John Ettorre

Monday, 22 July 2002 09:47

He practiced what he preaches

Search “Like a photographer trying to take a perfect picture, an entrepreneur must learn very quickly that focus is everything.”

The opening sentence of a research paper David Deeds once co-authored in the Journal of Business Venturing suggests that Deeds has more than a passing familiarity with the challenges of running one’s own company.

Indeed, during the 1980s, Deeds and his older brother Corky established and then ran a San Diego computer systems-integration company, Light Speed Corp., which they built into a reasonably successful organization before David left to attend graduate school in Seattle.

Like most start-ups, the one begun by the brothers Deeds was exceedingly modest at first. Corky had learned electronics in the Navy, and by the mid-’70s, he was living in San Francisco and hanging around with a group of computer geeks who called themselves the Home Brew Computer Society. He recalls one of the co-founder of Apple Computer showing up.

“[Steve] Wozniak, this crazy-haired kid, showed up with his Apple, all these parts, and it really worked.”

After working as a systems designer in the heating and cooling industry for three years, by ’83, he was back in San Diego, where his younger brother was leisurely contemplating his future after recently finishing his undergraduate degree.

“Hey, get your butt in gear,” Corky says he told him. And thus Light Speed, a custom software and hardware integrator, was born.

“We built it on credit cards and surplus electronics,” David recalls. The brothers were lucky enough to sign on as early distributors of a hot computer-aided design product, which provided special entrée into engineering and architectural firms. Still, in its first year, the enterprise grossed only about $25,000.

By the time Dave left the company in 1989 for graduate school, it was grossing a little over $1 million. The proceeds helped David fund a down payment on a house and put him through graduate school, and helped put his brother’s kids through college, he says proudly.

For a time, it was an ideal partnership. Corky was the techie, who helped keep clients on the cutting edge of the emerging technology. Dave, blessed with superior people skills, did the training. While Corky insisted on the final say as a big brother’s prerogative, they were really equal partners, he recalls.

“We tended to compensate for each other’s shortcomings,” says Corky.

David rode herd on the unproductive tinkering of his brother, a self-described “silicon junkie.” That, says Corky, “was always our biggest point of contention. I always wanted to play with the toys.” He, on the other hand, tried to impress upon his brother that various employees were not interchangeable.

Today, Corky, now 50, is still running the company in San Diego. As it turned out, Light Speed’s best year was the year after Dave left. The company’s gotten steadily smaller ever since.

“I’ve dropped back to one part-time employee,” says Corky, who complains that his industry has become a commodity business. “I make a good living, don’t work too hard and I have a lot of nice toys.”

While he’s no longer affiliated with Light Speed, David says he nevertheless derived a lifetime of useful lessons from the experience, even beyond the grubstake it provided for his further schooling. Today, his students “get sick of my war stories, especially about bootstrapping. But it informs my research,” he says.

“I always tell my students that the definition of an entrepreneur is a person with an idea and no money. So the key to my research is how to get access — to money, contacts, you name it.”

Tuesday, 22 March 2005 19:00

The second Industrial Revolution

It's been said that only a staunch anti-Communist politician such as Richard Nixon could have gotten away with his historic thaw in relations with China.

And perhaps only the great-grandson of the founding patriarch of the American mass-produced automobile could flatly predict the imminent demise of the internal combustion engine, the very device his ancestor, Henry Ford, helped pioneer more than a century ago.

At least, the younger Ford almost got away with it.

Bill Ford Jr. did, in fact, say it straight out at a major automotive conference in 2000, when he was nonexecutive chairman of Ford Motor Co., a year before he was installed as CEO.

"I believe cell-fuel vehicles will finally end the 100-year reign of the internal combustion engine as the dominant source of power for personal transportation," he said then, kicking up a stir.

With statements such as that, you might think the 47-year-old Ford, who leads America's fourth-largest company, would be a darling among environmentalists.

You'd be wrong, though.

Instead, he's mostly been caught between the incessant demands of Wall Street and his own deeply held green principles. And the more he tries to be open about the company's progress -- and sometimes lack of progress -- toward those goals, the more he opens himself up for abuse from both sides.

"Regardless of what any special interest group says or does, we're going to do what's right for our business and for the environment," Ford says. "In my view, there's no conflict between the two. I believe that improving environmental sustainability is a tremendous business opportunity."

Fuel efficiency and related environmental concerns aren't the only challenges confronting Ford, whose extended family has retained 40 percent of the voting control of the No. 2 domestic automaker. His job description also calls for figuring out how to respond to maturing auto markets in North America and Europe, and to rising interest rates and gas prices that could devastate the industry.

And he's doing it all while repositioning Ford Motor Co. for its second century.

Ford says he's trying to find the right balance between embracing the company's golden heritage -- its founder's engineering innovations and his visionary Jazz Age decision to pay workers $5 a day -- as he leads a management team embarked on remaking the company for the radically different world it faces in its second century.

Among those differences is the integration of the Internet in the company's business, and its impact on processes, policies and procedures.

"The biggest impact has probably been in our retail business," Ford says. "Some people predicted that the Internet would be the end of the traditional dealership. Instead, more and more customers are being driven to our dealers through the Internet. They are motivated and informed customers, and it makes the transaction easier and better for everyone."

Ford's vision and willingness to adapt the company to the 21st century have contributed to the company's healthier overall numbers -- 2004 net income was $3.5 billion, an increase of more than $3 billion from a year earlier, and it had total vehicle sales of nearly 6.8 million, an increase of 62,000 units over 2003

"In 2004, our company gained momentum," says Ford, "delivering more revenue and earnings, more new products, and more innovative breakthroughs, such as the Escape Hybrid, the industry's first full-hybrid sport utility vehicle."

Taking the reins during a crisis
While the company's health is strong today, for the first few years of Ford's tenure, he was working against a backdrop of crisis. He assumed command of a fundamentally broken company teetering on the brink of disaster; some even think it was on the verge of bankruptcy.

"I think he was cast into this role about 10 years earlier than had been planned," says Dr. David Cole, chairman of the Center for Automotive Research, an independent consulting organization. "The company was about to shut down; Jacques Nassar (his predecessor) had lost the people, the dealers, everybody. And there was no one else to do it."

Adds auto-industry analyst Mary Ann Keller, "What Bill Ford took over was a completely dysfunctional company."

During a couple of rounds of downsizing under Nassar, much of the company's top engineering and management talent departed, Keller says. She dates the beginning of the company's problems to the tenure of an earlier president, Alex Trottman. While things looked rosy for the company at the time -- by the late '80s it was outselling the larger GM for the first time since the '20s -- the company lost its focus while using its $10 billion in excess cash to diversify into an array of related businesses.

In the hunt for the next grand management theme, the company "essentially dismantled the operating structures and financial staffs of the foreign divisions and brought it all back to Dearborn," Keller says. "In addition to being a terrible, failed strategy, they lost a lot of talent that they've been trying to replace ever since."

So how does one fix an iconic, century-old American company that's very nearly on its knees?

"You do that by going back to basics," says Keller.

And Bill Ford has done that with abandon. Gone are the big themes and grand unifying visions. And despite his personal interest in the Internet -- he had the Detroit Lions online before other NFL teams when he ran the family-owned franchise in the '90s -- he tossed out earlier grand Internet strategies. Instead, the company has returned to its core mission -- building and selling cars the public wants.

"The immediate challenge in the last few years was stabilizing our business and getting it back on a sound operational and financial foundation," Ford says. "We've accomplished that, and I'm very proud of the way our team stepped up and did it."

A complicated man facing complicated issues
Ford's office is a testament to the staunch environmentalism of a man who, as a teen-ager, eagerly volunteered for clean-water and recycling projects. All the carpeting, curtains and furniture upholstery in his office were produced from hemp, and the ceiling tiles are made from reconstituted materials.

But his green tendencies are not the only thing setting him apart from the average American CEO. With the self-confidence that perhaps only inherited wealth and fame can bring, he seems to be something of the CEO as Boy Scout, with a number of twists: Ford is a practicing Bhuddist and a vegetarian whose favorite drink is water. He has a black belt in tae kwan do. He likes to note that he drives himself to work each day, in his favorite car, a convertible Ford Mustang.

Ford acknowledges the obvious, that he inherited a fundamentally broken company. Among the critical issues he was forced to tackle was runaway health care costs -- including coverage for retires -- an albatross that continues to dog the company. More than half of the $3.2 billion the company spent on health care last year went to retirees.

"This issue is bigger than any one company," Ford says. "I've asked our vice chairman, Allan Gilmour, to look into health care and try to find ways to reach out to other groups that are grappling with this issue. We think it's going to take a broad-based coalition of government, business and the health care industry to solve some of the more fundamental concerns."

But that issue doesn't move itself to the forefront in the same way as Ford's ongoing environmental debate, where Ford continues to be drilled by critics on both sides of the argument.

Five years ago, the Sierra Club gave Ford Motor Co. its "Exxon Valdez Environmental Achievement award," for producing gas-guzzling sport utility vehicles. Ford (the CEO) responded by vowing to decrease SUV emissions by one-quarter in just a few years.

In 2003, the Sierra Club used the automaker's centennial celebration to take another jab. In national ads, it trumpeted "A Century of Innovation," with photos depicting then-and-now models of telephones and audio equipment. The ad's kicker: "Except at Ford." The ad noted that the Model T got 25 miles per gallon nearly a century ago, while the Explorer SUV gets just 16 miles per gallon. Meanwhile, The Wall Street Journal berated Ford for his failed strategy of "appeasement" of the environmental lobby.

Despite this, Ford pointedly refuses to acknowledge any tension between business and responsible corporate citizenship.

"Trying to make the world a better place isn't just a nice thing to do, it is a way to grow your business and become more profitable," he says. "As we move farther along into the 21st century, that's going to become more obvious to everyone. I want my company to get there first."

In other words, the rest of corporate America will catch up with his visionary ideas.

Still, Ford has scaled back some of his initial boldness in the environmental area. By fall 2002, having absorbed a full year of mounting skepticism from Wall Street, he was trying to find an artful balance between his idealism and the grittier realities of running a major company.

As he told an automotive roundtable in Paris: "Obviously, the potential of hybrid electric and fuel cells is compelling, and they've been getting huge amounts of publicity in recent years. But the internal combustion engine has stood the test of time, and has evolved into an extremely clean, efficient and inexpensive power source. It continues to be improved, and emissions are now approaching zero in some designs."

Looking ahead
As the tight economy forces Ford to cut costs by as much as a half-billion dollars, the CEO hopes innovation, rather than lopping off heads, can do the job. And here, too, Ford seems to take heart in the founder's restless tinkering. Henry Ford experimented with early ethanol blends by growing soybeans. Ford, himself, has unleashed 1,800 full-time problem-solvers, called Black Belts and trained in the vaunted Six Sigma quality-manufacturing process, to lead customer-satisfaction projects.

"In the past, the conventional wisdom was that improving quality cost money," Ford said last year at a Morgan Stanley Dean Whitter investment seminar. "But Six Sigma has proven the conventional wisdom was wrong."

The savings to Ford Motor Co. is an estimated $200 million in two years from that initiative alone. Meanwhile, the company devotes more than half of its R&D budget to environmental projects.

Ford Motor Co. has also proved it's ready to bite the bullet to catch up to Japanese competitors, which have an edge in delivering hybrid technology (a combination of gas-powered and fuel-cell engines) at affordable prices. Last year, it announced it would sell its small hybrid SUV, the Ford Escape, dubbed by some as a "guilt-free SUV," at a loss while it continues to try to slice costs.

Early results are encouraging: In April, a test in Manhattan revealed the vehicle got 576 miles on a single tank of gas, or 38 mpg in the ultimate city driving.

Ford recognizes as well that part of this equation involves continuous changes in the way the unions interact with the company. It's a lesson he learned back in 1982, when he took part in an historic round of contract talks that reshaped the way unionized auto workers and their employers related to each other.

"I was on the team during the breakthrough 1982 Ford-United Auto Workers labor talks, which launched the employee involvement movement that revolutionized the industry," he says. "I've always believed that people are a company's greatest asset. During those talks I saw first-hand what can happen when you get people involved and give them a personal stake in your overall success."

So after three-and-a-half years at the helm, Ford might be forgiven for pausing to catch his breath, now more than halfway through his five-year turnaround plan. The general sense in the auto industry is that the company has stopped the bleeding and that the patient has at least stabilized.

But there are plenty of storm clouds on the horizon, in the form of high gas prices, which threaten to end a decade of easy profits on SUVs and large trucks, and rising interest rates, which will end low-rate financing deals that drew millions of customers in recent years, temporarily swelling profits.

Analyst Keller sees plenty of remaining challenges for Ford Motor Co., from a new-model product pipeline that's thinner than she'd like to the possibility that the ailing Jaguar and Aston-Martin brands could still bleed money and make it harder to protect the core company's health.

The Darwinian global auto market doesn't provide many chances for exuberance these days, she says, only an occasional sense that one has staved off disaster for now.

"Operationally, is the company better (since he took over)? Is the morale improved, does he have a good team?" Keller says. "I think the answer is yes. I'd give him an A minus. I think he's done a good job, given the enormity of the problems."

Auto researcher David Cole sees plenty of signs of progress thus far but thinks it's too early to tell how Ford should be graded. Says the former academic: "I'd give him an incomplete."

Ford is more optimistic. In January, at a meeting in New York with investors and senior management, he outlined his plans for 2005 and beyond.

"Last year, our reinvigorated cycle plan kicked in, and we introduced more new vehicles around the world than at any other time in our 100-plus years," he said. "Looking ahead, just stabilizing our business isn't enough. Our objective is to win. For 2005 and beyond, we're going to build great products, a strong business and a better world."

And if history is any judge, Ford aims to make good on that pledge.

HOW TO REACH: Ford Motor Co., (800) 392-3673 or www.ford.com

 

Monday, 22 July 2002 10:09

Voinovich's workers' comp legacy

Voinovich's workers' comp legacy

Ohio's governor will leave office with the task of reform half-finished. Did small business get used as window dressing in the debate?

By John Ettorre

When George Voinovich looks back at his eight years in office as Ohio's 65th governor, will he see the glass half full or half empty as it pertains to one of his original top priorities, reforming the state's feudal workers' compensation system?

He and his longtime aide, now Bureau of Workers' Compensation Director Jim Conrad, can take genuine pride in having introduced managed care to the system as shock therapy to jolt the bloated state-run insurance pool out of its decades-long trance. But his master plan for finishing the job-by, among other things, radically paring back the time during which non-working injured people can claim benefits-was dashed by voters' thumbs-down on state issue 2, which failed by an almost three-to-one margin last November.

So with time running out on Voinovich's second and final term in the governor's chair (he's now running for the U.S. Senate seat of the retiring John Glenn, and Conrad will undoubtedly follow) there will be no time to revisit the battle, at least for this governor.

The bottom line, maintains National Federation of Independent Businesses Ohio chapter chief Roger Geiger, clearly a glass-half-full guy, is that "companies and individuals are still a lot better off with just half the reforms." Injured workers will get back on the job faster, prevention and rehabilitation will be increasingly stressed, and elaborate gaming of the system as well as outright fraud will be reduced, he and many others say.

But to John Polk, former Council of Smaller Enterprises executive director, last November's defeat at the polls was notable more for pointing out the impotence of what he likes to call the small-business "movement." He maintains that it has all but collapsed in Ohio and elsewhere around the country, a victim of co-option by big-business lobbies.

Both the current system and the larger political debate around it were keyed more to the needs of huge employers such as Procter & Gamble and Timken Steel, which are self-insured and thus not subject to the state's captive $12 billion risk pool, overseen by BWC. Critics say that Voinovich, famous throughout his career for systematically disarming potential opponents by cutting masterful truce deals, never took the concerns of the bulk of employers into account on this issue.

With his former group, COSE, now politically neutered as a lobbying force representing small business, Polk notes that the NFIB was the leading small-business voice in the workers' comp debate. But Polk flatly calls that group "an arm of the Republican Party," not an authentic representative of its members. Indeed, Geiger can't point to a single one of his 36,000 member companies that actively lobbied on the issue. "Our members don't have time to follow all the ins and outs of legislation in Columbus," he says.

Polk maintains that's merely a function of the group's top-down, rather than grass-roots, approach. "They say they have a state chapter, but we never see volunteer leadership," says Polk. "In the case of Issue 2, small business was so nakedly put up as window dressing for the large employers to get by fiat what they couldn't get by negotiation" in the legislature a few years ago.

"Workers' comp is one of the few remaining sticks that big business and big labor have to beat each other with," he says.

Regardless, virtually every serious observer can agree that with the job of changing the system only half-accomplished, dangerous structural problems in Ohio's workers' comp system remain, problems which even the historic bull market's surge in investment earnings can't obscure forever. Take carpal tunnel, for instance. Issue 2 would have recategorized the condition as a disease rather than an injury covered by the system, which would have vastly reduced the pool's exposure to claims arising from what might be America's No. 1 growth malady.

In the interim, however, a federal appeals court in April has raised the stakes by firing the shot heard round the employment-law world: It declared carpal tunnel syndrome a disability covered under the much-dreaded Americans with Disabilities Act. If that becomes the law of the land, all hell could break loose. Almost overnight, actuarial tables compiled for risk pools such as BWC's would be rendered meaningless.

The upshot: On an issue which then-new-Governor Voinovich constantly referred to as "the silent killer of Ohio's jobs," the governor will leave office having detained the perpetrator, convicted him, but then failing to obtain a life sentence.

Voinovich is likely to be remembered as a man who dragged the giant system, a relic of the Industrial Revolution and its clashing dinosaur approach to labor-management issues, into the 20th century. By redirecting responsibility for providing medical delivery under the system from ossified state bureaucracies to regulated insurers with built-in incentives to be efficient, he's sparked more than a little hope that the state and its employers can at last get some semblance of control over runaway costs.

But absent the other changes, the history books may also one day point the finger at him for helping pave the way to yawning revenue shortfalls in the insurance pool.

But then, who ever said being governor was easy?

Monday, 22 July 2002 10:09

The Law

The Law

Big awards for just about anything

By John Ettorre

To understand where the law-at least as it applies to private business owners-is headed, all you need to do is refer to a single 3-by-5-inch postcard.

Mass-mailed recently by a Columbus personal-injury law firm to potential clients throughout the state, it trumpets a young attorney's recent entrance into the million-dollar club, the elite fraternity of lawyers nationwide who have won civil cases reaping seven-figure damage awards.

That a firm in a profession which once prided itself on its cloistered professionalism and sense of duty to the larger common good would so boldly publicize such an event says something which shouldn't be lost on anyone who owns a business: Watch your back. And front. And sides.

Need further proof that the legal environment is growing ever more perilous? Hop on the Internet and get ahold of a U.S. Supreme Court decision in March, Oncale vs. Sundowner Offshore Services. It opens a dangerous new avenue in tort law: the ability to recover from an employer damages arising from same-sex harassment.

To make matters worse, the opinion was authored by Justice Antonin Scalia, easily the most conservative, business-friendly member of the court, a man once considered a bulwark against social-engineering schemes.

If all that's insufficiently alarming, there's yet another court case looming just over the horizon, according to watchers of the high court: a case which later this year will explore the question of whether employers could be held liable for the bad actions of even non-supervisory employees.

How to react to all this? You might earmark a portion of the dividend from the strong economy to upgrading your human-resources staff or your legal counsel on employment matters, on the theory that an ounce of prevention is worth several million dollars of cure.

Better yet, you might think about ways of integrating the legal and HR functions. The smartest companies increasingly view those formerly discreet disciplines as different sides of the very same coin. Can HR managers with legal degrees be very far off?

Monday, 22 July 2002 10:08

Even dead men pay their debts

Time was when there was only one thing to do after a debtor kicked the bucket. You'd gather up their unpaid bills and send them to the bookkeeper with a note attached: Add to the uncollectible file.

But as companies try to maximize recoveries and learn more about their legal rights, many are choosing another option: filing actions to recover in probate court.

"When it comes to secured creditors, it makes no difference at all [legally] that the person is dead," says Scott Weltman, of the Cleveland creditors' rights law firm of Weltman, Weinberg & Reis, which also has offices in Columbus, Cincinnati and Pittsburgh. "I would say that in the majority of cases filed, the creditors get 100 cents on the dollar." Under probate law, secured creditors are first in line, followed by unsecured creditors. Heirs get whatever is left over.

But the process typically does take time. In Ohio, the statutory filing deadline in probate cases is one year from the date of death, so it generally takes creditors at least that long to get paid.

Professionals concede that it probably isn't worth one's time to pursue a legal claim unless the debt is at least $500, and you can expect to pay the lawyers anywhere from one-quarter to one-third of the amount recovered. And if the debtor did some estate planning, chances are most of his or her affairs are out of reach of probate anyway.

Ohio's biggest-ever utility merger, the recently concluded marriage of Ohio Edison and Centerior Energy into First Energy Corp., is significant for any number of reasons. But in the area of employment law, it might one day come to be remembered chiefly for having touched off a test case over the issue of strong-arming downsized employees into signing severance agreements containing arguably coercive language.

In the wake of the merger, the new company in January of this year made the first of what would be several rounds of cuts, laying off about 300, mostly blue-collar, employees. That prompted anguish from all the expected quarters. But it would soon become apparent that those layoffs were accompanied by a twist which carried acute legal ramifications.

In return for severance packages of varying amounts-as much as $50,000 for long-time employees-the severed workers were first obligated to sign a waiver in which they pledged not to take part in any subsequent suit about their dismissals. That was perhaps standard. The troubling part? The waiver also sought to bar them from taking part in any proceeding before the Equal Employment Opportunity Commission and called for them to immediately reimburse all severance payments in the event they later challenge the waiver itself.

The EEOC knew a provocative challenge striking at the heart of its enforcement authority when it saw one. So in March, it filed suit in federal court in Cleveland, asserting that such clauses are flatly illegal "to the extent that they obstruct with the commission's ability to investigate allegations." The language in the releases, some of it illegal on its face, would have a "chilling effect" on the agency's powers to investigate employment-discrimination laws, the agency charged in court papers before Judge Donald Nugent.

In many industries, senior employment attorneys say, these legal instruments have long been common practice. Your company might well have used them for years without stirring up much fuss. But a couple of complications, one judicial and another legislative, have intervened in recent years, rendering their use considerably murky.

The Older Workers Compensation Act of 1990 set up a new batch of rules under which employees over the age of 40 could be dismissed without triggering employers' civil liability for age-discrimination charges. More recently, a U.S. Supreme Court ruling in January of this year may have the effect of barring the use of these so-called "tender-back" releases altogether.

Against that backdrop, the language in Akron-based First Energy's waiver seems intended to invite, even provoke, special scrutiny. It bars any signee from participating "in any lawsuit or receiv(ing) any portion of any recovery in a proceeding conducted or brought by the EEOC or other administrative agency" based on claims covered in the waiver. In other words, it seems to attempt to enlist private individuals in an effort to stymie official investigations by federal agencies.

The company maintains the agency is on a "fishing expedition." The EEOC's reply: "scurrilous and inappropriate." Says one EEOC attorney, Larry Watson: "Until the law is settled on this, there's going to be a lot of action" on this front.

For fans of legal street brawls, this case potentially shapes up as a doozy. It has all the elements: It comes close on the heels of a Supreme Court case which substantially changes the law and entails a direct challenge to federal authority by a large, powerful company which ladled plenty of political gravy around Ohio to get its merger accomplished. Finally, it tests the mettle of a proud agency which many in the corporate community and conservative political circles would like to write off as increasingly irrelevant, but which sees itself, as EEOC chairman Paul Igasaki told SBN in a recent interview, as "essentially a prosecutorial agency."

For all these reasons and more, United States vs. First Energy Corp. has the texture of a potentially groundbreaking test case. It pits a federal agency-perhaps a tad defensive in this era of backpedaling on workplace affirmative action, but one still backed by the awesome legal resources of the U.S. government-against a giant utility holding company which, if legal documents are any barometer, seems to be inviting old-fashioned legal fisticuffs.

We'll keep you posted with future dispatches from ringside.

Monday, 22 July 2002 10:06

Happy families make for happy bankers

Anyone who has ever had even the slightest contact with family-run businesses knows the potential pitfalls.

Decades-old family quarrels over which sibling washed the dishes more frequently can erupt in the middle of the quarterly strategic-planning session, for instance. As business advisors and vendors become increasingly savvy about these dynamics, some maintain that family tensions can actually have even more serious consequences, including loan denial.

“The banks and loan officers are beginning to look more closely at the integrity of the family, how they work together,” says Sherrod Morehead, a veteran psychologist on the East Side who recently went into business with veteran business advisor Peter Calfee. “So families are eager to look better, because people are becoming more astute about looking at these things.”

As for his own niche, consulting with privately held businesses, Morehead says the interest in his profession is at an all-time high, as managed care continues to drive down incomes.

He recalls a presentation he recently made in Los Angeles where he discussed the emerging field before other psychologists. “Afterward, they were lining up. I could have become a consultant to psychologists.”

Broadway had its production of “Hair,” a commentary on Sixties hippie culture. Mythology had the story of Samson, a parable about power derived from a strongman’s flowing mane. Now, ’90s employers have “clip and ship,” the hot, new method for weeding out substance abusers from the workplace by chemically testing samples of hair.

Less invasive than blood or urine samples, hair samples, while moderately more expensive, are also more effective in catching substance abusers at the workplace. It has an additional attraction: The underground user community, which disseminates information about how to mask one’s drug use, has had less time to react to this method. Hair testing has been around since the mid-’80s, but has only caught on in the last couple of years.

Behind the rise of hair testing is the gradually escalating game of cat-and- mouse between substance abusers and employers bent on stopping them, or at least weeding them out of the workplace. Local drug-testing collection points, for instance, have been burglarized by substance abusers intent on planting jars of someone else’s drug-free urine in ceiling panels, which they then offer as their own the following day. The National Organization for the Reform of Marijuana Laws, or NORML, actively counsels its members on how to beat the “bladder cops.” In a document distributed on the Web, “How to Piss and Pass,” the activist group cautions that drinking vinegar before a test won’t work. “Don’t rely on the ibuprofen alibi,” it further advises. And “if you are using a friend’s urine, be sure you know what drugs they have taken over the last month.”

That’s merely one voice amid a cacophony of advice on how to beat the system. “There are 90,000 Websites on how to fool a urine test,” says Bob Drusendahl, president of Pre-Check Co., a 7-year-old Lakewood-based concern that performs pre-employment screening for clients. As a former college athlete himself, he remembers substance-abusing track-and-field teammates who nevertheless successfully evaded NCAA-administered urine tests by staying up all night, drinking tea. “It was probably the hydration more than the tea,” he says today.

“Employer drug-testing overall has grown enormously,” says Diane Younghans, marketing manager for toxicology for Nevada-based Associated Pathologists Labs, one of the country’s leading drug-testing concerns. “But we have seen monumental growth in the last couple of years in hair testing. Employers understand that employees are beating the systems, and they’re frustrated.” List price, per-employee, for such tests: $41.50 from the lab (though employers can generally expect to pay more by purchasing the service through local suppliers). According to Younghans, “You catch 50 percent or more people with hair testing than you do on blood or urine tests.”

The test, which Drusendahl drolly describes as “clip and ship,” is pretty straightforward. Human hair grows at a rate of about an inch a month, and thus to get a 90-day history of drug use, an inch and a half sample of 120 strands of hair are collected from subjects.

When performed properly—with documents signed and accounted for by the signature of witnesses, and the entire contents placed under seal—the procedure establishes a “chain of custody” over the snipped locks that is legally defensible, should the results be challenged in court. In addition, APL has a board-certified toxicologist on staff who stands ready to testify in court in the event of legal challenge.

Test results come back in two or three days. While most of the focus has been on pre-employment screening, under Ohio law employers who choose to randomly test existing employees must have written policies to that effect in place at least 90 days before commencing the tests.

Of course, the tactical games between users and employers won’t end with hair testing (nor with the next generation of tests on sweat and saliva). Drusendahl likens that war of nerves to an intelligence test. “Drug tests are the equivalent of IQ tests because people who are serious about substance abuse know how to adulterate,” he says. The newest weapon considered by some is to simply shave their heads. Not a problem, Drusendahl says. “We can take a sample from their armpits.” And what if the scofflaw pothead shaves his armpits? he’s asked

He flashes a brief, devilish smile. “We just keep going south.”

Monday, 22 July 2002 10:04

Just one deal away

Call him the Willy Loman of pipe inspection. Success, for George McNulty, was always just over the horizon, just one big deal away. Around every corner was that key investor who could finally inject enough fresh capital to complete his vision. Or that breakthrough application where robotic inspection devices introduced into a new environment would at last put his fledgling PLS International on the map. But 13 years after he began the company in his basement, it has never quite happened for the proud Naval Academy graduate.

For most of his career, McNulty, now 62, bounced around as a salesman for large companies-but always with a longing to do something more exotic. Some assumed he'd had bad experiences in corporate environments that soured him on big companies. Others saw hints of a congenital dreamer. But no one discounted his consuming passion for PLS, nor the company's flashes of technical brilliance in its niche.

By all accounts, McNulty was a skillful salesman with a knack for translating marketplace needs into new products to inspect utility pipes, underground storage tanks, smokestacks and cooling towers. He mixed an Irishman's beer-hall blarney-an ability to instantly connect over a cool one-with an engineer's subtle understanding of the highly pressurized world in which utility engineers and other unsung heroes of the infrastructure toil in anonymity.

With $70,000 in funding from East Ohio Gas Co. and the services of a borrowed project engineer, PLS developed a robotic instrument containing a miniature video camera, which could be introduced into live gas lines for 300 feet to remotely check for leaks. Some of its instruments could be snaked through pipe just 2 inches in diameter, instantly beaming video images to the PLS truck nearby.

Through word of mouth in the tightly knit utility, chemical, mining and nuclear industries, PLS got calls from throughout North America to tackle tricky inspection projects in challenging environments. One day it might be a New Jersey utility interested in checking if its ancient utility pipes were in good enough shape to be repurposed for fiber optic lines. Another day it was for an inspection of a gas pipeline in Prudhoe Bay, Alaska, or a check of the condition of utility pipes in the underwater Astoria Tunnel linking Manhattan and Queens.

McNulty likened the service business to being a fireman, waiting by on call, but he clearly reveled in the variety of assignments that came over the transom. By the mid-'90s, the little company headquartered on Cleveland's far west side had become a $1.4 million business, and McNulty owned 51 percent.

But he was no manager. Even he admitted that. Too set in his ways. Too distracted by the intellectual challenges of clients and their technical puzzles. Too focused on all the cutting-edge new products PLS might develop to kick things into overdrive.

He described his own inattentive management style this way: "You do the things you like, and let the rest of it float." That was only compounded by the heart attack he suffered five years ago, which prompted him to spend more time enjoying the second family he had begun in his mid-50s and less time obsessing over the business. To get PLS to the next level, he needed a more focused manager to run the business side.


McNulty thought that man would be Paul Lincoln, whose princely bloodlines he must have hoped would rub off on his fledgling enterprise. In 1992, fresh off an MBA, Lincoln, the grandson of one of the chief founders of Lincoln Electric Co., came into the PLS picture. Not only would the then-32-year-old run the business side, but he also agreed to invest a quarter of a million dollars in the company.

Today, Lincoln says he was determined to avoid the MBA syndrome, the tendency to come into a new environment and act as if one has all the answers. All he wanted was to install some operating systems and standardize some of the chaos. "Everything was very verbal and very fluid. I just wanted to get everything written down and standard," he says.

McNulty saw things differently. "He got in the big-company mode," he complains. "He started with the memos and Monday-morning meetings. We don't fly a 747, we fly a crop-duster." He says he warned the younger man that his approach was doomed to failure. "When you want to talk about what's going on this month, you do it over beer and pizza. And if you have a problem with somebody, you talk to them in private." According to McNulty, they even clashed over the petty-cash account, which often contained $200. Lincoln wanted it limited to $20.

"He's very emotional," Lincoln says of McNulty. "I'm not. If I was, there would have been a lot of yelling."

So, just weeks after the experiment began, quiet was restored with the forced departure of Lincoln, half of whose stake was purchased by another investor. The scion went on to spend nine months in a sales-training program at the family company, though he didn't stay around afterward. Then, last year, he embarked on a 14-month around-the-world trip, solo.

McNulty uses all of that as evidence to suggest that his now-silent partner is really a dilettante. "He could be up in a Tibetan mountain, for all I know," McNulty said before Lincoln returned from his globe-trotting. "We send the financials and the board-meeting materials to him through his mother." But he concedes his clash with Lincoln probably also sprang from his inability to surrender control.

Lincoln, now 38, splits his time between homes in Mentor and Shaker Heights. Still wounded over the PLS experience-"Emotionally, I got very upset; I felt like I got beat up"-he says that with the stock market having performed so well, he intends to "graze" for a while. His latest idea? "I'd like to learn to make boats," he says.

Lincoln has an old-money aversion to speaking ill even of his antagonists. But he does offer one telling critique of his estranged partner. "George is a very smart man," he says, "but he goes in so many different directions at the same time." It's an assessment with a deep ring of truth to anyone who has spent much time with George McNulty.


Over the years, it's been one near-miss after another for PLS.

Just as the company was making a name for itself in the natural gas industry, getting referred from one utility to another, the industry was deregulated. The resulting financial problems for McNulty's customers led to deep cuts in maintenance budgets and forced PLS to focus on other industries.

Then, several years ago, a little girl in Midland, Texas, touched off a national spectacle by falling down a well. The entire country watched as she remained trapped for days, just beyond the reach of rescuers, who could hear her via the microphone dropped down the well. It was an opportunity for McNulty, who had a distributor in the area. Even today, it still haunts him. "If he had put a camera down there," McNulty says of the distributor, "PLS would be a big company today."

Sales of equipment might well have picked up the slack from these lost opportunities. After all, tiny PLS sold custom-designed systems to such gold-plated clients as TRW (to inspect the system used in making auto air bags), aerospace giant Boeing and defense contractor Lockheed Martin.

The problem was, it never made enough on equipment sales, largely due to McNulty's primitive costing system. As he describes it, he asks his chief engineer to estimate how long a project will take, and what parts are needed. Then he doubles the total and adds 30 percent.

Lincoln merely shakes his head. "I only know two ways to price," he says. "Cost-plus or what the market will bear," making it clear that PLS should be pursuing the latter rather than the former.

While McNulty says these projects are high-margin business, Paul Lincoln says it didn't take long before he learned that PLS generally doesn't earn anything on equipment sales.

Still, PLS' technology-and perhaps McNulty's persuasiveness-were sufficient to draw an investment four years ago from an industry-resea rch consortium. Intertech, a limited partnership composed of six regional natural gas companies and the Battelle Memorial Institute, bought a one-third interest in the company in 1994.

Their contacts helped McNulty set his sights higher. By 1996, PLS had landed a five-year contract to license its technology to an Oklahoma-based manufacturer of pipe fittings. "We thought it had happened," McNulty recalls. "God, a contract with a big company. Guaranteed capital." Finally, he'd have the time and money to develop a couple of related products to tap promising new niches: a system to remotely inspect smokestacks, now checked by humans dropped in by cranes after the stacks have cooled for days, and a robotic instrument to inspect flaws in railroad tank cars.

But once again, his hopes were bitterly dashed. The larger company brought in a new manager, who wasn't so keen on the venture with PLS and found a way to terminate it. Though McNulty had seen it coming and had some time to prepare, revenues were nevertheless cut in half almost instantly (though they've since recovered).

Several years ago, McNulty commissioned a consultant to write him a business plan that might also serve as a prospectus for investors. It was a window on organizational chaos. "He barely used a computer at the time," recalls the consultant, Carol Ensinger. Instead, he handed over "laboriously produced ledgers."

But in working with the company, she also saw the flip side of its lack of management sophistication-how McNulty's determination kept PLS afloat during chronic financial crises. "He has an internal teamwork and family kind of environment that you just wouldn't see in a company run by a professional manager. During their tough times, I know there were guys in the back flipping a coin on taking alternating paychecks. And yet, no one ever bolted. They just believed in George, and I think they saw that the products were innovative."


But as others have painfully learned, belief in a charismatic leader and his innovative products are rarely enough to get a company over the hump, absent managerial discipline. By early this year, McNulty's partners were growing restless. At the last board meeting, representatives of Intertech "said very emphatically: They're not going to bring any more money in with me running the company," McNulty said in March. Together, they decided to look for a buyer.

"We all recognize that I'm still the entrepreneur, I'm not a business manager. For some reason, we're still in the entrepreneurial stage after 13 years ... I think everybody recognizes that with me running it, it's not going to change unless we bring somebody in who's a better manager of the business side of things. To grow the company, I think I've got to get out and do the selling and the product development."

Lincoln, who now owns a 16 percent stake, thought the situation was more dire than that. He was fretting over the possibility that his investment could tank altogether. "It's highly leveraged, so it might be worth nothing. Another company might want to start over from scratch," he said. Which would leave McNulty with precisely nothing to show for his 13 years of toil.


Finally, in July, McNulty got the news for which he'd been hoping. A private company in Rochester, N.Y., which specializes in inspections for the devastated nuclear-power industry, tendered an offer, contingent on a 90-day due diligence process. McNulty was jubilant. "I've known the president for 15 or 16 years," he said. "They talk my language; I can't talk to my [current] partners." The suitor tentatively agreed to run PLS as a division and to keep the headquarters in Cleveland. After so many dashed hopes for a lifeline, would this rescue package finally come through? "If I were a betting man, I would say it's 85-90 percent," McNulty says.

Paul Lincoln remained skeptical. "You're going to find out that every six months this company has a big deal." They ultimately fail to materialize, he said, though he's not ruling this one out.

He's learned from his PLS experience to have an exit strategy in place next time before investing in a company, and to ask some harder questions during the courtship. For now, he's decided to treat it as a chapter in his education. "If I get my money out of it, I'll be happy with the learning experience," he says.

Sometimes, Lincoln imagines temporarily returning to academia to compile a case study on the tensions between entrepreneurs and investors, drawn from his experience with PLS.

He'd title it, "Venture Capital's Learning Curve."

Monday, 22 July 2002 10:03

Moonlighting marketer

Martin O'Toole tried to squeeze the last precious moments out of every week.

By day, he's a marketing director for GoJo Industries in Akron. In his off-hours, O'Toole and a small team of collaborators were trying to launch a company, Mercury Products Ltd. It sells a patented software product that helps clients internally track season tickets for sporting events.

A handful of customers, including McDonald & Co. and Miller Brewing Co., bought into the concept, raising their hopes.

"We tried to get it off the ground working feverishly evenings and weekends," says O'Toole. "Everybody I presented this to said 'cool idea.' I presented it to the commissioner of the National Hockey League, and he said 'cool idea.' But we weren't able to tap into a compelling event where they said 'cool idea, and I need to do this more than the other 19 things on my desk.'"

Alas, O'Toole and his collaborators have decided to simplify their life, by putting Mercury up for sale.

Inquiries regarding Mercury can be made to Scott Runkle, at (440) 543-8819.