Clare DeCapua

Tuesday, 26 August 2008 20:00

Employee incentives

When companies are looking for ways to curb spending, it’s hard to justify an overreaching employee bonus program. But cutting out bonuses altogether can impact morale, employee motivation and retention. Instead, what most incentive programs need is a hard look and a more structured framework.

“Sometimes, it’s hard for business owners to sit down and go through the budget process, but it can be very simple,” says Bob Holden, senior vice president of the Employco Group. “The trick is to set individual goals that are directly related to the overall company goals.

Smart Business learned more from Holden on how to build a more appropriate and effective employee incentive program.

How should businesses approach employee incentives?

There are different kinds of incentive programs. There are merit-based performance programs where employees are given an increase based on their individual work performance. Typically, it’s a percentage of their base and revolves around the performance appraisal itself. There are dollar bonus programs based again upon individual performance, also tied into corporate performance, which you can measure a couple of ways — by actual profit dollars, by revenue growth or by different goals that have been set for an individual, i.e. client retention or entry into new markets.

The management team and/or owners must put together the annual budget, typically during the quarter before the firm’s fiscal year. One of the components of the budget is the salaries and the associated benefits, so when companies budget that out they know what they’re going to spend. This should be based on the performance of the organization. A good organization will pay out bonuses when the company itself does well. It may not make sense to pay out bonuses if you’re losing money because you’re rewarding poor individual and/or company performance.

During the budget process, management is forecasting what it believes profits will be — either the return on investment, return on equity or client rentention. Once they’ve established what the forecast is, that represents a pot of money to use when devising a goal-setting process for individuals and/or departments.

How should incentive programs be structured?

Businesses should develop a performance appraisal process that has a goal-setting piece to it. Set up a weighted matrix where you can say: If your client retention is 100 percent, that’s worth a rating of an A; if you’re at 75 percent, it’s a rating of a B; if it’s 50 percent, it’s a rating of a C. You take those weights and then figure out how they factor into not only the total pot but how do you transfer that down from a department to an individual.

Each department in a company affects the ROI of the businesses. How do department goals tie into the success of the overall company goals? How does the individual affect both the department goals and the company goals? And you set up a matrix based on that: The company has to do X. If the company does X, you take the next step. Then you decide based on the matrix and the importance of each department what pot of money should be worth going to each department and the individual.

What if individuals or departments meet goals but the company does not?

If everyone is meeting goals and you set the goals properly, the company should be at an A level, unless it’s beyond individuals’ control, which can happen in a tough economy.

Management should communicate to employees that when the ROI of the company is 100 percent, the pot may be X. It will be a different amount if the ROI is 70 percent or 50 percent. If there is no ROI, then based on what the goals of the individuals in the department are, you can give a small bonus if fiscally possible, because you don’t want to penalize the A performers. But you have to build that into your budget process prior to that situation revealing itself. In this economy, many businesses do not have that luxury. You can have two pots: one for a merit increase when somebody gets their performance appraisal, and a cash dollar bonus incentive, which can be given monthly, quarterly or yearly based on the company, department and individual performance.

How should CEOs set goals and communicate financial information to employees?

As far as the ROI and revenue goes, you certainly should have a quarterly meeting describing revenue goals for each quarter. This way everybody knows from a corporate perspective where the company is and what that means to their overall goal effort.

You can do a goal-setting process that sets, for example, three goals for the year. If, for example, in a firm that processes payroll as on outsourced service, a payroll person is working hard on quality; that means customers aren’t complaining and are less likely to leave. Client services, for example, should make multiple visits per year per client to review a certain array of various topics that are of concern to their client base. There should be a measurement system in place so you actually know when a complaint comes in. So those are the kinds of goals that you can set that help with client retention and tie into overall performance, even when they’re not money or commission driven.

BOB HOLDEN is the senior vice president of the Employco Group, a division of The Wilson Companies (www.thewilsoncompanies.com). Reach him at (630) 286-7399 or rholden@employco.com.

Wednesday, 26 March 2008 20:00

Your technology partner

You may not think much about the technology that keeps your organization operating until something goes wrong. As companies increasingly rely on technology, having the right provider becomes imperative.

“The right technology partner can actually advance your business processes,” says Mary Rodino, Chief Marketing Officer at CIMCO Communications. “Providers are core to the business’s ability to make money and to keep clients satisfied.”

Smart Business spoke to Rodino about due diligence when selecting a technology partner.

Why is it so important to choose the right technology partner?

Technology operations are really the lifeblood of the company, and if you don’t have a reliable technology partner, you really can’t sell, provision or even bill your customers properly. A technology partner is an extension of your brand. It can really make or break your brand reputation and how it’s perceived in the marketplace.

What should a business look for in a partner?

First, a partner needs to have really strong financial stability. You have to know that the partner is going to be around and that it has not had financial issues. Another very important criterion is trust. Does the partner actually take the time to understand your business? How does the partner follow up on concerns? If you’re not sure you can trust the partner and you experience some integrity issues even during the sales process, there is a higher probability for problems later.

We like to look at a technology partner’s client list to see not only who the clients are but also the longevity of those relationships. We always ask for three to five references. References are key because you can ask them specific questions that are pertinent to your business.

How do you measure customer service?

Take a close look at the partner’s entire customer service model. A lot of businesses, including ours, need 24-7-365 capability and guaranteed response time. Not every business needs that, but it’s very important to make sure a partner’s customer service model is going to match yours.

Make sure the partner you choose has expert knowledge and experience in your particular niche of the industry. Sometimes a company will be good in one area, but it’s not going to be good for your company. Meet the staff members who will be working on your account to make sure you are comfortable with their level of expertise.

Look at the ability of companies to be adaptable. Can they change as your business changes? Does the partner offer dedicated account management, so you know exactly whom to call? Is there a backup? Does the partner provide any type of proactive or preventive maintenance?

The technology partner should have a model that allows it to scale its business to meet your growth needs. If it’s a small business, it needs to demonstrate that it can bring in outside experienced contractors. If it’s an application that’s growing, you may want a partner who you know already has staff in place and will be able to scale for your business.

What should business owners know about their own company before choosing a partner?

The number one thing to look at is your business plan. You have to make your revenue and EBITDA commitments, so it’s imperative to look at what you need to do to grow. Secondly, know the new products and services on your product road map that will be introduced to the marketplace. Who is going to be the technology partner to give you the most efficient and effective way to bring those products to the marketplace? Third, you have to look inside your own business. Do you have the ability to continue to service your customers effectively as you grow?

What are some indicators that a business needs to seek out a new technology partner?

Responsiveness to questions and to business needs is absolutely a first indicator. Imagine that there’s equipment or software you have ordered and you need it to meet a certain timeline. If there are delays or the partner keeps missing deadlines, those are big red flags to indicate you need to look elsewhere.

Lack of scalability is another indicator. Is your business growing but your partner can’t keep up with your needs and requirements? Then it may be time to do a full review of the relationship and your contract.

How else can a business choose between prospective partners?

It’s very important to read the service level agreements. It’s great when everything goes well, but what will happen when things go wrong? And if it’s at all possible, do a site visit to the partner. You’ll learn the intangibles about its value system, how it really operates and the professionalism of its people from visiting its offices and meeting its team.

MARY RODINO is Chief Marketing Officer with CIMCO Communications. Reach her at (630) 691-8080 or maryrodino@cimco.net.

Sunday, 24 February 2008 19:00

Operating costs

We are headed into that time of year when landlords provide tenants with their operating expense reconciliations. These are basically a “true-up” of the actual costs incurred versus the costs budgeted. When you receive this document, it might be worthwhile to take a closer look to discover if the charges are appropriate.

“In spite of best efforts, there are often mistakes on these documents,” says Matthew Feeney, managing principal at CresaPartners. “As a tenant, aside from wanting to make sure that GAAP has been followed and that the math has in fact been calculated accurately, it’s important to realize most landlords issue their reconciliations based upon the ‘standard’ lease, and your lease may include material differences from that ‘standard.’”

Smart Business asked Feeney what tenants should be looking out for when they are presented with annual operating expenses.

What should tenants know about operating expenses?

A well-negotiated lease document will clearly define what are allowable operating expenses, making explicit their proper accounting treatment, and also define which costs are not allowed to be charged to the tenant. Typically, ‘operating costs’ include your real estate taxes, cleaning, common area maintenance, building insurance, management fees and repairs that had to be done during the year. In practice, a landlord will estimate the expenses of your property for the upcoming calendar year. As a tenant you will pay your percentage share of these estimates throughout the year. After the end of the year when the actual expenditures can be calculated (typically 90 to 120 days into the year) the landlord sends a bill for any amount that exceeded the budget. Over the course of the lease, this can become a significant expense that should, at the very least, be understood. There is enough gray area in calculating operating expenses that entire businesses exist for the purpose of auditing operating costs on the behalf of clients.

When should tenants be concerned?

If you think the expenses are extraordinary, you should ask your landlord for an explanation of the charges. Upon receipt of that explanation, if there is still concern, you can contact your real estate adviser or your accounting firm. Often, the best way to go about assuring accuracy is to contact a firm that specializes in operating expense audits.

What you should look for is the percentage of increase from your last year’s operating expense statement. With the exception of taxes, insurance and utilities, it’s customary for most categories of operative expenses to escalate between 3 and 5 percent per year. If you move beyond this number you probably want to question that and certainly if you hit a double-digit number an explanation is due.

In particular, in our experiences, the following issues are often predicative of errors or overcharges:

  • Major work done to a building during the year. If this is your situation you want to pay very close attention to make sure that the treatment of your operating expenses is done according to generally accepted accounting principles. For instance, if you have a new roof put on your building, or if the lobby was redone, those things should be capitalized and, in the case of most leases, excluded from the operating costs charged to tenants.

  • Changes in building ownership or management companies. New owners or property managers often implement their own accounting practices and methedologies, and these changes often create artificial increases in the tenants’ obligations.

  • Vacancy in a building frequently leads to errors and overcharges as a result of the landlord’s process of extrapolating the building’s expenses to reflect what they would have been at full occupancy (commonly referred to as ‘gross up’).

What can be done to mitigate expenses?

Since you as a tenant do not control the operation of the building you need to rely on the professional expertise of the landlord. The items that a tenant can control are typically limited to your HVAC and electric consumption. Keeping thermostats at a reasonable temperature and turning lights off or, better yet, having light sensors installed can help in this regard.

Another way to mitigate your expenses is to have a well-negotiated lease document and have the right to audit operating expenses. Without this right in your lease you have limited recourse if expenses escalate rapidly. Just the simple fact of having the right to audit should help in making sure that expenses are properly accounted for. In some cases we see companies performing annual audits on the expenses as a matter of business practice. This certainly puts all parties on notice that attention is being paid to this item and tends to lead to a higher degree of accuracy on the statements. Considering that 80 percent of reconciliation statements contain billing errors, 25 percent of which are material enough to warrant an in-depth audit, tenants should pay very close attention to these bills when they receive them.

When should a tenant forego an audit?

Simply stated, when there is no economic benefit to doing so. A company should weigh the potential return of conducting an audit with the cost of having one performed to see if there is a business case. Basically, tenants under 10,000 square feet may not want to bother with an audit as the return is likely to be small.

MATTHEW FEENEY is a managing principal with CresaPartners. Reach him at mfeeney@cresapartners.com or (610) 825-3939.

Sunday, 26 August 2007 20:00

Lease or buy?

With so many factors to consider, businesses naturally need a little guidance when it comes to whether or not to buy their commercial space. Leasing can seem like throwing money away. But buying has its own perils.

“It’s a common process of comparison and evaluation that the management of most businesses go through,” says Michael Verrill, Senior Advisor with CresaPartners in Philadelphia. “The first thing you need to decide is exactly where you are in the business life cycle.”

Smart Business asked Verrill to break down some of the considerations that business owners need to make before entering into a new real estate venture.

When should a business consider buying?

Ideal conditions to buy would depend upon a number of variables including, for example, a business’s ability to anticipate its growth in a relatively expert fashion for a long period of time. Are you in a growth mode? Can you predict where your business is going to be in the next five to seven years? Are you in a consolidation (‘right-sizing’) mode or status quo? In the purchase of a facility, management would need to be prepared to make a commitment for seven to 10 years in a particular location. Ideally, in a healthy market, that new asset would experience appreciation.

In addition, a business should be able to forego the opportunity cost associated with investing the likely significant upfront capital for a purchase back into the business. These costs are often greater than those associated with typical lease options. The direct out-of-pocket costs could range from 20 to 35 percent of the purchase price.

The third thing is to have an exit strategy. When purchasing that property, the business should understand how it’s going to get out of it, because it is an investment. It’s a longer-term investment, but an investment nonetheless. Like all prudent holdings, you should have an understanding of how to recognize your maximum return.

How does the commercial real estate market environment fit in?

A lot of companies, over the past few years, have considered the buy option because interest rates were so low and investment capital was readily available. When the cost to borrow money is cheap, it seems to many buyers that the amount they’d be spending on a monthly basis for rent in a lease, without building up any equity, is imprudent. So the environment is definitely a factor.

In Philadelphia’s Center City market, where there’s obviously a larger concentration of office towers, the trend is to lease office space. However, we’re seeing some smaller tenants looking for opportunities to buy smaller office buildings that either nearly fit their needs or require one or two additional tenants to fill out the space. This is still an active segment of the market.

Can you give an example of when leasing would be preferential to buying?

We had a restaurant client that was interested in owning its own building when the investment market was very hot. Our client was strictly focused on an emerging area in the city, and there was a lot of competition between buyers for the available product. The client was advised to pull back from the purchase consideration and look at its leasing options. As a result of a thorough understanding of all its alternatives, the client was able to get into something much more quickly with substantial contribution dollars from the landlord. When you’re an owner occupant depending on the real estate to support your business, you need to be a little more conservative when evaluating an opportunity — particularly from a zoning and environmental standpoint. Obviously, if you can’t get the zoning you need in a particular location, you aren’t able to open your business. In this particular case, it was a seller-favorable market, and sellers were limiting the buyer’s due diligence time to 30 to 60 days. In the best of circumstances, this wasn’t enough time for the client to make a prudent decision. However, by introducing leasing scenarios, the client wasn’t assuming as much risk compared to buying something that was not going to be approved for their particular use.

What else factors into the decision of leasing versus buying?

Businesses need to consider the potential distraction that owning a piece of real estate may create — whether it’s property management or constructing a new roof or dealing with tenants. It can create a potential distraction away from their core business. If they think that’s not an issue, then buying is certainly a viable option to consider. But if a business cannot endure this commitment of time and capital, leasing might be a better option.

When any business assembles the economics of a purchase scenario, it’s essential for the business to construct a proper analysis including all costs to be considered. There are considerably more costs involved in owning real estate than just the purchase price. It’s important for a business to work with an expert to uncover all the costs that are related to owning a particular property and offer an unbiased analysis of its options, including a comparison to its lease alternatives.

Any shrewd businessperson hates to throw dollars at something on which they’re not going to realize a return — this should include the business’s real estate.

MICHAEL VERRILL is a Senior Advisor with CresaPartners in Philadelphia. Reach him at mverrill@cresapartners.com or (610) 825-9109 ext. 118.

Thursday, 26 July 2007 20:00

Real estate strategic planning

The typical transaction-based approach to real estate planning focuses on a specific property lease; the strategic business approach to real estate planning focuses on how that or any lease impacts the client’s bottom line. Greg Fischer, vice president of strategy for CresaPartners in Philadelphia, advises senior business executives on aligning their real estate costs with their business strategy to improve their bottom line.

“A tactical approach may result in an effective property lease, but you need to develop a strategic approach to reduce the client’s operating cost as a percent of revenue, and improve their efficiency ratio,” Fischer says.

Smart Business asked Fischer about applying a strategic business approach to the real estate planning process.

Does a real estate strategy work for every company?

Yes. Companies usually develop strategic plans that address revenue and profit projections, employee costs, capital spending and R&D expenditures. However, while real estate costs are factored into operating expenses, the impact of these costs on the company business strategy and the value of real estate information on business decisions are often ignored. Real estate costs for most companies are the second largest indirect operating expenditure. The goal for all companies should be creating a consistent real estate process to actively manage this expense.

What is the difference between a tactical and strategic approach to real estate planning?

There’s a saying: ‘If you don't know your destination, any road you take will work.’ The tactical transaction-based approach to real estate planning focuses on a specific activity, one deal at a time. The strategic approach focuses on the destination — real estate cost as a percent of a company’s revenue. You could complete an effective real estate transaction and negatively impact the company’s bottom line because your focus is not aligned with the overall company strategy.

For example, a client is looking for a location to operate a call center. The general operating margin on a call center is less than 10 percent. A real estate services firm could identify and fitout a site for a client that is not the best solution for that business need, and the company will lose money on the call center business.

The ideal approach is to develop a company-specific real estate decision support model, which can be used to identify the appropriate cost/space metric that will positively impact the bottom line.

The starting point in this planning process is occupancy cost as a percent of revenue and cost per employee. This example identifies a company with a current cost curve of $8,000 per employee and an ideal performance target of $6,000 per employee. The difference between these two cost curves is the cost improvement opportunity. Any space cost/utilization option that is on or below the company specific ideal cost curve is an acceptable real estate option.

Returning to our call center example, the ideal performance target for this business is $2,500 per employee. If the occupancy cost is $20 per square foot [rent and operating expense], the space needs to be designed to less than 125 square feet per employee to positively impact the call center operating margin.

What are the industry benchmark targets?

Real estate performance targets vary by industry and by competitor within an industry. In general, service industry competitors tend to manage their occupancy cost at approximately 2 percent of revenue, and technology companies tend to manage their occupancy cost at around 4 percent of revenue. However, these general ranges are only useful as sounding boards. The best approach is to understand the company’s business strategy and operating model, evaluate the company’s current real estate operations, benchmark industry competitors for best practices and develop a company-specific occupancy performance target and a real estate decision support model.

Does Sarbanes-Oxley have an impact on real estate planning?

Yes. When the Sarbanes-Oxley Act (SOX) was passed three years ago, it required companies, among other things, to develop a consistent, auditable real estate decision support process. Public corporations were required to document the processes they utilized to initiate, review and approve actions that resulted in a material financial obligation on the corporation. The preceding real estate decision support model was originally developed as an SOX compliance tool; however, it does more than just help with compliance — it also makes good business sense.

GREG FISCHER is vice president of strategy for CresaPartners in Philadelphia. Reach him at (610) 684-1995 or gfischer@cresapartners.com.

Monday, 25 June 2007 20:00

Indemnification

Indemnification can be a company’s best protector, depending on how well it is thought out and drafted. Here’s where an insurance specialist comes in as an advocate to both identify risk and keep liability at bay through the tricky language of your project’s contract.

“One of an account manager’s or agent’s objectives should be to act as the client’s outsourced risk manager when entering into contract negotiations,” says Franz Wagner, vice president of The Graham Company in Philadelphia.

Smart Business asked Wagner about gaining greater protection from your next contractual venture.

What is indemnification?

Indemnification is a way to transfer the risks associated with a particular project from one party to another. For example, in a construction contract the owner of the project hires a general contractor to be responsible for all of the construction to be performed. In exchange for paying a general contractor agreed upon fees, the owner will almost always require the general contractor to indemnify and hold the owner harmless for accidents or many other things that could go wrong during the project. The general contractor then passes on this contractual liability exposure to its prime contractors, and it then works its way through the various subcontracts to the lowest tier subcontractors.

It is very important to understand the level of risk you are accepting when entering into a contract. A clear understanding of this level of risk provides you the information needed to make appropriate decisions as to whether or not to move forward on a particular job or to pass if the risks aren’t worth the potential financial gain.

Who should think about indemnification?

It really crosses all industries. For construction and real estate clients, indemnification is probably more prevalent and we spend more time dealing with it for these classes of business. However, for any business, the indemnity language can have a high financial impact in the event of a large loss, so the principals of these businesses recognize the importance of understanding the risk they are accepting (or passing on to others) in each contract.

Are there different types of indemnification in a contract?

There are really three forms of indemnification. There’s the limited form, where the indemnifying party is only responsible for their own negligence; then there’s the intermediate form, where the indemnifying party finds themselves having to take on the obligations of the owner for the owner’s partial negligence; and then there’s broad form, where the indemnification obligation extends to include the owner’s full and sole negligence. If we are working with a subcontractor (indemnifying party), we always try to avoid the broad form, and while the intermediate form is not as harsh, we would still suggest paring it down to the limited form agreement, if possible. The objective is to avoid taking on the negligence of another party if you can.

What does an agent look for in the contract language?

When we look at a contract for a customer, we focus on two things — the indemnification provisions and the insurance requirements.

When we look at an indemnification clause, we would first advise on the form of agreement and offer suggestions to modify our client’s indemnity obligations to the extent of their negligence only. In addition to this, we also want to be sure that the indemnification provision does not extend beyond things that are insurable. To simplify it, we normally look to recommend that the indemnification be limited to bodily injury and property damage — because those are the things that a customer’s general liability policy would typically respond to.

We also try to limit clients’ exposure to direct losses only as opposed to consequential or indirect type losses. For example, suppose a contractor accidentally severs a power line in the course of his work. Not only is he responsible for the damaged line, but potentially the consequential damages of utility users downstream associated with plant shut downs, equipment damage and lost revenues. While a client may have insurance coverage for this exposure, we would try to limit any indemnity obligations for consequential damages, as this is a difficult exposure to quantify.

And what about insurance requirements?

The other key component of reviewing our client’s contracts is to make sure they meet all the insurance requirements. We negotiate broad terms and conditions so that, in most cases, we have the appropriate coverage necessary for that owner. Sometimes the contracts ask for additional coverages that our client may not have, such as professional liability or pollution liability limits.

Any other advice?

Yes — make sure that you don’t allow anyone to begin work until the contracts are signed and accepted. Until the contract is signed, the contractual provisions you’ve set up to protect yourself cannot be triggered.

FRANZ WAGNER is vice president of The Graham Company. Reach him at (215) 701-5278 or fwagner@grahamco.com.

Monday, 25 June 2007 20:00

Science and space

The competition among cities is fierce for bringing in vital industry. It’s even more complicated when you throw intellectual property and extremely specific tenant needs into the equation. How can you attract, and accommodate, the growing industries of biomedical and biotechnology that make up life sciences?

Smart Business spoke to Stephanie Marino, first vice president of CB Richard Ellis, about the challenges presented to both the life science industry and its advocates in real estate.

How is finding building space different for the life science industry?

The biggest obstacle for mid-tier biomedical companies is that they are typically in the Phase One or Phase Two stages of the FDA approval process when they’re looking for a new facility. The majority of these companies are being financed through venture capitalists or angel investors. The focus is not to spend money on bricks and mortar. Rather, the primary goal and objective of the investor is to spend money on the research and development and get the product to the market, which on average takes a billion dollars over a 10-year term per product. The amount of capital and time needed for medical device companies is far less.

Given these facts, it’s understandable why they are hesitant to spend money on real estate. These companies, however, do need to have the right space and the right operational environment to make sure the products they’re developing are approved by the FDA at the end of the day. Various factors can affect their product, such as temperature, humidity, air quality or offsetting vibrations in the building.

How is it different from the agent’s end?

There are very few commercial real estate brokers that understand life sciences and its intricate needs. It’s a whole different world and a new language. Since funds are limited, a lot of these start-up companies will occupy a former lab space that has some features they can use, but that doesn’t really fit their needs. It is not until they get further down the road, five, six, seven years into their life cycle, that they can justify to their board and investors the need to invest significant capital to relocate and build out a new facility.

I get involved with these companies as early in their life cycle as possible, usually when they’ve been in existence for about 12 to 24 months. You must learn and understand not only the real estate needs, but also what the company does and how they operate. The relationship I build with my clients is for the long term.

What is the status of the life science industry today?

Boston is the No. 1 market for life sciences today. This is predominantly due to MIT. The university partnered with the state early on and put the infrastructure into build facilities to lease to life science companies. They put a stake in the ground and took a tremendous risk, but it’s paid off. San Diego and San Francisco are the next two cities where a lot of venture capitalists and angel investors are located. Naturally, they want the companies they’re funding to be nearby.

Atlanta ranks seventh in the tier of life science cities nationally. Georgia Tech has one of only three nanotechnology facilities in the U.S. About four years ago, Georgia was ranked No. 12, so we’re stepping up. However, the state of Georgia has not committed the economic resources required to compete with our neighboring states to attract, retain and grow our life sciences community.

What kinds of incentives are there for life science companies moving into a new state or city?

There’s a separate pot of money in Georgia, which the governor and state Legislature have earmarked, called the Life Sciences Facility Fund. The 2007 budget has allocated $8 million that emerging life sciences companies can apply for grants. This is different (from tax incentives) in that the funds can be applied toward furniture, fixtures and equipment. The Facilities Fund helps mid-tier life science companies get into a new building because the cost of their real estate is extremely high. For example, a basic build-out for a 50/50 open partition plan for an office runs about $30 a square foot for just base building finishes. The price to actually build out a lab space for a life sciences entity can be, on average, anywhere from $150 to $450 a square foot.

What do you see in the future of Atlanta’s life science industry?

Our two greatest challenges in Atlanta are that we don’t have a large number of life sciences venture capitalists and angel investors, and we don’t have the work force talent needed to run all aspects of a life sciences company. One of the initiatives the state has adopted, along with a few other cities, is developing programs at the high school level to give students an introduction to the life sciences. Universities in Georgia are beginning to offer life science programs to further grow the intellectual capital.

But life sciences in Atlanta are growing. The Bio 2009 Convention — which is the major global life sciences convention — will be here in Atlanta. I think that might shed a little more light.

STEPHANIE MARINO is first vice president at CB Richard Ellis in Atlanta. Reach her at (404) 504-5950 or stephanie. marino@cbre.com.

Saturday, 26 May 2007 20:00

Taking sides

In this age of corporate governance, it’s vital to know who’s representing you in every major transaction of your business. Even when there are no legal implications, it never hurts to take stock of who’s working for you and your best interests.

Matthew Feeney, Managing Principal with CresaPartners in Philadelphia, encourages business owners in the market for commercial space to weigh their options when seeking representation. “Most firms in any market are full-service real estate companies. In larger markets there are firms that just represent tenants. The differences may not be apparent to a tenant, but they can be very important.”

Smart Business spoke to Feeney about the principles behind a brokerage firm that focuses on the tenant.

Why might a firm choose to represent just the tenant?

In our case, we were founded by former corporate real estate executives who saw the value in having a firm just represent their interests. In addition, we realized that most firms are not large enough to have an internal real estate group and saw that we could fill that void on an as-needed basis. A firm that represents the tenant is more able to dedicate its resources to servicing the needs of the tenant exclusively and eliminate conflicts of interest.

What should someone know about working with a ‘full-service’ firm?

If you are representing owners of real estate, they will have certain demands on your time. In addition to marketing the space and attending space showings you will also be responsible for layers of reporting on the activity in the market as well as developing proposals when requested. I have heard from those that perform this function that this is very time consuming. The more time you spend performing this role, the less time you have to spend servicing the needs of the tenant. In many full-service firms the agents have decided to either only represent buildings, or only represent tenants. While this may reduce the potential for a conflict, the fact remains that the agents still do work for the same firm. That’s one obvious conflict, but beyond this is the fact that representing buildings versus tenants really is two different skill sets. The building agent is selling a product, while representing a tenant really involves selling a service.

Why choose sides?

People have started to wake up to who is really representing them in a transaction and where their interests lie. Some of this has been brought into focus by the residential market, where they now have to disclose that they’re either a seller’s agent or a buyer’s agent or in some cases a dual agent.

On top of this we have had some corporate malfeasance in the past couple of years, and people have started to look for full disclosure on financial reporting and business practices. These events provided the impetus for Sarbanes-Oxley and have raised the level of awareness as to who’s watching the store and who’s representing whom in a process. All of these factors have led firms to examine whom they wish to represent in a real estate transaction.

What are some of the major differences in working with a ‘full-service’ firm versus a firm that only represents the tenant?

The sell for someone who represents both landlords and tenants would be that they have access to all the information. Because they represent both buildings and tenants, they see all the deals that are running through those properties, and they — because they represent owners — know where owners are going to be willing to cut their deals. But because a tenant-only firm doesn’t represent buildings or owners, they’re able to represent all the alternatives in the market without any bias. A tenant firm can push the landlord for better terms and can be objective about the property without any concern about alienating an owner who might be a potential customer.

We also find that specialists have the time and expertise in the planning process to ensure that clients are not only getting a good deal, they’re getting the right deal. Those are two different things. A $20-a-square-foot deal in the wrong location or for a space that doesn’t meet your business needs isn’t a good real estate transaction. A $22-a-square-foot deal in the right location with the flexibility to meet your business needs is a solution, not a deal.

What should a business owner think about when hiring a representative?

These are major decisions for most companies and you need to be sure that the firm you have chosen has your complete trust. Secondly, it helps to understand who from that firm will actually work on your project and whether or not they have the experience needed to complete it successfully. Finally, you are going to be spending a fair amount of time with whomever you hire. I would make sure that the chemistry is there for the team to work together. It can be a nine- to 12-month process and it sure is better if you can have some fun going through it.

MATTHEW FEENEY is Managing Principal with CresaPartners in Philadelphia. Reach him at (610) 825-2159 or mfeeney@ cresapartners.com.

Added to the complication of doing business abroad — tax structures, logistics, insurance, just to name a few — is the continuous need to monitor and guard your intellectual property in the fast-paced global marketplace.

Owners can lose sales due to IP infringements, suffer damage to their brands and goodwill, and lose revenue through missed licensing and product sale opportunities.

“One of the biggest changes we’ve seen over the last 10 years is that international IP issues have become relevant for smaller and mid-size enterprises,” says Steve Barsotti, a director at Kegler, Brown, Hill & Ritter. “It’s a function of globalization and removing some of the practical barriers for doing business abroad. Participating in foreign markets, whether by contracting with a foreign supplier or selling product overseas, raises the issue of IP protection abroad.”

Smart Business spoke with Barsotti about how businesses can protect their intellectual property in the global market.

How has international IP law changed in recent years?

There have been strides made primarily on the procedural front through international treaties and cooperation. However, while those mechanisms provide more efficient procedures for initiating the process, the actual grant of protection is still a territorial and country-specific process. In other words, there is no ‘global’ trademark or patent registration. As a result, the cost of seeking protection increases as the number of markets in which you seek protection increases.

What that means for a small or mid-size business is that they have to be very strategic in where and how they’re protecting their IP, because the registration process can be very expensive. You always have to weigh the costs and benefits in a particular market and determine on an evolving basis what your strategy should be.

How does the Internet play into international IP?

The Internet is not bound by territorial borders. There is only one Internet and it’s accessible from everywhere in the world. So in a very real sense, the marketplace has shrunk and that raises new issues. For example, you may discover through a simple Google search a potential conflicting use of a similar trademark somewhere else in the world; prior to the Internet, there would be very little likelihood that an issue would ever arise. Now, because e-commerce is easily transacted across borders, there can be a very real risk of potential confusion among customers shopping over the Web.

To protect your company’s presence and identity online, effective domain name protection is critical. That, of course, means maintaining and renewing key domains, but also potentially protecting similar or alternative domains. Equally as important is protecting your brand and trademarks through registration in critical overseas markets where your sales will justify the expense.

If you do encounter an issue with respect to domains, there are processes in place that make it simpler to enforce your rights internationally, and that’s largely because the process is managed by ICANN, a non-profit entity that manages the assignment and registration of domain names. Anybody who wants to register a domain has to sign up and play by those rules; so some of the barriers that you typically face in the traditional legal process across borders are removed.

How does a company go about protecting its IP in other countries?

First, a company should consult with counsel about the cost and benefit of registration in the markets where they are transacting business and their IP is exposed. If the business case justifies the cost of registration, then it should be pursued. Most companies don’t go from domestic sales to a worldwide footprint in a single step; it’s usually a staged process. I always encourage clients to keep asking themselves what they’ve done to protect their intellectual property in the markets where they’re potentially expanding and to have an evolving strategy that accounts for changes in the business plan. The most important thing is to not make decisions in the dark and rack up huge expenses that really aren’t going to produce material benefits.

Another critical aspect of protection is effective cross-border contracting, including strong contractual IP clauses that clearly delineate who owns the IP, and non-disclosure obligations where appropriate. Enforcement of those rights remains expensive and fraught with obstacles in many cases, but your leverage will be greater if contracts are thoughtfully drafted with IP considerations in mind.

What should a business do if it discovers its IP is being infringed upon in another country?

The first step is to talk to good business-minded counsel on the front end, because you need to be very strategic in the response. You have to assess what your rights are in that particular jurisdiction to determine whether you even have rights to enforce at all and where the pressure points may be for the infringer. If you do have rights to enforce, it’s necessary to consider the most practical way to achieve your compliance goal; often that starts and ends with a letter exchange. If you must resort to litigation, you need to decide whether it will be more effective to sue in the foreign jurisdiction or in the United States, which requires an analysis of many factors, including ultimate enforcement of any judgment that you are able to obtain.

At the end of the day, the best piece of advice is to conduct sufficient due diligence on your foreign business partners to ensure that you are working with organizations and individuals that you trust, and to be proactive in contracting and in consideration of IP registration in your key markets. That way, you can ideally avoid problems altogether, and if issues do arise, you will be positioned with the best possible leverage.

Steve Barsotti is a director at Kegler, Brown, Hill & Ritter, working in the firm’s business, intellectual property and international business practice areas. Reach him at (614) 462-5458 or sbarsotti@keglerbrown.com.

The companies that survived 2009 aren’t just looking to weather another year. Instead, many are deciding to take action and lay the groundwork to thrive in 2010 and beyond.

To prepare for this strategy change, companies must take steps not only to retain their top executives but also make the decision to recruit and upgrade their existing talent pool, says Tyler Ridgeway, director, and leader of the Human Capital Resources and Executive Search practice at Kreischer Miller.

“When owners think of a total compensation package in 2010, they shouldn’t just think of base and bonus,” Ridgeway says. “They should also contemplate which intangibles they can offer employees to provide them with the peace of mind that they are advancing their careers.”

Smart Business spoke with Ridgeway about how businesses could consider enhancing compensation structures and team-building techniques, and have a positive effect on the retention of top-performing executives.

How have companies’ hiring and compensation practices shifted in the last year?

Retention moved ahead of recruiting in 2009. Much of the focus from an executive compensation standpoint shifted internally; instead of lateral hiring, many companies tried to do more work with fewer people. As a result, many in the work force knew, at least throughout 2009, that they probably weren’t going to earn much from a bonus or raise standpoint.

Most executives were happy to have a job and knew they had to take a team approach; they realized the need to focus not only on being a strong individual performer but also a strong team player to help their company survive and remain competitive.

Companies followed the ideal that they were not going to exceed their financial budget for a new hire. They knew that they could find executive talent that possessed all of their desired skills and abilities and hire them at lower compensation levels.

In 2009, if a newly hired executive desired more in terms of cash compensation, many companies tied incentives to both individual and company performance. These executives were given the potential to make more money, but they had to share in the risk with the company and prove that they earned it.

In 2009, there was also a trend toward getting the entire employee base exposed to and engaged in company initiatives so everyone felt like they had a bigger impact on what was going on in the company. For example, many companies assigned high-potential employees to participate in cross-functional projects that provided executive-level visibility.

Other companies randomly invited certain employees to join C Suite private company meetings. Another tactic involved developing more departmental and one-on-one meetings.

These examples increased employee morale and enabled employees to feel more involved in decision making. From a professional standpoint, even though these tactics did not tie into compensation, they went a long way toward retention.

The successful companies in 2009 were the ones that were proactive in trying to get their work force more excited about the team focus and company as a whole.

What’s in store for the rest of 2010?

If 2010 is off to a stronger start, you must prepare for the possibility that your executives may be exploring job opportunities outside of your company.

Statistics indicate that 50 to 60 percent of executives are determined to make a move once they feel the economy has rebounded. Many executives worked harder for less money in 2009 and feel they now deserve to be repositioned financially to compensate for their sacrifices.

Companies risk losing top performers to their competition. Remember, there has never been a better time to attract and upgrade your work force.

Even many of those currently employed might be contemplating making a career move.

What can companies do right now to retain and incentivize their executives?

First and foremost, companies should identify their top performers; i.e., who can you not live without? Then determine what the marketplace is paying for those same positions in other companies. Identify companies of similar revenue and employee count and determine where you stand as it relates to that benchmark.

If your company is paying below the mean, you should seriously consider increasing cash compensation. If you are paying what the market dictates, the business leaders need to communicate this fact to their executives. Many companies are thinking outside the box as it relates to total compensation for 2010.

Total cash compensation remained either status quo or decreased for many executives in 2009. As a result, to retain executives, companies are doing other things, such as offering an extra week of vacation, paying more of the executives’ health benefits, or providing spontaneous spot bonuses to reward solid performance and production.

Companies should continue to be creative and offer noncompensation perks. Offering in-house classes, training or other forms of career development is another way to give back and invest in your top-performing executives.

Successful companies in 2010 will be those that continue to be proactive in involving their work force and creating strong team work and leadership.

Tyler Ridgeway is a director at Kreischer Miller and leader of the Human Capital Resources and Executive Search practice. Reach him at (215) 441-4600 x175 or tridgeway@kmco.com.