Chris Cicchinelli wishes he knew how to speak more languages or at least paid more attention in his Spanish classes, because his company has started to expand into international markets.
Pure Romance Inc., an in-home party company that sells a premier line of relationship enhancement products, expanded into Puerto Rico last year and now has 750 consultants selling products there.
“I wish I would have taken more Rosetta Stone or more Spanish when I was in school,” says Cicchinelli, president.
Now that the company has successfully started its quest to break into international markets, it’s looking to open locations in Johannesburg, South Africa, Sydney, Australia, and Manila, Philippines, within the next year.
2010 was the company’s biggest year yet, seeing 40 percent growth, which resulted in revenue in excess of $120 million and 50 new employees.
“We’re growing in all of our Midwest markets and all throughout the United States,” Cicchinelli says. “We were also very fortunate that we started doing some international growth last year. We are really beefing up our infrastructure to continue our growth trajectory for 2011 into 2012.”
While the organization has been able to grow domestically, Cicchinelli has found international growth offers a few challenges he hasn’t had to face until now.
Here’s how Cicchinelli keeps his company on a rising growth curve.
Consider each decision carefully
It’s no secret that every company wants to see growth. However, not every company is fully prepared to take on the challenges that growth brings with it.
“Making new decisions for the company and what the right decisions are for the company and the growth aren’t always easy,” Cicchinelli says. “You have to be upfront with everybody. You have to be as honest as you can. As long as you are upfront, honest and have an open dialogue it will get you far.”
If growth is something you’re looking to achieve, it is imperative that you are ready to take on the challenges.
“You have to look at everything [in the company],” he says. “You have to look at what’s right for the company from a perspective of new product development if you’re looking at it from a manufacturing route. You have to ask yourself questions. How’s it going to affect my end consumer? How’s it going to affect my sales rep out there selling? How does my company internally get behind what we are out there doing? All of those factors are important before you make a decision. You have to also sit down with key individuals in your office and talk it through. It’s not a dictatorship, it’s a democracy. You have to sit and talk about things and how that will affect all aspects of your business.”
Looking over all aspects of your business and making sure your plans will work or at least have a good shot at working is a big time commitment.
“Time is definitely a challenge,” Cicchinelli says. “You’re constantly working in the business from 9 to 5 and working on the business after that. I’m working on the day-to-day pieces, making sure that the core competencies of our business are done during those hours and from 5 o’clock until maybe midnight we are working on new development and making sure we have all those pieces covered.”
Because growth takes so much time and effort, it is important for not only yourself but for your employees to be able to celebrate the successes you see along the way.
“There were points and times where we would just go from one project to the next project to the next project,” he says. “It was like, alright, great job, let’s shelve it. No celebration, no congratulations, it was just move on to that next thing. We run so fast all the time that I want to make sure that the culture of my company is always positive and celebrating victories, even the little things. Personally, I’m trying to make sure that I’m celebrating those internally and I’m celebrating those with our staff. Those are things I had to overcome as a leader and making sure that we did celebrate that stuff.”
Celebrating success may seem obvious, but it is a big factor in your employee’s moods and demeanors. You can’t skip over any victory, large or small.
“Life is really short and the people that are around you are very important,” Cicchinelli says. “You spend more time with them then you do sometimes with your own family as leaders. You want to make sure that you congratulate them and you continue to boost them, because it is the right thing to do for your culture and your company. Celebrate the little successes that you’re going to have along the way because sometimes when you grow, you can grow so fast that you forget about everything that you’ve done and all the things you should be proud of. As a society, sometimes we forget about that and we just go through the motions and we forget about all the things we have to be thankful for in life.”
Expand to foreign markets
Before you can expand to any new market, foreign or domestic, you have to research where you want to expand. You have to take the time to get to know that market and have an understanding of whether your company can compete there.
“You have to do the research to make sure that there is not a lot of competition for the product that you’re selling,” he says. “If you’re selling printers or if you’re selling cars or whatever, you need to do the research either online, in business magazines, newspapers or even people on the ground in that market. You have to use anything you can to help you make the right decision.”
Finding a good reason to break into a market is step one. Once you understand the opportunity in a market, you have to gain an understanding of the culture there.
“Culture has been the most important thing anywhere that I’m traveling,” he says. “We spend a lot of time understanding culture. How do we interact with them? How will they take these products? How do we make sure we don’t offend anybody when we are talking about sexual health or sexual relationships? Culture has been our biggest thing for us to overcome.”
To understand how the culture of a new market works, you have to take time to visit and gain firsthand experience.
“You have to absorb as much as you possibly can,” Cicchinelli says. “Spend as much time as you possibly can in those markets. That’s one of the things that I’ve been able to do is I’ve been able to spend a lot of time and really get to know the people better. You have to take the time to build a relationship and better understand each other.”
Build relationships with people in your organization that want to help your company grow. Also, find people who live in those markets who can help you. That can make a huge difference in your company’s success.
“You have to find some people you trust,” Cicchinelli says. “Find some people in your organization that have got your back and don’t mind putting the extra hours in. You also have to make sure you find somebody that wants to grow up in the company.
“Find somebody that is either an expert in those locations or is someone on the ground in those locations. We have a person who’s on the ground in South Africa and I have a person who’s on the ground in Australia who is really helping guide us through.”
Don’t underestimate the importance of having someone with knowledge of the market and your industry.
“You’ve got to meet with the people that know your industry the best or know what type of industry you’re in to help make some of these decisions with you,” he says. “You have to make sure that you’ve got someone who has experience with whatever your product category or whatever your product line is to direct you where to open up and what the best way to communicate with the people of that country is. Once you have that then you’re putting your plan together and you’re implementing.”
Reaching the implementation stage is a big accomplishment and once you’re there, you have to keep pushing forward without hesitation.
“Once you make a decision, go fully committed,” he says. “You can’t go into these places, especially in the foreign markets, and be 99 percent in. You have to be 110 percent in.”
Fill your company with strong people
Pure Romance’s growth hasn’t just been about finding the right markets to break in to. The company has more than 100 very strong employees that understand the business and help keep it moving forward.
“As you continue to grow, make sure that you have the right team around you and the right people around you,” Cicchinelli says. “Make sure that you’re not just throwing people into position as life rafts so you can actually get your nose above water. You want to make sure that you’re interviewing your people and making sure that you know who you have in your organization.”
Finding the right people involves making sure they have the skills and the attitude to fit within your company.
“You need to think about using things like Myers-Briggs or some sort of analysis when it comes to not only looking at someone’s skills and talents but also whether they are going to fit into your culture,” he says. “If your culture is fast-paced and these people aren’t going to survive in a fast-paced market you have to know that before you hire them.”
Pure Romance is also a believer in promoting from within. The company gives employees every opportunity to learn different areas of the business so they can be better prepared to move up the corporate ladder.
“Most people that have been promoted from within have shown … understanding that their job is to help others and to lift not just themselves but to lift others up,” he says. “The ones that have moved up have worked in multiple positions within the company. So they not only know accounting but they know operations. Those are the ones that have been very successful in the company because they know all aspects. They don’t know just their job, they know what their job is and how their job can affect other departments.”
Allowing employees to gain knowledge of other areas of the company will help encourage company interest and make for stronger employees.
“You’ve got to first tell people that you’re promoting from within,” Cicchinelli says. “I think some companies sometimes don’t think that they have the talent inside and they try to hire out. I’m a firm believer that cultivating a strong culture means that you have to promote from within. You have to make sure people know that there are opportunities inside the organization for them to continue to grow. Sometimes it’s good that those things come from the CEO and not just the HR person.”
You have to present these opportunities for your employees and ask if they are interested in other areas of the company.
“I think it’s asking your employees and asking if they’d like to learn other areas,” he says. “The more jobs that they understand or know in your office the better off you will be in the long run. Empowering employees gives them the ability to have as much love for the company as you do. They will be able to cross-train the different people in the different departments, they’ll be able to have a better understanding of the flow of the business and at the end of the day they will be able to educate your consumers or your sales force so you can increase your revenues and be more efficient. And they may see things that you as the CEO or business owner may not see.”
HOW TO REACH: Pure Romance, (866) 766-2623 or www.pureromance.com
The Cicchinelli File
Born: Naperville, Ill.
Education: Attended Mount Union College
You played football in college. What position did you play and what did you take away from that experience?
I played defensive back and it taught me how to be a team player and how each person’s role is very important to the success of the whole team. We won two Division III national titles there — ’96 and ’97.
Who are some people you admire most in business?
My mother, Patty Brisben. She’s a true entrepreneur, and one of those people that started something most people saw as taboo, and she’s been very passionate and laser-focused on what she is going to do. Another person would be Steve Jobs. I like the way he approaches things. He is very innovative and has put some good people around him. A.G. Lafley would be another. He was a Cincinnati guy and what he did for Procter & Gamble was amazing. I would want to figure out how he did what he did.
If you could do something dangerous one time without consequence, what would you do?
I would travel to the moon. I would do it just to say I’ve done it, but the other reason is to see how pretty Earth is from up there.
Founded in Chicago in 2008, Groupon is a shopping website that features a daily deal on top goods, services and cultural events in more than 500 markets spanning across 45 countries worldwide. Andrew Mason, its founder and CEO, has had entrepreneurial spirit ever since he was a kid.
At the age of 15, Mason started his first entrepreneurial venture called Bagel Express, a bagel delivery service. After leaving college, he started The Point, a collective action website designed to help users ignite social change. Derived from the collective action concept of The Point, Groupon took the model to a revenue-based platform.
Groupon is a win-win for local shoppers and business owners. For the consumer, Groupon brings unbeatable deals on top local experiences — everything from restaurants and salons to skydiving, hotels and dentistry. For local businesses, Groupon has changed the way they are able to market themselves and drives a guaranteed number of new customers through their door.
Pioneering and continuing to lead the daily deal space, Mason continues to demonstrate the ability to persevere and remain focused on his company’s success as thousands of Groupon clones continue to launch domestically and worldwide. Credited with inventing social commerce, Mason has changed the marketing space by creating a new and innovative way for merchants to connect with customers.
On an international level, he has used three clones to the company’s advantage by partnering with the best of the best competitive sites in countries worldwide to create a Groupon presence in 45 countries, all the while bringing Groupon’s best practices, vision and expert knowledge to these local sites to create even more robust deal programs abroad.
Constantly challenging the status quo and striving to be the best has heralded Mason much success. He constantly takes risks, adding new layers and ideas to the Groupon model. From personalized deals to real-time, on-demand deals, he has proven his competency and position as the industry’s top thought leader and innovator.
HOW TO REACH: Groupon, (312) 662-7657 or www.groupon.com
Laura Shapira Karet often finds herself setting unrealistic goals for her company. At Giant Eagle Inc., Karet is one of the driving forces in the company’s constant innovation and evolution.
Karet encourages all employees to think beyond what is just achievable. The culture she sets as the senior executive vice president and chief strategy officer of Giant Eagle stresses the idea of continuous reinvention by examining what could be possible and then figuring out how to achieve it. With this mindset, she has inspired and led the 33,000 employees of the Giant Eagle family to realize tremendous results.
Karet serves as a visible ambassador of the company’s business model, which focuses on achieving operational excellence, using innovation for growth and always showing respect for people. She lives the tenets of the Giant Eagle culture every day in order to lead from the top down and spread these ideals throughout the organization, maintaining an entrepreneurial spirit and culture of camaraderie that helped grow the company to become one of the biggest players in its industry.
One of the greatest leadership challenges Karet has faced is selecting which growth opportunities Giant Eagle will invest in and when, especially when dealing with limited resources. However, her foresight and ability to identify the most advantageous risks for Giant Eagle is one of the key reasons the company has driven incredible customer loyalty and differentiated itself as a multiformat retailer. In the past decade, she’s been vital in spearheading Giant Eagle’s long-term strategic plan and helping the company achieve significant expansion by taking strategic risks to reinvent its offerings. With ideas such as the Fuelperks and Foodperks discount redemption programs, gift card rewards and others, her continuing vision for what could be keeps the 80-year-old company evolving and growing.
How to reach: Giant Eagle Inc., (412) 963-6200 or www.gianteagle.com
The halls and rooms that comprise Turner Enterprises Inc. are more than simply office space for the entity that runs famed businessman Ted Turner’s operations. They’re partially a tribute to Turner, chairman of the organization, featuring photos and awards depicting his success, but they’re also part museum, with memorabilia and paintings decorating conference rooms and foyers that show his passions ranging from the Civil War to sailing.
Enter Turner’s assistant’s office and you’ll see more than 100 magazine covers featuring Turner from over the years adorning the walls. And from there, enter Turner’s own office — dim, as the lights are off to conserve energy — and you can’t help but notice the wall full of honorary degrees behind his desk and further evidence of his achievements and interests.
It’s all a legacy of a life of entrepreneurship and innovation by the man who pioneered 24-hour news by founding CNN and has been involved in many different business ventures over the years, including starting the Ted’s Montana Grill restaurant chain. Beyond his business achievements, he’s won 180 sailing trophies and is one the largest individual landowners in the United States with approximately 2 million acres of personal and ranch land. He’s also passionate about furthering clean-energy initiatives, and he gave a $1 billion gift to the United Nations through the United Nations Foundation, which he created to support goals and objectives of the U.N.
Turner’s accomplishments could take up pages, but constrained by word counts, simply put: Ted Turner is a legend most business owners would do just about anything to sit down and talk to, but when it comes down to it, he can summarize his success in just a few main keys.
“One common thread is hard work, and another is careful consideration and thinking through what it was that I wanted to do and going through the mental exercises of what could go wrong and being prepared for that as much as possible,” Turner says. “You can’t predict completely what’s going to happen, but you can have a plan and think it through as carefully as you can, and then once you make the decision, after very careful thought — or this is the way I did it — when I did decide to move forward, then move forward with great speed.”
Think through an idea
When Turner first thought about the concept of 24-hour news, like most great ideas, it was because he had a problem.
“I wouldn’t have done it if I wasn’t convinced I was right, and the reason was I never got to see television news because I got home after 7 o’clock when the news went off at 7,” Turner says.
He also went to bed before 11 o’clock when the news came back on, so he had to read the newspaper to keep up with current events. Twenty-four-hour radio was already successful, so he thought if 24-hour radio news could work, why couldn’t 24-hour television news?
“People came home, and it was 8 o’clock at night, and they already missed the early news, and it was three hours away from the late news, so why wouldn’t it be something some people would want to watch?” Turner says. “Maybe a lot of people would want to watch sit-coms and the talk shows, but there probably would be some people who would like to see the news and not waste their time with entertainment.”
But, like many often do, he didn’t initially do anything about it.
“The easiest thing is to do nothing, and then you’ll never get in trouble — and you’ll never get anywhere either, but doing nothing is an option, and that’s an option that most people avail themselves of in life,” Turner says. “They do as little as they can, and they don’t realize what they could have done because they didn’t do anything. That’s most people. It’s just too hard, and it is hard. It’s extremely hard, and you’ve got to be — there’s an old expression I heard somewhere — smarter than a tree full of owls to do anything like create a Microsoft or a Google or a CNN.”
He says you have to be like Yogi Bear — smarter than your average bear — and that’s exactly how Turner was as he thought through this seemingly crazy idea of 24-hour news.
“At the beginning, when I first thought that, I never thought that it would be me that did it, because I didn’t have two nickels to rub together, and I knew it was going to cost a fortune to do,” he says. “So for the first three years, I sat there and watched and nothing happened. I figured CBS or NBC or ABC would do it, or all three of them at the same time, but they didn’t. They made the choice to fight cable rather than embrace it and try to keep things the way they were with three channels.”
Create a distinctive plan
When Turner realized he would have to be the one to start 24-hour news, he made sure to think through what it would take and the possible problems.
“Let’s face it: 90 percent of all new businesses fail, so the odds are way against you to start, but that’s how you really break through,” Turner says. “You have to come through.
To really break through, you have to come up with some kind of plan that’s a little bit distinctive and hopefully a little bit different than what your competitors are doing — if there are competitors. Usually there are.”
He’s seen both — when he started Ted’s Montana Grill, there were tens of thousands of other restaurants he would be competing against but very little barriers to entry. On the other hand, with CNN, the barriers to entry for delivering 24-hour news were huge.
“They were costly, and there were limited satellite distribution capabilities at that time, and there was not very much distribution — certainly not enough,” Turner says. “There was no way CNN could be profitable with cable penetration at 14 percent, which is approximately what it was when we started.”
Instead, he recognized that it needed to be at 50 percent.
“In order to get my television channels in to people’s homes, we had to get the rest of the people in America to subscribe to cable, and cable wasn’t even in front of over half the homes,” he says.
Recognizing what he thought was the threshold for success was an important part of creating that plan.
“You make your own metrics for what success is,” Turner says. “You set up criteria and write down what you think would make you feel successful. Each person would do it differently. What success is for one person wouldn’t be success to another. If one guy said, ‘If I made $1 million, I’d be a success,’ but to another, ‘I wouldn’t be a success unless I made $1 billion.’ They’d be off by a factor of 1,000 to one.”
Sometimes you may start in with your idea and then realize you’re not going to make it unless you reach certain thresholds.
“To grow a business successfully, you have to have a successful business or have an idea of how to make the business successful if you grow it a little bit more,” Turner says. “Some businesses are a little too small and would have to reach a certain tipping point of size to where they tip in the right direction.”
When it comes down to it, you may simply not know what it will take to be successful.
“You just have to estimate it,” he says.
Turner says that comes down to judgment and using your mind.
“It’s pretty tricky, but some people know how to do it,” he says.
Turner says it’s important to stretch your mind and its capacity as much as possible.
“It helps to be born with it, I guess, because basic intelligence is inherited,” he says. “It’s an inherited trait as much as anything else, but you can develop it. Your mind is, to a large degree, a muscle like the other muscles in your body, and the more you use it, the sharper it gets, just like your body. You can take a skinny little kid and turn him into a marathon runner if they’ll train hard enough and are motivated to train hard enough, and basically my success in business and in life, it was due, to large part, I just wanted to do it and wasn’t afraid.”
When he made the decision to go forward with 24-hour news, he didn’t lollygag.
“I moved as quickly as I could, for instance, to get CNN on the air because I wanted to pre-empt CBS, NBC and ABC because once we announced that we were going to do it, it was going to make them think about it and revisit it more, and all three of them had everything they needed to start.
“They already had bureaus. They had news organizations. They had news anchors that were underutilized — they were doing two hours of news a day, and they were spending $200 million a year to do two hours of news a day, and I was going to do 24 hours of news for about $30 million.”
He planned to get CNN on the air within 10 months because he anticipated it would actually take longer, and he wanted it on in 11. Along the planning road, most things went according to plan, but he did have his share of anxieties. While he thought through most of the worst-case scenarios, he was completely caught off guard, for instance, when their satellite disappeared and they lost their satellite signal less than four months before CNN was set to air.
“It never occurred to me because I wasn’t in the satellite business — what do you mean the satellite disappeared?” Turner says. “That was my reaction. Well, that’s what it did. They never found it. It just blew up, and it’s out there floating around in space. There was a TV series called ‘Lost in Space’ and our satellite was lost in space.”
Luckily, there was a clause in the contract that anticipated this possibility, so they were able to negotiate a deal to gain access to another satellite in time for the launch. CNN launched in 11 months — as Turner had anticipated with his one-month, built-in cushion.
While he moves full-speed ahead in business, he recognizes sometimes it doesn’t work.
“We went full blast with the AOL merger right into disaster, just like the Germans when they invaded Russia,” Turner says. “They were going fast, but they were headed straight for catastrophe — they were headed for Stalingrad. So going fast can be reckless and very foolish, but you’ve got to be sure you’re right, then go ahead. But that’s not easy to do always. It’s not always easy. Not everybody can see the future with accuracy, and there are the things that happen along the way that sometimes aren’t anticipated, no matter how good you’ve done, and then you’re in real trouble.”
He says there are all kinds of ways to get into trouble in both business and life, and sometimes you won’t know right away.
“A lot of times you have to wait and see, and only history will tell if you’re right or wrong,” he says.
While Turner may have made some mistakes along the way and had his share of challenges, he’s had more success than anything, and he says it comes back to those main keys.
He says, “Those are the main things that in starting a voyage or a venture, those three things would be very carefully think through what you’re going to do, then what could go wrong — take a look at what could go wrong and anticipate that in advance and be prepared — and the third thing is when you do decide to go forward, move rapidly.”
How to reach: Turner Enterprises Inc., www.tedturner.com
On a mission
If you look in the parking lot at Turner Enterprises Inc., you’ll see solar panels, which Ted Turner installed as an energy source.
“Anyone can do that, and the technology already exists, and it works,” Turner says. “This building is going to be powered by those solar panels.”
Turner is passionate about environmental causes and encourages other business leaders to follow suit.
“They can put solar panels on a fence post — electrify your fence and keep out people that you don’t want to come in. Keep your cattle in or your bison for that matter,” he says. “We use solar electric power fences on a ranch. If you have a house, you can have a solar hot water heater.”
If you’re not quite sure if solar power is the way to go for your business, Turner suggests at least seeking outside help to identify ways for your business to make a difference.
“Hire an environmental consultant to come up with recommendations specific to your company and business for how you can cut down your carbon footprint and use less energy,” Turner says.
Beyond the big things, he points out there’s also myriad small things you can do. For example, when you walk into Turner’s office, it’s dim. He keeps the lights off to save energy and only turns them on when he needs them. Additionally, he uses low wattage bulbs. He also suggests looking around you for the obvious.“As you walk down the street, if you see piece of trash, you can bend over, pick it up and carry it to the next closest wastebasket,” he says. “Making the world a better place is as easy as picking up a piece of paper.”
When Mike Jackson was 10 years old, he made his first entrepreneurial endeavor by cleaning horse stalls for $1 each, and he learned how to appreciate hard work.
He also learned as a child how to persevere. When he was 14 years old, he signed up for and paid for a Boy Scout summer camp program in New Mexico on his own, but he was small for his age. So when he showed up to board the bus with the other scouts, the leader insisted he stay behind, but he wouldn’t back down. He went on to the camp, withstood ridicule from other scouts and persevered against bears and rattlesnakes. He learned that adversity was his friend, and at the end of camp, he was named the one outstanding camp scout out of several thousand attendees.
After college, while on his way to law school, his old Mercedes broke down. He couldn’t afford to have it fixed, so he offered the dealership his time in exchange for repairs. He did odd jobs, and when they asked him to stay on as an apprentice mechanic, he delayed the start of law school and took the job.
He went on to join Mercedes Benz as a master technician, and in 1979, at age 29, he purchased the dealership where he had worked as an apprentice. The dealership grew substantially, and Mercedes approached him to run its failing North American business, which he accepted because adversity was, indeed, his friend.
He made the company the strong business it is today. The turnaround caught the eye of entrepreneurial legend Wayne Huizenga, who was the chairman of AutoNation Inc., which was a young auto retailing startup at the time. He had rapidly built it and was looking for someone to lead the company from growth through acquisition to growth via sales. Jackson accepted, and he’s grown the organization significantly, and today, he serves as chairman and CEO.
How to reach: AutoNation Inc., (954) 769-7000 or www.autonation.com
The only thing that is certain for businesses in Ohio right now is that there is a lot of uncertainty in the tax arena, both at the state and local levels.
In light of the state’s budget proposal, there will likely be a reduction to the Ohio Local Government Fund of more than $100 million. That fund supplements operations for local governments across the state, and it is unknown whether that will be absorbed down to the local level, or whether local governments will seek tax increases to offset that loss of funding, says Michael Caputo, chair of the Government Affairs Practice at McDonald Hopkins LLC.
“Anything is possible,” says Caputo. “The one thing that is becoming clear is that there is this trickle-down belief where the federal government is spending less, state governments are spending less, and the question is whether or not that truly means a reduction in the tax burden, or if that just means a shift from paying taxes at the federal level or the state level and instead paying them at the local level.”
Smart Business spoke with Caputo about what businesses can do to prepare for any eventuality, and how a new state office is providing renewed hope for Ohio’s business climate.
How can businesses plan for the future with so much tax uncertainty on the horizon?
It is really difficult. For example, the businesses building casinos in Ohio are facing challenges securing financing because no one really knows what the requirements and obligations are going to be.
From a business planning perspective, the one thing that we do know is that state government does not want to increase taxes and it is unlikely, given the background and philosophy of state leadership, that tax increases will be a viable option. At the state level, there is widespread agreement among the governor, the Senate president and the Speaker of the House that Ohio’s business climate needs to improve, and one way to improve that climate is to reduce the state tax liability, state regulatory obligations and really move at the speed of business.
What is uncertain is what will happen locally. It is unclear if local taxes will increase as a result of cuts to the local government fund. Local governments will be looking to balance their budgets with far fewer resources than they have enjoyed historically.
As a result, business leaders need to increase their awareness of the health of their local entities. For example, since Mayor Jackson took office, the city of Cleveland has been able to balance the budget without seeking additional revenue, but it is unclear whether that will continue to be the case.
From a financial perspective, it will be important for business leaders to pay additional attention to the overall health of their local communities — not just their cities, but their counties and other taxing jurisdictions, as well.
What is the current business climate in Ohio?
Ohio is not viewed as a state that is friendly to business. Some may say that Ohio struggles to attract business because we are not a warm weather state. Indiana, Illinois and Minnesota seem to be doing just fine with attracting jobs, and those states do not have tropical climates.
It is the tax environment, the regulatory environment and, perhaps most significant, the local tax burdens that are placed on businesses that make Ohio less competitive.
What is the state doing to create a more business-friendly climate?
The first executive order that Gov. John Kasich signed established the Common Sense Initiative Office, chaired by the Lieutenant Governor.
If you are a business owner in the manufacturing business, you will likely interface with the Bureau of Workers’ Compensation, the Ohio Environmental Protection Agency, the Department of Taxation and possibly the Department of Natural Resources. And for years, there has been a concern in the business community that these regulatory bodies do not work to enhance the business climate but instead actually stifle economic activity.
This new office is looking at the bureaucratic red tape that exists within Ohio’s regulatory agencies, figuring out what can be eliminated and what can be streamlined, and looking at what can be done without hurting the state.
For example, there is a local company that makes specialty sauces, some of which include alcohol as an ingredient. To buy alcohol, the company had to go to the corner liquor store and pay retail prices. That made it hard to compete with companies across the country because it was paying twice as much for ingredients as its competitors.
In one of its first initiatives, the Common Sense office, working with the Department of Commerce and the Division of Liquor Control, got the law changed in April, saving this one company potentially hundreds of thousands of dollars.
It is the simple solutions like that one that this new office is looking at to begin to change the state’s business climate. It sounds easy, but historically, leaders have not paid attention to these issues that are fairly easy to solve.
What advice would you give business owners struggling in the current business climate?
Hang in there. Give this administration a chance to deliver on what it says it is going to do and give this environment an opportunity to right itself.
At the macro level, look at what happened with Bob Evans and American Greetings. Both were looking very seriously at leaving Ohio and in the last three months, both have met with the state’s new leadership, both have responded to what the new leadership is prepared to offer, and they are now staying in Ohio.
Not all companies will have that muscle, but there is a reason for cautious optimism for businesses in Ohio.
Michael Caputo is the chair of the Government Affairs Practice at McDonald Hopkins LLC. Reach him at (216) 348-5770 or firstname.lastname@example.org.
It’s something that business owners don’t like to think about: What’s going to happen to your company when you’re no longer able to run it due to death or disability?
And while the business may survive if a family member simply takes over when you’re gone, the odds of success are much higher if you’ve created a plan to transfer ownership, says Keven Prather, a financial adviser specializing in exit and transition planning at Skylight Financial Group.
“The biggest consequence of not planning is simply waiting too long and having life dictate your exit from the business,” says Prather. “Suddenly you have cancer and you have to sell because you can’t work anymore, but you have no one to sell to. That’s a tragic situation to be in.”
Smart Business spoke with Prather about how to facilitate a smooth transition of your business to a family member.
How can a business owner determine if transferring ownership to a family member is the right move?
First, look at whether the family member is qualified to take over the business. Having the business continued by a family member is very satisfying for a business owner, but oftentimes, the founder had key attributes that allowed that business to succeed. You need to determine whether a family member has those key attributes to continue the business. Do some personality profiling and digging to find out what motivates people to carry on that business.
The second question to consider is what that owner needs from the business. Often, family transfers do not involve cash up front, so when the business is sold, what are the income needs of the transferring parties? How much money do they need to live, and does the buyer have the financial resources to facilitate that? Do the sellers need a larger sum up front, or can they live with installment payments? If you’re doing installment payments, make sure the business is lendable and get the seller some cash up front so you’re not creating a huge cash outlay that can drain the financial resources of the business.
Once the owner decides to sell, what are the first steps?
Begin with the end in mind. Dig deep into everyone’s goals for the transaction. The family seller and the buyer might have opposite goals, so you have to have very clear communication and set very clear goals of what both parties want to accomplish with the transfer. The second step is to figure out the financial resources of the business. What are its unique characteristics that make it lendable? Also look at who pays taxes. If the buyers are children of the owners, they may be on salary, and the company gets a deduction for that. But installment payments coming out of that business to pay for the sale are treated as part interest income, capital gain and non-taxable return of basis, and portions of these payments are not deductible. It takes a lot of financial planning to pull off a sale.
What is the next step?
The next step is protecting the business value. A key piece of a business’s value is its people. If some key people are not family members or shareholders, making sure they stay is a big part of the pre-transaction work. This is where a lot of family transactions fail: The parents might have a great relationship with key employees, but now the child is in charge, and the dynamic has changed dramatically.
Owners also need to make sure that all processes and systems are well documented and in place. An outside organizational development coach can help make sure all the processes are in place for the business.
You also have to protect the business from the ‘what ifs.’ What if someone becomes disabled? What if someone dies? What if there’s a cash flow crisis? How do you make sure the business can continue after a catastrophe? Those things can negate a sale and force the sellers to take the business back.
What is the final step?
The last step is tying together the financial planning and estate planning of the seller and buyer. Make sure that everyone has a financial plan and that estate plans are in line with the sale. The sellers may want to take advantage of gifting or other techniques to transfer that business, so it is critical to look at the overall planning picture to ensure all bases are covered.
How can parents make sure their children are treated equally?
Parents need to figure out what they want to do in terms of equalization, but keep in mind that equal does not equate to fairness. An outside adviser can help you sort through the potential mine fields, ask questions, hold family meetings and help you create a family governance plan that outlines, ‘Here’s what it takes to become part of the business, here’s what it takes to govern this business and here’s what’s going to happen. Here’s our corporate succession plan, here’s how its going to work and here’s how we’re all going to act when the succession plan comes into play.’ It takes a good adviser to get to the bottom of what’s important to the parents and to all family members. That adviser will act as a quarterback, helping to set egos aside, working with the CPA, estate planner, attorney and other advisers to create a collaborative approach.
Planning should begin two to seven years before the owners plan to exit the business. If you’re building a salable asset and have value in the business, it doesn’t work to just walk away. Too many factors, such as estate taxes, capital gains taxes, banks and family dynamics come into play, and to maximize the value of your business and keep it on track after you leave it, you have to plan accordingly.
Keven Prather is a financial adviser specializing in exit and transition planning at Skylight Financial Group. Reach him at (216) 592-7314 or email@example.com. Keven Prather is a registered representative of and offers securities, investment advisory and financial planning services through MML Investors Services, LLC. Member SIPC. OSJ: 1660 W. 2nd St., Suite 850, Cleveland, OH 44113, (216) 621-5680. The views expressed are those of Keven Prather and not those of MML Investors Services, LLC or its affiliated companies. CRN201304-147470
During the past few years, construction and manufacturing industry survivors have become experts at controlling costs and reducing nonessential assets, and are cautious about expanding operations.
They have also carefully managed their contractual dealings in an effort to preserve customer relationships. In order to maintain these relationships, companies have largely relied on cost cutting to protect profitability rather than raising revenue, says John E. Benko, a member with McDonald Hopkins PLC.
“While all of these efforts were required to survive during the past few years, they have had negative effects,” says Benko. “During the recession, companies quoted and budgeted aggressively to win work necessary to provide essential cash flow. As the economy recovers, these contracts are becoming a burden. Cost cutting and downsizing have left administrative personnel overburdened and, in some cases, unable to properly administer new and existing contracts profitably.”
Smart Business spoke with Benko about how to improve contract value.
What legal rights do companies have to help maximize the value of existing contracts?
All contractual relationships are controlled by the terms of the contract, and each party must understand what the contract includes. Knowing the terms will permit a company to know when a request for a price increase or decrease may be appropriate or allowed.
For example, in construction projects, the contract includes the plans and specifications that accompany the contract itself. If an owner asks a contractor to perform work citing boilerplate language from terms and conditions, the contractor should make certain that the work is included within the project scope.
Companies may have previously simply performed such work without additional compensation. However, when dealing with a contract that was bid aggressively during difficult economic times, it must seek compensation for every potential change.
Likewise, manufacturing purchase orders should be reviewed to determine the scope of the agreement. A careful analysis of the terms and the contracting process is necessary and prudent to determine the real terms of the parties’ relationship, as suppliers may have significant rights of which they were not aware. Requested changes in quantity, design or delivery of product may also open the door for renegotiation.
Course of performance between the parties will also be relevant to a manufacturer’s rights. Customers will argue that if a supplier has performed for years without complaint, this defines the terms of the parties’ relationship. However, course of performance flows both ways. Under certain circumstances, limited resourcing by a customer of some parts may open the door for the supplier to terminate its remaining obligations despite contractual language to the contrary.
Contractors and suppliers should also keep in mind that sometimes the best way to maximize the value of a particular contract is to strategically end the relationship, or threaten to do so, if there is no hope of profitability.
When should companies make claims with their customer?
Early and often. Companies may balk about requesting additional compensation because they worry the customer will get mad that the request was made, or that it will simply reject the request. But so what?
If you have a legitimate basis for seeking additional compensation, make it as soon as it can be properly documented and presented. If you allow the request to go stale, the likelihood of a successful, amicable resolution diminishes dramatically. Moreover, failure to make a timely claim may bar the claim by the timing provisions in the contract, or establish a course of performance that eliminates a claim altogether.
While the customer may reject the request, it is now documented and must be dealt with by both sides. Although the customer’s purchasing representative may feign anger and try to guilt company representatives into withdrawing the request, this does not impact the legitimacy of the claim. It is the purchasing department’s objective to pay as little as possible, and the customer will almost always say no the first time you ask.
Always make your claim or requested price increase as early as practical, and if it turns out that it will harm the relationship more than expected, it can be withdrawn while still obtaining mileage out of the discussion.
What is the most important thing a company can do to maximize contract value?
Recent downsizing has devastated the administrative ranks of most companies, and project management is severely understaffed. However, regardless of the size of the organization, every manufacturing and construction interest should invest in having at least one person designated to make certain that all contracts are being properly administered, including identifying and presenting claims.
Centralization provides a consistent process for contract review and comfort that the company’s position is properly documented, both internally and to the customer. Given how overburdened sales, purchasing and project management staffs are in making certain that projects are performed on time, it is easy to forget about regularly reviewing contracts to make sure the company is being fully compensated and ensuring that claims are timely documented and submitted. Putting the task in the hands of a designated person makes it much more likely that it will get done. Contract review and documentation should be upward looking to the customer and downward looking to suppliers.
While companies are focused on cost cutting, they must commit to designating and preserving staff with responsibility for maximizing contract value in real time, or they will potentially lose more than they are saving. It is far less costly to document requests for additional compensation in real time — and claims are far more likely to be successful if made at the appropriate time — rather than months or years later with the assistance of an attorney who is trying to recreate a claim, and as part of a lawsuit.
John E. Benko is a member with McDonald Hopkins PLC. Reach him at (248) 220-1352 or firstname.lastname@example.org.
As more businesses enter the global marketplace, the currency exchange rate is becoming a bigger player in their decision making. Companies want to know where the currency is heading. Many companies rely on their bank for this information, but as former Fed chairman Alan Greenspan once said, “To my knowledge, no model projecting directional movements in exchange rates is significantly superior to tossing a coin.”
The currency markets are affected by economic growth expectations and interest rate differentials, and there is no way to predict how exchange rates will react to either of those events, says Don Lloyd, senior vice president, Capital Markets, Associated Bank.
“Today’s big drivers include the rising price of oil caused by unrest in North Africa and the Middle East,” says Lloyd. “Rising oil prices create fear that the U.S. economy will slow, which, in turn, drives the Federal Reserve to be accommodative. But U.S. interest rates are only part of the equation; the other side is the interest rates affecting the other countries you’re dealing with. Specifically, the interest rate differential and expected changes create changes in investment decisions.”
Smart Business spoke with Lloyd about hedging strategies to maximize opportunities and minimize risks.
What kinds of companies should consider a hedging strategy?
Any time there is a cross-border flow of funds, companies need to understand how foreign exchange hedging works and how it can reduce their risks. There are five types of businesses that should consider hedging.
First, any company buying or selling goods overseas is a good candidate, as an organization that makes or receives payments in more than one currency may benefit. Second are overseas subsidiaries of companies based in the U.S., which face two kinds of foreign exchange risk. There’s transactional risk, which applies to accounts payable and receivable. When money trades hands and two or more currencies are involved, a risk exists that could be mitigated with a hedging strategy. The other is translational risk, which applies to your balance sheet. For example, say an Illinois company pays for an overseas plant in foreign currency. At the end of each year, it has to value the plant in U.S. dollars for its balance sheet and may lose equity because of changes in the exchange rate. However, proper hedging can help eliminate this risk.
Third, local subsidiaries of foreign-owned companies can benefit, depending on whether the foreign exchange risk is handled by the parent company or the subsidiary. Fourth are firms that send payroll overseas, and, finally, anyone who invests overseas should consider hedging options.
What volatile markets do businesses need to be aware of?
China, a major trading partner for U.S. businesses, has a volatile currency. China is quickly developing its banking system and monetary policy but still has a ways to go. And changes in its interest rates tend to be extreme because the economy is growing so quickly. Over the next 10 years, volatility should decrease, but, for now, it remains a significant threat to China’s trading partners.
In Europe, the debt crisis facing countries such as Italy, Greece and Ireland affects all countries that use the euro, with uncertainty resulting in volatility. We will continue to see volatility in foreign exchange rates in 2011 and 2012 as the complicated global recovery takes its course.
How can companies reduce volatility?
Organizations doing business overseas can reduce volatility in their income statements and more accurately forecast cash flows by using tools to hedge their foreign exchange risks. Some people mistakenly associate hedging with speculation and think they’ll be taking on more risk, but hedging limits risks.
How can companies determine which hedging strategy fits their situation?
There are three categories of hedges. The first is forward outright purchase or sale, in which a company locks in a rate today to be used in the future. Money doesn’t change hands until settlement day, and you lock in your profit margin on goods you’re selling. The value of this hedge is the certainty that it provides, i.e., a company will know today what exchange rate will be used in the future.
However, some companies use this hedge and then, if currency rates move in their favor before the transaction settles, they are not happy because they would have come out ahead if they had done nothing. Unfortunately, the company is only looking at one side of the equation, and tends to focus on the change in the exchange rate being a good versus bad decision, rather than the real value of taking an unknown (where the exchange rate will be in the future) and making it known (by locking in a rate today.) In that case, the company has the right idea but has chosen the wrong product. What they want is an option.
With options, you lock in the right, but not the obligation, to sell at a specified price. You pay an up front premium, with the amount dependent on the strike price you choose. You get 100 percent protection from adverse exchange rate movements but dollar-for-dollar gain if the currency moves in your favor.
Yet, some companies do not want to pay a premium up front, so should consider a structured option, where you put two or more options together to reduce or eliminate the premium. You start by buying a regular option, but to reduce that premium, you also sell an option to your FX provider. You earn premium for the option you sell, which reduces or eliminates your cost of the structured option. Then you will be fully protected if the currency moves against you, but you benefit if the currency moves in your favor.
Companies should educate themselves on how to maximize their business opportunities and minimize their risk in foreign exchange markets by identifying exposures and implementing appropriate hedging strategies. <<
Deposit and loan products are offered by Associated Bank, N.A. Member FDIC and AB-C. Equal Opportunity Lender. Equal Housing Lender. Loans subject to credit approval.
Don Lloyd is senior vice president, Capital Markets, Associated Bank. Reach him at (312) 861-1501 or Donald.Lloyd@AssociatedBank.com.