Monday, 22 July 2002 09:47

Planning for success

Last month, we tackled the first three of my 10 rules for successful strategic planning — plan for the plan, understand the CEO’s role, and maximize involvement and communication.

These rules focus on getting the planning process off to a good start. For most business owners, successful growth is no accident. It’s the product of hard work, but more important, strategic planning. This month, we look at the next four rules, which address plan development.

4. Never let them laugh at your mission statement

Many companies take their mission statement and proudly display it on plaques hanging in their offices for everyone to see. I’m not the only person who has read one of these while waiting in the foyer of a company and thought that I am either in the wrong company or they hung up some other company’s plaque by mistake.

These experiences have led me to believe that the mission statement — although believed by many to be a soft and fuzzy waste — can actually be useful and important, providing it reflects reality. A mission statement can help a company define and maintain its focus and culture.

Anyone who reads the mission statement (whether it is management, employees, customers or vendors) should be able to tell what kind of company it is and that it reflects reality. No laughing out loud, no snickers, and no comments like, “Who are they trying to fool?”

5. Don’t shortchange investment in internal and external analysis.

Once the mission statement is developed, assess current and future situations. Include a thorough analysis of the internal and external environment that could affect the future success of the company. Unfortunately, the importance of the information gathered in this process is often underestimated. Understanding gained about the company’s internal strengths, weaknesses, critical success factors and core competencies are critical to a successful plan. Knowledge of the external environment, competitors, markets and customers can help avoid missing the mark with the company’s competitive strategies.

6. Develop strategies that build on your core competencies

Since this is strategic planning, you need to develop strategies. There is certainly not room in this column to try to discuss strategic options a company has, the types of strategies that need to be defined and developed, or even the definition of a strategy (which is no simple task). But I can say that your strategies should combine some of the results of the internal analysis to the strategy. The analysis should have confirmed what the company is good at.

With the lone exception that what the company is good at is not what the customer wants, doesn’t it make sense to develop strategies around those strengths? Core competencies that are truly valued by the market can be the foundation for establishing sustainable competitive advantages that differentiate the company for years to come.

7. Provide a report card with measurable performance objectives

How do you define success? An integral part of every planning process is establishing performance measures that will enable you to know if the plan is successful. If sales increased 10 percent last year, is that good or bad? If the plan was to increase by 20 percent, your company certainly missed the mark.

Without performance objectives that can be measured, you could be celebrating a win when you should have been analyzing the loss. In order to measure success, first you need to define success.

The biggest complaint from companies who feel their strategic planning process was not worth the effort is that the plan was never implemented. The last three rules, which will be presented next month, are intended to help ensure that your plan becomes more than a dusty book on your shelf.

Joel Strom (jstrom@jsagrowth.com) is president of Joel Strom Associates Inc., Growth Management. His firm works exclusively with closely held businesses and their owners, helping them set and achieve their growth objectives while maximizing profitability and value. He can be reached at (216) 831-2663.

Published in Cleveland
Monday, 22 July 2002 09:47

On the block

Where have been lots of other golden periods in this century to sell a company, but perhaps there’s never been a better time to do it than the last few years.

No less an authority than Mark Fillippel, head of mergers & acquisitions for McDonald & Co., recently called the current period “the best M&A market of the century,” and a “great sellers’ market.”

With so much capital chasing after so few remaining prime properties, a lot of business owners who once might never have considered selling at lower earnings multiples are now at least keeping an open mind about the possibility of cashing out. But how should they prepare their companies for the auction block?

Investment banker/business broker Nick Merkle, of Woodmere-based Falls River Group, which this year has brokered the sale of three companies with combined revenues of about $60 million, offers what he calls 10 timeless tips on preparing your company for a sale. Why timeless?

“I look back at what I said 13 years ago [when he got started in the field], and nothing’s really changed,” he says.

His pointers include:

Continue to operate the company as though you were not going to sell it.

It’s an age-old mistake: A business owner puts his company on the auction block, then gets so caught up in that process that he neglects to run the company as tightly as he once did.

The problem arises if the process takes longer than expected, as it often does. A first wave of buyers can easily fail to materialize, and since you’ve let the business slip, it might well be worth considerably less to a later group of bidders.

Besides, says Merkle, “you don’t want to unduly distract your employees by bringing people around for constant tours.” So just stick to your knitting during the sale process and pretend that nothing has changed. Or it will, for the worse.

Be able to give specific, logical reasons for selling.

It’s well-known in the investment-banking field that a lot of owners merely pretend to be interested in selling. Instead, they’re really just fishing for a free valuation or testing the waters for a possible sale years down the road, or appeasing their egos by seeing if their company might fetch as much as their buddy’s did.

“A lot of people claim they’re for sale, and they’re not. Selling a company is a lifestyle decision, not an economic one, because after taxes, they may not have much left,” says Merkle. Buyers, coached by their brokers, are generally skeptical of “sellers.” You can help allay those suspicions by preparing some solid reasons for selling.

Be prepared to note the pros and cons of owning a business.

Similarly, a balanced appraisal from a reputable source will boost your credibility with a potential buyer.

Clean up the premises.

This one’s pretty self-explanatory. As Merkle puts it: “Nobody likes to buy a dump.”

Clean up the books.

Before you hang the “for sale” sign, it would behoove you to go after past-due receivables, settle outstanding loans to officers, sell off old inventory, trim payroll, etc. While investment bankers report seeing fewer obvious no-nos than they once did, like ghost employees, most privately held companies still have their share of financial skeletons in the closet that would raise eyebrows for outsiders.

“You want to have a fairly simple transaction, so getting rid of all these things up front makes it easier” to do a deal, he says.

Purchase minority interests.

Not unlike the previous item, this suggestion goes to the heart of the deal’s simplicity. Buyers want to bargain with one seller, and they typically recoil at the notion of dissenting shareholders.

That makes the deal higher risk and less likely to close. You can shortcut all those headaches by settling up with old partners before you shop the company.

Eliminate related-party transactions.

One of the prime variables in setting the purchase price of a company is the degree to which the cash flow is directly transferable to a new owner. If the previous owner has been playing Let’s Make a Deal with all of his friends and family members for years, it’s bound to depress the price his enterprise would command from an outside buyer.

“If you’re giving special deals to your buddies or getting deals from your buddies, the new buyer may not get them. So they want to be assured that they’re doing business at arm’s length,” says Merkle.

Make a detailed list of all tangible assets to be sold and a list of those to be retained.

The process of selling a business is not unlike selling a home, insofar as buyers and sellers can differ greatly on who gets the curtain rods.

“Very often, the seller’s perception of what he’s selling and what the buyer’s buying are two very different things,” says Merkle. “Often, a seller has different lines [of business], and they might plan on retaining some of those.” So put it all on paper for everyone to see in black and white.

Given the time, report true earnings for at least one full fiscal year, not the profit you may have engineered to minimize taxes.

Only naïve fools and Boy Scouts would be surprised by some of the creative accounting that privately held companies engage in. But when it comes time to sell, it’s in your interest to have kept your sleight-of-hand to a minimum, at least over the prior 12 months.

“To the extent you can have your accountant show clean figures, that’s a big plus” to a potential buyer, says Merkle.

While most private companies, for instance, simply expense capital purchases rather than amortizing them over many years (as the tax code allows and larger companies typically would do), as long as you’ve been fairly consistent in your accounting, there shouldn’t be too much of a problem.

In the end, he says, when it comes time to talk price, “it’s to a seller’s benefit to show the largest profit over the last year, rather than saving a few bucks on taxes.”

Hire a professional merger and acquisition intermediary to help you. You will recapture the expense many times over.

Okay, so this one’s a little self-serving on Merkle’s part, but we decided to let him have it, partly on the theory that 10 tips sounds a lot catchier than nine.

John Ettorre (jettorre@sbnnet.com) is a contributing editor at SBN.

Published in Cleveland
Monday, 22 July 2002 09:47

Contracted liability

Our company hired an independent contractor to do construction for our building. The contractor’s work was faulty and now our building is damaged from his work. He claims that he is not liable because he followed the plans and specifications we provided him. What can we do?

The 12th District Court of Appeals addressed this issue in a 1998 case. Generally, a property owner implicitly warrants the accuracy of plans and specifications if the owner requires the contractor to follow them. The contractor therefore is not liable for defects if the contractor follows the plans and specifications. This doctrine of law is called the Spearin Doctrine.

However, a contractor can be liable, despite the Spearin Doctrine, if the contractor had knowledge that plans and specifications were flawed, or if the plans and specifications had an obvious flaw.

What is the difference between a living will and a durable health care power of attorney?

A living will allows you to make decisions, in advance, about what life-sustaining measures you will receive should you be in a permanently unconscious condition or terminally ill. Through a living will, you may refuse artificial nutrition and hydration should you become permanently unconscious.

Two physicians must agree that you are terminally ill or permanently unconscious, and must agree that nutrition or hydration will no longer comfort you or alleviate your pain. A living will will not prevent you from receiving “comfort care.”

A durable health care power of attorney allows you to appoint someone else to make health care decisions for you. It is effective only if you are unable to make these decisions yourself. If you desire, the person you appoint may have the power to refuse life-sustaining treatment or artificial nutrition or hydration if you are terminally ill or in a permanently unconscious condition.

What is the proper way to sign a contract on behalf of a corporation so that I will not be held personally liable on the contract?

Generally, corporate officers or agents of a corporation are not personally liable upon contracts that they sign on behalf of the corporation, as long as they properly disclose their relationship with the corporation. The key is to make third persons aware that they are not dealing with an individual, but a corporation.

For example, the best way to sign a contract on behalf of ABC Corp. is like this:

ABC Corp.

By: _____________

Its: _____________

Your name would be signed on the “By” line, and your position or representative capacity with the corporation on the “Its” line, i.e. ABC Corp., By John Smith (signature), Its President.

Mary Beth Ciocco is an attorney practicing law in Rocky River. She can be reached at her firm, Mary Beth Ciocco LLC, at (440) 333-5700, or via her Web site, www.clevelandlaw.net. Submit questions for Legal Jargon to SBN at dsklein@sbnnet.com.

Published in Cleveland
Monday, 22 July 2002 09:47

Reverse discrimination redux

A recent federal court ruling may make it easier for employees to win reverse discrimination lawsuits. The 3rd Circuit Court of Appeals rejected a “heightened” standard adopted by many courts for people charging reverse discrimination and reinstated a white New Jersey postal worker’s suit alleging that he was passed over for promotion because of his race.

Under federal law, a member of a minority group or a woman can make an initial claim of discrimination by showing that he or she was turned down for a job which that person is qualified to do, and that the job remained open. The employer has to show its actions were based not on discrimination, but on legitimate business reasons.

Courts have generally held, however, that the person alleging reverse discrimination must first show background circumstances showing a bias against a majority group. That is, the plaintiff must initially show that the employer tends to discriminate against white people, and that discrimination motivated the employment decision.

The 3rd Circuit rejected such a disparity in placing the burden of proof, and called the background circumstances requirement vague and ill-defined. The court said that a plaintiff charging reverse discrimination need only show that the employer is treating some people less favorably than others based on race, color, sex, religion or national origin.

William E. Adams

One incident, one harassment case A federal court has ruled that one act of physical aggression by an employee can serve as the basis of a sexual harassment lawsuit — even in cases in which the employee committed no sexual misconduct.

A panel of the U.S. Court of Appeals for the 7th Circuit made the ruling in a case in which the defendant, a jail guard, allegedly battered a female officer at the jail in 1992. The victim’s arm was twisted so badly she needed surgery. Although no explicitly sexual contact occurred, the attacker did use gender-based epithets.

According to the panel’s majority opinion, the offensive conduct doesn’t necessarily have to be “inspired by sexual desire.” The panel cited the Supreme Court’s 1998 opinion in Oncale v. Sundowner Offshore Services Inc., in which the high court found that a claim identifying a workplace as a hostile environment need only be somehow related to the victim’s sex.

In the current case, the opinion said the defendant’s intent to discriminate was shown by his history of verbally abusing only female colleagues. Moreover, the defendant had never been disciplined, and it was the plaintiff, rather than the defendant, who was transferred to a job she deemed inferior.

A dissenting opinion said the case should have been handled as a case of assault, not a sexual discrimination case. A representative of the Cook County state’s attorney’s office, which handled the appeal for the defense, said a petition for rehearing will be filed shortly.

William E. Adams

Records: Keep or toss?You probably sometimes feel swamped by old records; other times, you’re terrified of throwing anything out. Here is a quick guide of what to keep and for how long:

Forever Never throw out tax records or related documents, mostly in case the IRS gets curious about them. This includes tax returns, correspondence relating to tax returns, audit reports, financial statements and legal correspondence. Also preserve eternally contracts, real estate transaction documents and leases, and corporate records, all of which may be needed in connection with lawsuits. With employment-related lawsuits increasingly common, keep employment-related records indefinitely.

Six years — Other records which relate to tax returns only need to be kept six years from the date of the return or the date the return is due, whichever is later. This includes financial records such as bank statements, deposit slips and sales records, employee expense records, including expense reports and supporting documentation, and income records such as W-2 and 1099 forms.

Three years — This group includes documents which can be tossed three years after the filing date or due date, whichever is later, of the associated tax returns. This includes canceled checks, paid invoices, payroll records and depreciation schedules, and other documents related to expenses, such as 1098s for mortgage interest received, receipts for charitable donations and real estate tax bills. Inventory records should be kept for at least three years, but much longer if your company uses last-in, first-out inventory accounting.

Eileen R. Sisca

Law briefs is compiled by attorneys from Eckert Seamans Cherin & Mellott, a national law firm based in Pittsburgh.

Published in Pittsburgh
Monday, 22 July 2002 09:47

Beyond first impressions

I was recently thinking about something I read a while back. I don’t recall the source, but the quote was, “You learn about life when you learn to love the people you don’t even like.”

There’s a great deal of wisdom in that little phrase, for all of us. Whether it’s in school, the workplace, or even the home, there are times when we are not certain how much we really care for the people around us. According to a quip from Reader’s Digest a few years back, a little boy wrote a letter to God.

He said. “Dear God, I can’t understand how you can love everyone in the whole world ... There are only five in my family, and I can’t do it!”

When I was starting out, many years ago, I worked with a large group of salesmen in a rather confined area. One fellow seemed to have a smart remark every time I said something. This went on for nearly a year. Finally I suggested we take our differences outside. I’m certainly not proud of my lack of maturity, but it was a long time ago.

The other fellow looked at me with what could best be described as shock. And I’ll never forget his next words: “But I just wanted to get your attention so we could be friends.”

Strange as it may seem, that little exchange has had an important impact on my life. When I form an instant dislike for another person, I make a sincere attempt to determine why I feel this way. What is it about this person that causes me to react to him or her so negatively?

In all honesty, after thinking about it for a time, if I do find something I don’t like, it probably isn’t that important. In most cases you may never see the person again. So why get bent out of shape over a perfect stranger?

On the other hand, if this is a co-worker, some effort should be made to discover a common ground that allows you to work together without this becoming an issue. If you’re managing someone you don’t like, that can be a serious problem.

When you accept the mantle of leadership, you must make a conscious effort to treat all of your people equally. Granted, this doesn’t always happen in the real world. We all are subject to some degree of prejudice, envy and personal bias. But in these difficult times, with the stress and the proclivity toward violence, people in management — in leadership positions — must make an extra effort to provide guidance and act as positive role models.

At least 20 percent of the people in any organization suffer from low self-esteem. They often feel unimportant. They don’t see their work as important. They feel left out. They are the people who hesitate to offer suggestions and ideas to improve performance.

And yet, in my experience, they often have a completely different perspective on the tasks they are performing, which can provide valuable insights for improving performance. The tendency often is to avoid them because they are not aggressively outgoing. They don’t readily speak up with their ideas.

Take a few moments to say hello. Show appreciation for their efforts. Solicit their suggestions.

I can’t honestly say I ever became a social buddy with the guy I mentioned, but I do run into him on occasion. And we do have a friendship of sorts, which we wouldn’t have had if first impressions had won out.

William Armstrong, a management consultant for 30 years, is president of Pittsburgh-based management consulting firm Armstrong/Associates. Reach him at (412) 276-7396 or by e-mail at armassoc@fyi.net.

Published in Pittsburgh
Monday, 22 July 2002 09:47

Too big for your britches?

Mike and Debbie Bacon have won 52 Emmy awards since 1990, and their phones ring nonstop. And because their television production company’s hallmark is to do things faster, better and cheaper than the broadcasters, their burgeoning customer base necessitates more employees, more equipment and more space.

“What’s frustrating about growth is that it’s so capital intensive,” says Mike Bacon, vice president of Twinsburg-based Classic Teleproductions Inc.

Bacon launched Classic in 1980, working from his home as a free-lance producer.

“The Virgil Dominics of the world would seek me out because I would work like a dog for next to nothing,” he laughs. (Bacon began working with Dominic in 1981, and in 1997, Dominic became Classic’s president of new programming.)

Bacon says Classic grew by focusing on niche markets and matching its forte to the needs of the community.

“We found our niche in sports programming and broadcasting community events,” Bacon says, confiding that Classic earns about $1 million annually from lucrative contracts with television stations and community organizations.

“I never thought we would be this successful,” he says, crediting spouse Debbie, Classic’s president, and the firm’s 12 employees for the business’ success. “But when you grow, everything grows. As our customer base grows, so does their level of expectation. That calls for more investments,” which include high-end edit systems (their first was $100,000), nine broadcast cameras (about $40,000 each) and a digital production truck (worth about $750,000).

“You’ve got to have the equipment to be a player, and you’ve got to have good people to operate the equipment. We hire only the best and that takes a lot of money, too,” he says.

In 1995, Classic spent $200,000 for a 7,500-square-foot expansion and in 1998 purchased more space next door. The current 15,500-square-footage comprises a television studio, 7 edit suites, an audio studio, conference rooms and office space.

To manage growth and maintain profitability, the Bacons have sought good advice, bought wisely, fostered relationships and valued their employees.

“If I’m going to overpay for anything, it’s for good advice,” Bacon says, explaining that expert advice saves money in the long run.

In terms of purchasing, Bacon says many entrepreneurs jump to buy the latest equipment.

“Sometimes it’s better to wait for the second or third version of a product, after the bugs have been worked out,” he says. “You must also contrast the money you need to spend against what you could earn if you had a certain piece of equipment.”

Fostering professional relationships also pays off. “Make friends with your banker!” Bacon exclaims.

And don’t hesitate to do favors for professionals who can’t always afford first-rate prices for first-rate services.

“You’ve got two choices: reduced rate or favor. You’re a lot better off doing it as a favor because if you charge them, they remember that. But if it’s a favor, they become loyal clients when they do have money. But don’t treat it as a favor — give them the full service.”

Empowering employees is also important, Bacon says.

“If they know the ‘why’ behind a directive, and if you give them the authority to do what it takes to make your clients happy, they can respond faster and better to do that.”

How to reach: Classic Teleproductions, (330) 963-7763

Published in Akron/Canton
Monday, 22 July 2002 09:47

If you build it, will they come?

William Seaton, a longtime Hudson resident and employee of the University of Akron, knew he loved the Internet almost immediately after his children unwrapped the computer he gave them two years ago on Christmas Day. But he had no idea he would one day plan his future around it.

After he got over the initial thrill of tapping into the mysteries of this unknown world, Seaton bought books about the Internet and learned. On weekends and at night, he pored over pages and tapped on his keyboard until he not only unraveled the Internet’s mysteries but figured out a way to become a part of the world as well.

Soon, he was designing Web pages, and, in time, attracted clients such as LifeCenter plus fitness center in Hudson. But it wasn’t until he had what he calls a eureka experience that his business was complete. A subscriber to a number of Internet newsletters, Seaton read about someone who had an Internet site for a small town on the East Coast.

“When I looked at it, I had the eureka experience,” he says.

The 54-year-old college administrator at the University of Akron’s College of Fine and Applied Arts had already been accepted for early retirement. This idea could round out his new life.

For weeks, he researched and wrote and designed and thought. He could barely contain his excitement as he created HudsonOhonline.com, a Web site for the Western Reserve town with the clock tower, gazebo and the Main Street that looks like it popped out of a Norman Rockwell painting.

With offerings ranging from where you can go to church to where you can go to the movies to where you can shop to get that dress you’ve been dying to find, this Web site offers Hudson businesses and residents a one-stop shop for information that can’t be matched anywhere else on the Web.

There was just one question. How was Seaton going to make money with this gig?

“I didn’t think about it until it was nearly finished,” he says.

This kind of honesty may be unusual, but with Seaton’s money-back guarantee for advertisers who don’t get the response that they’d hoped for and free sample sites to companies who’d like to have a Web site but aren’t quite sure what they want, it’s clear that he does business the way people did long ago.

In this same spirit, Seaton has a number of ways that businesses can advertise free — such as listing a business card or a calendar event or placing a classified ad. But he also plans to make money by selling ads in his Business Directory, which costs $100 a year, and Sponsor Pages, which also cost $100 a year and give users a handy link to a sponsor’s site.

More creative offerings include $200 ads that announce sales, holiday greeting cards for $15 that let businesses say happy holidays to their online customers and online discussion groups that for $100 enable the local mechanic, for example, to have live discussions with customers about oil changes and timing belts and knocks and pings — anything the customer wants to ask.

Seaton is just one of many entrepreneurs who have dove into this new world and started swimming without knowing exactly where he’s going to end up. While he will most likely stand out because of his tight niche and his commitment to customer service, he’s entering a world that’s as cutthroat as it is creative.

According to Kelly Mooney, director of intelligence at Resource Marketing, a Columbus company that’s been in the technical marketing business for nearly 20 years, Seaton and others are fighting “to not get lost in this vast sea of Internet space,” she says. “Anybody can have a Web site, but what we always say is, ‘You can build it, but it doesn’t mean they’ll always come.’”

In other words, says Geoff Karcher, president of The Karcher Group, a Canton Web design company, Seaton won’t rise above the pack unless he makes sure people in Hudson know that HudsonOhonline.com exists.

“He has to promote the daylights out of it,” Karcher says.

Reserving key words such as Hudson or Northeast Ohio or Western Reserve on search engines might steer traffic Seaton’s way, but with search results numbering in the hundreds — even thousands — Mooney says Web businesses have to figure out a way to get to customers.

“Reach them in their real world,” she says. “[Get] into their home or, if they’re commuters ... advertise at the bus station or train station.”

Unless you’ve been out of the country for the last three months, your nightly television watching has probably been interrupted by sights of thoughtful women talking about their health on ads for iVillage.com.

But to be a success, Web site advertisements have to do what every successful advertisement does: Reach an audience. iVillage.com, for example, “has a message that says, ‘We’re the place where women come together [to] get advice and help manage their lives in these chaotic times,’” Mooney says.

If you have no room in your budget for advertising, however, you have to make sure that your Web programmer plugs you in to search engines in the right way so that your customer finds you. One thing Karcher stresses? Avoid business jargon.

“If you use technical words that you know, that doesn’t mean that’s what your customer calls it,” he says. “Keep it simple, stupid. If you go by that principle, you’ll do well.”

But none of this matters if a surfer finds you and is so bored he never logs on to your Web site again. Seaton’s taken care of that with lively content that answers virtually every question somebody might have about living in Hudson, Ohio. And that’s the key.

“There are three keys to an effective Web site,” says Karcher.

It’s got to look good. It’s got to be easy to use.

“But your most important piece is to have good content,” he says. “Allow the user to accomplish something by coming to your site. And you’ve got to keep something new there. Give someone a reason to take two seconds to log on to your Web site and check it out.”

Web businesses can also do customer profiling to see who is logging on to their sites and ask questions such as, “What do you like about the Web site?” “Why do you buy products online”’ and “How often do you eat dinner out each week?”

“They save it in a repository that builds on itself so that they can ... know what you might buy the next time or how they can get you buy more things,” says Mooney. “It’s direct marketing at the heart.”

With this data, Web businesses can also e-mail customers with news about subjects — or products — that they think the customer will want. Amazon.com made this tool famous.

“Their belief is that it will pay off down the road because they will know [more] about their customers than anybody else,” Mooney says.

But no matter how much marketing and e-mailing and profiling Seaton does or does not do, and no matter how much money Seaton does or does not make, he doesn’t regret taking the risk.

“I had to do this for a lot of different reasons,” he says. “I really believe in it.”

Published in Akron/Canton
Monday, 22 July 2002 09:46

Same cost, more loyal workers

Good help may be hard to find, but one Columbus businessman found it thousands of miles away.

Ratmir Timashev, president and CEO of Aelita Software Group, was looking to expand his business in 1997 after registering $260,000 in sales with a highly successful network management product. But to grow the Powell-based company quickly, he wanted to hire 30 developers within three to six months. Finding few in Columbus, Timashev started looking to his homeland of Russia.

“Nationwide there is a short supply of software developers, but Central Ohio is more affected because high-tech people tend to go to New York, the Silicon Valley or Seattle looking for a better job in a bigger company,” he says. “In Russia, you have unemployment and a huge pool of people who are talented, educated and qualified, and that was the major motivating factor to move development to Russia.”

For a year, Timashev considered the undertaking. As an experiment, he assigned a few “nonstrategic” projects to Russian developers. Encouraged by their progress, he moved all development work to Russia in September 1998.

At that time, there were 10 employees in Columbus and five in Russia. By late 1998, Timashev’s Russian staff had grown to 35 — and of Aelita’s five new software products released in December 1998, four were developed in Russia.

Today, the company employs 55 developers and five administrators in Russia, including two project managers who supervise software development plants in Moscow and St. Petersburg and communicate directly with Aelita’s clients in the United States. The company’s customers include U.S. and international banks, government agencies, educational institutions and major technology and telecommunications companies, including AT&T, Lucent Technologies and GTE.

In 1998, Aelita had $1.3 million in sales; Timashev projected $3.5 million in sales in 1999.

Timashev vigorously maintains that worker availability — not the cost savings — was key to moving his development operation overseas. While Russian developers at Aelita earn $15,000 annually compared to between $45,000 and $50,000 for the same job in Columbus, he says employees live comfortably on the salary there.

Furthermore, he says, other costs involved in using Russian developers — telephone calls, Internet access and foreign taxes — tend to offset any savings in salary.

“To pay a $15,000 salary will end up costing me $35,000 to $40,000 because of the taxes in Russia,” he explains.

Timashev says his company provides at least two bonuses a year to developers at product release times, worth between 50 percent and 100 percent of a worker’s monthly salary. Although he doesn’t provide his Russian staff with health and retirement benefits, he says these benefits are provided by the Russian government with a portion of the taxes he pays.

Because of the poor economic climate in Russia, employee turnover is minimal, he adds. Only a couple of workers have left his Russian work sites. Still, he says, management and communication are — and will remain — problems because they are done remotely.

To minimize problems, he communicates with his project managers through teleconferencing and e-mail. Hiring good managers, he adds, reduces supervisory and communication difficulties overall.

That will be increasingly important in the coming year as Timashev looks to expand his company. He wants to further Aelita’s sales and marketing presence in New York, Chicago, San Francisco, Seattle and Houston and is looking for venture capital to finance the growth.

Although the Russian connection has proven lucrative for Timashev thus far, he doesn’t recommend using the strategy without knowing Russian culture, especially its business culture.

“If you don’t know it yourself, hire someone who does,” he says.

Muntaqima Abdur-Rashid is a Columbus-based free-lance writer.

Published in Columbus
Monday, 22 July 2002 09:46

Legal blind spot

Passed by Congress six years ago, to labor’s delight and the business community’s chagrin, the Family Medical Leave Act struck something of a mom-and-apple-pie chord for most people.

Who, after all, could really argue with mandating that employers afford some scheduling flexibility for families coping with new children or chronic ailments? Hillary Clinton might have lost her battle for health care reform, but on this issue, almost equally dear to her, she won the day while Congress was still controlled by Democrats.

But like any piece of far-reaching legislation which tinkers with the balance of power between employers (in this case of 50 or more) and employees, the details have proved far trickier than the grand outlines of the law initially suggested. Implementation of the act has been plagued by a number of problems, say employment-law attorneys, not the least of which is wide employer ignorance of what the law requires.

“Believe it or not, it’s been around for six years, the Department of Labor took two years to enact it, and people still don’t have any idea what it means,” Calfee Halter & Griswold’s Rick Goddard recently said at an employment-law conference.

Looking back, he said, it’s clear that many employers have used the law to raise employee morale. “But it also raises significant areas of possible abuse.”

One key problem arises from understandable employer desire to build flexibility into interpreting the law. The trouble with flexibility, of course, is that it opens the door to charges that the rules were wielded by employers with more flexibility for some than for others.

“You can have a woman who takes 13 weeks of maternity leave (one more than specified under the law), and she’s fired. And then you have old Joe who’s worked forever, and he has a heart attack, takes four months off, and you welcome him back. Well, you have a classic sex-discrimination suit on your hands, and you will lose,” said Goddard.

“People see this as a game,” he warned. “When you bend over backward to accommodate someone, you can open yourself up” to suits from those for whom the rules weren’t bent quite so far. “If you’re clear as to how you’re going to define the exceptions, you’re going to do yourself a lot of good.”

To complicate matters further, the U.S. Sixth Circuit Court of Appeals in Cincinnati ruled in a recent case that the Department of Labor’s regulations implementing the FMLA are too complicated and thus should be revisited. But the D.O.L. didn’t back off, saying it will continue to enforce the regulations as they are while the matter is thrashed out between the agency and the courts.

One of the biggest areas of confusion has been over the matter of what precisely constitutes “serious health conditions” that would trigger the sanctioned leave. Actually, there’s not that much gray area. According to the statute, a serious health condition is defined as any illness, injury impairment or a physical or mental condition that involves:

  • Inpatient care. Any period of incapacity of more than three consecutive calendar days that also involves two or more treatments by a health care provider or one treatment that results in continuing treatment under the provider’s supervision.

  • Any period of incapacity due to pregnancy or prenatal care.

  • A chronic, serious health condition, such as asthma, diabetes or epilepsy that continues over an extended time period, requires periodic treatment or comes up episodically.

  • Any period of incapacity which is permanent or long term for which treatment may not be effective.

  • Any period of absence to receive multiple treatments or restorative surgery after an injury.

The act does not, in most cases, cover voluntary or cosmetic treatments which aren’t medically necessary, routine preventive care, nor maladies such as colds, flu, ear aches, upset stomach, minor ulcers or headaches (other than migraines).

The law does, however, make it incumbent upon employers to train their supervisors especially well to listen for trip wires, says Calfee Halter’s Wendy Stark.

“The frightening thing is they [employee] only have to give you enough information [that they’re invoking the FMLA] for you to figure it out. What’s even more frightening is that notice to supervisors constitutes notifying the employer. You have to train your supervisors on this; I can’t stress that enough.”

And just in case supervisors still take a lax attitude, she offered a tip to get their attention.

“If you need a scare tactic to wake up your supervisors about the FMLA, here it is: They can be individually liable [for damages] if they exercised sufficient oversight over the employee.”

How to reach: Calfee Halter & Griswold, (216) 622-8200

John Ettorre (jettorre@sbnnet.com) is a contributing editor at SBN.

Published in Cleveland
Monday, 22 July 2002 09:46

Emotional minefield

When the youngest brother assumed the reins of the family business, he ruled with the tenacity of his father, never mentioning the word family within the walls of the company and referring to his siblings merely as “shareholders” in the corporation.

Now, as some of the siblings look toward retirement, the younger brother is running a campaign of intimidation. He is trying to convince his brothers and sisters to give him their shares in the company. He argues they couldn’t possibly sell their stake in the family business to an outsider and would be foolish to subject themselves to the outrageous taxes that would follow a company buy-back of the stock.

Sound outlandish? Cruel, perhaps? A made-for-TV movie? Think again. This is the scenario evolving at one Cleveland business and, although Dr. Sherrod Morehead, a clinical psychologist, wants to protect the identity of the company, he uses it as an example of how dirty family business can get.

“He’s intimidating them, beating them up, making them feel frightened nervous and scared,” explains Morehead, who is working with the family members to find an amicable solution. “That’s how it works and it is just one example. There are people who do a lot worse things than that to their ‘shareholders’ to get more.”

Bullying and treachery are not what one expects when it comes to charting the future of the family business. However, Morehead and Peter Calfee, a certified accountant and financial planner, have seen it all before. In fact, the emotional struggles that often accompany family business succession planning are the reason they joined forces to found Family Business Advisory Partners Inc. Their goal is to help guide companies through the often-difficult transition.

“What Peter was finding was you can have all the financial documents properly planned and executed and nothing happens or conflict continues,” says Morehead. “The documents are basically superfluous. I was finding I could get everybody settled down and then, if we had to go outside and bring somebody in to start (preparing) the documents, it flared the whole thing up all over again.”

Even the most honest attempts at succession planning, Morehead explains, can be derailed by differences between generations and personalities. Calfee and Morehead say there are, however, several ways to improve the chances for success when family members sit down to chart the future of their business.

Create a mission statement

Business owners may labor tirelessly over the mission statement a company presents to its customers, but may give little attention to a similar declaration when it comes time for a succession plan. Morehead says it is crucial to get the company’s wishes, problems and values on the table, so they can be included in a type of road map as the process evolves.

“Somewhere in the continuum of that discussion comes the real heart and soul and reality,” says Calfee. “You should look at this piece of paper to guide you, but it can take some days, weeks and months for the leaders in each generation to come down to say, ‘That is us.’ There’s a lot of time spent building that platform.”

Identify the “emotional CEO”

Morehead uses an example from his days at Baylor University in Texas to explain the phenomenon of the “emotional CEO.” He was close friends with the owner of the Houston Oilers and would go to his house on Sundays to watch out-of-town NFL games.

“One day we were looking at the game and analyzing what everybody was doing, and the wife of the owner said to the group, ‘You know, I just never have liked that guy’,” recalls Morehead, explaining that she had singled out one of the team’s linemen. “Two weeks later, for some reason, that guy wasn’t on the football team. That’s what I’m talking about.”

Incorporating the thoughts, beliefs and prejudices of off-site influences such as spouses is crucial to drafting a long-lasting succession plan. Although it may not always be easy to glean the information, Morehead says success can be hindered if the factor of an emotional CEO is ignored.

“If we’re working with an owner and his executives, and leave out this off-site influence, it’s likely that our effectiveness is reduced 50 percent,” says Morehead. “We find ways to make that discovery and include, not in person, but in attitude, that individual.”

Recognize the generation gap

Much of the friction generated during the succession process is due to the communication gap that exists between generations. A son may think his $33,000 a year salary is much too low, while the father remembers being paid only $7,000 for the same job early in his own career.

Many times, a translator whom everyone trusts is needed to help bridge that gap. Calfee says often, the stress of the family business will lead sons and daughters to adopt certain roles when dealing with the business because they feel they cannot say what they really think.

“You begin to play act certain stylized behaviors and that’s what saps the energy from a company very quickly,” he says. “It begins to draw you down physically very quickly, because you’re not being true. They may think, ‘We don’t interface about this naturally, so I get into this role,’ and that may not be healthy for the company.”

Evaluate the plan

After spending the better part of a year drafting a plan, some business owners may not want to tinker with it. But, Morehead says, evaluating the plan and how it is working is a crucial element of the process. He says meeting once every quarter should be enough to make sure the company is staying on track, or to determine whether the plan needs to be modified.

The bottom line, he says, is ensuring the process is as smooth as possible. Otherwise, the squabbles could grow to legendary proportions.

“We come in on a periodic basis just to check signals about how the fit is between where they are now and where they wanted to go and how the mission statement is working,” he says. “Every time you make a new hire or somebody leaves the company, it impacts the culture. So, if there’s been three of four changes in a short amount of time, you may need a culture check.”

How to reach: Family Business Advisory Partners Inc., (216) 328-2271

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

Published in Cleveland