Jim Vickers

Monday, 22 July 2002 09:54

Reality check

If you had to put a price tag on your business , what would it be? Rand Curtiss, President of Loveman-Curtiss Inc., has watched many people walk through the front door of his Pepper Pike office during the past 13 years looking for an answer to that elusive question.

It is a slippery issue because it cannot be answered by simply tallying up the value of property, equipment and inventory. Other factors have to be weighed, many of which cannot be easily measured, such as the value of the company’s work force, business reputation and the state of the market.

So it’s no surprise that most business owners only have a vague idea of what their company is worth. And very often, the answer is an eye-opener.

“I think most of the time, clients are surprised at how low our valuations are for their estate purposes and they are also surprised how low our valuations are in contemplation of sale,” says Curtiss. “They like the former and they’re not as happy with the latter.”

Experts estimate that between 1990 and 2015, more than $10 trillion worth of assets will change hands as the World War II generation passes its wealth onto its sons and daughters. A significant portion of that is held in the form of family businesses, which will likely need to be professionally appraised. Other reasons for companies to seek out business valuations include the dissolution of business partnerships, company buy-outs, litigation and divorce.

It’s not only good business to find out what your company is worth, it could be vital to its future success, and ultimately, its survival.

There are common pitfalls that business owners discover when the value of their company is not properly formulated. Ramifications vary from mere embarrassment to financial loss to total ruin. However, a business valuation by an accredited appraiser can help business owners stay on a clear path and avoid the dangers of heading out into the market with only a notion of what their company is worth.

Trying to sell for too much

The eternal optimism of the entrepreneurial spirit can have a downside when business owners try to sell their companies without a proper valuation. At times, owners’ emotional ties to their business can lead them to try to sell for too much, a move that can lead to disappointment and a crushed ego when the market does not respond.

“I have never met a business owner who did not think that his or her business had infinite potential,” says Curtiss. “Small business owners are by nature optimists, and they tend to have very high expectations for how their businesses can perform, and therefore, how it ought to be priced.”

One of the biggest advantages a business valuation can offer owners is a reality check, a glimpse of how their business will perform in the market before taking the crucial step of putting it up for sale.

“If they think that their business is worth $10 million, and in reality it’s only going to bring in may be $1 million, it’s better that they hear it from us privately,” says Curtiss.

Valuing your company on paper

A straightforward and seemingly logical way to value a business is determining what it owns and what it owes. Charting physical assets and liabilities would seem to give a very concrete picture of a company’s value. But that’s only part of the equation, and not going further may leave out some of the biggest factors to the success of the business.

The value of a company’s reputation, history, work force and customer relationship are not recorded anywhere, but have to be measured somehow when trying to determine the value of a business.

“You know they are there, but you can’t see them, you can’t touch them and you can’t measure them,” says Curtiss. “A lot of people tend to forget about these things. They just look at what the business book value is and look at its accounting statements.”

The problem with this is that it assumes the business is simply going to be liquidated, when most businesses are bought because people want to continue operating the company as it is.

“When most people value businesses, and the way most buyers and sellers think about valuing businesses, is by determining what a business earns and applying some multiple of earnings to that business,” says Curtiss. “The appraiser’s job in a case like that is to say what are normal earnings and what is an appropriate multiple.”

Undervaluing your business in estate planning

The most dangerous threat to the survival of a business is being undervalued during estate planning. Although it does not happen as often as it did 10 years ago, business owners need to be aware of the harsh consequences that can befall them if they do not get their business appraised by a firm that can hold up to scrutiny by the Internal Revenue Service.

With estate taxes in Ohio scaling as high as 50 percent, it can be a fatal blow if the IRS comes back with a figure much higher than what the owner believed it was worth. If a business owner believes his company is worth $100,000 and the IRS values it at $1 million, there’s trouble.

“It’s a big problem if you’ve got to pay taxes on that and you don’t have the liquid cash available to do it,” says Curtiss. “It could force the business to be sold or worse, and in a forced sale, you don’t get a very good price.”

You’d be hard-pressed to find a business owner who is not aware of the need for estate planning, but with the very real threat of estate taxes, it is one eventuality for which all business owners must prepare.

“I think most businesses fully recognize the fact that estate taxes are a big issue,” says Curtiss. “And if they want to continue their business, particularly if it is a family business, they have to do estate planning, and the sooner they do it, the better. Not to do it is risking ruin.”

Monday, 22 July 2002 09:54

Kinder, gentler workplace

An already small labor pool is expected to shrink even more during the next several years, but that doesn’t mean you need to break open the bank to attract and retain a high-quality work force.

As the number of available workers between the ages of 25 and 44 diminishes, a startling reality is beginning to emerge — the competition for qualified workers is fierce. “Companies are accustomed to competing for market share — now they’re going to have to compete for work force share as well,” says David Stum, a senior vice president with Aon Consulting.

Stum says a fair salary, benefits and job security get employees in the door, but keeping them happy, and in turn committed, is an entirely different beast.

Aon, a global resources firm with a Cleveland office, has spent the last three years studying employee commitment levels to determine what factors lead to a faithful work force. Its recently issued report identifies the five most important things companies can do to create committed employees.

The study reveals a vast majority of workers is willing to stay on board as long as their employer is committed to them.

Help employees balance work and a personal life

A company’s ability to not only recognize, but cater to, an employee’s personal and family life, is the most important factor in worker commitment. The trend is most obvious in younger employees, who are not bashful about letting potential employers know they have a life outside their career.

“Generation X is leading the way,” Stum says. “During the interview, you’ll get questions like, ‘I’ll do a good job, but you do understand I will need time to climb mountains every December?” Whatever the interest is, people are putting it up front.”

A focus on family and personal life, however, is increasing in every age group. The key to handling this trend is devising a flexibility that allows vacations or benefits which vary according to the needs and schedules of individual employees rather than simply implementing a cookie-cutter program that applies to everyone.

“See if you can make everything as flexible as possible,” says Strum. “If I’m a 42-year-old father with two kids, I may want better stock options. It used to be everybody got the same thing. Being flexible helps commitment.”

Provide personal growth opportunities

The promise of a promotion in exchange for quality work is not the enticement it was a generation ago. Enthusiasm will wane quickly for employees who do not plan to advance up the corporate chain, unless there is an opportunity to learn new skills or tackle challenging projects.

“You have to remember, first of all, there aren’t that many promotions to give anymore,” says Strum. “You have to give them an opportunity to do something different on the job.”

Share customer comments

A vital ingredient of employee loyalty is making workers aware of customer satisfaction. The problem with customer comments is that they routinely do not get any farther than the marketing department. That leaves employees on the manufacturing line oblivious to how their work is perceived by the paying public.

“My suggestion is let employees in on some of that information,” says Stum. “Everybody wants to know what the customer thinks.”

Clearly communicate employee benefits

One problem with benefits is that most employees don’t know exactly how they work. That often creates frustration when a benefit, such as an insurance claim, is fouled up. But employers claim that devising effective ways to communicate to workers the advantages of their benefits is proving to be a major challenge.

“Benefits are worth another 15 to 20 percent of their salary,” says Stum. “The question is, do they know that and do they have a good experience with it.”

Some companies have used videotapes, comic books, even lunchroom skits to explain employee benefits, all resulting in more success than the paperwork traditionally issued to employees.

Hire employees who can keep pace with the current work force

There is often a significant gap between the job description on file at the company’s human resources department and the real world responsibilities associated with that job opening. That can leave new employees overwhelmed, and veteran workers frustrated, when the new hires cannot meet the demands. Often, hires will be placed on teams in a company without any consultation with a supervisor.

“The disconnect is between the human resources department and the team,” says Stum. “They need to be consulted as to what are some of the criteria for hiring people.”

Monday, 22 July 2002 09:52

Emerging business

It wasn’t that long ago when Ed Skimin saw only a few stray hands raised in the air after asking a room full of business leaders how many had ever used the World Wide Web. But there was never any shortage of hands when it came to asking questions about the technology, with issues ranging from security worries to the benefits available on the Internet.

“I did a lot of presentations, a lot of speeches, to anyone who would let me talk about it,” says Skimin, co-founder and president of Elyria-based Emerge. “There were a lot of businesses asking me what were the opportunities, what were the threats.”

When Skimin founded Emerge in 1997 with his brother, Mike, they ran the company out of two spare bedrooms in Skimin’s house. They had one client, one computer and no solid business plan — not exactly the ingredients for success. But since then, the company has developed more than 100 Web sites for Lorain County business owners, moved its offices to downtown Elyria and launched a community Web site that attracts thousands of hits each week.

But getting off the ground wasn’t easy. Besides the usual cash flow issues that all start-ups face, the duo faced a more challenging obstacle: convincing skeptical local business owners that the new technology would help, rather than hurt, them. Because of this, Skimin says he and Mike decided on Day One that they would need to follow four rules to better their chances of success.

  1. Grow intellectual capital rather than depend on financial capital.

    Since they launched Emerge on a shoestring budget, the Skimins were forced to start small. They were cautious not to take on too many clients, and instead, strategically sought out companies that wanted the type of Web sites that would also help them learn the industry.

    “At first, we worked more hours than we would ever charge for or admit to,” says Skimin. “Money isn’t everything in our business. Intellectual capital was more important. Our reasoning was, the more we know, the more business we’ll eventually be able to go after.”

  2. Be ready to change.

    When clients started asking how to increase hits on their Web sites, the Skimins devised a profitable solution. They launched www.loraincounty.com, which provides links to every business Web site in the county. The site is packed with local news, weather forecasts, discussion groups and a restaurant guide, all of which is designed to increase traffic. While it diverted some of the Skimins’ time away from Web site design, the increased advertising revenue and site sponsorships have made the temporary business detour beneficial.

    “At first, I think we were worried the Internet wouldn’t catch on fast enough, especially in Lorain County,” says Skimin. “The local market Web sites are only really beginning to develop. We’ve seen our Web site just skyrocket during the past four or five months.”

  3. Treat customers like partners

    Each month, the Skimins provide clients with reports that detail how many people are visiting their sites. Skimin says that helps them decide whether they’re getting the results from their Web site that they want.

    “I’d rather they know about it than keep paying me money and get frustrated down the road,” he says. “At the same time, if their Web site is starting to work and more people are going there, let’s capitalize on that and make the next step with their site.”

  4. Maintain a focus

    Skimin hires outside companies to host the Web sites they design in an attempt to focus on designing better and more advanced sites. The company even designed a software program that allows clients to change the content of their sites. And although it may be giving away an additional source of revenue, Skimin says he does not want the business to get bogged down with routine maintenance.

    “It was probably pretty selfish on our part, because we didn’t want to be overloaded with maintenance work,” says Skimin. “When there were just three of us, we didn’t want to be doing that. Even though we could have earned a good amount of money working on it, we didn’t want to be so busy that we didn’t keep up with the changes of the Internet.”

How to reach: Emerge, (440) 284-4949 or www.emergeinc.com

Jim Vickers (jvickers@sbnnet.com) is associate editor of SBN Cleveland.

Monday, 22 July 2002 09:51

Small fish in a great blue sea

George Mayer knows a thing or two about the banking food chain — he spent 38 years watching the industry’s large fish gobble up the smaller ones. After a lengthy career which started at a tiny independent Vermilion bank in 1960, Mayer retired a little more than a year ago from one of the largest banking institutions in the nation.

That progression up through the industry ranks was not part of Mayer’s great aspirations. His upward mobility was the result of those rampant bank mergers that characterize today’s world of finance. With each acquisition, however, Mayer noticed a disturbing trend — whenever there were cuts, bank tellers and account representatives were usually the first to get the ax. Those layoffs paved the way for another trend — electronic banking.

This industry transformation, Mayer says, disheartened customers and set the stage for the nation’s recent surge of start-up community banks.

“Every time a merger takes place between banks, usually some customer dissatisfaction will arise because things get lost in the consolidation,” he says. “I don’t want to knock the big banks, I’ve worked most of my whole career with one, but I know how big business is and there is no question about it.”

That is why Mayer is hunkered down this morning at a desk piled with paperwork in a modest two-room office on North Ridge Road in Lorain. It is 51 days before Buckeye Community Bank’s self-imposed September opening date.

Mayer, the new bank’s president and CEO, is busy juggling Y2K concerns and preparing for the next day’s meeting with the bank’s board of directors. The office phone rings frequently, but he is the only one there to answer it. The two other bank employees who work in the office are out of town on business.

The sparse office environment is an example of the streamlined operation Mayer is launching, and speaks volumes about the volatility of the enterprise. Buckeye Community Bank will experience an operating loss for at least 18 months after its doors open to the public. That is the best-case scenario, and could rapidly worsen if the bank does not generate assets quickly enough. But Mayer and the board of directors believe there is room and, indeed, a market demand for a bank built on a cornerstone of customer service and a stake in local small business investment.

The 65-year-old Mayer, dressed casually in khaki pants and a blue and white Nautica golf shirt, readily admits he never imagined himself orchestrating such a venture. But that all changed when Lorain developer Bill Roland approached him in June 1998 and shared his plan for a new community bank in Lorain County.

“Of course, at that time, I really had no immediate plans to get back into banking,” says Mayer, who speaks with a steady deep voice that sounds like it belongs on radio. “But the more I thought about it, the more I thought what a nice challenge this might be. There’s not too many bankers walking around on the street today that have ever done anything like this.”

Mayer likes to tell a story about a group of doctors who needed to borrow $100,000 for a new piece of equipment soon after the doctors’ bank completed a merger.

When they contacted their commercial lender, they discovered he was gone. Their connection to the bank was lost, and the doctors drifted along, unable to get a straight answer from anyone else. Ultimately, the group became fed up and walked away.

“This is a true story,” Mayer says, as if he can’t believe it himself. “It just took so long to get any kind of approval, they decided to go to another bank. They just gave up on it.”

Buckeye Community Bank will carve its local niche by going after the small business market, focusing on companies with $15 million or less in annual sales. The idea is to key in on a segment of the business world that can most often get lost in the age of large banks.

“You just have more local control over influencing decisions in the local market, there are no questions about it,” he says, describing the community bank’s competitive edge. “Whether it would be a major corporate pledge or a decision on a loan. It’s more responsive.”

Providing quality customer service will be an across the board bank philosophy, meaning there will be a live operator who will direct calls, not an automated phone system. Customers will not be penalized for using tellers instead of ATMs, and Mayer will make himself directly available to the public.

“I will very much be involved as far as going out on calls on small business and commercial clients with our lending staff,” he says. “I’m going to be accessible.”

Buckeye Community Bank is not exactly venturing out into uncharted waters with its plan for a kinder and simpler bank. In 1998, there were 216 new bank charters granted nationwide and although there are no exact figures, it is a commonly held belief that many were community banks. In comparison, there were fewer than 50 new bank charters issued in 1992. However, the number has climbed steadily every year since then, reaching 150 in 1996 and just fewer than than 200 in 1997.

For most start-up community banks, securing the necessary capital is a colossal and many times crippling challenge. Federal banking guidelines require $5 million be set aside, plus all operating costs the bank will incur while it organizes.

In most cases, raising that kind of money takes between six to nine months. Buckeye Community Bank found its private investors in slightly more than 90 days.

“This was just a total board involvement,” Mayer says, explaining the quick success. “The board basically went out and contacted their acquaintances and their friends to invest in the bank. It was a major undertaking to raise the capital.”

When one looks at the local business owners on the bank’s board of directors and knows a little about the county’s business climate, it is little easier to see how the impressive feat was accomplished.

The six-member board is a diverse and well-connected group, and includes Robert Cook, president of Beckett Gas, Don Sprenger, co-owner of a local assisted living and nursing home chain, and Chairman Bill Roland, whose Starland Investment company is building hundreds of homes on the west side of Lorain.

Buckeye Community Bank was an attractive investment because massive bank mergers in Lorain County during the past 10 years left Lorain National Bank the last independent in the local market.

“If you go back just 10 years as ago you had the Central Security Bank, EST Bank, City Bank, Lorain County Bank and Lorain National Bank,” says Mayer. “What you’ve got now is Lorain National Bank and First Merit. A major consolidation has taken place here in the market and we feel there is room.”

One of the reasons start-up community banks can turn a profit is there is not much fanfare put into their creation. There is usually no enormous brick and mortar investment, and they are routinely opened in defunct branch offices of other banks.

Buckeye Community Bank is no different.

The bank’s board of directors signed a lease for a 4,500-square-foot building on North Ridge Road — a heavily commercially developed area which serves as a borderline between Elyria and Lorain — that was already equipped with safety deposit boxes, teller windows and a vault. To avoid crippling capital expenditures, Buckeye Community Bank outsources its data processing.

“There is no way we could begin to buy the fixed assets, hire the skilled people and have an in-house data processing system,” says Mayer. “We have it all done outside and at a very low cost.”

The real question becomes how Buckeye Community Bank will market itself with only one office and 11 employees.

“We recognize up front we cannot become a major player in the Lorain County market with one single banking office,” concedes Mayer. He is cautious, however, about talking too much about future expansion. “I think at this point we have to make sure this bank is profitable before we begin thinking about other areas.”

On this July morning, the two requirements left for Mayer and the board of directors are obtaining FDIC insurance and undergoing a final test run to gain state approval once all of the employees are in place. Then, it will be left up to the market to decide whether a small community bank can survive in a land of giants.

How to reach: Buckeye Bancshares Inc., (440) 240-9481

Jim Vickers (jvickers@sbnnet.com) is an associate editor at SBN.

Monday, 22 July 2002 09:51

A new face at an old address

Many entrepreneurs would be wary of spending millions of dollars to revive a century-old city club burdened with dwindling membership and lacking a solid marketing plan for the better part of two decades.

But last January, William A. Hite III, president and CEO of Hite International, bought the post Civil War era Beckwith Mansion along Euclid Avenue for $1.5 million from Tom Roulston II. The University Club, which has called the mansion home since 1912, currently boasts 400 members — down substantially from Roulston’s glory days. Hite plans to revive the organization by tripling membership within a year, and will spend $3 million to make that happen.

When asked why he thinks the investment will work, Hite cites Cleveland’s renaissance during the 1990s with the success of Gateway, the Warehouse District and the Flats.

“All that renovation is making its way up Euclid Avenue,” he says. “Everywhere you look in Cleveland, there are new and wonderful stories about the renaissance of this city. Why not focus then on the renaissance of one of Cleveland’s oldest and most historically prominent facilities?”

The club’s decline was triggered during the 1970s, when scores of downtown enterprises fled to the suburbs, scattering Cleveland’s business players across the region. Hite says he’s got a plan to overcome that. His marketing approach depicts the University Club as a downtown “home away from home,” where members can entertain clients in a social environment or hold business meetings. He is also merging new ideas with club tradition by opening a small business center, offering temporary office space for members with full administrative and computer support.

Hite wants to rebuild with men and women in their 20s and 30s, many of whom he says won’t know the history behind the club. That’s a possible drawback, and one reason he is pushing the mansion’s proximity to the city’s downtown core, and amenities such as a health club, golf driving range and on-site personal trainer in his marketing materials as a way to capture the new generation.

But Hite readily admits sinking millions into an aging city landmark is a risky venture. But, he says, he was drawn to the civic and business opportunity of reinventing one of the oldest properties in Cleveland for a new generation.

“Cleveland is no longer a new city,” Hite says. “It is a city some people think has been there, done that and gone, when in fact it is recycling. Cities go through constant rebirths and reidentify themselves in a new time and new place.” How to reach: The University Club, www.universityclubcle.com

Jim Vickers (jvickers@sbnnet.com) is an associate editor at SBN.

Monday, 22 July 2002 09:50

The art of marketing

Jay Brown was in first grade when his mother proposed an art sale to help raise the money needed to open a school library. She had stumbled across a Chicago company willing to load a truck, drive to Ohio and donate a portion of its proceeds from the sale.

Two years and several art sales later, the library was completed and Norah Lynn Brown was in serious discussions with the Chicago company about opening a location in Cleveland. But when she couldn’t find a building that suited her potential business partners, she decided to go it alone.

In 1974, she and her husband, Alan, opened Gallery One in a tiny house with 500 square feet of retail space and even less room to work. Jay Brown was 13 years old then and vividly remembers the cramped quarters.

“To give you an idea of how small it was, the oval matte cutter was upstairs on top of the bathtub,” says Brown, who was named company president in 1988. “That was the only room or space we had for it. And to use it, you had to sit on the toilet. That’s the only way it would work.”

In 1976, Gallery One moved to Center Street, where it still is today. The gallery now spans 20,000 square feet. In 1996, Brown opened a second location at the South Park Center in Strongsville. Brown chalks up his company’s steady success to forward thinking and not being afraid to change his marketing plan.

“I think a lot of what we do here is based on fun and if we enjoy what we’re doing and if we enjoy the direction,” says Brown. “Marketing to me is a giant puzzle. You always have to try to figure out, if I push this button, will this work?”

Create a buzz

On most Friday evenings, when the rest of the business world is starting its end-of-the-week trek home, Brown is plugging in the coffee pot and uncorking bottles of wine. For years, Gallery One has scheduled weekend events highlighting a particular artist or genre, giving people a reason to stop by and look around.

“We are trying to make our place a form of entertainment,” explains Browns. “I don’t know many people who go to a shoe store to entertain themselves, but you can definitely go to an art gallery, like you would an art museum, to entertain yourself.”

Many times, an artist will stop by to discuss his or her work, while other evenings are festival-type events highlighting certain styles. There are no hard-sell tactics — Brown just wants his visitors to enjoy themselves.

“I encourage people to do that, because I know a couple of things,” he says. “If they come in enough times, eventually they will see something they like, which is great, because that’s how we stay in business. But I also know if they enjoy what they are doing here, they will tell someone else.”

Cure customer amnesia

Even after providing good service and quality products to customers at fair prices, there are no guarantees you will ever see them again. Not even being one of the leading art dealers in the country has allowed Brown the luxury of letting his guard down.

“People in business take for granted, I think, that the customer can easily forget you are the source for something,” he says. “We are the source for art in the Cleveland area. We are actually one of the major sources nationwide.

“I think people should come here, but on the other hand, if I don’t remind them occasionally that I am here, I can’t expect them to remember on their own.”

Brown’s main weapon against this consumer amnesia is a direct mail marketing campaign that reminds customers of gallery events. He also sends postcards to customers when new artwork is released.

In 1996, Brown launched a Web site, hoping to jump on the first wave of the new technology. Today, it serves as an online catalog, with more than 2,000 works of art by more than 100 artists. In addition, customers can order online, giving them the option to browse or buy from their homes.

Put your expertise in print

Soon after Brown took over as president of the company in 1988, he began fielding dozens of questions about collecting limited edition art prints. He didn’t mind the questions, but thought that maybe he could refer them to a collector’s guide.

There wasn’t one.

“You would think that would be a given,” says Brown, who still seems amazed no one had thought of the idea. “So five or six years ago, I tried to collect the questions people were asking me. I would write them down on little pieces of paper and put them in my filing cabinet in a folder marked ‘book.’”

In 1998, Brown finished his manuscript and sent it to the largest publisher of collector and hobby books in the United States. The Wisconsin firm jumped on it, and earlier this year, The Complete Guide to Limited Edition Art Prints hit the shelves. Barnes & Noble and Amazon.com carry the book, which has already sold 40,000 copies.

It exposed Gallery One to an even wider audience of art collectors, who are not bashful about calling and asking for “the guy who wrote the book” if they need guidance.

“The whole point is this is just another thing we did to increase our position nationally,” says Brown. “It wasn’t intentionally done that way. It was intentionally done because I wanted to write the book, but it has helped us out.

“You can use it from a credibility standpoint.”

How to reach: Gallery One, (800) 621-1141 or www.galleryone.com

Jim Vickers (jvickers@sbnnet.com) is an associate editor at SBN.

Monday, 22 July 2002 09:50

Reinventing the business

Five years ago, Tim LaGanke was sitting on a boat off the coast of Florida with no idea what his next step in the business world would be. It was an unfamiliar situation for LaGanke, who in 1985, founded Cleveland’s first 10-minute oil change business, Lube Stop, and grew it into an $11 million a year operation with more than 30 locations.

But a lack of available land, rising operating costs and philosophical differences with his business partner, Jerry Forstner, about the company’s future caused LaGanke to sell off his share of the business in the winter of 1994 and head south to reassess his future.

“My intention at that point was not to be in the oil changing business or any business,” he says.

LaGanke, whose face is lined with evidence of his wide, friendly smile, sits with his weathered hands folded in front of him on the table. He prides himself on “telling it like it is,” and is not shy about sharing the stories of his business ups and downs.

“I really was not sure what I would do after that. I was 54 years old, asking myself what I was going to do with the rest of my life. I kind of had an idea I would look around and see if I could find something that fit.”

A chance encounter with the president of Florida’s Checkers Hamburgers chain of drive-up restaurants cured LaGanke’s indecision. He soon found himself at the company’s Clearwater, Fla., franchising school, seriously debating whether a venture into the fast-food industry should be his next business move.

He ultimately decided against the hamburger business, but the chain’s use of small, prefabricated buildings on tiny pieces of property intrigued him. That concept drew LaGanke back into the industry he knew best, and in 1996, he founded a new oil change company, Quick Change.

But LaGanke’s return to his roots occurred only after he found solutions to the problems that made him walk away in the first place. In the process, he reinvented his business and the industry as a whole.

Assess the industry

One overriding problem seemed to be the root of all the others that plagued the oil change business: The costs and risks associated with opening a store. The brick and mortar investment in a single oil changing location was about $500,000.

When a store went out of business, it was demolished more often than it was sold to another business owner.

“There really isn’t a good use for a closed oil change store,” says LaGanke. “In fact, I can’t think of any around the country I have ever seen that were closed and have become anything other than a bulldozer’s target.”

To combat high operating costs, some oil change operations offered other services, such as tire rotations, transmission fluid changes and radiator flushes to bring in additional revenue. LaGanke eschewed this approach because it destroyed the hook that originally drew customers to the businesses — a quick oil change at a fair price.

Make changes

If he were to venture back into the oil changing business, LaGanke decided he would reduce the risk and cut operating expenses by using modular buildings. There would be no crippling capital expenses at the outset, and if a location was not generating enough business, it could be moved for a modest price.

“This is almost an exit plan,” he says of his modular idea. “You’re not going to get out of the business, you’re going to move it somewhere else. But this whole business centers on location. There isn’t anything more important.”

There were problems with the modular idea, but LaGanke solved them all with one creation. He designed a 47,000 pound, six foot deep concrete vault with 10-inch thick walls. It would serve as the modular building’s foundation, provide working space for employees and meet Environmental Protection Agency guidelines regarding the storage of oil.

Because of the vault idea, for which LaGanke received a patent in 1997, the new oil change stores would cost only around $150,000 to build.

Draft a business strategy

With a low-cost operation, LaGanke decided to open a store that only offered 10-minute oil changes. The lower start-up cost allowed him to seek out small parcels of land near retail centers in secondary markets, locations quick lube shops never ventured to before.

“Quick Change parallels what Lube Stop did when it started,” says LaGanke. “However, it is being done at a much lower cost, so we can afford to do less number of cars per day and be able to put them in places like Chardon, where we never considered putting a Lube Stop.”

But LaGanke did not return to the oil changing business only to build another string of successful stores. He wanted to sell his modular building design, but imagined that would happen only after he had proven its market viability — that is, until a representative of Pennzoil visited him and offered to buy his first modular building before it was ever assembled.

Test the plan

Growth of the local chain of Quick Lube stores started after LaGanke’s new 10-minute oil change process proved a winner at his first store, in Chesterland.

“It all kind of evolved about by being a lower cost of capitalization to get into the business,” he says. “So we went from the West Geauga store to Chardon to Middleburg Heights, to anywhere else we found property around Cleveland.”

In three years, Quick Change has evolved into a business with two distinct sides. There is the chain of nine Quick Change stores, operated by LaGanke’s son, Tim LaGanke Jr., and the building side, which has sold 18 modular buildings to companies across the nation.

Tim LaGanke Jr. expects the success of the Northeast Ohio Quick Change shops to boost the building side of the operation as people see the business potential of his father’s design.

“We have a model,” he says. “We can either sell that model by franchising or whatever method we choose. It’s getting to the point now with nine stores that we’ve created a pretty good chain. It’s something people can recognize and say ‘Hey, there might be something to this.’”

How to reach: Quick Change, www.quickchangeoil.com, (440) 729-1113

Jim Vickers (jvickers@sbnnet.com) is an associate editor at SBN.

Monday, 22 July 2002 09:49

A lending hand

Randy Hampton created a very profitable monster. A small job he landed to design tiny medical implants at Astro Model Development quickly took on a life of its own. Some would have looked at the surge of new work as a blessing, but the machinist had mixed emotions.

The problem was balancing the influx of new work with orders he needed to fill from Astro’s long-time customers. Hampton’s struggle did not go unnoticed by Mike Watts Jr., owner of the Eastlake manufacturing operation.

“The work just kept growing and growing,” he recalls. “We just couldn’t keep up with it.”

Instead of reorganizing the department or adding workers, Watts chose a different path. He called Hampton into his office and made him a business proposal.

“He said, ‘Why don’t we open a medical division?’” remembers Hampton, a loyal 10-year employee of the company. Hampton was blown away by the offer to go into business with his boss, and quickly snatched the opportunity.

“One day you’re a shop foreman with a dream,” says Hampton, who last spring celebrated the first anniversary of Astro Medical Devices. “Then, the next day, you’re living your dream day to day.”

For Watts, the decision was not exactly revolutionary. He had already helped start three other spinoff companies with former employees, beginning with the 1984 opening of AMD Fabricating.

“We knew he wanted to start his own business someday down the road,” Watts says of his decision to propose a partnership with Hampton. “In the family business, you get to know the people, and you want to help them make it go for them.”

It’s safe to say there are those who would view Watts’ crusade to help employees launch new companies, which in some cases provide 100 percent competition to Astro Model Development, as an odd business decision.

George Qua doesn’t. The owner of Qua Buick in Shaker Heights has helped 15 of his employees “graduate” to owning automobile dealerships during his 40 years in business.

When the towering Qua, who stands more than 6 and a half feet tall, begins talking about the reasons, his voice takes on a philosophical air.

“Social commitment is a many-headed figure,” he says. “In part, it means being fair and equal with the people you employ, and providing opportunities for all concerned. One of these things that has changed in the 40-some years I’ve been in business is this social contract, if you will. It’s not considered today.”

In his office, Qua keeps a box of index cards with an employee name written at the top of each. He records personal information about his workers, such as their birthdays, names of family members and anniversary dates with the company. He also includes a space for short- and long-term goals, which he discusses at least once a year with each employee.

“Essentially, the idea was to know what it was your fellow employees wanted to do, and to assist them if you could, along the way, financially. Plus, the training that they would need to open their own business,” says Qua.

Unlike Watts, Qua has never had much interest in retaining an ownership stake in the new dealerships. He simply earmarks a pool of money, which he loans out to finance the start-ups, and employs one basic rule: “Get the money back as soon as you can. That allows you to put it into someone else’s hands so they could go do it, too,” he says.

Qua can take credit for establishing automobile dealerships in several cities, including Lorain, Mansfield, Ashtabula, Bedford, Painesville, Columbus and Alliance. He quickly dismisses questions about whether he’s worried that by creating a legion of car dealerships, he is, in essence, building competition which could potentially divert business away from him.

“No one should be afraid of competing against anybody,” he says. “Competition, as long as it’s clean, is fine. That’s what made America work.”

In exchange for financing the start-up businesses for his employees, Watts keeps at least 50 percent ownership in each venture. The percentage his former employees own depends on how much capital is required to start the business, and how much money the employee is able to provide.

Ownership stakes range from equal 50-50 partnerships to 10 percent. And Watts’ stake ensures he has a vote in large business decisions. For the most part, though, he’s satisfied leaving his former employees in charge of the day-to-day operations.

Watts is modest when it comes to discussing the success of Astro Model Development. He downplays the risk involved in growing the 22-year-old company through its business ventures with employees and the success of its spinoffs.

“I think it’s getting the right people involved in the partnerships,” he says. “It really is.”

He finds those “right people” by keeping a keen eye on his work force. Since his employees also double as sales representatives to the company’s customers, he watches for those who bring in new business or show an aggressive spirit before entertaining the thought of launching a new venture.

“A lot of our growth here is employee developed. We weren’t out there pushing at (Hampton), telling him we need more sales or have to grow. He did it on his own,” says Watts. “When you have people like that who want to go in and start their own business, those are the people you really want working for you because they are aggressive.”

Watt’s track record with spinoff businesses has energized his work force. It is not uncommon for employees to strive to bring new work into the company. They also aren’t afraid to approach him to give him their own sales pitch.

“There’s always something going on,” he says. “Every once in a while, an employee will come up to you and say, ‘I’ve got this idea.’”

And who knows where that idea might lead.

How to reach: Astro Model Development (440) 946-8171; Astro Medical Devices (440) 269-6984; Qua Buick, (216) 721-6000

Jim Vickers (jvickers@sbnnet.com) is an associate editor at SBN.

Monday, 22 July 2002 09:47

Looking for answers

Advertising is a great way to get your company’s name recognized, while belly-to-belly sales is a key factor in driving revenue.

But Charles Stuart — who lectures nationally on building business relationships — says research is too often brushed aside when business owners draft marketing strategies.

Customer inquires don’t have to be limited to hit-and-miss comment cards or time-consuming telephone calls, which provide a grainy picture at best of how customers view your company. Stuart says the most effective way to gauge customer satisfaction and collect valuable feedback is to enlist the help of your sales staff.

If members of your sales team visit their clients once a week, Stuart suggests arming them with questions to ask at the end of each sales call. A question like, “What are the two or three things you wish we did better?” can generate surprising and valuable responses.

“It’s something we should all do much more of,” says Stuart. “At the end of the year, you could have 52 questions answered in-depth.”

Here is his simple four-step approach to successfully mining customers for feedback.

Ask useful questions

If you’re going to poll your customers, determine what you want to know about the perception of your company. It sounds simple, but Stuart warns even the best intentions are often derailed by half-baked questions that really provide no useful information.

“You have to ask and you have to ask well,” he says. “That means coming up with questions in advance and crafting them perfectly.”

Wait for a response

Don’t hurry an answer. Once you ask the question, give the person enough time to collect an intelligent and thorough response. Silence, says Stuart, is the best weapon in your arsenal when trying to learn what people really think.

“Silence is powerful,” he says. “In all of your conversations with other human beings, especially when you’re trying to create a relationship, the most powerful thing you can say is nothing.”

Take detailed notes

Jot down the response on the same note card on which the question was written for easy reference later. Taking notes also shows the person you really care about their answer, not to mention it keeps you from interrupting the flow of valuable feedback.

“The moment they start speaking, ask the person to pause so you can write it down,” says Stuart. “It engages you to do something else besides talking.”

Don’t argue

No matter what kind of criticism is leveled at your company, do not try to argue or fashion some sort of defense. The fastest way to kill the effectiveness of customer research, Stuart says, is insinuating that your customers’ opinions are wrong.

“If you argue with people, they’ll quit talking to you,” says Stuart. “When you argue with somebody’s response to your question, they’re going to stop responding.”

How to reach: Charles Stuart, www.charlesstuart.com

Jim Vickers (jvickers@sbnnet.com) is associate editor at SBN.

Monday, 22 July 2002 09:47

Fredon’s not-so-secret weapon

Seven years ago, Roger Sustar looked to the future with uneasiness.

The manufacturing industry’s labor pool was dwindling to an all-time low, and no matter how many high school students he tried to recruit, they seemed to have little interest in the opportunities available.

Today, Saturday mornings at Fredon Corp.’s Mentor facility are in stark contract to Sustar’s days on the career guidance circuit. High school students work alongside company veterans, machining and assembling the parts of miniature Napoleon-era cannons they will keep as souvenirs of the company’s eight-month educational experience.

Sustar started his “Cannons of Freedon” program seven years ago with the help of the Boy Scouts of America after he abandoned high school visits. Now it’s his most effective recruiting tool.

“If we get nine or 10 kids who finish the program over the course of the year, we’ll try to hire on at least one of them as a full-time person after they graduate,” says Sustar, president of Fredon. “We take the best ones and it works out really well. It keeps our small company replenished with young blood.”

In 1992, Sustar met a representative of the Boy Scouts of America who recommended he start an Explorer unit at the company, where students could get hands-on experience in the manufacturing trade.

“She said, ‘I know your frustration. I know what you’re going through. Why don’t you start this? It will change your attitude,’” recalls Sustar. “Looking back, I’d have to say it did.”

So far, more than 80 young men and women have “graduated” from Sustar’s program. Some just want to learn more about manufacturing before moving on to pursue engineering degrees. For others, the program results in an apprenticeship with Fredon, which ultimately leads to a career with the company.

Starting a program can be a capital-intensive venture. Sustar estimates Fredon spends about $25,000 a year to conduct it. But the money is of little matter. The real pay off, he says, is the gratitude from parents.

“Every year, we always manage to get two or three really nice personal notes from the moms or dads thanking us for helping their kids,” he says. “Not that they even come to work for us, but just that we helped them accomplish something.”

How to reach: Roger Sustar, Fredon Corp, (440) 951-5200

Jim Vickers (jvickers@sbnnet.com) is an associate editor at SBN.