Dallas (874)

Monday, 26 May 2008 20:00

The Keebaugh file

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Born: Waynesboro, Pa.

Education: Bachelor’s degree, mathematics; master’s degree, computer science, both from Penn State University

What was your first job, and what did it teach you?

My first paying job was working on the Pennsylvania Turnpike in a gas station while I was going to school — summers and holidays and things like that. There were two things I learned there. One was service. You were working with the public. These people are traveling across country, and they are hurried, and this was a day when you didn’t pump your own gas. Service was a part of it. The other part of it was sales. One of the company’s things was when people came in for gas, you’d check their oil, and you’d also be doing things like looking at air cleaners for replacement or oil changes or tires. It wasn’t just selling the gas.

What has been your biggest business challenge?

I’ve been through multiple mergers with the way the defense business is going. The largest one of these mergers is Raytheon bought E-Systems, we bought T.I. (Texas Instruments) Defense and Hughes Aircraft. You have four large entities coming together. It was a very big business challenge, trying to meld together these cultures, because they were all very different, into one culture.

What has been your biggest business lesson?

I read this somewhere as a joke, but there is a lot of truth to it. The quote was, ‘Each day, do more than what is expected of you, and before long, more will be expected of you.’ The truth in that is as you take on every assignment, going beyond what is defined for that assignment and taking on more and more responsibility and not being afraid to try new things.

What traits or skills do you think are essential for a business leader?

There is a laundry list. Communication is definitely very important. Also, talent selection is important. You get very little done by yourself.

What is your favorite movie and why?

I can’t really say I have a particular favorite. As a genre, I like action movies. The reason is that it’s a release thing, the car chases, the shoot ’em up, the ‘Die Hard’ (movies) and that sort of thing.

What business book or books have you read that impressed you?

The first is, ‘Every Business is a Growth Business’ [by Ram Charan and Noel Tichy]. Specifically, it talks about growth and the fact that you need it to be a corporate mind-set created by the leaders. The second one is Larry Bossidy’s book ‘Execution.’ The thesis there is that a leader’s most important job is to be engaged personally in the execution discipline. It’s the difference between carrying out a strategy and not carrying it out. It’s an excellent book. One of the most fun ones is a book called, ‘Connect’ by Keith Harrell. I heard this guy speak. He spoke at a Raytheon leadership forum. His nickname is Dr. Attitude. He is so positive, and he has a couple of messages. He believes attitudes make the whole difference, looking at things positively. The other thing is connecting with people. As an individual, you only can take things so far.

Friday, 25 April 2008 20:00

In your best interest

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Lee Wagner doesn’t mince words. “Most corporate managers simply don’t have the time or resources to adequately deal with real estate issues,” says Wagner, Senior Vice President in Grubb & Ellis Co.’s Dallas office.

Real estate brokers who specialize in tenant representation can eliminate many of the hassles in site selection and negotiation, save you a substantial amount of time, prevent potentially disastrous missteps, and possibly cut much of your real estate expense.

“Tenant representatives can find a first-time office space, renew an existing space, or relocate within the same building or into another building,” Wagner says. “They can also move you to a completely different submarket altogether.”

Smart Business talked to Wagner about what you should expect from a bona fide tenant representative.

What are the main reasons that a company looking for a commercial lease should employ a tenant representative?

Primarily, a tenant rep will have allegiance only to you, like a lawyer who has a fiduciary responsibility to his client. He or she will give vendors and real estate solicitors a single point of contact to act on your behalf.

A tenant rep will also balance the representation of parties. Nine times out of 10, the landlord will have representation. Why would you want to go into negotiations without representation, knowing that the other side will be represented?

Finally, your business, most likely, is not real estate. That responsibility can be outsourced to someone who can oversee the process and make sure it runs smoothly. Tenant reps know changes in laws, ownerships, building availability and lease documents. This is their life — every single day.

Do companies normally have to sign contracts with tenant reps?

There should be a contract because it helps to understand the roles and responsibility of the tenant and the broker. When you’ve got seven brokers calling on a building that they think will be a good fit, this leads to chaos in the marketplace. The contract will outline responsibilities of each party.

Any valid contract will need to have a commencement date and an expiration date. The term should coincide with the objectives that the rep or broker is trying to accomplish on behalf of the tenant.

For companies with multiple sites, sometimes the contract becomes a corporate services contract.

What services can you expect from a good tenant rep?

The two big things are market knowledge and lease negotiations. They know of opportunities in the marketplace that may not be public knowledge. They’re constantly looking for spaces and new opportunities that are coming to the market. You wouldn’t have access to that knowledge if you tried to do it solo.

Typically, tenant reps/brokers will challenge clients from day one to make sure that they are getting exactly what they need. They want to make sure that tenants are right-sized — with some space, perhaps, reserved for a little bit of future growth.

Good tenant reps also might be able to create a bidding war among landlords for your business. Then, during lease negotiations, they can identify provisions that could cost you money. Does the lease have those things in it that a true tenant rep would typically fight for? Does the lease include sublease rights? Does it allow for expansion or contraction provisions? Does it reflect a current operating base year? Does it include liability issues?

Tenant reps often establish a longer-term relationship with their clients. Then, once the lease is signed, they can serve as a buffer between the client and the landlord. Plus, if the economy starts to soften up and a company needs to contract its business, a tenant rep can market the unused or unwanted space. If a company needs to expand, then a rep can help do that.

What other ways can a tenant rep save a company money or headaches?

A tenant rep will always encourage a client to start the process earlier than expected. When time is on your side, you have leverage. On the other hand, when you’re under the gun, before you know it, the process of finding the right location becomes extremely difficult. It becomes rushed.

It’s very important to have people on your side of the table with timelines — especially with today’s economy. And having time to decide before you act also helps ensure that you don’t make any stupid mistakes.

Real estate decisions are big decisions. Real estate costs are typically the second-largest line-item expense and normally equate to 25 percent or more of a corporation’s overall budget. Mistakes, then, are extremely costly.

LEE WAGNER is Senior Vice President in the Dallas office of Grubb & Ellis Co. Reach him at lee.wagner@grubb-ellis.com or (972) 450-3284.

Friday, 25 April 2008 20:00

Coming into focus

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When Donald W. Hultgren became CEO of SWS Group Inc. in August 2002, the organization had just completed its first on-record year of losing money.

The company had posted fiscal 2002 revenue of $335 million, with a net loss of $6.2 million.

Hultgren had been working at the company since 2000, and he knew the company could be great again. In his mind, the reason the company was losing money was because of one problem: lack of focus.

“The company was a very strong company,” Hultgren says. “It entered some businesses that were core. It had also entered some businesses that were not core. Some of the non-core businesses were using too much capital to fight wars that we probably couldn’t win. I felt at that time that it was important to streamline the company to get focused on our core competencies and stop spending money on things in areas that were not core to our business.”

Focus, he says, is essential to building a solid business. Communicating that focus to the employees and others associated with the company was key to rebranding and rebuilding.

“If a business has a focus that is clearly understood by all of the constituents, that being the employees and the customers and the shareholders, then that focus can really help you drive the firm in the direction you want it to go,” Hultgren says. “I think it is critical to an organization to be focused on what the firm is attempting to accomplish in the marketplace.”

Evaluate the businesses in which you are involved

Hultgren’s task from that first day of work was to begin evaluating which of SWS Group’s businesses would be the best choices to keep. He says he would have been open to keeping any one of the company’s lines if he thought SWS could be a leader in that field.

Hultgren says he took his time looking at the options and didn’t make any snap judgments. He and his management team examined each business by looking at that segment’s performance for SWS, and then they looked at the competition. In evaluating the competition, he looked at those companies’ market share; then assessed whether or not the competition had any weaknesses that could be exploited.

He also considered which segments SWS had been invested in the longest and had the most expertise running.

“The approach was taking a look at the company and saying, ‘In what businesses can I be a leader?’” Hultgren says. “That turned out to be the three core businesses. And (then we asked), ‘In what businesses could I not be a leader?’ That turned out to be the non-core businesses.”

For example, SWS owned an online brokerage firm called MyDiscountBroker.com. The household names in online brokerages at the time were E*Trade and Ameritrade.

“It was pretty obvious that E*Trade and Ameritrade were not going to be beaten by MyDiscountBroker.com,” Hultgren says. “On the other side of the coin, in the clearing business for example, we are today one of the top five clearing firms in the country. That’s an area where we can see that we can be the leader in an industry and get a nice share of the market.”

Other businesses that seemed to pair well with the clearing business were the firm’s banking business and its brokerage, so those were kept, while in addition to the online brokerage, it also exited the general technology, subprime auto lending, investment management and trust services, and institutional equity and research businesses.

“It made sense to grow that bank, grow that clearing business and grow that brokerage,” Hultgren says.

Engage employees

Hultgren and his management team kept an open line of communication with employees so they would understand why the changes needed to be made. As it turns out, that was an easy sell, at least initially.

“Because the times at the firm were so difficult, we had a couple of years where employees did not get raises,” Hultgren says. “Much to my surprise, they understood, and they worked as hard as they had ever worked. It’s a unique characteristic of SWS, that employees here care for each other and care for their customers, and they really care for the firm.”

But Hultgren faced a tough hurdle with the employee base when he realized that some layoffs would be necessary. Because employees had gone so long without raises, he decided against salary cuts, as that would be too demoralizing for employees. The layoffs were among the most challenging parts of the rebuilding process.

“It is the worst part of being a manager,” Hultgren says. “Any manager would tell you that. I don’t know if there is any good way to do it; it is always difficult. It was something that needed to be done. I felt it was better to sever our relationship with some employees than cut the pay for all of the employees. I thought it was best to have the employees who were here compensated fairly.”

Hultgren says opening up communication with employees has been key to getting the company back on its feet financially. He created an environment in which employees would feel free to discuss concerns and bring suggestions to him.

“I want to hear all of the news, good and bad,” he says. “I solicit people’s opinions, and ultimately, the responsibility lies with me. I am always welcoming the help I get in the decision process.”

Hultgren started a twice-monthly newsletter for employees as a first step to opening the lines of communication. He also strongly supports a program in which employees are invited to go to a group lunch with members of senior management during the week of their birthday and ask questions. Employees can anonymously submit questions ahead of time, and Hultgren or his staff will answer them during their lunch. The questions and answers are also printed in the employee newsletter.

“Employees find that really lets them know what’s going on,” Hultgren says.

A companywide employee meeting is held annually to give employees another opportunity to interact with senior management.

“That meeting will last until the last question is asked,” Hultgren says.

He says he’s also made it known to employees that they are welcome to call his assistant and schedule a meeting to talk with him if they want to do so. Some have brought suggestions that have saved the company money; others have problems they’d like Hultgren to solve. Either one is welcome.

“Some do take advantage of it, and I very much appreciate it when they do,” Hultgren says. “I’ve gotten some very good ideas from employees.”

Hultgren has relied on his employees to help rebuild the company, and he says it has worked well. He’s proud of the progress they’ve made together.

“I really think what has really driven our focus has been basically repeating the direction of the firm over and over again,” Hultgren says. “Everyone on the management team understands the three things we’re trying to do, and I think everyone at the company has been able to absorb the three things we’re trying to do. It’s something I talk about whenever I have an opportunity, if I’m meeting with employees or meeting with shareholders. It all comes back to growing the brokerage, growing clearing and growing the bank.”

While Hultgren likes to get input, and meets with his executive team of 12 people once a week, he thinks debate that goes on for too long is distracting. Company executives recently held a strategic planning meeting and one of the items on the agenda was to decide, once and for all, if SWS was going to get involved in a particular business venture or, conversely, never talk about it again. The executives had debated it and discussed it for three years, and Hultgren thought it was time to make a final decision. In the end, the group decided against the business venture.

“You spin your wheels, talking about the pros and cons, and you never really sit down and weigh them all,” Hultgren says. “It can be very distracting. Do something, even if it’s wrong. Sometimes, you have to force yourself to set a time frame.”

Avoid past mistakes

Hultgren’s refocusing of the company has paid off. Today, SWS is coming off of fiscal 2007 revenue of $470 million with net income of $37 million.

He can now turn his focus to growing the company rather than fixing it, and one way he’s doing that is preparing for tough times.

With any business that’s directly tied to the stock market, business fluctuates. Hultgren, who added the title of president in 2007, likes to be prepared for the downturns to keep the company on a more even keel. In fact, preparing for the business’s rainy days can be a key growth strategy.

“The strategy is that in a downturn, you want to be one of the firms that still has money left,” Hultgren says. “You want to go out and accumulate either acquisitions or producers. When we first started this, we were in a bear market, and I kept telling everyone we were going to buy straw hats in the wintertime. A bear market is a good time to expand your firm if you can afford to do it.”

In fact, Hultgren sees 2008 as a potential bear year, and he’s preparing for that by looking for acquisitions. The company has announced one acquisition as a means of growth and wants to do more.

“You want to have liquidity,” Hultgren says. “You don’t want to have too much or it affects returns. You want to be there with the checkbook when times are rough.”

He says a good business opportunity has to fall within the core business and its values. Don’t be tempted to go outside of that. It won’t pay off.

“I told you we made a decision to specifically stop talking about a particular business, and the very next week, someone called me up with a business that was for sale in that area,” Hultgren says. “I was able to say, ‘No, thanks.’ No way. I don’t care how good it was; I wasn’t going to swing at that pitch.”

Hultgren feels good about where the company is now. He sees the company as poised to grow and prosper.

“We have done the things we needed to do to get the efficiencies in the company, and we are just now beginning to accelerate using the new platform,” Hultgren says. “Today, the focus is all about growth, as opposed to all about saving money.”

HOW TO REACH: SWS Group Inc., www.swst.com or (214) 859-1800

Wednesday, 26 March 2008 20:00

Outfitting growth

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Seven years ago, Rick Davis needed to hire a new chief operating officer for DAVACO Inc.

While most leaders look for people with five pages of management experience or multiple graduate degrees from Ivy League schools, this founder and CEO took a different approach. Because his company specializes in retail services including retrofitting stores and high-volume rollouts, retail experience was at the top of Davis’ list.

This was all the more important because Davis himself lacked this experience, so to better relate to his clientele and balance his shortcoming, he needed someone who understood the inner workings of the retail industry. He found just what he was looking for, and today, the majority of his management team at the $115 million company also has retail experience.

Smart Business spoke with Davis about why hiring presents the biggest roadblock to growth.

Hire great people. The biggest challenge we have day in and day out is just finding great people. The biggest inhibitor to growth is hiring. It can be damaging to hire the wrong people. Our widget is our people, so the quality of the people that we have out representing DAVACO is all we have. If we compromise that, we compromise the entire company.

Most of our work is done in an open-store environment. When you have an open store, our customers are not only the managers of that retail chain, it’s also their customers. If we don’t give great customer service, we may not have that customer.

We are only as good as our last job or project for a client. If we are not careful, one employee who is careless can erase years of superior service. If you have employees that are misrepresenting your brand and not meeting the quality standards that you have set for the company, then your business will suffer.

Strength of character is the most important qualification. Skills can be taught, but integrity, ethics, loyalty and high standards are inherent qualities. Hire quality people with good values and integrity that will do what they say they’ll do because I can’t train that. It starts with evaluating the person’s personality, and then we go to great lengths to test for everything from drugs to driving and all the things that you want to make sure that someone has the proper abilities to do.

We go through 20 to 30 candidates to find one. It’s important because of the time and what you have to go through to train them once you put them on board. Hire great people, and go to great lengths to do it.

If you have to rehire them, it’ll cost you, so we spend a lot of money upfront trying to make sure that we hire great people.

Promote from within. Part of the growth process has been that we made an effort to promote from within. We have several employees in our management team that have been with the company since the beginning.

With a business that is growing quickly, you get the opportunity to grow the employees with it.

That really helps you on the growth part. If you’re growing a company at 35 percent a year, year over year, it helps that people can deal with change, and the people that have been within the company and moved up with the company understand that change because they’ve been a part of the company. They understand where we began and how far we’ve come.

Communicate. You can’t drive growth and year-over-year success without change. Successful companies are not static. They are constantly challenging themselves and their employees to evolve. We have encouraged and built a culture within our company to embrace change.

The best way to foster the idea of embracing change is to make sure that you communicate with your employees. There’s so many mediums today to communicate with your people, whether it’s through a Web site, or we have as many as 500 BlackBerry devices throughout our work force that we communicate through daily.

We have quarterly meetings, a quarterly newsletter, and we go, semiannually, off-site. It’s simply to communicate the vision of the company, where we’re headed, where we’ve been and what changes we’re going to make.

We even have a Web site that we use to communicate benefits. We have a DAVACO University for training sessions, and we bring in people to train and communicate through that medium.

The more communication that you can give them, the better. All of that is important because it assures that everyone in the company understands our annual goals and is motivated to be a part of reaching those goals.

Recognize achievements. We’re about people, so we go to great lengths to recognize the superstars in our business.

On a monthly and quarterly basis, we have a companywide meeting within the office, and we have a program where any employee can recognize another employee for going above and beyond. We go through all of those and have a quarterly superstar. At the end of the year, we have an annual super-star — you get to spend a week in Hawaii, and you don’t even have to use your own vacation time to get there.

Recognizing achievements within the company are just as important, if not more important, than monetary rewards. People like to feel as though they’re really appreciated. It’s a good thing.

HOW TO REACH: DAVACO Inc., (877) 732-8226 or www.davacoinc.com

Wednesday, 26 March 2008 20:00

Engineering success

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Mansoor Ahsan takes pride in the fact that he’ll do anything to get the job done — even if it’s grunt work.

“The key is passion, and the passion is in the grunt work,” he says.

This CEO of Bridgefarmer & Associates Inc. says that taking pride in doing grunt work sets an example for his 50 employees that they should do whatever is necessary to get the job done, even if they feel it’s beneath them. It also shows clients that he’s fully committed to meeting their needs.

The example he sets is one way he builds both relationships and his civil engineering firm, which grew 33 percent in two years to reach 2007 revenue of $13.6 million.

Smart Business spoke with Ahsan about how to build customer relationships as if you’re hunting prey.

Q. How do you build client relationships?

Knowing the client, knowing the needs of the project and knowing what clients are looking for and why. That’s what starts the engine. Then everything comes once you have a client.

Providing solutions helps the relationship, and not selling what you want to sell but actually giving them the service that they are looking for.

Study the job. If I can take a metaphor, it’s you hunt the job, then you fix the job — you hunt the prey, then you skin it and you eat it. Go and study the job, and you win the job from your competition, and when you’re doing the job, you do an excellent job, where the client feels like you were worth every penny. Intense studying of the job will always be rewarding, whether it’s on that very project or the next project, but you will be remembered.

That’s where the relationship starts. That’s what any business counts on — relationships with clients and relationships with your employees and relationships with your peers and your colleague firms.

Q. How do you build employee relationships?

Cater to people’s needs. [For] people you want to retain, you want to make sure that whatever their issues are, you address them. If it’s just money, nobody makes enough money, and we understand that, but there are a lot of other things that go with it.

I’m a firm believer that when people change companies, they don’t really change companies, they just change managers. Company A is no different than Company B. If they had one set of issues at one company, they’ll have another set of issues at another company. If you understand that psyche, you can address those issues.

We don’t have a one-shoe-fits-all model. Address it on an individual basis. For instance, people can be paid overtime, or they can take time off. If there is a married woman who wants to spend time with her kids, she may prefer to take time off and go spend time with her kids.

Whereas, if there is a young guy, but he needs more money, he may be paid time-and-a-half on his overtime, so addressing the needs of the employees helps develop that relationship.

Q. How do you help employees build better relationships with clients and peers?

If someone wants to pass their initial exams, then we promote them to a project-engineer level, where they can see various disciplines of the project, how they’re put together and how well things are coming together.

From that point on, they move to the next phase, where they’re supervising other people, and that is the opportunity that they can develop relationships with their peers and their clients.

They would be given that next opportunity when the client starts to ask for them, and they want to be in the leadership role. When a client calls me and says, ‘I want to have Person X on this project,’ that tells me that Person X has reached the next level, and that’s the time when that person automatically is grown to that next level. If a client starts to ask for that person, that is a good clue-in that client maintenance is being taken care of by this individual, and this person is ready to be a project manager and be in that role.

That is the highest level he can get because, technically and financially, that individual is responsible for a project delivery system.

Q. How does promoting people from within help both clients and employees?

It sets a good example, and it gives a good insight to the staff that there is an opportunity within the company to grow, and it also helps the organization that it’s a home-grown person. They understand all the quirks.

Clients like that if somebody is promoted from inside because then it’s not a sales job. The thing that matters to us and has worked for us is we don’t do a quick sales job. A sale to us is when a client hires us because we found a solution to a problem for them.

HOW TO REACH: Bridgefarmer & Associates Inc., (972) 231-8800 or www.bridgefarmer.com

Sunday, 24 February 2008 19:00

Patent litigation

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Often, it pays to ask for a second look at a decision made by the U.S. Patent and Trademark Office (USPTO). That second look is called “re-examination.” Reexamination is an administrative procedure by which the USPTO may be asked to take a second look at an issued patent, according to attorneys with the law firm of Munck Butrus Carter, PC. Re-examination may be granted based upon patents or printed publications that the USPTO missed during original examination or even on the same prior art references based on a change in the law or positions adopted by the patent owner.

Smart Business spoke with E. Leon Carter and Daniel Venglarik about how a company that has been sued for patent infringement should consider seeking reexamination concurrently with defending the patent litigation.

How does re-examination help a company that has been sued for patent infringement?

In the best-case scenario, re-examination can serve as an insurance policy against an unfavorable verdict. Last year the Federal Circuit [the appeals court that handles all patent appeals] reversed a jury verdict of over $100 million because the USPTO subsequently held the patent to be invalid in a concurrent re-examination proceeding. In a worst-case scenario, the threat of re-examination can provide additional settlement leverage, particularly if the patent owner has to protect a royalty stream being paid by licensees of the patent(s) being asserted. Once re-examination has been granted, many courts will stay the litigation pending the outcome of the re-examination at the USPTO, at least delaying the outcome if not avoiding trial altogether. Such stays may be obtained not only in federal district courts but also at the Federal Circuit, which has stayed appeals from district court judgments until the re-examination proceedings at the USPTO caught up and then vacated the judgment based on the re-examination outcome.

Can anything be done in re-examination that could not also be done in litigation?

In defending patent litigation, invalidity of the patent(s) being asserted must be proven by clear and convincing evidence, a much higher burden of proof than required for re-examination. Moreover, technical arguments and technicalities on issues such as priority are much more likely to be understood and accepted by an examiner at the USPTO than by a lay judge or jury. And the USPTO currently measures the quality of its work by how many patent applications it rejects in a given year — and are almost eager to invalidate patents being asserted in litigation.

On the other hand, re-examination is limited to certain types of invalidity defenses, while a broader range of such defenses are available during litigation.

Can re-examination harm my litigation defense?

Some big firm litigators will cite the potential for an ‘unfavorable’ claim interpretation at the USPTO to interfere with the litigation as a reason for not seeking reexamination — without citing a case in which that actually happened.

In truth, during re-examination, the USPTO automatically adopts the broadest reasonable claim construction for the sole purpose of considering validity, while a litigation defendant remains free to argue a narrower interpretation to attempt to avoid nfringement, and thus, have their cake and eat it, too.

Litigators also worry about ‘ruining’ the best prior art if the patent survives reexamination. However, prior art that fails to prevail under the lower standard of proof applicable to re-examination seems unlikely to succeed when the standard of proof is dramatically raised during litigation. In addition, re-examinations can last much longer than the typical patent litigation, such that the jury trial may be over long before the USPTO issues a final ruling on validity over the same prior art reference.

How do I use re-examination as part of my litigation strategy?

Your litigation team should work closely with the patent attorneys handling the re-examination. The patent attorneys on the re-examination are more likely to locate the best prior art than any search firm(s) hired by your litigation counsel, so get the patent attorneys involved early. Make certain that the litigators and patent attorneys actually consult with one another on a regular basis to ensure that the arguments for re-examination and the invalidity contentions within the litigation are consistent and to avoid overlooking invalidity arguments that are not immediately evident.

A tactical decision should be made early in the litigation regarding whether to seek re-examination early so that the litigation might get stayed or to wait instead until claim construction proceedings begin so that the patent owner’s claim construction contentions may be used to good effect in the re-examination.

Finally, never forego re-examination simply because someone else already tried and failed. The reversal of the $100 million verdict described earlier resulted from the last of a series of five re-examinations on the same patent, where the first three were denied outright.

E. LEON CARTER and DANIEL E. VENGLARIK both practice law for Munck Butrus Carter, PC, Dallas. Carter is a member of the firm's litigation section with over 20 years of trial and litigation experience. Reach him at lcarter@munckbutrus.com. Venglarik works in the Intellectual Property section as a patent attorney registered before the United States Patent and Trademark Office. Reach him at dvenglarik@munckbutrus.com.

Sunday, 24 February 2008 19:00

Hidden opportunities

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Commercial property lessees who want to beg off their existing lease have an alternative that can result in minimizing their financial loss: sub-leasing. It’s an alternative that creates a win-win situation for both the lessee and the sublessee.

“The hidden opportunity for the tenant is to get out of an existing lease with a minimum loss,” says Sam L. Hocker, Senior Vice President of the Office Services Group in the Dallas Office of Grubb & Ellis Co. “The hidden opportunity for the landlord is a possible chance to make a more competitive transaction for a new tenant. And the hidden opportunity for the new sublessee is obtaining space at a discount price.”

Smart Business talked with Hocker about the ins and outs of subleasing in the Dallas area.

What are some of the market conditions that have led to the increase in sublease inventory?

Available commercial subleasing space began to trend upward in 2005, when the inventory was about 3.5 million square feet. By the end of the fourth quarter, 2007, about 4.9 million square feet were available.

It’s hard to pinpoint one single reason. Not all availability is because of negative business conditions. Some space has become available because companies outgrow their space. Mergers and acquisitions often end up in either abandonment or consolidation of space. And some companies — like financial companies caught up in last year’s credit crisis — simply downsize.

The economy — which is apparently slowing down — is another reason for more subleasing space becoming available.

Where do opportunities lie for tenants?

We used to negotiate over who was going to get the profit on any sublease that occurred, but it’s hardly a profitable venture anymore. I haven’t seen a profit made on a sublease in 25 years.

So the point to subleasing is more to minimize a loss within a reasonable period of time. If you need to sublease some of the space you’re currently leasing, you probably have to sublease it for much less than what you’re paying to lease it. But losing 25 percent of your property investment is better than losing 100 percent.

If the term is less than five years, then the discount is significant because of the inherent expense associated with a move. If the remaining term is less than three years, the space is often unmarketable, so your chances of recovery are not very good. It’s like an icicle. The longer it takes to sublease a space, the less you have to offer.

Where do opportunities lie for owners/landlords?

If the existing tenant hasn’t been successful subleasing, it may be willing to buy out the lease for 50 to 75 percent of its remaining obligation. That transaction could result in a substantial amount of ready cash for the landlord.

Subsequently, the landlord could give a possible new tenant an extended term. Discount shoppers don’t mind moving around at the end of subleases; that’s one of their operational efficiencies, if they get the properties at cheap enough prices.

So the new deal would lower the landlord’s cash burden on the front end, and any other landlord would have to reach into his own pocket for enough money to compete for the new tenant. The landlord ultimately receives money contributed from the departing tenant — plus an extended term on the new tenant’s lease.

How does the situation become win-winwin for all parties involved in a deal?

As I said, the opportunity for a landlord is to be more competitive to secure a new tenant. His creditworthy tenant is willing to buy out the existing lease so the landlord can then make a new transaction. Usually, the new lease is for a term that extends beyond that of the original lease. Another advantage is that the landlord has enough ready cash to be highly competitive for new tenants. If another landlord without sublease space is competing for the business, he may not have the ready cash to build out his available space.

Meanwhile, with a buyout or by sub-leasing, the existing tenant gets out of its rent obligation for substantially less than what it would normally owe the landlord.

And the tenant that’s coming into the property would get a discount price, a favorable build-out and the extended term that it wouldn’t get in a normal lease or sublease.

SAM L. HOCKER, CCIM, SIOR, is Senior Vice President of the Office Services Group in the Dallas Office of Grubb & Ellis Co. Reach him at (972) 450-3322 or Sam.Hocker@grubb-ellis.com.

Sunday, 24 February 2008 19:00

High energy

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On his first day of work, Aug. 1, 2000, Jeff Morris was given the keys to a company that included 300 employees, one refinery and nothing else. The new enterprise didn’t even have a name.

“We started this company,” Morris says. “We didn’t have a name. We don’t have cards. We don’t have letterhead. We don’t have a payroll system. We have nothing. It’s me and 100 good people (at the corporate office), and we have payroll to make in two weeks.”

Morris had been head of a division that energy company FINA wanted to sell. ALON Israel Oil Co. purchased the division in 2000, creating ALON USA Energy Inc.

Morris was hired by the new company as the president and CEO, and he began to assemble his executive team before the purchase was complete.

“I always had a little bit of an entrepreneurial bent in me, and I thought that was an intriguing idea,” he says.

Morris and his new colleagues had two weeks to cut the first paychecks for the company’s 300 workers. He had 90 days to vacate the FINA office space, meaning he had to find new office space, sign a contract and build it out to the specifications he’d need for his coming staff.

“We went and found an office space in Dallas, built it out, installed a whole new computer system and moved 100 people in 90 days,” Morris says. “And we built and started up a complete new back office in a year. Over the first year, we created a company from fundamentally nothing.”

Morris accomplished all of this by creating a plan and sticking to it. He made a list of things that needed to be done, assigned tasks to each person, gave them a budget and set them loose to do the task at hand. He didn’t have meetings and discuss strategy or ask for daily updates; he simply let them go to work, trusting that they would make good decisions, and he knew that they would come back to him if they encountered problems or needed him to reallocate their resources. If they needed more staff, money or time, he worked with them to smooth it out.

“It taught me at that time the real professionalism and quality of the people with which I worked,” Morris says. “Any one of those tasks would be a challenge for any organization to do effectively. Finding a new office and moving and setting up a new e-mail computer system and moving in 90 days, nobody does that. Nobody builds a whole receivables, payables, back-office accounting system in a year. But the people here did that. It was a great experience but not an experience I want to repeat.”

Those early days set the path for a high-growth approach that is still very much in the style the company operates today.

“I’m a big believer in a disciplined business plan approach,” Morris says. “We have today a business plan that we set for the coming year. We spend a lot of time developing it. It has specific objectives inside of it with deadlines. It has operating budgets and capital budgets. It’s all part of the plan. We all develop it together.”

Here’s how he’s conquered the biggest growth challenges to take ALON USA to new levels of success.

Delegate authority

Morris says a CEO’s job is to allocate resources. “You have a certain amount of resources,” Morris says. “You have a certain amount of people. You have a certain amount of money. You have a certain amount of time. What you have to choose and prioritize is how to use those resources. You always have more to do than you have resources to do them.”

Great CEOs know how to delegate resources, especially people, and empower their staff to make decisions. They trust their staff but keep an open door to offer assistance if need be.

That’s been Morris’ job since he built ALON USA from the ground up starting in 2000, and the company reported $3.2 billion in revenue in 2006.

He says there are two keys to getting a high level of performance from a team. The first is hiring great people. The second is trusting them.

“You have to say, ‘Go do the payroll system,’ and you can’t be asking every hour on the hour, ‘How are you doing?’” Morris says. “It’s not a management-by-objectives system. It’s not something where you set objectives, and you have weekly staff meetings to see how people are doing, and you update and have interventions to make sure you stay on course. We didn’t have time for weekly staff meetings. We are a group of doers. We hire doers; we don’t hire watchers. I don’t have anybody around here whose job is to make sure that something happens or that XYZ person is doing their job or following up.

“We have doers. If you are the HR person, you do the HR. If you are the IT person, you do the IT. If you are the top mechanic, you fix the pumps, and we aren’t going to have someone stand over your shoulder and make sure you do it appropriately. That’s really helped our cost structure, but it’s also created a culture of doers. You can trust them if they perform, and they do.”

So what happens if someone doesn’t do their job? It happens, Morris says, but that is a situation that usually doesn’t require his intervention.

“What would happen is that everybody depended on everybody else to such an extent that no one could fail in their assignment because if they failed, everyone failed,” Morris says. “If a person was not carrying their load, very quickly that person would become very uncomfortable if they were not contributing and would likely resign and move on.”

Execute quickly

Morris says the company’s swift action keeps it growing. ALON USA approached its need for capital in much the same fashion as its start-up: Company leaders determined a course of action and executed quickly. In 2005, Morris took the company public through an initial public offering of stock, mostly to help the company obtain the capital it needed for growth.

“From the time that we called investment bankers and said, ‘We are ready to start this process,’ to the day we priced the shares was 91 days,” Morris says. “No one does it in 91 days. It was an amazing pace.”

To accomplish this, Morris put together a team of six people and tasked them with focusing most of their energy on the initial public offering. That team included himself, plus the company’s general counsel, the controller, the head of mergers and acquisitions, the head of the supply group, and the chief financial officer. Morris says this kept the rest of the company from becoming distracted by the IPO and losing focus from the things that it was doing well.

“The last thing you need during the process of going public is to have some event or issue occur,” Morris says. “We didn’t want to dilute that focus.”

Morris and his colleagues set up a series of deadlines for tasks that needed to be accomplished to hit those goals, and much like he approached the company’s start-up, he doled out the tasks among the team. And they didn’t waste much time with more meetings.

“Because of the pace we [were] working at, we didn’t have time for spreadsheets and follow-ups and weekly status meetings and things of that sort,” Morris says. “We would know that the S-1 needed to be filed on Friday. Well, the general counsel knew his work had to be done on Friday. He would get it done. He didn’t worry about our controller because he knew our controller would have her information ready by Friday for sure because he could rely upon her and vice versa.”

Quick pace is important when doing an initial public offering because the market changes fast.

“You never know what the market is going to do,” Morris says. “The pricing was right; the environment was right. This is a very volatile business, and you never know what might occur. There have been many, many, many IPOs that have failed or were not priced well because the business environment varied substantially from the time they started until the time they finished. When you can do it, you do it.”

Going public allowed ALON USA to continue to grow through acquisitions and buyouts. Morris particularly likes to buy companies that are what he calls “good steel,” meaning built well, but undermanaged. Poor management is easier and cheaper to fix than the physical structure of a facility.

“When we buy something, we spend dollars, money equity, and we spend sweat equity,” Morris says. “The highest leverage is sweat equity. If we buy something that’s good steel and well-managed, then our sweat equity opportunity is less. It’s easier, but we don’t create as much shareholder value. When we do our best is when we buy good steel that is underman-aged.”

Say thanks

Morris recognizes that the reason ALON USA has been successful is because of his staff. He believes just simply recognizing people for their hard work and saying thank you regularly, goes a long way.

Morris spends some time once a quarter having lunch with the staff of the company, and every month, the company executives choose one event or accomplishment to celebrate as a theme for the luncheon.

After the company went public, for example, Morris recognized the members of the team who put the deal together.

“We had them stand up, and we had a little slide show, and we recognized them,” Morris says.

He also makes sure to individually thank people who are doing good work on a daily, casual basis.

“For high-performing individuals who hold themselves to a high standard, a simple thank you means a lot,” Morris says.

It’s all part of maintaining a culture made of people who “do” instead of observe, and it all starts with Morris.

“Companies have personalities,” he says. “Personalities of companies will be significantly affected by the leadership. That’s a very, very heavy and deep responsibility. It’s a fact that, in reality, the company will never perform any better than I do.”

Morris wants to continue to lead the company forward and has created plans that will continue to help the company grow.

“I’m very optimistic today, but we are at one of those critical transition points for the company,” Morris says. “Our objective is to double the size of the company, and then to double again after that. But to do that, when you grow like that, you have to sustain your essence. It is very difficult to do so, whenever you are growing at a very fast pace. This is where many companies fail. They grow, but somewhere along the way, they lose their essence. That’s my challenge today.”

HOW TO REACH: ALON USA Energy Inc., www.alonusa.com, (972) 367-3600

Tuesday, 29 January 2008 19:00

Encouraging change

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When Mike Hislop’s famous guitarist friend wanted to celebrate one night, Hislop offered to make him a reservation at the restaurant where he was working. The guitarist said that was fine — as long as Hislop got him seated in a certain server’s section. He said that the server was teaching him about cabernets, and he didn’t want to upset the man by sitting in another section. The multimillionaire’s loyalty to a restaurant server made an impression on Hislop, and today, as CEO of Corner Bakery Cafe — a $200 million fast-casual restaurant chain — he seeks to earn that same kind of loyalty.

Smart Business spoke with Hislop about how he finds the right personalities for the job and how to get employees to embrace change.

Hire great people. The way you grow is people. Have the right people. We have the economic model. We have the concept. Now we can be choosy about who we’re going to bring in, in the future.

When you end up losing managers, you usually end up losing employees.

So how do we hire the right managers? When you’re going through the interview and looking at the kind of experience that they’ve had, do they enjoy working with people? It’s real easy to get at the core of an individual in an interview.

You ask them certain questions. Do they have fun? When you’re asking them to describe their personality and style, you can find out real quick. Are they going to come in dressed and ready to go? Are they smiling? They go through three of those interviews. They start with the assistant manager, move to the manager and then get to the general manager. By then you have a real good idea, and you can tell them a lot about what the expectations are.

Empower managers to hire good people. We have the best manuals and training programs, but you really need to have that personality, starting with management to make sure they’re going to hire the right people. Once you get a person who can smile and really does honestly care about people, it’s real easy to train them.

When you get the right personality it really meshes together. You will see the sales grow.

We’re training our managers exactly what to look for — not just questionnaires. We’re looking for personalities. When they come in, do they naturally smile? Do they naturally have that caring attitude that we have? We talk to them about building relationships — how are you going to be able to build those relationships?

If someone is coming back every day, how do they like their coffee? Trying to remember their names. People love to be recognized when they come in. When they build the relationships, they’re going to come back more often, and that’s what drives the economic model and allows everyone to make money and grow together within the culture.

Embrace change. It’s making sure you have a culture around and that senior management realizes that, ‘Hey, part of our culture is we’re going to evolve this brand and make sure that we’re going to be on top of research to make that happen — every year.’

Go out and talk to your people. If you have a culture that’s been doing it the same way forever, and maybe it’s been good and maybe it’s been OK, you’ve got to go out and just meet with them. Start with your senior management and get buy-in that, ‘Hey, this is how we’ve been doing it, and I think these are some changes.’

You have to be a good listener. As a leader, go out and ask the tough questions, and then really listen to the answers. Some of the people, you’d think they would be afraid to talk to the CEO — they’re not afraid to talk to you at all.

Encourage new ideas. Create a culture where people aren’t afraid to speak up respectively and then leave that meeting and all be on the same page. Create an atmosphere where people aren’t afraid to ask questions.

Say, ‘That is a great question, and I don’t know why we do it that way. Maybe we can do it a little bit better.’ There’s nothing worse than being ‘yes’-ed in a middle of a meeting. Some leaders might like that, but I definitely do not. I don’t think you can be successful unless you can create an environment where people aren’t afraid to speak up and let you know some of their ideas.

Be ready to try a few things. You can’t say, ‘This is it.’ You have to go out there and test out some new ideas. You want your leaders, whether it’s general managers or corporate support, to be thinking of ways to make this brand better and knowing if they get a good idea that it’ll be something that we go out and try.

When I was at Il Fornaio [which acquired Corner Bakery in 2005], we had a couple of guys who thought the bar needed some change. The older people said no, but we ended up putting in a whole new bar, and the bar’s doing about 40 percent sales versus about 25. We go back to that guy and said, ‘You nailed it on this one. It was a brilliant idea.’

HOW TO REACH: Corner Bakery Cafe, (800) 309-4642 or www.cornerbakerycafe.com

Tuesday, 29 January 2008 19:00

Remote deposits

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If your business receives checks on a daily basis from customers and clients, you know what a nightmare it can be to coordinate trips to the bank every day. Sometimes the designated employee who takes the checks to the branch may not be available or cannot make the run until the next day. Meanwhile, cash flow is impeded unnecessarily.

“Remote deposits can make this cumbersome system manageable,” says Nicki Davis, treasury management sales associate for Plano-based ViewPoint Bank. “Remote deposits — sending checks electronically to deposit at the bank — is like opening a branch of the bank inside your business.”

Smart Business learned from Davis how remote deposits work and when they may be a good option for your business.

Could you explain the process of remote deposits?

Instead of going to a bank branch, an employee loads the checks into a check scanning device, which can be purchased or leased. The check is scanned using software from a desktop, and the image is transmitted electronically over the Internet to the bank. The bank gets the file, inspects it for quality and duplication and then sorts the checks for clearing.

Once the deposit confirmation comes in from the bank, the business can either store or dispose of the paper checks.

Typically, software that is installed on the scanner will tell the bank which account it will deposit the funds into; the scanner will also stamp the check ‘void’ or ‘scanned’ to eliminate the possibility of the checks being scanned more than once.

What kind of businesses can benefit from scanning checks electronically?

Remote deposits are just for check deposits, so any business that accepts checks for payments — doctors offices, dentists, retail operations, etc. — can benefit. One caveat: travelers’ checks and money orders — with their multiple colors and designs — can sometimes get distorted in the scanning process. You need to check with your bank to make sure that the scanner supplied with the service is sensitive enough to scan the details of these items.

What are the costs associated with using this service?

The biggest investment is the scanner, which can cost anywhere from $1,000 to $2,000. Each bank has different fees, but monthly maintenance can cost anywhere from $100 to $150. There can also be a per-item fee for each check scanned.

Any disadvantages to using remote deposits?

The upfront costs of purchasing a scanner — although you can also lease a scanner — often cause businesses to pause. There is also the inconvenience of shredding or storing the scanned checks. When depositing checks manually at the bank, the institution is responsible for discarding the checks. Some businesses are not comfortable with this responsibility.

If a business doesn’t want to make the investment in a scanner to make remote deposits or if the number of daily checks doesn’t justify the service, is there an alternative to physically going to the bank to make deposits?

Yes. You might want to ask your bank if it has a courier service that will pick up checks on a designated day and time to deliver checks to the bank.

However, if you are finding that you’re holding on to large-dollar checks too long because of the inconvenience of traveling to a bank branch, and it is impacting cash flow, you should look into the cost benefit of switching to remote deposits. <<

NICKI DAVIS is a treasury management sales associate for ViewPoint Bank (www.viewpointbank.com), headquartered in Plano, Texas. Reach her at (972) 801-5884 or nicki.davis@viewpointbank.com.