John Ettorre

Monday, 22 July 2002 10:03

Tips from the 'Goddess'

She calls herself "The Goddess of Networking," a nickname hung on her by the Council of Smaller Enterprises. East side marketing consultant Wendy Simon is perhaps best known for her former role, as the marketing director for the Clevelandopoly project, a municipal-themed board game. Now, on her Web site at www.goddessnet.com, she lists a number of networking tips. None are exactly revolutionary, but we thought we'd pass them along anyway.

  • Attend at least two networking events a month, whether you need business or not.

  • Attend events where you can learn from peers or where your targeted market is most likely to go.

  • Don't hit people over the head, and go into a whole routine about what you can do for them.

  • Ask about their business first.

  • Limit your conversation to three or four minutes.

  • Send handwritten notes.

  • Follow up! If you said you'd call them for coffee, do it.

  • Volunteer to help at the event.

  • Make it a habit to strike up conversations with people in the bank, movie theater, supermarket, etc.

Monday, 22 July 2002 10:03

Poster boy for the revolution

Chuck Gentile had no weapon. He was armed only with a ruling from federal appeals court that dissolved the temporary restraining order which had barred him from selling his posters of the Rock and Roll Hall of Fame and Museum. In early April of this year, he entered the lion's den to proudly reclaim his confiscated goods.

The Lakewood-based freelance photographer went to the sleek receptionist's desk at Jones, Day, Reavis & Pogue, and asked to see Regan Fay, the attorney for the Rock Hall who had been holding the posters, which depict the iconographic I.M. Pei-designed building against a fiery sunset.

But the reception desk was as far as he got in the hushed confines of the blue-chip law firm, the nation's second largest. Instead of being ushered into the attorney's office, he was directed to an outdoor loading dock, where he found about 400 of his posters.

"They were on a skid," Gentile recalls. "Not even a have-a-nice-day card [was included]."

While a federal appeals court in Cincinnati ruled last January that federal judge George White had wrongly issued a TRO on the sale or distribution of the unlicensed posters, the case has hardly gone away, contrary to what most people believe.

Instead, legal discovery on both sides will continue until the end of the year, and all indications are that the dispute is headed toward a jury trial before Judge White sometime next year.

The two sides command significant legal firepower. Jones Day partner Regan Fay, an engineering graduate of the Massachusetts Institute of Technology, is a former patent examiner for the federal government as well as a seasoned litigator. He has been involved with the Rock Hall-which says it has spent $150,000 protecting its trademarks-since before it was built.

Gentile's lawyer, J. Michael Murray of the Cleveland defense firm of Berkman, Gordon, Murray & DeVan, is a past president of First Amendment Lawyers of America. He cut his teeth in contentious First Amendment cases as an understudy to Bernie Berkman, who before his death in 1985 spent many years defending such figures as the late porn distributor Reuben Sturman and Hustler Magazine publisher Larry Flynt. As one lawyer puts it, "[Murray] made a bundle on Sturman-he doesn't need the money from this case."

For its part, the Rock Hall has decided to press this fight at a significant cost in public, media and even legislative goodwill.

From the start, the central irony-that a museum dedicated to that most rebellious form of expression was going to court to stymie another young artist's free expression-was lost on no one. The Boston Globe editorialized that if Gentile fails to prevail, "a vital piece of entrepreneurial democracy goes dark."

The cantankerous Cleveland columnist Dick Feagler acidly noted that Judge White "sent Gentile's marvelous posters to death row"-temporarily, as it turned out. Wired magazine worked itself into high lather ("C'mon, a trademark on a public landmark? Get real!"), before inviting its readers to fire off pre-printed protest postcards to the Rock Hall.

Meanwhile, there could soon be renewed opposition on the political front. A populist downstate Ohio legislator, Republican Eugene Krebs, vows that he will renew his efforts to stymie the Rock Hall through changes in Ohio law if it presses on with its case against Gentile, which he assumed to be mooted by the appeals court decision until informed otherwise by SBN.

"If the Rock and Roll Hall of Fame were to turn around and literally spit in the face of Ohio taxpayers, which is what they'd be doing [by pressing ahead with the case], they are earning huge amounts of ill will," he says.

"There was not a consideration by the museum about dropping the case (after the appeals court ruling), because this really goes to the core of one of the museum's streams of revenue, and therefore of our very survival as a museum," says Tim Moore, Director of Communications for the Rock Hall. "...It's a much more important issue than publicity. It's a very critical issue that cuts to the very lifeblood of museum, it's very survival."

Krebs scoffs at the Rock Hall's argument that the case is not about freedom of expression but merely a routine case of trademark infringement.

"This guy Gentile goes to the Rock Hall and takes a picture of it, with a darn fine sunset behind it, made by God. Well, in the case of God, who do we send a royalty check to?"


It would be difficult to imagine a more unlikely eye to this legal hurricane than 39-year-old photographer Chuck Gentile. A streetwise shutterbug with a reputation for hustling for assignments, he seems particularly ill-suited to deal with national-accounts sharpies at the Rock Hall or seasoned lawyers for blue-chip firms.

When he attended one meeting to try to iron out the problem, a friend who accompanied him recalls how a Rock Hall marketing executive made his disdain apparent: "I shouldn't even be in this meeting, it's beneath me. I should be in meetings with Continental," the executive said, according to the friend, Jim O'Connor.

And yet Gentile defended himself for months before landing legal representation.

He spent nine years working as a staff photographer for American Greetings Corp. before striking out on his own as a freelance commercial photographer. He's been shooting and selling Cleveland scenes since at least 1987, which didn't remotely prepare him for the attention heaped upon him after the Rock Hall went to court to challenge his poster, which Gentile sold to retailers for $12.50.

Throughout his legal ordeal, now entering its third year, Gentile has ranged between outspoken defiance and a caution presumably born of good legal advice. Like other formerly obscure people unexpectedly swept up in media attention, Gentile has quickly developed an encyclopedic recall of who has said what about him, and in what medium. He can regale you with calls he's received from sympathetic law-school professors or from someone at Warner Brothers embroiled in a similar issue.

After the appeals panel ruled in his favor by removing the restraining order, he was momentarily ecstatic. He joked that he might one day sell the posters with an accompanying legend: Brought to you by the federal court-two out of three judges can't be wrong-a reference to the appeals court's 2-1 split decision.

But friends say the strain of the case has also taken a toll on his personal life. Gentile married not long after becoming embroiled with the Rock Hall, but the marriage has since ended.

While he said earlier this year that he would refrain from antagonizing the Rock Hall and its attorneys by selling any posters while the case is still active, at least one Cleveland gallery owner, Bancroft Henderson of Bancroft Gallery in the Old Arcade, says he now has the poster on sale. (When told of this development by SBN, Gentile's attorney sounded less than pleased.) Henderson thinks he's only one of many dealers who now has the print available for sale.

For the first several months after being slapped with the Rock Hall's complaint in April 1996, Gentile was largely on his own, though he apparently received advice and some legal support from the now-defunct American Society of Media Photog-raphers. And when he went to a meeting with officials of the Rock Hall in May 1996, he took along the aforementioned friend for moral support.

But when hauled into federal court he went entirely alone. In an initial hearing before Judge White, Gentile represented himself. On the other side was Jones Day's Fay, who likened Gentile's unauthorized poster to a brazen trademark infringement.

"It's a little bit like going into a store, getting a bottle of Coke, taking a picture, putting the Coke underneath and claiming you have First Amend-ment rights," Fay said, according to a transcript of the hearing on file at the court.

Without benefit of legal counsel, Gentile nevertheless defended his position aggressively, according to that same transcript. After pointing to certain portions of U.S. copyright law, he said: "Congress clearly saw fit to give artists rights of this nature, and we have been doing it since there was film and cameras, and to me this doesn't make any sense at all."

Besides, he contended, he sent a letter to the Rock Hall, offering to share royalties. He got only a letter threatening litigation if he didn't cease and desist.

He went on to note that since the opening of the building, the market has been "flooded" with unlicensed photographs and other representations of the Rock Hall, which he ticked off in such quick succession-presenting samples of some as evidence-that it appeared to agitate both the judge and the plaintiff's counsel.

"If you were a lawyer, he would object," Judge White told Gentile. Added Regan Fay: "We are not here at trial, yet, Judge."


From a legal standpoint, the case can easily bog down in arcane readings of federal trademark law, at least if you slog your way through the Rock Hall's court papers. In 1990, Congress extended copyright protection to significant architectural structures, and a host of companies with distinctive designs-from fast-food emporiums such as KFC and McDonald's to Transamerica and its pyramid-shaped headquarters in San Francisco-flocked to register them for protection.

But does that law merely bar others from building copycat structures, as Gentile's side argues, or does it also bar unauthorized use of the likeness through the sale of such merchandise as photographic posters? While the Rock Hall wants to paint this case as routine, others disagree.


As the legal publication Intellectual Property Strategist put it: "This may be the first decision of its kind in which the image of a building may be subject to trademark protection. Although trademarks have been granted before on building designs, the protection typically precluded someone else from making a building using the same shape."

Gentile's attorney, eager to argue the case on First Amendment principals, contends that Gentile's freedom of expression trumps such factors as the Rock Hall's merchandising program. "The court failed to consider the First Amendment implications of issuing an injunction censoring artistic expression," Murray wrote in a brief. "Instead, it treated Gentile's photographs as cans of spinach..."

In a more recent interview, he add-ed: "Usually, in the First Amendment cases I've been involved in, it's the government that's trying to suppress speech or expression. Here, ironically, it's a museum devoted to artistic expression. But it doesn't seem to be [so devoted] in the case of a photographer named Chuck Gentile."

To bolster its case and divert the focus from such potentially hazardous legal ground, the Rock Hall seems to have taken a strategy that gets more personal. To move away from the issue of artistic expression, it maintains in court papers that Gentile's posters don't qualify as art but are merely cheap consumer goods.

"No matter how defendants try to embellish their poster as 'a piece of artistic expression presumably purchased for display,' both posters involved are relatively inexpensive consumer merchandise. At the preliminary injunction hearing, defendants did not dispute the fact that there is little customer discrimination in the purchase of such relatively inexpensive products," reads one filing.

Thus, the Rock Hall argues, the public will confuse Gentile's poster with properly licensed posters, potentially damaging museum operating revenues.

Or, as others suspect, has Gentile's work been singled out precisely be-cause it is so artistically attractive?

"Because it's so good, it may outsell everything else," says Bill Fowls, the head of the photography department at American Greetings. The Bancroft Gallery's Bancroft Henderson, who sells Gentile's framed posters for $85, similarly asserts its distinctiveness. "I remember when it first came out-it seemed to us to be by far the best photograph of the Rock Hall."


If clashing interpretations of trademark law and the First Amendment weren't complication enough, the Rock Hall's case against Gentile is rendered even murkier by a tangled web of Cleveland politics and economic development.

In the 1980s, Cleveland was a town driven to put its embarrassing past behind it, and rise like the phoenix from the ashes of default, burning rivers and racial strife. And when the possibility arose of building a museum dedicated to rock-n-roll, it quickly be-came the centerpiece project of downtown redevelopment efforts. All the central players understood that it was the only project on Cleveland's drawing board with a potentially international appeal to help make Cleveland a serious convention destination. "It was the focal point," says Dick Anter, director of downtown development for the Growth Association from 1987 to 1990. "It was the international piece tying in with the orchestra. It gave us the one solid link to really promote Cleveland internationally."

Thus, the entire downtown establishment and its political support group rallied around the cause. Jones Day agreed to provide $2 million of pro bono legal services, lending the expertise of its attorneys in corporate, real estate, intellectual property and bond work. The state of Ohio and its governor, the former mayor of Cleveland, stepped in with $9 million in loan guarantees. And Cleveland-based McDonald & Co. chipped in by selling more than $50 million in tax-exempt revenue bonds, guaranteed by state and county governments. And when the funding still came up short, Mayor Michael White and Cuyahoga County Commissioner Tim Hagan paved the way for the County Port Authority, the only public bonding authority that hadn't exhausted its funding cap, to help.

And yet, eager to dispel the general notion that such funding means it is a public building-and thus available to be photographed by whomever wishes to-the Rock Hall's defenders have engaged in some legal hair-splitting that would do Bill Clinton proud.

By this reasoning, the Rock Hall isn't a public building because the fi-nancial assistance was derived not from general tax revenues but rather through private investment secured through publicly issued bonds. Regan Fay concedes that this has been a difficult distinction to sell.

"That's something we've been able to educate the judges on, but not the public," he says with an air of resignation.

Even the federal judge who first issued a TRO on the posters, George White, may not be immune to the urge to protect the Rock Hall's income stream. A former Cleveland City Coun-cilman who won his lifetime appointment only after surviving the opposition of former Sen. Howard Metzenbaum, White has deep ties to the local business and political establishment.

A visit to his chambers underscores the impression of a judge who decides issues not so much in cloistered seclusion but with an eye toward realpolitik. Where most judges, federal and otherwise, have stacks of legal publications piled in their waiting rooms, his waiting room is dominated by copies of the glossy monthly Vanity Fair.

It was into this tangled mix of power politics that a little-known commercial photographer unknowingly trampled with his tripod and light meter. Some are mystified over the Rock Hall's insistence in pressing on with this unpopular case. While one would ordinarily think that a museum would do everything in its power to escape near-universal opprobrium from the public that supports it, the Rock Hall seems immune to criticism. Why?

The answer may lay in the unusual patchwork of funding that went into building the museum, aggravated by the recent disappointing shortfall of visitors to the museum. Because those visitor receipts have lagged, revenues from such "ancillary" activities as the sale of merchandise have become anything but ancillary to paying down the debt from building the complex. And they're considerable: sales of licensed merchandise from the museum store alone were expected to hit perhaps $5 million in 1996, and as much as $20 million for all outlets.

Still, there's a risk for Rock Hall supporters if this case continues along its current path, especially when waged by an attorney as well-schooled in such litigation as Murray. As plenty of litigants have learned to their dismay, the discovery process can lead to opening doors which some would prefer be left closed. In early discovery proceedings, Murray shows every evidence of aggressively investigating such things as McDonald & Co.'s precise role in selling the bonds, by subpoenaing Managing Director Paul Komlosi.

"This goes way beyond the Rock Hall," Anter says of the delicate public-private agreements whose messy details could prove embarrassing if extracted through legal discovery.

The Gateway sports complex, for instance, was structured in similar fashion. Though it benefited from giant infusions of public funding through passage of a county "sin" tax, the sports complex remained under the ownership and management of a private corporation. And thus it could legally prevent Native American demonstrators from demonstrating against the Chief Wahoo logo.

The Rock Hall has been equally aggressive in pre-trial proceedings. In October, it was due to take depositions from principals in the companies that laid out and printed Gentile's poster, even the Bedford Heights company which added some finish, Northern Ohio Finishing.

"All I was doing on that poster was making it shiny," says owner Patrick Holler.

Both sides, no doubt, would like to hear from the security guard, "Jim," who Gentile maintains gave him verbal permission to take his photos.


What, then, is to become of The Rock & Roll Hall of Fame and Museum, Inc. vs. Gentile Productions?

To no one's surprise, the court recently found the case to be a poor candidate for settlement through alternative dispute resolution. To the contrary, you can almost hear the sound of heavy artillery being hauled into position as you read through the court filings and their mushrooming lists of central figures and innocent bystanders about to be deposed.

As for the appeals court's overturning of the temporary restraining order, one legal authority notes that while it has no legally binding effect on a trial over the merits, as a practical matter it ought to have some influence with Judge White.

"Usually, if your appeals court overrules you, it's gotta weigh on how you view the merits," says Jonathan Entin, a professor of constitutional law at Case Western Reserve University College of Law and a lawyer with experience in federal appellate practice. Perhaps recognizing that reality, Regan Fay is looking beyond the trial court and even the appeals court.

Instead, he talks about "laying the groundwork" for proving to later courts that the appeals court erred in overturning the TRO, an unambiguous sign that the Rock Hall intends to take its appeal all the way to the U.S. Supreme Court, if necessary.

"I very clearly expected it to go all the way up to the Supreme Court all along," says Victor Perlman, who served as national general counsel to the defunct photographers' group. "The issues are too important to stop at the intermediate level."

The powerhouse Jones Day firm, meanwhile, has also tried to throw its weight around the State Legislature, by one account. Representative Krebs says he got a call from someone at the firm, threatening retaliation if he continued to press his bill on this matter.

"I got a very interesting call from a guy at Jones Day-heavy pressure," he says. What did he say? "We want you to cease and desist, that kind of thing. I just laughed at it...It really was [like] 'we're more powerful than you.'"

If intended as a threat, it backfired. The call has only led Krebs to plant his feet more firmly on the issue. "If they win in the courts, fine. We'll change the state Constitution accordingly. So we'll still beat them."

And what of the photographer who touched off the continuing legal showdown with his decision to plant a tripod on a windswept sidewalk just off Lake Erie? Chuck Gentile has noticeably ratcheted down the volume on his public comments recently, on the advice of counsel. But as his case was heading for appeal on the temporary restraining order last year, he couldn't resist gloating a bit about how the law of unintended consequences had rebounded to his benefit.

"Everywhere I go, they've heard of me. They actually did me a favor," he said at the time. "They've made me international overnight."

Some accounting firms are warning privately held companies organized as C Corps. that if the principals are being especially well-compensated, they'd better be prepared to justify it to the Internal Revenue Service, with full documentation. Otherwise, the agency could rule that the excess compensation be treated as dividends, and taxed accordingly.

Accountant Andy Press, a partner in the Cleveland firm of Bick Fredman & Co., recalls one client who went under the IRS microscope for his lofty compensation.

"About five years ago, I had a client, an auto dealer, who made $900,000. The [IRS] agent, who was making maybe $25,000, thought that was unreasonable. But we just documented it, and demonstrated that he was responsible for fleet sales, and that brought in a lot of money."

In the end, that argument won the day.

Tax specialists say you might be better off to skip this reasonableness test altogether, by converting from a C Corp. to a limited liability corporation.

Monday, 22 July 2002 10:02

Accountants have privilege, too

Long a staple of Constitutional confrontations, as well as courtroom melodramas, the attorney-client privilege has been a source of repressed friction between attorneys and their briefcase-toting brethren, accountants. If journalists, clergy members and attorneys enjoy special legal protections for their communications with clients, accountants have long grumbled, why don't they rate the same professional respect?

The profession's yearnings were partly addressed this July, when Congress passed the IRS Restructuring and Reform Act of 1998. One little-noticed provision shields communications on certain tax advice matters between clients and federally authorized tax practitioners-which include CPAs, enrolled agents and actuaries and attorneys authorized to practice before the IRS.

There are a host of footnotes which have the effect of watering it down, however. The confidentiality privilege applies only in non-criminal cases, and if a case were to seep from the jurisdiction of the IRS to, say, the Securities & Exchange Commission, all bets are off. And for practitioners, there is a cost associated with their clients' new limited privilege: Practitioners now have some new responsibilities to report to the authorities any malfeasance they observe.

In effect, the provision repeals a U.S. Supreme Court ruling more than a decade ago in a case involving the firm of Arthur Young, a forerunner of Ernst & Young LLP. The High Court ruled in that case that accountants' "tax accrual work papers" could not be shielded under a professional privilege. The case has rankled the accounting profession ever since, especially since the court never got around, then or since, to defining what it meant by work papers.

"I think accountants felt the need to be able to counsel their clients in confidentiality" just as attorneys do, says Don Herkovitz, a Washington, D.C.-based senior technical advisor to Deloitte & Touche LLP's national tax group, who has authored an article on the topic for an upcoming issue of an accounting industry publication.

The IRS can't be happy about this latest crimp in its enforcement powers, which is part of a larger movement recently to begin shifting the burden of proof in tax cases from taxpayers to the tax agency (though only at the tax court, not field, level). "The honest answer," says the former chief of the IRS Cleveland office, Jack Chivatero, "is that this is going to make the IRS's job somewhat more difficult." Prior to this provision, he says, "the IRS could issue a summons to an accountant or an accounting firm, while they couldn't do it to attorneys, because of attorney-client privilege."

But the biggest question left unanswered for now concerns precisely what falls under the heading of "tax advice." D&T's Herkovitz thinks it will undoubtedly include standard letters of tax advice sent from accountants to clients, as well as all related tasks and conversations.

"Let's say somebody is planning a transaction, and they want to sell a building or depreciate some equipment. Even after you've sent the letter of advice, you're still working on the matter, writing a memo to the file or discussing the issue with a colleague. That would be privileged," he says. Where it may get dicier, though, is in cases where accountants are advising clients on interpretations of underlying tax provisions.

In the end, this qualified privilege may prove to be much ado about very little. At least that's the view of veteran Cleveland tax attorney Gary Zwick, a partner in the law firm of Walter & Haverfield, and for 25 years also a practicing CPA with such firms as Cohen & Co. "If it only applies in civil cases, it will have limited impact," he says. "I don't think it's that big a deal." After all, he says, "attorneys have always been concerned about accountants infringing on their territory. But accountants have always been better bush-shakers [rainmakers] than attorneys. If they'd all work together, they'd all do better."

Monday, 22 July 2002 10:02

Who do you let handle your money?

Does it seem that half of America's downsized executives have repotted themselves for a second career as a financial planner?

Before you engage their services or those of related professionals, check out their backgrounds. The Securities & Exchange Commission - (800) 732-0330 - can advise you if they are a registered investment adviser, and if any complaints have been lodged against them. State insurance commissions can check if they're licensed to sell insurance, and the Certified Financial Planner Board of Standards - (888) CFP-MARK - can disclose if they're currently licensed and have ever been disciplined for violations.

Those inquiries are all free. But perhaps one of the best places to check someone's background is with an organization which charges for its services, the National Fraud Exchange-(800) 822-0416, ext. 33-a one-stop shop for looking into the track records of brokers, financial planners, real estate agents, trust advisers and other financial professionals. NFE background checks cost $39 for the first individual, $20 for any additional checks.

Monday, 22 July 2002 10:02

The 10 Commandments of Market Research

Bill Hauser was a prototypical '70s sociology grad student when he got his start in market research. With hair down to his waist, he filled in for a woman on maternity leave. And he never looked back.

His first real assignment in applied observational research came with uniquely attractive perks. The management of the then-new Richfield Coliseum hired him to study crowd behavior, which required him to patrol most of the scheduled events with clipboard in hand.

"It was cool," he says, "for the whole year, I had tickets to every event." He also got his first taste of counterintuitive findings: He judged the mature audience for crooner Frank Sinatra more potentially volatile than the more youthful crowd attending rock concerts.

Today, Hauser is one of the most prominent market researchers in Northeast Ohio. Until recently, he worked for 13 years at Rubbermaid Inc., where he headed the Business Intelligence Unit, a conglomeration of equals spread among the company's various divisions. Last year, the company-which is now in the process of being acquired-redeployed him to work full time on its Little Tikes division.

When he entered the corporate research field, he says, a Ph.D. in the social sciences was "almost an albatross." Today, he says, his background is respected for its ability to bring a fresh perspective to business challenges. Next year, he's due to become president of the Society for Applied Sociology, a nationwide group of about 500 professionals.

It's not hard to surmise that he flourished in the corporate environment due to his ability to balance the purism of academic research with the limitations of corporate research.

"I can't see doing academic research, where we have this perfect sample. It's too time- and cost-prohibitive," he says.

Similarly, while the sociologist in him knows that focus group results can often be skewed by a single strong personality whom others follow, he also understands that the immediate insights gleaned from them do have real value. With focus groups, "you get immediate results. You can watch it from behind the mirror, and walk away that afternoon and say, 'OK, I know what they said.'"

For market researchers operating in the real world, the most important skill is what he calls "triangulation." By using a combination of research techniques-some invasive and some not, some costly and others less so-"by the time I'm done, I can say I've looked at it three or four different ways." That blend of perspectives also gets one closer to the motion picture of real life than does the standard mall intercept or single focus group, where the artificiality of the experience for the subject can yield results more akin to a still photo.

"At least it's six frames instead of one frame. It's getting more of what I would call real life," says Hauser.

For some time, Rubbermaid has been taking that cinema verite research approach to a new level, by paying consumers to let researchers snoop around their kitchens. As he explains it: "Hi, we're from Rubbermaid. We just want to see how you have your kitchen organized. We'll give you $25 for a half hour of your time." Researchers will then take what they learn back to the product-development lab.

Hauser occasionally engages in his own form of observational research, by trolling around toy stores, playing the helpless male shopper. When he sees a female shopper perusing a toy by Little Tikes or its archrival, Fisher-Price, he would ask for advice by saying, "'I don't know, I'm a dumb male.'" He's even been known to pose as a retail employee stocking shelves.

His unassuming appearance and affable manner help him blend in. Even at the office, he generally dresses casually, perhaps in chinos and a golf shirt, to go with his silvery hair and salt-and-pepper beard. He supplies a visitor with a constant flow of irreverent asides that would horrify a representative from corporate communications or investor relations.

"I love to talk, I can't shut up," he says. Colleagues have dubbed him "Dr. Death," a reference to an evening sociology class he teaches at Akron University. "Death and Dying is actually fun," he says.

Mostly, though, he's a walking billboard for the benefits of market research. His high-octane advocacy is perhaps best captured in a passage of a book he's now preparing on the topic of trends.

"Historically, individuals have viewed research and data gathering as a boring, time-consuming endeavor," he writes. "But this is not true! If done properly, research can actually be fun and exciting."

For industry speaking engagements, Hauser has developed his own list of Ten Commandments for research clients to follow. We've tacked on some of his comments about each item.

1. Thou Shalt Know Why Thou Art Doing the Research

"Many times, research becomes one of those 'adjunct things-'let's go out and ask the consumer.' Many times it's not even integrated [into the company's larger activities], just done to say it's been done." That's a big waste of time, money and effort, he says. "Research is expensive. Don't just do it for no rhyme or reason."

2. Thou Shalt Remember that Bad Research is Not Research

"I could just stand out on the road with a product and hold up a sign: 'Honk once if you like it and twice if you don't.' The problem with doing bad research is that it could be a multimillion-dollar decision made by talking to six people." Even at Little Tikes, he admits to occasionally having been encouraged to cut corners by using employees as focus-group participants. The problem? A built-in parochialism. Packaging designers will focus mostly on the packaging, color specialists on the color, and so on.

3. Thou Shalt Not Trust a Research Supplier who Sayeth: 'Oh, Sure, I Can Do That'

"We used to kick companies like that out the door," he says. "I would say, 'pick a niche.' The researchers who say they can do everything have a staff of 1,000, and you never see the same person twice. I'd like to deal with the person doing the research, not be passed around to account reps."

4. Thou Shalt Work with the Supplier to Get the Information Thou Needest

"Before you even call that vendor in, get a clear idea of what you want to do, what your objective is," he says.

5. Thou Shalt Learn How to be an Educated Client

Most companies can't afford a Ph.D. research expert on staff to independently appraise the capabilities of various research vendors. That doesn't mean they can't become knowledgeable enough to be smart shoppers, though. "Know something about market research, whether you take a course or whatever." And always begin by knowing what it is you'd like to accomplish.

6. Thou Shalt Remember That Any Consumer Research Project is a Partnership

Any research that outside vendors are hired to perform is merely an extension of whatever research capability the company has in-house. "I always said that you should develop a close working relationship with the best in any field, which could be a one-person office or a big research house." But remember that the buck always stops with you, not the vendor. "The consultant doesn't know your business; you know your business."

7. Thou Shalt Remember That the Best Research is Not Always the Most Expensive

"Usually, the most avant garde techniques are also the most expensive. Either it's a larger group of research subjects or special software," he says. But that might not be the best answer for your situation. For a lot of small businesses, observational research-which may cost you nothing-is often the right answer, he says. "If I already have to sit in the back of the room to watch for security, why can't I also record [customer] behavior: 'Sally walked around the store for three minutes and bought X.'"

8. Thou Shalt Not Use the Research To Sell Products (at least not right away)

"You don't use market research to sell products, but to learn how to sell products down the road," he says. In most companies, there's generally a powerful incentive to bias the research in favor of particular outcomes. But companies mustn't let that happen. "You may not hear what you want to hear, but that's why you do the research."

9. Thou Shalt Remember There are More Types of Significance Than Statistical Significance

"What happened historically is that people got an MBA, and they're trained to only accept statistical significance." That narrow approach raises a particular problem in a focus group, where the sample is by definition not statistically significant. "But you can still get significant findings," he says. He recalls a former boss, a vice president of marketing, who had a blanket directive to the research department: "'If there's a finding that's not statistically significant, don't even bring it to me.'" He notes the executive is no longer with the company. "There are other kinds of significance: What did they like about the product, what didn't they like?" He recalls focus groups in which 90 percent of the participants liked a product, but the other 10 percent went on to provide more useful information than the former. "The 10 percent gave open-ended answers on what they didn't like, and we changed the product as a result. Whereas, if I were only paying attention to statistical significance," he would have merely reported a resoundingly positive take.

10. Thou Shalt Listen to the Findings, Interpret Their Meanings and Then Turn Them Into Actionable Intelligence

In other words, implement and execute.

It sounds like a splendid program for small businesses interested in bidding for federal contracts on a scale which they might handle. Under a pilot program launched in September, so-called Very Small Businesses-those which have fewer than 15 employees and less than $1 million in annual revenues-can now bid on federal contracts worth less than $50,000. While these account for only about 2 percent of all federal contracts, the category totals a whopping $5.2 billion each year.

There's one catch, though: The pilot program isn't available to businesses in Northeastern Ohio. Only those businesses headquartered in 10 areas of the country, including several central Ohio counties and all of New Mexico, Michigan, Massachusetts and Louisiana need apply. Why? Pork barrel politics may have something to do with it. The main sponsor of the bill, after all, was Republican Rep. Richard Baker of Louisiana.

The new set-aside program also highlights the fact that the Small Business Administration uses no single standard to define small businesses, contrary to most assumptions.

While the benchmarks of 500 employees or fewer and $5 million or less in annual revenues have generally come to be regarded as the standard definitions, the SBA actually has as many as 30 size standards it applies throughout the economy, says D.J. Caulfield, an SBA official in the Washington headquarters. In the aerospace industry, for instance, where there are fewer and larger companies than in other industries, a company with as many as 1,499 employees can be designated a "small" business.

"The deal is, everything is relative to the industry. So we do tailored analysis," says Caulfield.

The new VSB program is an attempt to open up the pie to even smaller companies, though the fine print notes that these earmarks are only required where there's a reasonable expectation of drawing two valid bids from among the very small.

The pilot program, which will run through September 2000, is a response to legislation which Congress passed in 1993. But it sat on the shelf for years because it ran squarely into Vice President Al Gore's Reinventing Government Initiative, which sought to streamline the government procurement process. It was launched only after those bureaucratic snags were cleared away.

No word yet on whether this area might eventually be added to the mix, should the program succeed and be adopted as a regular feature of federal procurement policy.

The Equal Employment Opportunity Commission is known mostly for its aggressive investigation of complaints in the workplace. But like all federal agencies, it's being forced to cope with mounting caseloads in a time of diminishing resources. And it's not immune to larger trends in the law.

Thus, the agency is increasingly focusing its efforts on alternative dispute resolution, a means for settling disputes more amicably through arbitration or mediation.

The Cleveland district office notes that among the advantages of voluntarily submitting to neutral third-party intervention, both parties can bypass the grueling investigation process in a confidential proceeding which isn't recorded. The principals need not even bring their attorneys, although they're permitted to do so.

Written settlement agreements result in closing proceedings before the agency, and outside experts note that by law, both parties have a few days to unilaterally revoke their agreement, much like a consumer can take back a big-ticket a purchase. In the approximately two years since ADR has been introduced in the Cleveland EEOC district, about 200 cases have been handled through some form of ADR, says Loretta Feller, the ADR coordinator.

While the agency, under its own statutes, can't characterize the progress of its nonpublic ADR deliberations, other specialists say the program has met with some success.

"I've heard that it's working fairly well," says Eileen Vernon, an attorney who heads the Northern Ohio office of the American Arbitration Association, a national network of private arbitrators and mediators which shares some independent mediators with the EEOC's program.

Dean Bellone will forever remember it as his personal Internet 101 lesson. His company, CompSource, was doing just fine selling computer parts and custom-built notebook computers.

But none of the brisk trade in those products convinced him of the essential nature of the Internet. "I was one of those people saying the Internet's just a fad; I don't need a Web site," he recalls. Instead, he took a more conventional approach, shelling out $150,000 for an ad in a national computer magazine. It flopped spectacularly, prompting just a trickle of inquiries.

Meanwhile, his staff was getting dozens of calls for a sound card, an inexpensive personal computer peripheral. These weren't merely casual browsers, but technically savvy buyers armed with part numbers, calling to place immediate orders.

Bellone soon learned what was happening. "What happened was there were some search engines putting us up as the lowest price [on that product]." Without lifting a finger, the Web had become an important sales channel for him.

Since then, he's pursued that channel full-bore. Just this fall, CompSource debuted full blown Web retailing, offering 158,000 products through its online catalogue-including instantly downloadable software-from more than 1,000 vendors. Business is booming. Having recorded about $3 million in sales (90 percent of which comes from out of state) in 1997, Bellone is expecting '98 sales to possibly top $10 million.

"I once thought Micro Experts' $22 million was unattainable," he says of a once high-flying, Russian-American-owned computer retailer. Now, says the 29-year-old, shaking his head in wonder, "I'm not so sure."


CompSource's story begins, humbly enough, with a mechanic for International Harvester. That's what Dino Bellone was doing in the 1970s, when his cousin invited him to join his office supply business.

By 1979, the elder Bellone had left to form his own company, United Office Products Co., in downtown Cleveland.

By the late '80s, his son Dean, then a student at Cleveland State University, was helping. "But I just knew I wasn't into selling pens and papers," he says. And so, in 1991, Dean, then 22 years old, went into business for himself, working out of his father's offices (they still share space, now on Superior Avenue, just east of downtown Cleveland).

Dean dabbled at first, bankrolled, according to some accounts, by his father. He sold Internet access and had part interest in a site-development company with a friend, a Lotus Notes developer. He was also selling custom-made notebook computer systems through CompSource.

Gradually, he began offering customers a wider array of parts, working with distributors including Ingram Micro (a sister company of the book distributor behind virtual bookstore Amazon.com's explosive growth). His goal was to be among the top three to five in price nationally-which led him to that catalytic encounter with a search engine.


In the back room call center of CompSource's modest storefront headquarters, a kind of 20-something casual intensity reigns. The dress code is casual and earrings and personal CD players are much in evidence. All but one of the 17 employees is younger than Bellone, who turns 30 in August.

On an average day, about 600 calls come in to the center-the recipient of a new $45,000, 48-line electronic phone system-with perhaps half culminating in orders. While most inquiries are in response to the Web catalogue (the company is only now beginning to distribute 60,000 print catalogues), only about 50-60 of the orders arrive electronically, without the intervention of a person taking a call to answer questions.

Like nearly all online retailers, CompSource is seeing how slow the transition to full online transactions has been, even among the technically literate (only 20 percent of wired adults have made a purchase on the Web, according to one study).

"I honestly thought that online ordering would be a little bigger than it is," says Bellone. "But I think people are still reluctant. Most would still rather talk to someone, for assurance that this is the product they should get. They might want a sound card, but they still want to know that the guy on the other end of the line that's been selling 30 a day says, 'Yes, that's a good card.'"

Web retailing is built on speed and immediate gratification. For orders received by 4:30 p.m., the company promises to ship that same day. Many customers call just an hour after placing the order, requesting package delivery tracking numbers.


Mindful of the ferocious competition on the Web-which forces sellers to constantly update prices or suffer steep drop-offs in inquiries-Bellone has toyed with the notion of surrendering profitability for a time in order to build market share. Indeed, one online retailing report from a leading Web research organization recommends Web retailers forego profits for at least the next three years in order to increase market share (see box). Bellone, however, thinks two months is about as long as he would retrench on pricing: After that, he says, customers will simply begin regarding the lower prices as the new standards.

For now, his per item markup is anywhere from 2 to 9 percent, and he's ever-vigilant to squeeze out whatever costs he can. He's whittled the rate he pays credit card issuers to an average of 1.8 percent, for instance, by lobbying American Express to drop the rates it charges him from 3 to 2 percent. And he's essentially eliminated credit card fraud, which once ran as high as $40,000 per year, by introducing fraud-protection software on Web transactions. He's also trying to automate every possible transaction with vendors, all in the service of trying to stay as price competitive as possible. "That [automation] lowers our prices, because if we automate [with suppliers], they'll push the price lower, since it frees up their sales force," he says.

Despite his success, Bellone admits the Web's relentless competition is cause for concern. "Ninety eight percent of Internet companies don't make money," he notes. And while he's now among the lucky 2 percent, "I am really kind of afraid of what the Web will do. I have a competitor who actually charges $2 or $3 above cost. The next step is to take service out," he says.

That spiral at times leads him to wonder aloud if he shouldn't have remained in the service side of the business, rather than venturing into the selling of products. But then the Web's dynamism intercedes once more, and he'll stumble over another opportunity ripe for the plucking.

That happened late last year, as daily traffic on the CompSource site reached about 75,000 "hits," or page views. Bellone got a call from a company inquiring about advertising on his site. So now, rather than providing a new sales channel, the Web was presenting CompSource with a new revenue stream it had never considered, let alone pursued. "That," says Bellone, "just got our gears running."

Monday, 22 July 2002 10:00

Online retailing is tricky

Online retailers have been effective in driving traffic to their sites, but spend far too little attention to converting browsers to first-time buyers, according to a recent report on online retail strategies.

In a survey of 75 top online merchants, who collectively accounted for 60 percent of U.S. Web retail sales in '97, Cambridge, Mass.-based Forrester Research found that concerns over the security of credit card transactions was the number one deterrent to more people making online purchases, followed by poorly designed sites and insufficient product selection.

CompSource certainly picked the right product category in which to compete. Sales of computer hardware and software accounted for $863 million in 1997, nearly as much as the combined totals for the next two categories, travel and entertainment. On the other hand, sales of travel-related goods are expected to surge into the top spot as early as 2000.

But Forrester's analysts maintain that the biggest issue for success in online retailing is converting cyberbrowsers to first-time buyers. And yet, 70 percent of those it surveyed didn't pay any attention to introducing first-time buyer promotions.

Forrester concludes Internet retailers are good at generating traffic, but once lookers arrive, merchants are less <$t-5.5>successful converting them into buyers.