohio companies say their greatest problem is attracting and retaining quality employees.

“What’s happening is when you don’t have a great place to work, and with the shrinking talent pool that’s out there, and unemployment is at it’s lowest level, you’ve got a war for talent going on,” Perry says. “Any organizations that are solely focused on the bottom line and have ignored good HR management are starting to feel the pain. The two go hand in hand today.”

So what should companies do to make sure they get the most from their HR function?

Understand HR’s role

Your human resources department is there to ensure that there is a foundation of good fundamental compensation and benefits programs, and to oversee workplace practices and policies that treat people fairly internally and are externally competitive. HR also makes sure the organization is compliant with local state and federal employment laws, Perry says.

Finally, the HR department ensures that the organization is managing risk from a safety standpoint, legal standpoint and also from an insurance standpoint — whether that risk is workers’ compensation, Employment Practices Liability Insurance or errors and omissions insurance.

“It all depends on that particular organization,” he says. “The bottom line is that the HR professional today wears multiple hats. In addition to some of those basic (duties) which involve both traditional and very proactive programs and practices, an organization should look to HR to be the eyes and ears of the organization, an ambassador of the organization, a liaison between management and nonmanagement employees, an internal salesperson.”

To that end, Perry has a suggestion that may shock many traditionalists.

“We are now seeing some organizations elevate their HR position to a staff member who attends board meetings,” he says. “The board members get much more in tune with what’s going on in the organization through the HR function than they may have been before. In fact, we’re big advocates that there should be a strong HR representation on the board, meaning the senior HR person or someone who handles that particular function should be at most board meetings providing a board report.”

Get started

It may be difficult to find numbers that underscore the significance of HR professionals. In fact, not one of the companies that responded to the SBN/ERC survey identified anyone in the HR department as the most important person in their organization.

Before you discount that, consider that less than one-third claimed the president of the company was the most important person in the organization.

So how do you locate the right person to fill such a vital role?

Business owners “need to identify a talented HR professional who has a pretty good background in many of the areas; perhaps they are a jack-of-all-trades, master of none,” Perry says. “An HR person today juggles many hats. They must be able to communicate the same message to hourly, middle management, senior management and board members in a way that makes sense to each one of those organizational levels and still stay within the law.

“They must be able to maintain a correct ethical position and be accurate. On top of that, the HR person should have good business acumen. The better HR people in town are those who can often play a key component in a business’ strategic planning and business planning processes.”

Weigh the benefits

Benefits are one of the most important aspects of your compensation package.

“(Employees) are becoming more savvy, but I don’t think, necessarily, that they’re becoming more demanding of those offerings,” says Laura Sullivan, director of HR support services for the Employers Resource Council and a Certified Employee Benefits Specialist. “They’re becoming smarter because they realize how much of an impact these benefits have.”

And when employees get smarter, their employers must, also.

“Larger corporations or the more technologically adept corporations are the most advanced in their HR practices, including benefits,” Sullivan says. “The reason for that is because they usually have more ability financially to provide for some of these benefits. For years, they’ve provided standard benefits and now people are looking for some other new kinds of resources like concierge sources and things like that. And the smaller companies are more concerned about wages.”

Where does that leave those smaller companies?

“They’re not as concerned about benefits, but they really should be,” Sullivan says. “There are a lot of things out there that they could be doing more of that would allow their employees to access benefits that wouldn’t cost them anything. Sometimes they just don’t look around for that. Usually it’s the owner of the company ... there are so many resources that you have to look into things like this, and they’re concerned about their operations, much more their bottom line.

“That takes up almost 100 percent of their focus and benefits. The whole employment relationship is almost ancillary, which is too bad.”

That doesn’t mean, however, that benefits are useful only for bringing top talent through the door.

“Just as you can attract people by offering extras, you can retain them because they might be able to go somewhere else for the same pay and probably comparable surroundings, atmosphere and management, but maybe they have something else,” Sullivan says. “People are very aware that sounds nice, but (say), ‘Am I really going to utilize this? Will it benefit me? And is it significant to me?’

“If it’s significant — pretty much if you look at traditional benefits — health insurance, life insurance, disability — those things that keep your security — those are the things that are most important.”

Whether it’s benefits, compensation, attraction, retention or any other of the myriad roles your HR professional plays, the most important thing you can do is listen.

“The HR professional today has to be well-trained, has to keep up to date with their profession,” Perry says. “The key is that the HR person needs to be able take those laws, look at the business plan, the objectives and goals of the organization, and help integrate all of that so an organization can perform legally, ethically, morally, accurately and also make it a great place to work.

“It is a lot on a person’s plate, because you’re trying to marry several on the surface conflicting issues.”

How important is it to get it right? Perry puts it bluntly.

“Today an organization that does not have HR involved in strategic planning or in business planning, my guess is that they have increased their business’s chance of failure.”

How to reach: Employers Resource Council, (216) 696-3636

Daniel G. Jacobs (djacobs@sbnnet.com) is senior editor of SBN.

Monday, 22 July 2002 09:40

Downtown and loving it

The rebirth of Cleveland is well chronicled. New football and baseball stadiums and the Rock and Roll Hall of Fame helped breathe new life into a stagnant city.

But without the strength and influx of business to support those institutions, the renaissance would have been short lived.

This year, eight Cleveland enterprises were recognized by Inc. magazine and the Initiative for a Competitive Inner City as part of the Inner City 100, the fastest growing privately held businesses in inner city America. This is the list’s second year, and three Cleveland companies — Thermagon (No. 7), Complete Payroll Management (No. 57) and ColorMatrix (No. 69) make a return appearance.

The highest-ranked Cleveland area venture, Thermagon, had 1998 revenues of $7.88 million and 2,050 percent sales growth from 1994 to 1998. CPM posted revenues of $15.2 million and a 227 percent increase in sales growth during the same period.

“The first time, it’s hard; the second time around, it’s always harder, so we’re real honored to receive the recognition,” says Jay Lucarelli, president of CPM. “We feel proud of the fact that we’re a positive representative for the city of Cleveland.”

Making the list for the first time this year was Warren Associates Office Furniture at No. 22, with $7.16 million in sales, 653 percent sales growth and 66 percent compound annual growth (1994-1998), not bad in an industry that averages between 3 and 5 percent annual growth.

“When you’re growing that fast, you’re taking it from other entities in the marketplace,” says Dick Warren, owner of the 6-year-old company. “It’s a nice honor to receive.”

Warren Associates Office Furniture is located near the corner of Euclid Avenue and East 32nd Street. Why locate downtown?

“It’s very centrally located to highways,” Warren says. “We have to service East, West and South. It’s got a relative cost that’s very affordable.”

Also, the availability of public transportation and affordable parking make it easier for his 20 employees, he says.

Inc. spoke with Cleveland Mayor Michael White, along with the mayors of Chicago, Denver and Austin, Texas, as part of its story. Lucarelli gives White much of the credit for the city’s success, saying he’s has been a catalyst, moving other people to action.

“He’s done a lot as far as the resurgence of the whole city,” Lucarelli says. “You can’t have resurgence without economic and job growth. He’s put a lot of effort into that.”

In the magazine, White is quoted as saying, “We are creating an environment in which businesspeople want to invest money in the neighborhoods and start and expand businesses there. But you can’t take a one-size-fits-all approach to city redevelopment. Our strategies are not static. We learn from every investment.”

Other Cleveland companies making their inaugural appearance on the list are Cleveland Medical Devices (No. 34), $1.34 million in revenue, 357 percent sales growth; Seibert Powder Coatings (No. 47), $37.24 million in revenue, 273 percent sales growth; Rysar Properties (No. 52), revenue of $11.72 million, 237 percent sales growth; and Stripmatic Products (No. 92), revenue of $4.4 million with 111 percent sales growth.

Daniel G. Jacobs (djacobs@sbnnet.com) is senior editor of SBN.

A snapshot of Inner City 100 companies

  • Percentage of CEOs who rate their location as good or excellent: 92

  • Percentage who are looking to expand their current sites: 72

  • Percentage of Inner City 100 employees who reside in the inner city: 41

  • Percentage of CEOs who live in or have lived in the inner city: 70

  • Average Inner City 100 hourly wage (excluding benefits): $12.83, 150 percent above federal minimum wage

  • Average national private sector hourly wage: $12.77

  • Average compound annual growth rate from 1994 to 1998: 50 percent

  • Average five-year sales growth: 742 percent

  • Average 1998 sales: $12,227,579

  • Median 1998 sales: $4,660,460

  • Average number of employees: 71

  • Median number of employees: 42

  • Top competitive advantages as cited by CEOs: proximity to customers and highways; availability and diversity of labor force

  • Top competitive disadvantages: perception of crime, cost of security systems

Monday, 22 July 2002 09:39

Making benefits hassle free

Mike Kahoe wants you to fire all your employees.

It may sound drastic, but it’s not really. As president of Group Management Services Inc., Kahoe takes control of a company’s staff, then leases those employees back to the company owner. So if you give everyone the axe, they’ll most certainly be back without skipping a beat.

“We do a whole lot more than just a temp agency,” Kahoe says. “Temp agencies charge quite a bit more than we do. Their mark-ups are between 40 and 60 percent. Our mark-up is more like 4 or 5 percent. Our clients do the majority of the work. They do the hiring and the firing and the setting of the wages, and they deal with the majority of the hassles that are involved with having an employee.

“We deal with the back room part of it where we take care of more of the administrative hassles.”

GMS was founded as Outsource Inc. in 1992 and grew to a $7 million company by March 1999. After changing to an S corporation, the company finished last year with revenue of nearly $47 million. It didn’t start that successfully.

Kahoe began the company with $50, which he used to open a checking account.

“The reason I selected this business is I knew I could manage the receivables in a way that wouldn’t take a large investment,” he says. “My way of starting a business at the tender age of 25 was basically just to go out and talk to people about this great idea I had and how it was going to work — that we could probably save them money and we could help them in their business.”

But the road was not a direct one. In 1998, Kahoe was forced to sell the company after a former employer enforced a noncompete agreement. Six months later, he was able to buy back the operation and changed the name to Group Management Services. It was about that time Kahoe brought his brother, Jim, into the operation.

“He was actually able to bring some structure to it,” Kahoe says. “That’s really when we started closing deals and growing at a pretty fast pace.”

GMS can generally offer better health care plans, disability, more 401(k) options, prescription cards, life insurance and other benefits many smaller companies have trouble providing. Target companies have fewer than 200 employees.

“We have a great service,” he says. “We do a lot for our clients, but to really get our foot in the door, (we have) to do everything we can to provide more benefits to their employees. Even if those don’t turn out to be profit centers for us — an employer with five to 10 employees doesn’t have the option to go out and get them on his own — I think that’s our hook that’s going to keep that company with us for a long, long time.”

One of the problems he faces is the lack of experience employers have with his type of operation.

“Essentially, we’re asking people to fire their employees,” Kahoe says. “I’m going to hire them and then I’m going to lease them back. (When he first began) people looked at me really strange. Now people are familiar with the concept.”

There are some 50,000 to 60,000 workers employed by personal employment organizations in Ohio, with about 10,000 in the Northeastern portion of the state. GMS employs between 5,000 and 6,000 of those. In five years, Kahoe expects to have about 60,000 employees.

How to reach: Group Management Services Inc., (216) 573-7102

Daniel G. Jacobs (djacobs@sbnnet.com) is senior editor of SBN Cleveland.

Monday, 22 July 2002 09:39

How do you get there from here?

It’s been a long day. You were up at 4 a.m. to catch a 6 a.m. flight to Chicago, and after a harrowing cab ride into the city, you spent the morning and afternoon around a cramped conference table discussing business with a prospective client, drinking stale coffee and downing questionable pastries.

You leave the meeting at 4:30 p.m. for another cab ride. You’re convinced the driver has a personal vendetta against you. Why else would you arrive at the airport just moments before the flight home leaves?

What a day.

Business travel is a fact of corporate life. For two-thirds of Cleveland area businesses, travel is a regular line item in the budget, according to a survey conducted by the Employers Resource Council, commissioned by SBN.

How large a line item, however, varies greatly from company to company. Many have no budget at all, or don’t keep regular numbers on it. For others, it is a little as one-tenth of 1 percent of the total budget or as much as 3.3 percent.

For the Lake County Economic Development Center, travel expenses amount to about $10,000, or 1 percent of the organization’s $1 million budget.

“We pretty much have mandated travel that we need to do,” says Catherine Haworth, LCEDC executive director. “It’s usually written into the grants that we receive. We have some grant funding from the Small Business Administration and the Ohio Department of Development for a couple of our programs, and there are annual travel requirements to that.”

Travel expenses usually include travel, hotel, car rental and food.

According to Kathy Lamb, controller at Rampe Manufacturing, which does business as Torque Transmission, her company spends about $20,000 a year on travel, mostly for the president of the company to visit manufacturing representatives around the country and in Mexico.

For LCEDC, the less expensive the travel expenses, the better.

“We pick the least expensive mode of travel that we can find,” Haworth says. “We’re a not-for profit organization, and that’s the only way we can do it.”

Sometimes that means by car. If the trip is within driving distance, but more than 200 miles, LCEDC asks that the traveler rent a car rather than drive his or her own vehicle.

When driving is not a possibility, many businesses turn to travel agents. Although airlines cater to business travelers, they have drastically slashed fees to agencies, and many have turned to arranging leisure packages, though they still gladly handle business clients.

Ann Huber, president of Landfall Travel in Lakewood, has arranged many trips for business travelers who often cannot plan far enough in advance to take advantage of the special deals airlines offer. Some business owners prefer to make the trip, conduct business and return home the same day, which limits the ability to find less expensive fares. Airlines know this and use it against business travelers, Huber says.

They take advantage of the corporate traveler because they overcharge him. He’s the bread and butter of the airline,” she says. “They don’t give him breaks when he should have them. They’ll give somebody a fare of $200 to go to New York, and the business traveler will call and he has a business meeting in New York.

“Because he doesn’t want to stay over and make a vacation out of it, he pays $954, for instance, for a ticket. It’s not right. That’s how the airlines exist, because of the corporate traveler, but they don’t treat him fairly. They just get punished right and left.”

Neither Rampe Manufacturing nor LCEDC bother with business class, planning their trips well in advance and flying coach. They may not have as much legroom that way, but it does provide a little more room where it counts — on the bottom line.

How to reach: Lake County Economic Development Center, (440) 357-2290; Rampe Manufacturing, (440) 352-8995; Landfall Travel, (216) 521-7733

Daniel G. Jacobs (djacobs@sbnnet.com) is senior editor of SBN.

Monday, 22 July 2002 09:39

Delivering the goods

It’s about making a name for yourself.

A decade ago, Chris Haas started All Pro Freight Systems Inc. in the basement of his Lakewood home. Since then, he has built the company into a $15 million operation that employs 38 people. All Pro recently moved to a new 120,000-square-foot facility in Avon.

For his success, Haas has earned numerous awards, including landing on the Weatherhead 100 list in 1998 and recognition as a Golden 30 Business winner last year. His most recent recognition is as a finalist in the Ernst & Young LLP Entrepreneur Of The Year competition.

“We work hard, and obviously the visibility is good for you,” Haas says. “You’ve got to get your name out. Trucking, like everything else, is very competitive. We work hard to stay in the public’s eye and make sure they know we’re out here for them. We service a lot of Northeast Ohio companies. It really pays off for us.”

In a competitive world, Haas has his task cut out for him when it comes to trying to differentiate his company from his competitors.

“The main thing is the personal service and the personal touch we give the business,” he says. “I’ve remained in the sales end of it. I treat my customers the same now, when we have 250 customers, like we did when I had five. You spread yourself a little thin, but you don’t alienate anybody.”

Part of Haas’ business model is to approach companies that learn transportation is not their area of expertise.

“We’ve built a business model that we’ve put into place to go into companies and take over their whole logistics program and enable them to better use their personnel in their core competencies, whatever their business might be,” he says. “People like the fact that their commodity is getting handled by a professional company in a time sensitive manner and at a reasonable rate.”

Haas has found another way to make his company grow. He didn’t want to babysit several new salespeople, so he decided on the acquisition route.

“About five years ago, I decided that we had the business model and now we just needed to add the top line dollars. We found some smaller companies that were growing in the same markets we were that we acquired and made them more profitable because we had the model in place.”

Today, things are looking bright for All Pro Freight Systems Inc.

“With the economy being so good, I think we’re going to continue this growth, and I’d like to ride it out,” Haas says. “We’ve got a great staff. You can’t grow like we’ve grown without surrounding yourself with good people. Because of the young, ambitious and energetic staff we have, I don’t see any slowdown, at least for the next five years.

“ I wouldn’t be surprised to see us get to be a $50 million company in five years. This year, we’ll be at about close to $20 million.”

But that doesn’t mean Haas is looking to pull up stakes any time soon.

“We’re committed to the area,” he says. “We’re absolutely committed to giving back to the community. We’ve been very fortunate and worked very hard to grow our business.” How to reach: All Pro Freight Systems, (440) 934-2222

Daniel G. Jacobs (djacobs@sbnnet.com) is senior editor of SBN.

Monday, 22 July 2002 09:38

Building an e-community

“Business-to-business trade isn’t growing up in high-tech centers like Silicon Valley; it’s developing in industrial hubs like Cleveland and Detroit. As B2B trade expands, there will be a flight of talent and venture capital money to support these efforts, leaving the coasts feeling a bit of a frost — while middle America experiences the Internet boom in 2001.”

— Forrester Research, February 2000

It’s words like these that make Jim Cookinham smile. As director of the Northeast Ohio Software Association, Cookinham has made it his mission to drag Cleveland, kicking and screaming if he must, into the e-revolution.

With that goal in mind, Cookinham brought Seattle-based David Bluhm, co-founder of 2way Co., to Cleveland to talk about what it will take to make this area a player in the online world.

Bluhm has the credentials. In addition to 2Way, he is on the board of several businesses and plans four Internet start-ups this year. He is a member of the Northwest Venture Group and has worked at Motorola Semiconductor Products Sector, Mosaix International, Davox Corp., Mammoth Micro Productions and Hewlett-Packard.

His venture, like those of many entrepreneurs, started with him watching every penny. Desks were made of doors from a local lumberyard, with four-by-fours for legs. They cost $68 each.

The company now boasts 75 employees with between $7 million and $10 million in annual revenue. Bluhm recently completed $25 million in mezzanine financing and plans an IPO later this year.

With Microsoft as a neighbor, the Northwest has an advantage over the rest of the country, but despite its reputation, many angel investors in that area are just as tech unsavvy as those in the Midwest. One such angel brought in for a presentation by Bluhm and his partners appeared a bit dazed by the information. The man, Bluhm says, appeared as though he didn’t want to let on that he had no idea what they were talking about. He wrote a check on the spot, despite the fact that sap from one of the desk legs oozed all over his pant leg.

But you can’t count on investors too embarrassed to confess their ignorance to write you a check. What will make this area a viable contender is a healthy diet of education.

Investors, entrepreneurs and service providers must understand how business has changed.

The first thing people need to learn is the speed at which business takes place today. It took Hewlett-Packard 47 years to reach $1 billion in market capital. It took Microsoft 15 years, Yahoo two years and NetZero nine months. The Internet is also changing the way business is done. Bluhm cites Amazon.com CEO Jeff Bezos as an example.

“He’s taken a low margin business and put it on a lower margin medium and gotten away with it for years,” Bluhm says. “The danger is not that computers will replace people, it’s that we have to meet them halfway.”

Existing businesses can’t simply add an Internet arm to their operations and be a success. To make the venture successful, he says, a business owner must develop an entirely new culture.

Northeast Ohio must also change its culture. According to Bluhm, there are five areas that must be addressed if the area is to join that e-revolution.

Education and consulting

There must be a regular series of seminars, classes and boot camps for Internet entrepreneurs. Organizations such as NEOSA, Enterprise Development Inc. and several area incubators are beginning to pick up the slack.

Develop a safe “failing” environment

Entrepreneurs must be able to present their plans and receive feedback. Bluhm remembers watching an entrepreneur fumble through a presentation before a group of venture capitalists.

Despite the merits of his idea, the man had completely blown any shot of getting funding from that group. Some retribution-free feedback before that presentation might have helped.

Access to investors

Whether it’s a five-minute forum or an early-stage investment program, entrepreneurs and investors must be able to get together. There are some Web sites that have tried to bring investors and entrepreneurs together. The Access to Capital-Electronic Network(ace-net.sr.unh.edu/pub/), created by the U.S. Small Business Administration and administered in Ohio by EDI and ohioangels.com, launched just last month, does just that.

The Innovest conference, produced by the Ohio Department of Development, Enterprise Development Inc. and the Columbus Investment Interest Group and sponsored by SBN, also tries to put venture caps and entrepreneurs together. But that program is only once a year and limits the number of presenters.

Service provider network

Often lost in the process are the service providers supporting the Internet start-ups. The accountants, attorneys, bankers, all the people who offer advice and assist the venture, must be able to communicate and work together.

Peer group review

The CEOs must be able to be able to talk to one another. Who better understands what an entrepreneur is going through than another in the same position.

Peer groups can offer understanding and answers.

How to reach: NEOSA, www.neosa.org; Northwest Venture Capital Group, www.nwvg.org

Daniel G. Jacobs (djacobs@sbnnet.com) is senior editor of SBN.