Mark Goldfarb cannot recall the number of times he and his partners have heard the offer: the promise of easy cash and a name loaded with brand recognition. It is, without question, a tempting lure.
But Akron's SS&G Financial Services has managed to hold its own in an industry rife with mergers and buyouts.
"We've been approached by all the major consolidators," explains Goldfarb, who is a bit reluctant to share many of the details about the suitors who have beaten a path to his doorstep over the last few years. "We really didn't think a lot of their business models made sense. And, at the end of the day, you can have all kinds of services under one roof, but you've still got to take care of your clients."
That is the long and short of the accounting industry. While companies such as American Express and Century Business Services motor through the accounting profession snatching up independent CPA firms, SS&G has managed to keep its name off of the ever-growing laundry list of industry acquisitions.
Instead, Goldfarb and his partners have pursued their own acquisitions. They've spent the better part of the past 18 months transforming the accounting firm formerly known as Saltz, Shamis & Goldfarb into SS&G Financial Services.
First, in March 1999, SS&G acquired Akron's McWhorter & Co. to form the base of its health care practice. Then, it added Chagrin Falls-based employee benefit consulting firm R.C. Morris Inc. and Westlake-based technology consultants F1. Finally, and most recently, SS&G acquired the Columbus CPA firm of Green and Wallace Co.
The deals boost SS&G's annual billings about $5 million and increase its work force to 280, making SS&G the largest independent accounting firm in Ohio and one of the 50 biggest in the country.
"The bean counter is no longer a bean counter anymore," Goldfarb says of the influx of new client services to SS&G. "Or, at least now, there's a different way of counting beans."
These are strange days to be a CPA. The profession was in the process of evolving from bookkeeper to business consultant when the rules changed again. A dwindling pool of qualified professionals, a booming economy and the need for a quick and easy business succession plan have mixed together to fuel an age of rampant consolidation in which you can hunt, be hunted or try to stay out of the way.
How this trend will ultimately affect the more than 44,000 small, independent accounting firms in the United States depends upon whom you ask. Answers vary from "not much" to predictions that many of these small players could end up gasping for air if and when the U.S. economy takes a nosedive.
"There is a strong entrepreneurial spirit alive in the hearts of many of the smaller practitioners. I don't really think they see it as change or die," says Tim Fogarty, a professor and chair of the accounting department at Case Western Reserve University's Weatherhead School of Management. "It's a difficult sell because the phones keep ringing and there are more tax returns to be done."
It's not only the small players that industry observers are worried about. Independence-based Century Business Services' lackluster stock performance of late is an indicator to some that perhaps bigger is not always better. The bottom line is this: It doesn't matter what level of the highly fragmented industry food chain an accounting firm falls into, those in the top office are looking over their shoulders to figure out how to emerge from the changes as survivors.
Keeping up with the competition
Of the 45,000 CPA firms in the United States, few are considered "national." Carve the 100 largest firms from that list and you are left with roughly 44,900 businesses that each have fewer than 50 CPAs.
It's obvious from those numbers that the small accounting firm will not become extinct any time soon, but some wonder why so many were bought by just a handful of big-name players. Industry watchers point to the booming economy, a dwindling work force, business succession planning and client demand as the reasons.
"Part of it is trying to keep up with what's going on with the larger firms -- the Big Five firms," says Fogarty. "They have certainly gotten aggressive in terms of trying to offer their clients one-stop shopping for a diversified portfolio of services and these small firms have not been able to keep pace."
Likewise, Alan Anderson, Senior Vice President of Technical Services for the American Institute of Certified Public Accountants (AICPA), sees the needs of the customer driving the consolidation trend.
"Clients are demanding more," he says. "They like to go to one place to take care of everything."
But while the Big Five -- Arthur Andersen, Ernst & Young LLP, KPMG Peat Marwick, PricewaterhouseCooopers and Deloitte & Touche -- and other players in the profession roll new services into their portfolio of client offerings, many smaller firms can only sit on the bench and watch. Stir in the hefty price of integrating new technology and it soon becomes apparent why some CPA firms look at a merger offer as a life preserver.
"If you're a CPA who has eight or 10 people working for you and you're 55 or 60 years old, what are your options?" says Goldfarb. "Somebody who offers you some cash, stock and an opportunity to continue to run your division of a business is a better option than figuring out whether people in your office have the financial capability to buy you out and the expertise to keep clients."
So what are the owners of small CPA firms doing to help their businesses reach their full potential in this age of consolidation? As it turns out, not much. The booming economy has brought most firms more business than they'd ever seen before, making it difficult for owners to focus on much more than simply keeping up with client demand.
"There really is no panic," Fogarty says. "There is no incentive to change. There is no time to look around and see what's going on. As long as people are happy making as much money as they had in the past, or even a little more, they will certainly stay where they are.
"It's only when they start, as I say, to dream the dream of fabulous wealth, that they start to listen to these consolidators and see the advantage of being part of a larger enterprise."
Strategic movement in the middle
"If I thought there were disadvantages, we clearly wouldn't have done it," explains David Sibits, who has fit in this interview via cellular phone while on the road to visit a client.
Sibits is the managing partner of Hausser &Taylor LLP, a Cleveland accounting firm that made headlines in February when it sold all of its nonaudit business to industry powerhouse American Express.
"Their vision is to be the top service provider to the middle market for tax advisory services. To us, it was a very, very desirable thing to be part of."
Nevertheless, when the 65-year-old, 270-employee independent accounting firm -- one of Northeast Ohio's largest at the time -- signed on the dotted line with American Express, it stood to some observers as an undeniable sign of the changing times. Yet, Sibits does not like the portrayal of American Express as an organization on a ruthless acquisition campaign merely for the sake of building an empire.
He says the decision to sell Hausser & Taylor's nonaudit accounts to American Express was simply a way to combat industry pressures including a thin work force and the rising cost of technology, while retaining the entrepreneurial attitude that has been part of the firm since its inception. It was that combination of benefits that Sibits says other players who courted his firm in the past simply could not offer.
"We're a pretty desirable date to the take to the dance," he says. "This allows us to be the entrepreneurs that we were and still have the benefit of big company involvement. A consolidation into PricewaterhouseCoopers or Ernst and Young or whoever would have changed the entire make-up of the organization. This didn't. It allowed us to be who we are."
A few miles south along I-77 lies the headquarters of a public company that has shared the spotlight with American Express as a major industry consolidator that has aggressively snatched up smaller accounting, employee-benefits and business consulting firms during the past few years. But, after an all-time high stock price of a little more than $25 two years ago, Century Business Services, or CBIZ as it's more commonly known, has hit rough times.
In the past year, there have been accusations of overstated revenue, job cuts and a disastrous quarter that sent CBIZ stock nose-diving to an all-time low of just a few dollars a share.
Recently, the company publicly stated its intent to regain the trust of Wall Street investors through a major internal overhaul; however, calls placed by SBN to the company's headquarters seeking someone to share their side of the story went unanswered. Regardless, CBIZ is the name that rolls off the tongue of many analysts when they point to an example of the very real risks that accompany consolidation.
"It's a bit uncertain if these consolidations are successful," says Fogarty. "I know the CBIZ stock price has plummeted. What the market is saying is that they aren't sure if the efficiency and the gains are real. A lot will depend on how the other pioneers, like American Express, do in this business.
"If they are successful, then a lot of other people will jump in."
Anderson, of the AICPA, agrees. He says it is much too early to declare the consolidation trend either a big winner or a big loser because of mixed results from the industry heavyweights who have already tried it.
"It's hard to see what sort of impact there's been," he says. "Obviously, the first group that really broke the norm and started acquiring CPA firms was American Express. Then you started seeing nontraditional players like Century Business Services and H&R Block doing the same thing.
"The jury is still out on how successful those acquisitions have been for those particular firms."
Bolstering the Big Five
One might expect the Big Five firms to be sitting on top of the accounting profession like kings, simply because of their deep pockets and sheer size. However, the road is seldom that smooth.
It is within the ranks of the Big Five that competition seems the fiercest and pressure to innovate is at its peak. In fact, much of the responsibility of the Big Five firms lies with reinventing the CPA profession in the face of the enormous economic changes spurred by the advent of the Internet.
"We expect right now that 25 percent of our service lines within E&Y will have to be replaced over the next four to five years, period," explains David Price, Area Managing Partner with Ernst &Young LLP for the Lake Erie Area. "Just imagine 25 percent of today's revenue source not even being here four or five years from now and having to replace that because of this changing new economy."
The manual process of tax preparation is slowly migrating to the Web and is one of E&Ys new services. Meanwhile, the practice of sending auditors to pore over financial records is well on its way to extinction, Price says, replaced by a new practice in which clients send information to be audited via a secure Web connection.
In addition, Price says E&Y has determined it does not have all of the core competencies necessary to consider itself a full-service firm, leading it to seek alliances with professional service providers while also trying to strike deals with smaller accounting firms to serve as network partners.
That's not to say E&Y isn't working to internally diversify services. One of the firm's creations was a consulting arm that last May was sold to Cap Gemini after the Securities and Exchange Commission urged CPA firms to avoid providing both accounting and consulting services for the same client.
"The SEC said that accounting firms need to dislodge their consulting groups if they were significant," says Price. "Since ours was very significant, we made a decision to sell them. You're best to have a first-mover advantage. With it, we think we've created a competitive advantage.
"Now, we can do audit work or consulting work for a client, where we couldn't before because of the audit conflict."
E&Y has also partnered with a Washington D.C. law firm to establish one of the first alliances between an accounting firm and law firm on this side of the Atlantic. The practice is common in Europe, and is a trend that most analysts say will grow in popularity in the U.S. over the next few years.
So, at the start of a new millennium and in the midst of a new business environment unlike any experienced before, Price says the best stance E&Y can take is to build a company culture that promotes creativity and the ability to turn on a dime. The firm has already "changed at the speed of light" during the past year and a half, he says.
One of those moves was changing professional attire to "business casual" unless clients request more formal dress. The move was a conscious effort to bring on board employees who might fall outside the traditional suit-and-tie business image for which accountants have been known for years.
"Our theory is, we didn't create this, we're just moving toward it," Price explains. "The more diversity you have in your organization, the more creativity and therefore, the greater amount of innovation."
But what happens when innovation is simply not enough to not only sustain but also grow billing in an industry in which revenue is expected to drop by a quarter in the next five years? That, Fogarty believes, may lead the Big Five into markets now predominantly served by local and regional firms, a move he expects would draw battle lines between the large and the small.
"There are kind of turf battles going on already with some perceptive CPAs trying to expand their boundaries and other ones are trying to protect their boundaries," says Fogarty. "Probably, the Big Five will continue to make inroads into the middle markets and small markets that had traditionally been served by regional and local firms."
So what does a small CPA firm have to do to survive? Most people familiar with the industry have the same two pieces of advice: find a niche and build alliances. Anderson believes that during the next three to five years, it will be key for small firms to brand themselves as experts in providing a certain services or working with clients in specific industries, whether it be retail, hospitality or manufacturing.
A second and crucial part of Anderson's "survival" plan is to take the strength-in-numbers theory behind consolidation and use it to preserve the independence of like-minded small firms. SS&G Financial Services has already created an organization known as "The Leading Edge," an alliance that boasts more than two dozen CPA firms spanning the United States. Robert Littman, a partner at SS&G, explains that the concept was used by the industry for years as a way to increase business, but is more useful in building an alliance of firms with similar philosophies, which can share their expertise and experiences with each other.
"What we did was go out and find firms that were similar in size to us, similar in philosophy and culture to us, so we have the same issues," says Littman. "A firm with 200 people has a whole different set of issues than a firm that has 15 people."
The next step for SS&G is creating an investment services entity that all of "The Leading Edge" firms can buy into that allows each firm to save on the costs of doing business and gives member firms more industry clout than they would have alone.
Today, SS&G Financial Services is unrecognizable from the 15-person firm it was when Goldfarb jumped on board 13 years ago. One look at how far the firm has come, specifically within the past year and a half, and it is not difficult to see that Goldfarb has heeded what is quickly becoming one of the most popular maxims of the Internet age.
It is no longer a battle between the big and the small, but the fast and the slow.
"It used to be that things were the same way year one as they were year two and year three," he says. "It's not that way anymore. You have businesses who were on the top of the hill a year ago, who are literally out of business today because they haven't kept up."It's a very fast-paced business world and our business is no different from that of any of our clients."
How to reach: SS&G Financial Services, www.ssandg.com; Ernst&Young LLP, www.ey.com; AICPA, www.aicpa.org; Case Western Reserve University Weatherhead School of Management, www.weatherhead.cwru.edu; Hausser &Taylor, www.hausser.com
Jim Vickers (firstname.lastname@example.org) is an associate editor at SBN.
Don't doubt that Robert Fortney eats, sleeps and dreams business.
He says it's a fact to which his wife, Ruth, and daughters Katie, Jessie, Megan and Chelsea could easily attest. But lately, the entrepreneurial bug has bitten Fortney again, this time in the form of a new venture called Upfront Commissions. The start-up, in which he is a 50 percent owner, is based upon a simple, but wildly logical business idea.
The idea is to provide real estate agents with their money today from a sale today, keeping a cut for the company while it waits for the deal to close in order to collect. The longer the amount of time until the deal closes, the more money Upfront Commissions stands to collect. For example, Fortney says a 60-day close would cost a real estate professional who wanted to use the service roughly 8 percent.
"We started this business in August, and since November, we have been at basically break even, which is great for a new start-up," he explains. "Over six months, more than $1 million worth of commissions have been generated. Once you get somebody inside the system, there's a lot of repeat business."
Upfront Commissions is currently attracting customers through good old-fashioned marketing, but Fortney says a full-blown Web presence is in development. In the meantime, you can get more information about the service at www.upfrontcommissions.com.
Hearing Fortney talk about his new business venture, one begins to think that sometimes he's having so much fun, he can't believe it himself. The truth is, sometimes, he can't.
"Oh, legitimately, I don't have a job," he says. "I'm doing what I was born to do, and I love every aspect of whatever I do, even though at times it may be stressful, and even though at times I don't know what I'm going to do until I do it.
"I got a lot of people who get a little bit upset with me because they're working at a job and I'm living out a dream."
What does a $420 million company do when it dominates the roofing supply market and can point to the Sydney Opera House and Washington Monument as examples of its products at work?
If you're Beachwood-based Tremco Inc., you try to keep your competitors from knocking you down.
"When you're at the top and everybody's shooting at you and poking at you and prodding you, trying to take a piece of this and a piece of that, you see life from a different window," says Jeffrey Korach, president of Tremco Inc.
Part of his strategy to keep Tremco -- the leading roofing supply company for the construction industry -- on the top of the heap is a strong research and development arm that is constantly working to improve existing products, as well as pioneer new technologies. Where it gets complicated for Tremco is the fact that its products have already proven to be dependable and customers aren't exactly clamoring for something new.
"It's a tenuous battle," says Randall Korach, vice president of Tremco's Sealant/Weatherproofing Division. "We are industry leaders, so everything we do supplants something that we already have. You want to be careful not to rob Peter to pay Paul, so to speak, in developing those new products that may not create any great benefit to the user or yourself in the market."
Despite the market's aversion to change, company executives want the development of new technology to account for 30 percent of revenue within three years and executives say it's played a role in the company's $100 million growth since 1997.
Here's how Tremco handles R&D in an industry that often is more partial to a product that's tried and true.
Seek different opinions
From the top office, it is nearly impossible to figure out what is going on in the trenches. Nevertheless, when Jeffrey Korach became president of Tremco, the responsibility for R&D fell squarely on his shoulders.
When RPM Inc. purchased the company in 1997, he decided to shift those duties to the vice presidents who head each of the companies five divisions.
"We had to intimately involve the divisions in the R&D process because they are the ones that really understand what's going on from a marketing point of view," he explains. "It gets a little bit insulated by the time it gets to my level and doesn't have the degree of attention and proper focus that is necessary."
Set a budget
Each year's research and development budget is hashed out during the company's annual budgeting process. The heads of each division must submit a proposal justifying their financial requests and an outline of how they plan to use the money during the next 12 months.
Meanwhile, past R&D allowances are reviewed to gauge the success of prior investments.
"We spend at least 50 percent of our R&D resources on new technologies, vanguard technologies, change the game types of technologies," says Randall Korach. "The rest of our resources are spent on things like raw material substitutions and processing optimization."
Study the market
Reinventing the wheel isn't on Randall Korach's mind. Instead, he looks for segments of the major market in which he believes Tremco could beef up its presence and underserved niche markets the company could aggressively pursue.
For example, he focused on improving Tremco's reputation in the silicon sealant industry, an area of the market in which the company had lagged for more than a decade. So far, the efforts have yielded impressive results.
"We launched an extremely comprehensive and competitive line of silicon sealants to go gain share and we've been doing that with remarkable success over the past 12 months," he says. "We're seeing 100 percent year to year increases since our product launch."
Evaluate your progress
The risk associated with any R&D effort is spending time and money on a product customers won't respond to. Although the benefits of a successful effort can spur growth, Randall Korach says any R&D campaign must be well researched, then monitored regularly to make sure it fits the characteristics of the market and the needs of the company.
"The opportunities are endless," he says. "We do significant analysis to determine where our best chances for success are, the best opportunities for our capital, and we make strategic decisions on a daily, weekly, monthly and yearly basis." How to reach: Tremco Inc., (216) 292-5000
Jim Vickers (email@example.com) is an associate editor at SBN.
Deciding on a name was the easy part.
After Paul Vincent, the owner of Vincent Lighting Systems, nailed down the domain name, he faced the challenge of making his e-commerce plans a reality. He assembled a small team of employees to help work on the project and, less than two months later, www.virtualightstore.com was open for business and customer orders were being filled.
"We simply felt this was another way in which customers could do business with us," explains Vincent. "In order to be successful, it had to be backed up by a strong bricks-and-mortar business."
Vincent was able to get his Web idea from paper to cyberspace quickly and, more important, do it without letting it dominate the time and attention he needed to keep his long-standing physical business on the right track. Here's how he did it.
Make a financial commitment
Talk is cheap, especially when it comes to launching an e-commerce site. Researching a name and discussing a Web strategy are undoubtedly the first steps, but Vincent says real progress toward his goal was made only after he earmarked money for Web development.
"We had been talking about it before and had been researching names," he explains. "But it wasn't until the first part of February that I decided we were going to commit $10,000 seed money in order to get this off the ground."
Use in-house talent
Consultants, designers and IT firms can quickly whittle away any sort of budget, so Vincent made sure to outsource only what could not be handled by someone already on the company's payroll. In the end, he needed only to outsource the graphic design work. He tabbed one of his employees to handle all photography for the site, while another was chosen to work on the layout of the company's online store.
"Doing a lot of blood and guts work, so to speak, in house certainly saved us time and money," says Vincent. "It also gave us control over the final look of the site."
Limit your online catalog
Vincent knew there was no way he could offer all of the 12,000 products in the VLS catalog on the Web site. Instead, he at first limited the product offerings to expendables like light bulbs, paint and lighting gels that were sure to be in stock at all times.
"We made a conscious decision that we wanted to make sure that if a customer ordered something the night before, we could ship the next day -- period," says Vincent. "It had to be items we would have in our control and items we stock in our warehouse."
Although some companies offer special deals on products purchased through their online stores, Vincent was skeptical about such a strategy. He decided that if he wanted the e-commerce site to truly complement Vincent Lighting's long-standing brick-and-mortar business, there would have to be no special deals offered to online shoppers.
"The pricing structure is the same in our catalog as it is on our Web site," he says. "If I'm a regular customer and decide to one day buy over the Web, and all of a sudden the prices much lower than what I've been charged, I'm not going to be very happy." How to reach: Vincent Lighting, (216) 475-7600; www.virtualightstore.com
Jim Vickers (firstname.lastname@example.org) is an associate editor at SBN.
For the past nine months Solon-based Keithley Instruments has been riding a tidal wave of investor confidence, strong revenue and industry buzz.
But the rise to public prominence that some might classify as an overnight sensation was, in reality, more a result of some sure-footed planning.
Soon after he took over the top office in 1993, President and CEO Joseph Keithley began steering the company his father founded in 1949 toward the high-growth telecommunications and semiconductor markets. That change meant a move away from the analog measuring devices synonymous with the company's past.
In their place, Keithley instituted a focus on software-based applications, which have turned out to be far more powerful and versatile when it comes to doing business in the ultraconnected 21st century.
Part of the challenge of being successful in these markets is the ability to create products that can keep up with the speed of miniaturization. Keithley has gladly taken on this role as an industry innovator and created a culture in which new products are expected to solve problems that customers are experiencing.
"Our strategy at one level is our ability to focus on companies in specific industries and let their problems flow through us and bring a set of products back to that customer," he explains. "In fact, when we introduce the product, we're pretty sure it does what the customer wants, because he's been an integral part of the whole development process."
Keithley Instruments also casts itself not only as a developer and supplier of high-tech measuring devices, but as a consultant, too. The relationships forged between Keithley Instruments and its customers not only provide a thorough understanding of where a specific market is going, but also give Keithley an advantage over those who may be competing for the same clients.
However, it is not just a focus on research and development that has powered Keithley Instruments' rise within the industry. There are fierce, not to mention deep pocketed, rivals in the measuring device arena, a reality that has forced Keithley to realize the promise of high growth niche markets and the power of recasting existing products to meet customers' specific measuring needs.
"As opposed to say, a biomedical company, who is really creating from basic research something that didn't exist before, we're taking advantage of things that are in the marketplace," he says. "We're incorporating them into our offering."
As far as staying on the innovative edge, Keithley is always hard at work. The company recently unveiled a new Internet strategy that promises to better serve clients, as well as attract new global customers. At the company's Web site (www.keithley.com), visitors can get 24-hour-a-day access to Keithley's database of test application knowledge, as well as view online product demonstrations.
The site also serves as an opportunity for Keithley to target prospects likely to benefit from the company's product offerings.
"We're actually able to demonstrate a very sophisticated piece of equipment with an application engineer here in Cleveland and have the customer be anywhere in the world," explains Keithley, who has a rough time containing his enthusiasm about the power of his new Web application. "We did the first demonstration of this with customers in Holland.
"Now, imagine that opposed to having the salesman go and show the product, the customer is actually able to make the instrument work from his PC in Holland. That's innovation." How to reach: Keithley Instruments, (440) 248-0400
Jim Vickers (email@example.com) is an associate editor at SBN.
Nearly half of the executives surveyed in a recent study by Development Dimensions International Inc. reported they are unhappy with their company's hiring process.
But, the Pittsburgh-based consulting firm also discovered that nearly 62 percent of the 162 companies surveyed believe a thin labor pool is the main cause of their recruiting and retention woes.
Not surprisingly, the report also showed that companies which are better able to identify possible job candidates reported increased productivity and higher-quality work. For those still struggling with how best to combat the shortage of qualified workers, DDI offers 10 rules for building a better recruiting process:
No. 1. Compress the hiring gaps
Delays in the hiring process are unproductive, wasteful and virtually assure you'll lose talented candidates. Map your hiring process to identify the gaps and shrink them.
No. 2. Know what you're looking for
Roughly one out of every four organizations does not define what it's looking for in a new hire before it begins its search. Unless you first define the competencies a new employee must have, it's easy to make a poor hiring decision.
No. 3. Decide what sets your company apart
Develop a marketing-oriented statement that spells out why a candidate would want to work for you over another employer. Include information about culture, training opportunities and job flexibility.
No. 4. Use multiple recruiting sources
Use in-house recruiters, headhunters, advertising, temporary staffing agencies and, of course, the Web to help in the search for quality candidates. Consider bonuses and other incentives to encourage employees to refer qualified candidates.
No. 5. Remember the best predictor of behavior is behavior
Use interviews to gather specific examples of a candidate's past performance related to the skills needed for the position you need to fill. Then use simulations of real-job situations to assess skills and knowledge.
No. 6. Always select for "can do" and "will do"
Screening for what candidates can do is common, but many fail to consider what candidates actually will do once on the job. Make sure a candidate's idea of an ideal work environment meshes with the existing company culture.
No. 7. Blend technology into the recruiting process
Web-based technology can be used to screen candidates, interview online, assess skills and track applicants. Using some of these weapons will save time for recruiters and allow you to nab top candidates before your competitors can.
No. 8. Hire an all-around athlete
The job you hire someone for today may be different a few months down the road, so consider hiring someone who has a strong desire to learn and a wide range of experience rather than a person with one specialized skill.
No. 9. Give recruiters what they need
Recruiters should make a positive impression on candidates, as well as know how to sell the job and the organization. Train your hiring staff appropriately.
No. 10. Build and manage a candidate pool
Assemble a list of individuals who have shown interest in working for your company. As jobs become available, fill them from this candidate pool. How do you maintain an active pool? Some companies send newsletters to candidates or keep in touch through e-mail. How to reach: Development Dimensions International Inc., (412) 257-0600 or www.ddiworld.com
Jim Vickers (firstname.lastname@example.org) is an associate editor at SBN.
By the time Peter Miragliotta discovered the true depths of his company's financial troubles, Tenable Protective Services was nearly a quarter of a million dollars in debt to the IRS.
To make matters worse, Miragliotta's business partner of six years was the one who had slowly and silently drained the company's coffers since he merged his firm with Tenable in 1988.
But Miragliotta's attempts to oust his less than scrupulous business associate only intensified the battle and fed rumors that the security company was on the verge of collapse.
"I started trying to get rid of him in many different ways," explains Miragliotta, who declines to identify his former partner by name. "But, the more and more I did, the more he tried to get rid of me in many different ways. He went to some of the other associates and said, 'It's time to buy Pete out, Pete's losing his mind, we need to get rid of him.'"
In December 1993, Miragliotta fired off a five-page letter to his partner, outlining a variety of options he could exercise in disassociating himself from Tenable. It wasn't until the following April that he was finally able to wrestle away control of the business in exchange for clearing his partner of any debts he had incurred during his six years handling the company's finances.
Still, the deal didn't go off without a hitch. Miragliotta says his partner stole much of the firm's computer hardware, trashed company records and put off the signing of the settlement agreement for a week to snag an extra $7,000 of Tenable's cash that he needed to cover payroll for his employees.
Nevertheless, Miragliotta was happy to wash the 6-year-old failed merger from his hands. The only problem left, and probably the biggest, was that the IRS wanted its money immediately.
"Although I didn't sign anything or touch any of the financials, the way they looked at it is, you're still in business," says Miragliotta, who adds that the company was having a hard enough time being profitable, let alone to be facing such a huge debt. "They held us responsible for a quarter million in back taxes and we had to go to court and beg for time."
Although many had advised him to simply declare bankruptcy, fold the tent and go home, Miragliotta -- a retired Cleveland police officer -- wanted to stand and fight. Today, six years after standing at the crossroads, Tenable boasts $10 million in annual revenue and handles security for the Cleveland Browns, Cleveland Indians, Blossom Music Center and a variety of other entertainment spots around the city.
Here's how he guided his firm through the rough times and turned around a company that was on a collision course with disaster.
Even if he had let his company declare bankruptcy to avert the crushing back taxes owed to the IRS, Miragliotta would not have escaped the messy situation unscathed.
If he jettisoned Tenable Protective Services, he would still be personally responsible for $92,000 in back taxes to the IRS, a prospect he found even riskier and more frightening than trying to keep his company afloat with a $250,000 debt.
"They just wanted to shut us down and put a lien against me, which would have left me nowhere," he explains. "I wasn't a policeman anymore. All I had was a pension. I would have been broke. I had nothing, so we had to go to tax court to fight for time."
When the courts granted Miragliotta a small reprieve, he pulled on board a new financial officer who quickly mapped out a business plan for repayment of the quarter million dollar debt. Since annual revenue was somewhere around $800,000, a deal was reached in which Tenable would pay back at least $70,000 in back taxes to the IRS each year.
The company's new financial officer reconstructed the business around that plan.
"He put together a financial plan and I guess you could say it was from the bottom up," explains Miragliotta. "We had to make that much in profit and then work backwards. So we came into the office every day, got as much administrative work done as we could and then went out and worked jobs, so we were covering billable hours and staying on our business plan and working with the banks."
Taking control of the business was a brutal fight for Miragliotta, but it turned out all his business partner really wanted was to clear his name financially.
Specifically, he was worried about the $150,000 line of credit that had gone without payment and had ballooned to $158,000. Knowing it would be a solid way to oust his partner, Miragliotta went to the bank to try to work out some sort of payback arrangement.
"This banker knew what a snake and worm he was and she understood our plight and our dilemma," says Miragliotta.
However, the best deal he could assemble was one that required Tenable to immediately pay down $30,000 on the credit line. It forced Miragliotta and his management team to get creative.
"We all went out and borrowed money from our in-laws, we put up our paychecks, we hawked guns, we sold coins," he says. "We did everything we could."
It was a grassroots way to raise the necessary cash, but it is a form of sacrifice that was not uncommon during Tenable's turnaround. To ensure the company would have the $70,000 in profit to pay back the IRS during that first crucial year, managers' salaries were based upon only what each member of the team needed to pay bills and simply survive.
"We figured out everything that we needed to live and nothing more," explains Miragliotta, who says salaries were figured out during routine manager meetings. "As a matter of fact, if we caught any of the handful of managers at the time living over their means, they had to answer to the rest of us, because we were all in the same boat and that's how we had to look at it."
The shake-up inside Tenable's walls was fertile ground for the rumor mill. Competitors had written the company off and were not shy about telling those looking for security services about the strife within the company.
Public records of court proceedings made the difficult times public knowledge. It was a development that forced Miragliotta to make moves to protect the relationships he had forged with his customer base by tackling the issue head on without flinching.
"My competitors said I was out of business, I was dead," he says. "I went to every client we had, top to bottom, and put my cards on the table. I said, 'You're going to hear things, but if you give me the opportunity, I will continue to deliver you superior service and always will.'"
The hard-nosed attitude worked. Longstanding accounts like Cleveland's IX Center and The Flats' Nautica Entertainment complex continued without a hitch and are still among the accounts Tenable's staff of 3,000 serves today. A year later, the City of Cleveland saw the opening of a new major league ballpark, and despite the internal strife, Tenable landed the contract to provide security and nonsecurity event personnel for the facility.
In fact, Miragliotta gauges his long-term success today by the number of big-name accounts that stuck with the company through the hard times.
On average, an entertainment venue swaps security companies about every three or four years of service. Luckily, those industry statistics haven't affected Tenable.
"I take great pride in accounts like the IX Center, having been with them for 11 years," he says. "That's unprecedented. I've had Nautica Entertainment 12 years and I've been involved in about 17 Grand Prix races, and I've done it by going out to every single client and talking to them."
Even when the darkness started to give for Tenable, it was no time to get loose with money.
As revenue rolled in, the company's CFO demanded each capital purchase be carefully weighed. If the management team decided to lease another vehicle, for example, it was mandatory that the number of billable hours be increased accordingly.
Although it may seem like an unusual way to equip a business, Miragliotta says it was the way the company operated between 1994 and 1997. It was a decision that he says was probably one of the biggest drivers of the company's growth.
"Any time we wanted anything, we considered it a perk, even if it was absolutely essential," he says. "If you wanted a new computer, we figured out what it would cost and we computed through an amount of security hours for an account. So, if you want a computer, I need an account that's around 50 hours a week."
Eventually, the ghost of hard financial times melted away. Today, the company operates several divisions and Tenable's event staff has grown from a mere 50 in 1994 to an impressive count of more than 3,000 today.
Looking back, Miragliotta says he believes it is his background as a police officer and his seven years in the Marine Corps that fed his fighting spirit during even the hardest times. Put quite simply, he decided he wasn't going to lose.
"I just can't quit," he says. "Nothing makes you feel any better than winning. I love to win and hate to lose.
"I despise losing. I don't even like to say the word." How to reach: Tenable Protective Services, (216) 361-0002
Jim Vickers (email@example.com)is an associate editor at SBN.